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By Roshni Jayakar
Q. HDFC has diversified into various financial and non-mortgage businesses during the last few years, through subsidiaries and joint ventures. What is the larger picture you have drawn for the HDFC group? Is this a way of moving towards the concept of universal banking? A. As I have said earlier, there are no synergies to merge. The negative connotations of merger are enormous. Both (HDFC and HDFC Bank) have low NPAs, and coupled with top and bottomline growth, there is no need to merge. We have to take advantage of our brandname and cross-sell products. This is what we have to do in insurance and mutual funds too. This apart, we are the first to enter the housing finance segment and in the last 20 years we have witnessed individuals coming in for second and third round of loans. As per the concept of universal banking goes, unless there is universality of regulators you cannot have a universal banking organisation. Although the negatives today are enormous against universal banking we are happy the way we are working. My job, as the head, is to see that the team is good, there is leadership in every venture, and inter-relationships within the organisation are cordial. Captain of mutual fund is Milind Barve, captain of insurance is Satwalekar, while Aditya Puri is captain of the bank. We have developed excellent relationships, and my job is to see there is fairness in dealings with each of the institutions even though we keep arms-length relationships. Q. What sort of structure would you look at? The holding company concept, which is prevalent in Europe, is probably that HDFC group would like to look at. Today, in finance business, size and market cap are of utmost importance. If you want to be a global player you should have market capitalisation. However, for each of four entities -- housing finance, bank, mutual fund and insurance -- FDI and FII rules are totally different. For instance, in the bank it is 20 per cent, insurance it's 26 per cent, mutual fund it can go up to 100 per cent. Then there is the issue of double taxation. Till these issues are sorted out, my vision is, HDFC is really the investment company and the parent. Q. Your latest extensions have been into securities and insurance. What areas remain? We are definitely interested in looking at non-life insurance sector at a later stage. The reason we exited from Countrywide, the consumer finance joint venture with GE, was because it was one of the core businesses of the HDFC. But, as the parent company we felt we should not deprive HDFC Bank from doing consumer finance business. Soon we will exit from Maruti-Countrywide - the joint venture between GE-Maruti and HDFC. Q. HDFC is setting up Credit Information Bureau with the State Bank of India. Can you tell me where this fits into the plan for the group? As an investment company HDFC has acquired stake in Credit Information Bureau (India). We are keen since we deal with retail customers. I have seen in the US, when you punch in a customer's name, you get his entire life history- the credit card he has, the bank does he have an account, and whether he had defaulted anytime--and customers are graded accordingly. In India, rating of individuals is critical. We took the initiative with SBI. For every borrower who comes to us for a housing loan, HDFC will pay Rs 40 to CIBIL to give the marking. This is part of mortgage business. Q. What about Intelenet, the 50:50 JV with TCS? What role do you see HDFC playing? As per Nasscom and Mckinsey reports, exports in infotech back-office are going to touch $50 billion by 2005. We took it as a business opportunity and talked to TCS, who were at the upper end (software), if they were interested. HDFC is competent in getting into this sector since it's a large processing house already. We have 1.2 million depositors and 800,000 borrowers. That is two million. Add to it 40,000 agents and 200,000 shareholders. We churn thousands of applications on daily basis. Back-office processing is similar to what HDFC does. And as HDFC has large overseas shareholders, Intelenet would be doing back-office for the foreign customers. We also have strategic partners in Chase Manhattan and Standard life who could be potential clients. HDFC Bank does have a call centre or customer contact centre. But that's for its own customers. And the way the bank is growing, their hands are going to be full. With one integration almost over, the next step for faster growth is to merge more and take over if a bank is available at the right price. Given the RBI regulations, HDFC Bank is not allowed to promote companies, and so HDFC acquired equity. We are building up a 600-seat centre at New Mumbai. Both TCS and HDFC have incredible credibility. We are hopeful of getting jobs from international AAA rated companies and already we have got enquiries. Just before your meeting a person came saying he will bring business to Intelenet but wants equity. So