HDFC

The Indian Housing & Services

Provider

Authors

Manoj Joshi*

Vindhyalaya Joshi**

Contact Address

B-1/51/Sector B, Aliganj, Scheme,

Lucknow, Uttar Pradesh, India, 226024
E-mail: mj_32@gawab.com
Residence Phone: +91-522-2370934
Handy: +91-933-52-35676

Submitted
09/10/2007 Revision (2)

Foot note
* The author is BE, MIE (Mech), PGDFM, MBA, MIMA, Chartered Er and with PhD thesis on Innovation. He has been associated with the Industry at senior
position and in research for 16 years and currently an Assistant Professor (Strategy, Entrepreneurship & Innovation) with SAMA, Lucknow. He is an active
Life member of Institution of Engineers (India); Lucknow Management Association, Association of Knowledge Workers Lucknow, All India Management
Association, Indian Economic Association, Society of Entrepreneurship Educators at ISB, Hyderabad.

**The author is retired Sr. Research Professor with the Department of Education, UP, India. He is a Philosopher with interest areas like Political Science,
Economics, General Management, spiritualism and a coveted author on ‘History of Western Political thought’

1
 Abstract

Housing Development Finance Corporation Limited (H.D.F.C) was set up on 17th

October, 1977 by I.C.I.C.I. out of the consideration that a specialised institution was
needed to channel household savings including funds from the capital market into the
housing sector. H.D.F.C. since its seeding has emerged as the largest mortgage
finance institution in the country. The main objective of H.D.F.C. is to develop
significant expertise in retail mortgage loans to different market segments, to have a
large corporate client base for its housing related credit facilities and to support or aid
in the promotion of home ownership. H.D.F.C. is India’s leading housing finance
company and for all practical purposes is synonymous with the domestic housing
finance industry.

The primary objective of H.D.F.C is to enhance residential housing stock and promote
home ownership. One of its major objectives is to increase flow of resources for
housing through the integration of housing financial institutions with the domestic
market. H.D.F.C. has developed a strong market reputation, large shareholder base
and a unique consumer franchise. H.D.F.C. is respected as India’s premier housing
finance company in India as well as in the international markets. It has maintained a
consistent and healthy growth in its operations while retaining as a clear market leader
in mortgages business in India. The company has constantly engaged into innovative
practices since its conception.

Keywords:
Innovative Practices, Incremental Innovation, Intrinsic & Extrinsic Motivation,
Entrepreneurial Competency, Opportunity Recognition, Risk and Uncertainty

2
The Competitive Innovation War

Innovators globally, have been creating the mainstream of wealth, new or an

unprejudiced jump from the present, impart new value to old assets and create entirely
new dimensions of capital and social value. Globally, enterprises like Apple, Google,
3M, Toyota, Microsoft Corporation, General Electric, Procter & Gamble, Nokia,
IBM, Virgin, Samsung, Sony, Dell, BMW, Intel, Wal-Mart, Honda, IKEA, Vodafone
and Southwest etc have been pioneers in their respective areas for continuous
Innovation. Reliance, Infosys, Satyam Computers, HCL group, HDFC bank, Wipro,
Bharti enterprises, Tata Group, A V Birla Group, Hindustan Lever, ITC, ICICI Bank,
Mahindra & Mahindra, Nicholas Piramal, Larsen & Toubro and many more who have
produced wealth with barely any base are good Indian examples. Even the Indian
SME’s like Metal Seam, Precision Tool Company, Butterfly group, Precision Gears,
MESCO, Fuel Instruments & Engineers, Petron Group, Electronica India, Sanghi
group, Gopi Appliances, Surya Roshni, Rural innovations network, KPIT Cummins,
Euro Group, Sheetal Manufacturing Company, Visiontek, IACO, Candico India,
Eldelweiss Capital and many more endlessly are also not behind as youngster
enterprises engaged in this process more frequently than the older and larger
counterparts. Thus it becomes important to research as to why some enterprises,
sectors and Nations are able to create more value than others!

‘Strategic innovation’ is the answer. This is so because such innovations have long-
lasting impact on the endurance of the enterprise. Such innovations may emerge in the
field of new technology, unearthing of new and more convenient locations. They can
come in the discovery of new sources of raw material, like fibre optics, or new oil
fields, in the form of product or services like new credit cards or mobile phones, new
forms of organisations, flat organisations, customer management relations etc. etc.
The Innovative enterprises are engrossed on the outside and these are the customers,
which become the unmistakable driving force for the existence of the enterprise,
committed to growth through innovation, while manoeuvering through uncertainties.

For survival, an innovative enterprise will have to continuously rethink, how to

reinvent our customers and change the total mind set, while adding to the customer
value. This is plausible by accurately identifying the core competencies and
embarking upon it. It also reflects as to when an enterprise should dump products &
business that have outlived their times, when to categorize & expand niche markets,
while creating distinctive long term competitive positions.

Thus, these enterprises will have to strengthen the “Innovation Velocity”, while
evaluating ways using ‘creativity. ‘This will involve actions such as new offerings &
solutions to customers, customisation and new customer experiences. Value
capturing, creating new products & processes, new dimensions of organisation,
supply chain, presence, networking and branding…’ (Sawhney et al, 2006).

HDFC limited is one such Indian enterprise in the financial sector that has been
successfully steered innovatively by Deepak Parekh and his team. Known popularly
as a charismatic leader, Deepak Parekh has transformed this offshoot of ICICI with
the purpose of channelizing household savings and carved it into an independent
highly respected financial institution in the country.

3
The Housing and Development Scenario

The housing finance industry is important from the point of view of over all
development of the Indian economy. Housing is being increasingly viewed as being
important for over all infrastructural development in the economy. Housing finance is
one of the industries’ that are driven by the fluctuations in the real state industry.
Although there has been an upsurge in the demand for the home loans in the recent
past, it has not translated into a breathtaking performance by the housing finance
companies (HFC’s).The housing finance industry is important from the point of view
of over all development of the economy. Housing is being increasingly viewed as
being important for over all infrastructural development in the economy.

The national housing policy reflected the trust, the government wished to give to the
housing sector and pointed out that housing was not merely consumption expenditure,
but also a productive investment, which would provide economic activity and create a
base for attaining several national policy goals such as providing shelter and raising
the quality of life. It specifies the interest rate to be followed in lending and
borrowing, income recognition & prudential norms, borrowing limits & audits to the
finance companies.

