"Banks must change every 3-4 years," says Aditya Puri, the recently retired chairman of HDFC Bank, dubbed as 'the world's best banker'

• HDFC Bank’s former CEO Aditya Puri believes that banks need to change every three to four years.
• His comments come at a time when HDFC Bank is currently under the Reserve Bank of India’s (RBI) scanner to re-assess its IT infrastructure.
• Dubbed ‘the world’s best banker’, Puri brought HDFC Bank into the digital era.

Disruption is a part of any industry, and according to HDFC Bank’s former CEO Aditya Puri, banks need to change every three to four years to keep up with the industry.

“We have to be a dynamic organisation. We need to change every three or four years,” Puri, dubbed as the ‘world’s best bank’ by The Economist, told financial services company, McKinsey.

Much of Puri’s fame, which is limited to India, comes from his risk-averse approach to banking, which led to small but steady returns to start with, and yet, he managed to build an enviable franchise that is HDFC Bank whose market value today is ₹7.9 lakh crore ($107 billion).

“It’s a misconception that you can price for risk. You can price for risk up to a point, but not beyond that. Otherwise, you end up in the subprime crisis,” Puri said, adding that investors called him boring at the time.

However, Puri’s comments come at a time when HDFC Bank is in trouble. Barely two months after his departure, the Reserve Bank of India (RBI) stopped the lender from issuing any new credit cards and paused the rollout of its next generation of digital services — Digital 2.0 — after a server outage on November 21, which was only the latest in a series of disruptions.

More than 95% of HDFC Bank’s transactions are conducted through its digital services. The strategy behind that, under Puri’s reign, was to target the right market with the right technology platform and quantitative filters.

“Use technology to create value. I don’t see any reason why you should have returns on equity of less than 16% to 18%,” remarked Puri. During the current fiscal, HDFC Bank has given a 17% return on equity.


HDFC Bank’s re-assessment of digital infrastructure
A bank makes money by lending to borrowers. So, it seems that when it came to digital strategy, Puri was focussed on borrowers rather than on account holders. At least, that’s what he spoke about when questioned.

“And as we went into it deeply, we found that we could give almost any kind of loan in ten seconds flat, from the time the guy applied to the time we credited his account. We could also give far more convenient services to merchants accepting payments by card,” said Puri as he explained the origins of HDFC Bank’s digital journey.

And now, the majority of its account holders are using the digital network for digital transactions, which is both good and bad.

Critics believe that an order like the one by the RBI or repeated outages could have a greater impact on HDFC Bank since most of its customers are online. For the State Bank of India (SBI), for instance, only 50% of its overall transactions come through digital modes. So, an outage would theoretically only impact half its volume.


Other analysts believe that while the RBI’s circular may hurt HDFC Bank’s perception temporarily, the move will benefit the bank in the long run. Upgrading its IT infrastructure and improving its digital services will not only get it a green light from the central bank but also pull it ahead of its customers in terms of making baking more convenient.

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