On this day, let’s take the time to remember HT Parekh, and say a prayer of gratitude for this towering man of finance and understand his farsightedness. HTP, as he was called by all, is inarguably the father of home finance or mortgage lending in India.
Tomorrow, 10th March, marks the birth centenary of Hasmukh T Parekh (HTP as he was called by all). Every newly employed person who walks away with a home loan sanction today in 24 hours ought to say a prayer of gratitude to HTP. That's because he proved that successful mortgage finance was possible in an unregulated industry that is in the grip of land sharks and developers and where, even today, a full cheque payment is possible only in a relatively small number of projects-that too in the metros.
On this day, let's take the time to remember this towering man of finance and understand his farsightedness.
HTP's Relevance
Until the mid-1990s, for a large section of the Indian middle-class, owning a home was a dream that could, at best, be met at retirement when one got a lump sum from a provident fund and gratuity from the employer. There were no HFCs (housing finance companies; banks could not lend for housing-neither to individuals nor to builders since housing did not qualify as an 'industry'). Worse, as much as 60% to 70% of the payment was in cash (until the 1980s in Mumbai) and later as much as 40% was in cash payment.
Combined with absurd income-tax rates (over 50% to 70%), it ensured that ordinary Indians could not aspire to own homes or apartments during their working lives.
It was in that milieu, more than half a century earlier, that HTP drafted his first proposal for a housing finance company for Harkisondass Lukhmidass (on February 16, 1951). The HFC would work on the lines of building societies in the UK. The proposal fell through. But persistence and perseverance in following his dreams was his hallmark. He would leave no stone unturned, no forum unexplored, no opportunity missed-to argue, discuss, persuade and cajole.
Two decades later, even as chairman of ICICI, he drafted another proposal- this time, for Bank of Baroda to set up a subsidiary for housing finance-and sent it for the finance ministry's consideration (July 25, 1973). He also kept pleading that banks be allowed to lend for housing.
But it was only after he retired from ICICI (as its executive chairman in 1976) that he could turn to his pet project with the single-mindedness that was required to turn it into reality and Housing Development Finance Corporation (HDFC) was registered on October 17, 1977.
What was revolutionary in those times was that HTP thought of lending against future income-income-gearing-at a time when incomes were really low. Even managerial remuneration was regulated by the Company Law Board; the limit for reporting salaries to shareholders under Section 217 was Rs36,000 p.a! Consumer finance was unknown in those days; all lending was capital-geared-in a capital-scarce economy.
That someone could hope to convince the government to allow him to set up a viable private sector company for home finance, in those days seemed more of a pipe-dream. But so convinced was he of the need for housing finance that HTP structured a unique company and turned entrepreneur to demonstrate that his vision could be successfully converted to reality. It is no wonder that former RBI governor Dr IG Patel wrote that HTP, was "justly acclaimed for his unique personal qualities and for his ability to turn dreams into reality (in a Foreword to the collected writings of HT Parekh)*. It is important to note that IG used dream in the plural-for there were several dreams-his own and those of others-that HTP was able to realise.
A different organisation
From its very concept stage, HTP viewed HDFC as meeting the need of small home-owners. At a time when Indians waited for years to get a telephone or a gas connection or even a Bajaj Scooter, HTP decided that HDFC would provide first-world service with a single point service to customers. If this won the hearts of borrowers and made HDFC such a rock-solid brand, it was his pragmatism in lending that helped the business grow and has, ultimately, spawned a score of mortgage lenders, despite the fact that proper regulation is still not in place.
In an interview to Moneylife magazine in 2010, HDFC chairman Deepak Parekh recalled how HDFC, along with Reliance Industries, were both considered 'bubbles' and that people wondered which of them would blow up. He recalled that HDFC succeeded, first, because of HTP's belief that "you can trust a middle-class person to repay" and the second, because of a decision to figure out risk mitigation systems that did not depend on the legal system. This included working a way around the high black money component in home purchases. Deepak Parekh recalls, "If we gave 70% of the white component (as home finance), it became so insignificant that we could not really lend. For many years, our lending limit was Rs70,000. The agreement value would be much lower than the actual transaction amount. So we introduced a system whereby our technical people would go to the site and come up with what we called the 'appraised value'. So we gave 70% of the appraised value, which should not be more than the agreement value. In effect, in the early days, we funded most of the agreement value and the gap was funded by cash. That itself was around 30% to 40%. That was the practical solution."
Had it not been for that pragmatism and HTP's personal reputation, several generations of Indians would never have owned an apartment. HDFC was the only housing finance company for over a decade and Deepak Parekh recall's NR Narayana Murthy (founder of Infosys) telling him, 'he had a wife next to him and an appointment letter in his pocket, but nowhere to live. He didn't know anyone when he walked in, or who to meet. His wife stopped him and asked him to say a prayer at the steps of Ramon House (HDFC head office). HTP's attention to detail went way beyond just the product structure and service. As a retail organisation from its inception, he wanted HDFC's corporate identity to have a symbol as well as a logotype. A symbol would transcend multiplicity of Indian languages. And, typical of him, he chose the logotype of HDFC in lower case then. Years later, it was changed to capital letters. The amount of time that he spent on designing the application form displayed his overarching concern for customer service.
