At the outset, let me explain the rationale
for writing this piece — to place in the public domain some archival
information and memories that may get lost in the mists of history. I don’t
even know whether some of the documents referred to here, and to which I had
access once upon a time, exist anymore—physically or as digitised versions.
On 22 October 1977, when Housing
Development Finance Corporation was launched by the then finance minister of
India HM Patel, at the Ball Room of Taj Mahal Hotel in Bombay, it was
considered a ‘revolutionary’ step in the history of Indian finance.
To understand why the concept was so
innovative, one has to understand the weltanschauung of the man who lobbied for
it unfalteringly for nearly three decades before it saw the light of the day.
One also has to understand the context of income-gearing. When jobs were so
scarce and salaries so low, how could a product based on leveraging future incomes
work?
HT Parekh articulated his concept of a
housing finance company for the first time in February 1951 when he was
employed with Harkisondass Lukhmidass, then an upcoming stockbroking firm in
Bombay. On his return from the London School of Economics (LSE) in 1936, HTP
had joined this firm on a salary of Rs150/per month, much to the chagrin of his
father, because the share market was considered a ‘sattaa bazaar’ and the term dalaal
was a pejorative. In any case, a degree in economics did not hold great
employment opportunities in India in the 1930s. At best, you could get into
poorly-paid academics or, if you were lucky and well-connected, after 1935, you
could get a job with the newly set up Reserve Bank of India (RBI).
Even LSE, established by Fabian socialists
Sydney and Beatrice Webb in 1895, had a difficult time getting students as well
faculty because a degree in economics hardly led to good jobs. As AW Coats,
writing about the history of LSE, said: “The leading British economic writers
had rarely derived their inspiration or their preparatory training from
elementary economics; the number of academic economists was small;
professorships were few and poorly paid; and consequently talented men turned to
other matters, refusing to embark upon a scholarly and scientific career in
which bare subsistence is uncertain. It was, admittedly, ‘just possible to earn
enough to live with extreme economy by combining together several different
economic sources of income’…” (See: https://www.taylorfrancis.com/chapters/mono/10.4324/9780203978887-25/alfred-marshall-early-development-london-school-economics-unpublished-letters-bob-coats)
It was only during the directorship of Sir
William Beveridge –1919 to 1937 –that LSE was able to get distinguished faculty
members as well as students – many from developing countries. (See: https://www.goodreads.com/book/show/22576402-the-london-school-of-economics-and-its-problems-1919-1937). HTP was one such student from not a developing country but a then colony of
British India.
HTP was at LSE up to 1936. He had gone to
London basically to appear for the Indian Civil Service examinations but,
having failed to get selected, he completed his degree in economics at LSE. The
spirit of Fabian socialism that he imbibed during those two years was perhaps
the basis of his humanism throughout his career which was associated with
institutions of capitalism – the capital market, banking and finance.
For the current generation, who may not be
familiar with the tenets of Fabian socialism, very briefly, its advocates
believed that: 1) substantial State intervention would be necessary if ordinary
people were to prosper; and 2) the Welfare State had a collective
responsibility to its citizens for education, healthcare and nutrition, housing
and employment, along with support for care of the sick and aged.
Immediately after his return from London,
HTP taught for a few months at St Xavier’s College, Bombay. He did opt for a
career in banking like his father and elder brother, both of whom were working
with the Central Bank of India. For HTP, as he has mentioned in his
autobiographic narrative Hira ne Patro (Letters to Hira, first published in
Gujarati), AD Shroff was a role model. AD Shroff too had started working in the
share market after returning from London with a degree in economics joining the firm Batlivala & Karani (See Sucheta Dalal, AD Shroff Titan of
Finance and Free Enterprise).
So, on noticing an advertisement of Harkisondass Lukhmidass
in the Times of India for ‘educated’ youngsters to work as brokers, HTP decided
to apply. Sir Purshottamdas Thakoredas, whom HTP knew well, was an adviser to
Harkissondas; with his reference and a degree in economics from LSE, HTP got
the job. Soon, he became the ‘right-hand man’ of Harkisondass (Hakkubhai to
most people in banking and financial circles of Bombay in the 1940s and 1950s) who
used the articulation abilities of HTP to make presentations to the then
governor of RBI.
Until then, Harkisondass Lukhmidass was not
one of the firms recognised by RBI for trading in government securities. It was
at HTP’s insistence and initiative, that Hakkubhai sought a meeting with Sir
James Taylor, governor RBI in 1937 to make a presentation about their vision of
the capital market – that it is an avenue for peoples’ savings that need to be
invested in the development of the economy. ‘Presentations’ those days were all
in the nature of discussions on ‘Notes’ or ‘Working Papers’; so the domain
knowledge of the business as well as articulation skills mattered most. Harkisondass
Lukhmidass not only began to get business from RBI but also established such rapport
that Sir Taylor began to consult HTP and Harkisondass Lukhmidass on business
and economic issues. The relationship continued after Sir Taylor’s death in 1943
with CD Deshmukh who succeeded him.
