System outages force RBI to cry halt to HDFC Bank’s digital push

The banking regulator has asked the bank to find reasons for such outages and fix responsibility so as to ensure that these don’t recur. RBI said the restrictions would continue until the board of the bank ensures satisfactory compliance with critical observations as identified by the RBI.

“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 Rs1,385.30 on BSE.

The order seeks to fix system level failures at Indian banks and comes after the recent major outage on 21 November 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. RBI 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 transactions as the reason. 

HDFC Bank has issued the highest number of credit cards issued by any bank in the country with 15 million credit cards and about 33.8 million debit cards in use as of 30 September 2020.

It also has a network of 15,292 ATMs across 2,848 cities.

Digital transactions account for about 90 per cent of its total transactions, the bank said in its annual report. A sudden surge in adoption of digital payments since the onset of Covid-19 has tested the limits of the country’s digital infrastructure. UPI transactions grew 6.7 per cent sequentially to 2.2 billion in November.

The entry of new payment service providers like Facebook, Amazon, and Walmart Inc who are also aggressively expanding in the nation’s payments market, has further burdened the infrastructure .