[Source]
Tomorrow, 10th March, marks the birth centenary of Hasmukh T Parekh (HTP as he was called by all). Every newly employed person who walks away with a home loan sanction today in 24 hours ought to say a prayer of gratitude to HTP. That's because he proved that successful mortgage finance was possible in an unregulated industry that is in the grip of land sharks and developers and where, even today, a full cheque payment is possible only in a relatively small number of projects-that too in the metros.
On this day, let's take the time to remember this towering man of finance and understand his farsightedness.
HTP's Relevance
Until the mid-1990s, for a large section of the Indian middle-class, owning a home was a dream that could, at best, be met at retirement when one got a lump sum from a provident fund and gratuity from the employer. There were no HFCs (housing finance companies; banks could not lend for housing-neither to individuals nor to builders since housing did not qualify as an 'industry'). Worse, as much as 60% to 70% of the payment was in cash (until the 1980s in Mumbai) and later as much as 40% was in cash payment.
Combined with absurd income-tax rates (over 50% to 70%), it ensured that ordinary Indians could not aspire to own homes or apartments during their working lives.
It was in that milieu, more than half a century earlier, that HTP drafted his first proposal for a housing finance company for Harkisondass Lukhmidass (on February 16, 1951). The HFC would work on the lines of building societies in the UK. The proposal fell through. But persistence and perseverance in following his dreams was his hallmark. He would leave no stone unturned, no forum unexplored, no opportunity missed-to argue, discuss, persuade and cajole.
Two decades later, even as chairman of ICICI, he drafted another proposal- this time, for Bank of Baroda to set up a subsidiary for housing finance-and sent it for the finance ministry's consideration (July 25, 1973). He also kept pleading that banks be allowed to lend for housing.
But it was only after he retired from ICICI (as its executive chairman in 1976) that he could turn to his pet project with the single-mindedness that was required to turn it into reality and Housing Development Finance Corporation (HDFC) was registered on October 17, 1977.
What was revolutionary in those times was that HTP thought of lending against future income-income-gearing-at a time when incomes were really low. Even managerial remuneration was regulated by the Company Law Board; the limit for reporting salaries to shareholders under Section 217 was Rs36,000 p.a! Consumer finance was unknown in those days; all lending was capital-geared-in a capital-scarce economy.
That someone could hope to convince the government to allow him to set up a viable private sector company for home finance, in those days seemed more of a pipe-dream. But so convinced was he of the need for housing finance that HTP structured a unique company and turned entrepreneur to demonstrate that his vision could be successfully converted to reality. It is no wonder that former RBI governor Dr IG Patel wrote that HTP, was "justly acclaimed for his unique personal qualities and for his ability to turn dreams into reality (in a Foreword to the collected writings of HT Parekh)*. It is important to note that IG used dream in the plural-for there were several dreams-his own and those of others-that HTP was able to realise.
A different organisation
From its very concept stage, HTP viewed HDFC as meeting the need of small home-owners. At a time when Indians waited for years to get a telephone or a gas connection or even a Bajaj Scooter, HTP decided that HDFC would provide first-world service with a single point service to customers. If this won the hearts of borrowers and made HDFC such a rock-solid brand, it was his pragmatism in lending that helped the business grow and has, ultimately, spawned a score of mortgage lenders, despite the fact that proper regulation is still not in place.
In an interview to Moneylife magazine in 2010, HDFC chairman Deepak Parekh recalled how HDFC, along with Reliance Industries, were both considered 'bubbles' and that people wondered which of them would blow up. He recalled that HDFC succeeded, first, because of HTP's belief that "you can trust a middle-class person to repay" and the second, because of a decision to figure out risk mitigation systems that did not depend on the legal system. This included working a way around the high black money component in home purchases. Deepak Parekh recalls, "If we gave 70% of the white component (as home finance), it became so insignificant that we could not really lend. For many years, our lending limit was Rs70,000. The agreement value would be much lower than the actual transaction amount. So we introduced a system whereby our technical people would go to the site and come up with what we called the 'appraised value'. So we gave 70% of the appraised value, which should not be more than the agreement value. In effect, in the early days, we funded most of the agreement value and the gap was funded by cash. That itself was around 30% to 40%. That was the practical solution."
Had it not been for that pragmatism and HTP's personal reputation, several generations of Indians would never have owned an apartment. HDFC was the only housing finance company for over a decade and Deepak Parekh recall's NR Narayana Murthy (founder of Infosys) telling him, 'he had a wife next to him and an appointment letter in his pocket, but nowhere to live. He didn't know anyone when he walked in, or who to meet. His wife stopped him and asked him to say a prayer at the steps of Ramon House (HDFC head office). HTP's attention to detail went way beyond just the product structure and service. As a retail organisation from its inception, he wanted HDFC's corporate identity to have a symbol as well as a logotype. A symbol would transcend multiplicity of Indian languages. And, typical of him, he chose the logotype of HDFC in lower case then. Years later, it was changed to capital letters. The amount of time that he spent on designing the application form displayed his overarching concern for customer service.
[Source]
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