Wednesday, 24 August 2022

Pradip Shah Recounts How HDFC Segued from Build-and-Sell to Pure Lending

 (I was delighted to get a comment from Pradip Shah on “HT Parekh: Conceptualising an Income-gearing Product in the 1950s When Incomes Were Limited ”. He was a part of the core team of ICICI employees who worked with HTP on the launch of HFDC. A brilliant Harvard alumnus who had joined ICICI in the mid-1970s at the invitation of HTP, he was one of the few who left ICICI to join HDFC once it was set up. So, it was a pleasure that Pradip responded to my blog by recounting some of his earliest memories of working with HTP in HDFC to set trends that others would follow. I am happy to share these on this platform. For it places in the public domain some archival information about the first institution for housing finance in India. And, as I have emphasised, memories of personal experiences are the best archives! Thank you, Pradip.)

Comment on Nita Mukherjee’s blog, Pradip Shah, Mumbai, August 22, 2022 

I was fortunate to have had the opportunity to work closely with HT Parekh in setting up HDFC. I was instrumental in changing the concept of HDFC to make it a pure lending organisation. HT Parekh had wanted to create an organisation that would build homes and sell on instalments, following HUDCO where Keshub Mahindra (later HDFC vice-chairman), who endorsed the idea, had been chairman. Indeed, the proposal prepared by NC Singhal and me in mid-1977 and sent to Aga Khan and IFC (W) was based on that business model.

 HT Parekh with Pradip Shah at Washington Airport circa 1980, Courtesy Pradip Shah 

But I saw how building societies and savings and loan associations (S&Ls) worked, on my trip abroad in December 1977. The trip was a suggestion of HT Parekh, who spoke to the then head of Standard Chartered Bank, who arranged for me to visit Abbey National Building Society in Baker Street and stay at the Standard Chartered chummery in a London suburb (those were days of severely-restricted availability of foreign exchange). Using contacts, I was able to get appointments with some S&Ls in USA, a building society in Philippines (where there had been turmoil in money markets) and a building society in Singapore. Unfortunately, most of these organisations thought of my visit as an imposition; one US S&L head heard me for a minute then promptly escorted me out saying he did not have time to answer questions on how S&Ls functioned. But the few days I got to sit in the Abbey National branch and the interaction I had with a couple of people there made me realise that a scalable, sustainable housing finance organisation had to be a pure lending organisation, not one that would build and sell homes on instalment-payment basis. (Incidentally, ALL people I met appreciated my HDFC business card that you, Nita, designed and got printed!)

I came back and drafted the lending policies which were repeatedly not approved till we had a board meeting where I forcefully presented the lending-against-income and lending-against-alternative-security proposals. The alternative security (personal guarantees of respectable family members or friends; assignment of LIC policies, etc) overcame the objections of Suresh Shroff of Amarchand Mangaldas and YH Malegam who were advisers to HT Parekh, who rightly said that flats under construction offered no security. The practice of lending-against-income (and the instalment-income ratio) were copied by the industry that followed (imitation is the best form of flattery) as was our brochure (often word-for-word), loan-application form, alternative security idea and even the ‘annual rest’ (reducing the principal at the end of one year for all principal-repayments made monthly). Indeed, the annual rest practice, that HDFC started and the industry copied, had to be modified later to coincide with the accounting year-end. I had borrowed the annual rest idea from building societies to enhance returns to HDFC as HT Parekh was keen to lend at 10.5%, a below-market rate at that time.

Indeed, it was this lending policy that resulted in our loan for tea workers for which Mr Hirianniah (then head of technical at HDFC) and I visited the Tata Tea estate near Jorhat in February 1979.


Thursday, 18 August 2022

HT Parekh: Conceptualising an Income-gearing Product in the 1950s When Incomes Were Limited

 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:

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: 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:

                                          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.


Thursday, 4 August 2022

Memories as Archives

This article was triggered by a question I was asked recently about the two-volume collection of late HT Parekh’s writings published way back in 1995 when I was working with ICICI – then a development bank – The Industrial Credit and Investment Corporation of India. The volumes were published by ICICI and HDFC (Housing Development and Finance Corporation) on his first death anniversary to commemorate his contribution to the building of these two financial powerhouses in India.

Photograph: Nihar Sagar

Both these development-oriented institutions, bowing to the ‘needs of the hour’, have been converted to commercial banks by merging themselves into the banks they had set up. HDFC has announced the decision and conversion is still some time away.

But why am I writing this piece now about an event that happened almost three decades ago? The answer: to record my memories. It is my belief that faithfully recorded memories have archival relevance.

