HDFC Chairman Deepak Parekh: Never been more optimistic about India

Deepak Parekh says that with political stability, policy stability, food security, and vaccine security, India has more tailwinds than headwinds in a China-plus-one world.

Deepak Shantilal Parekh has an unfair advantage. The Gods are clearly on his side. On one wall in his office are about 60 small idols, including those of Lord Ganesha, Tara Devi, and Buddha, beaming their blessings from a shelf.

A dream merchant, the Chairman of the Housing Development Finance Corporation (HDFC) has helped nearly a crore Indians see their aspirations come to life in the form of a home they can call their own.

Parekh has also resolved many a knotty corporate crisis, including salvaging the Unit Trust of India and Satyam Computer when both floundered, and also been the go-to man for policymakers at the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

He’s wearing a purple shirt with white slacks and brown loafers, minus socks, when we meet in early January. His sixth-floor chairman’s office at HDFC House in Nariman Point is supremely silent, a luxury in Mumbai’s din and clatter. Parekh still comes to office for a few hours every day, mostly conducting meetings and staying connected to what’s happening in the business world.

The veteran business leader is still on a handful of boards that include HDFC Life, HDFC AMC, and Siemens India. Nowadays, his focus is on ensuring that the mega-merger between HDFC and HDFC Bank goes through smoothly. It is the largest-ever corporate merger and the first time two Nifty-listed firms of such scale are coming together.

While he and his associates have contemplated the merger for around five years, the announcement was made only last April. “The key driver was that the arbitrage between non-bank financial companies (NBFCs) and banks was shrinking. Every new RBI policy entailed tightening of regulations for NBFCs. So the flexibility and the light-touch regulation that an NBFC enjoyed was fast disappearing, and rightly so, because a number of NBFCs had collapsed and some of them had even taken public deposits,” he says.

Naturally regulators were concerned and they reduced the arbitrage between NBFCs and banks. “Banks have to maintain SLR (Statutory Liquidity Ratio), CRR (Cash Reserve Ratio) and have priority-sector loan limits, which NBFCs do not have. But , NBFCs are now required to maintain a liquidity coverage ratio (LCR). Further, the RBI has put in place a process for classifying all NBFCs into three broad categories—the upper, middle, and base layers. The mandate is that upper-layer NBFCs include the large ones which can pose a systemic risk to the financial system. These NBFCs now have to follow bank-like regulations. So, in a way, it made sense to do the merger ahead of the full implementation of these new regulations,” he adds.

Parekh goes on to explain another driver for the merger from the Bank’s perspective. “As you know, the Bank is a big player in retail credit, but their retail portfolio is a short duration one of around 18 months only. So every 18 months, the Bank has to replace these assets as well as show growth on a large base. HDFC Bank does not do mortgage loans as this is HDFC’s core business. Now, as a combined entity, the Bank will get long-term mortgage loans which will increase the duration of the retail portfolio. Further, with a larger customer base, the Bank will be able to do a lot more cross-selling of products.”

Internationally, too, if one sees the trend with banks in Australia, England, America, or Europe, the largest component in their retail portfolio is mortgages, which was the missing piece at HDFC Bank.

So is there a timeline for the merger’s execution?

The merger approval procedures have been moving as per envisaged timelines, Parekh says. “We would like to see the merger process completed by the first quarter of the next financial year. Yet, timelines are difficult to estimate because there are regulatory procedures that entail court hearings and final decisions and approvals by Indian as well as US regulators, because HDFC Bank has a listed ADR (American Depositary Receipt). Merging the financials is another task because HDFC follows IndAS (Indian Accounting Standards), the Bank does its financials as per Indian GAAP (Generally Accepted Accounting Principles), and for the ADR filings, the accounts need to be done as per US GAAP.”

Does that mean that there is more risk for the combined entity?

“Absolutely not. We will have a much larger balance sheet. We will have a larger appetite to offer loans. The Bank has always been very prudent in its operations. With the heft of a combined balance sheet, we should be able to fund long-gestation infrastructure projects as well.”***

Born in 1944, Parekh graduated from Mumbai’s Sydenham College and completed his chartered accountancy from the UK. He gave up his job at Chase Manhattan bank in New York City to join a new mortgage company in India started by his uncle, H.T. Parekh, in 1978. In fact, Parekh took a 50 percent salary cut to join HDFC, which sought to help the average Indian buy his own home.

