'A debit card is really more appropriate for the Indian psyche'

Part I: 'E-economy is ruthless. You don't get a second chance'

Part II: 'In trying to be a one-stop financial services shop, we are not spreading ourselves thin'

Part III: 'Our low NPAs mean we are playing smart, not safe'

Not all the bank employees seem happy about the prospect of peddling products that are not strictly financial. Has the concept of core competence become irrelevant to the banking industry?

The concept of core competence is very relevant still to the banking industry. But the point is, core competence is not a static concept. If you ask the existing workforce to peddle multiple products without giving them sufficient training, it is not going to happen.

It has not happened anywhere in the world. If you look at the rest of the world, it is not the same workforce peddling all products. You can't expect somebody who is qualified at one level, to be a genius.

We will peddle a number of products, sure. Insurance is coming into the banking industry. We will sell insurance, but only after we offer appropriate and adequate training to our staff.

We at HDFC Bank function like this: wherever we sell a product, we have workforce to do just that. For instance, our deposit products are sold at our branches. Our asset products are sold through DSOs and branches. Our mutual funds are sold through a separate set of people. We first train the people in the product and then they go into the field.

So we will sell multiple products but not through the same set of people.

So our core competency will be intensified through training.

Some of the industry observers seem unsure whether HDFC Bank is into corporate banking or retail banking.

From Day One, we had a certain infrastructure. We would not have put the architecture that we put in place if we were not going to be a retail bank. Why would we have online real time communication with 110 outlets in 50 cities if we were not going to be a retail bank?

Yes, we started off with corporate banking and said we will do the asset side through corporates, but liability side through retail. So we started off with retail liability products. We said we will not go downmarket. Then, as the top 150 to 200 corporates were not able to absorb our deposit gathering, as well as there is a lower risk, we added asset products to our retail offering. From then on, we have been adding. So if you look at the investments that have been made and our geographic spread, you will realise that we have one million retail customers. And the number is growing. So there is no confusion: our focus remains sharp on both corporate and retail banking.

What do you have to say about your profitability?

I am more than happy with our profitability. Our return on assets and return on equity is among the best in the world. And this at a stage when we are investing in both products and geography! This is because we have benchmarked HDFC Bank against the best in the world. The operation leverage that comes with volumes has not kicked in yet.

What are the new instruments that you plan to offer?

We introduce something new almost every month or second month, but based on customer feedback. We will offer what the customer wants.

What has the merger with TimesBank entailed?

The merger process was a dream. It worked like a dream. We acquired it at an excellent price. It is one time book. We acquired almost 250,000 customers.

If I were to tell you that we didn't lose anybody whom we didn't want to lose, that would be a lie. If I were to tell you that all the people who left were talented, it would be a joke.

Yes, we lost some talented people. This will happen in any merger. But the fact is, today, our treasurer, branch banking head, Delhi region head, human resources department head are from TimesBank.

We were able to retain ninety per cent of the people we wanted to retain. If some attrition had to come, and if it came voluntarily, I am happy. I don't have the karma on my head.

If a merger has a clear goal to start with, then it becomes much easier. Secondly, there must be total transparency and fairness, in a way that people believe in it. This will ensure that the merger will position at each job the person best suited to it. The objective of the combined bank, in terms of what businesses will stay, what businesses will go, has to be very clear.

Let me explain the four stages that we went through:

Firstly, we set up a technology committee to decide what systems would be adopted. Once it was decided, there was no question of Times or HDFC. This is the technology we will follow in future, we all agreed.

Secondly, we formed a risk committee to find out which segments of the market we will participate in. Once that was cleared, certain segments which were high-risk for TimesBank, did not fit into the future strategy of the combined HDFC Bank. So they had to go. People related to those segments had to be either reabsorbed or reallocated, or they would think they didn't have a role. So some amount of uncertainty was created. But that was unavoidable.

Thirdly, we took stock of the human resources policy. We want this to come out very clear and transparent. We hired an external agency to come out with a clear plan, job description, market pay for each job that we had. Then we fitted in the persons with that profile. Some people gained, some people lost. It does not make a difference.

The purity of the concept -- there is a job, there is market related to that job, and you must pay the market rate for that job -- was maintained. The history of one's career was irrelevant. And if you execute this systematically, yes, some people will lose. But what is left is very clear -- 'this is what we are. This is what we stand for. These are the businesses we are in.' I am glad to say that the whole merger process is almost complete. Maybe just 15 more branches have to come in, that's it.

