Someone once asked Deepak Parekh, 'what do you know about banking?'

Three months after his retirement, 78-year-old Deepak Parekh, the former Chairman of HDFC, opened up about his 46-year-long journey building India’s first mortgage lender, which went on to become a financial services empire like no other over the next four decades.

“Rs. 30,000,” was Parekh’s response when Janmejaya Sinha, Chairman-India of BCG asked him about the size of the first loan that his company made after its founding in 1977. HDFC went on to become the country’s biggest private mortgage lender that has financed over 9 million homes since its inception. On July 1, 2023, HDFC merged with its sister concern, HDFC Bank (born in 1994), creating the country’s biggest private bank with nearly 7,895 branches.

However, his first proposal to set up a bank was rejected by the board of directors at HDFC. “The board members felt it was too risky. ‘What do you guys know about banking?’ You are exposing our company to that. We are doing very well. Why do you want to venture out? We had to really prepare our opposition paper and go back to the board and finally, they agreed that we could only put 25 percent, not 50 percent. That was the history, why we only had 25 percent of our bank because our board did not allow us to put more,” Parekh reminisced.

HDFC Bank’s net worth at inception, less than two decades after HDFC was born, was Rs 300 crore. There are different estimates on the street for the combined entity of HDFC and HDFC Bank, post-merger, but most of them see the bank to be worth over Rs 4 lakh crore by March 2024. Net worth is the difference between its assets and liabilities.

High finance was not as hot in the 1970s and 1980s India, as it is today.

Despite being the first mover in home loans, Unit Trust of India, the only mutual fund in India in 1988, refused to invest in HDFC. “His (Parekh’s) request was turned down on the grounds that retail lending was too risky a business,” Saurabh Mukherjea, the founder of the Mumbai-based Marcellus Wealth Management, wrote, along with Tej Shah, 2020.

But by the same account, that of Mukherjea, by the late 1980s, HDFC had raised money from the International Finance Corporation (IFC), the World Bank and the United States Agency for International Development (USAID).

“We used to go twice a year all around to meet investors which is not happening today in the corporate sector. If you want foreign investors, if you want institutional investors, or foreign sovereign funds, you must meet them 3-4 times before they get comfort in the management. You have to do that after your 6 monthly results, after your annual results, you have to go all over the world and it is quite cumbersome. One day here, one day here it is not easy to do. We followed it up because we had no promoters, 100 percent stock was in the market. We had to find buyers of the stock,” Parekh said

Parekh —  a 33-year-old chartered accountant in 1978 who had done his articleship in London —  was offered a basic salary of Rs 3,500 and another Rs 500 as a dearness allowance when he joined HDFC, the company founded by his uncle HT Parekh. “Salaries were very low and however, we were lucky to get a good team, and we worked well together and it was a new idea,” he said, reflecting on how the financial sector had changed in the decades since.

“And the reason people did not leave us is from the early days we gave stock options to each and every employee of ours,” he added. However, ESOPs are not an option for HDFC Bank now. “Even in the last stock option we gave some five, seven years ago, it was to each and every employee. Now we could do that because we had 3,000-3,500 people. But banks have three lakhs numbers. So you can't do it in a large organisation, we could get away because we were a small outfit,” according to Parekh.