Last Updated on Dec 14, 2021 by Manonmayi

HDFC Bank is the most trusted deposit-taking institution in the world, having a greater reputation among savers and investors. This abundance has made India’s most valued lender so sluggish with frequent tech breakdowns, that it had been barred from issuing new credit cards for eight months. 

A regulatory check, however, is hardly a long-term answer. Bank licences provide people permission to create money out of thin air. The thought of sharing the privilege with a new generation of digital rivals will keep HDFC Bank and other conventional lenders on their toes more effectively.  

On the basis of valuation, HDFC Bank’s price-to-book multiple of four is significantly higher than larger lenders in China, the United States, Japan, Singapore, and Europe. On a per-share basis, certain Middle Eastern, Indonesian, and even a handful of Indian competitors like Kotak Mahindra Bank, are more expensive but none can match HDFC’s $ 189 bn. deposit base. 

Nonetheless, such is the lethargy inherited by new CEO Sashidhar Jagdishan that he had to thank the regulator for the credit card ban and new digital efforts.

The country’s financial institution licensing policy has outlived its usefulness. There are innovative solutions available, but they must be regulated. 

The financial world is being reshaped by new technology. Indians now pay and receive Rs. 7.7 tn. ($ 102 bn.) every month via applications that run on a shared public utility. This is compared to nothing 5 yrs ago. Soon 440 mn. people using low-cost feature phones will be able to make cashless purchases.

Merchants collect around 20% of all online payments made on the shared public network. They are avoiding expensive credit-card systems in favour of using their internet sales data as collateral for working capital loans. Fintech businesses pounced on the opportunity, with deposit-taking banks supplying the money in a passive manner. And this needs to change. 

Additionally, customers might revolt if banks continue to sit on their rights. The PhonePe app from Walmart Inc. transfers 47% of online money in India. Whereas, Paytm, a local company, transfers only 10%. The savings market is still dominated by HDFC Bank and its larger state-owned rival State Bank of India

As a result, they’re the top remitters in phone payments by default. Paytm Payments Bank, on the other hand, is the market leader when it comes to receiving money. It’s a small bank with a deposit limit per customer. Though it now has access to the central bank’s emergency liquidity window, it is neither able to offer loans nor issue credit cards. 

A regulatory vacuum has resulted from a licensing framework that has slipped behind technological progress. A working committee of the Reserve Bank of India believes that there are 600 unlawful digital lending applications in India. 

The outdated licensing framework in India needs to be brought up to date with the wider economy’s digitisation developments. It will pave a path for traditional companies to shake off their lethargy and demonstrate to well-capitalised fintech firms a more definite road to profitability. Small enterprises may be able to obtain more affordable loans, and savers will no longer be at the mercy of blackmailers posing as lending applications.

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