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Directors Report of HDFC Bank Ltd.

Mar 31, 2021

TO THE MEMBERS

Your directors are pleased to present the forty-fourth annual report of your Corporation with the audited accounts for the year ended March 31, 2021.

Financial Results

For the Year Ended March 31, 2021

For the Year Ended March 31, 2020

'' in crore

'' in crore

Profit Before Fair Value Gain, Sale of Investments, Dividend and Expected Credit Loss

15,631.43

12,639.78

Fair Value Gain consequent to merger of GRUH Finance Limited with Bandhan Bank Limited

9,019.81

Profit on Sale of Investments

1,397.69

3,523.75

Dividend

733.97

1,080.68

Impairment on Financial Instruments (Expected Credit Loss)

(2,948.00)

(5,913.10)

Profit Before Tax

14,815.09

20,350.92

Tax Expense

2,787.79

2,581.27

Net Profit After Tax

12,027.30

17,769.65

Other Comprehensive Income

1,734.22

(6,652.31)

Total Comprehensive Income

13,761.52

11,117.34

Retained Earnings

Opening Balance

14,137.67

11,635.24

Profit for the year

12,027.30

17,769.65

Re-measurement of Defined Benefit Plan

6.30

(31.99)

Amount Available for Appropriations

26,171.27

29,372.90

Appropriations:

Special Reserve No. II

2,000.00

3,400.00

General Reserve

2,700.00

8,034.60

Statutory Reserve (Under Section 29C of the National Housing Bank Act, 1987)

500.00

200.00

Final Dividend Paid

3,642.68

3,019.29

Tax on Final Dividend

-

581.34

Closing Balance Carried Forward

17,328.59

14,137.67


Impact of COVID-19

The financial year ended March 31, 2021 marked a full year since the World Health Organisation declared the outbreak of COVID-19 as a pandemic. Countries across the globe continued to face drastic economic and social disruptions along with tragic loss of lives and livelihoods. Eruptions of new waves and variants of the virus necessitated restrictions and lockdowns.

As regards the Corporation, a fortified balance sheet, continued demand for housing, leveraging technology for the convenience of customers, remote working and adhering to social distancing norms and hygiene protocols enabled full business continuity since the outbreak of the pandemic.

In April 2021, India witnessed a second wave of infections. Details of the impact of COVID-19 are elucidated in the Management Discussion and Analysis Report (MD&A).

Dividend

The board assessed the performance of the Corporation during the year under review in light of the on-going pandemic. The board recognised the need to strike a balance between being prudent and conserving capital in the Corporation, whilst also meeting expectations of shareholders. The board after assessing the capital buffers, liquidity levels and the impact of COVID-19 on the operations of the Corporation, recommended payment of dividend for the financial year ended March 31, 2021 of '' 23 per equity share of face value of '' 2 each compared to '' 21 per equity share in the previous year.

the warrants. As at March 31, 2021, no warrants had been converted into equity shares.

The maximum equity dilution on account of the aforesaid QIP issue, assuming full conversion of all the warrants into equity shares at the warrant exercise price is 4.23%, based on the enhanced share capital.

Non-Convertible Debentures (NCDs)

Further, the Corporation raised '' 3,693 crore through the issue and allotment of 36,930 secured, redeemable NCDs at par having a tenor of 3 years, carrying a coupon rate of 5.40% payable annually. The NCDs are rated by CRISIL Ratings Limited (CRISIL) and ICRA Limited (ICRA) and are assigned the highest ratings, ''CRISIL AAA Stable'' and ''ICRA AAA/Stable'' respectively.

The equity shares, warrants and NCDs are listed on BSE Limited (BSE) and National Stock Exchange of India Limited (NSE).

MD&A, Report of the Directors on Corporate Governance and Business Responsibility Report

In accordance with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) and directions issued by National Housing Bank (NHB) and Reserve Bank of India (RBI), the MD&A and the Report of the Directors on Corporate Governance form part of this report.

In accordance with the Listing Regulations, the Business Responsibility Report (BRR) has been placed on the Corporation''s website. The policy on Business Responsibility is placed on the Corporation''s website.

The dividend pay-out ratio for the year ended March 31, 2021 is 34.5%.

The dividend recommended is in accordance with the principles and criteria as set out in the Dividend Distribution Policy. The Dividend Distribution Policy is placed on the Corporation''s website.

Issue of Securities on Qualified Institutions Placement Basis

Pursuant to the approval of shareholders by way of a postal ballot on July 21, 2020, the Corporation completed its Qualified Institutions Placement (QIP) of equity shares and secured, redeemable non-convertible debentures simultaneously with warrants in August 2020. The QIP was in accordance with applicable provisions of the Companies Act, 2013, rules framed thereunder and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Equity and Warrants

Under the QIP, the Corporation raised '' 10,000 crore through the issue and allotment of 5,68,18,181 equity shares of face value of '' 2 each at an issue price of '' 1,760 per equity share (including a premium of '' 1,758 per equity share).

The Corporation also raised '' 307 crore through the issue and allotment of 1,70,57,400 warrants at an issue price of '' 180 per warrant which was paid upfront. The warrants carry a right exercisable by the warrant holder to exchange each warrant for one equity share of face value of '' 2 each of the Corporation at any time on or before August 10, 2023, at a warrant exercise price of '' 2,165 per equity share, to be paid by the warrant holder at the time of exchange of

Regulatory Guidelines

In August 2019, the central government conferred the powers of regulation of Housing Finance Companies (HFCs) to RBI from NHB. NHB continues to carry out the function of supervision of HFCs.

In October 2020, RBI issued the regulatory framework for HFCs in supersession of the corresponding regulations by NHB. The objective of the framework was to facilitate regulatory transition in a phased manner with least disruption.

During the year, RBI introduced certain regulatory changes for HFCs such as the principal business criteria for housing finance, definition of housing finance, minimum net owned fund requirements, guidelines on liquidity risk management framework and liquidity coverage ratio, amongst others.

Further, on February 17, 2021, RBI issued Master Direction - Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021 (RBI HFC Directions). These directions came into force with immediate effect.

Key changes in the regulations are detailed in the MD&A.

The Corporation is in compliance with the applicable provisions of the RBI HFC Directions and other directions/ guidelines issued by RBI/NHB as applicable.

Lending Operations

The Corporation is a Non-Banking Financial Company - Housing Finance Company (NBFC-HFC) and is engaged in financing the purchase and construction of residential houses, real estate and certain other purposes in

loan disbursements reported a growth of 3% compared to the previous year.

During the year, due to the prevailing uncertainties, the risk averse environment continued for nonindividual loans and lending was restricted to select, high rated entities.

The Assets Under Management (AUM) as at March 31, 2021 amounted to '' 5,69,894 crore as compared to '' 5,16,773 crore in the previous year.

On an AUM basis, the growth in the individual loan book was 12%. The growth in the total loan book on an AUM basis was 10%.

The Corporation''s outstanding loan book stood at '' 4,98,298 crore as at March 31, 2021, compared to '' 4,50,903 crore in the previous year.

During the year, the Corporation assigned loans amounting to '' 18,980 crore compared to '' 24,127 crore in the previous year.

As at March 31, 2021, the outstanding amount in respect of individual loans sold was '' 71,421 crore. The Corporation continues to service these loans.

Further details of lending operations are provided in the MD&A.

Market Borrowings

The Corporation is in compliance with the provisions of the Housing Finance Companies Issuance of NonConvertible Debentures on private placement basis (NHB) Directions, 2014 and RBI HFC Directions as applicable and has been regular in payment of principal and interest on the NCDs.

Details of market borrowings are provided in the MD&A and notes to accounts.

India. All other activities of the Corporation revolve around the main business.

Despite the challenges posed by the pandemic, lending operations of the Corporation continued seamlessly during the year.

The individual loan business began to see normalcy return from the month of September 2020 onwards, which coincided with the gradual easing of strict lockdown restrictions imposed to contain the spread of COVID-19. In the second half of the financial year, the demand for housing remained robust, with growth trends exceeding expectations. Growth in home loans was aided by low interest rates, softer or stable property prices, continued fiscal benefits on home loans and concessional stamp duty rates offered in certain states. The demand for home loans was from both, affordable housing and higher end properties.

De-growth in individual disbursements owing to the lockdown and restrictions imposed in the first half of the financial year was offset by recovery in the second half of the year. For most parts of the first quarter of the financial year, there was a complete lockdown and the second quarter entailed partial restrictions. Thus, individual disbursements in the first half of the financial year was 35% lower compared to the corresponding period in the previous year. With restrictions gradually easing in the second half of the financial year, individual disbursements were 42% higher compared to the corresponding period in the previous year. Consequently, during the year ended March 31, 2021, individual

Deposits

Deposits outstanding as at March 31, 2021 amounted to '' 1,50,131 crore as compared to '' 1,32,324 crore in the previous year - a growth rate of 13%.

CRISIL and ICRA have for the twenty-sixth consecutive year, reaffirmed their ''CRISIL FAAA/Stable'' and ''ICRA MAAA/Stable'' ratings respectively for HDFC''s deposits. These ratings represent the highest degree of safety regarding timely servicing of financial obligations.

There has been no default in repayment of deposits or payment of interest during the year. All the deposits accepted by the Corporation are in compliance with the requirements of the regulations regarding deposit acceptance.

As at March 31, 2021, public deposits amounting to '' 890 crore had not been claimed by 43,680 depositors. Since then, 5,629 depositors have claimed or renewed deposits of '' 148 crore.

Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits. Where the deposit remains unclaimed, reminder letters are sent to depositors periodically and follow up action is initiated through the concerned agent or branch.

Deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the central government. The concerned depositor can claim the deposit from the IEPF. During the year, an amount of '' 4 crore was transferred to the IEPF.

Subsidiary and Associate Companies

In accordance with the provisions of Section 136 of the Companies Act, 2013, the annual report of the Corporation, the annual financial statements and the related documents of the Corporation''s subsidiary companies are placed on the website of the Corporation.

Shareholders may download the annual financial statements and detailed information on the subsidiary companies from the Corporation''s website or may write to the Corporation for the same. Further, the documents shall also be available for inspection by the shareholders at the registered office of the Corporation.

The merger of the Corporation''s subsidiaries, HDFC ERGO Health Insurance Limited (formerly Apollo Munich Health Insurance Company Limited) with and into HDFC ERGO General Insurance Company Limited (HDFC ERGO) was approved by the National Company Law Tribunal (NCLT) on September 29, 2020. The final approval for the merger by the Insurance Regulatory and Development Authority of India (IRDAI) was received on November 11, 2020. The appointed date of the merger was March 1, 2020 and the effective date was November 13, 2020. Consequently, HDFC ERGO Health Insurance Limited was dissolved with effect from the said date.

RBI had directed the Corporation to reduce its shareholding in its insurance companies to below 50%. Shareholders'' approval for the same was obtained at the Annual General Meeting (AGM) of the Corporation held on July 30, 2020.

Capital Adequacy Ratio

As at March 31, 2021, the Corporation''s capital adequacy ratio (CAR) stood at 22.2%, of which Tier I capital was 21.5% and Tier II capital was 0.7%.

As per regulatory norms, the minimum stipulated capital adequacy ratio to be achieved on or before March 31, 2021 was 14% and the minimum Tier I capital was 10%. The minimum capital adequacy ratio for HFCs would increase to 15% on or before March 31, 2022.

Corporate Social Responsibility (CSR)

During the year, the Corporation''s CSR activities focused primarily on COVID-19 relief, education, healthcare, livelihoods and supporting persons with disabilities. Other interventions taken up during the year included support for senior citizen homes, support for Olympic athletes including para-athletes and environmental programmes supporting solid waste management, green energy and ecological restoration for urban and rural communities.

The Corporation prioritised key subthematic areas within each of these sectors to ensure that the CSR interventions were targeted most optimally. The Corporation contributed directly and through the H T Parekh Foundation to the identified social sectors.

Further details on the prescribed CSR spend under Section 135 of the Companies Act, 2013 and the amount spent during the year under review are provided in the Annual Report on CSR activities annexed to this report.

During the year, the Corporation sold 1.43% of its shareholding in HDFC Life Insurance Company Limited (HDFC Life). As at March 31, 2021, the Corporation''s shareholding in HDFC Life stood at 49.97%.

Accordingly, HDFC Life and its subsidiaries, HDFC Pension Management Company Limited and HDFC International Life & Re Company Limited ceased to be subsidiaries of the Corporation, under the Companies Act, 2013.

However, for the purpose of consolidated financial statements, the above-mentioned companies will continue to be accounted as subsidiary companies. As per Indian Accounting Standards, the Corporation consolidates a subsidiary when it controls the said company.

As per RBI''s directive, the Corporation has to reduce its shareholding in HDFC ERGO to below 50% by May 12, 2021.

HDFC Credila Financial Services Limited, a wholly owned subsidiary of the Corporation was converted into a public limited company (from a private limited company) with effect from October 8, 2020.

The Corporation has not made any loans or advances in the nature of loans to any of its subsidiary or associate company or companies in which its directors are deemed to be interested, other than in the ordinary course of business.

The Corporation is in compliance with the provisions of Foreign Exchange Management Act, 1999 with respect to downstream investments made by it/by its subsidiaries during the year. Further, as required by the

Prevention, Prohibition and Redressal of Sexual Harassment of Women at the Workplace

The Corporation has a policy on prevention, prohibition and redressal of sexual harassment of women at the workplace and has an Internal Complaints Committee (ICC) in compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Corporation''s policy on the same is placed on the Corporation''s website. The ICC comprises majority of women members. Members of the Corporation''s ICC are responsible for conducting inquiries pertaining to such complaints.

The Corporation on a regular basis sensitises its employees, including outsourced employees on the prevention of sexual harassment at the workplace through workshops, group meetings, online training modules and awareness programmes which are held on a regular basis. The Corporation also conducted a special training programme for the members of the ICC. During the year, two complaints were received by the ICC. One case was reviewed and disposed of while the other case which was received in the month of March 2021 was being investigated by the ICC as at March 31, 2021.

Particulars of Loans, Guarantees or Investments

Since the Corporation is an NBFC-HFC, the disclosures regarding particulars of the loans given, guarantees given and securities provided is exempt under the provisions of Section 186 (11) of the Companies Act, 2013.

Foreign Exchange Management (Nondebt Instruments) Rules, 2019, the Corporation has obtained a certificate from statutory auditors on the same.

A review of the key subsidiary and associate companies of the Corporation form part of the MD&A which forms part of this report. Further, a statement containing salient features of financial statements of the subsidiaries and associates of the Corporation in the prescribed Form No. AOC-1 is provided elsewhere in this annual report.

Particulars of Employees

HDFC had 3,226 employees as of March 31, 2021. During the year, 15 employees employed throughout the year were in receipt of remuneration of '' 1.02 crore or more per annum and 1 employee employed for part of the year was in receipt of remuneration of '' 8.5 lac or more per month.

In accordance with the provisions of Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and particulars of the top ten employees in terms of remuneration drawn and of the aforesaid employees are set out in the annex to the Directors'' Report. In terms of the provisions of Section 136(1) of the Companies Act, 2013 read with the rule, the Directors'' Report is being sent to all shareholders of the Corporation excluding the annex. Any shareholder interested in obtaining a copy of the annex may write to the Corporation.

Further disclosures on managerial remuneration are annexed to this report.

As regards investments made by the Corporation, the details of the same are provided in notes to the financial statements of the Corporation for the year ended March 31, 2021 (note 10).

Particulars of Contracts or Arrangements with Related Parties

The particulars of contracts or arrangements with related parties as prescribed in Form No. AOC-2 is annexed to this report. Details of related party transactions are given in the notes to the financial statements.

The policy on Related Party Transactions of the Corporation ensures proper approval and reporting of the concerned transactions between the Corporation and its related parties.

The policy on Related Party Transactions is published elsewhere in the annual report and is also placed on the Corporation''s website.

Particulars Regarding Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

During the year ended March 31, 2021, earnings in foreign currency stood at '' 2 crore and expenditure in foreign currency stood at '' 782 crore (largely pertaining to interest on foreign currency borrowings).

The Corporation is in the business of housing finance and hence its operations are not energy intensive.

The Corporation is cognisant of the importance of imbibing measures towards optimum energy utilisation and conservation.

Auditors

At the 40th AGM of the Corporation held on July 26, 2017, the members had appointed Messrs B S R & Co. LLP, Chartered Accountants, (firm registration number 101248W/W-100022) as the statutory auditors for a term of 5 consecutive years and to hold office until the conclusion of the 45th AGM.

The details of remuneration paid by the Corporation to Messrs B S R & Co. LLP, chartered accountants are provided in note 34.1 of the financial statements. The non-audit fees paid to the statutory auditors by the Corporation does not exceed the audit/ limited review fees.

During the year, Messrs B S R & Co. LLP, chartered accountants and all entities in the network firm of which the statutory auditor is a part received a total remuneration of '' 9.02 crore from the Corporation and its certain subsidiaries. The remuneration pertains to fees for audit, internal financial control reporting, limited reviews, tax audits and taxation services, certifications and other matters.

In accordance with applicable laws, during the year, the audit partner was rotated.

