Global rating agency Moody’s said on Monday that the multiple digital outages of private sector lender HDFC Bank are credit negative.

“The regulator’s action is 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,” Moody’s Investor Service said in a statement.

Why action was taken on HDFC Bank for outage

It further noted that 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.

“We do not expect the regulator’s action to materially affect the bank's existing business and financial profile,” Moody’s, however, said.

RBI to HDFC Bank: Halt sourcing of new credit card customers, digital activities

Delay in digital initiative

It noted that 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, adding that this has the potential to increase spending to improve the bank’s digital infrastructure, which would strain its profitability.

The private sector lender had, on December 3, said in a regulatory filing that the Reserve Bank of India has asked it to temporarily halt acquisition of new credit card customers and also to temporarily stop all launches under its Digital 2.0 initiative. The directive came after HDFC Bank saw as many as three outages in its internet and mobile banking facilities in the last three years.

Published on December 7, 2020