 Hello and welcome to NewsClick. I am Paranjoy Gohar Thakurtha and this is the third and final part of this three-part discussion I am having which examines closely the ugly underbelly of India's banking, financial and corporate sectors. In the first part we looked at the problem of banks not faithfully reporting what are their bad loans, what not disclosing in terms of non-performing assets, why there is a discrepancy between what banks disclose in their balance sheet and what the Reserve Bank of India shows and we examined the working of India's largest bank, the State Bank of India. In the second part we looked at the track record of two prominent corporate captains, R.C. Bhargava and Shikha Sharma and examine what whether those who are directors, including independent directors, prominent corporate bodies, what should be their role and what should be their responsibilities in ensuring good corporate governance. In the third and the final part of this discussion we are going to look at two large banks in India, private sector banks in India, the HDFC Bank, earlier it's a bank that came out of the housing development and financial corporation but as a bank it is India's biggest private sector bank and we are also going to look at Kota Mahindra Bank and we are looking at whether these two prominent private sector banks have really been concerned about complaints from customers and why there was a digital failure in HDFC Bank not so long ago. With me here I am happy to have Himindra Hazari, one of the few fearless independent analysts of India's banking, financial and corporate sectors who is registered as a research analyst with the Securities and Exchange Board of India. Himindra in the annual report of the banking ombudsman scheme for the 12 months that ended in June 2019 which was released by the Reserve Bank of India we find that the highest number of customers complaints per branch was in the case of Kota Mahindra Bank and HDFC Bank. I mean these two banks are prominent private sector banks, they are favorites of foreign institutional investors, they trade at what you describe as hefty price to book value multiples and it appears that while these banks have rewarded their shareholders very handsomely the story of how they've dealt with their customers is very very disappointing and the all the if you take the average of all banks per branch there been 1.4 complaints per branch in 2018-19 and this in the case of Kota Mahindra Bank was 3.3 in the case of HDFC Bank 3 per branch so more than double the industry norm. So why are the bank management not so concerned about their customers? It's very interesting not only a bank manager not concerned even the media and the cell side analysts are not concerned. What do you mean by the cell side analysts? These are the research analysts from brokerage houses which recommend stocks to the people like me because this is information which has been brought out by the regulator which has tabulated this. Now what is extremely interesting is that while both these banks are darlings of the stock market in fact they are very highly well regarded by foreign institutional investors and there's very hefty ownership and they have rewarded through a huge increase in the share price. One would have thought that such banks would have also rewarded their customers equally but sadly this is not what the data shows. It shows that the complaints that customers are registering with them are higher for their size of operations and compared to the public sector banks which normally people regard at all they give very poor service but actually you're seeing the exact opposite. Now the question arises is why is this happening? Is it that their you know their systems cannot handle the high volume of business that it is being done? Or they would expand it too quickly. Exactly. Or is it that their systems are just very poorly run but whatever is the reason this has to be investigated and commented upon and even in their annual reports if you read and you're minding this is a consistent data over three years it's not that the year 18-19 was an aberration. If you go back to the earlier ombudsman's report you'll find that the data there is also consistent that these two banks report the higher number of complaints per branch or per thousand accounts. What you're arguing is that these banks should make these disclosures in their annual reports and they should address the issue of customer satisfaction. Definitely. In fact what you see is the exact opposite in their director's reports because they say that you know they don't mention there's no sense that you're getting of any customer dissatisfaction when you read their annual reports while this ombudsman you know shows that there are definitely very significant concerns which need to be addressed. I mean this report of the banking ombudsman's under the banking ombudsman's scheme which is under the Reserve Bank of India it shows that against the industry norm of a large number of complaints relating to ATM that's automatic teller machines and debit cards and unfairs practices. Maybe you can explain what these unfair practices are. In the case of Kotak Mahindra Bank and HDFC Bank the largest number of complaints are on account of unfair practices and credit cards. Now how significant and why are these differences and what are these unfair practices? Normally you'll find that you know if they are overcharging their customers for whatever reason you know they are charging them far in excess then the customers complain or these are the kind of the unfair practices against the customers. Now this unfair practice is the most common theme across the sector that's where you get a maximum number of complaints but specifically for HDFC Bank and Kotak Bank as the data shows is that their credit card operations are very large especially HDFC Bank which is I understand is the market leader and therefore there are a lot of complaints pertaining to their credit card operations. Whereas the industry norm is that these complaints are more pertaining to debit cards and automatic teller machine cards. Now credit card is also a highly remunerative division for HDFC Bank and you know they have been growing their unsecured loans which credit card is a key component of that because the yields are extremely high you know the region of anywhere from 25% per year to about 28% so therefore it tells you that while their yields are very high and therefore which contributes to their interest spreads there's obviously a lot of customer grievances also on that product. Okay I mean let's look at the what you describe as the digital disaster that took place in HDFC Bank. Now HDFC Bank has been described as the best digital bank for 2019 by Asia money but you said they've actually failed their