According to Moneycontrol, multiple digital outages reported by private sector lender, HDFC Bank, are credit negative, global rating agency Moody’s said on December 7. Last week, the RBI ordered the lender to temporarily put a brake on all new digital launches following multiple incidents of digital outages. The bank has assured that it is currently trying to solve this issue with the regulator and the customers shall not face any problems.
The regulators’ action is in response to HDFC Bank’s crumbling digital infrastructure and operational resilience and is credit negative because the bank is increasingly depending on digital channels to source and service its customers. The recurring outages also pose a danger to the bank’s brand perception among a growing and increasingly digitally savvy customer base, and increases the likeliness that clients switch to other banks, which would lead to a reduction in revenue and low-cost retail funding, Moody’s said.
“We do not expect the regulators’ action to materially affect the bank’s existing business and financial profile. Nevertheless, the RBI action will delay the launch of HDFC Bank’s Digital 2.0 initiative, under which the bank aims to consolidate all customers’ digital transactions, including payments, savings, investments, shopping, trade, insurance and advisory services, into one platform. This has the potential to increase spending to improve the bank’s digital infrastructure, which would strain its profitability,” Moody’s said in a release on December.
HDFC Bank, the second-largest bank in India by deposits, is at the top in terms of digital transactions processed. In the fiscal year that ended in March 2020 (fiscal 2020), about 95 per cent of the bank’s retail transactions were conducted digitally, up from about 85 percent in fiscal 2018, Moody’s said. In a letter to customers last week, HDFC Bank’s CEO CEO Sashidhar Jagdishan said the bank will abide by the RBI regulations and will wait for the regulator’s clearance before launching new products.
Jagdishan apologised for the digital outage to customers. “We realize that as our valued customer, you expect us to maintain a very high standard of service quality and experience. And sometimes, we have not been able to live up to your expectations. For that, please accept our sincere apologies,” the CEO said in the letter.