All housing finance companies which provide long term finance for construction or
purchase of houses in India for residential purposes come under National Housing
Bank (NHB), which is a full time regulator of HFC’s. HDFC has been making all
attempts to follow these norms and be as one of the leading participant in shaping the
Housing & Development sector.

The Pre-Independence Scene

Taking up records of the bygone century, it is notable that the deficit-housing problem
in India was not so aggravating till the first half of the century. Census records
revealed that in 1901, there were 55.8 million houses for 54 million households,
which means that there were 1.8 million surplus houses. This surplus continued till
1941. But then a phase came, where this surplus turned into a deficit to 1.7 million, in
correspondence to 64.3 million houses for 660 households. The maximum surplus
period between 1911 & 1931 was because of many such urban centres during the
period were affected by plague and famine, which caused death on a large scale. This
resulted in households to grow slowly, leaving enough room for house construction to
cope with the household growth.

The Second World War (from 1939-1945) totally changed the situation. Labourers’
migration was seen to the towns to work in factories for producing ammunitions and
other war supplies. During this period, there was a scarcity of labour and materials for
housing construction. After the War, many labourers continued to stay in urban
centres and adding pressure on the housing situation. This became the initial turning
point towards housing requirements.

The situation continued and aggravated in 1947. About 7.5 million of displaced

4
persons migrated to India, in the wake of the partition of the country, into India and
Pakistan. With India achieving independence and taking a giant leap in terms of
progression and industrialization, improvement of health facilities and the death rate
coming down and the considerable growth in population and the influx of job seekers
into urban India, mounted up pressure on the housing problem. By 1971, the ratio of
total number of households to the number of houses was 100.4/90.7 million, taking up
the deficit to 9.7 million.

The Present Scene

Despite considerable investment and efforts over successive Plan periods, the housing
problem continues to be daunting in terms of the large number of homeless
households, rapid growth of slums and unauthorized colonies, spiraling prices and
rents of land and houses, rampant speculation, deficient availability of water,
sanitation and basic services top bulk of the population and the increasing struggle of
the poor and vulnerable sections to secure affordable and adequate shelter. The
housing shortage was estimated by the National Buildings Organization in 1991 to be
about 31 millions units, composed of 20.6 million in rural areas, and 10.4 million in
urban areas, with; the bulk of the backlog consisting of “kutcha” unserviceable units.

By 1997 the total housing shortage came down in the country and was estimated to be
13.66 million units, out of which 7.57 million units were in the urban areas. More
than 90% of this shortage was for the poor and the low-income category. The rapid
growth of urban population and its concentration in 300 cities with a population
exceeding 0.1 million started showing congestion and overcrowding in small houses,
leading to steady growth of slums, informal settlements and severe pressure on the
civic services. The population explosion and cross migration further lead to the
inadequate supply of affordable housing by public & private sector, the acute shortage
of funds of the development of settlements and extension of city level infrastructure.
This has been aggravated by institutional deficiencies of housing agencies and local
bodies, and insufficient attention to the shelter needs of the poor.

Future Prospects

Over the Eighth Plan period, it was projected that the shelter requirement by way of
up gradation and new construction would be 12.22 million units in rural areas and
9.55 million units in the urban areas. The Ninth Plan Working Group on Housing has
estimated the investment requirement for housing in urban areas at Indian Rs (INR).
5.26 billion. The India Infrastructure Report, 1996 estimates the annual investment
need for urban water supply, sanitation and roads at about 280.35 billion for the next
ten years. The Central Public Health Engineering (CPHEEO) has estimated the
requirement of funds for 100 percent coverage of the urban population under safe
water supply and sanitation services by the year 2021 at INR 1.729 trillion. Estimates
by Rail India Technical and Economic Services (RITES) indicate that the amount
required for urban transport infrastructure investment in cities with population
100,000 or more during the next 20 years would be of the order of INR 2.07 trillion.
Obviously, financial support of these magnitudes cannot be located from within the
budgetary resources of Central, State and Local Governments. Compulsions have,
therefore, arisen to access financial resources from the market and induce the private

5
sector to participate in urban development programs. This meant to the emergence of
the Private sector and its proactive role in the Housing & Development programme.

It is estimated that by 2010 and with the current rate of growth in population, India
would require at an average of 2.5 million to 3 million additional dwelling
constructions annually. Presently, only a meager 20% of India's new housing units are
financed through formal housing finance institutions, although there is a remarkable
prospective to augment the figure of home credit. With Governments timely
intervention housing finance on its own has become a major industry in India. With
the semi government and nationalized banks, the private sector too has shown a
tremendous interest in the race. With various plans to suit ones necessity and with
attractive interest rates, these housing finance institutions offer most attractive finance
options for home seekers.

The National Housing Bank

To give a boost to the housing scenario in India and to narrow down the margin
between the housing demand and the availability of houses, the National Housing
Bank was set up in the year 1988. This was done by keeping in mind that a home
seeker though does have a desire for a house but lacks the resources for construction
or buying it, hence to give an enhancement to private housing finance institutions the
National Housing Bank came into the existence. NHB has emerged as a principal
agency to promote housing finance institutions both at local and regional levels while
providing financial and other support to such institutions. It is important to keep in
mind that the National Housing Bank itself does not give loans or finance individuals
or a party as such but it is only a corporate body to promote, establish, support or aid
the housing finance institutions.

The housing finance institutions can be segregated into three categories namely Public
Sector Finance, Banks and Private Sector Finance.

Public Sector Finance

HUDCO (Housing and Urban Development Corporation Limited): HUDCO is an

influential Government of India Enterprise. Its main aim is to fund state governments
for infrastructure development and intends to surface as the only organization of its
kind for dealing with the needs of shelter and infrastructure development in the
human settlements. Since HUDCO entered into the individual housing finance sector,
there has been a complete change in the state of affairs. HUDCO provides housing
finance for 11.5 % and after deductions the interest rates comes to 8.81 %. This has
lead to the war of interest rates. HUDCO Bhawan, India Habitat Center, Lodhi Road,
New Delhi, is the head office followed by its branches all over India.

