Sashi Jagdishan will take over from chairman Deepak Parekh, 78, who announced his retirement on Friday ahead of the mega merger of HDFC Bank and HDFC. 
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Sashi Jagdishan will take over from chairman Deepak Parekh, 78, who announced his retirement on Friday ahead of the mega merger of HDFC Bank and HDFC. H T Parekh, a visionary , and his equally accomplished nephew, Deepak Parekh, guided the HDFC Group for more than four decades with visionary leadership. As the baton is passed to the next generation of leaders, it is now the turn of Sashi Jagdishan, MD & CEO of HDFC Bank to carve his own path and leave a lasting mark on the legacy of the HDFC Group.
HDFC was the brainchild of the late Hasmukhbhai or H T Parekh, who established India's first retail housing finance company way back in the late 1970s. Prodded by his uncle, Deepak Parekh left his cushy job with the Chase Manhattan to join HDFC in 1978. In fact, Deepak Parekh built the foundation for future growth in fast growing banking, insurance, asset management, education loan, securities, etc. All were very competitive segments.
With the parent's merger with the bank, Sashi Jagdishan, MD & CEO of the bank, now has the responsibility of steering the institution forward as large subsidiaries such as insurance and mutual funds are now under the fold of the banking unit. As the last board meeting of HDFC Ltd held on Friday this week, Parekh has retired, as have other stalwarts like Keki Mistry and Renu Karnad. Karnad will continue to be on the bank's board but not in an executive position. Mistry also got inducted on the bank's board. So, now Sashi Jagdishan has the enviable task of steering the group ahead while also carving his own path and leaving a lasting mark on the legacy of the HDFC Group. Let's study in detail the legacy of the Parekhs that Sashi has to carry forward.
Culture of conservatism
The secret to HDFC Group's success lies in a culture of conservatism. That is the one characteristic that kept HDFC Group at the top in difficult business cycles. There was no mindless chasing of business growth when everyone else was capturing it as if there was no tomorrow. A couple of years before the global financial crisis, Aditya Puri, the then MD& CEO, responded to BT's query about not growing at the same rate as some competitors. "Good times or bad times, we will always grow at 20-25 per cent. Growth should come with profitability. We want sustainable growth with profitability," said Puri. And when other banks saw a massive erosion in their growth post the global financial crisis, HDFC Bank maintained its 20-25 per cent growth in assets, advances, revenues and profits. In 2009, when HDFC acquired a majority stake in a Nashik-based education financing firm Credila Financial, education loan applications soared because of the HDFC brand. But when the two founders, who were retained as part of the top management, approached Parekh for capturing the growing market, the answer from Parekh was to grow modestly and keep on learning about the delinquencies across product and loan tenor (3-year or 5-year loan) and business cycles. In fact, when the life insurance industry was growing on the back of unit-linked insurance plans (ULIPs), HDFC Life stayed away. Later, the industry saw instances of mis-selling, losses, and new, tougher regulations. Sashi, who has a well-oiled group under his charge, has to carry forward the legacy of sustainable growth and profitability. In fact, Sashi's mantle will be tested as he scales up the new financial services businesses.
Stability at the top
HDFC Group has always seen a smooth transition at the top. The CEOs worked for decades with the freedom to operate like entrepreneurs within the broad framework. The market often talked about the simmering tension between Deepak Parekh and Aditya Puri, but it never came out in the open. Aditya Puri had a free hand in running the bank. When Puri left, an insider, Sashi Jagdishan, took over the reins without upsetting any seniors. Similarly, Keki Mistry's elevation as CEO was a smooth affair. Mistry was elevated to executive director in 1993 and deputy managing director in 1999. A year later, he took over as MD. He was redesignated vice chairman and MD in 2007. Three years later, he was made a VC and CEO. In the mutual fund business, Milind Barve was the longest-serving MD& CEO of the HDFC AMC. Barve retired two years ago. The Group also never shied away from hiring top-notch talent from outside. Navneet Munot, who was Executive Director & Chief Investment Officer at SBI Mutual Fund, was hired to take over from Barve. Similarly, Amitabh Chaudhry was brought in to manage the life insurance subsidiary - HDFC Life. Chaudhry turned around the subsidiary but left to join the Axis Bank. But there was no leadership vacuum. Vibha Padalkar, who was executive director and CFO, seamlessly took over from Chaudhry.
Capturing new business opportunities and unlocking value for shareholders
Starting with mortgages, the HDFC Group has created leaders in the financial services industry. In the 1990s, when banking licences were opened, the HDFC Group was the first to set up shop as a private sector bank. In three decades, HDFC Bank emerged as the country's second-largest bank from scratch. In the late 1990s, the Group laid the foundation for its asset management business. Today, it is one of the largest fund houses in India in terms of assets under management. In the 2000s, it forayed into the life insurance business. This insurance subsidiary has also acquired a leadership position in the market. Sashi has his work cut out to scale up HDB Financial, a non-banking finance unit, and HDFC Ergo, a general insurance subsidiary. Clearly, there will be unlocking of value in these two businesses. In the next decade, Sashi has to lay the foundation for a new set of financial services businesses.
Serving the new emerging middle-class in far flung areas
HDFC Group has always put a razor-sharp focus on the financial and investment needs of the emerging middle class. Despite opportunities in developer finance or the high-income bracket, the mortgage major remained focused on serving small borrowers. Currently, the average size of individual home loans is around Rs 33 lakh, which shows the kind of market the institution has been serving. As a private bank , HDFC Bank tapped the middle class in metro and urban areas to offer foreign bank line services. Similarly, the bank has created a huge network in semi-urban and rural areas in the last decade, where more than half of its branches are situated. The next phase of growth for the banks, insurance companies, and mutual fund companies is going to come from these small centres. The merger with the bank offers a good mix of middle-class mortgage products and the bank's network of branches in semi-urban and rural India to capture the huge opportunity. Jagdishan, however, has to create a sustainable model to serve this underserved and unbanked market while also keeping asset quality in check and rewarding the shareholders. Under Parekh, HDFC has managed to do all that without any risk in the books.
In his last letter to the shareholders , Parekh said what the future holds, only time will tell. "The biggest risk organisations face today is staying with the status quo, believing what worked well yesterday will continue in the future," he said while adding change takes courage as it displaces one from the cocoon of comfort and familiarity. "Yet, with change comes the power of adaptability, growth and new aspirations. The orchestration of this merger is to ensure that the future is not constrained for any of our stakeholders," said Parekh.
Over to Sashi Jagdishan.
Also read: HDFC, HDFC Bank boards approve July 1 as effective date of mega merger and July 13 as record date
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