The Reserve Bank of India (RBI) has appointed an external IT firm for conducting an audit of HDFC Bank, for carrying out a special audit of the bank’s entire IT infrastructure, according to an exchange filing. Over the past two years, the bank has faced several issues with their digital banking services, most recently a power failure at their primary data centre in Mumbai.
In December, the RBI imposed sanctions on HDFC Bank instructing the bank to examine the lapses, fix accountability and stop any further business in credit cards and digital banking products. Two years ago, when the bank was launching its new mobile banking app, there was an issue with its roll-out, which forced the bank to pull it back and restore an older version. In December 2019, there was a “technical glitch” that led to the banks’ customers unable to log-in to the internet banking platform and mobile banking app.
Earlier last month, the bank’s management said that they had laid out various action plans which would transition the bank to a more stable environment over the course of a year or more. The majority of the bank’s network upgrade would take 10-12 weeks to implement while others are more long term, they said.
In the filing, HDFC Bank said that it will extend its cooperation to the external professional IT firm appointed by RBI for conducting the special IT audit.
As the country’s second largest bank, HDFC Bank’s network is expansive with over 56 million customers, nearly ₹11.5 lakh crore in deposits, 14.5 million credit cards, around 2 million merchant payment points and nearly 15,000 ATMs, according to its 2019-20 annual report. Around 95.1% of all retail transactions of the bank take place digitally and as of November it had 1.54 crore credit cards in force. The bank said that it processes 48% of the overall card transactions at merchant level in terms of volumes and about a fourth through the Unified Payments Interface (UPI).
RBI steps up on the digital front
The RBI usually issues penalties against banks when they are found to be in violation of its guidelines. The central bank takes such actions based on supervisory visits by RBI inspectors or based on financial statements, cyber-security and IT audit reports that the banks’ provide. In the case of HDFC Bank, it was the first time the RBI order imposing sanctions on a major bank due to system outages. Despite other major banks like the State Bank of India facing similar actions, the RBI has not pulled up any others in a similar fashion.
“In the case of HDFC Bank there were earlier episodes also and HDFC Bank has an overwhelming presence in the digital payments segment and internet banking segment. We have some concerns about certain deficiencies therefore, we felt that it is required and it is necessary that HDFC Banks strengthens its IT systems before expanding further. Therefore, these business restrictions have been imposed on them and I am quiet sure HDFC Bank will comply with our suggestions,” RBI Governor Shaktikanta Das said at the time. He said that customers who use digital banking services cannot be thrown in the dark for hours and that the public confidence in digital banking has to be maintained.
As more financial transactions take place online, the regulator has signaled that it is beefing up its supervisory efforts with the help of technology and has constituted an expert group on digital lending or fintech lending. The RBI has also introduced a digital payments index to track adoption, and will soon issue guidelines on digital payment security controls, in addition to stepping up consumer awareness efforts via social media.
Recently, Das said that IT platforms and digital payment systems provided considerable support for business continuity and smooth functioning during the pandemic. “More investment is required by all stakeholders for building robust IT platforms and technologies for operational purposes as well as for fortifying public confidence in digital banking, especially when the financial landscape is rapidly embracing new technologies. In fact, digital technologies have been identified as a bright spot in India’s economic prospects,” he wrote in the forward to the latest Financial Stability Report.