Assignment on Housing Development Finance Corporation Ltd

8/4/2019 Assignment on Housing Development Finance Corporation Ltd

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ASSIGNMENT ON HOUSING DEVELOPMENT FINANCE

CORPORATION LTD(HDFC)

PREPARED BY

SHRAVAN RAIS

SHIKHAR AGARWAL

SHUBHRA AGARWAL

SAURABH

SNEHA


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TABLE OF CONTENTS

1. Introduction to the housing finance industry

2. Introduction to HDFC

3. Objective and strategies

4. History & Evolution of the Organisation

5. Organisational structure

6. Vision, Mission

7. SWOT analysis

8. Subsidiaries

9 Culture of the organisation and values

10 Leadership

11 References


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1.INTRODUCTION

Overview of

Housing Finance Industry

Housing finance as a financial service is relatively young in India. The

growth in housing and housing finance activities in recent years reflect

the buoyant state of the housing finance market in India. The real estate

sector is the second largest employment generator in the country.

In 1970, the state set up the Housing and Urban Development

Corporation (HUDCO) to finance housing and urban infrastructure

activities, in 1977, the Housing Development Finance Corporation

(HDFC) was the first housing finance company in the private sector to be

set up in India.

Currently there are 29 HFCs approved for refinance assistance from

NHB.

The following types of home loans are generally available in the market:

Home Equity Loans: A form of finance to the customer by way of

mortgage of existing property to the financier for taking a loan for some

other purpose. The current market value of the property is the basis for

providing home equity loans.

Home Extension Loans: The purpose of this loan is the extension of

existing houses Like the addition of rooms, toilet facilities etc. Suchloans fall under the category of home loans.

Home Improvement Loans: These loans are provided mainly for

repairs and maintenance of existing houses- These could include

internal and external repairing, waterproofing and roofing, complete

interior renovation, tiling and flooring etc.

Home Purchase Loans: Finance provided for the purchase of ready-

made houses.


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Land Purchase Loans: These loans are being provided for the

purchase of land for the purpose of construction of residential houses.
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PROBLEMS AND ISUES WITH THE HOUSING FINANCE INDUSTRY

IN INDIA

Variation in standardsThe housing sector is witnessed varying standards and practices among

the lending community, be it in origination and documentation or

monitoring and supervision. Variation in standards across the industry

imposes systematic risks, which can be a potential threat.

Aggressive approach may lead to defaults

Growing competition coupled with reduction in risk weights on housing

loans has led the lending institutions to adopt aggressive practices

including very high loan has led the lending institutions to adopt

aggressive practices including very high loan to value loans, softening of

collateral requirements, competitive pricing etc. with such an aggressive

approach being followed may lead to increase in the default rates.

Cost of funds

The prevailing interest rate war has resulted in constant downwardrevision of interest rates. Further, the spreads are increasingly becoming

thin as the lending rates are fast nearing the cost of funds. while during

1993-94, the interest rate on housing loans were in the range of 17-18%

the same right now are in the range of 7%-8.5%. this may lead to

erosion of profitability in the long run.

Security Deficit due to norms

Many primary lending institutions are making terms and conditions of

sanction flexible and liberal, thus enabling the borrowers to avail the

loans even more than value of security for long tenure of 20 to 25 years.

The large quantum of institutional finance in the property transactions

may lead to the problem of security deficit. Logically, the RBI has

stipulated higher risk weightage of 75% as against 50% in November

2004.


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Due diligence Issues

Increasingly, there have been instances of dilution in due diligence on

the part of lenders. Sometimes, loans are sanctioned without strictly

complying with laid down rules, systems and procedures. This situation

arises primarily out of fierce competitive pressures. It is observed that

the growing customer expectations force the PLIs to compromise due to

diligence, field verification process and appraisal norms, in a rush to

sanction the loan at the earliest.