Parekh has since been a part of the RN Malhotra committee on insurance reform, the M Narasimham committee on banking reform, and the taskforce set up by the Prime Minister’s office on the infrastructure sector. In 2012, he was appointed Chairman of the high-level infrastructure finance committee. To give the country’s infrastructure sector a boost, Parekh became the Founding Chairman of the Infrastructure Development Finance Company (IDFC), which he stepped down from only in 2013, after 15 years.

Given Parekh’s broader feel for the economy, how does he see India’s significance in the global economy?

“I’ve been on record several times stating that I have never been as optimistic about India as I am today. The world is going through a tough time and there are headwinds that will impact us a little in India. But as a country, India seems to have more tailwinds. We have to seize this opportunity India has for the next couple of years because China’s growth is slowing as is global growth, which is expected at just 2 percent, while India is expected to grow by at least 6.5 percent or more.”

What if banking rates harden?

“Rates have hardened, but I can’t see India increasing rates by, say, 75 basis points (bps) at a time. The US did it four times before lowering it to a 50-bps-increase. In India, we have to take care of the lower-income categories, we have to take care of government borrowing, and be fiscally prudent. We have to take care of many, many moving parts, and the RBI has rightly articulated that while it will rein in inflation, it would also keep growth considerations in mind. That apart, even globally, with inflation beginning to ease a bit, I think the days of jumbo interest rate hikes by central banks are behind us now.”

Even so, Parekh does have concerns.

“I worry about the extent of layoffs happening globally, especially across the tech sector that anticipated a rapid future expansion. This did happen during the pandemic, but now IT spends are coming down, and as recessionary fears increase, companies tend to downsize to curtail costs.”

But India remains a bright spot.

“The World Bank, think tanks, and foreign investors are all saying that India is a bright spot. We are a bright spot because we have political stability. I have no doubt that the current regime, under (Prime Minister) Modi’s leadership will come back in the next general elections, probably with a higher majority. This would mean the continuity of policies. Investors accord a high premium to political stability,” Parekh explained.

Much of the world is suffering from a cost-of-living crisis due to a sharp escalation in food and energy prices, even as India continues to enjoy food security?

“Foodgrain production has been at record highs, we have adequate food for our people and we don’t need to import food. We could have actually exported food when there was an acute international wheat shortage owing to the Russia-Ukraine crisis. But tactically, the Indian government was right to ban wheat exports. The government knew that if more wheat got channelled to the international markets owing to the higher prices that producers would receive, it could have led to wheat shortages in the domestic market. This in turn could have led to an increase in food prices in India. So, keeping the citizen’s needs first, this was the right strategy to pursue,” Parekh added.

According to Parekh, another positive is that India has vaccine security. “China’s problem is they don’t have proper vaccines, and on-the-ground reports suggest that the local Chinese vaccines may not have been too effective. Its zero-COVID strategy was also a failure. In comparison, India has vaccine security, food security, political security, and the country remains among the fastest growing major economies,” Parekh said.

But experts say that there are steps that India needs to take to stay on that high-growth highway, and sustainably so.

Parekh concurred: “To my mind, India now needs to increase its capital expenditure, both public and private. While the budget for public capex is likely to increase, I also see a turnaround in the private sector. For instance, given the increased demand for construction, companies are increasing capacities in cement and steel plants. Even auto sales have picked up and capacity expansion of auto and auto ancillaries are growing.

“The other big thrust of the government has been on clean energy and the production-linked incentive scheme in about 14 key strategic sectors. The policy thrust is in the right direction, and this is India’s opportunity to demonstrate that it can be an important high-end manufacturing hub. Global companies, too, are looking at India seriously as part of their China-plus-one strategy. Countries are recognising the importance of having dependable trading partners, and India has managed its external relations very well in the recent period.”

On a personal note: what are Parekh’s hobbies?

“I can admit that I have mostly flouted all the rules in life when it comes to good health. I ate everything and used to enjoy a drink almost every night. Then in December 2021, I got COVID, and post that, I’ve just lost the fondness for any alcohol. Even with friends, they’ll drink while I’ll just have nimbu paani,” he says.

There are, of course, habits that he continues with. “The one thing I won’t give up is doing a Sudoku every night before I sleep. I’ll work on the most challenging, hardest Sudokus I can get my hands on. That excites me and helps keep the mind sharp.”

That, along with everything else, may well be the secret for Parekh’s penchant for problem-solving.



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