The story of the birth and growth of India's most valued Bank - HDFC Bank Ltd. by Tamal Bandyopadhyay was my 23rd of 2021. The introduction of each Membership of the leadership team was like a Movie. Engrossing and Captivating.
HDFC has been a unique institution from the start. Deepak Parekh was the puppet master of the show as far as initial recruitment was concerned. It was his dream to create a bank which addressed the volume of funds required by the private firms and also the service quality of the foreign banks. He decided that the lynch pin of the group will be Mr Aditya Puri. Mr Puri was working in Citibank then with salary and facilities that HDFC had no way to match. Mr Parekh was straightforward about the pay and made it clear from the start that he had nothing to offer apart from stock options. He also invoked a sense of patriotism by asking Aditya to come and do something for the country. As Mr Puri came aboard he requested for minimum interference by Deepak and the parent company and let him build a bank. From there on, the reins were transferred to Mr Puri. Deepak did have a back up candidate in mind, who was gracefully, told of the vacancy not being available. Aditya managed to recruit the next 12 employees who would become the pillars upon which the bank would stand. There were employee turnover over the years. With initial focus on Corporate Banking, the focus was widened to Retail Banking and Investment Banking as well. The focus was always on the bottom line, and on increasing the shareholders wealth, and not fattening the top line. The challenge is to keep the cost of deposits low and the net interest margin (NIM) high. CASA play an important role in lowering the cost of deposit.
While going through the story, I came across the real difference in the working of HDFC and HDFC bank. HDFC, the parent company is a mortgage company whereas the subsidiary is a bank. Mortgage companies issue loans against securities and HDFC, as the name suggests, used to provide finance for housing. They raise funds by securitising the property papers. There were also discussions upon the issue that whether HDFC should hand over its housing finance to the bank and itself should become a holding company. If it would've proceeded with the idea, all the subsidiaries including the bank, insurance and asset management company would've paid dividend to the holding company. But because of the tax laws and the independent existence of both the entities, HDFC still continues to provide housing finance with a deal on place that whatever products they sell, HDFC bank can buy 70% those loans. It is commendable that the relation between the parent and the kid is still cordial as it can be easily blamed that the kid has encroached upon the brand name. It could've easily resulted in feud or a deal similar to TATA's in which all the subsidiaries would've to pay licensing fee for using the brand name but no such thing happened. We have stories on how reducing operating cost was the focus right from the beginning, and employees were asked to bring their own tea cup.
Deepak Parekh, even after being the originator of the idea of the whole bank has never been an official part of this bank in any capacity be it being a board member, or non-executive chairman etc. He has always been a guiding force to the bank through various other boards of which he is an influential member including the board of the bank's parent HDFC. He helped the bank from outside by cajoling the initial corporate firms to bank with HDFC which provided with with the much needed funds to issue advances. There are stories of how two merges were done, and valuation arrived at.
At first glance, it might seem that everything in this bank is all about either Deepak Parekh or Aditya Puri, but the the A-team(The dirty dozen as Aditya likes to call them) was the one which pulled off this amazing stories. Many of those members have left the bank but they they did their job and did it diligently. Legend has it that Aditya still comes everyday at 9 in the morning and leaves at 5.30 and was when asked about the truth, he flatly says: 9 hours are enough to do the job, he was a quick decision maker, and most important thing, is he was always interested in Ladoos only and No Nonsense. According to him, banking is all about common sense, and he had it in abudance. He could change his area quickly in sync with the organizational demand and did not stick to the comfort zone.
Why do some companies thrive in uncertainty, even chaos, and others do not? The successful leaders aren't the most 'visionary' or the biggest risk-takers; instead they tend to be more empirical and disciplined. They rely on evidence over gut instinct and prefer consistent gains to blowout winners. Successful companies are definitely not more innovative than others. They don't always adopt internal changes as a response to change in Environment.
HDFC had great growth over the years, with market opening up in 1994, there were 10 licenses given to new players, and notable among them where HDFC, ICICI, IDBI, UTI, Global Trust Bank , Centurion Bank. ICICI was risk taker, and started with a bang, HDFC did things in a measured way, they do things which are tried and tested, and they do them exceptionally well. Most of the new companies have merged with the parent, but HDFC remains separate.
Deepak and Aditya enjoy power with responsibility, they keep an eye on the performance of the Bank, empowering people, giving them freedom and recruiting right people on the job. The first culture was a mix of CitiBank and Bank of America, as that is where most of the top management came from, and then after merger, there were employees from the Times Bank and CBOP as well. Interestingly I read it at a time when the MD of the bank was the largest serving, with exceptional extension for service, and the position was back filled by CFO.
HDFC Bank is not merely a story of entrepreneurship. It's a testimony to what new India can do - what can happen when passion for excellence merges with high corporate governance. It has not done anything unique. Doing very ordinary things in ordinary ways, with extraordinary execution and redefining the distinction between real risks and perceived risks are what make HDFC Bank different from the rest. The employees there has a pride in the company they work for, and speak high about the bank, which by itself says volumes about the company. If not for Prasanth who has been with the company since 2005, had not recommended the book to me, I would not have read this. Thank you Prasanth.
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