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CNBC-TV18 Exclusive: RBI partially lifts technology ban on HDFC Bank

CNBC-TV18 Exclusive: RBI partially lifts technology ban on HDFC Bank

CNBC-TV18 Exclusive: RBI partially lifts technology ban on HDFC Bank
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By Ritu Singh  Aug 17, 2021 10:09:59 PM IST (Updated)

The move comes as a huge relief to the private lender, which was placed under an embargo by the regulator almost eight months back in December 2020.

The Reserve Bank of India (RBI) has partially lifted the ban on HDFC Bank, allowing it to start sourcing new credit cards, two people directly in the know told CNBC-TV18.

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The move comes as a huge relief to the private lender, which was placed under an embargo by the regulator almost eight months back in December 2020. While the restrictions on the bank’s new offering under its Digital 2.0 strategy remain, the lifting of restrictions on sourcing of new credit cards will lift an overhang on the bank.
“The said restrictions are hereby lifted to permit the ban to undertake the sourcing of new credit cards,” Reserve Bank of India said in a communication to HDFC Bank on Tuesday. The regulator’s letter further said, “…the restrictions on all new launches of the digital business generating activities planned under the Digital 2.0 programme of the bank will continue till further review.” CNBC-TV18 has reviewed the contents of this letter dated August 17, 2021 which was sent in a private communication to the bank.
“The bank is required to submit a board-approved letter of commitment towards continued compliance and also to achieve full compliance with the remaining observations of RBI’s IT examination report. The restrictions lifted as above is conditional upon abiding by the letter of commitment furnished to RBI,” the regulator further said.
The board of HDFC Bank is expected to soon send this letter of commitment to RBI, stating its intent to abide by the regulator’s directions on taking steps to remedy the technology issues faced by the bank, said a person directly in the know who did not wish to be quoted.
RBI clamped down on the bank in December last year, placing it under an embargo from securing any new credit card customers or proceeding with any new digital launches in the backdrop of a series of technical glitches in its digital channels over a period of two years. The regulator has then directed the bank to conduct a third-party audit of its IT infrastructure, the final report for which was submitted to RBI recently.
“The bank has about 8-9 million customers we haven’t tapped into (for credit cards), and these can immediately be added once the ban is lifted,” said an official with HDFC Bank who did not wish to be quoted.
The ban has benefitted its rivals, most notably ICICI Bank, by offering them an opportunity to gain customers in the credit card market, which was dominated by HDFC Bank. ICICI Bank used the opportunity to aggressively push its new digital initiatives and gained significant market share in the cards business.
RBI data shows that between the end of November 2020 and the end of May 2021, HDFC Bank- the largest player in the credit card market still- had lost almost 5.3 lakh customers. Its total credit cards outstanding stood at 14.85 million as of May 31, 2021 compared to 15.38 million as of November 30, 2020. At the same time, ICICI Bank- which had 9.71 million outstanding credit cards as of November 30- gained over 11.6 lakh customers by the end of May this year. SBI Card, the second-largest player in the credit card market, also gained 6.6 lakh customers, Axis Bank another 2.4 lakh, RBL Bank 1.8 lakh and so on. Citibank India, which announced its plans to shut its India retail operations earlier this year, also lost about 1.2 lakh customers in the same period, data showed.
“Based on number of cards, HDFCB lost ~180bps of market share as of May 2021 since end of Nov’2020 (the ban on launch of new credit cards came into effect for HDFCB in early Dec) to ~24 percent while ICICI and SBI Cards gained 130bps and 37bps to 17.4 percent and 19.2 percent, respectively..Looking at total spends, since Nov’2020, ICICI has gained 820bps market share while HDFCB and SBI cards have lost ~370bp/180bp market shares,” said a research report by Macquarie in July.
The ban has hurt HDFC Bank’s credit card business significantly. Its market share in outstanding credit cards had fallen to 23.8 percent as of May 2021, a 150 basis point decline over last year. Similarly, its market share in credit card spends fell by a steeper 400 basis points over the previous year to 27 percent in May 2021.
In a recent press conference, HDFC Bank promised to get back to the market “with a bang” once the “temporal” embargo is lifted and recoup the losses. The bank’s head of consumer finance, digital banking and information technology, Parag Rao, said that it has used the last six months to “introspect, re-engineer and innovate” about the cards business.
“We have got very aggressive plans to get back in the market with a big bang… You will rapidly see HDFC Bank not just regaining market share but also significantly increasing our spend market share,” Rao said. HDFC Bank believes that within 3-4 months of the RBI ban getting lifted, there would be a correction in the incremental market share back to the pre-ban levels, launch of new products and features and also partnerships that have been forged during this period.
Speaking at the bank’s annual general meeting in July, its CEO Sashidhar Jagdishan had acknowledged that the bank lost market share in the credit card segment because of the ban. Jagdishan had exuded confidence, said that even though the bank had lost ground, there was a lot of energy to bounce back as soon as the RBI ban was lifted.
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