RBI’s reputation for HDFC Bank underscores new risk for investors

HDFC Bank is unable to accept new credit card customers and will have to stop its planned digital launches until the issue is resolved.

Read also: Inside India’s quest to fix its payments puzzle

The Reserve Bank of India (RBI) has not acted hastily nor harshly. Reports of digital transaction issues have cropped up time and again for HDFC Bank customers in recent months. Last month, the lender said its services were hit by technical problems due to a power outage at one of its data centers.

But HDFC Bank can’t stand out when it comes to tech misgivings. India’s lenders, be it its slowly changing public sector or its nimble private sector, have been struggling to match the technological finesse of new fintech players. The scale of its business has made adapting to new technologies and correcting mistakes in existing ones a great challenge. Still, the regulator has so far had a fairly benign view of such misgivings.

But the latest rap on HDFC Bank signals a change from the RBI. “These problems have also happened before. But what the RBI has done is set a precedent by telling banks to take this seriously and their customers seriously, “said Gautam Chhugani, director of finance and financial technology at Bernstein Research.

What stands out is not only the incidence of grief, but also nature. The regulator, instead of a monetary sanction, has put a stop to the bank’s possible business. That said, analysts believe the curbs will not affect HDFC Bank to any great extent. “We believe that the resolution of this problem could take 3-6 months, as the RBI, the board and even independent consultants can be appointed to assess the problem and suggest a solution,” analysts at Jefferies India Pvt Ltd wrote in a note. .

In fact, the bank’s shares fell just over 1% in reaction to today’s restrictions. However, HDFC Bank is the largest credit card issuer in the country. Its close rival, SBI Cards and Payment Services Ltd, will benefit greatly. SBI Cards has been aggressive in getting new business and even more so after the pandemic. It’s no wonder its shares were up more than 5% today, as investors saw a profit on the business.

Chhugani noted that the restrictions may not materially affect the bank, but the stance may cause a change in the attitude of Indian lenders. Banks need to improve their game on the digital front by proactively solving their problems. The banking regulator has sat down and noticed. Soon, investors can start to do the same too.