The auditors'' report annexed to the financial statement for the year under review does not contain any qualifications.

As per the guidelines issued by RBI on April 27, 2021 for the appointment of statutory auditors, NBFC-HFCs with an asset size of ''15,000 crore and above are required to have a minimum of two audit firms. The guidelines have to be adopted from the second half of FY22 onwards.

The guidelines also require rotation of audit firm after a period of 3 years. Since B S R & Co. LLP, chartered accountants has completed the specified time period as the statutory auditors, the Corporation would have to appoint two new audit firms for conducting the audit for FY22. The Corporation is in the process of identifying suitable audit firms and the requisite approval of the members will be sought at a future date.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Messrs Parikh & Associates, practicing company secretaries undertook the secretarial audit of the Corporation for the FY21. The Secretarial Audit Report is annexed to this report and does not contain any qualifications.

The Secretarial Compliance Report as prescribed by SEBI is provided elsewhere in the annual report.

The Board of Directors of the Corporation at its meeting held on May 7, 2021, appointed Messrs BNP & Associates, practicing company secretaries as the secretarial auditors to undertake the secretarial audit of the Corporation for FY22.

Orders Passed by Regulators

During the year, there were no significant or material orders passed by the regulators or courts or tribunals against the Corporation.

In September 2020, NHB imposed a monetary penalty of '' 1,50,000 on the Corporation for non-compliance with two provisions of the Housing Finance Companies (NHB) Directions, 2010 pertaining to FY 2018-19.

The Corporation paid the penalty on October 8, 2020. The Corporation maintains that this is not significant or material in nature.

Directors’ Responsibility Statement

In accordance with the provisions of Section 134(3)(c) of the Companies Act, 2013 and based on the information provided by the management, your directors state that:

a) In the preparation of annual accounts, the applicable accounting standards have been followed;

b) Accounting policies selected have been applied consistently. Reasonable and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Corporation as at March 31, 2021 and of the profit of the Corporation for the year ended on that date;

c) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities;

d) The annual accounts of the Corporation have been prepared on a going concern basis;

e) Internal financial controls have been laid down to be followed by the Corporation and such internal financial controls are adequate and operating effectively; and

Material changes and commitment, if any, affecting the financial position of the Corporation from the financial year end till the date of this report

There are no material changes and commitments affecting the financial position of the Corporation which have occurred after March 31, 2021 till the date of this report.

Acknowledgements

The directors place on record their gratitude for the support of various regulatory authorities including NHB, RBI, SEBI, IRDAI, Pension Fund Regulatory and Development Authority, Ministry of Housing and Urban Affairs, Ministry of Corporate Affairs, Registrar of Companies, Financial Intelligence Unit (India), the stock exchanges, National Securities Depository Limited and Central Depository Services (India) Limited.

The Corporation acknowledges the role of all its key stakeholders -

f) Systems to ensure compliance with the provisions of all applicable laws are in place and were adequate and operating effectively.

Internal Financial Control

The Corporation has put in place adequate policies and procedures to ensure that the system of internal financial controls is commensurate with the size and nature of the Corporation''s business. These systems provide a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Corporation, prevention and detection of frauds, accuracy and completeness of accounting records and ensuring compliance with corporate policies.

Annual Return

The Form No. MGT-7 for FY21 is uploaded on the Corporation''s website.

shareholders, borrowers, channel partners, depositors, deposit agents and lenders for their continued support to the Corporation.

Your directors place on record their appreciation for the hard work and dedication of all the employees and support services of the Corporation and the co-operation of all its subsidiary and associate companies, especially during the difficult times of the pandemic.

Last and most importantly, your directors remain extremely grateful to the medical fraternity, frontline workers and other first-hand responders who continue to work tirelessly in an endeavour to overcome the pandemic.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH

May 7, 2021 Chairman


Mar 31, 2019

Dear Stakeholders,

The Directors take great pleasure in presenting the 25th Annual Report on the business and operations of your Bank, together with the audited accounts for the year ended March 31, 2019. A journey of a thousand miles begins with a single step. Ours began a quarter of a century back with the launch of the first branch in Mumbai on February 18, 1995. On the same day in 2019, your Bank entered its silver jubilee year by opening its 5,000th branch again at Mumbai. Along the way it has metamorphosed from a wholesale bank into one with an equally strong retail presence and is well underway in its journey of offering an omni channel customer experience. In the semi urban and rural areas, where your Bank has over half its banking outlets, it is acting as a change agent not only through its banking services but social initiatives as well under the umbrella brand Parivartan. As it enters its silver jubilee year, your Bank has impacted the lives of about 10 crore Indians directly or indirectly ie over 4.9 crore customers, the 5 crore plus people through its social initiatives and families of its over 1.9 lakh employees (including that of its two subsidiaries).

In the year ended March 31, 2019 your Bank continued on this path. This came in an economic environment where the Indian economy stood out as an outlier despite facing various challenges both externally and internally. Externally, it was buffeted by volatile crude prices, rising interest rates in the developed world particularly in the US, heightened trade tensions and geopolitical uncertainties in some parts of the world. Internally, the economy was affected by serious concerns regarding the financial health of the NBFC sector, the continuing high NPA levels in the banking space, slowing consumption demand and some concerns on the fiscal side. Not to mention the uncertainty caused by the imminent general elections. The Indian economy however continued to be the fastest growing in the world thanks to the reforms of the past few years.

In the year under review, your Bank delivered a strong financial performance on the back of an improvement in a majority of its key parameters.

Financial Parameters

Your Bank recorded an improvement in a majority of its key financial parameters. At Rs. 48,243.2 crore, Net Interest Income rose by 20.3 per cent. Core Net Interest Margin remained stable at 4.3 per cent. Gross Non-Performing Assets (NPAs) at 1.36 per cent is among the lowest in the industry. This was largely due to the Bank’s prudent credit evaluation of the targeted customer profile and having a diversified loan book spread across customer segments, products, and sectors plus managing risk-return decisions with discipline. Your Bank’s Net Profit at Rs. 21,078.1 crore went up by 20.5 per cent.

In addition, the year stood out for one of the largest fund raising in your Bank’s history. It also continued to transform lives through Parivartan and securing recognition.

1) Fund Raising

Your Bank raised Rs. 23,715.9 crore in the year under review. This comprises a preferential allotment to Housing Development Finance Corporation Ltd of Rs. 8,500 crore, a Qualified Institutional Placement of Rs. 2,775.0 crore and an ADR offering of $ 1,820 million (Rs. 12,440.9 crore). Consequent to the above issuances, share capital increased by Rs. 20.89 crore and share premium increased by Rs. 23,568.7 crore. This is net of share issue expenses of Rs. 126.3 crore. The issuances were made pursuant to the shareholder and regulatory approvals. This has resulted in a strengthening of its capital structure, increasing solvency and shoring up of its Capital Adequacy Ratio.

2) Parivartan

The Bank in the year under review has continued its journey of social commitment through Parivartan which means change. Your Bank firmly believes that businesses cannot prosper if the communities in which they operate don’t. This is what has been inspiring its social initiatives. This change has been brought about principally by about 10 per cent of the Bank’s workforce which works on the Sustainable Livelihood Initiative (SLI) which helps people improve their lives by upgrading their skillsets and, thus, enabling them to break out of the cycle of poverty. And through its ‘Teaching-The-Teacher’ (3T) initiative which has potentially impacted 1.6 crore students as well as the Holistic Rural Development Programme which has already touched another possible 14.4 lakh people spread across more than 1,100 villages. We are also happy to report that in the year under review, your Bank has met the mandatory CSR expenditure through a spend of Rs. 443.8 crore.

3) Awards and Recognition

The Bank continued to win awards and laurels. Notably, it was named India’s most valuable brand for the fourth year in a row in the BrandZ survey of Top 50 Most Valuable Indian Brands. HDFC Bank was also ranked No 1 in India by customers in the first edition of the ‘World’s Best Banks’ survey by Forbes magazine. The publication partnered with market research firm Statista to measure the best banks in 23 countries and customers were asked to rate banks on overall recommendation and satisfaction, as well as on the 5 key attributes namely: Trust; Terms and Conditions; Customer Service; Digital Device; Financial Advice.

Summary

To sum up, your Bank is geared up for the next phase of growth given the looming market opportunities and its strong positioning in each of its major franchises. And also make a greater contribution to bridge the divide between India and Bharat be it through its business or social initiatives. This, of course, would not have been possible without the contribution of our over 98,000 employees.

Mission and Strategic Focus

Your Bank’s mission is to be a ‘World-Class Indian Bank.’ Its business philosophy is based on five core values: Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. The last value Sustainability should be viewed in consonance with Environmental, Social and Governance criteria. As a part of this, HDFC Bank through its umbrella brand Parivartan seeks to bring about change in the lives of communities mainly in Rural India.

The business objective has been to continue building sound customer franchises across distinct businesses so as to be a preferred banking services provider to achieve healthy growth in profitability consistent with the Bank’s risk appetite.

In line with the above, your Bank’s business strategy was to take digitisation to the next level to achieve the following:

- Deliver superior experience and greater convenience to customers

- Increase market share in India’s expanding banking and financial services industry

- Expand geographical reach

- Cross-sell the broad financial product portfolio

- Sustain strong asset quality through disciplined credit risk management

- Maintain low cost of funds

Your Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. This is articulated through a well-documented Code of Conduct that every employee has to affirm annually that he / she will abide by.

Summary of Financial Performance (Rs. crore)

Particulars

For the year ended / As on

March 31, 2019

March 31, 2018

Deposits and Other Borrowings

1,040,226.1

911,875.6

Advances

819,401.2

658,333.1

Total Income

1,16,597.9

95,461.7

Profit Before Depreciation and Tax

33,339.8

27,603.6

Profit After Tax

21,078.1

17,486.8

Profit Brought Forward

40,453.4

32,668.9

Total Profit Available for Appropriation

61,531.5

50,155.7

Appropriations

Transfer to Statutory Reserve

5,269.5

4,371.7

Transfer to General Reserve

2,107.8

1,748.7

Transfer to Capital Reserve

105.3

235.5

Transfer to / (from) Investment Reserve

-

(44.2)

Transfer to / (from) Investment Fluctuation Reserve

773.0

-

Dividend (including tax / cess thereon) pertaining to previous year paid during the year, net of dividend tax credits

4,052.6

3,390.6

Balance carried over to Balance Sheet

49,223.3

40,453.4

Dividend

Your Bank has a dividend policy that, inter alia, balances the objectives of appropriately rewarding shareholders and retaining capital in order to fund future growth. It has a consistent track record of steady increase in dividend distribution, with the Dividend Payout Ratio ranging between 20 per cent and 25 per cent - a range that the Board endeavours to maintain.

The dividend policy of your Bank is available on the Bank’s website at the following link: http://www.hdfcbank.com/htdocs/common/pdf/ corporate/Dividend-Distribution-Policy.pdf

Consistent with this policy and in recognition of the overall performance during the year under review, your Directors are pleased to recommend a dividend of Rs. 15 per equity share of Rs. 2 as against Rs. 13 per equity share in the previous year. As you are aware, this dividend will be subject to tax to be paid by the Bank. In terms of revised Accounting Standard (AS) 4 ‘Contingencies and Events occurring after the Balance Sheet Date’ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend from Profit and Loss Account for the year ended March 31, 2019. However, the effect of the proposed dividend, including tax on dividend aggregating to Rs. 4,924.64 crore, has been reckoned in determining capital funds in the computation of capital adequacy ratio as at March 31, 2019.

Ratings

Instrument

Rating

Rating Agency

Comments

Fixed Deposit Programme

CARE AAA (FD)

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

IND Taaa

India Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Certificate of Deposits Programme

CARE A1 IND A1

CARE Ratings India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk. Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Long Term Unsecured, Subordinated (Lower Tier 2) Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

IND AAA

India Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Upper Tier 2 Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Infrastructure Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Additional Tier I Bonds (Under Basel III)

CARE AA

CARE Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

CRISIL AA

CRISIL

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations.

Such instruments carry very low credit risk.

IND AA

India Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations.

Such instruments carry very low credit risk.

Tier II Bonds (Under Basel III)

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Issuance of Equity Shares and Employee Stock Options (ESOP)

As on March 31, 2019, the issued, subscribed and paid up capital of your Bank stood at Rs. 5,446,613,220 comprising 272,33,06,610 equity shares of Rs. 2 each. During the year under review, the Bank issued 3,90,96,817 equity shares to Housing Development Finance Corporation Limited on a preferential basis, 1,28,47,222 equity shares on a qualified institutions placement and 5,25,00,000 equity shares underlying 1,75,00,000 American Depository Receipts (ADRs). Further, 2,37,72,304 equity shares of face value of Rs. 2 each were issued pursuant to exercise of Employee Stock Option (ESOP) by the Bank. The information pertaining to ESOPs is given in ANNEXURE 1 to this report.

The Board of Directors at its meeting held on May 22, 2019 considered and approved the sub-division of one equity share of the Bank having face value of Rs. 2/- each into two equity shares of face value of Re. 1/- each and consequential alteration in the relevant clauses relating to capital of the Memorandum of Association of the Bank. The sub-division of equity shares as above is subject to the approval of the members at the ensuing Annual General Meeting of the Bank.

Further, the Bank had issued 1,14,30,383 underlying equity shares representing Global Depository Receipts (GDRs) of the Bank, which are listed on the Luxembourg Stock Exchange. The Depository for GDRs is represented in India by J.P Morgan Chase Bank N.A. Due to low trading / conversion volume in GDR, the Board of Directors of the Bank at its meeting held on April 20, 2019 has decided to terminate the GDR program. The requisite notice of termination is being issued to the custodian and the depository.

Capital Adequacy Ratio (CAR)

As on March 31, 2019 your Bank’s total CAR, calculated in line with Basel III capital regulations, stood at 17.1 per cent well above the regulatory minimum of 11.025 per cent including the Capital Conservation Buffer of 1.875 per cent. Of this, Tier I CAR was 15.8 per cent. The effect of the proposed dividend has been taken into account in computing these ratios.

Other Statutory Disclosures

Number of Meetings of the Board, attendance, meetings and constitution of various Committees

The details of Board meetings held during the year, attendance of Directors at the meetings and constitution of various Committees of the Board are included separately in the Corporate Governance Report.

Extract of Annual Return

Pursuant to Section 134 (2) (a) and Section 92 (3) of the Companies Act, 2013, the extract of the Annual Return in the prescribed format (MGT-9) is annexed as ANNEXURE 3 to this Report. Further, the Annual Return of the Bank in the prescribed Form MGT-7 is available on the website of the Bank at the link www.hdfcbank.com

Requirement for maintenance of cost records:

The Bank is not required to maintain cost records as specified by the Central Government under section 148(1) of the Companies Act, 2013 Directors’ Responsibility Statement

Pursuant to Section 134 (3) (c) read with Section 134 (5) of the Companies Act, 2013, the Board of Directors hereby state that:

- In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any

- We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2019 and of the profit of the Bank for the year ended on that date

- We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities

- We have prepared the annual accounts on a going concern basis

- We have laid down internal financial controls to be followed by the Bank and ensure that such internal financial controls were adequate and operating effectively

- We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and were operating effectively.

Compliance with Secretarial Standards

The Bank is in compliance with all applicable Secretarial Standards as notified from time to time.

Auditors

The Bank’s current Statutory Auditors are S. R. Batliboi & Co. LLP, Chartered Accountants. S. R. Batliboi & Co. LLP were appointed as Statutory Auditor at the previous AGM of the Bank, to hold office till the conclusion of the ensuing AGM. It is now proposed to appoint S. R. Batliboi & Co. LLP, Chartered Accountants, as Statutory Auditor of the Bank for period of three years with effect from the conclusion of the ensuing AGM, such that their total appointment does not exceed 4 years, which is the maximum permissible term as per Reserve Bank of India, at such fees as detailed in the Notice of the 25th AGM of the Bank.

During the year ended March 31, 2019, fees paid to the Statutory Auditors (S.R. Batliboi & Co. LLP) and its network firms are as follows:

(Rs. in crores)

Fees (including taxes)

HDFC Bank to Statutory Auditors

HDFC Bank to network firms of Statutory Auditors

Subsidiaries of HDFC Bank to Statutory Auditors and its network firms

Statutory Audit

2.50

-

-

Certification & other attest services*

1.30

-

-

Non-audit services

-

-

-

Outlays and Taxes*

0.49

-

-

Total

4.29

-

-

*includes fees classified under share issue expenses, towards certification and other attest services in respect of capital raised during the year. Disclosure under Foreign Exchange Management Act, 1999

As far as FEMA compliances in relation to strategic downstream investments in the Bank’s subsidiaries is concerned, during the year under review, there have been no strategic downstream investments made by Bank in its subsidiaries. Accordingly, the Bank has obtained a certificate from its statutory auditors to this effect.

Related Party Transactions

Particulars of transactions with related parties referred to in Section 188 (1), as prescribed in Form AOC-2 under Rule 8 (2) of the Companies (Accounts) Rules, 2014 is enclosed as ANNEXURE 4.

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided or any investment made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank’s subsidiaries and associates are enclosed as ANNEXURE 5 to this report. There were no entities which became or ceased to be the Bank’s subsidiaries, associates or joint ventures during the year.