Many in India may remember HTP (as HT Parekh was known in professional and social circles) as the doyen of Industrial finance in India. But I was surprised to find that the fairly authoritative and the first book on the history of Indian business by an Indian economic historian Dr Dwijendra Tripathi – The Oxford History of Indian Business (published in 2004) – did not have a single reference to HT Parekh. HTP had played a seminal role in the growth of the financial infrastructure of the country for almost half a century (late-1940s to mid-1990s) – the capital and money market, financial institutions and banks – and important facets of the credit and monetary policies. How can one think of Indian business without finance?

Be that as it may, I was asked about the ‘background’ to the publication of the two volumes of HTP’s writings and how I went about collecting all the articles and text of his speeches spanning those decades. Well, it did not take me much time, as I had myself compiled the entire file containing his speeches and articles while he was still alive! Although my professional contact with him began in the early-1970s, I think I started putting the collection together some time in the late-1980s. By then, I had worked closely with him on editing and publishing ICICI: Story of a Development Bank 1955-1979 – after which he would ask me to edit all his writings.

Photograph: Dr Sanjeev Bothra

So, putting together the contemporary writings was not an issue; but I did do a lot of research for his earlier materials and started compiling the collection chronologically. Every time I added a piece to the file, he would give me one of his beatific smiles as he thought I was a bit crazy! I would tell him ‘who knows some day someone may want information on the capital market in India and your articles and speeches may provide valuable information to that researcher’. And he would indulge me!

Many, many years later, this indeed was the response of business historian Medha M Kudaisya, teaching at the National University of Singapore who was then researching for her book on the Bombay Plan and looking for references of that period. This is what she e-mailed me when I sent her the reference to these volumes: "Have managed to get hold of India in Transition through the Eyes of a Visionary! It’s a fantastic resource for the Bombay Plan. It was not available so could not buy it but have got it from the Australian Nat(ional) University on inter-library loan. Congratulations on such good volumes!"

As a social historian, I have always believed that the briefest documents, or even personal letters, or photographs, when contextualised, contain a lot of ‘incidental’ information about the times lived in, that may be of use to future researchers. When I was in the corporate sector, I would argue for the need for archives and plead with colleagues to preserve documents and photographs – physically those days, as technology for converting to digital documents or images was not available then.

So, when editorial work on the commemoration volumes started, it was a fairly easy task – I did not have to go far looking for the content. Though the challenge was on how to structure the sections, since HTP was so articulate and wrote on so many subjects! We classified the articles into eight sections – four in each volume of the book. Volume-1 included: capital market, development banking, credit policy, regional cooperation. Volume-2 covered: industry, economic policy, housing and general & miscellaneous.

Photograph: Nihar Sagar

HTP used every opportunity — be it a letter to the editor or a book review or, indeed, a speech at a public function — to make a point, to persuade and to provide intelligent and well-considered commentary on the subject. Little did we realise that there were 300 pieces, written over the period 1940s to 1990s, in English (he also wrote fairly extensively in Gujarati). The challenge was to contextualise every piece – whether it was a speech, an article or just thoughts he had penned that we found among his personal papers. Even more challenging was to date all the pieces. Fortunately, I was able to do this for almost 90% of the writings! When viewed retrospectively, these provide a peek into the times when debates and discussions formed the bedrock of public policy.

As I wrote in the Preface to the volumes (signed by the then chairmen of ICICI and HDFC), "HT Parekh himself would never have consented to this enterprise during his own lifetime. He was too modest and self effacing a person to believe that it would be of any value to present and future generations. We have thought otherwise... We debated, carefully, the merits of making a selection of his most important pieces rather than publishing nearly all his available works. We arrived at the conclusion that, for several important reasons, it would be preferable to adopt the latter course as it would place his writings in a historical perspective, indicate the progress of his own thinking on the subjects he cared about and, most importantly, demonstrate the persistence of his views over a long period of time. Not to publish the whole would have risked the imposition of the implicit bias of the editors and would have severely detracted from the chronology of thought that would be of importance to anyone interested in the economic and financial history of the period." 

Dr IG Patel wrote in the Foreword to  the volumes, "the collection brings home the fact that HTP was a man of considerable intellectual and analytical ability which he employed for arriving at his prescriptions and agenda for public or private action. If he was a karma-yogi in every sense of the word, his activities were rooted in gyana (study, analysis and judgement) as well as bhakti (devotion and compassion) — all three making a rare and very potent amalgam."

Although today we have far better developed financial infrastructure in the country, researchers and business historians will find in the collection invaluable information about the evolution of many institutions the foundations for which HTP had laid.