Cost of spending on digital transformations plateauing: HDFC Bk's Parag Rao

India’s largest private lender HDFC Bank is witnessing a plateau in its cost to income when it comes to the spending on digital transformations, Parag Rao, group head (payments, consumer finance, digital banking, and IT) said on Thursday.

Speaking on the sidelines of a product launch on Thursday, Rao said that HDFC Bank had not faced any teething issues regarding the adherence to the Reserve Bank of India’s tokenisation norms, which kicked in on October 1. According to Rao, 70-80 per cent of the process had already been completed by HDFC Bank before the transition to the new regime.

On the matter of the effect which the digital transformation has had on the bank’s cost to income, Rao said the impact would start showing over the next two to three years.

“With the introduction of digital, you are able to ramp up the top line at a faster rate as compared to the conventional way. That large topline will, therefore, drive because it is a numerator denominator game. But that’s a 2-3-year journey,” he said.

“I think we are plateauing out. 50% is at an aggregate level. At an aggregate level we are clearly seeing a plateauing of costs already,” Rao said.

Providing guidance on return on investment from the steps taken by HDFC Bank to push forward in the digital space, Rao said the bank was in the process of either dismantling, transforming, or reforming an existing set of IT investments.

“We are still probably 50-60 per cent through that journey, whether it is cloudification, APIfication, building up factories, etc. RoIs (return on investment) will start happening once a large number of our products and features start kicking in. That’s the reason we want to test out, the beta is showing the kind of response that we get,” he said.

On Thursday, the bank launched a new one-stop solution application for merchants called the ‘SmartHub Vyapar Merchant app’.

The application, which aims to enable digital on-boarding and permits interoperable payments across modes, including UPI and QR codes, has close to 1 million merchants in the beta round, Rao said.

The introduction of the ‘SmartHub’ app would enable HDFC Bank to achieve its aim of onboarding 20 million merchants, from the current level of around 3 million.

“Our intention, which I made very clear last year, was to reach a number of 20 million over a three period and I think we are very well-placed on our journey. With the introduction of SmartHub, we are well on track to achieve the 20 million number,” Rao said.

According to Rao, the merger between HDFC and HDFC Bank provides the opportunity to tap into a base of good customers with good credit behaviour.

Referring to customers of HDFC with well-underwritten loans for the last 9 to 10 years, Rao said the merger was an opportunity on many fronts from a digital viewpoint.

“It’s an opportunity for more assets. It’s an opportunity for liability accounts. It’s also an opportunity for payments because all of them require payments. They are all consumers. It may not directly be an opportunity on merchants but for consumers it is an opportunity,” he said.