Chairman’s Letter
To Our Shareholders

Hope Begins at Home

The pandemic has been one of the most scarring periods in living memory. Through this unfortunate devastation, if there is one key takeaway, it is that hope begins at home. More than ever before, a home is not just a physical space, it is a feeling. A home is sacred. It is where the strongest human bonds are created. The pandemic has taught us that the three phases of a fulfilling life – learning, earning and returning can be done from home. Since inception, HDFC recognised the importance of housing and for forty-four long years, we have stayed true to our objective of enabling Indians to become homeowners.

The year under review entailed two distinct halves. The first was the shock and suddenness of the national lockdown. Working remotely called for a reorientation of mindsets, systems and processes. It was also a period when we further fortified our balance sheet through our capital raise. The upside of conducting virtual roadshows was that it enabled us to reach out to a significantly larger investor base across several geographies.

The second half of the financial year reaffirmed our belief that more than ever before, people are craving for homes. Demand was for affordable housing and high-end properties. It came from firsttime homeowners and those moving up the property ladder into larger homes or relocating.

Every loan disbursed during the pandemic reassured us that as an organisation, we were resilient, adaptable but most importantly, humane. In the darkest of days, we saw that the more innovative and efficient we got in disbursing loans, including optimising our digital platforms, the more hope and happiness we were able to bring to our customers.

A confluence of factors aided the sharp recovery seen in housing in the second half of the financial year. Developers were more willing to rapidly close out deals. Interest rates were at record lows. Continued fiscal benefits on home loans and concessional stamp duty rates offered by certain state governments also encouraged home buyers.

Despite the economy contracting 7.3% in FY21, the demand for home loans surpassed all expectations. Going forward, the risks of recurring waves of infections may result in temporary setbacks, but the inherent demand for homes loans remains stronger than ever.

Across the globe, the battle against the virus is still raging. At this juncture, the only way to navigate this crisis is vaccinating as many people as fast as possible.

Stellar Role of Regulators

I do believe that the second wave of infections in India could have less of an impact on the economy than the first wave. As is the case globally, recovery is likely to remain patchy and uneven.

Since the outbreak of the pandemic, despite the disruptions, the Indian financial system and capital markets have displayed remarkable resilience. Kudos must go to the regulators who have consistently been responsive to the needs of the economy. The regulators have had their ear to the ground, welcomed feedback and have taken measured steps in a consensual manner.

The Reserve Bank of India (RBI) has had to do the heavy-lifting. It is only befitting to acknowledge that without RBI’s timely interventions, much of the financial system may well have been decimated due to the extreme risk averseness in the early days of the pandemic. Since February 2020, the support announced by RBI stood at ` 15.7 trillion, which is equivalent to 8% of GDP. No doubt, the task ahead remains daunting as RBI has to balance the need for growth, facilitate the government’s borrowing programme, rein in inflation, continue with stimulus measures and support sectors deeply impacted by COVID-19.

Ironing Out Regulatory Wrinkles

As FY21 marks the first transition year of housing finance companies (HFCs) being regulated by RBI, I thought I could share some ponderings on the regulatory landscape. These are reflections of my personal views.

Regulation and supervision are critical functions in any financial system and it is important that trust between a regulator and regulatee is never compromised.

Regulatory clarity helps minimise potential conflicts. Often, there are differences in interpreting regulations. For instance, non-banking financial companies, including HFCs have been following Indian Accounting Standards (IndAS), which is still not aligned with the prudential guidelines. This results in differences in opinions between the inspection teams, regulated entities and even the auditors. Banks and insurance companies have not migrated to IndAS, but it has been three years since NBFCs have. While this isn’t a level playing field, it may be prudent to at least resolve these open-ended issues sooner than later.

Another niggling point for HFCs is retention of customers. Lenders are susceptible to losing their existing customers to other players who often lure them through lower interest rates or increased loan amounts. As there are no prepayment penalties on floating rate loans, a lender can take over a home loan rather effortlessly. Direct selling agents (who are not tied agents) are happy to play along as it means getting paid a commission twice over on the same borrower’s loan. Balance transfers only shift assets from one player to another; it does not increase home loans or home ownership at a system level. Yet, this is par for the course in a competitive business landscape.

