An era ends as HDFC shares stop trading on stock exchanges

Deepak Parekh will hang up boots post the merger of HDFC with HDFC Bank

On July 12, the shares of Housing Development and Finance Corporation, or HDFC, stopped trading on bourses post the merger with HDFC Bank that came into effect on July 1. That marks the end of a four-decade-long journey for India’s oldest mortgage lender.

Founded by H T Parekh, uncle of Deepak Parekh, HDFC was incorporated on October 17, 1977, and disbursed its first home loan in 1978 to D. B. Remedios in Mumbai. To start with, the founding team had an unenviable job. Home loans were not a popular product back then and no one knew HDFC as a brand.

But the team worked hard and steadily expanded the business. By 1984, HDFC had crossed annual loan approvals of Rs 100 crore, a big milestone for the company. The company was listed in 1978 with a face value of Rs 100 each. The issue did not get a great response, in fact, it was undersubscribed.

Yet, that was the start of a remarkable journey to become a financial behemoth. On July 12, when the shares closed, HDFC had a market capitalisation of over Rs 5 lakh crore.

End of an era

Deepak Parekh, the man who played a key role in building India’s oldest mortgage lender from scratch, hung up his boots after four decades with the company. With Parekh stepping down from all roles, an era has ended.

In his last letter to shareholders of HDFC on June 30, Chairman Deepak Parekh announced his retirement ahead of the mega merger with HDFC Bank saying it is time for him to hang up his boots.

Parekh, 78, will not take up any role in the bank while HDFC Chief Executive Officer Keki Mistry is likely to join the bank's Board subject to clearance from the Reserve Bank of India.

"It is my time to hang my boots with both anticipation and hope for the future," Parekh told shareholders.

"While this will be my last communication to shareholders of HDFC, rest assured we now stride tall into a very exciting future of growth and prosperity," Parekh added. In a rather emotional letter, Parekh said the HDFC experience is invaluable. "Our history cannot be erased and our legacy will be taken forward," said the veteran banker.

Questions on HDFC culture

In the letter, Parekh re-emphasised the importance of HDFC culture which helped the institution become a household name in India.

"An oft-repeated question is what happens to the culture of HDFC? My answer to this is that mergers are inherently about change. The work culture will be an amalgamation of the best of both organisations," Parekh wrote.

Explaining further, Parekh said the culture at the workplace is always a shared responsibility that needs daily reinforcement through the demonstration effect with the tone set at the top.

"As HDFC hands the baton, my wish is that our core founding values of kindness, fairness, efficiency and effectiveness get woven deeper into the fabric of the HDFC group," Parekh added.

In the letter, Parekh said HDFC Bank managing director and CEO Sashidhar Jagdishan and his team at the bank will take the HDFC legacy ahead.

"With the proven execution capabilities of HDFC Bank, we are confident that Sashi, together with the leadership team will forge an era of new opportunities for the combined entity," Parekh wrote in the letter.

Message to the bank?

In what appeared like a message or guidance to the bank with respect to home loan business, Parekh said 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," the veteran banker said.

Only home loan provider in the 80s

For CEO Keki Mistry too, this is the end of a long journey as HDFC CEO. In an interview with Moneycontrol in March this year, Mistry, who is associated with the HDFC brand for nearly 42 years, also highlighted that there will be structural opportunities in housing finance as the sector has seen tremendous change.

“In the early 1980s, we were the only housing loan provider. Convincing people in the 80s that housing finance and loan would work was a major challenge. But now the sustained demand for housing loans has been strong,” Mistry said.

Though the merger was discussed a few years ago, the plan entered a fast track in May 2021 with the bank deliberating the proposal at the top level and later approaching the parent with a proposal. HDFC Bank insiders say that compared with the previous boss of the bank, Aditya Puri, his successor Sashidhar Jagdishan was more amenable to the idea of a merger. Puri exited the bank in October 2020 and Jagdishan took charge as the new chief.

A good match for both parties

While the merger gave the much-need big entry to the bank into the lucrative home loan business, for the parent too, the decision made immense sense for one key reason. For NBFCs, life was getting tougher in India.

In his first-ever exclusive media interview post the merger announcement, Deepak Parekh told Moneycontrol that the NBFC business was getting tougher due to the tightening of the RBI regulations. “The constraint is that the RBI, over the last few years, removed the arbitrage between a bank and an NBFC,” he said.

Over the years, the RBI had brought in bank-like regulations for India’s big non-banks. Under the new multi-tiered structure for NBFCs (based on their asset size and systemic importance), bigger NBFCs were treated at par with banks on capital, regulatory scrutiny, and treatment of assets, which made operations even more expensive for this class of companies.

HDFC, with an over Rs 5-lakh-crore loan book, logically fell in the upper layer which meant it will be now monitored, inspected and regulated akin to a bank, whereas the incentives in NBFC business were less. However, when HDFC knocked on the doors of the regulator for a merger, it got a key relief.

The RBI gave critical relaxations on certain aspects such as priority sector lending norms and treatment of ownership of subsidiaries in April 21, 2023. Also, the RBI gave six months to HDFC customers to switch to new benchmarks.

Post-merger, the loan book of the merged entity will jump to Rs 22.21 lakh crore as on March 31, 2023, while deposits are at Rs 18.84 lakh crore. Further, HDFC Bank's market capitalisation will rise to Rs 14.6 lakh crore, from Rs 9.45 lakh crore prior to the merger. For the HDFC group, a great story ends and a new journey begins today.

(Editor's note: Parts of this story were published earlier on Moneycontrol)