It has its regional center in Ahmedabad, Bangalore, Bhubaneswar, Bhopal,

Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Lucknow, Patna and
Thiruvananthapuram. HUDCO has its zonal offices in New Delhi, Chennai, Mumbai
and Calcutta. Its Development Offices are in Agartala, Cochin, Goa, Imphal, Jabalpur,
Jammu, Pondicherry, Port Blair and Gangtok.

6
LICHFL (Life Insurance Corporation Housing Finance Limited: LIC Housing
Finance Ltd. is one of the leading and oldest home funding organizations, which
offers one of the finest services in the trade. It has branches all over India. It offers
variety of loans like housing finance for new purchases, re-constructions, renovations,
NRI housing finance etc. Some of the schemes that LICHFL offers are the Griha
Shobha, which is for NRIs, Griha Sudhar, where one can apply for a loan for
renovations and repairs in existing houses. Green Channel Facility is meant for
professionals like practicing doctors, CAs, computer engineers, etc. Lately, LICHFL
introduced a new scheme Apna Chikitsalaya, which is especially for medical
practitioners for renovating, purchasing or extending their clinic, hospital, laboratory,
etc. Then it also has the scheme of Sampurna Griha (A) & (B) for resident Indians.

GICHFL (General Insurance Corporation Housing Finance Limited): GIC Housing

Finance Ltd., a company from the house of General Insurance Company is also
emerged as a strong housing finance institution in the recent years.

PNBHFL (Punjab National Housing Bank Housing Finance Limited): A subsidiary of

the Punjab National Bank, PNBHFL offers the Apna Ghar Yojana for construction or
buying a house. It also offers the Ghar Sudhar Yojana for renovation or repair of
house or flat. It has home loan facilities for NRIs and Line of Credit Facilities for
companies to give loans to their employees for construction or renovation of a house.

SBIHF (State Bank of India Housing Finance): SBIHF offers loan for construction
and renovation of houses at the lowest interest rates, which range from 11.5% p.a. to
12.75% per annum.

Banks

Most of the banks throughout India provide housing finance, except a few small
branches. The major banks being Bank of Baroda, Bank of India, Bank of
Maharashtra, Bank of Punjab, Canara Bank, Cooperative Banks, Citi Bank NA,
Corporation Bank, Dena Niwas, HSBC, ICICI Home Finance, IDBI Bank, IndusInd
Bank, Lakshmi Vilas Bank, Punjab National Bank, SBI (State Bank of India), UCO
Bank, and many others. ICICI and SBI are the leaders. ICICI gives the maximum
period of 30 years for the repayment of loans. It offers loans ranging from a minimum
of INR 1 million to INR 10 million.

Private Sector Finance

HDFC (Housing Development Finance Corporation): With the objective of

augmentation of housing through the requirement of housing finance, HDFC was
established in 1978 with the support of the Industrial Credit and Investment
Corporation of India, the International Finance Corporation (IFC) in Washington and
the Aga Khan Fund. Today HDFC and Housing finance are synonymous. The
maximum loan HDFC offers is 85 per cent of the cost of the property whose
repayment is on a monthly basis in equated monthly installments spread over a period
of between 5 and 15 years.

DHFCL (Dewan Housing Finance Corporation Limited): Dewan Housing Finance

Corporation Ltd. is also one of the preferences in private housing finance sector.

7
Since 1984 in the market, today it has 22 branches all over the country. Union Bank
of India has obtained an equity involvement in DHFCL's capital composition. It is
interesting to note that DHFCL's shares are listed on Mumbai, Delhi and Ahmedabad
Stock Exchanges.

DHFCL offers a Double Protection Plan in form of 'Free' Accident Risk Cover +
Property Insurance to the extent of the loan liability to safeguard the interest of the
borrower. It also has a Regressive Payment Scheme for applicants who are due for
retirements within 5-10 years and apply jointly with the eligible younger co-
applicants.

GHFCL (Global Housing Finance Corporation Limited: GHFCL a syndicate of

reputed builders, incorporated in June 1994, offers Individual Home Loan Scheme
and Home Improvement Scheme. Oriental Bank of Commerce as one of the leading
nationalized banks also participates in the equity of the company.

BHFL (Birla Home Finance Limited): BHFL offers Easy Title for registration of the
property or land purchased. Easy Upgrade loans for renovation of the existing house,
which has been purchased or constructed at least one year ago. The renovation can be
in the form of flooring, tiling, plumbing, paint, polish, etc., Easy extend loans for
extensions of an existing house, Easy Home loans for outright purchase of a ready
built house, Easy Build loans for construction of house on self-acquired or inherited
vacant plot of land, and Easy Bridge Loans for purchase of a ready built house, when
an individual already owns a property, which would be sold on getting possession of
the new one.

Maharishi Housing: Maharishi Housing Finance Corporation Ltd., a company from

Maharishi Group started in 1997 catering to home loans. One of the key attractions of
Maharishi Housing is its 35-year loan repayment scheme.

Competitive Players in the Housing Finance Market

The Union government, in order to endorse endowment for increasing housing

delivery all over the country has approved 31 new housing finance companies to
accelerate the national housing program.

The list of 31 housing finance companies which were given the go ahead nod by the
government include Andhra Bank Housing Finance, BOB Housing Finance , Canfin
Homes , Cent Bank Homes Finance, Corpbank Homes , Dewan Housing Finance
Corporation , GIC Housing Finance , GRUH Finance , GLFL Housing Finance ,
Global Housing Finance Corporation , Happy Home Profin Limited , Housing
Development and Finance Corporation , Housing and Urban Development
Corporation (HUDCO) , Home Trust Housing Finance , Ind Bank Housing , LIC
Housing Finance , Livewell Home Finance Limited , Maharashi Housing
Development Finance Corporation , National Trust Housing Finance , Orissa Rural
Housing and Development Corporation , Parashwanath Housing Finance Corporation
, PNB Housing Finance , Peerless Abasan Finance , SBI Home Finance , Saya
Housing Finance , Vyasa Bank Housing Finance , Vijaya Home Loans , VI Bank
Housing Finance and Weizmann Homes.

