ICICI Bank is capitalising on HDFC Bank's setback with its own digital services but analysts warn that market share isn't all that matters

• HDFC Bank’s share price has dipped for the fifth consecutive day on December 7. This after the Reserve Bank of India (RBI) issued an order looking into the bank’s IT infrastructure, and barred the bank from launching new digital initiatives and issuing credit cards.
• Meanwhile, ICICI Bank has been busy launching its own new tech stack and offering new digital services to its customers. Its share price has gained 2% in trade.
• Analysts believe that as the stakes increase to conquer the world of digital banking, market share won’t count for much if business continuity is compromised.

At a time when HDFC Bank has been barred from launching any new digital services, and its share price continues to dip for the fifth consecutive day, there’s one bank that’s making the most of the opportunity — ICICI Bank.

Today, it launched a new digital service called ‘iMobile Pay’ after revealing the ‘ICICI STACK’ as a core strategic growth pillar at an investors’ meet on December 4. The investor presentation mentioned the word ‘digital’ 376 times across 213 slides. That’s an average of 1.8 times per page, according to Nirmal Bang.


ICICI Bank’s share price also reflects the market’s optimism, with it rising by over 1%.


“Every challenge can be seen as an opportunity, and Indian banks have started embracing digital to provide services to customers to rationalise costs and complete with the more nimble-footed fintech players,” wrote Soumya Kanti Gosh in The Hindu Business Line.

However, merely offering digital services to capture market share isn’t enough. The quality of these services also has a bearing on how successful a bank’s digital strategy is, and that’s where HDFC Bank lost its footing.

HDFC Bank’s digitally-savvy consumers are going to take notice
The global rating agency, Moody’s, believes RBI’s actions against HDFC Bank are unlikely to ‘materially’ affect the bank. However, it warns that it could still hurt the bank’s brand perception at a time when most of its user base consists of digitally-savvy consumers.


“The pandemic has highlighted the importance of maintaining business continuity at a time of complete absence of physical interaction, with digital the only way forward in this situation,” noted Ghosh.

Even before the pandemic, over 95% of HDFC Bank’s total transactions were digital. Now, its Digital 2.0 initiative, which has been put on hold after the RBI’s order, is set to consolidate online transactions even further.

Going digital can be ‘credit negative’
According to Moody’s, becoming increasingly digital could end being ‘credit negative’ with HDFC Bank relying more and more on digital channels to service its customers. While true for HDFC Bank, it applies to banks across the spectrum.

The logic is that if most of a bank’s customers are using online banking to make transactions, they will notice when services are down — the outage will have a greater impact. This increases the likelihood of users switching over to other banks. The resulting loss of customers would mean lower revenues and lower low-cost retail funding.

“This has the potential to increase spending to improve the bank’s digital infrastructure, which would strain its profitability,” said Moody’s report on December 7.

Ghosh also points out that the era of high credit growth is most likely over for banks in India. Going forward, the impetus is likely to be on cross-selling and upselling products at low costs that digital services offer.

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