{"id":3456,"date":"2023-07-01T17:05:34","date_gmt":"2023-07-01T11:35:34","guid":{"rendered":"https:\/\/bankerstrust.in\/column\/?p=3456"},"modified":"2023-07-25T17:06:29","modified_gmt":"2023-07-25T11:36:29","slug":"revisiting-the-story-of-hdfc-bank-and-early-days-of-hdfc","status":"publish","type":"post","link":"https:\/\/bankerstrust.in\/column\/revisiting-the-story-of-hdfc-bank-and-early-days-of-hdfc\/","title":{"rendered":"Revisiting The Story Of HDFC Bank And Early Days Of HDFC"},"content":{"rendered":"

This is the story of early days of HDFC and the birth of HDFC Bank. As they merge to create the world\u2019s most valued lender, let\u2019s revisit it.<\/strong><\/p>\n

Extracts from my first book \u201cA Bank for the Buck\u201d, released in December 2012.<\/strong><\/p>\n

How Deepak Parekh persuaded Aditya Puri to take over the reins and create the bank, a child of economic liberalisation.<\/strong><\/p>\n

\u201cYou run around the world a lot,\u201d Deepak told Aditya in Malaysia. \u201cNow come back to the country, do some real work, build a bank.\u201d<\/strong><\/p>\n

\u201cWhat bank?\u201d Aditya asked Deepak.<\/strong><\/p>\n

\u201cWe are getting a licence to set one up.\u201d<\/strong><\/p>\n

\u201cThat will be your bank.\u201d<\/strong><\/p>\n

\u201cNo, it will be your bank. I won\u2019t even be on the board. It will be run by professional management and you will head that.\u201d<\/strong><\/p>\n

\u201cDo you know how much I get here?\u201d Aditya asked Deepak.<\/strong><\/p>\n

\u201c<\/strong>Arre baba<\/em><\/strong>, you have earned enough. Now do something for the nation. You\u2019ve worked enough for foreign companies.\u00a0<\/strong>Abhi aake desh ke liye kuch karo<\/em><\/strong>.\u201d [Now come and do something for the country.]<\/strong><\/p>\n

\u201cCome on Deepak,\u201d Aditya insisted. \u201cYou need to tell me what\u2019s in it for me.\u201d<\/strong><\/p>\n

\u201cYou will build an institution,\u201d Deepak told him. \u201cI can\u2019t match your salary. But we will give you stock options. You will do well and earn much more than what you are earning.\u201d<\/strong><\/p>\n

\u201cI want complete freedom to run the bank,\u201d Aditya told Deepak. \u201cNo interference.\u201d<\/strong><\/p>\n

\u201cYou will get it,\u201d Deepak told him.<\/strong><\/p>\n

Read on\u2026.<\/p>\n

On a Thursday morning in February 1994, the telephone rang at Citibank House in Jalan U-Thant, a tony neighbourhood dotted with the world\u2019s embassies in Malaysia\u2019s capital Kuala Lumpur. Amrita, the eight-year-old daughter of Aditya Puri, the CEO of the Malaysia operations of Citibank N. A., answered the telephone. The caller was a man gaining tremendous influence in India\u2019s financial industry. He wanted to speak to her father.<\/p>\n

\u201cPapa, a Mr Parekh is on the line,\u201d Amrita yelled. Aditya had just finished his breakfast and was adjusting his tie. He was rushing for a meeting with Shaukat Aziz, Head of Citibank\u2019s Asia-Pacific region and another man of tremendous clout who would, a decade later, become the 17th Prime Minister of Pakistan in General Pervez Musharraf\u2019s government. But Aditya had to take this call.<\/p>\n

Deepak Parekh was an old friend. He was more than an old friend. He was the Chairman of Housing Development Finance Corporation Ltd. (HDFC), India\u2019s lone mortgage company founded by his uncle Hasmukh Thakordas Parekh, a veteran banker. Aditya had known Deepak since his days as a management trainee with automaker Mahindra & Mahindra Ltd., his first job after graduation. Aditya\u2019s buddy Bharat Shah, later a colleague at Citibank, was Deepak\u2019s cousin.<\/p>\n

Aditya got to know Deepak better while he was heading Citibank\u2019s institutional banking business for India, Sri Lanka, Nepal and Bangladesh, based out of Mumbai.<\/p>\n

After a brief exchange of pleasantries, Deepak told Aditya he would be in Kuala Lumpur that weekend, and invited himself over for dinner. Deepak was, in fact, going to Mauritius to attend a board meeting of the Commonwealth Development Corporation. The normal course would have been to fly from Mumbai (then Bombay) to Singapore and from there to Mauritius. Instead, Deepak decided to make the detour from Singapore to Malaysia. \u201cI told him I\u2019m coming but I didn\u2019t tell him why,\u201d Deepak said. That would have to wait until dinner.<\/p>\n

