Chairmans Statement

HDFC - The Journey Through Time 2011 marks an important milestone for HDFC as we commemorate the birth centenary of our Founder Chairman, H. T. Parekh. Thirty-four years ago, H. T. Parekh asked the question, Why cant Indians have a home of their own with housing finance in the early years of their lives? HDFC was conceived as an answer to his question. Creating HDFC was not just about having a new idea for India. For H. T. Parekh, it was equally important to build an organisation on the principles of efficiency, effectiveness, integrity and transparency. He also demonstrated that enhancing shareholder value and fulfilling social objectives were not conflicting goals.

This is the era of frugal innovation which is the ability to drastically reduce the cost of products, but retain its superior quality through redesigning and use of technology. India has seen success in frugal innovation across various sectors automobile, consumer products and telecom. So the question is, why not in housing?

Over the years, HDFC has continued to abide by the principles and objectives set out at inception. Though the economic environment and competitive landscape has changed at an unprecedented pace, the work culture and value system within HDFC has remained steadfast. Credit for this goes to an entire team of extraordinary individuals who have spent many long years working at HDFC. For a leader who passes on the baton, there is nothing more gratifying than knowing that there is an extremely talented and trustworthy team who have a deep sense of commitment and belonging to the organisation. It is important for an organisation to continuously introspect and benchmark its performance. HDFC was the only Indian company to be included in the fifth annual list of 2011 Worlds Most Ethical Companies by Ethisphere Institute, USA. In Finance Asias latest annual poll of Asias top companies, HDFC was voted as the best Indian company for investor relations and ranked amongst Indias best managed companies. These accolades and recognitions give us our moments of pride. More importantly, it reassures us that we are doing things right by being a principles-based organisation with a strong commitment to consistently enhance shareholder value. As part of the organisations strategic positioning, over the last decade HDFC has devoted large resources and management time in sowing the seeds to diversify into various financial services banking, life and general insurance, asset management, property funds and education loans. The objective has been two fold capitalising on HDFC as a trusted brand name and creating value for our shareholders.

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Housing: The Larger Agenda Housing finance, however, will continue to remain HDFCs core focus area. That India faces a huge shortage of dwelling units is well known, but the gravity of the situation is fast reaching a critical tipping point. Housing continues to remain out of the reach of the common man. Growing urbanisation is inevitable by 2030 it is estimated that 600 million of Indias population will be living in Indias cities. Urbanisation will increasingly be at the centre of Indias growth trajectory. How will cities absorb a further influx of people? Where will new cities emerge? How will cities be financed? The challenges in managing Indias urban transformation call for large financial resources, a strong urban governance framework and political will to push for these changes to happen. World over, housing the poor has been particularly challenging for all governments. It is no wonder that the Harvard Business Review blog deservedly received so much attention when Prof. Vijay Govindarajan and Christian Sarkar, an independent consultant invited the worlds best business thinkers to apply their minds on creating a USD 300 house (approximately ` 13,500). The objective they said, is to start something big, by thinking small. Despite the low price point, the key criteria is to design homes built of mass-produced materials which are durable to sustain all weather conditions, have access to running water, be energy efficient and the model must be scalable. This is the era of frugal innovation which is the ability to drastically reduce the cost of products, but retain its superior quality through redesigning and use of technology. India has seen success in frugal innovation across various sectors - automobile, consumer products and telecom. So the question is, why not in housing? The challenges of providing affordable or low cost housing solutions are unique. There are a number of tangible and intangible inputs needed ranging from slum dweller empowerment, capacity building, local governance, urban planning and design, finance, infrastructure, property rights and government policies. The need to find solutions is becoming increasingly compelling because housing is one of the most effective anti-poverty tools. In India, shelter poverty remains considerably larger than income poverty. All slum dwellers are not poor, but land market distortions have resulted in pushing them away from accessing formal housing. While a USD 300 house in metropolitan cities in India may well be a pipe dream, what is more important at this juncture is to recognise that affordable or low cost

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housing is commercially viable, provided the enabling environment is conducive. It is encouraging to note that there are a handful of new and existing developers who have demonstrated this and they must be incentivised to continue participating in this segment. Five Point Doable Housing Agenda The governments housing agenda is huge and daunting. There is a need for a complete overhaul in archaic land laws. The longer we drag our feet on the passing of the Land Acquisition Bill, the more detrimental it will be in slowing down overall economic development. Urban local bodies must be empowered in terms of financial autonomy and they need to have the political and administrative will to collect taxes and impose user charges. Densification policies for Indian cities have to be transparent and consistent. Constant flip-flops on FSI policies have resulted in instances where the state government has lost out on huge revenues which otherwise could have been collected and redeployed in developing city infrastructure. Indian universities need to churn a significantly larger number of qualified urban planners and specialists. There is also a need to have policies that encourage mass-production techniques for housing and adoption of modern construction technologies. To my mind, there are some solutions that can readily be put in place and some that may admittedly take a longer time to effectively implement. Clearly, a no action stance cannot do. Listed below is a five point immediately doable agenda for housing: 1. Single Ministry to deal with Urbanisation and Housing: The Report on Indian Urban Infrastructure and Services rightly calls for a merger of the Ministry of Urban Development with the Ministry of Housing and Urban Poverty Alleviation. A holistic framework of urban planning cannot happen by segregating housing. Similar merger of departments should be done at the state level as well. 2. Streamline all existing Government Housing Finance Programmes: Currently there are far too many fragmented government housing finance schemes. The amounts budgeted for these schemes are miniscule and the actual utilisations are even lower. These programmes have little impact in terms of the scale of the housing problem. Many of these schemes are flawed in design and embedded with too many restrictions. This calls for a one-time thorough re-assessment of all existing government housing finance programmes.

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3. Special Settlement Commission for ULCRA cases: After over a decade of the repeal of the Urban Land Ceiling & Regulation Act (ULCRA), there are many properties still in litigation under this Act. Court hearings are not happening under the guise of the Act being repealed, while the properties still remain locked up in dispute under this Act. This situation may well drag on for years. A special Settlement Commission should be constituted to resolve disputed land cases under this Act. This will free up properties that have otherwise been kept out of the supply of developable urban space. 4. Incentives for Affordable Housing Projects: If an affordable housing project has to go through the same rigours as other development projects with multiple approvals from various authorities and face the same delays and cost overruns, what incentive is there for a developer to participate in this segment? It makes imminent sense to have a single window approval mechanism for affordable housing projects where the per unit cost is under ` 10 to 15 lakhs. A time bound, fast-track approval process is clearly a preferable option over lobbying for tax sops. 5. Compulsory implementation of E-Auction for Land Transactions: In the absence of a transparent mechanism to sell land, several government entities such as the railways, defence and public sector units are hesitant to dispose land. An e-auction mechanism will leave no space for discretion and arbitrary dealings. This will allow entities to unlock value from land as well as pave the way for a more transparent system of acquiring land. These baby steps will go a long way in alleviating the housing problems in India. More homes translate into healthier and better educated individuals and communities with greater security and well being. We all have our small roles to play and HDFC continues to stand fully committed to the cause of housing more Indians.

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