July 27, 2020
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Twigs For Every Nest

High household incomes and easy home loans have made it possible to own a home

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Twigs For Every Nest
Punit Paranjpe
Twigs For Every Nest
It is the foundation of a building that holds it together, ensures that it reaches its planned heights and protects the people inhabiting it. HDFC has followed this principle, building its success on the vision of its founder H.T. Parekh. In 1977, surrounded by scepticism, HDFC aimed to introduce the then alien concept of retail housing finance in a strongly socialistic environment, where credit was directed through public institutions and there was no comprehensive legal framework to govern institutional finance to households. But impossible was not a word we knew.

Being a pioneer is usually an advantage, but it comes with a large responsibility. In its first year of operations, HDFC sanctioned loans worth Rs 6.25 crore in six months. Innovation was the key, whether it was a business model that focused on the least painful and inexpensive delivery mechanism for retail housing loans, or the concept of customer counselling. Our concepts and goals got us funding from international agencies like USAID and World Bank and support from the central government, and contributed to our credibility in the market.

At HDFC, we believed that housing finance needed to take into account the manner in which resources are mobilised, the efficiency with which resources are disseminated and the effectiveness with which the process is managed. Today, these have become the defining constituents of delivery mechanisms for a variety of financial services.

There was also a need at this point to create an internal management style and value system that we would base our strategies on. We made a conscious effort to build our brand around service management as a tool and customer relationships as the objective. The words flexibility and response were the twin pillars of our philosophy of action.

With constant efforts and new products, like home improvement or extension, step-up repayment facility and others, HDFC proved that simple products, when executed well, attracted consumers. It is a rule that has never failed us. However, innovations on retail deposits as a funding device did not succeed immediately and customers took their time to trust us with their deposits. It was at this time that the National Housing Bank (NHB) was created.

HDFC co-promoted other companies such as SBI Home Finance, GIC Housing Finance and Can Fin Homes, thus building its own competition. It became a brand one could trust, and this enabled the building of a large retail deposit clientele as well.

The liberalisation of the '90s saw the traditional role of banking being overshadowed by new opportunities in the capital market, inflow of foreign investment and privatisation. Government help came through tax incentives for home ownership and dropping interest rates that were once between 16-18 per cent and now stand at 7.5-8.5 per cent.

The flourishing economy led to high household incomes and for the new credit card generation, unafraid of debt, it was possible to own their own homes. The retail-lending scenario underwent a change, with banks and other institutions taking the plunge into housing finance. Here, it became important not to get swept with the flow and keep the focus on long-term benefits.

I credit our success over the years to the unwavering importance we placed on our customers. Whether it meant regular interaction with property developers to gauge quality of projects or designing products, customer service was never compromised. We adopted the principle-centred leadership concept at HDFC.

In this new century, HDFC has grown into a financial conglomerate covering a wide gamut of services that includes banking, insurance (both life and general), an asset management company, a BPO and a credit bureau to provide value-added services for customers. The housing sector, too, has been growing faster than ever. While we have assisted over 2.5 million families to own a home through loans worth over Rs 80,500 crore, the reality is that with a housing shortage of 19.4 millions units in India, we still have a long way to go.

The recent decision to allow 100 per cent FDI under the automatic route in townships, housing, built-up infrastructure, construction and development projects will boost construction, catalyse investment, usher in new technology and improve quality of buildings. But the path to implementation will be critical.

A resultant effect will be the added pressure on the infrastructure of our cities, which are already fighting to survive. Institutional reforms are urgently required to develop our cities and improve their planning, governance and utility services. There is a need for regeneration, but it needs to be done with the participation of all stakeholders, if the initiatives are to be successful.

We also need to have an efficient urban land market, starting with clear title documents, which would ensure the flow of financial services to the owner. A delay in corrective action today will restrict housing supply tomorrow, taking us further away from our primary goal of affordable housing.

Rental housing can be a strong driver for better housing services for households seeking temporary relocation. In the current low interest rate scenario, surplus accommodation can successfully be deployed in rental accommodation.

In the midst of these changes, I believe that proactiveness is vital for development. One issue close to my heart has been to create greater transparency and accountability in the housing sector. We need to work against the red tape and bureaucratic loopholes. HDFC is ready to take the first steps to initiate change. We are eager to support developers willing to tackle issues like pricing houses on the carpet area basis, as this will benefit consumers. We need to look at the concept of providing guarantees for homes like other products, since housing is, by far, the largest personal investment. The quality factor and maintenance are as important as in other consumer durables.

Change will always find resistance, but I believe it is initiatives like these that will help decrease ambiguity and contribute to growth in this sector. High-tech homes that are energy-efficient and environment-friendly are already being developed, where robots and computers will don the mantle of housekeepers. Combine such technology with instant home loans, top-class services, good infrastructure and you have a winning combination. All it takes is a vision and, of course, the will to make it succeed.

(Deepak Parekh is chairman, HDFC)
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