Fintech leading India's banking revolution but it's hampered by old rules

 The country's licensing policy for financial institutions is past its sell-by date. Innovative solutions are out there but require regulation.

No deposit-taking institution in the world is trusted more by savers and enjoys a bigger cachet with investors than HDFC Bank Ltd. What this plenitude has done to India’s most valuable lender is make it so lethargic — literally, with its digital services suffering repeated tech outages — that it had to be banned from issuing new credit cards for eight 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 bigger lenders in China, the U.S., Japan, Australia, Europe, Singapore, and Hong Kong. Some Indonesian, Middle Eastern, and South Korean peers, and even a couple of Indian rivals including the Mumbai-based Kotak Mahindra Bank Ltd., are more expensive on a per-share basis, but none can boast HDFC Bank’s $189 billion deposit base.
And yet, such is the inertia inherited by new Chief Executive Officer 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 Reserve Bank of India should ask why it has to do the market’s job of pushing firms to embrace best-in-class technology.