Finally, we turned to the redeployment of the people. We told every employee very clearly up-front that he or she would go to this or that area.

HDFC Bank has a well-developed debit card. Unlike other banks, you do not have a credit card. What is the rationale behind this?

The rationale for a debit card is very simple. The market for a debit card is a multiple of that of a credit card. Anybody who has a savings account can have a debit card. We didn't have credit history to begin with. We didn't want to do this 'Take-one-credit-card-please' business and incur the losses… which a lot of people have done in various markets.

A debit card is really more appropriate for the Indian psyche because a large portion of people don't want to borrow that much. Also, if they want to borrow, they have other means to borrow. Credit card is the most expensive means of borrowing. It's almost two or two-and-a-half per cent compounded. That's like the old money-lenders in the villages.

Yet, we will launch a credit card at the end of the year (2000) because, again, I'm not to decide whether you want a credit or a debit card. If you like paying two-and-a-half per cent, then I will give you a credit card. And we have now got a credit-tested list from HDFC of almost 700,000 customers. So they will be given pre-approved cards.

Do you have any plans of getting listed abroad?

We are examining it carefully. And if were to go in for an issue, it would probably be overseas. At this point in time, we don't need the money. And we are unlikely to meet the money for at least 12 to 18 months unless we grow at something…if the growth takes off , then that could be advanced.

In our current growth scenario of 25 to 30 per cent, we don't need the money. So it would be 12 or 18 months, probably 18 months. If our growth is higher than that, it could be earlier.

How are your products like personal loans, auto loans, loans against shares faring in the market?

They are exceedingly popular. We are offering convenience. We are offering a fair return which is linked to security. And we are offering multiple options.

When I say popular, I mean it in terms of how we are gaining market-share. In loans against shares, we are already the market leader. Same is the case in car loans. Personal loans are taking off way beyond our expectations. There again we have kept it initially to a lower profile, that is to the salaried class. Salary loans are taking off like a rocket.

Has the tie-up of February 1999 with Chase helped HDFC Bank?

The tie-up was done mainly to cater to the needs of our top 250 corporates. As of today, most of the derivative deals that are taking place, some 30 per cent of all the deals in the last five months, have been done by us and Chase. We are linked to the Chase treasuries worldwide so that our service is state-of-the-art. We are the cash management bank for India.

Let me go back to the genesis of the deal. It was that Chase was a dollar bank, we were a rupee bank. Chase customers into India would need rupee products, our customers going abroad would need dollar products. So it's an excellent fit. And that's worked well. We review the tie-up every quarter.

Regarding your tie-up with I-Flex Solutions for software products for banks, there is a view that you might end up empowering and strengthening your potential rivals.

Good competition is never harmful. People do not stay with you because competition doesn't exist. You have to create your own stickiness. And that stickiness will come from service, brand and products. And ASP (application service provider) is an excellent business. If the rest of the banking system comes up or benefits in the process, I would be very happy.

What do you have to say about the cross-selling of HDFC and HDFC Bank products?

We have just started cross-selling our products in the last two-three months in an organised manner. The demand is very good. It is the desire of both organisations to complete the product range for the customer. Everybody will need it.

There is a life cycle. You start your life and you are capital-deficit. When you need everything, and you can enjoy it, you don't have the money. And when you have one foot in the grave, you have everything, but you can't enjoy it. What use then the capital-surplus? There is a very clear pattern. When you start life, you need a car or a scooter, you need a housing loan…all these form one stage in development. When you go past this phase, and when you have some surplus money, you want to buy shares or mutual funds and have portfolio management.

A techno-savvy bank like yours is the clearing bank for several stock exchanges in India. What are your observations?

We and the NSE are very proud of the fact that we have the most advanced systems on a combination basis between cash and clearing anywhere in the world.

Let me go back to why we were able to get a large share in the clearing business. Between the NSE and us, we have actually created the first closed users' group convergence solution in the world.

What did the NSE have? NSE had all the brokers linked to the VSATs and they could finish their securities clearing. What did we (HDFC Bank) have? We had all our branches linked. If you bring the two together, it spells a merger of strengths made in heaven and that is exactly what we did.

And the combined system that we have today between the NSE broker plaza and the NSE and HDFC Bank, is the best; I'd doubt if there is another place in the world that would offer the same convenience, either as a broker or as an individual.

The BSE, DSE, CSE have come up just as fast.

Today, the systems on our stock markets, linked with what is available, are among the best in the world. Yes, they may be limited to a few banks.

Part V: 'Banking regulations in India are not as restrictive as people make them out to be'

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