Aditya\u2019s Mercedes drove Deepak and buddy Bharat, who had tagged along from the airport, to his house in the evening. They sat by the poolside, sipping single malts, and Aditya\u2019s wife Smiley, like a good hostess, made sure the\u00a0kebab<\/em>s were succulent and the\u00a0papads\u00a0<\/em>crisp despite the liberal sprinklings of shredded onions and green chillies<\/p>\n

Deepak was there to tell Aditya that HDFC was shortly going to get a licence from the Reserve Bank of India (RBI) to run a bank. And that he was looking for a CEO.<\/p>\n

Deepak had decided that Aditya was the one capable of building his vision of a world-class private bank in a newly liberalized India, an institution comparable with the best global banks.<\/p>\n

At Citibank House, with Bharat by his side, Deepak eased into his pitch: \u201cYou run around the world a lot,\u201d he told Aditya. \u201cNow come back to the country, do some real work, build a bank.\u201d<\/p>\n

Aditya was by no means gullible. He was earning about $100,000 annually, about Rs3.15 million (going by the rupee\u2013 dollar exchange rate at that time), a tidy sum in those days. Then, there were the bonuses, the regular options and the special options he was entitled to as one of John\u2019s chosen 50.<\/p>\n

Their conversation at the poolside continued:<\/p>\n

\u201cWhat bank?\u201d Aditya asked Deepak.<\/p>\n

\u201cWe are getting a licence to set one up.\u201d<\/p>\n

\u201cThat will be your bank.\u201d<\/p>\n

\u201cNo, it will be your bank. I won\u2019t even be on the board. It will be run by professional management and you will head that.\u201d<\/p>\n

\u201cDo you know how much I get here?\u201d Aditya asked Deepak.<\/p>\n

\u201cArre baba<\/em>, you have earned enough. Now do something for the nation. You\u2019ve worked enough for foreign companies.\u00a0Abhi aake desh ke liye kuch karo<\/em>.\u201d [Now come and do something for the country.]<\/p>\n

\u201cCome on Deepak,\u201d Aditya insisted. \u201cYou need to tell me what\u2019s in it for me.\u201d<\/p>\n

\u201cYou will build an institution,\u201d Deepak told him. \u201cI can\u2019t match your salary. But we will give you stock options. You will do well and earn much more than what you are earning.\u201d<\/p>\n

After some more of Deepak\u2019s hard persuasion, Aditya agreed to consider the offer, provided he was promised a good share of the stocks. His math was simple: If the bank was successful he would make good the losses he would suffer by leaving Citibank, and he would have built an institution.<\/p>\n

Before heading its Malaysia operations, Aditya was in Hong Kong, managing Credit and Market Risk for Citibank in North Asia. He had worked in Saudi Arabia before that, returned to India, and again taken a job abroad. He knew that if he returned to India this time, it would be for good.<\/p>\n

\u201cI want complete freedom to run the bank,\u201d Aditya told Deepak. \u201cNo interference.\u201d<\/p>\n

\u201cYou will get it,\u201d Deepak told him.<\/p>\n

Aditya asked for 24 hours to make a decision. The next day, shortly after Deepak checked in at a hotel in Mauritius, the telephone rang. It was Aditya. \u201cI am on,\u201d he said.<\/p>\n

Elsewhere in Uganda<\/strong><\/p>\n

Months before Deepak met Aditya in Malaysia, in late 1993, he made a call to S. S. Thakur, former Controller of Foreign Exchange in India. Thakur, after a long stint with the RBI, had joined the United Nations\u2019 International Civil Services as a senior advisor, and was deputed from New York to Zambia to advise that country\u2019s central bank. Deepak told Thakur that he was soon going to get an in-principle approval from the RBI to set up a bank and that he wanted Thakur to be the bank\u2019s Founder-Chairman.<\/p>\n

Deepak explained that he wanted a high level of corporate governance and regulatory compliance at the bank, and that he believed Thakur was the top candidate for the job.<\/p>\n

As Controller of Foreign Exchange at the RBI, Thakur knew Deepak well. He knew Deepak\u2019s uncle H. T. Parekh even better. Thakur had helped HDFC immensely during its early days in getting bulk deposits. Not many people were willing to take home loans as it was a new concept in the late 1970s, just after HDFC was formed. Even more were reluctant to deposit money with it. The first public issue of the shares of HDFC bombed and the mortgage lender found it a headache to get a capital of a mere R100 million.<\/p>\n

