There are two dates which are perhaps of most significance for HDFC. First, is October 17, 1977. This date marked the fulfilment of a dream to establish India’s first retail housing finance company. The second significant date is April 4, 2022, when the board of directors of HDFC and HDFC Bank respectively, approved a merger of two equals.
For HDFC, in between these two landmark dates lie several milestones and memories. During this period, HDFC seized the opportunity to create many new institutions, whilst continuing the pursuit of cumulatively financing over 9.3 million housing units. Nothing has been more gratifying than HDFC being described as an extraordinary company, run for ordinary Indians by ordinary Indians.
To many, including myself, HDFC is not just an institution, it is a feeling. HDFC has always felt like home and family. Working with like-minded people who place honesty, integrity and transparency as the foundation of everything they do is the reason why HDFC is a cocoon of security and comfort. I cannot be more grateful to so many colleagues who are true ‘HDFC lifers’. They are the ones who have patented ‘the HDFC way’ of doing things and they are the ones who have gone on to nurture many others within the organisation.
Each day, year and decade has been rewarding in building a customer-centric organisation. I truly believe our 45 years of expertise in housing finance in India is unparalleled. We stand out particularly because of our time-tested, efficient and low-cost operating model. This efficiency has been achieved despite a small staff base and supported by smart investments in processes and systems. It is our customers who help us evolve our product offerings and service delivery mechanisms.
Today, we have the digitalisation tools and expertise to provide an in-principle home loan approval within two minutes. In equal measure, we also recognise that many still want counselling and handholding in their home buying journey. No customer’s story is alike. Yet, all home buyers are alike as a home is probably the single largest investment a person makes in his or her lifetime.
Housing finance products are largely standardised. The key differentiator between home loan providers is the emotional quotient - empathy and understanding the needs and feelings of customers. We remain committed to offering inclusive and customised housing finance solutions across all income segments, increasing women homeownership, encouraging green housing and extending our reach in deep geographies.
Over the past two years, I have been on record several times stating that I have never been as optimistic about the demand for home loans as I am currently. Despite the recent headwinds in the global macro landscape, I continue to maintain this stance. India is on the cusp of an economic transformation. As the pivot of global growth shifts, India is envisaged to remain amongst the fastest growing major economies. Much of India’s growth will continue to be powered from domestic consumption.
Each day, year and decade has been rewarding in building a customer-centric organisation. I truly believe our 45 years of expertise in housing finance in India is unparalleled. We stand out particularly because of our time-tested, efficient and low-cost operating model.
The aspiration to own a home in India will only grow further. The home loan market in India is estimated at slightly over US$ 300 billion, which represents a mortgage to GDP ratio of just 11%. Favourable conditions like rising income levels, improved affordability and fiscal support augur well for the demand for homes. Real estate in India is on an upcycle. Developers are now financially stronger and more disciplined.
India should be able to double its home loans to around US$ 600 billion within the next five years. This would coincide with the period when India attains its much-aspired goal of being a US$ 5 trillion economy. Despite the doubling of housing loans, India’s mortgage penetration would still remain low at an estimated 13% of GDP. Now is the time to ask ourselves what will it take for India’s mortgage to GDP ratio to cross 20% and beyond? When one looks at comparable Asian economies, the average mortgage to GDP ratios range between 20 to 30%. This implies that housing loans in India will have an exponential growth trajectory for decades to come.
At HDFC, we know that this is the right time for strategic choices as we prioritise pathways for future growth. Our moment of truth is that the optimum path to scale up housing finance is to be housed within a banking structure. The pool of resources for lending will be significantly larger and at lower costs. From a regulatory perspective, it is prudent for all large providers of housing finance to operate on a level playing field, with the same rules. Globally too, the scale of mortgage assets is exponentially larger in banks compared to non-banking financial entities.
We have at length, already articulated the rationale for the proposed merger, which takes cognisance of the future growth potential of the country, the evolving macro environment and changes in the regulatory architecture.
Trust is the foundation for a successful merger. Fortunately, between HDFC and HDFC Bank, there is a natural affinity. Financial and human capital is critical through a merger process, as is a lucid communication strategy on key developments during this period. It remains our every endeavour to be available and accessible to all our stakeholders to assuage concerns in an open and transparent manner. Further, both entities stand strongly committed to enhanced environmental, social and governance (ESG) disclosures.
At this juncture, we are awaiting regulatory guidance on the path forward. We remain respectful of all our regulators and are confident that the outcome will be judicious and fair at a systemic level. My only ask of our stakeholders is for your patience as we navigate through the complexities of this transaction. More than ever before, we need your trust and support.
All the members of the board and senior management – past and present have individually and collectively helped the Corporation stand tall through the decades. I remain extremely grateful to all of them through the years.
After 45 glorious years of providing homes to millions of customers, the time is right for HDFC to find a new home.
With the blessings of our regulators, shareholders, creditors and other stakeholders, we look forward to being able to add the third and final significant date in the history of HDFC, which would mark the conclusion of the proposed merger.
Till then, I have promises to keep and miles to go before I sleep.