Lack of Uniformity of norms amongst industry players

While banks and HFCs are the prominent players, HFCs face few

constraints. The regulatory norms stipulate 10% capital adequacy forbanks whereas the same is 12% for HFCs. Further, banks have access

to lower cost retail funds compared to HFCs. Uniformity in norms and

hence a level playing field has to be ensured for a healthy housing

finance system. These are newer challenges which need to be

addressed and resolved in times to come.

Industry Fragmentation

The fragmented nature of the housing finance industry is a major

impediment for its further growth. Despite this, the industry has managed

to grow mainly due to consistent decline in interest rates, tax incentives

given by the government and changing income profile of the Indian

middle class population.

Conflicting Interests

While the private housing finance institutions are required to abide bythe guidelines of the NHB, the general financial institutions, which

include the commercial banks, follow the guidelines set by the RBI.

Today, both these sections are competing with each other for the same

housing pie but their functioning and lending practices seem to bear no

similarity.


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ALM

Asset liability mismatch is one of the biggest risks housing finance

institutions are confronted with. Funding of long term loans with short

term deposits, leads to a mismatch between assets and liabilities that

can be overcome by adopting appropriate asset liability management

(ALM) techniques.

FDI Constraints

FDI guidelines for real estate development have come under a lot of flay.

Guidelines requirements such as a minimum capitalization of US$10

million for a wholly owned subsidiary and US$5 million for joint ventures

with Indian partners, development of a minimum area of acres, aminimum lock in period of 3 years from completion of minimum

capitalization before repatriation of original investment, act as

constraints to foreign investors.


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2. INTRODUCTION TO HOUSING DEVELOPMENT FINANCE

CORPORATION Ltd. (HDFC)

Housing Development Finance Corporation Limited (HDFC Ltd.) was

established in 1977 with the primary objective of meeting a social needof encouraging home ownership by providing long-term finance to

households. Over the last three decades, HDFC has turned the concept

of housing finance for the growing middle class in India into a world-

class enterprise with excellent reputation for professionalism, integrity

and impeccable service.

A pioneer and leader in housing finance in India, since inception, HDFC

has assisted more than 38 Lakhs customers to own a home of their own,

through cumulative housing loan approvals of over Rs. 3.73 trillion and

disbursements of over Rs. 3.02 trillion as at March 31, 2011.

HDFC has a wide network of 294 offices (which includes 76 offices of

HDFC's wholly owned distribution company HDFC Sales Private

Limited) catering to over 2,400 towns & cities spread across the country.

It also has offices in Dubai, Londonand Singaporeand service

associates in the Middle East region, to provide housing loans and

property advisory services to Non-Resident Indians (NRIs) and Personsof Indian Origin (PIOs).

HDFC's unrelenting focus on Corporate Governance, high standards of

ethics and clarity of vision, percolate through the organization. Trust,

Integrity, Transparency and Professional Service are the important

pillars of the brand HDFC and most importantly, people - both

employees and customers - are its brand ambassadors.

Customer satisfaction is the hallmark of all HDFC offerings. The firsttouch of HDFC's personalised service begins as soon as a customer

approaches HDFC, and over time it progresses into a long and

meaningful relationship. State-of-the-art information systems supported

by strong in-house training programmes conducted at its specialized

training centre in Lonavla, have equipped HDFC to respond swiftly to the

ever-changing customer needs and thereby empower customers in

making the right home buying decision. This is what sets apart HDFC's

customer service philosophy - 'With You, Right Through'.


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HDFC's specialist team of over 1,600 trained and experienced

professionals follows a 'single-window concept' for providing smooth and

value added services at all stages. The team guides the customers right

through the entire process of property purchase - be it property search

assistance, technical support prior to finalising the property, legal advice

on property related documentation, personalised home loan counseling

or providing tailor-made repayment options to suit the customer's

specific requirements.

HDFC's wide product range includes loans for purchase and

construction of a residential unit, purchase of land, home improvement

loans, home extension loans, non-residential premises loans for

professionals and loan against property, while its flexible repaymentoptions include Step Up Repayment Facility (SURF) and Flexible Loan

Installment Plan (FLIP).