8
It is interesting to note that Tata Homes Finance Ltd., and Birla Home Finance Ltd.,
too have joined the housing finance providers race. Reliance Industries and GE
Capital are also likely to storm housing finance market in the near future. A boost to
the housing finance industry can push up the Indian economy scenario in a large
scale. Housing has a tremendous tendency to create income and insist for resources,
tools and services.

HFDC: The Background

HDFC was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a
specialised institution was needed to channel household savings as well as funds from
the capital market into the housing sector. HDFC has emerged as the largest mortgage
finance institution in the country. The main objective of HDFC is to develop
significant expertise in retail mortgage loans to different market segments, have a
large corporate client base for its housing related credit facilities and to support or aid
in the promotion of home ownership. HDFC is India’s leading housing finance
company and for all practical purposes is synonymous with the domestic housing
finance industry.

The primary objective of HDFC is to enhance residential housing stock and promote
home ownership. One of its major objectives is to increase flow of resources for
housing through the integration of housing financial institutions with the domestic
market. HDFC has developed a strong market reputation, a large shareholder base and
a unique consumer franchise. HDFC is India’s premier housing finance company in
India as well as in the international markets. It has maintained a consistent and
healthy growth in its operations to remain the clear market leader in mortgage
business in India.

The core management of HDFC is the board of directors who play an important role
in deliberations at the board meetings and bring to the corporation their expertise in
the fields of finance, housing, management, accountancy, law, public policy, and
engineering.

Chairman: Deepak S Parekh

Vice Chairman: Keshub Mahindra
Managing Director: K M Mistry
Executive Director: R V S Rao
Executive Director: Renu S Karnad

The Entrepreneurial Force

A vision set up by the creators of Independent India as Roti (Bread), Kapda

(Clothing) and Makan (House) became the driving force for this young enterprising
manager. The industry calls Deepak Parekh and HDFC as synonym who has made it
possible for 1.8 million families to own their “home sweet home”. When this young
Deepak had joined HDFC, there was hardly anyone in this home finance business in
the year 1978. With his skills of leading the people mandate and respect, he scaled to
new heights and created benchmarks of his own. ‘Leadership is not a one-person
phenomenon. It is not restricted to the top of the organization. There must be formal

9
and informal leaders at all levels of the organization. Only this would ensure
sustainability for it to be a world class organisation’ is what he lamented on 16
November 2000 at the India summit in Mumbai.

Deepak has been a model player for all his followers. Enriched with rich values and
open style of working has given a cutting edge to his relationship building process
which has set mile stones for the organization. During the license raj we were at least
20 years behind the schedule. But Deepak Parekh and his legendary Uncle and mentor
were 20 years ahead. H.T. Parekh popularly known as Hasmukh Thakordas Parekh
had the perfect vision, a basic need for the growing middle class. Home loans became
his immediate concern. A disordered banking system nerved his thinking to rope in
his nephew, Deepak, a chartered accountant working in UK. Deepak’s career had
stints in Ernst and Young in New York, then the merchant banking division of
Grindlays Bank followed by Chase Manhattan Bank. “Do you know it was a daring
move from a settled overseas operation to a virtually new set up at half the income,
but the spirit to return to serve the country was far powerful than a comfortable and
respectable overseas career”. This was a powerful intrinsic motivational force,
undefeated.

The most powerful connection between Deepak Parekh and his customers is the
‘affection’. He is in complete love with his customers. Most of his old time customers
term him ‘Apna Deepak’. A typical style that he adopts is the connections that he
maintains, powered by availability and accessibility. This has stood out to be the
powerful mantra to HDFC’s success. The art of rejection of any application, which is
not commensurate to stipulated requirements, is also done with top class affection.
This is also one of the reasons why trust has stood as 100 percent. In 1996 when
Deepak was nominated for the Business India’s award for the Business man of the
year, the criterion demanded a fusion of business and social thinking. It was obvious,
Deepak Parekh, Chairman HDFC had set the mission in the same direction.

No specific business model has been emulated or formulated by him. He stands tall as
come the values, integrity, trust affection etc. He claims that if the business expresses
to its customers the art of caring then the attitude is reciprocal especially in a service
industry. ‘Word of Mouth’ is powerful tool for existence and that HDFC under his
tutelage has capitalised upon. When he returned to India his views were very clear
that there is lot that HDFC has to do in India before venturing out. Deepak stormed
his powerful thinking and radical decision making with risk taking ability to the rest
of the world. He still claims to be a salaried class and would die same.

He adds on another mantra as ‘Slow and steady always wins the race’. If the speed of
climbing is high the chances of falling are even greater. So one should not be
expected to have a very high growth rate but the stability to maintain it further matters
most. The role model whom he drew all through his life has been from his uncle. His
Uncle infused in him the importance of humility, simplicity, helpfulness, finding
solutions to problems and trusting people. Trusting people has let him down too, but
this has happened to any Banker and that’s the way to put some checks in!

10
Operations & Marketing

HDFC has been recently voted as one of India's Best Managed Companies in the
Asian region in independent polls conducted by two reputed publications. Moreover
the board have approved increasing the maximum shareholding limit by the Foreign
Institutional Investor FII’s from 49% to 74% of the paid up equity capital share
capital of the Corporation. In January 2002, HDFC Chubb General Insurance was
incorporated with an authorized capital of INR 1.20 billion.

In order to enhance customer service, HDFC has widened its distribution network by
opening 31 new offices across the country. As of March 2002, it had a network of 118
offices in India. It also covers over 90 locations through its outreach programmes
which have helped the corporation to disburse housing loans in over 2,400 towns and
cities in India. It has also supplemented the distribution channel through the
appointment of Direct Selling Agents (DSA). They have started forming as the nets
for business development.

All Housing Finance Companies that provide long term finance for construction or
purchase of houses in India for residential purposes come under National Housing
Bank (NHB), which is a full time regulator of HFC’s. HDFC is making all attempts to
follow these norms, guidelines and directions of National Housing Bank. Marketing
efforts and initiatives at HDFC LTD have always revolved around the customer. The
primary objective is to reach out to the customer and provide him/her with all housing
related solutions. Thus HDFC LTD since its inception has positioned it self not just as
a company providing finance to customers, but a company that also provides loan
counseling , technical and legal assistance and other property related solutions .

