Preparing for the future: HDFC Bank prepares a plan for a digital entity

If HDFC Bank is not ready to launch the bank immediately, it is preparing for it from a strategic point of view.

HDFC Bank is working on a plan to create a challenger digital bank to prepare for a future where licenses for digital banks are issued. The challenger will be a purely digital bank focused on targeting a younger set of customers throughout their lives and careers, sources told FE.

The country’s largest private bank by assets wants digital banking to allow people to open accounts directly without visiting a branch. “The bank has this facility within traditional banking but it is working on it as a new line of business. It will wait for the Reserve Bank of India (RBI) to clear and review it before going forward,” one of the sources said, speaking on condition of anonymity.

If HDFC Bank is not ready to launch the bank immediately, it is preparing for it from a strategic point of view.

A request for comment emailed to HDFC Bank did not elicit a response by press time.

The regulatory embargo on new digital launches that the RBI imposed on HDFC Bank in December 2020 as a criminal measure is still in place. The bank will have to wait to launch its challenger entity until the ban is lifted. A PwC India report defines challenger banks as technology-focused neo-bank start-ups as well as digital-only offerings by incumbent banks.

Although there is currently no licensing regime for digital banks in India, a November 2021 working paper by NITI Aayog launched the idea of ​​such a regime. Some entities operating in India present themselves as neo-banks, but the nature of their business is akin to finding agents for established banks.

As an incumbent, HDFC Bank wants to have a line of business, which is a digital-only bank, as opposed to a bank run by physical relationships. The bank believes, according to sources, this would protect it against a future where an entity obtains a license to create a digital bank.

The new entity will not seek to offer anything new in terms of products. He will do the same things the parent does, like opening a savings account, issuing a personal loan, or issuing a credit card. On the contrary, it will reduce operational costs for the bank and provide the type of customer experience that certain segments, especially Millennials or Gen Z, would desire.

The focus will be on the younger client group, who may not want to start with relationship management, but as they grow in life and career, would like wealth management, a multiplicity of products and relationship management to manage them. “Before the bank gets there, there will be a large number of customers who need basic vanilla products. There they want to keep the cost of acquisition low, so they will use digital channels to get them in,” a source said.

State Bank of India (SBI) and Kotak Mahindra Bank have their own pure-play digital platforms, but HDFC Bank intends to differentiate its platform from them with a focus on segmentation and customer progress and product delivery.

HDFC Bank has added digital direct selling agent (DSA) partnerships to its customer engagement models. In a post-earnings call with investors, HDFC Bank said that in the quarter ended December 2021, it acquired 2.4 million new accountability relationships and 6.4 million such relationships over the past few months. first nine months of FY22, posting 29% growth over the same period. Last year. Management said digitization has helped the bank broaden its customer engagement and the focus on it will continue over the coming quarters.

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