HDFC also has a robust deposits mobilisation programme. HDFC has

been able to mobilise deposits from over 10 lac depositors. Outstanding

deposits grew from Rs. 1,458 crores in March 1994 to Rs 24,625 crores

in March 2011. In addition, HDFC has received 'AAA' rating for its

Deposit products for highest safety from both CRISIL and ICRA for

sixteen consecutive years.

Over the years, HDFC has emerged as a financial conglomerate with its

presence in the entire gamut of financial services including banking,

insurance (life and non-life), asset management, real estate venture

capital and more recently education loans.

Today, HDFC is recognised as one of the Best Managed Companies in

India and is a model housing finance company for developing countries

with nascent housing finance markets. HDFC has undertaken several

consultancy assignments in various countries across Asia, Africaand

East Europeto support and establish their housing finance institutions.

At HDFC, 'Corporate Social Responsibility' has always been an evolving

concept, akin to its 'learning by doing' philosophy. As part of its social

objectives, HDFC has always endeavoured to contribute to economic

development and social upliftment of the weaker sections of society and

has professionally nurtured each of its social initiative as an investment.HDFC has undertaken development oriented work and supported


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several social initiatives in the areas of education, child welfare, medical

research, welfare for the elderly and the handicapped among several

others.

HDFC is how millions of Indian families spell the word 'Home' as thebrand not only offers Housing Finance, but also Total Housing Solutions.

The HDFC Advantage

Pioneers of Housing Finance in India with over 33-34 years of

lending experience.

Widest range of home loan & deposit products.

Vast network of over 294 interconnected offices which includes 3international offices.

Most experienced and empowered personnel to ensure smooth &

easy processing.

Online loan application facility at www.hdfc.com and across-the-

counter services for new deposits, renewals & repayments.

Counseling and advisory services for acquiring a property.

Flexible loan repayment options

Free & safe document storage.


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3.OBJECTIVE

Business Objective

HDFCs primary objective is to enhance residential housing stock in the

country through the provision of housing finance in a systematic and

professional manner, and to promote home ownership.They aim to

increase the flow of resources to the housing sector by integrating the

housing finance sector with the overall domestic financial markets.

Goals:

Develop close relationships with individual households.

Maintain our position as the premier housing finance institution inthe country.

Transform ideas into viable and creative solutions.

To grow through diversification by gaining leverage from our

existing client base.

To nurture the values and ethos of Brand HDFC through all its

Subsidiaries and Associate Companies.

Growth strategies:

Increase the return on equity each year by 1 percentage point in

order to maximise shareholder value;

Maintain gross Non-Performing Assets (NPAs) below 1%;

Consistently grow the loan book;

Improve operational efficiency by consistently bringing down thecost to income ratio.


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4.HISTORY AND EVOLUTION

HDFC was incorporated in 1977 by Mr.Hasmukhbhai Parekh with the

primary objective of meeting a social need - that of promoting home

ownership by providing long-term finance to households. The launchingof HDFC was meant to be one small step in dealing with the availability

of housing accommodation in India which was then virtually non-

existent. HDFC as a pioneer launched India's first specialised home loan

company with an initial capital of Rs. 100 million.


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5 Organisational Structure


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6. Vision and Mission

VISION OF THE COMPANY:

Increase the return on equity each year by 1 percentage point in

order to maximise shareholder value;

Maintain gross Non-Performing Assets (NPAs) below 1%;

Consistently grow the loan book;

Improve operational efficiency by consistently bringing down the

Cost to income ratio

To enhance residential housing stock in country through the

provison of housing finance in a systematic and professional

manner.

To promote home ownership

MISSION OF THE COMPANY:

To be no1 housing finance sector

To increase flow of resources to housing sector by integrating

Housing finance sector with overall domestic market

Develop close relationships with individual households.


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Maintain our position as the premier housing finance institution in

the country.

Transform ideas into viable and creative solutions.

To grow through diversification by gaining leverage from our

existing client base.