The first ‘Note’ on housing finance that
HTP wrote in 1951 was one such presentation to the Reserve Bank of India. It
was titled “A Housing Society for the Bombay State” (see India through the Eyes
of a Visionary: Writings of HT Parekh; page 467). (See:http://nitamukherjee.blogspot.com/2022/08/memories-as-archives.html)
Photo: Nihar Sagar
In this Note, HTP’s emphasis was on the
financial aspects of the company – mainly on how the resources for lending
would be raised. The capital market was then in a nascent stage and, since he
was working with a broking firm, he must have observed that it would be
extremely difficult to raise money from the public. After all, if in 1955, ICICI’s
first issue of 150,000 shares had less than 2,000 applications – 1,928 to be
exact – in 1951, the situation could not have been any better. Such was the
state of the primary issues market then. (2nd Board Meeting of ICICI;
Secretary’s Board Papers; 28 February 1955).
The two tenets of Fabian philosophy, viz., a
concern for the common man and State intervention for welfare – were reflected
in this Note. The first paragraph of that Note said: “In order to assist the small
man in building residential property for himself and to assist the numerous
cooperative housing societies which have come into existence in recent years
and who require finance for housing, it would be advisable to promote an
independent housing corporation, sponsored by the government...” Further it
said: “The primary purpose shall be to advance, for residential housing of the
small man, either directly or through cooperative societies...”
Salaries in the 1950s: Interesting
Anecdotal Evidence
As mentioned earlier, HTP had joined Harkisondass
Lukhmidass in 1936 on a salary of Rs150/ per month; and although I have no
evidence for what it would have been by the 1950s, since annual increments
those days were not even in ‘three figures’, it may have been just touching
‘four figures’.
Even by the mid-1950s, ICICI – the
development bank that HTP would join in 1956 – offered salaries as low as
Rs400/- per month to the professionals it recruited. The minutes of the 1st
meeting of the board of directors of ICICI on 20 January 1955 recorded that
Percival S Beale, the then general manager, “was authorised to engage the
necessary staff of about eight to ten persons on a salary not exceeding Rs.
400/- per month.” But since Mr Beale came from the Bank of England and may not
have been too familiar with the situation on the ground, he was authorised to
do so only “in consultation with any one of the Bombay Directors of the
Company.” So, as recorded in the minutes of the board meeting, the first recruitment
advertisement of ICICI said: “We need urgently the services of one or
preferably two persons having general industrial experience, e.g., in the field
of Electricity, Chemicals, or Mechanical Engineering, who can act as the link
between our financial examination of proposals and the full technical
examination of them.” Among the engineers so recruited was Siddharth S Mehta
who came from Tata Chemicals, Mithapur after having worked in government of
India’s directorate general of trade & development (DGTD). Engineers formed
the largest percentage of initial employees of ICICI and included Suresh
Nadkarni, SS Betrabet and R Hirway.
HTP would join ICICI a year later, in March
1956, as the number 2 person in the organisation after Mr Beale. The minutes of
the 11th board meeting of ICICI on 12 March 1956 recorded, “Mr HT Parekh had
accepted the appointment as Deputy General Manager. It was resolved that Mr HT
Parekh be appointed Deputy General Manager on an inclusive salary of Rs3500/-…
from 29th March 1956.”
As a private sector institution, ICICI was
considered a good paymaster those days. So salaries in other organisations
could not have been better. In such a scenario, to develop a loan product that
would be geared on the future incomes of the borrower and from which he could
pay at least 20% each month was, indeed, ‘revolutionary’. He defined the
product as one that would offer “long-term loans for ownership housing on a
mortgage basis.... (and) enables people to own a house at the beginning of their
business career by borrowing first and repaying the debt, out of their income,
over a period of years, instead of being in a position to own one's house only
at the end of a working career, as in India.” It was even more challenging because
Indians attached a huge stigma to ‘mortgaging one’s house’ – one did that only
under dire circumstances. But what gave comfort and confidence was the fact
that the ‘small man’ in India was, by and large, regular in repayment of loans
– perhaps because moneylenders charged usurious rates and the cost delinquency
was very high – not just financially but socially as well.
HTP said at the launch of HFDC: “Better
housing and living conditions for our people is a dream I have always nursed,”
and he would lobby tirelessly to make a housing finance institution to see the
light of day. If I recollect right, it was this concern for the ‘small man’
(which, I would l always change to ‘common man’ while editing his writings), that was reflected in the fact that among the projects
that were sanctioned in the first year of HDFC’s operations was a housing loan
project for tea garden workers.
