To our Shareholders
As I sit down to gather my thoughts, I can hardly believe this is HDFC''''s 401'''' annual report. The excitement of growing the housing finance business today remains as palpable as our first day of operations.
I have pondered deeply on how to benchmark an organization’s performance over four decades.
I can My will certainly that as an institution, we have been unwavering in our commitment lo render exceptional service to our customers and build shareholder value We treat our employees well so they in turn serve our customers well, We know our differentiator is our people-driven approach. This has made us a preferred institution for long-term investment, business and employment. We hope never to change this approach. El is embedded in our DNA and 1 am confident that the future leadership at HDFC will continue to uphold this as a tradition.
Forty years and on
Back in 1977, the strong institutional support we received for a never-tend-before venture in India was invaluable. We remain indebted to (hose who supported us at the very beginning. They believed in our ‘vision and conviction of the need for retail housing finance in India. It is gratifying that many Mho had stood by us at inception, continue to do so even today. These are generational engagements. Such relationships are rare, precious and deeply valued.
Forty years ago, HDFC as the tone retail housing financier in India was ''''All for Housing''''- Now, these three crucial words have been flipped around to ‘Housing for Alt''''. This is momentous, The government has rightly pulled out all the stops to /bereave homeownership in the country. Every constituent in the housing chain has been incentivized and encouraged to play their role in We affordable housing mission.
As shareholders, you would have recognized that housing has multiplier effects on the economy through increased productivity, job creation and higher capital inflows.
Countries that accord importance to Their housing markets rank better on almost every developmental indicator. People who have the security of a home have a sense of belonging and a key stake in society. Those who live in permanent housing structures are inherently better educated, healthier and happier.
Housing outlook more for less for more
A rapidly growing country tike India with a Lange young population needs more homes at affordable price points which in turn, would enable more households to become homeowners.
The thrust given to affordable housing has been extremely encouraging. Developers can now avail a 100% tax deduction on profits and gains if they construct affordable housing units. No other major sector of the economy has been given such attractive incentives. Further, according infrastructure status for affordable housing should help open up more avenues of lower CQSl, longer tenor fending.
For home loan customers, besides direct fiscal benefits, the government has also extended its support through interest rule subventions. The government''''s modified Credit Linked Subsidy Scheme is an outcome of The realization that a small bit of support can 30 a long way in enabling both, the middle-income and lesser privileged groups to become homeowners eelier in life.
Subscribers of The Employees’ Provident Fund Scheme can now withdraw up to 90% of their accumulated fends for a down payment to buy a home or service The equated monthly installments thresh their provident fund account. This measure effectively helps increase the loan eligibility of a borrower. It facilitates extracting the borrower''''s own Savings, which Otherwise would have been locked up.
Segments of the real estate sector in India have many a times been a hotbed ot undesirable activity. These practices should come to an end with the recent establishment of real estate regulatory authorities across the country. These regulators will be the confidence builders to consumers and watchdogs for compliance on The part of developers, increased transparency benefits the entire housing ecosystem.
For years, die market craved an ‘enabling environment (that would foster an increased supply of homes at the right price points and help widen (he target group of customers for housing finance players. This government''''s policies on housing are practical and implementable. With the benefit of four decades of experience in this (Field, I can confidently say that I have never been as optimistic about the housing sec-or as I am currently.
Culture - our bedrock of sustainability
What differentiates HDFC fess perhaps not our products or strategy; it is our culture. Culture is intangible and unique to each organization. At HDFC, we believe our culture is our greatest strength, best reflected through the long-term commitment of our employees. We value loyalty immensely.
Our culture is our binding force. Our only ask of our employees is integrity, transparency and honesty in ail dealings. These attributes are our ‘non-negotiable''''
Every employee''''s role al HDFC is by default, designed to be that of a team player. This strong interdependence is mutually reinforcing for it helps keep egos aside. Our interactions are participatory, not confrontational.
Over the years, we have experimented and allowed an environment that provides an entrepreneurial zeal. Often, we have taken calculated risks. Where it has worked, we have shared our success with our stakeholders. As a people-driven organization, we have learnt to make allowances for failure as well. The only condition is that we learn from our mistakes. A sense of openness and accountability provides the drive to keep extending our reach to customers and building new relationships.
Our organization like any other, has witnessed various business cycles - extremes of both, euphoria and stress. It is in these situations in particular, (hat one realizes the importance of corporate culture and its impact or long-term performance. Culture is I tie invisible force that lends consistency and endurance.
