India’s Banking revolution has started without the banks

No deposit taking institution in the world is trusted more by savers and enjoy bigger cachet with investors than HDFC Ltd. What this abundance has done to the country’s most valuable lender is make it so lethargic literally, with its digital services suffering repeated outages that it had to be banned from issuing new credit card for next few months.

But a regulatory slap on the wrist is no durable solution. Bank licenses are permits to make money out of thin air. The prospect of sharing the privilege with a new breed of digital rivals will be more effective at keeping HDFC bank and other traditional financiers on their toes.

On valuation metrics, HDFC Bank’s price to book multiple of four is way ahead of much huge lenders in China, the US, Japan, Australia, Europe, Singapore and Hong Kong, and even a couple of India rivals including the Mumbai based Kotak Bank are more expensive on a per-share basis.

And yet, such is the interia inherited by new CEO Sashidhar jagdishan that he had to thank the regulator for the ban on credit card issuance and new digital initiatives.

“This rap has opened our eyes to the world of possibilities,” he told employees in August, as the restrictions were being eased. But instead of patting itself on the back for waking the sluggish lender, the RBI should ask why it has to do the market’s job of pushing firms to embrace best in class tech.