Salaries were very low but first 10 years of survival made me believe in HDFC: Deepak Parekh

Veteran banker Deepak Parekh believes age is no bar for entrepreneurship. “Need an idea, must have conviction, ability to execute with lots of patience and perseverance,” he shared the mantra in an exclusive interaction with CNBC-TV18, on the sidelines of Global Fintech Fest, on September 7.

Housing Development Finance Corporation’s (HDFC's) former chairman Parekh says his firm went through ups and downs as all startups go through. “First 10 years of survival made me believe in HDFC Ltd,” he said and recalled how salaries were very low at the institution and how when the first borrower came for a loan, the company put his picture on the annual report.

However, foreign investors trusted the senior management of HDFC. He said every foreign fund wanted to invest in HDFC because it produced good results and growth. They had trust in the senior management that used to be in contact. “We used to go twice a year all around to meet investors which does not happen today in the corporate sector,” he said.

The 78-year-old believes that if businesses want foreign investors, institutional investors, or foreign sovereign funds, they must meet them three to four times before they get comfortable with the management. “You have to do that after your six-monthly results, after your annual results, you have to go all over the world,” he advised, adding that his company followed it up because it had no promoters.

Parekh also discussed how HDFC entered the banking business, he calls it a strange reason. He said that one day he saw an ad in the Times of India "RBI invites applications for setting up new universal banks", which got him excited since he had spent some time in banks and knew a little bit about banking.

“I went to our colleagues and said that we should start a bank. We called a board meeting and immediately our proposal was rejected because our net worth was Rs 50 crore reserves, Rs 50 crore share capital and minimum requirement for the bank was Rs 100 crore,” he recalled.

The board members felt it was too risky a bet. They asked when the firm was already doing well, why venture out. “We had to really prepare our opposition paper and go back to the board and finally they agreed that we can only put 25 percent, not 50 percent. That was the reason why we only had 25 percent of our bank. Because our board did not allow us to put more,” he explained.

Parekh added that his institution concentrated on family requirements, and post home loans, the financial needs of a person and their family were the target of the bank.

Listing out the rules, he said, “On the housing side, if you have a lot of unrecognised income, we will not be able to give you the kind of loan you wanted. Because 90 percent of our borrowers had to be in a salaried class.” He also pointed out that businessmen and self-employed people, be it doctors or lawyers, never showed the right income.

“Since the loan was linked to the income, we had a good record of recoveries because we never gave a loan on the asset value. We gave a loan on the cash basis of the individual,” and added that they checked the borrower’s cash earnings, his take-home pay, and how much the person would be able to pay out of it.

“So for the self-employed, later on, we had the CIBIL. We used to go for everything. But we only looked at the last three years’ balance sheets, income tax returns and on that basis, we gave a loan,” Parekh said.