Whistle Blower Policy / Vigil Mechanism

The Bank encourages an open and transparent system of working and dealing amongst its stakeholders. While the Bank’s “Code of Conduct & Ethics Policy” directs employees to uphold company values and conduct business with integrity and highest ethical standards, the Bank has also adopted a “Whistle Blower Policy” which encourages its employees and various stakeholders to bring to the notice of the Bank any issue involving compromise/ violation of ethical norms, legal or regulatory provisions, actual or suspected fraud etc., without any fear of reprisal, discrimination, harassment or victimization of any kind. All such concerns/ complaints are received by the Chief of Internal Vigilance of the Bank and/or by the Whistle Blower Committee through a dedicated email ID or by way of letters etc. All such complaints are enquired into by the appropriate authority within the Bank while ensuring confidentiality of the identity of such complainants. On the basis of their investigation, if the allegations are proved be correct, then the Competent Authority shall recommend to the appropriate Disciplinary Authority to take suitable action against the responsible official and required corrective measures in consultation with the concerned stakeholders. The decision of the Whistle Blower Committee is final and binding on all. Preventive measures or any other action considered necessary is also taken forward by the Competent Authority.

Details of Whistle Blower complaints received and subsequent action taken and the functioning of the Whistle Blower mechanism are reviewed periodically by the Audit Committee of the Board. During the Financial year 2018-19, a total of 56 such complaints were received and taken up for investigation which has resulted in certain staff actions in 15 cases post investigation.

Statement on Declaration by Independent Directors

Mrs. Shyamala Gopinath, Mr. Malay Patel, Mr. Umesh Chandra Sarangi are the Independent Directors whereas Mr. Sanjiv Sachar, Mr. M. D. Ranganath and Mr. Sandeep Parekh are the Additional Independent Directors on the Board of the Bank as on March 31, 2019. All the Independent Directors and Additional Independent Directors have given their respective declarations under Section 149 (6) and (7) of the Companies Act, 2013 and the Rules made thereunder. In the opinion of the Board, the Independent Directors fulfil the conditions relating to their status as Independent Directors as specified in Section 149 of the Companies Act, 2013 and the Rules made thereunder and are independent of the management.

Board Performance Evaluation

The Nomination and Remuneration Committee (NRC) has approved a framework / policy for evaluation of the Board, Committees of the Board and the individual members of the Board (including the Chairperson), which is reviewed annually by the NRC. A questionnaire for the evaluation of the Board, its Committees and the individual members of the Board (including the Chairperson), designed in accordance with the said framework and covering various aspects of the performance of the Board and its Committees, including composition and quality, roles and responsibilities, processes and functioning, adherence to Code of Conduct and Ethics and best practices in Corporate Governance was sent out to the Directors. The responses received to the questionnaires on evaluation of the Board and its Committees were placed before the meeting of the Independent Directors for consideration. The assessment of the Independent Directors on the performance of the Board and its Committees was subsequently discussed by the Board at its meeting.

Your Bank has in place a process wherein declarations are obtained from the Directors regarding fulfilment of the ‘fit and proper’ criteria in accordance with RBI guidelines.

The declarations from the Directors other than members of the NRC are placed before the NRC and the declarations of the members of the NRC are placed before the Board. Assessment on whether the Directors fulfil the said criteria is made by the NRC and the Board on an annual basis. In addition, the framework / policy approved by the NRC provides for a performance evaluation of the Non-Independent Directors by the Independent Directors on key personal and professional attributes. In addition to the above parameters, the Board also evaluates fulfillment of the independence criteria as specified in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 by the Independent Directors of the Bank and their independence from the management. Such performance evaluation has been duly completed as above. As Mr. Sandeep Parekh and Mr. M. D. Ranganath were recently appointed as Additional Independent Directors on the Board of the Bank with effect from January 19, 2019 and January 31, 2019 respectively, they abstained from participating in the above Board Performance Evaluation process.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

Your Bank has in place a Policy for appointment and ‘fit and proper’ criteria for Directors of the Bank. The Policy lays down the criteria for identification of persons who are qualified and ‘fit and proper’ to become Directors on the Board- such as academic qualifications, competence, track record, integrity, etc. which shall be considered by the NRC while recommending appointment of Directors. The Policy is available on the website of the Bank at the link https://www.hdfcbank.com/assets/pdf/Policy-for-appointment-and-fit-proper-criteria-for-directors.pdf

The remuneration of Whole Time Directors, Key Managerial Personnel and Senior Management is governed by the Compensation Policy of the Bank. The same is available at the web-link https://www.hdfcbank.com/assets/pdf/Compensation-Policy.pdf. The Compensation Policy of the Bank, duly reviewed and recommended by the NRC has been articulated in line with the relevant Reserve Bank of India guidelines.

Your Bank’s Compensation Policy is aimed to attract, retain, reward and motivate talented individuals critical for achieving strategic goals and long term success. The Compensation Policy is aligned to business strategy, market dynamics, internal characteristics and complexities within the Bank. The ultimate objective is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity.

Your Bank’s approach is to have a pay for performance culture based on the belief that the Performance Management System provides a sound basis for assessing performance holistically. The compensation system should also take into account factors such as roles, skills / competencies, experience and grade / seniority to differentiate pay appropriately on the basis of contribution, skill and availability of talent on account of competitive market forces. The details of the Compensation Policy are also included in Schedule 18 Notes forming part of the Accounts - Note no. 24. Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its Committees, which are determined by the Board based on applicable regulatory prescriptions.

Further, expenses incurred by them for attending meetings of the Board and Committees are reimbursed at actuals. Pursuant to the relevant RBI guidelines and approval of the shareholders, each of the Non-Executive Directors, other than the Chairperson, are paid profit-related commission of Rs. 1,000,000 (Rupees Ten Lakh Only) per annum.

Mr. Aditya Puri is the Non-Executive Chairman of HDB Financial Services Limited, subsidiary of the Bank. Mr. Puri does not receive any remuneration from the subsidiary. None of the Directors of your Bank other than Mr. Puri is a director of the Bank’s subsidiaries as on March 31, 2019.

Succession Planning

The Bank’s Nomination and Remuneration Committee (NRC) also oversees matters of succession planning of its Directors, Senior Management and Key executives of the Bank. With respect to the tenure of the current Managing Director ending in October 2020, the Board will identify a successor and work to ensure that this is done in a manner that will allow appropriate time for an effective transition of responsibilities. Towards this end, the Nomination & Remuneration Committee of the Board will constitute a Search Committee to undertake a global search of both internal and external candidates.

Significant and Material Orders Passed By Regulators

During the year under review, there were no significant and material Orders passed by any regulators or courts or tribunals against the Bank impacting the going-concern status and Bank’s operations in future.

Directors and Key Managerial Personnel

In compliance with Section 152 of the Companies Act, 2013, Mr. Srikanth Nadhamuni will retire by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

During the year, Mr. Partho Datta and Mr. Bobby Parikh ceased to be Directors of the Bank from close of business hours on September 29, 2018 and January 26, 2019 respectively, on completing the maximum permitted tenure of eight years as per Banking Regulation Act, 1949. Your Directors place on record their sincere appreciation for the contribution made by Mr. Partho Datta and Mr. Bobby Parikh during their tenure with the Bank and wishes them well in their future endeavors.

Mr. Paresh Sukthankar, Deputy Managing Director, tendered his resignation from the Board of the Bank on August 10, 2018 which came into effect from November 8, 2018. The Board places on record their sincere appreciation for the contribution made by Mr. Paresh Sukthankar during his tenure with the Bank and wishes him well in his future endeavors.

Mr. Sanjiv Sachar, Mr. Sandeep Parekh and Mr. M. D. Ranganath were appointed as Additional Independent Directors on the Board of the Bank with effect from July 21, 2018, January 19, 2019 and January 31, 2019 respectively, subject to the approval of the shareholders.

The brief resume / details regarding the Directors proposed to be appointed / re-appointed as above is furnished in the report on Corporate Governance. There have been no changes in the Directors and Key Managerial Personnel of the Bank other than the above.

Particulars of Employees

The information in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in ANNEXURE 6 and ANNEXURE 7 to this report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as:

- Installation of green locks and AC controllers in air conditioning machines in order to save energy and support go-green initiative

- Installation of energy capacitors at high consumption offices to control the power factor and to reduce energy consumption

- All main signboards in branches switched off post 10 p.m.

- Put controls on usage of lifts, ACs, common passage lights and other electrical equipment

- Reduction of contract demand at Kanjurmarg Hub,

- Replacement of CFL Lamps with LED fixtures at Kanjurmarg Hub / WBO / Fort Mumbai / Bank House Indore

- Provision of LED lamps at branches and offices

- Provision of solar panels for captive power generation at our offices in Pune and Bhubaneswar, Noida (Sector 4)

Monitoring and energy saving initiative for 100 branches resulting in power saving of over 10 per cent. The Bank won an award in National Energy Efficiency Circle Competition 2017 - Winner Best Energy Efficient Case study held by CII in May 2017. Considering the benefits accrued, it further extended the monitoring programme to an additional 500 branches across the country and the results have shown power savings over 10%.

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluates innovative technology with multiple fintech partners. It has launched a formal Consumer Durable Loans portfolio and product with on-line real-time Digital API based collaboration with third party and fintech application sourcing platforms. Your Bank is leveraging API based Service Oriented Architecture and Middleware for enabling digital initiatives and empowering relationship managers at branches with digital products and services platforms. Your Bank has also begun using robotics and artificial intelligence in digital commerce, corporate supply chain and payment settlement systems to reduce time to market and turnaround time.

(C) Foreign Exchange Earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs. 1,720.4 crores (on account of net gains arising on all exchange / derivative transactions) and the total foreign exchange outgo was Rs. 2,130.5 crores towards the operating and capital expenditure requirements.

Secretarial Audit

In terms of Section 204 of the Companies Act, 2013 and the Rules made thereunder, M/s. BNP & Associates, Practicing Company Secretaries had been appointed as Secretarial Auditors of the Bank for the financial year 2018-19. The report of the Secretarial Auditors is enclosed as ANNEXURE 8 to this Report. There are no observations / qualifications / comments in the Report of the Secretarial Auditor.

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate report on Corporate Governance along with a certificate of compliance from the Secretarial Auditors, forms an integral part of this Report.

Business Responsibility Report

The Bank’s Business Responsibility Report containing a report on its Corporate Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site www.hdfcbank.com

Information under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The relevant information is included in the Corporate Governance Report

Acknowledgement

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank’s employees and look forward to their continued contribution in building a ‘World Class Indian Bank.’ Conclusion

It has been a challenging year for the Indian economy externally as well as internally. The good news is that despite the challenges of volatile oil prices, trade wars, rising interest rates, and domestic uncertainties due to the impending general elections in India and slowing consumption demand, India remained the world’s fastest growing economy. Your Bank which grew faster than the system in the year under review is well poised to tap the opportunities of what is still an under penetrated market by leveraging its strong balance sheet and franchise.

As always, your Bank will continue to be judicious. It will continue to leverage its distribution strength and digital platforms to offer a similar experience to customers across urban, semi-urban and rural India.

Needless to say, the Bank will continue to focus on its five core values, namely, Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. Its commitment to the highest possible standards of corporate governance remains unwavering even as it embarks on the next stage of its evolution to continue delivering sustainable growth to all its stakeholders.

On behalf of the Board of Directors

Mrs. Shyamala Gopinath

Chairperson

Mumbai, May 22, 2019


Mar 31, 2018

Dividend

(Rs, crore)

Particulars

For the year ended / As on

March 31, 2018

March 31, 2017

Deposits and Other Borrowings

9,11,875.6

7,17,668.5

Advances

6,58,333.1

5,54,568.2

Total Income

95,461.7

81,602.5

Profit Before Depreciation and Tax

27,603.6

22,972.2

Profit After Tax

17,486.8

14,549.7

Profit Brought Forward

32,668.9

23,527.7

Total Profit Available for Appropriation

50,155.7

38,077.3

Appropriations

Transfer to Statutory Reserve

4,371.7

3,637.4

Transfer to General Reserve

1,748.7

1,455.0

Transfer to Capital Reserve

235.5

313.4

Transfer to / (from) Investment Reserve

(44.2)

4.3

Dividend (including tax / cess thereon) pertaining to previous year paid during the year, net of dividend tax credits *

3,390.6

(1.7)

Balance carried over to Balance Sheet

40,453.4

32,668.9

* In terms of revised Accounting Standard (AS) 4-Contingencies and Events Occurring after the Balance Sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank had not appropriated the proposed dividend from the Statement of Profit and Loss for the year ended March 31, 2017. Hence, the same has been appropriated basis actual payout.

The Bank’s Total Income rose to Rs, 95,461.7 crore for the year under review from Rs, 81,602.5 crore in the previous year. Net Profit increased by 20.2 per cent to Rs, 17,486.8 crore from Rs, 14,549.7 crore.

Appropriations from Net Profit have been effected as per the table given above.

Your Bank has a dividend policy that, inter alia, balances the objectives of appropriately rewarding shareholders and retaining capital in order to fund future growth. It has a consistent track record of steady increase in dividend distribution, with the Dividend Payout Ratio ranging between 20 per cent and 25 per cent - a range that the Board endeavours to maintain. The dividend policy of your Bank is available on the Bank''s website at the following link: http://www.hdfcbank.com/htdocs/common/ pdf/corporate/Dividend-Distribution-Policy.pdf

Consistent with this policy and in recognition of the overall performance during the year under review, your Directors are pleased to recommend a dividend of '' 13 per equity share of '' 2 as against Rs, 11 per equity share in the previous year. As you are aware, this dividend will be subject to tax to be paid by the Bank. In terms of revised Accounting Standard (AS) 4 ‘Contingencies and Events occurring after the Balance sheet date'' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend from Statement of Profit and Loss for the year ended March 31, 2018. However, the effect of the proposed dividend, including tax on dividend aggregating to Rs, 4,067.07 crore, has been reckoned in determining capital funds in the computation of capital adequacy ratio as at March 31, 2018.

Instrument

Rating

Rating Agency

Comments

Fixed Deposit Programme

CARE AAA (FD)

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

IND Taaa

India Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Certificate of Deposits Programme

CARE A1

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

IND A1

India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Long Term Unsecured, Subordinated (Lower Tier 2) Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

IND AAA

India Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Tier I Perpetual Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Upper Tier 2 Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Infrastructure Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Additional Tier I Bonds (Under Basel III)

CARE AA

CARE Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

CRISIL AA

CRISIL

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

IND AA

India Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Tier II Bonds (Under Basel III)

CARE AAA

CARE Ratings

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Issuance of Equity Shares and Employee Stock Options (ESOP)

As on March 31, 2018, the issued, subscribed and paid up capital of your Bank stood at Rs, 519,01,80,534 comprising 259,50,90,267 equity shares of Rs, 2 each. During the year under review, 3,25,44,550 equity shares were allotted to employees in respect of the equity stock options. The information pertaining to ESOPs is given in ANNEXURE 1 to this report.

Capital Adequacy Ratio (CAR)

As on March 31, 2018 your Bank''s total CAR, calculated in line with Basel III capital regulations, stood at 14.8 per cent, well above the regulatory minimum of 10.875 per cent including the Capital Conservation Buffer of 1.875 per cent. Of this, Tier I CAR was 13.2 per cent. The effect of the proposed dividend has been taken into account in computing these ratios.

MANAGEMENT DISCUSSION AND ANALYSIS

Macroeconomic and Industry Developments

Over the last two years, the Government has taken some key policy decisions including a recapitalization plan of Rs, 2,10,000 crore for public sector banks and introduction of the GST. As mentioned earlier, the growth pangs are only short-term and in the long run, GST is expected to give a fillip to the economy as a whole.

The slowdown in growth witnessed during 2016-17 (compared with 2015-16) intensified in the first quarter of 2017-18; GDP growth slowed to a 13-quarter low of 5.7 per cent, sharply lower than 7.9 per cent expansion in the same quarter of the preceding year. But, as the transitory impact of both GST and the demonetization shock is on the wane, the economy appears to be gradually regaining momentum. GDP growth rebounded to 6.5 per cent in the second quarter of 2017-18, and further to

7.2 per cent in the third quarter of 2017-18 after slowing down in the past five quarters. Going by the 2018 Union Budget, the focus of fiscal policy in the coming year will be on revival of the rural economy and infrastructure expenditure.

Notwithstanding some positive uptake in private investment growth in the second quarter, we believe incremental pick-up in private capital expenditure is likely to be sector and sub-sector specific and gradual. We expect a more formidable recovery in private capital expenditure cycle by the first half of the year ending March 31, 2019. Overall, on the back of the assumption of a pick-up in private consumption, gradual recovery in private capital expenditure and continued support from Government-led capital spending we expect the real GDP growth for 2018-19 to rise to 7.3 per cent from 6.6 per cent in 2017-18.

