When I started my working life, investment bankers were a precious few. In fact, the firm I worked for, Grindlays, was the pioneer in merchant banking services. Since in those days foreign exchange was deemed very valuable, industry functioned under a lot of regulation. Adding to it, the government also declared that foreign companies doing business in India should mandatorily list on the stock exchange. For us at Grindlays, that was manna from heaven. We had the best of the best multinationals knocking at our door for help with the listing procedure.
Of course, the local brokers as well as institutions like what was then ICICI and Citibank also jumped into the fray. But our head start saw us doing business with the likes of Indian Aluminium, Dunlop, Union Carbide, Cadbury and several famous Calcutta tea companies. Though my career did get a kick-start due to regulation, illogical government policy in later years would test me severely. But here I am getting slightly ahead, as it was at Grindlays that I learnt an invaluable management lesson.
While it was an Englishman named Fred Tucker who had originally hired me, his place was soon taken by an Indian gentleman named Sidney Pinto. Despite having trained as a lawyer, Pinto had perfected delegation to a fine art. Since he trusted our capabilities, he gave us a lot of independence, interfering only when needed. The lesson I learnt was that, as a leader, after giving broad directions, you should let your staff manage the organisation. In other words, you should oversee, but not interfere. The need to interfere should only arise if things are not going as per plan.
Post Grindlays, I did a stint with Chase Manhattan Bank in the Far East and then I was put in charge of their India representative office, which mainly helped Indian companies obtain foreign currency loans for trade finance as well as importing equipment. During the same time, the oil boom in West Asia caught the attention of the principals in the US and they decided to step up their presence in Saudi Arabia and Dubai. However, in the late 1970s, these were not exactly ‘happening’ career assignments and Americans saw it more as a hardship posting. So the Chase management asked me to go to Saudi Arabia on a transfer and off I went to seek my uncle HT Parekh’s counsel. Coincidentally, around the same time ‘Hasmukhbhai’, as he was popularly known, was in the process of getting HDFC up and running. Knowing where all I had wandered through my career, he asked me to stop running around the world and settle down at HDFC.
Although not knowing what fate had in store, I agreed to join HDFC. The added bonus was learning from a giant like Hasmukhbhai. Surprisingly, his tutelage had a calming influence. Getting angry was second nature to me if the work that I had asked for was not done in time — as it is, when you are young, you tend to get angry quickly. But whenever I interacted with Hasmukhbhai at home or at the office, I never saw him lose his temper or talk rudely to someone or thump the table to make a point. It took me a long time to internalise his serenity and it was only in my 50s that I could do it entirely. The equanimity with which Hasmukhbhai went about his life can only come with age and maturity. I also imbibed from him the importance of being accessible to employees. Even today, and during my days of actively managing HDFC, my door was always open to employees.
Hasmukhbhai’s mentoring notwithstanding, the ground reality was vastly different from what I was used to. Not only was growing HDFC about un-learning and re-learning, I was also thrown into a cauldron of change. Needless to say, the financial sector then was heavily regulated and any change that affected HDFC adversely used to send my blood pressure rising.
The most testing time was the first three to four years after we started. Unlike a new start-up, where the stress point would be lack of business, we had to cope with a problem of plenty. We got off to a roaring start and were a success on day one if you went by the response we received. So much so that we couldn’t manage the number of physical applications that we received after opening just a few branches. But housing finance was not only about lending, it was also about creating a resource pool to lend from. That is where we were at our wits’ end after finding ourselves in a rather peculiar situation — people wanted our money as loans but they were not willing to trust us with their savings as depositors.
Similarly, the banks doubted our survival as a housing finance company and were hesitant to lend. Pretty soon we had no money in our coffers to disburse. But there was no way we could communicate that to our potential market. Doing so would shake their faith in the then-fledgling HDFC. So our public relations department sent out advertisements saying, “Thank you customers for your overwhelming response. We have a large backlog of applications, so we will not accept new applications for one month. Please bear with us as we do not want the service to deteriorate.”
Fortunately, a Rs 10-crore loan from LIC came through. That helped us to move on with our disbursals. In order to stop this hand-to-mouth existence, we thought of raising money through a public issue. That, too, met a muted response. In what must now surely be the stuff of legend, our initial public offer failed and the underwriters had to step in to rescue it. It was a Rs 100 paid-up share and it quoted at Rs 80 after listing. The underwriters must surely have cursed us for draining their pockets.
