Journalist and writer Tamal Bandopadyay's latest book titled HDFC Bank 2.0 - From Dawn to Digital, on the bank's digital journey speaks about how the largest private sector lender embraced digital changes. Here is an exclusive excerpt from the book published by Jaico.
Design Your Own Nike Shoes
Progress on the digital front was spectacular but HDFC Bank was hungry for more. A Nike ad with the tagline ‘Make yourself’ gave Aditya Puri the idea for ‘loans against securities’. He believed the dematerialized or demat accounts of customers could be linked with savings accounts, enabling them to create their own limits and credit accounts instantly.
In 1999, HDFC Bank was not only busy working on Y2K-related changes to its systems, but also launching new and innovative products in the market. (Y2K relates to the tweaks that needed to be made to ensure that systems could cope with the shift to the year 2000.)
Loan against shares was one such product. Incidentally, HDFC Bank was probably the first to introduce Initial Public Offer (IPO) financing for individuals. While for loan against shares, a customer pledges to the bank the shares one holds, for IPO financing the bank steps in to support the new share applications with a moneyline. The process was paper-based as Depository Participants (DPs) were still getting used to demat shares. It started with select customers and the business grew steadily.
By 2016, the loans against shares portfolio crossed Rs. 20 billion. The progress of technology had been so dramatic during this period that the bank was encouraged to design a solution integrated with multiple applications within the organisation as well as the National Securities Depository Ltd. (NSDL) and the Central Depository Services Ltd. (CDSL).
It worked with both the depositories to create a complete online digital solution for customers who sought loans against equity through their demat accounts with the bank. It already had the expertise to process such loans. The change was required to leverage this expertise in the digital world and engage NSDL and CDSL as the business is highly regulated. It started conceptualizing the product in 2016.
Over several weeks, multiple iterations and numerous late-evening discussions over samosas, the team arrived at the most optimal solution through integration of multiple applications within the bank with the systems of NSDL and CDSL.
As most digital solutions employ Straight Through Processing (STP) to speed up transaction time, it was imperative that each leg of the operation was completed in less than one second and the overall process was completed within a few minutes. For the customer, it is an end-to-end self-service solution that’s paperless with no manual intervention—a first for the bank as well as the depository participants, globally.
Loan against shares
In May 2017, the bank started marketing this product as one that allowed customers to create their own Loans Against Shares (LAS) online. It takes about three minutes from starting the application to getting the overdraft limit set in the account. Apart from opening an LAS account and setting overdraft limits, a customer having an account with HDFC Bank can also release shares already pledged for the facility and replace shares by pledging new or additional approved securities.
After that, on the product table was Loans Against Mutual Funds (LAMF). There are regulatory limits on loans against shares as these are considered capital market exposure of a bank. However, mutual fund holdings in debt instruments are not considered capital market exposure and hence there is no limit on the amount that can be given as loans to customers.
When HDFC Bank started exploring the opportunity, it zeroed in on Computer Age Management Series Pvt. Ltd. (CAMS), the Registrar and Transfer Agent (RTA) for multiple Asset Management Companies (AMCs). This time, loans were to be given even against mutual fund units held in non-demat form.
By October 2017, it got a grip on the transaction flows but hit a road block. As it had started its journey on a digital platform and frozen its net banking solution, the product had to wait for the digital platform to be ready. Instead of waiting, it started exploring a different approach. The team asked for 90 days to develop, test and implement the product. The solution was ready by end of January 2018. By November 2018, 75% of all loans against shares and mutual funds were digital.
Change of Guard
Amid all this, there was a change of guard. Anil Jaggia decided to leave the bank in 2015. He joined Avendus Capital Pvt. Ltd. but only for a few months. Bhavesh Zaveri took over as head of both Operations and Technology. Their working styles differed but both had the same tech vision.
By this time, Aditya’s digital push was at its peak. The initiative included consolidation of technology platforms and digital customer channels; launching new digital channels and products; bringing automation to newer areas of banking—all revolving around the key theme of ‘customer-centricity’.
The rate at which technology was changing, it wasn’t a question of keeping ahead but one of catching up. Balancing new technology adoption with the safety-first philosophy of the bank was a tricky business.
“We never would have imagined two decades back that banking and social interactions are going to have commonalities and we will be finding these similarities through technology,” Bhavesh said. “We are not a technology innovator; that is not our play. Rather we try to use innovative technologies from our partners. We seek to partner with the right technology vendors.”
The partnership with Murex S.A.S, a French technology company with global repute in providing trading, risk management and processing solutions in the capital market, foreign exchange, derivatives, and debt securities space, is an interesting one. One December morning in 2015, Murex Asia Pacific CEO Guy Otayek, along with his Sales team, met Bhavesh and his colleagues in the fifth-floor conference room at Bank House to kick off the discussion.
The implementation started after senior management teams of both sides flagged off the project in Mumbai in October 2016, marking the beginning of the bank’s digital consolidation initiative for the treasury business.
Changing the Way the Treasury Works
For the bank, this project was the biggest treasury initiative in the past decade. It was also one of those projects close to the heart for Bhavesh and Ashish Parthasarathy, who has been heading the bank’s Treasury since 2009 after Sudhir Joshi retired. Paresh Sukthankar, the bank’s former Deputy Managing Director and arguably the best risk manager in the Indian financial system, was also engaged in keeping the vision clear and direction steady.
A core 40-member project team was constituted with members from all stakeholders. They were sent to Singapore to understand the features of the software. Sending such a large team overseas on a knowledge expedition was something unheard of in HDFC Bank. Bhavesh managed to convince Paresh to approve the trip as an exception.
The first phase of the project was completed on a date pre-decided 20 months before. When the products went live on 12 February 2018, the Murex team uncorked a champagne bottle for the bank team at the treasury dealing room at Bank House. Another celebration followed at the bank’s Kanjurmarg office that houses its Operations and Business Technology Group.
The Murex application—a single integrated platform—has many benefits. It replaces multiple applications in treasury with a single robust application, reducing some of the risks associated with multiple system. It also enables pricing and valuation of derivatives transactions.
The philosophy of HDFC Bank is to find technology partners for long-term relationships. Naturally, the bank thinks a great deal before partnering any technology company. “We spend time and make efforts in picking our technology partners. And once this is done, we stick to the relationship,” Bhavesh said.
Though the core banking partner might have changed hands and names—from CITIL to i-Flex Solutions India Ltd. to becoming part of Oracle Corp. as Oracle Financial Services Software (OFSS) Ltd.—the partnership with the bank is still going strong even after two decades.
Excerpt from HDFC Bank 2.0: From Dawn to Digital by Tamal Bandyopadhyay, shared here with the permission of Jaico Publishing House. Available for pre-order online and across bookstores on 10 July.
HDFC Bank 2.0 - From Dawn to Digital
By Tamal Bandopadyay
Foreword by Nandan Nilekani
Jaico Publishing House
Price: Rs 499
Updated Date: Jul 11, 2019 20:37:00 IST