To nurture the values and ethos of Brand HDFC through all its

Subsidiaries and Associate Companies

7. SWOT ANALYSIS

(STRENGTH, WEAKNESS, OPPORTUNITIES & THREATS)

Strengths : -

1. Right strategy for the right products.

2. Superiorcustomer servicevs. competitors.

3. Great Brand Image.

4. Products have required accreditation.

5. High degree of customer satisfaction.

6. Good place to work

7. Lower response time with efficient and effective service.

8. Dedicated workforce aiming at making a long-term career in the

field.

Weakness :

1. Some gaps in range for certain sectors.

2. Customer service staff need training.

3. Processes and systems, etc
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4. Management cover insufficient.

5. Sectoral growth is constrained by low unemployment levels and

competition for staff

Opportunities :

1. Profit margins will be good.

2. Could extend to overseas broadly.

3. New specialist applications.

4. Could seek better customer deals.

5. Fast-track career development opportunities on an industry-widebasis.

6. An applied research center to create opportunities for developing

techniques to provide added-value services.

Threats : -

1. Legislation could impact.

2. Great risk involved

3. Very high competition prevailing in the industry.

4. Vulnerable to reactive attack by major competitors.

5. Lack of infrastructure in rural areas could constrain investment.

6. High volume/low cost market is intensely competitive.


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8. SUBSIDIARIES

HDFC Bank

HDFC Asset Management Company Ltd

HDFC Standard Life Insurance Company Limited

HDFC Sales

HDFC ERGO General Insurance Company ltd ( formerly HDFC

General Insurance Company Ltd)

Other Companies Co-Promoted by HDFC


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9. Organizational Culture & Values:

They have an open and informal culture. They value integrity,commitment, teamwork and excellence in customer service. They have

adopted a policy of "Learning By Doing" which encourages decisionmaking as well as learning from doing.

They continue to grow rapidly inspite of the competitive market scenarioand young professionals opting to make a career with HDFC today willfind more challenging and exciting opportunities to contribute and growwith them.

Learning By Doing is the process of making meaning from direct

experience. It is learning through reflection on doing, which is often

contrasted with rote or didactic learning. Experiential learning is related

to, but not synonymous with, experiential education , action learning,

adventure learning, free choice learning, cooperative learning, and

service learning. While there are relationships and connections between

all these theories of education, importantly they are also separate terms

with separate meanings. It focuses on the learning process for the

individual. An example of experiential learning is going to the zoo and

learning through observation and interaction with the zoo environment,

as opposed to reading about animals from a book. Thus, one makes

discoveries and experiments with knowledge firsthand, instead of

hearing or reading about others' experiences.


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10 LEADERSHIP

Mr. H.T. Parekh

~ An industrialist, writer and philanthropist ~

Born on March 10, 1911 in a banking family at Surat, Mr. Hasmukh

Thakordas Parekh, fondly referred to as Hasmukhbhai was the doyen

of the Indian housing and financial sector.

A graduate in Economics from Mumbai, Mr. Parekh also pursued aBSc. degree in Banking and Finance from the London School of

Economics.

After returning to India in 1936, Mr. Parekh began his financial career

with a leading stockbroking firm, Harkisandass Lukhmidass.

Simultaneously, he was a lecturer in Economics at the St. Xavier's

Collegein Mumbai for about three years. He considered his two-

decade long stint at the broking firm valuable, as it not only gave himhis most basic lessons in the business but also immensely contributed

to his personal growth.

During this period Mr. Parekh also continued to study and write on

different aspects of the economy and economic policy, money and

banking, and also participated in public discussions.

Driven by deep interest in investment banking, he decided to move on

to his next major assignment. In 1956, Mr. Parekh joined the newly setup development finance institution Industrial Credit and Investment


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Corporation of India Limited(ICICI). Under his leadership ICICI grew

impressively to gain acceptance of the Indian business community,

recognition of Government and even became a show piece for the

World Bank.

For decades he had been stressing the need for a financial corporation

specializing in providing long term finance for ownership housing. Thus

even at the age of 66, when most people think of retirement, Mr.

Parekh was determined to set up his most ambitious enterprise.