digital customers in the first few days of December many customers were unable to log onto their mobile application, their internet banking platform and this problem recurred again a few days later and this what you describe as an extended technology breakdown took place at a time when for a bank like HDFC Bank 92% of their customers are initiating transactions through digital means and it's not bad bad enough that they are unable to transact you are unhappy with the lack of transparency and they didn't communicate their their public relations departments their public communications department they did not put out any information to reassure customers members of the public and instead they communicated through Twitter I mean so what so what if they're communicating by Twitter that's okay they're letting people know that they're looking into the problem why are you what is the role of a of a communications department in any corporate entity are they not so are they only supposed to communicate when Aditya Puri becomes best banker of the award or when the bank gets a best banker award because if you see the history of communication which is available on their website you'll find that it is full of these matters I would expect an entity especially you know the one like HDFC Bank when there's anything which is the problem that you should expect when there's such an extended problem it's not you know just a one-off for one week their customers suffered I would expect such an entity to give out something what is going on you know give some reassurance to that is what a public relations department is supposed to do okay you say and you use very strong language you said this indicates what you describe as a brazen disregard for losses incurred by customers on account of the bank's technology services failing and you say that should have been a major risk to the reputation of the bank and of course it's a risk to the public at large the economy as a as a whole because a bank like HDFC Bank is described and classified as a systemically important bank it has a significant market share on payment platforms so it's not just one bank and and and it failing for a few days but you're saying this has implications for the public at large and the economy as a whole most definitely because it plays such a vital role it is not a small bank it's not some marginal bank in your banking system and on digital mind you it's it's advertising tagline is forget cash go digital now if you forget cash and your digital platform collapses what are the customers to do and that is exactly the problem what has happened how are they reassuring customers that if they've not met their payment on the due date how are their losses going to be compensated today if if you are maintaining a balance with the HDFC Bank and your and your balance dips below a certain level they're going to put charges on you right so here what is what are they going to do for the customers whom they want mean unable to deliver those services the which they have promised in which in effect we are paying for all right there is no news at all as of even as of this moment you further add that this breakdown was not an isolated incident that well in December 2018 a new mobile application was launched by the same bank HDFC Bank which failed and that cost according to you considerable anguish to the bank's digital customers and the bank didn't have a proper digital disaster recovery plan that's what you say that is the real significant aspect which I want you know actually I wanted the public to be aware of all banks in the world have to have a disaster recovery plan because of the importance that they are and the role that they play in in an economy that if your systems go down how fast they should be you know there's a timetable laid out it has to be constantly tested right and there is a minimum time which it has to come back on so what happened to HDFC Bank's disaster recovery plan why is it that nobody's asking this very central question you know earlier you've highlighted that the banks reserve bank of India has pointed out that its internal audit systems its non-information technology systems have operational risks and the reserve bank had investigated had announced at least that there would be an investigation whether the banks technology systems posed a risk not just to customers but to the public as a whole and as you have pointed out you need a reliable disaster recovery plan and an information technology system but the question is what now needs to be done and what should Indian customers the ordinary users of banks be aware if HDFC which is the largest private bank in India if it doesn't have a stable and a reliable digital platform that's bad news for ordinary ordinary people yes so what what can the ordinary person do because when they protest and that's what the social media you can see their protest which is available for everyone to see but what it tells me exactly because he without that no one would have known because as I said the bank really doesn't you know make many public announcements about what's the what the wrongs that have been done so my only recommendation to depositors is to please maintain multiple accounts and do not you know operate only through a single bank because if you did and if you were an HDFC bank customer you would have been in deep trouble during that one week of completely unreliable digital operations and have you had the reserve bank of India's findings or its investigation being made public are you aware of these there's nothing that has come out in the public domain apart from the statement by the deputy governor who said that an investigation is being done now you believe these reports should be made public most definitely since I'm an analyst I analyze public information which in the public domain the more information out there is always better I think it's always better be more transparent but sadly when it comes to negative news as I've shown nobody really is well thank you so much Hemindra for giving us your time to sit to participate in these three three part interview with me and for highlighting what the Indian customer needs to know and why it's necessary to ensure more transparent systems in India's banking financial and corporate sector and that ensures greater accountability so we conclude the third and the final part of our interview with independent analyst of India's banking financial and corporate sectors Hemindra Hazari he's of course registered as a research analyst with the Securities and Exchange Board of India so we conclude the third and the final set of interviews which looks at the ugly underbelly of a sector which you won't get in many of the financial publications thank you for being with us and keep watching Newsclick