The moderation in inflation which was seen in 2016-17 continued in the early part of 2017-18 as well, with the CPI falling to a series low of 1.5 per cent in June 2017 driven by both lower food and core inflation. Having averaged 2.6 per cent in the first half of 2017-18, inflation inched up slightly in the second half (average close to 4.4 per cent in second half of 2017-18). Going ahead in FY19, CPI inflation could inch-up to 5.1 per cent on average in the first half of FY19 with much of the rise likely to be on account of an adverse base. Thereafter, in the second half of FY19, while the base effect could be favorable and lead to some moderation in inflation, a lot would depend on how other risks like rising oil prices, higher minimum support prices impact of housing rent allowance increase by several state governments pan out.

Given the recent softer inflation prints while the RBI can afford to wait longer and maintain status quo, eventually, we believe, that elevation of some of the upside risks along with the revival in rural demand could lead to a rate hike by the last quarter of 2018-19.

Going forward, a major risk to the economy could be a sharp increase in oil prices, which could adversely affect inflation, fiscal deficit and the current account deficit. Risks on the external front continue to loom on account of monetary policy uncertainty in the developed nations (particularly on rate hikes'' side), Brexit related uncertainty in the UK and rising protectionist tendencies, especially in the US.

Mission and Strategic Focus

Your Bank''s mission is to be a ‘World-Class Indian Bank.'' Its business philosophy is based on five core values: Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. This year, the objective has been to continue building sound customer franchises across distinct businesses so as to be a preferred banking services provider to achieve healthy growth in profitability consistent with the Bank''s risk appetite.

In line with the above, your Bank''s business strategy was to take digitization to the next level to achieve the following:

- Deliver superior experience and greater convenience to customers

- Increase market share in India''s expanding banking and financial services industry

- Expand geographical reach

- Cross-sell the broad financial product portfolio

- Sustain strong asset quality through disciplined credit risk management

- Maintain low cost of funds

Your Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. This is articulated through a well-documented Code of Conduct that every employee has to affirm annually that he / she will abide by.

The financial performance of your Bank during the year ended March 31, 2018, remained healthy with Total Net Revenue (Net Interest Income Plus Other Income) rising by 21.7 per cent to Rs, 55,315.2 crore from Rs, 45,435.7 crore in the previous year. Revenue growth was driven by an increase in both Net Interest Income and Other Income. Net Interest Income grew by 21 per cent to Rs, 40,094.9 crore due to acceleration in loan growth coupled with Core Net Interest Margin (CNIM) of 4.3 per cent.

Other Income grew by 23.8 per cent to Rs, 15,220.3 crore. The largest component was Fees and Commissions, which increased by 29.3 per cent to Rs, 11,393.9 crore. Foreign Exchange and Derivatives revenue was Rs, 1,523.5 crore, gain on revaluation and sale of investments was Rs, 924.7 crore and recoveries from written-off accounts was Rs, 1,093.8 crore.

Operating (Non-Interest) Expenses rose to Rs, 22,690.4 crore from Rs, 19,703.3 crore. During the year, your Bank has set up 72 new banking outlets and 375 ATMs. This, along with strong growth in retail asset and card products, resulted in higher infrastructure and staffing expenses. Staff expenses also went up due to annual wage revisions. Despite higher infrastructure expenses, the Cost to Income Ratio improved to 41 per cent from 43.4 per cent.

Total Provisions and Contingencies were Rs, 5,927.5 crore as compared to Rs, 3,593.3 crore the preceding year. Your Bank''s provisioning policies remain more stringent than regulatory requirements.

The Coverage Ratio based on specific provisions alone excluding Write-offs is 70 per cent; including General and Floating provisions, it is 121 per cent. Your Bank made General Provisions of Rs, 597.4 crore during the year.

Profit Before Tax grew by 20.6 per cent to Rs, 26,697.3 crore. After providing for Income Tax of Rs, 9,210.6 crore, Net Profit increased by 20.2 per cent to Rs, 17,486.8 crore from Rs, 14,549.7 crore. The Return on Average Net Worth was 18 per cent while the Basic Earnings Per Share was Rs, 67.8, up from Rs, 57.2.

As on March 31, 2018, your Bank''s Total Balance Sheet stood at Rs, 1,063,934 crore, an increase of 23.2 per cent over Rs, 8,63,840 crore on March 31, 2017. Total Deposits rose by 22.5 per cent to Rs, 7,88,771 crore from Rs, 6,43,640 crore. The Current Account and Savings Account (CASA) Deposit growth also increased.

Savings Account Deposits grew by 15.6 per cent to Rs, 2,23,810 crore while Current Account Deposits rose by 3.2 per cent to Rs, 1,19,283 crore. Time Deposits stood at Rs, 4,45,678 crore, representing an increase of 33.2 per cent. CASA Deposits accounted for 43.5 per cent of Total Deposits. Advances stood at Rs, 6,58,333 crore, an increase of 18.7 per cent. The Bank''s domestic loan portfolio of Rs, 6,43,794 crore grew by 19.5 per cent over March 31, 2017. The Bank had a share of approximately 6.7 per cent in Total Domestic Deposits and

7.4 per cent in Total Domestic Advances. Its Credit Deposit (CD) Ratio stood at 83 per cent on March 31, 2018.

BUSINESS OPERATIONS

Our Bank''s operations are split into domestic and international, albeit small.

DOMESTIC BUSINESS

Our domestic business comprises the following:

A) Retail Banking

Your Bank''s Retail Banking Business registered robust growth in the year under review. Total Retail Deposits grew by 14.4 per cent to Rs, 5,80,006 crore from Rs, 5,06,843 crore in the preceding year while Retail Advances rose by 27.4 per cent to Rs, 3,76,167 crore from Rs, 2,95,161 crore.

Growth in Retail Assets was led by Personal Loans, Auto Loans and, Credit Cards.

The Bank is a leader in the Auto Loans Segment with a strong presence in commercial vehicle and two-wheeler financing. Four-wheeler financing registered a strong

22.8 per cent growth.

In Two-Wheeler Financing, your Bank is the first in the country to cross the 10 lakh vehicles milestone. In the Commercial Vehicle Segment, your Bank was able to ward off intense competition and log robust profitable growth using its strong brand equity and service. It chose not to compete on price.

The Personal Loan Business also surged to Rs, 71,876 crore on the back of strong product offerings and speedy disbursals. The Bank is a pioneer in various digital loans. Your Bank''s 10 second Personal Loan and Digital Loan Against Shares were industry firsts.

In the credit card business, your Bank achieved yet another milestone during the fiscal by becoming the first bank in the country to issue one crore cards. Existing customers accounted for 82 per cent of the new cards issued.

In addition to this, the Bank operates in the Home Loan business in conjunction with HDFC Limited. As per this arrangement, the Bank sells HDFC Home Loans while HDFC Ltd approves and disburses them. The Bank receives sourcing fee for these loans and has the option to purchase up to 70 per cent of the fully disbursed loans either through the issue of mortgage backed Pass Through Certificates (PTCs) or by a direct assignment of loans. The balance is retained by HDFC Limited. Your Bank originated, on an average, Rs, 2,000 crore of Home Loans every month in the year under review.

The Bank also distributes Life Insurance, General Insurance and Mutual Funds, often referred to as Third-Party Products.

Income from this business grew by 51 percent from Rs, 1,381 crore to Rs, 2,091 crore and accounted for

18 per cent of total fee income in the year ended March 31, 2018 , compared with 16 per cent in the preceding year. This was primarily on account of distribution of mutual funds of the top asset management companies in the country. Mutual Fund industry saw an unprecedented flow of household savings into the mutual funds. In the system the AUM of the individual investors grew by 36.8 per cent to about Rs, 11.7 lakh crore* as of March 31, 2018.

Your bank has adopted an open architecture model by entering into multiple corporate agency agreements in life, general and health insurance distribution. During the year under review your Bank tied up with two life insurance, two general insurance and three health insurance service providers in addition to the existing tie-ups.

*Source for Industry numbers (AMFI India)

As regards physical distribution network the Bank also added 72 banking outlets during the year taking the total to 4,787 spread across 2,691 cities / towns. The share of semi-urban and rural outlets in the total network is 53 per cent, reflecting our continued focus on them. The number of ATMs also increased, to 12,635 from 12,260. The number of customers your Bank catered to as on March 31, 2018 was over 4.36 crore from 4.05 crore in the previous year.

The Payments Business where your Bank has a dominant presence merits a special mention. With 2.43 crore debit cards, 1.07 crore credit cards and 4.04 lakh POS terminals and m-PoS installations, it is among the largest facilitators of cashless payments using plastic in the country.

The Bank has made rapid strides in adopting other aspects of digitization as well. The Bank''s payments business has launched digital offerings such as Bharat QR Code, UPI, Aadhaar and SMS pay solutions. It has also pioneered path-breaking products such as the SmartHub app for small merchants and DigiPos, which enables traditional PoS machines to accept digital payments. Merchants and customers alike have found these solutions useful.

In the year under review, the Virtual Relationship Management (VRM) programmme gained substantial traction. Through this, relationship managers reach out to customers through remote and digital platforms, leading to deeper engagement in a cost-effective manner. These managers are a single point of contact for customers banking and financial needs. This programme which offers tailor-made solutions, using carefully drawn customer level plans has been well received in the 18 months since its launch. The number of customers has trebled during this period.

B) Wholesale Banking

This business focuses on institutional customers such as the Government, Large and Emerging Corporate, and SMEs. Your Bank''s offerings in this segment include Working Capital and Term Loans as well as Trade Credit, Cash Management, Supply Chain Financing, Foreign Exchange, and Investment Banking services. The Wholesale Banking business recorded healthy growth, ending the year with a loan book size of approximately '' 2,88,000 crore constituting about 43 per cent of the Bank''s total book.

This was an increase of about 9.5 per cent over approximately '' 2,63,000 crore recorded in the previous year. The performance in this segment must be seen in the wider context of an otherwise subdued credit environment and excess liquidity in the banking system, which exercised a downward pressure on interest rates for much of the year. The Bank was able to expand its share of the customer wallet, primarily using sharper customization and cross-selling.

Corporate Banking, which focuses on large, well-rated companies, continued to remain the biggest contributor to Wholesale Banking in terms of asset size. Despite a subdued credit environment, the Emerging Corporate Group, which focuses on the mid-market segment, too witnessed significant growth.

Your Bank leveraged its vast geographical reach, technology backbone, automated processes, suite of financial products and quick turnaround times to offer a differentiated service, which has resulted in new customer acquisition as well as a higher share of the wallet from existing customers. The business continues to have a diversified portfolio in terms of both industry and geography.

The year under review has been a challenging but defining one for Micro, Small and Medium Enterprises (MSMEs). The sector faced temporary challenges arising from clarity and compliance issues in the implementation of GST. Your Bank fine-tuned its strategy and capitalized on new opportunities to grow the business. The Bank''s advances to MSMEs amounted to Rs, 89,042.1 crore as on March 31, 2018.

The Investment Banking business cemented its already prominent position in the Debt Capital Markets. For three consecutive years now, your Bank has been ranked 2nd in the Bloomberg rankings of Rupee Bond book runners.

In the Government business, the Bank sustained its focus on tax collections, collecting direct tax of Rs, 2.61 lakh crore and indirect tax of Rs, 0.85 lakh crore during the year. In addition to the taxes / duties collected on behalf of several state governments, the Bank also collected Rs, 1.01 lakh crore in the form of GST. We continue to enjoy a pre-eminent position among the country''s major stock and commodity exchanges in both Cash Management Services and Cash Settlement Services.

The Bank has, as part of its digitization drive, ensured a larger conversion of cash payments into electronic ones. The ‘Trade-on-Net'' offering, which gives clients access to a host of services such as Remittances, Letters of Credit and Guarantees, has gained acceptance. SM@Bank, our online solution for SME customers, also continued to gather momentum.

Your Bank''s pre-eminent position in the Wholesale Business was recognized in a survey conducted by Greenwich Associates, a leading global provider of market and intelligence services. It rated your Bank as number one in India in the middle market segment in terms of market penetration and number two in the large corporate segment.

C) Treasury

The Treasury is the custodian of the Bank''s cash / liquid assets and handles its investments in securities, foreign exchange and cash instruments. It manages the liquidity and interest rate risks on the balance sheet and is also responsible for meeting reserve requirements. The vertical also helps manage the treasury needs of customers and earns a substantial part of its revenues through fee income generated from transactions customers undertake with the Bank while managing their foreign exchange and interest rate risks.

Revenue accrues from spreads on customer transactions based on trade and remittance flows and demonstrated hedging needs. The Bank recorded revenue of Rs, 1,523.5 crore from foreign exchange and derivative transactions in the year under review. While plain vanilla forex products were in demand across all customer segments, the demand for derivative products came mostly from large and emerging corporate.

As a part of prudent risk management, the Bank enters into foreign exchange and derivative deals with counterparties after it has set up appropriate credit limits based on its evaluation of the ability of the counterparty to meet its obligations. Where the Bank enters into foreign currency derivative contracts not involving the Indian Rupee with its customers, it typically lays them off in the inter-bank market on a matched basis. For such foreign currency derivatives, the Bank primarily carries the counterparty credit risk (where the customer has crystallised payables or mark-to-market losses) and may carry only residual market risk if any. The Bank also deals in derivatives on its own account, including for the purpose of its own balance sheet risk management.

The Bank maintains a portfolio of Government Securities, in line with regulatory norms governing the Statutory Liquidity Ratio (SLR). A significant portion of these SLR securities are held in the ‘Held-to-Maturity'' (HTM) category, while some are held in the ‘Available for Sale'' (AFS) category. The Bank is also a Primary Dealer for Government Securities. As a part of this business, as well as otherwise, the Bank holds fixed income securities in the ‘Held for Trading'' (HFT) category.

The Bank is in the process of implementing a new Treasury solution provided by Murex. The first phase of implementation went live this year and full implementation will be completed in the next 12-18 months. This will be an integrated solution for front-office, mid-office and back-office and will replace many existing software / systems.

D) Partnering with the Government

You will be happy to know that your Bank has been closely working with the Government both at the Central and State levels primarily in the following three areas:

1) Digitization and Digital India

a) Ministry of Electronics & Information Technology (MeitY) has ranked your Bank as the Number 1 Bank for supporting many of its initiatives. Your Bank is proud to be one of the few banks that was able to meet the targets in installing Point of Sale (PoS) units, Bharat QR and BHIM app following demonetization.

b) The Bank partnered with Thane city to launch the first one-city-one-card as part of the Smart City initiative. A similar solution has also been created for Panaji Smart City. In Kanpur, a customized mobile app has been created to further support the Smart City initiative. To further the government''s objective to improve urban mobility, your Bank has partnered with various states including Rajasthan and Uttar Pradesh to provide transit cards and payment solutions.

c) Your Bank is working to ensure that funds under a host of schemes including Direct Benefit Transfer (DBT) and Mahatma Gandhi National Rural Employee Guarantee Act reach the intended beneficiaries. Towards this end, it has partnered with various Panchayats across the country for the Public Fund Management System (PFMS). Dedicated teams from the Bank work closely with government authorities and play a critical role by providing real-time, on-ground feedback for refining project architectures. The Bank also enables automation and digitization in various government departments to help improve both time and cost efficiencies. For example, the Bank is developing a technology solution in partnership with a software company to manage the National Health Mission (Madhya Pradesh scheme) more efficiently. It has also been working on various on e-Governance initiatives such as MahaOnline (Maharashtra) and Mee Seva (Andhra Pradesh).

2) Customized Banking Solution for Government Employees

Your Bank has designed a banking package to suit the needs of government employees, at the state and central levels. The offering includes an overdraft secured by their salary account, complimentary insurance covers and fine pricing on loans.

3) Start-Up Fund and Smart Up Banking

Through its Smart Up Programme for Start-ups and Start-Up Fund, your Bank is working with various state governments and incubators / accelerators to promote entrepreneurship. Memoranda of Understanding have already been signed with three state governments to enable execution of varied aspects of their respective start-up policies. Your Bank also works with seven incubators certified by the Department of Science and Technology, including various Indian Institutes of Technology and Indian Institutes of Management, to identify Social Start-ups that require financial and advisory support.

E) Rural

1) Agriculture and Allied Activities

Your Bank''s credit to Agriculture and Allied activities stood at Rs, 1,13,160.6 crore on March 31, 2018, representing an increase of 45.2 per cent over Rs, 77,921.0 crore in the previous year.

Over half of India''s population depends on agriculture for livelihood. The key to the Bank''s success here has been its ability to tap the opportunities herein through the following:

- Wide product range

- Faster turnaround time

- Digital solutions

Our product range includes Pre and Post-Harvest Crop Loans, Two-Wheeler and Auto Loans and Loans against Gold Jewellery, Personal Loans and other mortgage loans. Consequently, the Bank has established a strong footprint in the rural hinterland with Crop Loans. Apart from advising the farmers on their financial needs, your Bank is increasingly focusing on facilitating them on benefits of various government / regulatory schemes such as crop insurance and interest subvention.

The Bank has also designed a range of crop and geography-specific products keeping in mind the harvest cycles and the local needs of farmers spread across diverse agro climatic zones.

Using technology, we are able to disburse some loans within three working days (in select geographies) and loan enhancements in a few seconds through ATMs and mobile phones. Our products such as Post-Harvest Cash Credit and Warehouse Receipt Financing enable faster cash flows to the farmer. Credit is also disbursed to allied agricultural activities such as Dairy, Pisciculture, and Sericulture.