His lifelong dream of helping Indians own their home, as he had seen

abroad during his student days, led to the formation of the Housing

Development Finance Corporation Limited (HDFC) in 1977. It was the

first-of-its-kind in India. It is under Mr. Parekhs leadership and direction

that HDFC grew manifold while being strongly rooted in the principles of

integrity, transparency and professionalism. Soon HDFC became a

major role model not only for the country but for the entire Asian region.

In keeping with his zeal for promoting new ventures, in 1983, Mr.

Parekh promoted the first private sector oil exploration company in

India, Hindustan Oil Exploration Company Limited. He also set up

Gujarat Rural Housing Finance Corporation Limitedin 1986.

Mr. Parekhs love for writing blossomed right from his school days. In

addition to being a regular contributor to the media with over 200

published articles to his credit on a variety of subjects such as industry,

economic policy, capital market, development banking, credit policy,

etc., he was the author of several books. He authored The Bombay

Money Market, a novel book detailing the intricate workings of the

money market in lndia. He also chronicled his considerable experience

as a development banker in his book, The Story of a Development

Bank (ICICI: 1955-1979). Some of his other books include The Future

of Joint-Stock Enterprise in India, India and Regional Development,

Management of Industry in India and The Indian Capital Market - Past,

Present & Future. Also, his writings in Gujarati, Hirane Patroand

Hirane Vadhu Patroare considered works of great importance in

Gujarati literature.

His wisdom and warmth drew people from all walks of life to him for


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advice, guidance and inspiration. Mr. Parekh was a man of few words,

and believed that strong views need not be expressed in strong words.

He had a keen eye for talent and nurtured it by providing direction and

ample learning opportunities.

Known for his humility, affection and concern for fellowmen, Mr. Parekh

was associated with several philanthropic causes and welfare

organizations.

In 1986, he was one of the founders of the Centre for Advancement of

Philanthropyand served as its Chairman since its inception until his

retirement in 1993. His concern and love for the city of Mumbai

(erstwhile Bombay) led him to form the BombayCommunity Public

Trustin 1991. This venture was designed specifically to address the

needs of disadvantaged citizens in the city of Mumbai. He took the

initiative to finance Mumbais first public toilet by any corporate house

Sulabh Shauchalaya. Additionally, Mr. Parekh served as trustee of the

Sameeksha Trust, Saurashtra Trust, Kasturba Gandhi National

Memorial Trust, The India Foundation, The lndia Heritage Trust, The

Chakallas Puraskar Trustand also served as the President of the

Social Service League.

Some of Mr. H.T. Parekhs major achievements are:

The James Taylor prize for standing 1st in B.A. (Economics) from

the University of Mumbai.

Honorary Fellow of theLondon School of Economicsand Political

Science, U.K.

Padma Bhushanby the Government of India for his contribution

to the field of economic activities in 1992.

The thoughts and dreams of a legend like Mr. H.T. Parekh live on

forever, changing human lives for the better.
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Board of Directors

Details of the Board of Directors in terms of their

directorships/memberships in committees of public companies

(excluding HDFC) as on July 8, 2011 are as under:

Sr.

No.

Name of

DirectorCategory*

No. of

Directorship**

No. of

Committees***

Member Chairperson

1Mr. Deepak S.

Parekh

NonExecutive

Chairman

11 7 5

2Mr. Keshub

Mahindra

Vice

Chairman5 1 1

3Mr. Shirish B.

PatelIndependent 1 0 0

4Mr. B. S.

MehtaIndependent 14 9 5

5Mr. D. M.

SukthankarIndependent 3 1 1

6Mr. D. N.

GhoshIndependent 5 1 1

7 Dr. S. A. Dave Independent 7 6 0

8Dr. Ram S.

TarnejaIndependent 11 6 1

9Mr. N. M.

