HDFC Bank has complied with 85 percent of RBI's asks on technology, and the ball is now in the regulator's court on when to lift the ban on issuing new credit cards, its managing director and chief executive Sashidhar Jagdishan said on Saturday.
Addressing shareholders at his first annual general meeting as the executive head of the largest private sector lender, Jagdishan said a technology audit is also over and the RBI will now be “independently” taking a view on when to lift the penal actions taken against the bank.
Frustrated at repeated tech outages at HDFC Bank, the RBI took an unprecedented action against the lender in December 2020, putting a freeze on it issuing any new credit card, a segment in which it was a market leader, and also barring it from introducing any new digital offerings.
"We have given a milestone to the regulator in terms of what are the things we are doing on technology, complying with their advisories and directives. We have covered a very significant portion as we speak. Almost 85 per cent of what we had to do has been covered," Jagdishan, who has been with the lender for over two decades and worked as the ''change agent'' in the years leading to his elevation, said.
"The ball is in the regulator's court. As they deem fit, as they see that we are on the right track, I am sure at some point of time, they will lift the embargo," he added.
Lost market share due to ban
Acknowledging that the bank has lost market share in the credit card segment because of the ban, Jagdishan said tech outages are a global phenomenon but it is the time taken to recover from a setback where the bank erred, leading to the “rap on the knuckles” from the regulator. He added that over the last few months, the technology team has worked on this aspect of being able to invoke disaster recovery on time and the confidence of responding to any situations is very high now.
The bank is working on a project to take all of its back-end work to the cloud but has to contend with legacy systems in the interim, he said, adding that there is a board committee looking into the IT aspect.
Jagdishan exuded confidence that even though they have lost ground, there is a lot of energy to “bounce back” as soon as the RBI penalties get lifted. Till it gets the go-ahead from RBI, the bank's plates are full with the work it has to do by getting focus on technology and improving customer service, he added.
He defended the bank's record when it comes to technology investments, stating that it is only because of the flow of resources that it has been able to narrow its cost-to-income ratio down to 38 percent from 49 percent over the last six years.
The fear of getting disrupted by the nimble fintech firms is very real and the bank has decided to be like them to stay relevant, he said, adding that it has taken to getting all its processes on the cloud and over the next three years, the journey will be over.
To a question on fixing responsibility, Jagdishan said the board and the management have decided to act against those who erred not just on the technology front, but also other issues because of which the bank faced rap on the knuckles in the last two years.
HDFC Bank was asked to pay a fine of Rs 10 crore earlier this year by the RBI for deficiencies in the auto loans vertical where GSP units were bundled with loan sales.
Jagdishan also added that all the oversights are taken very seriously at the bank and assured that such instances will go down over time.
To a question on the impact of the Mastercard ban, Jagdishan admitted that the American card issuer was a significant partner for the bank, but added that it also has relationships with rivals Visa and Rupay which will be leveraged once it is re-allowed to issue cards.
It is premature to talk about divesting stake in its brokerage business, HDFC Securities, but the company is working on a discount broking offering of its own to regain market share, Jagdishan said.
He also said that HDB Financial Services has suffered because of the impact of the pandemic on its target demographic, leading to what researchers call as a 4-5 times increase in stress levels.
'Will bounce back once pandemic over'
The company will bounce back once the pandemic is over and economic activity resumes, he said. In the medium term, HDFC Bank may look at “discovering” HDB Financial Services'' price and then look at a listing once the company has rebounded, he said.
Jagdishan said the bank got only 40 days of work in the first quarter, and expressed satisfaction with the 14 percent growth in profit that it has been able to deliver. He said over 17 percent of its 1.2 lakh work force had been infected by the virus and it also lost many people, including some young ones. Adequate help is being rendered to the kin of the deceased, including offering them a job, he said.
