You cannot put lakhs in difficulty for hours: RBI governor on HDFC Bank

The regulatory clampdown on HDFC Bank came up prominently at the post-policy media interaction with Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday. Even though the RBI typically distances itself from commenting on individual banks, this time it made an exception by elaborating on why the step was taken while highlighting the need for strengthening technology in the sector by investing more in it.

As a custodian of the digital payment segment, the RBI must act, Das pointed out in defence of the central bank’s action. “You see, we cannot put thousands or lakhs of customers who are using digital banking into any kind of difficulty for hours together…. Especially when we are ourselves giving so much of emphasis on digital banking, it is important that the public confidence in digital banking is maintained,” Das said responding to queries on its order issued a day earlier to HDFC Bank.

While pointing out that the RBI will continue to engage with banks and NBFCs on improving technology, the governor stated that “certain types of actions are served in certain situations or certain actions become unavoidable and inevitable’’. As the regulator and as the custodian of the digital payment segment in the country, he said, “the central bank also has to act. And that's precisely what we have done.” The RBI move to stop the bank from further expanding its digital ventures and credit card base was a departure from its usual penalty of monetary fines for lapses.

The RBI is attributing its shift in stance to the lender’s “overwhelming presence’’ in the digital banking and credit card space.

Das did not want to spell out if such unprecedented penalty measures would become a norm for outages from now on. “Whether it would be the same monetary penalty or it's a supervisory action, would depend on case to case…. And, it will not be proper for me to discuss individual cases,” Das said in an online briefing.

“In the case of the HDFC Bank, there were earlier episodes also. And, HDFC Bank has an overwhelming presence in the digital payment segment in internet banking. We have some concerns about certain deficiencies (in the bank). And therefore, we felt that it is required and it is necessary that HDFC Bank strengthens its safety and the IT systems before expanding further,’’ the RBI governor said. He added that he was "quite sure and optimistic that the HDFC Bank management will comply with the direction.”

“If you want to remain competitive in the coming years, technology is key, robustness of your IT system is key. So, banks, NBFCs and other financial entities need to invest more in their IT systems, need to invest more in technology and strengthen all their systems so that public confidence is maintained.”

The RBI action came after bank customers faced numerous incidents of outages in internet banking, mobile banking, and payment utilities over the past two years. For instance, on November 21, outages in its internet banking and payment system due to a power failure in the primary data center had adversely affected users. The RBI is also checking why State Bank of India’s YONO application went down. But there’s no clarity yet on whether there would be action against the state-owned lender.