Twelve farmer centres or Kisan Dhan Vikas Kendras have been rolled out in Punjab, Maharashtra, Uttar Pradesh and Madhya Pradesh. At these centres, farmers secure information on soil health, mandi prices, various government initiatives and expert advice. These services are also available on the Bank''s website in vernacular languages. The Bank also provides advisory on weather, cropping, and harvesting through SMS.

Digitizing Payments, Easing Cash Flow: This is our effort to facilitate transparency in the milk procurement and payment process. Under this initiative, Multi-function Terminals (MFTs), popularly known as Milk-to-Money ATMs, are deployed in dairy societies. The MFTs link the milk procurement system of the dairy society to the farmers'' account to enable faster payments. MFTs have cash dispensers that function as standard ATMs. The transparency in the milk collection process, including the quality of milk, benefits both farmers and society. Payments are credited without the difficulties associated with the cash distribution process. What is more, this creates a credit history that can then be used as the basis for accessing bank credit. Apart from Dairy and Cattle Loans, customers gain access to all bank products including digital offerings such as 10 Second Personal Loans, Kisan Credit Card, Bill Pay, and Missed Call Mobile Recharge.

Replacing the Moneylender: Loans against Gold Jewellery grew to over Rs, 5,500 crore from over Rs, 4,800 crore the preceding year. Your Bank is slowly making inroads into a market traditionally dominated by the unorganized sector and pawn brokers. The entry of organized players into the sector has increased both awareness and transparency. The Bank has been able to serve the section of people who would traditionally rely on the moneylender through faster turnaround times.

Helping Farmers: Farm yield and income are subject to the vagaries of the weather. Factors like soil health, input quality (seeds and fertilizers), availability of water and government policy also impact this. So do price realization and storage facilities. Your Bank has launched a variety of products to ease the stress on farm income and rural households.

Over the last few years, several parts of the country have been severely impacted by natural calamities such as drought, unseasonal rains, hailstorms, and floods. Within regulatory guidelines, the Bank has been providing relief to impacted farmers. It also has systems designed to enable Direct Benefit Transfers in a time-bound manner.

Lending to the agriculture sector, including to the small and marginal farmers is a regulatory mandate as part of priority sector lending requirements. This has inherent credit risks. Your Bank has built policies and product programmes and engages closely with farmers to mitigate risks and protect portfolio quality. The Bank is also exploring the use of remote sensing technologies and analytics to strengthen crop and farm level assessment.

2) Micro, Small and Medium Enterprises (MSME)

Advances to the MSME segment as on March 31, 2018 stood at Rs, 89,042.1 crore as against Rs, 85,166.6 crore a year ago. Its advances to the Micro Enterprises alone stood at Rs, 40,644.7 crore. The Emerging Enterprises and Business Banking Groups cater to the Micro Enterprises and SME segments respectively.

The MSME sector serves as an important engine for economic growth. It contributes 33 per cent to IndiaRs,s manufacturing output and 45 per cent to exports. With 12 crore people employed across five crore MSME units, it is the second largest employer after agriculture accounting for 40 per cent of the workforce. This is the fastest growing segment in the commercial lending space and constituted

23 per cent of credit outstanding in the year under review. Credit to Micro Enterprises grew at a faster clip of 20 per cent as against nine per cent for SMEs.

The year ended March 31, 2018 was a challenging one for the MSME business due to the introduction of GST in terms of clarity and compliance. It also led to temporary increase in working capital requirement for customers. GST implementation is seen as a positive in the long run as it is expected to lead to further formalization of the informal sector and thus open up new and safer opportunities for bank financing. Needless to say, in the case of existing firms too, greater transparency will lead to better credit quality.

Implementation of GST, demonetization, the Government push and the advent of the next-generation of entrepreneurs have all driven a steady shift towards digital transactions. In what could be a potential game changer for the business, Your Bank''s complete online solution the SM@Bank for SME customers, is seeing greater customer adoption across geographies. Through this, customers can access credit facility information, request temporary overdraft facilities, ask for new facilities and submit documents to the Bank for straight through processing on a 24*7 basis. This is now poised to gain further momentum. Like in every other business unit, increasing use of analytics is giving your Bank an edge.

3) Taking Banking to the Unbanked

Your Bank is fully committed to taking banking to the remotest parts of the country through the combination of an extensive physical network and a robust digital suite of products and services. Today, over 53 per cent of the Bank''s outlets are located in rural and semi-urban areas. The Bank also offers last mile access through mobile applications such as BHIM, UPI, USSD, Scan and Pay, Aadhaar, and RuPay enabled Micro-ATMs.

To bring more under-banked sections of the population into formal financial channels, your Bank has opened over 17.72 lakh accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and enrolled over 29.37 lakh customers in social security schemes since their inception. We now rank among the leading private sector banks in this regard. In the year under review, loans to the tune of Rs, 6,621.41 crore were extended under the Pradhan Mantri Mudra Yojana (PMMY) and nearly Rs, 134.24 crore under the ‘Stand Up India'' scheme to Scheduled Caste / Scheduled Tribe and women borrowers.

4) Sustainable Livelihood Initiative

This is primarily a social initiative with elements of business. It entails skill training, livelihood financing, and creating market linkages. Further details are provided in the section below on Parivartan.

INTERNATIONAL BUSINESS

As on March 31, 2018, the balance sheet size of this business was US $ 4.13 billion. Advances constituted close to 3.1 per cent of the Bank''s gross advances. The total income of the overseas branches constituted 0.86 per cent of the Bank''s total income for the year. Though the number is small, what is significant is that your Bank is able to cater to a large and growing Indian diaspora.

As you would know, your Bank has overseas branches in Bahrain, Hong Kong, and the Dubai International Finance Centre (DIFC). These branches cater to the needs of our overseas clients both corporate, and individual. They offer Banking, Trade Finance and Wealth Management (primarily for non-resident individual customers). In addition, the Bank has Representative Offices in Abu Dhabi, Dubai and Nairobi.

You will be happy to know that your Bank now has a presence in International Financial Service Centre (IFSC) at GIFT City in Gandhinagar, Gujarat. This unit, which opened in June 2017, is akin to a foreign branch. Customers can avail of products such as Trade Credits, Foreign Currency Term Loans including External Commercial Borrowings (ECB), and derivatives to hedge loans.

NON -BUSINESS OPERATIONS / SOCIAL COMMITMENT

Parivartan - A Step Towards Progress

Parivartan is your Bank''s umbrella brand for all its social initiatives. Parivartan or ‘Change'' as it means in English seeks to bring about change in the lives of people making them self-reliant and part of the national mainstream. Working largely through communities, Parivartan focuses on the following fundamental areas:

- Rural Development

- Skill Training and Livelihood Enhancement

- Promotion of Education

- Healthcare and Hygiene

- Financial Literacy and Inclusion

As noted before, Sustainability is one of your Bank''s core values. Your Bank''s belief is that businesses should support the communities in which they operate. We are happy to report that your Bank, through its several social initiatives (including SLI) has made a difference to the lives of over 3.5 crore Indians.

Rural Development

The Holistic Rural Development Programme (HRDP) is born out of the conviction that the nation will progress only when rural India grows. Over half the country''s population lives in rural areas and is primarily dependent on agriculture for their livelihood. Our efforts here are focused on areas of soil, water and natural resource management and sanitation, issues that rural India is often plagued by. These are often multi-pronged interventions. Soil conservation for instance will typically cover educating people about use of organic fertilizers. Water management will entail construction, renovation and maintenance of water harvesting structures for improving surface and ground water availability. Likewise educating people on renewable energy often forms part of our natural resource management efforts.

Spread over 16 states, the programme covers over 2.9 lakh households across 870 villages. Over 18,000 acres of arable land have been treated to enhance productivity. Umpathaw in Meghalaya, became the 750th village to be covered under the programme in the year under review.

Promoting Education

There is no better gift to humanity than education. Improving the quality of education is a focus area under Parivartan. Your Bank''s efforts in this area include teacher training, scholarships and career guidance. It also includes providing infrastructure support, such as building toilets in schools and improving classrooms. At the community level, this entails educating people on the importance of Water, Sanitation and Hygiene (WaSH) and creating awareness on issues related to road safety and healthy financial practices.

The flagship programme here is Zero Investment Innovations for Education Initiatives (ZIIEI). This ‘Teaching The Teacher'' programme (3T) seeks to transform education in government schools across India. This is a unique programme which is committed to improving the skills of teachers, which in turn benefits the pupils.

This3T programme was launched nationally at Jaipur in Rajasthan during the year under review, after the successful completion of a pilot project in Uttar Pradesh. The Bank is committed to train 15 lakh teachers in 6.2 lakh government schools across 12 states and 1 Union Territory. The project is being executed jointly with a leading non-governmental organization.

Skills Training and Livelihood Enhancement

Formal education remains a dream for lakhs of Indians. Your Bank under Skills Training and Livelihood Enhancement targets people in this section of society in rural India and imparts income generating skills, primarily in agriculture and allied areas such as dairy and poultry. The objective is to help these people And jobs locally, enhance their household income, and prevent migration.

The nationwide programme has benefitted over 51,000 individuals.

The programme also has another leg where placement-linked training is provided to youth and career counseling is provided to young school students. So far over 3,000 have received skill development training.

The flagship programme under Skills Training and Livelihood Enhancement is the Sustainable Livelihood Initiative (SLI).

Sustainable Livelihood Initiative

This initiative aims at ‘Creating Sustainable Communities''. It does so by empowering women and helping them break the vicious circle of poverty. Empowering women, we believe, means empowering families. Women form Self Help Groups (SHGs) or Joint Liability Groups (JLGs). The women under the programme are given occupational skills training, financial literacy, credit counselling and livelihood finance and market linkage. The Bank is mandated by its Board to cover 1 crore households and so far 81.8 lakh have been covered.

It''s a unique programme with perhaps no parallel globally. What makes it so are the following:

1) It''s an all-women programme

2) It covers womenfolk across the length and breadth of a country as vast as India. It is present in 27 states and over 400 districts

3) With 81 lakh women or households (81.8 X 4 = 3.27 crore individuals) impacted, this is one of the world''s largest such programmes

4) Over 9,000 dedicated, passionate Bank employees are running the programme

Healthcare and Hygiene

Your Bank''s initiatives in the area of Healthcare and Hygiene, focusing on both schools as well as the community, have made a substantial difference to the lives of students in rural India.

At the heart of these programmes are community-led sanitation campaigns that promote hygienic conditions in rural areas through appropriate wastewater disposal. These initiatives are supplemented by construction of toilets and provision of clean drinking water. Over 16,521 households and 924 schools in rural India have been covered under the toilet programme so far.

Your Bank also organizes health camps, nutrition programmes, and vaccination drives. The flagship programme under this pillar is the Annual Blood Donation Drive.

In the 11th edition in 2017, your Bank collected 2.2 lakh units of blood in a single day. This was almost 30 per cent higher than the previous year.

What started off as a small initiative in 2007 with the participation of just 4,000 volunteers has now grown into a movement where

2.5 lakh people from all walks of life participated. This included those from schools, colleges, employees of private and public sector, both State and Central Governments and the defence establishment.

While bank employees are central to this effort, of the 3,045 camps held across the country, a majority were held offsite. Almost 1,100 camps in colleges and 475 in companies.

Financial Literacy

Financial literacy is the first step towards real financial inclusion. Lakhs of people have learnt about the fundamentals of savings, investment and organised finance from financial literacy camps conducted by the Bank at its banking outlets as well as financial literacy centres across the country.

This is a multi-pronged programme where literacy is imparted at branches, through business units as well as through its NGO partners. Over 19 lakh participants have benefitted in the year under review.

The flagship scheme under this pillar is Digidhan.

Modelled on the Bank''s financial literacy-on-wheels programme

- Dhanchayat, Digidhan, criss-crosses the length and breadth of the country''s hinterland explaining the benefits of digital banking. The medium is through film and the location is often high-footfall pockets such as bazaars, mandis and bus-stands.

The Bank is fully compliant with the requirements of the Companies Act 2013, having spent '' 374 crore on CSR and emerging as one of the highest spenders in this space in India.

The disclosures pertaining to CSR as required under Rule 8 of the Companies (Accounts) Rules, 2014 have been given in ANNEXURE 2 to this report.

Environmental Sustainability

Maintaining a balance between natural capital and communities is now integral to our functioning.

Towards this end, our ATMs have gone paperless, enabling a reduction of the carbon footprint. The Bank has given this effort a further fillip by ensuring multi-channel delivery through Net

Banking, Phone Banking, and Mobile Banking. This results in lower carbon emission not just from operations but also from reduced customer travel. Another source for reducing the environmental footprint is solar ATMs, which use rechargeable lithium ion batteries that reduce power consumption.

BUSINESS ENABLERS

1) People, Culture, Integrity and Ethics

‘People'' is one of your Bank''s Core Values. It is extremely proud of them, the integrity and ethics that they demonstrate and, indeed, the culture that promotes these values. This culture ensures that the people with the right values are hired, groomed and encouraged. The Bank has an institutionalized, well-documented code of conduct, which every employee has to affirm annually.

The five pillars of our People strategy are as follows:

Recruitment: Recruiting the right talent isn''t enough anymore in an industry like banking. What is critical is recruiting and deploying them fast. Your Bank has an agile hiring mechanism that ensures this. This often entails leveraging online portals and new age channels like social media. Campus hiring and internship programs enable us to expand the hiring base further.

The Bank has also started scaling up on a digital job-ready model to attain scale and quality. The Bank also has a battery of assessment tools, like AMCAT, Assesshub and Talview to strengthen its selection process.

Career Management: Core to your Bank''s career philosophy is to create opportunities for employees to develop and grow. The systematic investment of time in career discussion with employees, competency assessment and intensive functional and behavioral training, through Gurukul our in-house programme, are also aimed at achieving that result. The Bank also facilitates inter-departmental job switches to employees to help them stay motivated, productive and happy.

Employee Engagement: Employee engagement has two planks, namely events and fun learning. The events are conducted at both local and national levels. While most of these events are open to employees, some are meant for families as well.

These are some of the popular events:

1. Josh Unlimited: Pan-India sports event conducted in 29 cities, covering a population of more than 60,000 employees

2. Stepathlon: An Employee wellness initiative which witnessed participation of more than 550 employees

3. Hunar: Pan-India in-house talent competition

4. HDFC Bank Voice Hunt Contest: Talent search in association with Shankar Mahadevan Academy

5. Corporate Photography Contest: An inter-corporate event.

6. Xpressions: Pan-India in-house drawing competition for the employees and their children

7. Corporate Online Library: A knowledge resource available to all employees for accessing nearly 1.5 lakh books

On the learning side, ‘Kwiz Kat'', is a Banking quiz competition open to all employees. ‘There is also the Learning Fest’, which focuses on sharpening employee skills on subjects such as Happy Parenting, Magical Marriages, Health and Fitness, Financial Planning and Team Building. Each of these work on the tenet that “If you manage your team at home, you can manage your team at the office.” This is, of course, backed up by formal training.

Training and Development: Training plans for businesses are developed based on needs identified in consultation with the business leaders. An extensive bouquet of training programmes are delivered, covering on-boarding, product and process training, advanced programmes and behavioral training. The on-boarding training ensures that new employees are trained comprehensively and equipped with necessary know-how, as well as functional and behavioral skills required for the role.

The product training and advanced programmes enable skill development, regular updates and build expertise. The training methodology has evolved to application based training including simulations, case studies, and games. Leveraging technology, many of the class room programmes are now being delivered online. The role-specific learning plan ensures effective use of blended learning method. The accent has now shifted to online training supplemented by offline support. In addition to this, to ensure that employees are assisted on the job, there is a help-line ‘Ask the Trainers'' which responds to any clarification on a banking query within

24 hours of its initiation.

Rewards and Recognition: The Rewards and Recognition programs of the Bank is based on a sound performance management system. Your Bank has a pay-for-performance culture based on meritocracy. There is equal emphasis on recognition as well. Extraordinary commitment towards work is rewarded. So is at times going beyond the call of duty. ICON Awards was launched this year to recognize employees for demonstrating individual, leadership and collaborative excellence in driving customer focus and operational excellence.

2) Digital Innovation

Innovation is the common thread that runs through the multiple businesses and functions in the Bank. Besides products, it manifests itself at levels of concepts and ideas. A testament to this is the fact that more than 85 per cent of the transactions in the year under review occurred over the Internet and Mobile. The Bank''s engagement with start-ups and fin techs moved to the next level through the ‘Industry Academia Initiative'', which helps in mentoring them. The annual Digital Innovation Summit, continues to generate interest among the start-up community and benefits the Bank through useful solutions.

The Bank''s focus on leveraging Artificial Intelligence (AI) and Machine Learning (ML) has started yielding results. Eva, the virtual assistant on the Bank''s website; and Bank on Chat, the bank''s Face book Messenger chat bot, have elicited encouraging response from customers. For instance, Eva handled over 30 lakh queries on the website with an accuracy ratio of over 85 per cent. In just 12 months, the Face book app garnered over three lakh users, who used it for making bill payments, movie / travel bookings and mobile recharges.