MunjeeIndependent 13 9 4
http://www.hdfc.com/others/directors_detail.asp#parekhhttp://www.hdfc.com/others/directors_detail.asp#parekhhttp://www.hdfc.com/others/directors_detail.asp#mahindrahttp://www.hdfc.com/others/directors_detail.asp#mahindrahttp://www.hdfc.com/others/directors_detail.asp#patelhttp://www.hdfc.com/others/directors_detail.asp#patelhttp://www.hdfc.com/others/directors_detail.asp#mehtahttp://www.hdfc.com/others/directors_detail.asp#mehtahttp://www.hdfc.com/others/directors_detail.asp#sukthankarhttp://www.hdfc.com/others/directors_detail.asp#sukthankarhttp://www.hdfc.com/others/directors_detail.asp#ghoshhttp://www.hdfc.com/others/directors_detail.asp#ghoshhttp://www.hdfc.com/others/directors_detail.asp#davehttp://www.hdfc.com/others/directors_detail.asp#davehttp://www.hdfc.com/others/directors_detail.asp#tarnejahttp://www.hdfc.com/others/directors_detail.asp#tarnejahttp://www.hdfc.com/others/directors_detail.asp#munjeehttp://www.hdfc.com/others/directors_detail.asp#munjeehttp://www.hdfc.com/others/directors_detail.asp#munjeehttp://www.hdfc.com/others/directors_detail.asp#munjeehttp://www.hdfc.com/others/directors_detail.asp#tarnejahttp://www.hdfc.com/others/directors_detail.asp#tarnejahttp://www.hdfc.com/others/directors_detail.asp#davehttp://www.hdfc.com/others/directors_detail.asp#ghoshhttp://www.hdfc.com/others/directors_detail.asp#ghoshhttp://www.hdfc.com/others/directors_detail.asp#sukthankarhttp://www.hdfc.com/others/directors_detail.asp#sukthankarhttp://www.hdfc.com/others/directors_detail.asp#mehtahttp://www.hdfc.com/others/directors_detail.asp#mehtahttp://www.hdfc.com/others/directors_detail.asp#patelhttp://www.hdfc.com/others/directors_detail.asp#patelhttp://www.hdfc.com/others/directors_detail.asp#mahindrahttp://www.hdfc.com/others/directors_detail.asp#mahindrahttp://www.hdfc.com/others/directors_detail.asp#parekhhttp://www.hdfc.com/others/directors_detail.asp#parekh


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10Dr. Bimal

JalanIndependent 0 0 0

11 Dr. J. J. Irani$

Non-

executive 6 1 0

12Mr.V.Srinivasa

Rangan

Executive

Director9 5 0

13Ms. Renu Sud

Karnad

Managing

Director13 5 3

14Mr. Keki. M.

Mistry

ViceChairman &

Chief

Executive

Officer

12 10 3
http://www.hdfc.com/others/directors_detail.asp#jalanhttp://www.hdfc.com/others/directors_detail.asp#jalanhttp://www.hdfc.com/others/directors_detail.asp#iranihttp://www.hdfc.com/others/directors_detail.asp#iranihttp://www.hdfc.com/others/directors_detail.asp#iranihttp://www.hdfc.com/others/directors_detail.asp#ranganhttp://www.hdfc.com/others/directors_detail.asp#ranganhttp://www.hdfc.com/others/directors_detail.asp#karnadhttp://www.hdfc.com/others/directors_detail.asp#karnadhttp://www.hdfc.com/others/directors_detail.asp#mistryhttp://www.hdfc.com/others/directors_detail.asp#mistryhttp://www.hdfc.com/others/directors_detail.asp#mistryhttp://www.hdfc.com/others/directors_detail.asp#mistryhttp://www.hdfc.com/others/directors_detail.asp#karnadhttp://www.hdfc.com/others/directors_detail.asp#karnadhttp://www.hdfc.com/others/directors_detail.asp#ranganhttp://www.hdfc.com/others/directors_detail.asp#ranganhttp://www.hdfc.com/others/directors_detail.asp#iranihttp://www.hdfc.com/others/directors_detail.asp#jalanhttp://www.hdfc.com/others/directors_detail.asp#jalan


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11. REFERENCES

www.hdfc.com

www.Wikipedia.com

www.economictimes.com
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Documents

Assignment on Housing Development Finance Corporation Ltd