Credit appraisal skills and legal and technical expertise has been built over the years.
These set of skills, supplemented with the vast database and trained personnel is
proving to be one of HDFC LTD’ strongest assets, today. Total approvals during the
year stood at INR 90.41 billion as against INR 68.79 billion in the previous year,
representing a growth of 31%. Loan disbursements during the year were INR 76.16
billion against INR 58.03 billion in the previous year representing a growth of 31%.

HDFC’s other Ventures

Housing is the core business of HDFC Limited, while the main focus still remains to
grow in the housing portfolio, organically and inorganically. In order to capitalise on
HDFC strong brand value and maximise returns for shareholders, HDFC has made
investments in various group companies. These group companies have strong
synergies with HDFC and such diversification will enable HDFC to offer a wide
gamut of financial services and products to customers. Investments made in the group
companies are from borrowed funds, where there is an interest charge debited to the
profit and loss account, with out a corresponding revenue flow in the initial years.
While these investments are long-term in nature, the businesses have tremendous
potential, thereby enhancing the valuations of HDFC.

The shareholding of HDFC in its subsidiary and associate companies as at March 31,
2002 are in HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings
Limited, HDFC Trustee Company Limited, HDFC Chubb General Insurance

11
Company Limited, HDFC Realty Limited, HDFC Asset Management Company
Limited, GRUH Finance Limited, Intelenet Global Services Limited, Credit
Information Bureau (India) Limited, HDFC Securities Limited & HDFC Bank
Limited.

HDFC manages various risks associated with the mortgage business. These risks
include credit risk, liquidity risk and interest rate risk. HDFC manages credit risk
through stringent credit norms. Liquidity risk and interest rate risks arising out of
maturity mismatch of assets and liabilities are managed through regular monitoring of
the maturity profiles.

The Product Range

¾
¾
Land Purchase Loans

¾
Home Construction / Purchase Loans

¾
Home Extension Loans

¾
Home Improvement Loans

¾
Home Improvement / Stamp Duty Loans
Home Loans For NRI’s

The Competitive Situation

21% 28%

13%
10%
12% 16%
HDFC
LICHFL
SBI
ICICI
O THER BANKS
O THER HFC's

HDFC has the largest market share of 28% followed by SBI with a market share of
16%, ICICI with a share of 12%, LIC occupying 10% of market share and the rest of
the housing finance institutions with 21% of the total market share. HDFC leads the
show.

Major housing finance institutions are identified on the basis of Net Sales, Net Profit
& Net Worth.

NET SALES
)s 3000
e
r
o
r 2000
C
n
I( 1000
s
e 0

12
In the financial year 2002–03, HDFC Ltd. recorded the highest net sales of INR 26.9
billion followed by LIC Housing Finance Limited with net sales of INR 8.73 billion,
ICICI Home Loans with INR 1.92 billion, CANFIN Homes Limited INR 1.39 billion
and SBI Home Finance Ltd. INR 0.394 billion.

NET PROFIT

Net Profit (In 800

crores) 600
400
200
0
-200 FC

i
I

Sb
IC
LI

FI
IC
D

AN
H

C
Financial Institutions

In the year 2002–03, HDFC Limited recorded the highest net profit of INR 5.8 billion
followed by LIC Housing Finance Limited with net profit of INR 1.47 billion,
CANFIN Homes Ltd. with INR 0.1663 billion, ICICI Home Loans INR 0.0958 billion
and SBI Home Finance Limited INR -0.9019 billion (loss).

NET WORTH

3000
Net Worth (in

2000
crores)

1000
0
-1000
C

i
I
FC

Sb
IC
LI

FI
IC
D

AN
H

Financial Institutions

In the year 2002–03, HDFC recorded the highest net worth of INR 27.0284 billion
followed by LIC Housing Finance Ltd. with net worth of INR 7.372 billion, ICICI
Home Loans INR 1.619 billion, CANFIN Homes Ltd. INR 1.13 billion and SBI
Home Finance Limited INR -1.548 billion.

Comparative Analysis with respect to rate of Interest

Term of Monthly Rest Options Annual Rest Option

Financial Institutions Loan Fixed Rate Home Adjustable Fixed Rate Adjustable
(Years) Loan (%) Rate (%) (%) Rate (%)
5 9.25 9.00 9.25 10.00
10 9.50 9.25 9.25 10.00
HDFC LTD.
15 10.00 9.75 9.75 10.00
20 10.00 9.75 9.75 10.00
Up to 5
CICI HOME LOANS 8.75
Years
6 – 10 9.25
NA
11 – 15 9.75
16 – 20 9.75

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 21 – 30 10.25
1–6 9.75 8.75
LIC HOUSING
7 – 12 11.5 9.00 NA
FINANCE LTD.
13 – 20 Up to 20 Years 9.75
Up to 5
8.25 9.50
years
CANFIN HOMES 6 – 10 9.00 9.50
NA
LTD.
11 – 15 9.50 9.50
16 – 20 9.75 9.50
Up to 5
8
years
SBI
Up to 10
(On Daily Reducing NA 8.75 NA
years
Basis)
More than
9.25
10 years

From the above data we can clearly say that SBI is charging lowest interest rates as
compared to other housing finance institutions followed by ICICI Home Loans,
HDFC Limited, LIC Housing Finance, and CANFIN Homes Ltd.

Comparative Analysis with respect to Processing & Administrative Fees

Financial Institutions Processing Fees Administration Fees Hidden Charges

HDFC 0.5 % of loan amount 0.5 % of loan amount Nil
ICICI 0% 0.5 % of loan amount Nil
Up to Rs. 25,000.00 Nil 2 stamp papers of Rs. 100/-
SBI Above Rs. 25,000.00 0.5% of and per 1,00,000 amount
loan amount stamp paper of Rs. 500/-
300/- agreement charge
Canfin Homes Ltd. 0.5 % of loan amount 0.5 % of loan amount
0.5% stamp duty
LIC Housing Advocates and Valuation
0.5 % of loan amount 0.5 % of loan amount
Finance Fees

The processing & administrative fees of ICICI Home Loans combined are 0.5% of the
loan amount which is the lowest followed by SBI. HDFC Limited, Canfin Homes Ltd.
and LIC Housing finance charge 1% of the loan amount.

