HDFC to be banned by the RBI.

The commercial bank is facing major penalties, and may end up losing more than 10 Lakh new Credit Card users.

Earlier in December HDFC bank came under loads of trouble. The RBI had ordered the second-largest commercial bank in India to stop all digital transactions and freeze all work on acquiring new customers. This was a result of a massive technical gap which HDFC was not able to fulfil.

On 21st November there was a massive outage due to a fault in HDFC's data centre, which disbarred any ATM transactions, funds withdrawal and online transactions. This was not a small mistake; it was a sizeable technical glitch in HDFC's systems.

Now the RBI has frozen HDFC's various ventures and stopped acquiring any new Credit Card consumers. This is done to check with HDFC and understand the problems the bank is facing. The RBI needs to conduct refined analysis on the technical systems that HDFC is using, and whether it can satisfy the market, the bank chooses to work for.

Even though the bank's loans have increased by 17% and the bank's market share on all online transactions rising to 40% nationwide, the Housing Development Finance Corporation bank has not kept up with its success. It must go through this 3-6 month freeze that the RBI has ordered to revamp itself and ensure that it can bounce back in the future.

There is a variety of aspects to consider here. This news in the short run is good for the competition. ICICI Bank, State Bank of India, and Axis Bank, all A-Tier parties in the banking system will surely benefit from the splurge of 10 Lakh new customers. This can further market the banks expanding the bank's market share. However, if the management team for HDFC bounces back out of this crisis, and ensures to re-establish trust within the customer base; it can use the RBI's assessment as a quality assurance mark to further attract consumers.

However, on an economic standpoint, this technical glitch comes in with the series of bad-luck the world is facing in 2020. India's Aggregate Demand has decreased due to decreased expenditure and consumption; the loss of a significant intermediary of transactions will further deteriorate the economy.

This news has not yet hit the share market. Presumably, there will be a large degree of fluctuation in the share market as the dividends will skim for this financial year. This can be the begging of the end for the firm, while also problematic for the economy for another reason. That is the loss of asset value. People consume more when they "feel" rich; if gold prices rise and they have gold, people will become consumer more because they believe they have the money. Similarly, when the share market takes the hit for this RBI decision, the people will "feel" poorer, negatively impacting the economy for a completely different reason than the one discussed above.

It is essential for the business and the whole economy that HDFC bounces out of this and comes back to the market more robust than ever to ensure that the Indian economy climbs out of the pandemic.