Rules, processes and systems ensure conformity and compliance. What is the outcome when there are no guideposts. This is where values, attitude, gut-feel and ethics come to play.
I am proud of HDFC''''s home-grown culture, it is not a given - we work on it every day, in all our dealings. Our culture is not a mandated goal, but simply an outcome of collective, repeated, emulated, refined and internalized self of behaviors. It is imbibed through demonstrative effect which starts at the top and flows down.
The assurance I offer investors is that as long as our culture remains sacred, HDFC will keep creating shareholder value for the years to come.
In for the long haul
“HDFC has a trig way of go to fulfill the rote for which it has been established, I can only hope and pray that HDFC will prove equal of the falser if has undertaken."
H T Parekh - Founder Chairman First Annual Report, 197B
Housing finance is a long-term business. The relationships we develop with customers are long-term as well. The lime taken to build new homes in India is inordinately long. This begs The question - why are financial results looked at with such a short-term lens Rs.
in any sector, Die objective of disclosing quarterly financials is to provide an update on a company’s performance. Yet, quarterly numbers need to be viewed with the right perspective.
Short-termism is becoming worryingly dominant, t strongly believe time has come To an open dialogue on the perils of extreme short-termism. We need a change in the mindset and perhaps a different matrix to better evaluate corporate performance. Patient,, engaged and productive capital must rot become elusive.
In any sector, when unrealistic expectations override, there is undue pressure on management to deliver. If this repeatedly happens every three months, it leaves little time to tows on the long-term, big picture. Start-ten miss undermines a company''''s ability to invest and grow.
We believe there is strong merit in investing time and effort through regular, open dialogue with our investors. This helps investors understand us better At heft, we continually assess The environment (o determine a sustainable growth trajectory. We shun short-cuts and myopic strategies. Growth expectations have to be recalibrated as The base gets larger Market conditions, regulatory requirements and self-imposed prudence have meant that the lime taken for loans to reflect profitability has increased. We maintain that our strategy of notifying our balance sheet has held us in good stead.
Certain emerging market trends suggest that aggressive growth, particularly on loans against property is now experiencing some level of stress. For us, our priority has always been housing loans. Further, at an industry level, shitting of housing loans from one player''''s balance sheet 10 another does not tantamount to growth in the overall housing market. The overriding objective must always be funding incremental housing.
The outcome of The government''''s measures, however, wife largely depend on the extent of supply of affordable housing. The final price point of these units is crucial.
What lends confidence is that certain well reputed and experienced developers have already committed to building affordable housing units, Vet, The reality is that in India, The building cycle is unduly lengthy, The last leg of change needed to boost The housing sector is streamlining building approvals.
Building approvals is The domain of stale governments and local level authorities. If speedier delivery of projects is The need of the hour, then the process of multiple approvals at various stages of construction is counterproductive. Even if a few key stales take the lead to fast-track approvals for affordable housing projects, it will set a precedent for others to emulate, it is equally important to find the means to reduce land prices. A decade ago. the Reserve Bank of India had prohibited banks and housing finance companies (HFCs) from funding land transactions as they feared The build-up of a real estate bubble.
To acquire land, developers have to rely on funding by non-banking financial entities and private equity funds, but these are at exorbitant rates. While one appreciates The stress that The banking sector is undergoing on asset quality, it does appear illogical to continue to prohibit HFCs from funding land transactions. HFCs understand the needs of developers. No doubt, land financing requires strong checks and balances. MFCs can help reduce the cost of a home for the customer if (hey are allowed to fund the developer at The time of purchase of the land. One can only hope this repeated plea gets its due attention,
Over the last 25 years, we have seized every opportunity to diversify into various financial services as and when these sectors were liberalized.
HDFC has a unique structure as both, a single product financial company and parent of the group companies. Our subsidiary and associate companies are decentralized and managed and run by independent boards. Our only call on our group companies is performance evaluation of the group CEOs, succession planning, acquisitions and key investments.
We now hope to extract greater value from our group companies and explore listing opportunities, where conducive. To better reflect long-term value creation, investors of HDFC reed to increasingly focus on the consolidated rather than the standalone entity.
To conclude, I would like to reiterate that India''''s macro-economic fundamentals have never been stronger than today. A number of structural reforms are underway which will place India on a higher growth trajectory. We are excited about our future as we are about India''''s future and we hope you partake in our optimism,