Comparative Analysis with respect to Advertising Media

ADVERTISING FINANCIAL INSTITUTIONS

MEDIA AND

• • • •
METHODS HDFC ICICI SBI LIC CANFIN

•
Daily Newspapers

•
Sunday Newspapers

• • • • •
Colour Supplement

• • • •
Magazines

• •
Local Newspapers

• • • •
Television

• • • • •
Outdoor Advertising

• • • • •
Exhibitions

• •
News Letter

Presentations

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From the above table it can be concluded that ICICI’s has a strong advertising base
behind its success followed by LIC, SBI and Canfin. HDFC, in spite of its weak
advertising base (no media advertising) is the largest financing institution in India.

The Trend

Trend analysis is one of the most important tools for analysing any data. In order to
establish some relationship with the past performance the trend percentage has been
calculated on the basis of the following steps: (Figures in Rupees Crores)
1. Selecting a base year (1998).
2. Assigning 100 to the value of the variable of the base year.
3. Expressing the % age change in the value of variable from base to the study
year.

HDFC

YEAR SALES PBT TREND(%)SALES TREND(%)PBT

98 1288.11 293.03 100(base year) 100(base year)
99 1445.25 326.53 112.20 111.43
00 1762.87 389.02 136.86 132.76
01 2011.81 460.95 156.18 157.30
02 2374.8 556.23 184.36 189.82

SBI home finance ltd.

YEAR SALES PBT TREND(%)SALES TREND(%)PBT

98 82.26 -7.56 100(base year) 100(base year)
99 66.99 -44.51 -118.56 589.29
00 53.53 -24.24 -134.93 220.05
01 40.37 -21.55 -150.92 285.05
02 39.46 -90.12 -152.03 1192.06

LIC housing finance ltd.

YEAR SALES PBT TREND(%)SALES TREND(%)PBT

98 494.84 114.23 100(base year) 100(base year)
99 571.71 124.89 115.53 109.33
00 657.17 137.83 132.80 120.66
01 762.03 156.65 154.00 137.14
02 873.26 180.87 176.47 158.34

CANFIN homes ltd.

YEAR SALES PBT TREND(%)SALES TREND(%)PBT

98 100.26 14.81 100(base year) 100(base year)
99 109.76 19.46 109.48 131.40
00 112.97 18.27 112.68 123.36
01 127.63 23.19 127.30 156.58
02 139.03 24.68 138.68 166.64

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ICICI Home Loans

YEAR SALES PBT TREND(%)SALES TREND(%)PBT

98 NA NA 0 0
99 NA NA 0 0
00 NA NA 0 0
01 57.75 1.93 100* 100*
02 191.96 12.64 332.39 664.92
* As no data was available for the year 98, 99, 00 so 2001 is considered as the base
year.

The sales of HDFC has been continuously increasing, during the year 1998–1999 it
increased at a rate of 12.20%, followed by 84.36% in 2002. SBI’s sale has been
continuously declining since 1999 by 18%-52%. ICICI has emerged as the major
financing institutions after HDFC. (Percentages compared with the base year i.e. 100).

Innovation in Services

Prabhat Rao, the General Manager at the HDFC Lucknow office has tandem thinking
to his mentor, the chairman of HDFC, Deepak Parekh’s. His stress is also is on the
Customisation model which eventually has become the corporate mantra. If you ask
him ‘How is serviced perceived?’ His response is that Service is considered to be a
menial myth. One does not require having a formal education in customer service and
neither has he had it too. There can be no established service model which suits the
ready made recipe to a service industry. All that it requires is ample patience and
appropriate understanding of the customer, who looks for resolving his problem at the
earliest delivery of results.

So what makes service so different? A manufactured product is tangible. The product

in this case of a service is the person selling, which is predominantly ‘one self’. Hence
the success of providing the service depends upon the self. Such strong are words of
wisdom most appropriate in the present context, as the very first contact with the
customer matters most.

Customer behaviour is always need driven. Needs are always changing and
sometimes become very challenging to quench. Immediate fulfillment is what matters
most. The Customer has an option, hence the perceptions are crucial, while the
loyalties have become Portable. Brand loyalty is difficult to configure as the choices
to choose from can easily attract any one seeking its use. So what becomes is the
‘service imperative’. Service is critical. Moments of truth are ‘by looking at service
through customers eyes’. Customer satisfaction can be felt only by this belief.

What excites Prabhat Kumar; GM North Region is the tangible benefit of good
customer service. It leads to happy satisfied customers, a must in present context. It is
simple but complex to maintain. The image/brand equity gets enhanced. This has lead
to the better bottom line for the company and can be tested universally. When there is
a happier satisfied organization, it synergises easy acceptability in dealing with
outsiders. So there has to be a complete overhaul of internal and external dealings.
There is always a personal gratification out of customer satisfaction, which often
leads to improving or plugging gaps that arise in the product offering.

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Customer Loyalty can be measured. It is undecided 70 %, loyal 20 % and beyond
repair 10 %. While you focus on the loyalties it is imperative not to loose customers
as often, as they may become the whispers of failures.

Deepak Parekh, Chairman speaks, ‘for us, service management both within and
without the organization is the yard stick that measures the efficiency with which we
are in touch with the changing needs of our employees and customers in terms of
product design and delivery’.

HDFC leads an adaptive approach. It has a greater emphasis upon by responding

quickly to the changing environment. Competition, technology, enhancing personal
effectiveness & learning by doing has come of the way to redefine the customer
services. There is larger impetus upon building relationship. This includes the
Customers, Depositors, Deposit agents, Direct selling associates, Share holders,
Employees and the Regulators.

Inverted Pyramid Structure

Customer

Front Office

Management

The front office becomes the major force in joining the customer to the management.
The management philosophy is rather dictated and challenged every moment by the
growing needs of the customer. It like sharpening the saw every morning one comes
to the office keeping in mind there would be at least one new problem with its unique
solution. Henceforth, the front management is equipped appropriately with the
requisites to deal with the situations in a positive and cheerful manner. This is one of
the biggest strengths encompassing HDFC’s positioning in the service industry.

There are regular feed back mechanisms to improve processes followed by inter-
branch review teams, Conferences, open ended feed back, Technology up gradation
and a real time Customer Feed back. Customer is the utmost sacred holy cow for all
the employees of HDFC.

