NEW DELHI: Following frequent outages in online services over the past two years, the Reserve Bank of India (RBI) has ordered HDFC Bank to suspend planned digital launches and the addition of fresh credit card customers.
The banking regulator has advised that the board of the bank must look into why these outages are occurring and find out who is accountable. It further added that the restrictions shall be considered for lifting upon satisfactory compliance with critical observations as identified by the RBI, the order stated.
“The RBI vide said Order has advised the Bank to temporarily stop ) all launches of the Digital Business generating activities planned under its program ‐ Digital 2.0 (to be launched) and other proposed business generating IT applications and (ii) sourcing of new credit card customers," HDFC Bank said in a regulatory filing.
However, there will be no effect of the RBI order on existing operations including credit cards and digital banking.
“The bank has been taking conscious, concrete steps to remedy the recent outages on its digital banking channels and assures its customers that it expects the 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,” added HDFC Bank. Despite the assurances, shares of the bank fell over a per cent to Rs 1,385.30 on BSE.
The order seeks to fix system level failures at Indian banks and is seen as an unusual step by the regulator. It comes after the recent major outage on November 21 due to a power failure in the primary data centre, the third such instance in a span of two years at the country’s largest bank by market capitalisation of over Rs. 8 lakh crore as of November 2020. The central bank has sought an explanation from HDFC Bank behind the data centre outage that disrupted services on UPI, ATMs and card channels for several hours.
The bank had faced a similar outage on its mobile application in 2018 that forced the bank to roll back the launch. Then in December 2019, customers complained of not being able to pay their EMIs or settle credit card bills on time, prompting RBI to initiate a similar probe. Sashidhar Jagdishan, the then executive director, cited increasing payday transactional activities as the reason. It was more of a capacity issue because of the bank’s “underestimated” growth in payment volumes, and not owing to any external cyber attack, he added.
HDFC Bank is the highest issuer of credit cards in the country with 1.5 crore cards in force as on September 30, 2020 and has also issued about 3.38 crore debit cards. It has a wide network of 15,292 ATMs across 2,848 cities.
Recently, the bank had created a digital transaction monitoring committee, headed by board member Srikanth Nadhamuni, to promote such services. About 90 per cent of its total transactions come from digital channels, the bank said in its annual report. A sudden surge in adoption of digital payments since the onset of Covid-19 has tested the country’s digital infrastructure. UPI transactions grew 6.7 per cent sequentially to 2.2 billion in November.
Around 1.21 billion transactions were recorded in November 2019. The value of UPI-based payments during the month was at Rs 3.90 lakh crore compared to Rs 3.86 lakh crore in October, and Rs. 1.51 lakh crore in April 2020. While traditional banks are pushing online service, newcomers like Facebook, Amazon, and Walmart Inc. are also aggressively expanding in the nation’s payments market.