To encourage digital payments, your Bank has launched all-in-one DigiPoS machines that enable UPI, Bharat QR, SMS, and PayZapp transactions on a single machine.

Another innovative product the Bank has launched is the SmartHub, an umbrella digital platform for online payments to government departments, educational institutions and small merchants.

Your Bank also introduced an Instant credit card, which is issued electronically within an hour and can be used by the customer to make purchases online. Over three lakh Instant credit cards were issued during the year.

In the unsecured loan segment, the Bank''s digital acquisition solution, 10 seconds loans, continued to delight customers. To further enhance the customer experience and improve cost management, the Bank is now developing a platform for end-to-end digital acquisition of business.

Your Bank has the distinction of being the first bank in the country to introduce Digital Loan Against Shares (LAS). In the automobile segment customers continued to buy cars and two-wheelers through online services such as Zip Drive and Quick Money.

To sum up, the year under review has seen ample demonstration of ‘Go Digital, Bank Aapki Muththi Mein’ strategy. Innovation is now embedded in the DNA of your Bank with digital innovation emerging as the prime driver across businesses.

3) Information Technology

In the technology space, your Bank is considered a leader. Both in terms of being able to identify the right technology solutions for the business and deploying them in a timely manner to create customer experience. The 10-second Personal Loan is a case in point. Missed call banking is another. These products were not only industry firsts but have also gone on to become extremely popular with customers.

In the year under review, your Bank has gone further with the implementation of an Open API based Service Oriented Architecture Middleware platform. This enables different systems to talk to each other and thus ensures a seamless flow of information. In the Bank''s context it facilitates over 2.5 crore digital banking transactions from its mobility and online platforms such as PayZapp Wallet, Smart Buy market place, enhanced Mobile Banking App and a dedicated Retail Lending App named Loan Assist.

Another important development in the year under review has been the Digital Application (DAP) Platform which brings together process, digital technologies and lifecycle management efficiencies to deliver a better customer experience. This has seen a huge shift to digital channels be it applying for loans, credit cards or overdraft facilities. Over 95 per cent of the branch retail origination is now powered by DAP. Linkages for this have been established with search engines and fin techs.

This has been further supplemented with an assisted Savings Bank account opening App in the branch which relationship managers use to open digital savings accounts. The volumes have been doubling every month since the launch in the third quarter of the year under review.

The other important innovations in the year under review have been:

1) A four click process for ‘Do Your Own Loan Against Shares''

2) Creating a real time overdraft with Digital Loan Against Mutual Funds on a 24*7 basis through the bank''s website

3) Offering digital consumer loans

4) Tying up with social media platforms, e-commerce portals, and traditional retail stores to facilitate ordering products online.

5) Reducing turnaround time for first time borrowers

6) Lowering transaction costs in Trade On Net / Trade Finance through an API based application form filling process

7) Using Artificial Intelligence and Neural Networks based deep learning ability to give stronger teeth to its Card Payment Fraud Detection ability

8) Implementing a state-of-the-art Core Banking System for both Retail and Wholesale Banking to process 4.5 crore transactions daily in an accurate, speedy and secure manner.

4) Cyber Security

Your Bank has an effective framework in place to manage cyber security. This encompasses requisite manpower, machine and training. The Chief Information Security Officer (CISO) is the person who is overall responsible for this. There is also a committee of the Board which dedicatedly looks into cyber security issues and preparedness.

In the year under review, the Bank has enhanced its cyber security protocol by constituting a RED Team. The RED team is a designated group of individuals that test the security posture of the organization. The Bank also widened coverage of Security Incident and Event Management (SIEM), which provides a comprehensive and centralized view of the security scenario of IT infrastructure. Deception Technology Solution was deployed to detect, analyse and defend against advanced attacks often in real-time. In the case of your Bank, it also covers emails and endpoints, besides the network.

Firewalls have been upgraded to Next Generation with deep packet inspection (DPI) ability. DPI analyses ‘packets'' which are nothing but parcels of digital information transmitted across the web in a formatted piece of structured data. Protection against malware, ransom ware and denial of service attacks have been strengthened further.

Regular tests to assess the vulnerability of the IT infrastructure and applications and remedy where necessary are routine. As are anti-phishing services that help in shutting down phishing sites and protecting the customers from fraud. Risk engine and transaction monitoring systems monitor suspicious transactions on Internet Banking, ATM and e-commerce channels.

The Bank has PCI DSS 3.0 and ISO 27001 certifications. PCI DSS is a proprietary information security standard for organizations that handle credit card information and transactions. It is meant to increase controls around cardholder data to reduce fraud. In layman''s terms the certification is an assurance that your Bank''s card customers enjoy a very high level of safety while transacting with it. The ISO 27001 certification pertains to best practices with respect to information security.

On building awareness your bank has a regular programme for both employees and customers.

5) Service Quality Initiatives and Grievance Redressal

Your Bank has various lines of businesses. In a highly competitive environment, ensuring product quality, and service delivery is vital for business growth. The Bank seeks to achieve this by regularly reviewing service levels and capturing feedback from customers.

Moreover, in line with regulatory norms, the Bank has constituted three committees at different levels to monitor customer service - Branch Level Customer Service Committees, Standing Committee on Customer Service and Customer Service Committee of the Board.

Against the backdrop of increasing digital frauds, RBI issued a circular during the year on ‘Customer Protection

- Limiting Liability of Customers in Unauthorised Electronic Banking Transactions.'' In it, RBI defined customer liability clearly so that customers feel secure while conducting digital transactions. The regulator also mandated banks to formulate a Board Approved Customer Protection Policy. Accordingly, your Bank has fortified its existing processes. It is also augmenting its training and skill development mechanism to empower employees to boost service quality.

As a part of its efforts to enhance service quality, the Bank undertakes mystery shopping across branches and retail asset centres to continuously evaluate regulatory compliance, process adherence and quality of service delivery. The effectiveness is reviewed periodically at different levels including the Customer Service Committee of the Board. Lean and Six Sigma methodologies are used to improve processes.

In addition to the aforementioned measures, in compliance with regulatory guidelines, your Bank has appointed a senior retired banker as Internal Ombudsman. Our sustained efforts to improve service delivery have been noted and the Bank has received written appreciation from many Banking Ombudsmen appointed by RBI across locations such as Andhra Pradesh, Gujarat, Kerala and Lakshadweep, Punjab, Rajasthan, Tamil Nadu, Puducherry, West Bengal and Sikkim.

CHECKS, BALANCES AND REPORTING I. Risk Management and Portfolio Quality

The Bank is exposed to risk by the very nature of its business. The key risks are Credit Risk, Market Risk, Liquidity Risk and Operational Risk. These risks not only have a bearing on the Bank''s financial strength and operations but also its reputation. Keeping this in mind, your Bank has put in place a Board approved risk strategy and policy whose implementation is supervised by the Board''s Risk Policy and Monitoring Committee (RPMC). The committee periodically reviews risk levels and direction, portfolio composition, status of impaired credits and limits for treasury operations.

The hallmark of the Bank''s risk management process function is its independence, with credit decisions being made by a credit underwriting vertical.

The gamut of risks faced by the Bank which are dimensioned and managed include

- Credit Risk including Residual Risks

- Credit Concentration Risk

- Market Risk

- Business Risk

- Operational Risk

- Strategic Risk

- Interest Rate Risk in the Banking Book

- Compliance Risk

- Liquidity Risk

- Reputation Risk

- Intraday Risk

- Model Risk

- Technology Risk

- Counterparty Credit Risk

- Outsourcing Risk Credit Risk

This is the risk of loss arising from a default and is, therefore, also known as default risk. Your Bank has distinct policies and processes for managing credit risk in both its retail and wholesale businesses. Wholesale lending is managed on an individual as well as portfolio basis. By contrast, retail lending, given the granularity of individual exposures, is managed largely on a portfolio basis across various products and customer segments. For both categories there are robust front-end and back-end systems in place to ensure credit quality and minimize loss from default.

The factors considered while sanctioning retail loans include income, demographics, previous credit history of the borrower and the tenor of the loan. In wholesale loans, credit risk is managed by capping exposures on the basis of borrower group / industry / credit rating grades and country. This is backed by portfolio diversification, stringent credit approval processes and periodic post-disbursement monitoring / remedial measures.

Your Bank has been able to ensure strong asset quality even in an otherwise challenging business environment by stringently adhering to the aforementioned norms and institutionalizing processes.

As on March 31, 2018, your Bank''s ratio of Gross Non-Performing Assets (GNPAs) to gross advances was 1.30 per cent. Net Non-Performing Assets (Gross Non-Performing Assets Less Specific Loan Loss provisions) was 0.4 per cent of Net Advances. Total restructured assets (including applications under process for restructuring) was 0.24 per cent of gross advances.

The Bank has a conservative and prudent policy for specific provisions on NPAs. It provides more towards NPAs than the minimum regulatory requirements even while adhering to regulatory norms for the provision of Standard Assets.

Digital Lending and Credit Risk

Driven by rapid advances in technology, digitization is increasingly becoming a key differentiator of customer retention and service delivery in the banking sector. Digital lending enables customers to secure loans at the click of a button in a matter of minutes, if not seconds. However, there are also attendant risks associated with it and your Bank has put in place appropriate checks and balances to manage these risks. Such loans are sanctioned primarily to the Bank''s pre-existing customers. Often, these clients are customers across multiple products so their credit history and risk profile is already known. This makes it possible to evaluate and decide on their fresh requirements almost instantly. Besides, most of the credit checks and scores used by the Bank in traditional process underwriting are replicated in digital loans. Finally, the Bank has an independent model validation unit that minutely assesses the models used to generate the credit scores for such loans. These models are monitored, reviewed periodically and back-tested; and corrective action is taken whenever needed.

Market Risk

Market risk arises largely from the Bank''s statutory reserve management and trading activity and is managed through a well-defined Board-approved Investment Policy and Market Risk Policy that caps risk in different trading desks or various securities through trading risk limits / triggers. These include position limits, gap limits, tenor restrictions, sensitivity limits, namely, PV01, Modified Duration of Hold To Maturity Portfolio and Option Greeks, Value-at-Risk (VaR) Limit, Stop Loss Trigger Level (SLTL) and Potential Loss Trigger Level (PLTL). This is supplemented by a Board approved stress testing policy and framework that simulates various market risk scenarios to measure losses and initiate remedial measures.

Liquidity Risk

Liquidity Risk is the risk that a bank may not be able to meet its short term financial obligations due to an asset—liability mismatch or interest rate fluctuations.

Your Bank''s framework for liquidity and interest rate risk management is spelt out in its Asset Liquidity-Management policy that is implemented, monitored and periodically reviewed by the Asset Liability Committee (ALCO). As a part of this process, the

Bank has established various Board approved limits to mitigate both liquidity and interest risks. While the maturity gap and stock ratio limits help manage liquidity risk, the income and market value impacts help mitigate interest rate risk. This is reinforced by a comprehensive Board approved stress testing programme covering both liquidity and interest rate risk.

The Liquidity Coverage Ratio (LCR) is a global minimum standard used to measure a bank''s liquidity position. LCR seeks to ensure that the Bank has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be converted into cash easily and immediately to meet its liquidity needs under a 30-day calendar liquidity stress scenario. Based on Basel III norms, RBI has mandated a minimum LCR of 80 per cent on January 1, 2017; that limit progressively increases by 10 percentage points each year to 100 per cent on January 1, 2019. Your Bank''s LCR stood at 104.5 per cent on a consolidated basis for the year ended March 31, 2018.

Operational Risk

This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Given below is a detailed explanation under four different heads: Framework and Process, Internal Control, Information Technology and Security Practices and Fraud Monitoring and Control.

1) Framework and Process

To manage operational risks, the Bank has in place a comprehensive and operational risk management framework, whose implementation is supervised by the Operational Risk Management Committee (ORMC) and reviewed by the RPMC of the Board. An independent Operational Risk Management Department (ORMD) implements the framework.

Under the framework, the Bank has three lines of defence. The first layer of protection is provided by the Business line (including support and operations) management. These managers are primarily responsible for not only managing operational risk on a daily basis, but also for maintaining strict internal controls, designing and implementing internal control-related policies and procedures.

The second line of defence is the ORMD, which develops and implements policies, procedures, tools and techniques to assess and monitor the adequacy and effectiveness of the Bank''s internal controls.

Internal Audit is the last line of defence. The team reviews the effectiveness of governance, risk management, and internal controls within the Bank.

2) Internal Control

Your Bank has implemented sound internal control practices across all processes, units and functions. The Bank has well laid down policies and processes for management of its day-to-day activities. The Bank follows established, well-designed controls, which include traditional four eye principles, effective separation of functions, segregation of duties, call back processes, reconciliation, exception reporting and periodic MIS. Specialized risk control units function in risk prone products / functions to minimize operational risk. Controls are tested as part of the SOX control testing framework.

3) Information Technology and Security Practices

The Bank operates in a highly automated environment and makes use of the latest technologies to support various operations. This throws up operational risks such as business disruption, risks related to information assets, data security, integrity, reliability and availability amongst others. The Bank has put in a governance framework, information security practices and business continuity plan to mitigate information technology related risks. An independent assurance team within Internal Audit provides assurance on the management of information technology related risks.

The Bank has a robust Business Continuity and Disaster Recovery plan that is periodically tested to ensure that it can meet any operational contingencies. There is an independent Information Security Group that addresses information security related risks. A well-documented Board approved information security policy is put in place. In addition, employees mandatorily periodically undergo information security training and sensitization exercises.

4) Fraud Monitoring and Control

The Bank has put in a whistle blower policy, and a central vigilance team oversees implementation of fraud prevention measures. Frauds are investigated to identify the root cause and relevant corrective steps are taken to prevent recurrence. Fraud prevention committees at the senior management and board level also deliberate on material fraud events and initiate preventive action. Periodic reports are submitted to the Board and senior management committees.

Compliance Risk

Compliance Risk is defined as the risk of impairment of your Bank''s integrity, leading to damage to its reputation, legal or regulatory sanctions, or financial loss, as a result of a failure (or perceived failure) to comply with applicable laws, regulations and standards. The Bank has a Compliance Policy to ensure highest standards of compliance. A dedicated team of subject matter experts in the Compliance department work with Business and Operations Teams to ensure active compliance risk management and monitoring. They also provide advisory services on regulatory matters. The focus is on identifying and reducing risk by rigorously testing products and also putting in place robust internal policies. Products that adhere to regulatory norms are tested after rollout, and shortcomings, if any, are fully addressed till the product stabilizes on its own. Internal policies are reviewed regularly and updated as and when regulators issue fresh instructions. The Compliance team also seeks regular feedback on regulatory compliance from Product, Business and Operation teams through self-certifications and monitoring.

ICAAP

The Bank has a structured management framework in the Internal Capital Adequacy Assessment Process (ICAAP) to identify, access and manage all risks that may have a material adverse impact on its business / financial position / capital adequacy. The ICAAP framework is guided by the Bank''s Board approved ICAAP Policy. Additionally, the Board approved Stress Testing Policy and Framework entails the use of various techniques to assess potential vulnerability to extreme but plausible stressed business conditions. Changes in the Bank''s risk levels and in the on / off balance sheet positions are assessed under such assumed scenarios using sensitivity factors that generally relate to their impact on profitability and capital adequacy.

Group Risk

Your Bank has two subsidiaries, HDB Financial Services Ltd and HDFC Securities Ltd. The Boards of each subsidiary is responsible for managing their respective risks (credit risk, market risk, operational risk, liquidity risk, reputation risk etc.) within the ICAAP framework. Stress testing for the group as a whole is carried out by integrating the stress tests of the subsidiaries. Similarly, capital adequacy projections are formulated for the group after incorporating the business / capital plans of the subsidiaries.

II. Implementation of Indian Accounting Standards (IND-AS)

The Ministry of Corporate Affairs, in its press release dated January 18, 2016, had issued a roadmap for implementation of Indian Accounting Standards (IND-AS) for scheduled commercial banks, insurers / insurance companies and non-banking financial companies. This roadmap required these institutions to prepare IND-AS based financial statements for the accounting periods beginning from April 1, 2018 onwards with comparatives for the periods beginning April 1, 2017 and thereafter. The Reserve Bank of India (RBI), vide its circular dated February 11, 2016 required all scheduled commercial banks to comply with the Indian Accounting Standards (IND-AS) for financial statements for the periods stated above. The RBI did not permit banks to adopt IND-AS earlier than the timelines stated above. The said guidelines also state that RBI shall issue necessary instructions / guidance / clarifications on the relevant aspects for implementation of IND-AS as and when required.

Your Bank formed a steering committee comprising members from cross-functional areas for the purpose of implementation oversight. Under the guidance of the steering committee, the Bank formed working groups, including external consultants, dedicated to specific functional areas. The objective of these working groups was to undertake a review of the diagnostic analysis of the differences between the current accounting framework and IND-AS, review the accounting policy options provided under IND-AS 101-First Time Adoption, determine the methodologies for each accounting treatment, finalist process and system changes, review and update policies and incorporate in business planning any specific action points over the transition period. In addition, the Audit Committee of the Board of Directors oversees the progress of the IND-AS implementation process.