Retail deposits were out of question in those days. In fact, in the first decade of HDFC\u2019s existence, till 1988, while hundreds came to borrow, no one trusted the company with their money. HDFC had to depend on bulk deposits. There were many FERA companies\u2014locally incorporated companies with foreign equity holdings in excess of 40%\u2014that raised money from the market but couldn\u2019t remit the funds as the RBI was never prompt in clearing their applications. HDFC sensed an opportunity there.<\/p>\n

Hasmukh-bhai, as the founder of HDFC was widely known, got himself a list of tea companies in Assam that had raised money from the public and were sitting on the funds, as the RBI was being slow in clearing their applications for remitting the money overseas. He wanted these companies to deposit their monies with HDFC till the RBI gave its nod. But there was a hitch. By the rules of the book, these companies were allowed to keep their funds only with banks, not with mortgage companies.<\/p>\n

Thakur, convinced by Hasmukh-bhai\u2019s argument, changed the rule and allowed these companies to deposit their monies with mortgage companies as well. And that is how HDFC started getting FERA deposits and, more importantly, was able to draw from the IFC loan. Deepak knew the story well, and thought it was a good idea to have an ex-RBI insider as his bank\u2019s first chairman. He got Thakur\u2019s number in Zambia from a contact in the RBI and called him. \u201cMr Thakur, I would like you to come to Bombay. I will send you the ticket. Can you come for a couple of days?\u201d<\/p>\n

Thakur joined HDFC Bank Ltd. as Founder-Chairman on \u00a02 January 1994 at Ramon House in downtown Mumbai, where the mortgage company was headquartered till January 2014 when they shifted the headquarters to HUL House on the same road (H. T. Parekh Marg in Churchgate, Mumbai). However, its registered office continues to be Ramon House. He occupied the cabin of H. T. Parekh on the fourth floor of Ramon House after Hasmukh-bhai passed away in November 1994. At the time of joining, Thakur was in his early sixties.<\/p>\n

The Pune Warrior<\/strong><\/p>\n

Deepak\u2019s third choice was not a banker but a corporate executive and a close friend, Vinod Yennemadi. Vinod had worked with at least half a dozen companies, local and foreign. Deepak got to know him while doing his chartered accountancy in London in the 1960s. Deepak was a regular visitor to the YMCA Indian Student Hostel, at 41 Fitzroy Square in London, where Vinod was staying.<\/p>\n

On a Sunday morning in the first week of February 1994, Deepak told Vinod that HDFC was applying for a banking licence and he was reasonably sure he would get it. \u201cWhat are you doing in Pune? Come back to Bombay and join me and set up the bank,\u201d he told Vinod.<\/p>\n

Vinod wasn\u2019t keen. \u201cFrom 1971, I have been on the other side of the counter, asking for money,\u201d he told Deepak. \u201cI have never been a banker myself. What will I do with your bank?\u201d<\/p>\n

Deepak didn\u2019t buy his argument. After all, Deepak hadn\u2019t been in the housing loans sector before he joined HDFC. He had worked with Ernst & Young, Precision Fasteners Ltd., ANZ Grindlays Bank and Chase Manhattan Bank\u2014none of them a mortgage company\u2014in New York and Mumbai until his uncle brought him to HDFC in 1978.<\/p>\n

At the age of 34, Vinod took a 50% cut in his Chase Manhattan salary to join HDFC as Deputy General Manager.<\/p>\n

\u201cYou needn\u2019t worry, you\u2019ll learn,\u201d Deepak told Vinod.<\/p>\n

On 4 April 1994, Vinod joined the bank. He was the first employee on the bank\u2019s payroll. Thakur had joined the bank before him, in January, but he was on a contract. Vinod didn\u2019t want to join on 1 April, All Fools\u2019 Day, and as 2 and 3 April covered the weekend, he had to wait a few more days. HDFC had a five-day working week.<\/p>\n

What\u2019s in a Name?<\/strong><\/p>\n

There was still one detail nagging Deepak. He was not comfortable with the idea of lending the \u2018HDFC\u2019 name to the bank, as that would mean anyone running the bank would also have to be an ambassador of the long-nurtured HDFC brand. Will they stand for the value and ethos HDFC symbolized? He was worried that if the bank didn\u2019t do well, the HDFC brand would get sullied.<\/p>\n

A conservative Deepak had one name in mind: The Bank of Bombay. His logic was faultless. The bank was the only one among a group of ten new private lenders allowed to have its headquarters in Mumbai. The others were asked to have their registered offices outside the large metro cities, keeping in sync with the RBI\u2019s focus on spreading banking services across the nation through the slew of new private banks. ICICI Bank Ltd. had its registered office in Baroda, Gujarat; Centurion Bank Ltd. in Panjim, Goa; Global Trust Bank Ltd. in Hyderabad, Andhra Pradesh; IndusInd Bank Ltd. in Pune, Maharashtra; and UTI Bank Ltd. (the first bank to get a licence, later renamed Axis Bank Ltd.) in Ahmedabad, Gujarat.<\/p>\n