We continued to plod on and powered the first consumer boom. Today, housing finance is available all over the country, but in the late ’70s while there was a need, the enabling environment was non-existent. Getting into an untested financial area and giving birth to mortgage financing in India was a big decision. We did not know whether it would succeed. Many told us it would fail and borrowers would abscond. Legal remedies were non-existent as there was no foreclosure law, and to throw a borrower out of the house was practically impossible.
were risks but we overcame them by creating appropriate solutions. We not only resorted to deducting salaries directly and taking post-dated cheques, but also backed these up with an employer’s guarantee. During our early days, a common complaint was that of not getting a big enough loan. In spite of being the only game in town, we continued to be prudent and that serves us well even today — we continue to have the lowest non-performing loans in the business.
One of the other most important decisions we took was to diversify into other financial businesses. Applying for a banking licence was a big step as we were mortgage bankers and lacked commercial lending expertise. That was enough reason for the central bank to deny us a licence. On our part, the foray made sense as a bank would help diversify risk. But raising capital was again an issue. We had to raise Rs 50 crore and the parent HDFC’s capital itself was only Rs 100 crore. We were, therefore, putting half of our capital into a new venture and jeopardising HDFC’s future profits in case the bank did not take off or lost money.
When we got the banking licence, it took a year and a half to build it up and get additional funding. My hunt for a partner who would bring in financing largely centred on banks that did not have a presence in India. So I went to London and met Natwest; to New York to meet Bankers Trust; and to Singapore to meet DBS. All three agreed to invest for a 15% stake, but Natwest was the first to commit. Since they did not want to miss out, Bankers Trust asked me if they could talk to the Natwest management to check if among them they could take 7.5% stake each. That would also enable us to have representation from a British as well as an American bank. I would have loved that, as I would have had two potential sources of business, but Natwest insisted on a full 15%. The irony is, today, there is no Natwest and no Bankers Trust either.
And in context of how the bank has grown, giving the 15% stake to Natwest seems like an opportunity loss. It seemed prudent then: if it does not go right, you had someone to share the loss with. The insurance was imperative because you did not want the main bread-and-butter mortgage business to be affected.
The success of the bank gave us the confidence to get into asset management, life as well as non-life insurance and property funds. It also enabled us to deploy our senior management fruitfully, by putting them in charge of independent businesses. Here, I would like to bring in my two-bit advice on how I went about hiring people and why I have always stressed on knowledge sharing. In India the biggest drawback is, people know their stuff but they don’t want to share because they are scared about losing their edge. Sharing of information is the key to making a company successful as you can’t work in silos. To ensure that at HDFC, our senior people train new recruits.
Most of our internal training is also done by departmental heads and branch managers. The paradox is that while you can have systems, it needs to be ingrained in your employees that their job is not at risk. With respect to hiring, I don’t believe in day-long interviews. All the senior people I have hired were on intuition, a 20- to 30-minute talk — some even 10 minutes — and all of them have done an outstanding job. Today we are the second largest private sector bank size-wise, the largest asset management company in the country and the second-biggest private player in insurance.
In my opinion, gut feel developed through experience is very important for a leader because you do not have the liberty of time. Obviously, you can’t get it 100% right, but even if you have got it 80% right, you have done well. My relying on intuition to make important decisions could also have to do with my passion for bridge. The game teaches you intuition, planning and understanding your partner, who keeps changing. So one has to be very agile in interpreting and relating to what he says and how he bids. At the end, let me leave you with a few numbers.
Today, HDFC has a market cap of Rs 1 lakh crore, a galaxy away from the Rs 8 crore when it listed. And yes, I did tell you our public issue devolved, didn’t I? HDFC’s 23% holding in HDFC Bank is worth Rs 30,000 crore with the bank’s total market cap being Rs 1.3 lakh crore. We have shown that it is possible to scale up businesses across the financial spectrum, provided you have competency and management integrity. One of our large investors in California once asked me, would I do anything differently given a chance. As a reply, I sang a few lines from the Abba song ‘Fernando’ — and it goes like this, “Though we never thought that we could lose, there’s no regret. If I had to do the same again, I would, my friend, Fernando”