Monday’s board meeting of India’s oldest and biggest mortgage firm, Housing Development Finance Corp. Ltd, or HDFC, is possibly the last that Deepak Parekh will be attending as executive chairman. Parekh, who will turn 65 later this month, is stepping down from the post by the end of the year. The board meeting is to take into account HDFC’s September quarter earnings. From January, Parekh will be the firm’s non-executive chairman.
Who will step into Parekh’s shoes? My take is that HDFC will maintain status quo and there won’t be any change in leadership. Parekh will continue to be the face of HDFC with Keki Mistry, its vice-chairman and managing director, and Renu Sud Karnad, joint managing director, running the operations. Under company law, it is not mandatory for a firm to have an executive chairman or, for that matter, even a non-executive chairman. All that a firm needs is a manager or managing director. The only difference between an executive chairman and a non-executive chairman is that an executive chairman draws remuneration while a non-executive chairman earns only fees for attending board meetings. Both can have a share in a firm’s profits.
In May, India’s financial sector witnessed another high-profile change of guard, at ICICI Bank Ltd, the country’s largest private sector lender. K.V. Kamath, its managing director and chief executive, stepped down and became non-executive chairman, replacing N. Vaghul. Even though the bank’s board formally anointed Chanda Kochhar as chief executive-designate five months in advance, in its December 2008 board meeting, the succession plan was possibly drafted even earlier, in October 2007, when Kochhar was made ICICI Bank’s joint managing director. In late 2007, the bank also appointed Wayne Brockbank, a professor at the University of Michigan’s Ross School of Business and a human resources consultant, to evaluate the leadership qualities of its senior executives.
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The succession plan at HDFC is less dramatic. It’s a given that Mistry, 55, and Karnad, 57, will continue to lead the organization and Parekh will be around to guide his colleagues. Mistry became the managing director in 2000 and was redesignated as vice-chairman and managing director in October 2007. Karnad, too, was redesignated joint managing director in October 2007, seven years after she was made executive director. Mistry joined HDFC in 1981 and Karnad in 1978, a few months before Parkeh joined. She, in fact, gave the cheque to HDFC’s first mortgage customer.
Banking is in Parekh’s genes. His grandfather was the first employee of Central Bank of India. His father spent 40 years in the same bank and retired as deputy managing director. His uncle, the legendary H.T. Parekh, founded HDFC in 1977. After graduating from Mumbai’s Sydenham College in 1965, Parekh qualified as a chartered accountant in England and worked with Ernst and Young, Precision Fasteners, ANZ Grindlays and Chase Manhattan in New York and Mumbai. When H.T. Parekh called his nephew to join HDFC in 1978, Parekh, 34 then, came in as deputy general manager at half the salary that he was earning at Chase Manhattan. Seven years later, he joined the HDFC board as whole time director and in 1993 became chairman.
How has the mortgage firm done under his stewardship? In fiscal 1993, when Parekh took over as chairman, it had an asset base of Rs2,562 crore. In fiscal 2009, it rose to Rs96,999 crore. Its net profit rose from Rs55.5 crore in 1993 to Rs2,183 crore in 2009. In 1993, HDFC approved home loans worth Rs859 crore and disbursed Rs720 crore. The comparable figures in 2009 were Rs49,166 crore and Rs39,650 crore. Indeed, HDFC is H.T. Parekh’s creation but Deepak Parekh built the empire that now accounts for one-third of India’s mortgage market. In 1993, HDFC was a one-product company. Today, it runs a bank, an asset management company, two insurance firms (life and non-life) and a couple of property funds. Overall, it manages around Rs4 trillion worth of assets and caters to 30 million customers.
Besides running HDFC, Parkeh has also been the government’s unofficial crisis manager. He had chalked out the revival plan for the former Unit Trust of India during its first crisis in the late 1990s and till recently he was leading the rescue operation at Satyam Computer Services Ltd, whose promoter confessed to corporate India’s largest fraud in January this year.
Parekh’s vision for HDFC has all along been to make it the GE Capital of India. This could have been possible through a merger of HDFC with the bank, but Parekh has seen no value in it. A bank needs to invest roughly one-fourth of its deposits in government bonds and keep a portion of its deposits with the Reserve Bank of India as a cash reserve on which it does not earn any interest. A mortgage firm does not have any such compulsion. HDFC can also convert itself into a holding company but this is not possible unless India goes for a single regulator for the entire financial sector as the mortgage firm and its banking, insurance and mutual fund subsidiaries are governed by different regulators. While Parekh will continue to cherish his dream for an Indian GE Capital, once he steps down from the executive chairman’s post, he will possibly have time to indulge in golf, his passion. I would not also expect any change in his Saturday schedule—four hours of bridge at petroleum minister Murli Deora’s house in south Mumbai.
Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Please email comments to firstname.lastname@example.org