“We are certainly sorry for what has happened,” HDFC Bank’s chief Sashidhar Jagdishan said talking about technology issues plaguing the bank. Bank's tech issues had prompted the Reserve Bank of India (RBI) to ban it from offering new digital products and onboarding new credit card customers.
In a letter addressed to the bank’s shareholders, Jagdishan addressed two key issues that have caused embarrassment to the bank recently - the technology outages and auto loan GPS controversy.
HDFC Bank’s tech woes
Jagdishan said the technology “continues to remain both a strength and an area for improvement” for the lender. Detailing the actions the bank has taken so far, he said the bank was awaiting RBI's decision on the matter after completion of an external audit.
“The last technology downtime led to the RBI banning us from issuing new credit cards as well as putting on hold new launches under Digital 2.0 initiative. Further, the regulator also appointed a third-party audit of our IT systems. This audit is now over and the report has been submitted to the regulator. We now await the decision from RBI. As a Bank we are certainly sorry for what has happened,” he said in his letter.
While Sashidhar Jagdishan admitted there is a question mark on the bank’s technological capability, he added it would not have become “a Bank of this scale, size, and grown market share consistently year after year, without having a strong technology backbone.”
“In the last 28 months, we have, however, been in the spotlight for the wrong reasons when it comes to technology. Also, there have been deficiencies in compliance. The technology problems, as well as the compliance issues, have led to regulatory actions,” the letter said.
The lender has taken this as an opportunity to improve and redouble its efforts to fix the technology problem for good, he said. “We have now embarked on a scale changing technology adoption and transformation agenda to help drive our ambitious future growth plans,” he said. HDFC Bank had recently announced hiring 500 people over the next two years as a part of its project to improve IT infrastructure. It is also looking to make significant investments in strengthening the technology infrastructure.
Auto loan GPS bundling controversy
Sashidhar Jagdishan also detailed why the bank refunded its auto loan customers for the GPS device commission taken during FY14-20. He also expanded on the controversy surrounding irregularities with its auto loan division.
Jagdishan said HDFC Bank had been bundling the financing of GPS systems and cars for many years. “The teams believed this was a routine lending activity. Also, a particular vendor had entered into an arrangement with us. These products were never sold on a standalone basis, but bundled with the purchase of cars,” he explained.
In November 2019, a whistle-blower alleged that the vendor was incentivising some employees in its auto loan team to bundle these products with HDFC Bank’s car loans.
“We immediately conducted an enquiry and basis the findings have taken necessary actions against the involved employees, including termination of their services. We have also terminated the arrangement with the vendor,” he added.
In the meantime, RBI also issued a show-cause to the Bank over its arrangement with the vendor. “They (RBI) contended that such an arrangement was in violation of provisions of the Banking Regulation Act, 1949 and hence the Bank is liable for penal action. Subsequently, we have been asked to pay a penalty of Rs 10 crores and have also been instructed to repay the commission that we earned from this process back to customers.”
The CEO said the bank accepted RBI’s verdict in the GPS matter and will comply with all the directives.
Jagdishan also spoke about the bank's focus areas. “We are building upon our stated strategy of expanding our distribution footprint leveraging the Branch Channel and Virtual Relationship Channel with the addition of Digital Marketing as a key channel,” he said.
The bank is strengthening leadership position in the payment and retail assets business. It is also adding Wealth Management and Private Banking as a core focus area. The bank has created a new business segment of Commerical and Rural Banking to capture the next wave of growth, he added.
“These growth engines will account for the bulk of our future investment,” said Jagdishan. We will support our core business areas by further strengthening our foundational capability in technology and digital domains, he added.
Talking about the macroeconomic fundamentals of the country, Jagdishan took an optimistic note.
“The second wave of the pandemic has dented the optimism a bit, but the peak of the pandemic appears to be behind us. As the vaccine rollout gathers momentum, the economy is expected to be on a much stronger footing, especially from the second quarter.”
(Edited by : Yashi Gupta)
First Published: IST