On 12th July at 3:30 pm, the stock ticker HDFC flashed on the trading screens for one final time. After over four decades India’s first dedicated housing finance company had stopped trading on the stock exchanges.
Now we already wrote a story last year about why HDFC Ltd was merging with HDFC Bank and the implications of that. So we won’t get into that again. Rather, in today’s Finshots, we thought we’d rewind the clock a bit and see how the entity became a housing finance behemoth.
And just to be clear, this is not a paid post. We don’t do those here at Finshots. 🙂
The Story
The year was 1977. Hasmukh Thakordas Parekh or HT Parekh or Hasmukhbhai had just hung up his boots after a long banking journey. He’d begun shortly after India’s independence and now he was in his 60s, at an age where most people would want to just put their feet up and relax. Enjoy a much-deserved break.
But not HT Parekh. He wanted a new challenge.
Yup, the man who had been instrumental in setting up and shaping a development finance institution in the country — the Industrial Credit & Investment Corporation of India Limited (ICICI) — wanted to do more.
But what could he do?
He’d already succeeded in making long-term infrastructure financing easier in India. So it had to be something for the regular folks. People like you and me. Or rather, for our grandparents.
And that’s when he hit upon a brainwave — housing. Not building properties, of course. But helping people buy their dream homes.
You see, the 70s were very different. If people wanted to build their own homes, they waited until retirement. They saved every penny. They were prudent with their spending. And they broke their provident fund. That’s how they built homes back in the day. Borrowing to build homes was a foreign concept.
So Mr Parekh set up the Housing Development Finance Corporation (HDFC). He wanted Indians to dream bigger. Get them to believe that taking a loan to create a roof over their heads wasn’t a bad thing. And he had to first change people’s mindsets.
That began with a certain D. B. Remedios. HDFC convinced him to take out a loan of ₹35,000 to build his ₹70,000 home in Mumbai. He was the first official HDFC Ltd customer and the brand’s journey had begun.
The following year, the company decided to tap the public market too. Raise capital from the people. But there wasn’t a big culture of stock market investing either. The brand wasn’t that well known yet. So in 1978, when HDFC launched its IPO, the issue was undersubscribed. People stayed away. And the stock didn’t pop on the day of listing either. It dropped.
Yeah, it wasn’t quite the start anyone would want. But HDFC didn’t stutter
It was building a team that would form its backbone for a long long time. We’re talking about the trio that would go on to become lifers at HDFC Ltd.
First, there was HT Parekh’s nephew, Deepak Parekh. At the age of 33, he left his cushy job at Chase Manhattan Bank and came back to Mumbai at a 50% pay cut. Maybe he felt the familial pull. So he took up the role of Deputy General Manager in 1978 to build the housing finance business. But when India opened up the banking industry to the private sector in the early 1990s, it was Deepak Parekh who convinced the board that HDFC needed to set up a bank. Try and cater to the burgeoning aspiration of young India by offering them personal loans and car loans too. He promised them independent and professional management and he roped in Aditya Puri from Citibank, Malaysia to lead the show.
Then there was Renu Sud Karnad who was a bright-eyed 26-year-old in 1978. She pioneered a hub-and-spoke model for HDFC. Instead of setting up branches in smaller towns that would increase costs, she first appointed 1–2 people to serve as the face of HDFC. It would be a hub-and-spoke model. And the first such hub was launched in the city of Kanpur. The role of the HDFC spoke was “to make sure the customer felt he was wanted and was being heard.” That ethos stayed with HDFC Ltd through its entire lifetime.
And finally, there was Keki Mistry who in 1981 had just got out of a job at the Taj Hotel. He didn’t want to live in Goa and was looking for a new opportunity in the city of Mumbai. He turned down a lucrative Citibank offer because he didn’t want to be just another cog in the wheel of an organization. And instead, he joined the finance department of the fledgling HDFC Ltd. Apparently, Mistry was also the driving force behind HDFC’s multiple financial services bets — insurance and mutual funds. For instance, in 1995, Mistry met a few of the folks from a UK-based insurer. And when they asked him about what was next for HDFC, Mistry simply said “We will look at insurance”. There was no clear plan by then. But soon after, Standard Life reached out and proposed a joint venture. HDFC Standard Life was born.
So yeah, whether it was the business smarts of this A-team or simply a matter of luck favouring the brave, within a few years, the housing lender’s fortunes were on the right track. The annual loan approvals soon breached the ₹100 crore mark. And HDFC was becoming synonymous with home loans.
Meanwhile, with his team in place, HT Parekh decided he wanted another challenge.
So in 1986, he set up another housing finance company. Yeah, he wanted another challenge. But this time, he wanted to help folks in small villages and towns. It was called Gujarat Rural Housing Finance Corporation Limited (GRUH). And it became India’s first specialized rural housing finance company entity for the underserved and informal sector. It was still pretty much part of the HDFC family.
So yeah, these days when you hear techies talking about “Building for Bharat”, HT Parekh actually did that. Or rather, HDFC Ltd did that.
Anyway, with that, HDFC Ltd revolutionized how India borrowed to build a home. They catered to the middle class. And they catered to the rural folks. The business boomed. And even though competition mushroomed over the years, the HDFC brand name attracted potential borrowers. In FY21, HDFC had a 31% market share in housing loans. The only one ahead of it was the State Bank of India.
And by the time HDFC Ltd has to bid adieu to Dalal Street, the company was doing over ₹60,000 crores in revenue and managed over ₹7 lakh crore worth of assets.
Investors were happy too. The share price inched upwards. And even if someone had missed the initial bus, they’d have been alright. If on the first day of the new millennium i.e 1st January 2000, they’d parked ₹1,00,000 in the HDFC Ltd stock, they would’ve been sitting on a pretty pile worth over ₹1 crore by the time 12th July rolled around (not accounting for any dividends paid out).
But that’s where the story kind of ends for HDFC Ltd. Loyal shareholders will see a change in name in their account statements soon enough. Because for every 25 shares of HDFC, they’ll now have 42 shares of HDFC Bank. And India’s first organized home loan provider has quietly merged with its banking counterpart.
And the trio who had reached the pinnacle — Deepak Parekh, the chairman and Keki Mistry, the CEO and Renu Sud Karnad, the Managing Director — will all hang up their boots.
Now as HDFC Bank takes over the mantle to continue the home loan legacy, the folks here will do well to keep these words from Deepak Parekh’s resignation letter in mind.
“Our experience has taught us that every home loan customer has their own story and it is the empathy factor that is the key differentiator between housing finance providers. Dealing with home loan customers requires immense patience. It is about understanding the needs and feelings of a home loan customer, assuaging their anxiety during this complex transaction, customising solutions, explaining financial implications of a mortgage product and lending responsibly to ensure a customer is not over stretched.”
Until then…goodbye HDFC Ltd.
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