RBI temporarily bars HDFC Bank from issuing new credit cards, launching digital initiatives



The Reserve Bank has temporarily barred HDFC Bank from launching new digital banking initiatives and issuing new credit card after taking a serious view of service outages at the country's largest private sector lender over the last two years.

The Reserve Bank of India's order came on Wednesday, less than two weeks after the last instance of service outage across its digital banking channels, including internet banking, mobile banking and other payments, the bank informed the exchanges. The outage on November 21 had severely inconvenienced customers.

HDFC Bank's Managing Director and Chief Executive Officer Shashidhar Jagdishan, who is facing his biggest challenge after taking over the reins in October, on Thursday apologised to customers for not living up to their expectations at times.

A statement from Jagdishan was posted on the bank's website during the day.

In December 2018, the bank's new mobile application crashed within hours of its launch in what was attributed to the inability of the servers to handle the heightened traffic. Exactly a year later, its online channels were down during the salary time. After the second incident, the RBI had said that it was looking into the glitches.

Jagdishan, in the statement, said that after the first two outages, the bank took help from external expertise to strengthen its IT infrastructure and systems, and added that it is working on "war footing" to ensure there is no impact through setbacks like power outages.

On Thursday, HDFC Bank said the latest incident on November 21 as a result of a power failure in its primary data centre.

"The RBI has advised the bank to temporarily stop all launches of the digital business generating activities planned under its programme -- Digital 2.0 (to be launched) and other proposed business generating IT applications, and sourcing of new credit card customers," the bank informed the stock exchanges in a filing.

The central bank has also asked HDFC Bank to ensure that its board "examines the lapses and fixes accountability".

The Chief Executive Officer (CEO) hinted that some of the bank's "strategic digital initiatives" to improve the experience and introduce the next generation of mobile and internet banking may be delayed because of the RBI order.

"We will work with the experts and the regulator to fortify the identified areas for improvement. Internally, we are looking at this as an opportunity to further improve ourselves and emerge stronger," he said.

The bank is the largest issuer of credit cards and had 1.49 crore customers as of September this year while on the debit cards front, it had 3.38 crore customers.

Usually, the RBI slaps monetary penalties on erring entities that come under its regulatory oversight rather than restraining such entities from carrying out certain activities.

An HDFC Bank official said existing users will be able to continue using the services and added that security-related updates for mobile banking apps will be the only addition allowed till the RBI order is in force.

Details of the timeline for which the order will be in force or targets/ milestones asked to be achieved by the bank before it goes back to business as usual were not immediately known.

After every instance of an outage, HDFC Bank has seen many of the customers venting their ire on online mediums. About the November 21 outage as well, users were complaining about instances like being stuck at merchant establishments as payments were not going through.

In the filing on Thursday, HDFC Bank said it has endeavoured to provide seamless digital services and added that it has been "taking conscious, concrete steps to remedy the recent outages on its digital banking channels".

The bank also said these measures will not "materially impact its overall business".

In a note, domestic brokerage Edelweiss said the disruption will be short-lived and is an opportunity to accelerate tech investments at the bank.

"Competitive fallouts are temporary and franchise invariant," it added.

Given the spurt in alternative channel usage for undertaking banking and payment activities, HDFC Bank's peers also face similar difficulties. Its larger rival SBI had to face ire of customers earlier this week, with complaints of transaction failures. The SBI had faced technical glitches the previous month as well.

The disclosure about the RBI action against HDFC Bank also comes on a day when the SBI's customers are also facing a service outage.

Shares of HDFC Bank closed 2.13 per cent down at Rs 1,377.05 apiece on the BSE.(PTI)