But the acronym for Bank of Bombay\u2014BoB\u2014clashed with an established public sector bank, Bank of Baroda. As an afterthought, Deepak suggested Bombay Bank. Neither name worked for the others.<\/p>\n

Thakur prepared a list of two dozen names. His personal favourite was Everest Bank of India, to symbolize the height the bank would reach one day. Other suggestions included Greater Bank of Bombay and Bombay International Bank, many of them revolving around \u2018Bombay\u2019. But the majority wanted the name to be \u2018HDFC Bank\u2019.<\/p>\n

HDFC was already a household name in India. Its board was not sure how effectively the bank would function and they didn\u2019t want to risk their reputation by officially adopting \u00a0the new entity. There were many brainstorming sessions to break the deadlock.<\/p>\n

Deepak Satwalekar, Managing Director of HDFC, was possessive about the HDFC brand. After all, the bankers were all outsiders. How would they view the value system at HDFC and its brand? \u201cUntil their credentials are established clearly, I am reluctant to lend the name,\u201d he told his colleagues in private.<\/p>\n

\u201cWhy don\u2019t we call it Bombay International Bank?\u201d Satwalekar suggested to Aditya over lunch one day. \u201cYou can call it that,\u201d Aditya told him, \u201cbut I will catch a flight and go back to Kuala Lumpur. I am not interested in any Bombay International Bank. If it\u2019s HDFC Bank, I am here. Otherwise, forget it.\u201d<\/p>\n

\u00a0Aditya got support from his chairman. Thakur reasoned that the Unit Trust of India (UTI), the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India Ltd. (ICICI) had lent their brand names to their banks and if the HDFC brand name were not given to the bank, it would require a lot more effort to build the bank\u2019s brand. Hasmukh-bhai saw the point and, finally, so did Deepak and Satwalekar. The outsiders had the final say.<\/p>\n

Deepak declined to be on the bank\u2019s board, despite being closely involved in creating it, primarily because he was on the board of a number of blue chip companies that any bank \u00a0would want to do business with. Had Deepak joined the bank\u2019s board, HDFC Bank could not have done business with these companies as India\u2019s banking laws prohibit a bank from lending money to a company whose director is on the bank\u2019s board. Essentially, Deepak could not remain on the boards of the blue chip companies and the bank at the same time.<\/p>\n

Three representatives of HDFC were nominated on the bank\u2019s board: Deepak Satwalekar, Nasser Munjee and Keki Mistry.<\/p>\n

Deepak was not on the board of the bank but for several years he did not miss a single meeting\u2014always attending as a special invitee.<\/p>\n

Initial Package<\/strong><\/p>\n

One can well imagine why Aditya had strong reservations about taking up this assignment if one takes a look at his initial package at HDFC Bank\u2014Rs100,000 per month, plus Rs20,000 dearness allowance along with actual medical benefit and Rs50,000 leave fare concession.<\/p>\n

Thakur\u2019s salary was Rs1.5 million per annum. A company-leased accommodation, a car\u2014a Premier NE-118\u2014for official use, gas and electricity, Rs2,500 a month as entertainment allowance, Rs1,500 for servants and gardeners, Rs1,500 for soft furnishing, Rs1,000 for books and periodicals and two club memberships were common for Aditya and Thakur. Indeed, this was far better than packages at public sector banks, but it was nowhere near what was paid to Aditya\u2019s counterparts at foreign banks, which would be HDFC Bank\u2019s main rivals.<\/p>\n

\u00a0Money would come their way as the bank and the stock did phenomenally well. But at that point none of them had any fantasies about compensation, only dreams about creating a bank with a difference.<\/p>\n

Postscript<\/strong>:\u00a0After the merger with HDFC, HDFC Bank will be fourth most valued bank in the world with $172 billion market capitalisation, after JP Morgan Chase, ICBC and Bank of America. It will also be the second most valued listed company in India. \u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

This is the story of early days of HDFC and the birth of HDFC Bank. As they merge to create the world\u2019s most valued lender,…<\/p>\n","protected":false},"author":1,"featured_media":3457,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3456","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles"],"acf":[],"_links":{"self":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/3456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/comments?post=3456"}],"version-history":[{"count":1,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/3456\/revisions"}],"predecessor-version":[{"id":3458,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/posts\/3456\/revisions\/3458"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media\/3457"}],"wp:attachment":[{"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/media?parent=3456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/categories?post=3456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bankerstrust.in\/column\/wp-json\/wp\/v2\/tags?post=3456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}