As Deepak Parekh Retires, Here's Why The Man Who Built HDFC Never Owned More Than 1% Of It

On July 1, 2023, India witnessed its biggest-ever merger in corporate history. Housing finance company HDFC Ltd got merged with HDFC Bank, with the HDFC twins' merger creating the world's fourth largest bank in terms of market value, only behind JP Morgan, ICBC and Bank of America.

HDFC Chairman Deepak Parekh Retires

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Another landmark moment that was witnessed along with this merger, was HDFC Chairman Deepak Parekh's retirement. At the age of 78, when he announced his retirement after spending nearly 45 years at the corporation, Parekh said ¡°It is my time to hang my boots with both anticipation and hope for the future. While this will be my last communication to shareholders of HDFC, rest assured we now stride tall into a very exciting future of growth and prosperity."

The HDFC experience is invaluable. Our history cannot be erased and our legacy will be taken forward,¡± Parekh wrote in his last letter addressed to the corporation¡¯s shareholders.

While one of the biggest leaders in India's banking industry retires, not many are aware of how he landed up at HDFC, stayed as an 'entrepreneur with a salary' and never owned more than 1% of the banking behemoth.

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"An Entrepreneur On A Salary"

Many people who think Deepak Parekh must be having a big stake in the financial business he built are surprised when they get to know that he has less than a 1% stake in HDFC. And also, that he never had more than that.

Why, you may ask? It is because he has been an HDFC employee all along ¡ª from a deputy general manager to the chairman ¡ª and the stake he got was as a result of employee stock options.

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Parekh, or his uncle who started HDFC, didn't own a stake because they never had the money to buy it, and nor did they have any intention to do so, he told Bloomberg in an interview last year. Parekh's uncle, who used to live in a rented house and started HDFC, never had any equity in HDFC. Parekh told Bloomberg that his stake in HDFC amounted to just 0.4%.

At no point in his professional journey did Parekh wish he had a large ownership stake. "What are you going to do with this money, acquire more things? You eat two meals a day, you [continue to] eat two meals a day. When your time has come to go, you go. You have enough money to educate your kids," he said, as per ET .

In today's startup culture when people hustle to get funding, build the company up, and then sell and move on, Deepak Parekh is surely an oddity. ¡°In the truest sense, I am not an entrepreneur, though I always felt like one and managed the company like it belonged to me 100%,¡± he had said.

When He Joined HDFC At Half The Salary

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After studying at Sydenham College in Mumbai, Parekh went to London for chartered accountancy. He later worked at a company that came to be known as Ernst & Young and then joined investment banking in New York. He was working with Chase Manhattan Bank when his uncle Hasmukh Thakordas Parekh told him to come back and work for the home mortgage company he had launched with support from several financial institutions.

Deepak Parekh's uncle was an inspired business leader who had studied at the London School of Economics, worked at brokerages, and went on to become the chairman of ICICI. He was also a learned man who wrote several books on India's economy and was awarded Padma Shri for his contribution to the financial industry. He started HDFC after he retired from ICICI Bank. On the other hand, Parekh had just started his career as an investment banker.

Deepak Parekh was being transferred from New York to Saudi Arabia due to the oil boom there. Though that meant a higher salary and bigger perks along with a two-month vacation, he didn't want to go. His uncle told him to stop gallivanting around the world.

"He didn't have any children. He looked upon me as a son and so there was some family obligation also," he told Bloomberg. But more importantly, Parekh was excited with the prospect of building a mortgage company from scratch when no such companies existed in India.

In 1978, Deepak Parekh returned to Mumbai and joined HDFC as a deputy general manager ¡ª at half the salary he was getting at Chase Manhattan.

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The Birth Of HDFC Bank

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The early 90s was a turbulent period for India's economy. A severe debt crisis forced the Narasimha Rao government to liberalise the economy by introducing reforms. The Iraq war had jacked up oil prices which depleted India's forex reserves. The interest rates were hiked to contain double-digit inflation, the report mentioned.

For HDFC, it meant funding was even harder to come by. People had indeed started queuing up for home loans, but the resources were shrinking. Home loan interest rates had already reached a peak of 18.5% p.a. HDFC decided to capitalise on the goodwill of its brand to raise retail deposits.

It was in those times when Deepak Parekh noticed the advertisement calling for applications for bank licences, which was a bold step by the reformist government decades after private banks were nationalised. He was convinced that the time was right for HDFC to diversify its business. But the HDFC board was not willing. It asked why a well-established company should risk its reputation by venturing into a business it had no expertise in.

It took much effort by Parekh for the board to relent, but on the condition that the bank would be headed by a new team of banking professionals. HDFC was granted the licence, which triggered the search for a new team to run the bank.

Just as Parekh's uncle had convinced him that the time had come for India to have a retail housing finance company, Parekh convinced Aditya Puri that India really needed an efficient and clean private bank. Puri joined on one condition: he would be given full freedom to run the bank, without any interference.

Parekh granted that, and the rest is history. HDFC Bank went on to become India's largest private sector bank by assets, by focusing on the so-called boring business of chasing retail business and providing working capital to well-run businesses. And now, after the mega-merger, it has become the world's fourth-largest bank by market value.

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