The issue is that onboarding a home loan customer takes a great deal of effort and entails costs as well. But certainly, an endeavour to retain a performing customer which could entail a change in the rate of interest is not akin to a loan being restructured. It would be of great comfort for all HFCs to have this issue put to rest.

The current environment has proved that there can be no better protection for a borrower than home loan insurance and home insurance. COVID-19 has shown how fragile and uncertain life can be and people now truly realise the importance of life insurance. In equal measure, given the risks around climate change and abrupt weather patterns, home insurance becomes a key risk mitigant. Currently, an insurance loan given to a home loan borrower is considered as a non-housing loan. Insurance is voluntary for a home loan borrower, but the reality is that the insurance loan to the home loan customer should be considered as an integral component of a housing loan and be permitted to be classified accordingly. After all, insurance protects both, the customer and the HFC.

My last submission is that the regulatory framework in its current form may have the unintended consequence of penalising a HFC for maintaining excess liquidity. Larger amounts of liquidity are being held by HFCs out of abundant precaution. But surely maintenance of higher liquidity should not become the hindering factor leading HFCs to have to recalibrate their housing and non-housing portfolios so as to meet the prescribed minimum threshold limits of assets in housing finance. A minor tweak which could exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs.

These issues are minor teething problems in a regulatory framework that is evolving. The important part is to be able to keep having dialogues with the regulators. RBI has done well to create the Regulations Review Authority along with an advisory group for the same. This committee hopefully will have the ear of both, the regulator and the regulated entities, thereby creating the much-needed bridge.

People of the Year

History will record the year as one of the greatest tests of courage, resilience and compassion. One falls short of words to adequately express gratitude to all the frontline healthcare workers. One also has to appreciate the wonders of technology that kept a socially distanced world connected and marvel the progress of science and medicine which brought vaccines to the world in the shortest time ever.

At HDFC, everything we did, achieved and was lauded for is attributable to our employees who put customers first, believed in their collective strength and displayed the tenacity to keep persevering. During this period, it became more apparent that we have some young and promising talent which we will continue to nurture and build a pipeline of leadership. As for plans on longer-term succession planning, I assure you, it continues to remain a top priority and very much a work-in-progress.

I could not have been more grateful for having Keki, Renu and Rangan lead at the forefront. Keki was the undisputed choice of the board to continue at the helm for the next three years. Continuity and stability is needed at this juncture. Renu has been the ‘go-to’ person for all our employees as she tirelessly rallied teams together, leading with sensitivity and compassion. Rangan has finely balanced his dual role of managing the Corporation’s resources in a tough environment, whilst also overseeing the compliance function.

Lastly, I must take this opportunity to thank and bid adieu to two of our very valuable directors on our board. Nasser Munjee and J. J. Irani will be completing their term as directors in July 2021. Each with their own characteristic style have contributed immensely in guiding the board’s overall strategy.

My relationship with Nasser goes back 43 years as he was one of the first employees at HDFC. Nasser rose to the ranks of executive director at HDFC and later worked on setting up and heading Infrastructure Development Finance Corporation. Nasser has always been appreciated for his futuristic outlook and forthright views on governance. He has been a part of HDFC from its startup stage right up to its journey today. He truly has been an HDFC lifer.

J. J. Irani joined HDFC’s board in 2008. Being a veteran from the Tata group, his value system was closely aligned to HDFC and the board benefitted from his deep industry experience. Rarely one to mince his words, he always stood his ground whilst expressing his strong opinions. He ably chaired the nomination and remuneration committee, overseeing the phased board refreshment.

Change in any institution is inevitable – be it at the helm or down the line. I do also want to acknowledge the contributions of employees who have superannuated from HDFC over the years. We continue to build upon their efforts and this has held us in good stead.

Against the backdrop of this pandemic, what the future holds only time will tell, but my instinct is that we will find calm in the chaos sooner than we think.