HDFC Bank

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Current Challenges at HDFC

The top management team at India's leading home finance company HDFC had to decide on how to deal with the emergence of intense competition at the end of the 1990s. Having founded the industry and dominated it for nearly 20 years, the well-respected company faces a bevy of new entrants from the banking, mortgage finance, and insurance 7/30/12

HDFCs timeline

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HDFCs Philosophy

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Promoting Competition

Meeting Indian housing needs would require entire industry to contribute HDFC decided to promote housing subsidiaries for SBI, Canara Bank, Gujarat Rural Housing Corporation Invested up to a maximum of 20% in them Provided start up management and initial employee training HDFCs market share fell to 75-80% but growth still 30-40% annually This also earned HDFC credibility with the 7/30/12 government

Buying A House

Topping up of loans family loans preferred Disliked borrowings from commercial borrowers Average Loan to value ratio was 49% but HDFC ready to lend up to 85% HDFC checked the repayment capacity rather than property value

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New Business ModelDeposit Taking

In 1991, RBI raised loosened interest rate regulations Interest rates increased from 15% to 17-18% HDFC faced challenges in raising wholesale funds and lending at affordable rates Therefore, HDFC turned to deposit taking as a new source of funding Could not pay higher interest rates, so decided to provide superior level of customer service Launched deposit taking business using network of deposit mobilization agents

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Technology & Marketing

Introduced Technology based innovations:

Speed up loan approval process Simplify application process, single loan officer Laid down service standards for every activity This enhanced profitability by contributing to low expense base

Marketing & Advertising

Customer Satisfaction-company watchword Referrals 7/30/12 main source of business

Handling Delinquencies

Based on the assumption that borrowers were honest in nature Two-thirds of HDFC borrowers paid loans without any prompting Recovery personnel were trained to understand customer psychology and build rapport. Cost of recovery was added to customers loan

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HDFC Employees

From 1991 to 2000, employee strength increased from 727 to 861: turnover rate at 2 to 2.5% against industry average of 20% Profits per employee increased from Rs 3.4 lakhs to Rs. 47 lakhs Focus on team players rather than hiring super stars 5% of shares was purchased for 7/30/12 employee trust and 5% of HDFC

The New Competition

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The New Kids on the block

SBI with its battalion of 25000 branches LIC and GIC Housing finance(under National Housing Finance) HUDCO
These factors added ICICI ( Poaching + Direct Sales with a low Mortgage Agent+.5% lower rates) penetration of only 1% of Interest rates

Disposable Income

Property prices
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GDP made India a very lucrative market for Home Loans

The Changing Strategy

Positioned as a provider of solutions rather than only loans Aggressive Expansion of its branch and outreach system New Training programs and development of employees Better Service standards Customer Tracking System Introducing the 7/30/12 Housing Loan. Variable skill

through Rate

Organizational Changes at H.D.F.C.

Re-assignment of personnel and reorganization into a 5-region structure from 6 in the year 1998 Branch Managers given greater authority in rating employees and awarding increments More emphasis on Return-on-Equity

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Property Fairs

A marketing effort by HDFC in which builders and customers were brought together Held in hotels at times considered auspicious in India like the month of Diwali Faced stiff competition from ICICI in

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The Decision in HDFC Case [B]

HDFC Management decided to continue with its philosophy of complete transparency & disclosure with customers & shareholders ICICI marketed its loans by quoting only the nominal rates HDFC started educating customers

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