Process Mapping is regularly done with an Objective to set up uniform processes in

lending and enable practical implementation of service standards. The Inter-branch
team is set up to study processes across the branches, providing methodologies
towards improvements in customer services. Each employee attempts to fulfill
customer needs with a human face, thus setting new initiatives at service management
table, which has no end limits.

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 Stage Initiative Studying Approach
1 Customer relations Attitudes/ Behaviours Skill Model
2 HDFC service & You Process Cycle of Service
3 Quest Service Delivery Gaps Problem solving tools
Enhancing Personal Removing mental
4 Being Personal Quality
Effectiveness blocks

Regular trainings are organised to handle the customer care services. Prabhat Kumar
adds further, ‘Attitude! Each customer is an opportunity, so enhance your
communication skills by listening, framing a positive body language, clear manners
and a team work-internal. One is bound to be a true winner.’

A typical process towards identifying Customer Needs would be to understand,

anticipate and then empathise.

To seek solution, one must possess the flair to acquire knowledge, empowerment,
flexibility, and action towards unsatisfied needs, which leads to new products. The
systems support & time management would become the pre requisite to customers’
choice for choosing the service provider.

HDFC, services & you

Step Programme Outcome

1 Service excellence workshop for
top & Senior Management
2 HDFC, Service & You workshop
One branch in every region
3 HDFC, Service & You workshop
Branch Managers workshop
Clear Understanding of concepts
Identifying service concerns
Recommending solutions
Champions identified
Facilitation of skills, sharing best
practices & Action Plans

The Quest

A team was setup in 1996 that came out with valuable information on HDFC’s
delivery gaps. It was followed with Market Research conducted in the Branches. The
sharing was done with findings. This raised a Quest workshop.

Service in Lending

Stage Process Sanction Time Taken

1 COM at Head Office 4-6 Weeks
2 BSC at Branch 2-4 Weeks
3 On-line systems Same day onwards

Reduction in functional processes

Up to 1992 1995 Today

Inquiry Inquiry Inquiry & Submission
Submission Submission Submit Documents
Legal Documents Legal Documents Disbursement Cheque
Tech Inspection Disburse Cheque
Disburse Cheque

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Service Standards in Deposits

Acceptance of New Deposits 10 Min

Renewal of old deposits 10 Min
Repayment of Deposits 10 Min
Loan Against Deposit 15 Min
Premature withdrawal of
15 Min
deposits

HDFC has capitalised its excellence in mobilising resources. Presently, HDFC’s rates
are on par or 50 basis points above other banks. Still deposits sell. Why? The answer
is simple ‘Service through technology and standards’. There is a greater emphasis on
relationship with agents with the changing times.

Services in Accounts

Activity Time Taken

Statement for Income tax exemption 5 Min
Statement of Accounts 5 Min
Receipt of Post dated Cheques 15 Min

A text from a case study on HDFC for Aditya Birla India Center, London Business
School, London, UK, has observed the following. ‘People who work in HDFC do not
see themselves as employees or the company as an employer. The company belongs
to them as much as they belonged to company. This is an extended family.
Management had no firing policy, except in case of fraud and deception. The sense of
belongingness results in a very high sense of loyalty and commitment. A simple
example could be found in people’s response to a fire in the company’s main office in
Mumbai. While some of the officers re-grouped themselves, others took the office to
the pavement outside the building and handled customer enquiries on the road side.
Another indicator: there was no union in any location of the company’.

Cornerstone of HDFC’s Success

The strength in Customer Service is through empowerment, flexibility aiming

towards, customization, commitment and relationship management. While setting the
objectives in the appraisal process, they are seen to be specific, measurable,
attainable, relevant and time bound.

“Strong and determined leadership is the essence of HDFC’s story. There are some
real gains from creative and continuous innovation; and this innovation can only be
nurtured by an organization that enjoys leadership of the highest quality”

Customization at HDFC

If you walk into the premises of HDFC and ask about who can avail of a home loan?
A prompt response would be anyone! Well, anyone who earns a regular income that
is! Whether you're in business or working with a company, as long as you're in a
position to make repayments, you're eligible. The various eligible categories being
Salaried Individuals , Self-Employed Individuals , Partnership Firms and Private

19
Limited Companies. Simple isn’t, so if you belong to any of the above, you may
consider the loan being granted!

At HDFC one can apply the moment a decision is made to buy or construct a house!
That's right, no bureaucratic waiting periods here! While one is in the process of
identifying and selecting a property, he/she can avail in-principal approval. The
validity is for 3 months during which the interest rates at which the loan can be taken
are locked in. However, one has to keep in mind that all this depends on whether the
property chosen by the individual is acceptable to the finance company, to enable
them in creating a valid mortgage against it.

HDFC makes this look simpler. Nothing could be easier can this! A prescribed form
can be picked for loan application from the office or downloaded from the company
website. After all the details are furnished, the form is accepted along with the
application fee. Besides the application fee, one has to pay a non-refundable
processing fee, which will be around 0.3-1% of the loan applied for. Once the terms
of the loan are accepted, an offer is made. The applicant will be charged a minimal
administrative fee, another 0.5-1% of the loan amount sanctioned. And that's it, the
applicant can be on the way to buying a dream home for the family!

It takes approximately between 2 and 3 weeks for the sanctioning to take place, after
all the relevant documents have been thoroughly checked with other formalities such
as payment of margin money (your contribution) etc., are completed. The company
has streamlined the disbursement process and made it simple too! The loan gets
disbursed in full or in suitable installments (normally not exceeding 3) taking into
account requirement of funds and progress of construction, as assessed by the
Housing Finance Company.

Typically to fulfill the requirements, various categories have been modulated

depending on the category an applicant belongs to and meets the following basic
requirements.

In the case of self-employed/salaried individuals -

• The age of the individual, at the time of applying for the loan, should not be
less than 21 years and not more than the retirement age at the end of the loan
tenor. For a self-employed person, this outer age limit can be extended to 65
years.
• The individual should be employed for the last 3 years.
• The individual should be a resident of the city and that there is a collection
center.

In the case of professionals/businessmen -

• A professional (Doctor/ Engineer/ CA etc.) should have an established

practice that has been operational over the last 3 years.
• A businessman should be able to prove his financial soundness over the last 3
years.

