Dangerous to undercut interest rates: HDFC Chairman Deepak Parekh

HDFC Chairman Deepak Parekh on Friday cautioned against undercutting interest rates in order to gain market share, saying it's a dangerous proposition in the financial services sector.

If you want to take market share and undercut interest rate, it’s so sensitive that it can clean up the market. We cannot afford to be irrational and market share is not a gain in the financial services sector. It’s too dangerous, he said while launching the book ‘Your strategy needs a strategy’ authored by BCG Senior Partners Martin Reeves, Knut Haanaes and Janmejaya Sinha.

“We have to be fast and agile… a financial product can be copied overnight. The product patent in financial services is the quality of the product,” Parekh said. “Today we are in the buyers’ market. If the customer is not happy, he will walk away. We have to be fast in customer services… that too in quality of customer services.”

Referring to the weak position of housing in the economy, Parekh said, “if you look at housing as a percentage of GDP, India is lowest practically in all parts of Asia. Housing is just 9 per cent of GDP here. In China its 20 and in Malaysia and Thailand its 25 and 30 per cent. We have a long way to go.”

On the size and scale of operations, Deepak Parekh said, “big is beautiful, but big can also be bad. In the financial sector, you have to be big to take shocks. Retail business requires scale, it requires numbers. It requires strategy how to continue to increase the number.”

Regarding the competition in the housing segment, Parekh said, “banks are now going and giving door step services. We (HDFC) had for 20-25 years customers coming to us. Now we have to go to the customers. Banks thought if we go to customers it’s easier to get the business. You have to be viable to satisfy your stakeholders.”

On the HDFC’s growth over the years, Parekh said, “we had to create our own model. It was more of learning from mistakes. We had the luxury of time because no one else was there. The first mover definitely has an advantage.”

According to a BCG research, one in three public companies likely won’t be around in five years, and the spread between the highest and lowest-performing companies has never been greater. Identifying effective corporate strategy is more important than ever before, and this is the central theme of the book, said Janmejaya Sinha, chairman, BCG Asia Pacific.