What Costed HDFC Bank's Recent Multiple Digital Outages to the Bank: Moody's

The Reserve Bank of India (RBI) last week asked the bank to stop temporarily all launches under its Digital 2.0 initiative and stop sourcing new credit card customers.

Moody's said the regulators' action was in response to weaknesses in HDFC Bank's digital infrastructure and operational resilience and is credit negative because the bank is increasingly relying on digital channels to source and service its customers.

"The recurring outages also risk hurting the bank's brand perception among a growing and increasingly digitally savvy customer base, and increases the potential that clients switch to other banks, which would lead to a reduction in revenue and low-cost retail funding."

Moody's said it does 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."

HDFC Bank, the second-largest bank in India by deposits, leads in terms of digital transactions processed. In the fiscal year that ended in March 2020 (FY20) about 95 per cent of the bank's retail transactions were conducted digitally, up from about 85 per cent in fiscal 2018.

On November 21, the bank's internet banking and payment system were temporarily shut due to a power failure in its primary data centre.

Earlier in December 2019, the bank's internet banking and mobile banking applications were unavailable for a few days and the bank faced a similar issue with its newly launched mobile banking application in November 2018.