Musical brand

The rise and rise of the HDFC brand

RBI has given the go-ahead for the grand merger of HDFC with HDFC Bank thus paving the way for the creation of another banking mammoth after SBI!

“We are the pioneer of housing finance in India. Because dreams, growth and progress start at home,” says HDFC on its website. Brainchild of Hasmukhbhai T Parekh HDFC has come a long way since its inception in 1977. Overcoming many obstacles from a fledgling start-up to India’s leading housing finance provider. Hasmukhbhai was indeed ahead of his time. After retiring from the management of term lending institution Industrial Credit and Investment Corporation of India, ICICI, he thought of establishing India’s first housing finance company at the age of 66. Extraordinary achievements always start with unconventional thoughts. Why can’t Indians have their own house with the help of bank finance/housing co-finance, he will wonder. So in 1977 HDFC was established and the rest is history. The first of its kind in the HDFC country started its journey without any government assistance. And in less than 50 years, he has become a model not only in India but for the entire Asian region.

Similarly, HDFC bank was incorporated on 30.8.1994 by HDFC limited, the first branch was inaugurated by the then Minister of Finance, Sh Manmohan Singh in 1995. The bank was also listed in the same year. Mergers and acquisitions are not uncommon in the Indian banking space. This has happened at regular intervals in the private and public sectors. Mergers have mainly happened in the past when a weak bank or small payer merges with a strong bank or big player. HDFC and HDFC bank have decided to merge to have synergies. In the process, they are going to become a banking giant in the coming days only next to State Bank of India in terms of company size and asset value. However, in terms of market capitalization at 14.05 trillion, it will only be next to Reliance Industry (18.02 trillion) according to M-cap data as of April 4. HDFC Bank’s market capitalization alone was the 4th most valuable company in India and HDFC alone is above State Bank of India. In terms of profit at 56578 crores, it will be second only to Reliance Industry (57729 crores) for the last 12 months.

HDFC and HDFC Bank emerged in the Indian banking space much later; HDFC in 1977 and HDFC Bank in 1995. Many leading financial institutions have been in business for over 100 years.

PNB since 1895, BOI and Canara Bank since 1906 Bank of Baroda since 1908, Indian Bank since 1907 and so on. What HDFC bank has been able to achieve in less than 30 years, others have not done in over 100 years.

Although the proposed merger has problems from the regulator’s point of view due to the heavy subsidiaries; especially those who sell insurance products. In addition, the cost of funds for the combined entity is likely to increase slightly due to the shadow bank’s reliance on relatively expensive funds, as it does not have access to cheap funds under the form of SB and CA. The stock price that went up more than 10% immediately after the announcement couldn’t hold up the next day. There will be other integration issues such as human resources and technology. But the fact remains that the merger of the HDFC parent company and their offspring the HDFC bank will go down in history. The branch network will cross the 700 mark, more than 9 million H/Customers will be added to the bank. Cross-selling will break all records. The asset size after the merger will be over 27.24 trillion only next to SBI’s 45 trillion.

While this will be another up-and-coming SBI, peers, especially other PSBs and smaller private banks, will feel the heat. In fact, the SBI is too big to be affected. Banking history tells us that it was the nationalized banks that lost their market share to the tune of 30% in as many years to new generation private banking, including HDFC banking. The SBI’s share has been steadily maintained, sometimes down slightly by 2 percent. They were able to maintain their share around 23%. With HDFC bank in every larger city, town and village, nationalized banks will have to prepare for another round of fierce competition from HDFC bank in the new avtar.

Now the question arises as to why the HDFC brand could sell so effectively and in less than 5 decades it is where it is. One of the main reasons could perhaps be the consistency of the people at the helm and the consistency of the policy; development and implementation. This is also visible in SBI, the only public sector bank where corporate governance is visible and there is consistency in their policy initiative. But to have a kind of musical chair arrangement at the high-level decision-making forum, the organization suffers.

(Disclaimer: Opinions expressed are personal)