RBI may continue its curbs on HDFC Bank following technical glitches

HDFC Bank’s wait to get back to the issuance of new credit cards is likely to get longer as back to back technical glitches it faced last month may prompt the Reserve Bank of India to continue with the ban, experts said.
The outages are likely to trigger an adverse audit report by the RBI-appointed firm as the central bank, which has moved to a 24×7 payments cycle, has little tolerance for outages, they said.

“Due to the recent outage, we believe the chances of an adverse report increases and hence the ban on issuance of new credit cards and launch of digital 2.0 banking could further get delayed,” said Suresh Ganapathy, associate director at financial services firm Macquarie Capital.

It was earlier anticipated that the RBI ban could be withdrawn by June 2021. HDFC Bank has had two technical glitches last month, and two big tech outages in the last two years.

As per Macquarie’s analysis, while the system loan growth has been at 5-6%, HDFC Bank has grown its loan book at a level of 16-17%, almost three times that of the system. This growth comes on the back of a 10% market share base.

The bank also has a market share of 35-40% in the payments market and a 25% share in credit cards. HDFC Bank used to add roughly around 200,000 credit cards per month before the Covid-19 outbreak. “When growth is happening at such a rapid pace, technology, unfortunately, is not able to keep up, in our view,” Ganapathy said. “Many investors argue that all these episodes could result in de-rating of the stock. In our view, a lot depends on HDFC Bank’s ability to add customers and expand.”

RBI had appointed an external professional IT firm for carrying out a special audit of the entire IT infrastructure of HDFC Bank.