we may have to form Intelenet subsidiaries and use 50-50 joint venture with TCS as the parent. HDFC has also invested in Acys and CAMS for mutual fund business. These could be extended and be Intelenet equivalent for overseas mutual fund. Q Do you see these recent investments as providing growth to HDFC, which the company may not continue to get from housing finance business? Yes these investments will provide growth to HDFC. We have a large treasury, which is making investments in Intelenet, CIBIL and portals. We are trying to build value for shareholders. Insurance will give tremendous value, but five years down the line. Some of these investments are in business, which we consider, core: insurance and mutual fund and CIBIL. And given the enormous potential Intelenet is more of an opportunity. Investments in most of these is marginal, about Rs 15 crore to set up 600 seats centre (referring to Intelenet) part debt and part equity. Q. In case of housing finance or property related services business; you have got into JVs with Pizza Hut. How do you view growth in this business, which could be adjacent to the current businesses? In the last one year we have started doing discounting of rent receivables and built a portfolio of Rs 300 crore. It's real estate related and gives us a margin. We have taken a view that we should buy property where we get good return. For instance, we have bought property at ITPL (IT park) in Bangalore and Hi-tech City in Hyderabad. History is interesting. When Tatas conceived ITPL we gave them a loan which was to be repaid out of sale proceeds. After it was built there was demand for rental and not outright purchase. We bought properties in ITPL with existing tenants. We are the landlords and the rent is coming to us is equivalent of loans. Since we are buying existing premises constructed and occupied by top grade companies, including Intel and Compaq, risks are eliminated. In the Hi-tech City built by L&T a similar thing happened. Thirty per cent was sold while 70 per cent wanted on rent. We bought some space with existing tenants like GE and HSBC and rents have already started coming in. As for the joint venture with Hongkong based Wybridge Holdings---to establish, operate, and manage pizza parlours and fast-food outlets under the Pizza Hut and KFC banner---instead of just advising them on property for a fee, we took some upside of the pizza business based on their numbers overseas and took a 25 per cent equity. Q. In housing loan business, with increasing competition, what steps is HDFC taking to retain the market share? It's difficult to maintain market share. We are still growing. The most satisfying part in individual loans is the 30 per cent growth last year and the 35 per cent growth rate this year. And this is not average size of the loan --- which has grown only 10 per cent. The number of borrowers has increased. I think despite others entering, because of shortage of housing and increasing affordability thanks to tax concessions, we will continue to grow in housing market. But we have to face competition and improve service even more. We have 10 offices in Mumbai at present instead of three earlier. That is we are going closer to the people for their convenience. In Chennai, the office is open seven days a week. So far we have resisted direct selling agents (DSA). I have been opposed to the DSAs on the simple reason that DSAs mean credit quality deteriorates. Since you pay DSAs on number of applications or loan amounts a DSA will push more applications or larger loans. But we are more cautious and have checks and balances in our system when business comes through them. In Delhi we have a DSA manager who looks at these applications more closely. Q Now that you have so many financial products in the group, to what extent are you cross-selling products? A. We are putting current account forms, mutual fund forms at HDFC office, housing loan applications are also available in the bank. But for appraisal of housing loan, the customer has to go to HDFC. We are trying to send message to individuals that he can come to any of his requirements to one of our offices and we will give him the same customer service, care and focus, dealing honestly. We have just started cross selling. The next step would be a consolidated statement to the customer, post-transactions, with the help of technology. Q. When are you getting into different areas and new ventures, what do you see as the biggest challenge it raises for the management? A. Instead of 24-hour day, I want a 48-hour day to manage (laughs). At HDFC we have one advantage. Two of our senior most people voluntarily agreed to join mutual fund and insurance. So comfort level, as the chairman is enormous. These are two new set ups and Aditya Puri was hand picked by me to 'build the organisation.' So, we are confident that in the new ventures culture will be same as at HDFC and working relationship is easier. |
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