I was reading “Bank for the Buck: The Story of HDFC Bank” some time back by Tamal Bandyopadhyay. Nicely articulated story about HDFC Bank – its inception, the core team headed by AP (Aditya Puri, Managing Director of the bank at the helm since 20+ years – Insiders call him AP), its culture and about the environment in which the bank grew and eventually became one of the world’s most valuable banks. I could relate to some portions of the story since I had worked there during 2003-05.
As I turned into an equity analyst and an investor, there were some important investing lessons which got ingrained in me during my stint at the bank.
1st lesson of investing which my boss and the bank taught me was: What you don’t do is more important than what you do
During my first few weeks into the job, one of the largest clients whose relationship I was handling would remain out of funds for a couple of hours during the day. Since I was new and did not want to upset the relationship, I committed that there should be no problem and I would be able to handle it. However, my boss refused to sign on the memo and asked me to convey to the client that it cannot proceed unless credit approvals are in place. While I was fortunate to get the credit approvals just on time, however this incident taught me that exposing your investments to default or credit risks, even for a couple of hours is an asinine approach. Hence, it’s important to know your risks. After all, even a very large number multiplied by zero eventually will become worthless.
2nd lesson of investing which I learnt was: Costs matter!!
We were not allowed to use fresh envelopes to send internal communication. The envelopes were used multiple times till there was no space left on the cover. This clearly explains why HDFC Bank’s cost to income ratio is one of the lowest in the banking industry. While looking at investment opportunities, most of the companies which have rewarded shareholders have had lowest cost structures in their industry.
3rd lesson of investing which I learnt was: Discipline and patience pays off!!
There were a few occasions wherein we lost out to competition because the bank’s credit department did not approve of the memos prepared – some of the reasons were: commodity-like industry wherein the company in question did not having any pricing power, shady management, low interest and principal coverage ratios, etc. It was very disheartening when the competition lapped up some of these prospects. It was only after a few years that some of these loans became non-performing that I realized the importance of discipline and patience. No wonder, HDFC Bank’s gross and net NPA ratios have been the lowest in the banking industry. Wait for the right investment opportunity, do not lose sleep just because others are investing in companies which you do not understand.
As I finish the wonderful book, some of these lessons learnt have been truly invaluable.
Disclaimer: Please note that these are my personal views. I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014. All investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.