20
The documentation procedure is also simplified; however minimum statutory
requirements are met to meet the exigency, in case of mishap or fraud, which still
stands as a potential risk in the loaning sector. To put it in a nutshell, proof of
identity, proof of residence and proof of income, form the major documents.

HDFC has also set some standing guidelines for the loan amount that is being
borrowed. Generally speaking, one can borrow a maximum of 80-85% of the cost of
the property (this includes stamp duty and registration charges). However, this limit is
also linked to the borrowers paying capacity. Usually the installment-to-income ratio
(IIR) ranges between 25-50% of a person's total income. Yet another factor would be
the upper ceiling on the amount that can be lent. So, depending on how much the
applicant earns and how much could be lent; the maximum amount would vary from
person to person. The basic criterion will depend upon the income, its stability and
continuity, age, educational qualifications, the number of dependents the borrower
has, spouse's income, assets and liabilities and the savings history.

Other factors which would influence the amount of loan granted would be -

• The purpose for which the applicant is taking the loan (purchase, construction,
extension or renovation of the house property).
• The time needed to repay it.

HDFC is simply concerned while determining loan eligibility - is that the applicant
should be able to repay the loan - comfortably!

HDFC also extends its loaning facilities towards renovation. Certainly, one can get a
home renovation loan for internal and external repairs (waterproofing, roofing,
painting, plumbing, electrical work, tiling, flooring etc.) and other structural
improvements. The improvements have to be those that will increase the life of the
home, contribute towards a better living environment and at the same time, add to the
value of the applicant’s house.

Interestingly, the borrower can pay the loan ahead of schedule. However, one must
consider that the company would charge a fee for early redemption of loans. This fee
could vary between 1-2% of the loan amount being prepaid.

Highlights and Learning

The successful transformation of the enterprise has been as an outcome of accepting

challenges and utilizing them appropriately with optimal resources. Willful
performance, combined with innovative solutions became the driving force to the
growth of the organization. The team efforts and positive attitude towards the
customer aided in transforming services into an excellence centre. Constant
innovation, a strong leadership, shared vision became the hall mark of HDFC’s
success.

The organization has constantly demonstrated the value of intrinsic motivation apart
from the extrinsic factor, while opportunity orientation and recognition stood as
supplements to growth in financial services. Time management became a crucial
parameter to the success.

21
 Customer Services Communications versus Services Rendered

LOW HIGH

Customer Services Communications

HIGH
DISTRUST AH-HA

LOW
TRAGEDY QUERY

Financial Services Rendered

When the customer services communications (CSC) are low and financial services
delivered (FSD) are also low, separation (tragedy) is bound to happen. When the CSC
is high and the delivery is low, customer dismay is inevitable. When CSC is low but
FSD is high, it leads to the patients’ delight, but there is a query. The best situation is
when the CSC & expectations are high and at the same time the FSD is also high in
terms of the 'ah-ha experience’, which is the win-win situation. The HDFC team has
clearly understood the power of service communications and have been constantly
endeavouring for a win-win situation. We must all learn from this charismatic leader
and his team who have contributed to the exponential growth in the Indian housing
development.

22
References:

1. Barnard W & Wallace Thomas F, (1994), The Innovation Edge, Omneo

2. Business India, Building excellence, Businessman of the year, December 16 to
29, 1996 (private circulation)
3. Christiansen James A, (2000), Building the Innovative Organisation,
Macmillan Business
4. Dundon, Elaine, (2002), The seeds of innovation, AMACOM
5. Ghoshal Sumantra, Piramal Gita & Budhiraja Sudeep, (2001), World Class in
India, Penguin Books
6. HDFC Annual report 2001-2002
7. HDFC Corporate Profile
8. Interviews with HDFC limited customers at various points during research
9. Jain, Gautam Raj & Akbar M (1988), Self made Impact making
Entrepreneurs, Gyanganga Printing Ind. Ltd, Ahmedabad
10. Joshi, M; Joshi, N and Joshi, V, (March 9, 2007), Business War: Competitive
Innovation Velocity, Ewing Marion Kauffman Foundation, USA
11. Kay, John, (1995), Why firms succeed, New York Oxford University Press
12. Nair K R G & Pandey Anu (2006), Characteristics of Entrepreneurs: An
Empirical Analysis, The Journal of Entrepreneurship, 15,1 , 2006
13. Oates David, (1987), The complete Entrepreneur, Mercury book
14. Ramachandran K, (1993), Managing a new business successfully, Global
Business Press
15. Rising Stars, (February 15,2000), Fortune India
16. Sawhney M; Wolcott Robert C; Aaroniz Inigo, The 12 different ways for
companies to Innovate, MIT Sloan review, p75-85, Spring 2006
17. Website of Et Invest, retrieved, 31st December 2002, www.etinvest.edu
18. Website of HDFC India, retrieved, 31st December 2002, www.hdfcindia.com
19. Website of Indiainfoline, retrieved, 31st December 2002,
www.indiaifoline.com
20. Website of times of money, retrieved, 31st December 2002,
www.timesofmoney.com

23
 Teaching Objectives:

1. To understand how the enterprise was been seeded and lead?

2. To understand the importance of opportunity recognition and its orientation to
be a successful entrepreneur.
3. How does a Start-up happen despite the unfamiliarity of the entrepreneur for
emerging markets?
4. The importance of recognising service quality in an enterprise.

Identification of intended course(s):

Innovation (Innovative practices), Entrepreneurship, Start-ups, Strategy

Suggested Student Assignment:

1. Study the case carefully and evaluate the process by which the entrepreneurial
leadership of HDFC was able to establish and steer this enterprise.
2. ‘Incremental innovation exists in services!’ comment
3. Study a similar enterprise that is engaged in financial services and construct its
business model.

Discussion questions:

1. How does Opportunity recognition facilitate towards the formation of an

enterprise?
2. How far it is true that ‘uncertainties’ propel towards innovative practices?
3. How to expand aggressively into newer markets?
4. Can this success formula be replicated?

• Initial class room discussions- 90 to 180 minutes

Suggested time plan:

• General survey by researching students – one week

• Conclusive discussions on innovative practices with emphasis on incremental
innovation- 90 minutes

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