The Bank has undertaken a diagnostic analysis of the differences between the current accounting framework and IND-AS, including the disclosure requirements. Your Bank has reviewed the accounting policy options provided under IND-AS including the preparation of draft accounting policies under IND-AS subject to any RBI guidelines in this regard. The Bank has evaluated the systems requiring significant changes and identified additional system and process requirements for implementation of IND-AS. The Bank is engaging with vendors for technology solutions for implementation of IND-AS. The Bank has also undertaken training programs for its personnel in business and support functions.

The implementation of IND-AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant accounting impact on the application of IND-AS are summarized below:

1) Financial assets (which include advances and investments) shall be classified under amortized cost, fair value through other comprehensive income (a component of Reserves and Surplus) or fair value through profit / loss categories on the basis of the nature of the cash flows and the intention of holding the financial assets.

2) Interest will be recognized in the income statement using the effective interest method, whereby the coupon, fees net of transaction costs and all other premiums or discounts will be amortized over the life of the financial instrument.

3) Stock options will be required to be fair valued on the date of grant and be recognized as staff expense in the income statement over the vesting period of the stock options.

4) The impairment requirements of IND-AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the extant framework. The Bank will be generally required to recognize either a 12-Month or

Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. IND-AS 109 will change the Bank''s current methodology for calculating the provision for standard assets and non-performing assets (NPAs). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accounted for at amortized cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition:

Stage 1: 12 Months ECL

For exposures which have not been assessed as credit-impaired or where there has not been a significant increase in credit risk since initial recognition, the portion of the ECL associated with the probability of default events occurring within the next twelve months will need to be recognized.

Stage 2: Lifetime ECL - Not Credit Impaired

For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL will need to be recognized.

Stage 3: Lifetime ECL - Credit Impaired

Financial assets will be assessed as credit impaired when one or more events having a detrimental impact on the estimated future cash flows of that asset have occurred. For financial assets that have become credit impaired, a lifetime ECL will need to be recognized.

Interest revenue will be recognized at the original effective interest rate applied on the gross carrying amount for assets falling under stages 1 and 2 and on written down amount for the assets falling under stage 3.

5) Accounting impact on the application of IND-AS at the transition date shall be recognized in Equity (Reserves and Surplus).

The implementation of IND-AS by banks requires certain legislative changes in the format of financial statements to comply with disclosures required by IND-AS. The change in format requires an amendment to the third schedule of the Banking Regulation Act, 1949 to make it compatible with the presentation of financial statements under IND-AS. The RBI would issue necessary instructions / guidelines and clarifications to facilitate the implementation of the new accounting standards. Considering the amendments needed to the Banking Regulation Act, 1949, as well as the level of preparedness of several banks, the RBI vide its Statement on Developmental and Regulatory

Policies dated April 5, 2018 deferred the implementation of IND-AS by one year by when the necessary legislative amendments are expected. Scheduled commercial banks in India will now be required to prepare IND-AS based financial statements for the accounting periods beginning from April 1, 2019 onwards with comparatives for the periods beginning April 1, 2018.

III. Internal Controls, Audit and Compliance

The Bank has put in place extensive internal controls and processes to mitigate operational risks, including centralized operations and ‘segregation of duty'' between the front office, mid-office and back office. The front-office units usually act as customer touch-points and sales and service outlets. The entire processing, accounting and settlement of transactions is carried out by the back-office in the bank''s Core banking system. The policy framework, definition and monitoring of limits is carried out by various mid-office and risk management functions. The credit sanctioning and debt management units are also segregated and do not have any sales and operations responsibilities.

The Bank has set up various executive-level committees, having participation from various business and control functions, that are designed to review and oversee matters pertaining to capital, assets and liabilities, business practices and customer service, operational risk, information security, business continuity planning and internal risk-based supervision amongst others. The control functions set standards and lay down policies and procedures by which the business functions manage risks including compliance with applicable laws, compliance with regulatory guidelines, adherence to operational controls and relevant standards of conduct.

At the ground-level, the Bank has a mix of preventive and detective controls implemented through systems and processes ensuring a robust framework in the Bank to enable correct and complete accounting, identification of outliers (if any) by the Management on a timely basis for corrective action and mitigate operational risks.

The Bank has various Preventive controls viz, (a) Limited and need-based access to systems by users, (b) Dual custody over cash and near-cash items (c) Segregation of duty in processing of transactions vis-a-vis creation of user IDs

(d) Segregation of duty in processing of transactions vis-a-vis monitoring and review of transactions / reconciliation

(e) Four eye-principle (maker-checker control) for processing of transactions (f) Stringent password policy (g) Booking of transactions in Core Banking system mandates the earmarking of line / limit (fund as well as non-fund based) assigned to the customer (h) STP processes between Core Banking system and payment interface systems for transmission of messages (h) Additional authorization leg in payment interface systems in applicable cases (i) Audit logs directly extracted from systems (j) Empowerment grid.

The Bank also has detective controls in place viz,

(a) Periodic review of user IDs (b) Post transaction monitoring at the back-end by way of call back process (through daily log reports) by an independent person i.e.to ascertain that entries in the core-banking system / messages in payment interface systems are based on valid / authorized transactions and customer requests. (c) Daily tally of cash and near-cash items at End of day. (d) Reconciliation of Nostro accounts (by an independent team) to ascertain and match-off the Nostro credits and debits (External or Internal) regularly to avoid / identify any unreconciled / unmatched entries passing through the system (e) Reconciliation of all Suspense accounts and establishment of responsibility in case of out standings (f) Independent and surprise checks periodically by Supervisors.

Your Bank has an Internal Audit department which is responsible for independently evaluating the adequacy and effectiveness of all internal controls, risk management, governance systems and processes and is manned by appropriately qualified personnel.

This department adopts a risk based audit approach and carries out audits across various businesses that is Retail, Wholesale and Treasury (for India and Overseas books), audit of Operations units, Management Audits, Information Security Audit, Revenue Audit and Concurrent Audit in order to independently evaluate the adequacy and effectiveness of internal controls on an ongoing basis and pro-actively recommending enhancements thereof. The Internal Audit department during the course of audit also ascertains the extent of adherence to regulatory guidelines, legal requirements and operational processes and provides timely feedback to the Management for corrective action. A strong oversight on the operations is also kept through off-site monitoring.

The Internal Audit department also independently reviews the Bank''s implementation of Internal Rating Based (IRB) approach for calculation of capital charge for Credit Risk, the appropriateness of Bank''s Internal Capital Adequacy Assessment Process (ICAAP), as well as evaluates the quality and comprehensiveness of the Bank''s disaster recovery and business continuity plans and also carries out Management self-assessment of adequacy of the Bank''s internal financial controls and operating effectiveness of such controls in terms of Sarbanes Oxley (SOX) Act and Companies Act, 2013.

Any new product / process introduced in the Bank is reviewed by Compliance function in order to ensure adherence to regulatory guidelines and also by Internal Audit from the perspective of existence of internal controls. The Audit function also pro-actively recommends improvements in operational processes and service quality wherever deemed fit.

To ensure independence, the Internal Audit function has a reporting line to the Chairman of the Audit Committee of the Board and a dotted line reporting to the Managing Director.

The Compliance function independently tracks, reviews and ensures compliance to regulatory guidelines and promotes a compliance culture in the Bank.

The Bank has a comprehensive Know Your Customer, Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) policy (based on the RBI guidelines I provisions of the Prevention of Money Laundering Act, 2002) incorporating the key elements of Customer Acceptance policy, Risk Management, Customer Identification Procedures and Monitoring of Transactions. The policy, duly approved by the Board is subjected to review annually.

The Bank has taken significant measures in developing and enhancing an effective and sustainable KYC AML and CFT Compliance Programme. The adherence to the guidelines prescribed in the policy is monitored by the Bank at various stages of the customer life-cycle. Bank has robust controls in place to ensure adherence to the KYC guidelines at the time of account opening. The Bank also has a continuous review process in the form of transaction monitoring including a dedicated AML CFT monitoring team, which carries out extensive transaction reviews for identification of suspicious patterns / trends which acts as an early warning signal for the Bank to carry out enhanced due diligence and appropriate action thereafter. The status of adherence to the KYC, AML and CFT guidelines is also placed before the Audit Committee of the Board for their review at quarterly intervals.

The AML team undergoes regular training both in-house and external on a continuous basis in order to equip the team with the necessary know-how and expertise to carry out the function.

The Audit Committee of the Board reviews the effectiveness of controls, compliance to regulatory guidelines as also the performance of the Audit and Compliance functions in the Bank and provides direction wherever deemed fit.

Your Bank has always adhered to the highest standards of compliance and has put in place appropriate controls and risk measurement and risk management tools in order to ensure a robust compliance and governance structure.

IV. Responsible Financing

Your Bank is committed to Responsible Financing and refrains from funding projects that have an adverse impact on Environment, Health and Safety (EHS). EHS is an integral part of the bank''s overall credit risk assessment and monitorin

process. Every project funded has to pass the Bank''s muster in terms of the EHS risk it entails, potential impact and mitigation measures in place or proposed.

The key aspects of the assessment process are:

- For all loans exceeding Rs, 10 crore in amount and five years in tenure, borrowers have to submit a declaration of compliance with EHS norms.

- In select large-ticket projects, the Bank appoints a Lender''s Independent Engineer (LIE) who conducts due diligence across several parameters including EHS. The findings of the LIE''s assessment report are then discussed with the client to ensure compliance.

- The LIE regularly monitors such projects during the construction period through site visits and reports progress which includes status of approvals and relief and rehabilitation measures undertaken. Your Bank officials also conduct independent site inspections from time to time to ensure that the project is progressing to the Bank''s satisfaction.

- After the project becomes operational, the borrower has to submit an annual declaration of compliance with various national laws including those related to EHS. This is also followed up by onsite visits of bank executives.

The Bank deals with the client primarily through its Relationship Manager (RM). The RM has to report compliance with EHS norms in the Credit Assessment Memorandum (CAM) both at the time of initial sanction and during the monitoring process. Such certification is based on information / disclosures provided by the borrower at the time of initial appraisal and during periodic review of the facilities.

The RM records outstanding EHS issues if any and follows them up with the client for prompt resolution. The Bank levies penal interest in case of deviations and, thus, ensures compliance with the agreed EHS norms. If there are significant deviations that could affect the viability of the project, the Bank reserves the right to either reduce its exposure or recall the loan. Most significantly, your Bank, as part of its credit policy, requires all projects perceived as carrying high or unusual EHS risk to be approved by an authority no less than the Head - Wholesale Credit Risk or Chief Risk Officer or the Deputy Managing Director or the Managing Director as the case may be.

V. Integrated Reporting (IR)

Your Bank has been releasing Sustainability Reports in line with Global Reporting Initiative (GRI) framework. From the current year, your Bank has started work on Integrated Reporting (IR).

IR aims at providing investors a compact communication about how strategy, governance, performance and prospect create value over time. IR today is a growing trend globally providing investors and interested stakeholders relevant information that an investor will find useful in making his investment decision.

As a leading responsible Indian corporation, it was only appropriate that we took the lead in this regard. Towards this end, the Bank has identified its value created for its stakeholders. Aspects identified as relevant for the Bank, under the capital heads are discussed below.

Financial Capital: This capital refers to the pool of funds used by the Bank for providing its services. This also covers funds received through financing or generated through operations. Financial Capital covers Revenue, Profit After Tax, Earnings Per Share, Lending Portfolio and CSR Spend amongst others.

Manufactured Capital: This capital is an aggregation of all physical assets used by the Bank for delivering its products and services or are created by it. This includes Branch Network, IT Infrastructure, IT Security, Infrastructure Development through Portfolio and Infrastructure Development through CSR Projects.

Intellectual Capital: This capital covers the knowledge-based intangibles of the Bank, which help it gain competitive advantage. This capital also includes the initiatives of the Bank for improving financial inclusion. This capital can be substantiated by products for every section of the society, service orientation, risk management, innovation and digitization approach, skilling communities through CSR, financial inclusion initiatives, etc.

Human Capital: This capital refers to the motivation, commitment and competency of the Bank''s employees. This reflects in employee retention rates, employee diversity, training, appraisals and career guidance, compensation and benefits, grievance redressal, community skilling through CSR Projects. Also for the Bank, this capital covers the empowerment of communities.

Social and Relationship Capital: This capital covers the approach adopted by the Bank for developing and maintaining its relationship with multiple institutions and stakeholders. The Bank''s performance on this capital can be understood through the processes of stakeholder engagement, employee satisfaction, customer satisfaction, compliance, CSR engagements, etc.

Natural Capital: This capital refers to the environmental resources used by the Bank for delivering its products and services. The impact of this capital can be understood through energy consumption (fuel / electricity), energy efficiency / conservation, CO2 emissions, paper consumption, waste management, environmental impact of project portfolio.

The elaborate discussion on the process and outcomes of Integrated Reporting will be discussed in the upcoming Sustainability Report. In the coming years, the Bank will Endeavour to augment its integrated approach towards delivering value to stakeholders.

Subsidiary Companies

Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC Securities Limited (HSL). HDBFSL is a major NBFC that caters primarily to segments not covered by the Bank while HSL is among India''s largest retail broking firms. The detailed financial performance of the companies is given below.

1) HDB Financial Services Limited - Reimagining Opportunities

HDBFSLs Net Interest Income grew by 36.9 per cent to Rs, 2,788.9 crore for the year ended March 31, 2018 from Rs, 2,037.2 crore in the previous year. Net Profit rose 39.1 per cent to Rs, 951.7 crore from Rs, 684.2 crore. Net NPA levels stood at about one per cent.

The company caters to the growing needs of an inspirational India, serving both retail and commercial clients through a network of 1,165 branches across 831 cities / towns. Using a convergence of physical and digital channels enabled by a digital backbone, it offers financial solutions to individuals, micro enterprises and emerging businesses across manufacturing, trading and services sectors.

With a robust risk management framework backed by technology, distribution and human capital, HDBFSL brings in simplicity and efficiency in delivering financial solutions to its customers.

The underwriting process at HDB is customized to the needs of the customer segment, ranging from instant workflow-based loan approvals for consumer loans to personalized credit appraisal for large business loans.

Additionally, the company provides Business Process Outsourcing (BPO) solutions to HDFC Bank. Its BPO services division delivers back office services such as forms processing, documents verification, finance and accounting services and correspondence management. HDB also delivers front office services such as contact centre management, outbound marketing and collection services.

HDBFSLs long-term debt is rated AAA by CARE and its short-term debt is rated A1 by CRISIL, indicating the highest degree of safety regarding timely servicing of financial obligations. As on March 31, 2018, your Bank held

95.9 per cent stake in the company.

2) HDFC Securities Limited

HSLs Total Income rose by 42.5 per cent to Rs, 788.3 crore from Rs, 553.2 crore in the previous year. Net Profit grew by 59.5 per cent to Rs, 344.4 crore from Rs, 215.9 crore.

The surge in capital markets (led by higher foreign institutional investor inflows and improved corporate performance) and focus on quality acquisition and activation boosted HSLs performance.

The company has a customer base of 19.35 lakh to whom it offers a large bouquet of financial services. In the year under review, HSL had 6.87 lakh transacting customers, the second highest number of active (transacting) customers among all broking houses.

In line with the thrust on digital channels within the bank, the percentage of customers accessing HSLs services digitally increased to 70 per cent from 63 per cent in the previous year. In particular the percentage accessing it through the mobile app jumped to 33 per cent from 20 per cent.

In a conscious effort to rationalize the distribution network with greater emphasis on digital offerings, HSL consolidated its existing branches to end with 259 branches at the end of the year.

It also secured many awards. It was adjudged Best Broker in the Assocham Capital Market Intermediaries Excellence Awards 2017 and was also a winner in the Best Retail Broker category, at the Outlook Money Awards 2017. Other notable awards include PFRDA Awards for National Pension Scheme (NPS) namely, Best Point of Presence (POP) All Citizen, Best POP NPS Corporate and Best POP NPS Private Sector. HSL has been consistently improving its IT infrastructure and platforms. This has resulted it in being, recognized in the Enterprise Mobility and Enterprise Applications categories at the BFSI Digital Innovation Awards, Express Computers 2017.

As on March 31, 2018, your Bank held 97.7 per cent stake in HSL.

During the year, pursuant to approval received from the Reserve Bank of India, the Bank made an offer to acquire the residual equity shares of HDBFSL and HSL held by their respective shareholders (“Offer”), at a price per share of Rs, 261/- and Rs, 4,818/- respectively, determined on the basis of the valuation report submitted by two independent valuers engaged for this purpose. Pursuant to the Offer, the Bank acquired 29,749 equity shares of HSL from the eligible shareholders who had tendered equity shares in the Offer. No equity shares were offered and acquired in HDBFSL pursuant to the Offer.

The annual reports of HDBFSL and HSL are available on the website of the Bank (www.hdfcbank.com). Shareholders who wish to have a copy of the annual accounts and detailed information may write to HDFC Bank. These documents will also be available for inspection by shareholders at the registered offices of the Bank and its two subsidiaries.

