RBI stalls HDFC Bank's new digital businesses over outage

The RBI has advised HDFC Bank to temporarily stop all launches of digital business generating activities planned under its program Digital 2.0. The second largest bank in the country was working on many new technologies like robotic process automation (RPA), machine learning (ML), artificial intelligence (AI), Blockchain and the use of cloud technology to take banking to the next level.

The private sector bank was working on virtual banking to engage with customers through technology. In fact, the bank was in process of setting up more remote relationship managers (RMs), especially after COVID-19 pandemic since the management witnessed an improvement in productivity of RMs, beyond saving costs by shifting operations away from office.

Digital 2.0 initiatives that started under the former MD& CEO Aditya Puri is about reimagining the digital platforms as one (and not different silos) to offer multiple products to customers. The bank had stated that the objective is to move the customers from a single transaction to meeting all financial needs from savings, investments, trading , insurance, etc. In the past, the bank has been quite successful in cross-selling credit cards to its existing customer base.

Under Digital 2.0, there are also partnerships planned with technology companies and fintech players to offer seamless services. The bank had big plans in extensively using data analytics right from marketing and sales to back end services.

The bank was also aiming at significant cost efficiencies on the back of automation and reduction of origination costs. The bank has previously managed to reduce to cost to income ratio in a big way as compared to other private banks. In fact, the Digital 2.0 rollout would have provided the bank a competitive edge in the cut throat retail banking business. The bank was the first to come out with a 10 second digital loan.

Also read: RBI seeks explanation on frequent disruptions after HDFC Bank's e-services face 12-hour outage

The RBI 's decision to issue a halt notice was taken based on incidents of outages in the internet banking, mobile banking and  payment services over a two year period. The most recent outage took place last month due to a power failure in the primary data centre. In addition, the RBI's order states that HDFC Bank's board must examine the lapses and fix accountability, signalling a serious approach to such technical lapses.

HDFC Bank claims it has taken several measures over the last two years to fortify its IT systems. "We will continue to work swiftly to close out the balance and would continue to engage with the Regulator in this regard," the bank says.

Also read: Reliance Capital defaults on HDFC, Axis Bank loans

The bank has said that it always endeavours to provide seamless digital banking services to its customers. The bank said it has been taking concrete steps to remedy recent outages. The bank has assured its customers that it expects  current supervisory actions will have no impact on its existing credit cards, digital banking channels and existing operations.  The bank believes that these measures will not materially impact its overall business.

Also read: RBI cracks down on HDFC Bank's internet outages; stops signing up of new credit card customers