Thread by @marginalideas

Book 18 – A bank for the Buck

The book is all about the history and philosophy of how the bank was formed, what is it that separates it from others and why a firm is all about its people.

A must read to understand the marvel that HDFC Bank is and what drives the same.

1. In Short, HDFC bank has not done anything unique. Doing very ordinary things in ordinary ways with extraordinary execution and redefining the distinction between real risks and perceived risks are what make HDFC bank different from the rest.

2. The story starts in Feb 1994 when Deepak Parekh called upon Aditya Puri, the then CEO of Citibank Malaysia to lead what was to become HDFC bank. Deepak got the early team in Aditya, SS Thakur (Ex RBI guy) and Vinod, a non- banking guy to form the core team.

3. What was clear from the initial days was that Aditya would get a free hand in doing what he wants to do without any interference from Deepak – And he did get that. He hired the first 12 employees who formed the real core and asked each of them to hire their own team.

4. What really stands out is that HDFC did what every other early firm does- Get a bunch of really smart people. What it further did (and where most firms fail) is that it let those people run the show without meddling too much.

5. One of the earliest spark is this - Paresh, one of the first 12 people and chief risk officer, said this - HDFC is what it is not just because of what it did, but also because of all the things it didn't do!

The above separates the winners from the losers. More so in banking.

6. Another key factor was that the head of compliance reported directly to the chairman and not to the MD – thus exemplifying the bank’s strong focus on corporate governance.

7. Another key interesting fact was this – Aditya, who was given a free hand by Deepak, replicated the same for his business heads. He used to conduct one Monday meeting for ~1 hour with all his business heads and that’s about it. He didn’t even talk to BU heads during the week.

8. Compare this to ever incessant need to do calls and meetings by most of today’s entrepreneurs. They could learn a thing or two here. Abhay, who wanted to lead a bank as an MD and got an offer from Barclays to do the same was asked by Aditya that how many times has he called..

8....outside working hours – and his answer was just twice over the years. This made him stay at HDFC! Aditya used to leave the bank at 5:30 pm every day and never called any of his team members unless really required – That’s something really important.

9. And he was a great sounding board for all his guys – he used to listen to offers that others have and even suggested changes in the contract so that his guy get a better deal. A true leader in all sense.

10. While the core team came from corporate banking (Citibank & BofA– This is a differentiator. All other new age banks poached from PSUs, HDFC did from foreign banks), they were able to become the best in retail because of their risk averse nature & tech obsession from day 0.

11. Merger with the Times bank, described in detail in the book, was one of the first friendly merger in the Indian Banking space. This gave the bank the much needed branch presence which helped it grow its retail business.

12. Bank’s preference for quality over quantity by focusing on profitable growth rather than growth along with cost consciousness is well documented. Doing businesses with only best of the corporate houses, limiting exposures in various ways is a treat to read.

13. Even during the 2005-08 period when every bank was getting into unsecured credit card and loan business which eventually killed off many private/foreign banks, HDFC took a more measured approach. While it did all these businesses, it knew the risks and never lent crazily.

14. Interesting read is how the bank used gold loan route to penetrate retail segment & manage to close priority sector lending gap. Again, a great read on what not to do. It’s gold loan book is comparable to two of the biggest gold loan lenders in the country.

15. Another interesting read is how the bank avoided a major mishap during the Andhra MFI crisis and how it set up joint liability groups to manage risks. The idea to create marketing channels for its SHG lenders has been taken up by competitors and is a huge success.

16.While this thread is a very short summary, what really stands out is how important people are to any business, how growing steadily while being risk averse trumps volatile growth (ICICI?), how important is to take care of your people and give them a free hand....

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It lays down the very fabric of HDFC bank.

Do yourself a favour and read it – not just to understand how a bank should be run, but how any firm should be run. New age entrepreneurs will do well to read this – many a headaches will be saved. It will teach you how to treat..

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..your people at the least so that they create an institution of note.

And a must for investors in the NBFC space – it’s a manual on how a bank/NBFC should be run!