The HDFC chairman also said that the country should be able to double its home loans to around $600 billion within the next five years.
Read Full Text of HDFC Chairman’s Letter to Shareholders
There are two dates that are perhaps the most important for HDFC. The first is October 17, 1977. This date marks the fulfillment of the dream of setting up India’s first retail housing finance company. The second important date is April 4, 2022, when the board of directors of HDFC and HDFC Bank respectively approved the merger of the two equals.
For HDFC, there are many milestones and memories between these two historical dates. During this period, HDFC took advantage of the opportunity to create several new institutions while continuing its pursuit of cumulative financing of over 9.3 million housing units. Nothing is more gratifying than to describe HDFC as an exceptional company, run by common Indians for the common Indians.
For many including me, HDFC is not just an institution, it is a sentiment. HDFC has always felt like home and family. Working with like-minded people who believe in honesty, integrity and transparency as the cornerstone of everything they do, this is why HDFC is a cocoon of safety and comfort. I cannot be more grateful to so many associates who are true ‘HDFC Lifers’. They are the ones who have patented the ‘HDFC way’ of doing things and they are the ones who have nurtured many others within the organization.
Each day, year and decade has been beneficial in building a customer-centric organization. I truly believe that our 45 years of expertise in housing finance in India is unparalleled. We particularly stand out because of our time-tested, efficient and low-cost operating model. This efficiency has been achieved despite being supported by a small employee base and smart investments in processes and systems. It is our customers who help us grow our product offerings and service delivery mechanisms.
Today, we have the digitization tools and expertise to provide in-principle home loan approval within two minutes. Equally, we also recognize that many people still seek counseling and support in their home buying journey. No customer story is the same. Still, all home buyers are alike as a home is probably the biggest investment a person can make in their lifetime.
Housing finance products are largely standardized. The main difference between home loan providers is the emotional quotient – empathy and understanding the needs and feelings of the customers. We are committed to offering inclusive and customized housing finance solutions across all income groups, increasing women homeownership, promoting green housing and expanding our reach in deeper geographies.
Over the past two years, I have recorded many times saying that I have never been as optimistic about home loan demand as I am at present. Despite the recent adversities in the global macro landscape, I continue to maintain this stance. India is on the verge of economic transformation.
As an axis of global growth, India is envisaged to be among the fastest growing major economies. Most of India’s growth will continue to be driven by domestic consumption.
The aspiration to own a home in India will only go further. The home loan market in India is estimated at a little over US$300 billion, which represents a mortgage to GDP ratio of just 11%. Favorable conditions like rising income levels, better affordability and financial support augurs well for the demand for homes. Real estate in India is on an upcycle. Developers are now financially stronger and more disciplined.
India should be able to double its home loan to about US$600 billion within the next five years. This will coincide with the period when India will achieve its much-awaited target of being a US$ 5 trillion economy. Despite the doubling of housing loans, India’s mortgage penetration will still remain low at an estimated 13% of GDP. Now the time has come for us to ask ourselves what will be the proportion of India’s mortgaged GDP of 20 per cent and above? When one looks at comparable Asian economies, the average mortgage to GDP ratio ranges between 20 and 30%. This implies that housing loans in India will have an exponential growth trajectory for the coming decades.
At HDFC, we know this is the right time to make strategic choices as we prioritize avenues for future growth. Our moment of truth is that the optimal route to scale up housing finance is to be placed within the banking structure. The pool of resources for lending would be much larger and at a lower cost. From a regulatory standpoint, it is prudent for all major housing finance providers to act on an equal footing with the same regulations. Even globally, the scale of mortgaged assets in banks is increasingly larger than in non-banking financial institutions.
We have already clarified the rationale for the proposed merger, which takes into account the country’s future growth potential, evolving macro environment and changes in regulatory architecture.
Trust is the foundation of a successful merger. Fortunately, between HDFC and HDFC Bank, there is a natural connection. Financial and human capital is important through the merger process, as is a clear communication strategy on key developments during this period. It makes every effort to be available and accessible to all our stakeholders to address concerns in an open and transparent manner. In addition, both institutions are strongly committed to increasing environmental, social and governance (ESG) disclosures.
At this time, we await regulatory guidance on the way forward. we live
We respect all our regulators and are confident that the results will be systemically prudent and fair. My only request to our stakeholders is for your patience as we navigate through the complexities of this transaction. More than ever, we need your trust and support.
All board members and senior management – past and present – have individually and collectively helped the corporation stand for decades. I am extremely grateful to all of them over the years.
After 45 glorious years of providing homes to millions of customers, it is time for HDFC to find a new home.
With the blessings of our regulators, shareholders, creditors and other stakeholders, we look forward to be able to add the third and last significant date in HDFC’s history, which will mark the conclusion of the proposed merger.
Until then, I’ve promised to keep up before bed and go for miles.