Other Statutory Disclosures Number of Meetings of the Board

The details of Board meetings held during the year, attendance of Directors at the meetings and constitution of various Committees of the Board are included separately in the Corporate Governance Report.

Extract of Annual Return

Pursuant to Section 92 (3) of the Companies Act, 2013 and Rule 12 (1) of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return is annexed as ANNEXURE 3 to this report.

Directors’ Responsibility Statement

Pursuant to Section 134 (3) (c) read with Section 134 (5) of the Companies Act, 2013, the Board of Directors hereby state that:

- In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any

- We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2018 and of the profit of the Bank for the year ended on that date

- We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Bank and preventing and detecting fraud and other irregularities

- We have prepared the annual accounts on a going concern basis

- We have laid down internal financial controls to be followed by the Bank and ensure that such internal financial controls were adequate and operating effectively

- We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and were operating effectively

Auditors

The Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants, have been the Statutory Auditors of the Bank since the year ended March 31, 2015. As per regulations of the Reserve Bank of India (RBI), the same auditors cannot be re-appointed for a period beyond four years. It is proposed to appoint M/s. S. R. Batliboi & Co, LLP, Chartered Accountants (Firm Registration No.301003E/E300005) as the new Statutory Auditors of the Bank. Fee payable for the statutory audit is proposed at Rs, 1.9 crore plus applicable taxes and outlays, subject to the approval of the members and the RBI. Members are requested to consider the appointment of M/s. S. R. Batliboi & Co, LLP as the Statutory Auditors of the Bank for financial year 2018-19.

Your Directors place on record their sincere appreciation of the professional services rendered by M/s. Deloitte Haskins & Sells, Chartered Accountants, as Statutory Auditors of the Bank.

During the year under review, fees paid to the auditors viz. M/s. Deloitte Haskins & Sells were as follows:

Fees (including taxes)

(Rs,in crore)

Statutory audit

1.90

Certification & other attest services

0.41

Non-audit services

-

Outlays and Taxes

0.32

Total

2.63

Disclosure under Foreign Exchange Management Act, 1999

The Bank is in compliance with the Foreign Exchange Management Act, 1999 and the Regulation there under (“FEMA provisions”) with respect to downstream investments made in its subsidiaries. Further, the Bank has obtained a certificate from its statutory auditors certifying that the Bank is in compliance with the FEMA provisions with respect to downstream investments made in its subsidiary in the year under review.

Related Party Transactions

Particulars of transactions with related parties referred to in Section 188 (1), as prescribed in Form AOC-2 under Rule 8

(2) of the Companies (Accounts) Rules, 2014 is enclosed as ANNEXURE 4.

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided or any investment made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank''s subsidiaries and associates are enclosed as ANNEXURE 5 to this report.

During the year, International Asset Reconstruction Company Private Limited (“IARC”) ceased to be an associate of the Bank since the percentage of paid-up equity capital held by the Bank in IARC has been diluted to less than 20 per cent due to further issue of equity shares made by IARC during the financial year, in which the Bank did not participate. As of March 31, 2018, the Bank held 19.22 per cent of the share capital of IARC.

Whistle Blower Policy / Vigil Mechanism

The Bank encourages an open and transparent system of working and dealing amongst its stake holders. While the Bank''s “Code of Conduct & Ethics Policy” directs employees to uphold company values and conduct business with integrity and highest ethical standards, the Bank has also adopted a “Whistle Blower Policy” which encourages its employees and various stake holders to bring to the notice of the Bank any issue involving compromise / violation of ethical norms, legal or regulatory provisions, actual or suspected fraud etc., without any fear of reprisal, discrimination, harassment or victimization of any kind. All such concerns / complaints are received by the Chief of Internal Vigilance of the Bank and / or by the Whistle Blower Committee through a dedicated email ID or by way of letters etc. All such complaints are enquired into by the appropriate authority within the Bank while ensuring confidentiality of the identity of such complainants. On the basis of their investigation, if the allegations are proved be correct, then the Competent Authority shall recommend to the appropriate Disciplinary Authority to take suitable action against the responsible official. The decision of the Whistle Blower Committee is final and binding on all. Preventive measures or any other action considered necessary is also taken by the Competent Authority.

Details of Whistle Blower complaints received and subsequent action taken and the functioning of the Whistle Blower mechanism are reviewed periodically by the Audit Committee of the Board. During the financial year 2017-18, a total of 46 such complaints were received and taken up for investigation.

Declaration by Independent Directors

Mrs. Shyamala Gopinath, Mr. Partho Datta, Mr. Bobby Parikh, Mr. Malay Patel and Mr. Umesh Chandra Sarangi are Independent Directors on the Board of the Bank as on March 31, 2018. All the Independent Directors have given their respective declarations under Section 149 (6) and (7) of the Companies Act, 2013 and the Rules made there under. In the opinion of the Board, the Independent Directors fulfill the conditions relating to their status as Independent Directors as specified in Section 149 of the Companies Act, 2013 and the Rules made there under.

Board Performance Evaluation

The Nomination and Remuneration Committee (NRC) has approved a framework / policy for evaluation of the Board, Committees of the Board and the individual members of the Board (including the Chairperson), which is reviewed annually by the NRC. A questionnaire for the evaluation of the Board, its Committees and the individual members of the Board (including the Chairperson), designed in accordance with the said framework and covering various aspects of the performance of the Board and its Committees, including composition and quality, roles and responsibilities, processes and functioning, adherence to Code of Conduct and Ethics and best practices in Corporate Governance was sent out to the Directors. The responses received to the questionnaires on evaluation of the Board and its Committees were placed before the meeting of the Independent Directors for consideration. The assessment of the Independent Directors on the performance of the Board and its Committees was subsequently discussed by the Board at its meeting.

Your Bank has in place a process wherein declarations are obtained from the Directors regarding fulfillment of the ‘fit and proper'' criteria in accordance with RBI guidelines. The declarations from the Directors other than members of the NRC are placed before the NRC and the declarations of the members of the NRC are placed before the Board. Assessment on whether the Directors fulfill the said criteria is made by the NRC and the Board on an annual basis. In addition, the framework / policy approved by the NRC provides for a performance evaluation of the Non-Independent Directors by the Independent Directors on key personal and professional attributes and a similar performance evaluation of the Independent Directors by the Board, excluding the Director being evaluated. Such performance evaluation has been duly completed as above.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

The NRC recommends the appointment of Directors to the Board.

It identifies persons who are qualified to become Directors on the Board and evaluates criteria such as academic qualifications, previous experience, track record and integrity of the persons identified before recommending their appointment to the Board.

The remuneration of whole time Directors is governed by the compensation policy of the Bank. The same is available at the we blink https://www.hdfcbank.com/aboutus/cg/codes-and-policies.htm. The compensation policy of the Bank, duly reviewed and recommended by the NRC has been articulated in line with the relevant Reserve Bank of India guidelines.

Your Bank''s compensation policy is aimed to attract, retain, reward and motivate talented individuals critical for achieving strategic goals and long term success. Compensation policy is aligned to business strategy, market dynamics, internal characteristics and complexities within the Bank. The ultimate objective is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity.

Your Bank''s approach is to have a pay for performance culture based on the belief that the Performance Management System provides a sound basis for assessing performance holistically. The compensation system should also take into account factors such as roles, skills / competencies, experience and grade / seniority to differentiate pay appropriately on the basis of contribution, skill and availability of talent on account of competitive market forces. The details of the compensation policy are also included in Schedule 18 Notes forming part of the Accounts - Note no. 24. Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its Committees, which are determined by the Board based on applicable regulatory prescriptions. Further expenses incurred by them for attending meetings of the Board and Committees are reimbursed at actuals. Pursuant to the relevant RBI guidelines and approval of the shareholders, the Non-Executive Directors, other than the Chairperson, are paid profit-related commission of Rs, 10,00,000 (Rupees Ten Lakh Only) per annum for each Non-Executive Director.

Mr. Aditya Puri is the Non-Executive Chairman of HDB Financial Services Limited, subsidiary of the Bank. Mr. Puri does not receive any remuneration from the subsidiary. None of the Directors of your Bank other than Mr. Puri is a director of the Bank''s subsidiaries as on March 31, 2018.

Succession Planning

The Bank''s Nomination and Remuneration Committee (NRC) also oversees matters of succession planning of its Directors, Senior Management and Key executives of the Bank. With respect to the tenure of the current Managing Director ending in October 2020, the Board will identify a successor and work to ensure that this is done in a manner that will allow appropriate time for an effective transition of responsibilities.

Significant and Material Orders Passed By Regulators

During the current financial year 2017-18, pursuant to the media reports, SEBI has issued directions to the Bank (“SEBI Directions”) in relation to leakage of unpublished price sensitive information (“UPSI”) pertaining to the financial results of the Bank for the quarter ended December 31, 2015 and the quarter ended June 30, 2017 in various private WhatsApp groups ahead of Bank''s official announcement to the relevant stock exchanges. SEBI has directed the Bank to observe the following: (i) to strengthen its processes / systems / controls forthwith to ensure that such instances of leakage of unpublished price sensitive information do not recur in future, (ii) to submit a report on: (a) the present systems and controls and how the present systems and controls have been strengthened,

(b) details of persons who are responsible for monitoring such systems and (c) the periodicity of monitoring. Further, SEBI has directed the Bank to conduct an internal inquiry into the leakage of UPSI relating to its financial figures including Non-Performing Assets (NPAs) results and take appropriate action against those responsible for the same, in accordance with the applicable law. The scope of such inquiry will need to include determination of the possible role of following persons in relation to the aforesaid leakage of UPSI: (i) persons / members of committees involved in generation of the original data for the purpose of determination of key figures pertaining to financial figures including gross NPAs, (ii) persons involved in the consolidation of the figures for the financial results, (iii) persons involved in the preparation of board notes and presentations, (iv) persons involved in dissemination of information relating to financial results in the public domain and (v) any other persons who had access to the information.

SEBI has directed the Bank to complete the inquiry within a period of three months from the date of the SEBI Directions and thereafter, file a report with SEBI in this regard within a further period of seven days.

Directors and Key Managerial Personnel

In compliance with Section 152 of the Companies Act, 2013, Mr. Keki Mistry will retire by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

During the year, after serving as Board members for close to seven years each, Mrs. Renu Karnad and Mr. A. N. Roy resigned from the Board of the Bank with effect from January 20, 2018 and January 31, 2018 respectively. Mrs. Karnad and Mr. Roy resigned due to other commitments and personal considerations respectively. The Board places on record its sincere appreciation of the contribution made by Mrs. Karnad and Mr. Roy during their tenure with the Bank and wishes them well in future endeavours.

The brief resume / details regarding the Director proposed to be re-appointed as above is furnished in the report on Corporate Governance. There have been no changes in the Directors and Key Managerial Personnel of the Bank other than the above.

Particulars of Employees

The information in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in ANNEXURE 6 and ANNEXURE 7 to this report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as:

- Installation of green locks and AC controllers in air conditioning machines in order to save energy and support go-green initiative

- Installation of energy capacitors at high consumption offices to control the power factor and to reduce energy consumption

- All main signboards in branches switched off post 10 p. m.

- Put controls on usage of lifts, ACs, common passage lights and other electrical equipment

- Reduction of contract demand at Kanjurmarg Hub, resulting in energy savings

- Replacement of CFL Lamps with LED fixtures at Kanjurmarg Hub

- Provision of LED lamps at branches and offices

- Provision of solar panels for captive power generation at our offices in Pune and Bhubaneswar

Monitoring and energy saving initiative for 100 branches resulting in power saving of over 10 per cent. The Bank won an award in National Energy Efficiency Circle Competition2017 - Winner Best Energy Efficient Case study held by CII in May 2017. Considering the benefits accrued, we have further extended the monitoring programme to an additional 500 branches

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluates innovative technology with multiple fintech partners. It has launched a formal Consumer Durable Loans portfolio and product with on-line real-time Digital API based collaboration with third party and fintech application sourcing platforms. Your Bank is leveraging API based Service Oriented Architecture and Middleware for enabling digital initiatives and empowering relationship managers at branches with digital products and services platforms. Your Bank has also begun using robotics and artificial intelligence in digital commerce, corporate supply chain and payment settlement systems to reduce time to market and turnaround time.

(C) Foreign Exchange Earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs, 1,523.5 crore (on account of net gains arising on all exchange /derivative transactions) and the total foreign exchange outgo was Rs, 192.9 crore towards the operating and capital expenditure requirements.

Secretarial Audit

In terms of Section 204 of the Companies Act, 2013 and the Rules made there under, M/s. BNP & Associates, Practicing Company Secretaries have been appointed as Secretarial Auditors of the Bank for the financial year 2017-18. The report of the Secretarial Auditors is enclosed as ANNEXURE 8 to this Report. With regard to the observation made by the Secretarial Auditors in the Secretarial Audit Report in connection with the directions issued by SEBI to the Bank on February 23, 2018 to inter alia,

(a) strengthen the Bank''s processes / systems / controls forthwith to ensure that instances of leakage of unpublished price sensitive information (“UPSI”) does not recur in future, and submit a report to SEBI on inter alia, the present systems and controls and how they have been strengthened (“Report”); and (b) conduct an internal inquiry into the leakage of UPSI relating to its financial figures including non-performing assets during the quarter ended December 2015 and June 2017, and submit a report to SEBI (“Internal Inquiry Report”), the Bank has appointed:

1. Cyril Amarchand Mangaldas to assist the Bank in inter alia reviewing and conducting an assessment of the policies, systems and processes of the Bank in relation to storing, handling and communication of UPSI in terms of the SEBI (Prohibition of Insider Trading) Regulations, 2015, specifically, the information flow and process steps involved in preparation and finalization of financial results by the Bank, and in preparation of the Report; and

2. Haribhakti & Co., LLP for the purposes of preparing the Internal Inquiry Report.

The preparation of the aforementioned reports is underway and the same will be submitted to SEBI within the timelines specified in its directions.

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate report on Corporate Governance along with a certificate of compliance from the Secretarial Auditors, forms an integral part of this Report.

Business Responsibility Report

The Bank''s Business Responsibility Report containing a report on its Corporate Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site www.hdfcbank.com

Information under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The relevant information is included in Section E-Principle 3 of the Business Responsibility Report for 2017-18.

Acknowledgement

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank''s employees and look forward to their continued contribution in building a ‘World Class Indian Bank.''

Conclusion

It has been a challenging year for the global as well as Indian economy. The global economy is facing risks from the increasing tide of protectionism, uncertainty regarding Brexit and the forthcoming elections in Italy. The US-North Korea relationship, notwithstanding recent signs of a rapprochement, will continue to cast a shadow on the geopolitical situation till it settles down one way or the other.

On the positive side, India continues to remain among the two fastest growing economies in the world. The transitory impact of the GST too appears to be over. Private capital expenditure is expected to pick up in the first half of the current financial year.

Your Bank has continued to grow faster than the system. It now plans to raise capital of '' 24,000 crore to fund growth for the next few years.

As always, your Bank will continue to be judicious. It will continue to leverage its distribution strength and digital platforms to offer a similar experience to customers across urban, semi-urban and rural India.

Needless to say, the Bank will continue to focus on its five core values, namely, Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. Its commitment to the highest possible standards of corporate governance remains unwavering even as it embarks on the next stage of its evolution, increasingly leveraging artificial intelligence and analytics, to continue delivering sustainable growth to all stakeholders.

On behalf of the Board of Directors

Mrs. Shyamala Gopinath

Chairperson

Mumbai, May 22, 2018


Mar 31, 2017

To the Members,

Introduction:

The Directors take great pleasure in presenting the 23rd Annual Report on the business and operations of your Bank, together with the audited accounts for the year ended March 31, 2017.

The year under review has been extremely satisfying with your Bank witnessing an increase in asset size, revenues and profitability. What is more, it was able to manage the bad loans much better than the industry. The metric that best captures performance is the domestic loan growth which stood at about 23.7 per cent against the overall banking system loan growth of around 5 per cent. The other key performance indicators are Balance Sheet size (up 16.6 per cent), Total Deposits (up 17.8 per cent), Net Profit (up 18.3 per cent) and Net Interest Income (up 20.1 per cent). Cost to Income Ratio improved to 43.4 per cent. This assumes even more significance as it came in the face of demonetisation which led to growth pangs in the third quarter.

The performance is a reflection of the following:

1) Leveraging digitization to improve customer experience, productivity and Cost to Income Ratio

2) Consolidation of its lead over peers as India’s top Digital Bank in metro, urban, semi urban and rural markets

3) Establishing itself as India’s leading rural focused bank with unmatched reach, product range and innovation

4) Unique use of artificial intelligence and data analytics to sharpen product offering

It is also an outcome of a strong brand built on the twin engines of customer and community centricity. As you are aware, your Bank has been ‘Creating Sustainable Communities’ through its social initiatives which help people break out of the vicious circle of poverty and enable them to lead a better life. In pursuance of the Board mandate to make 1 crore families economically self-reliant, we are happy to report that 68 lakh families at the bottom of the pyramid have already been covered. We are also proud to state that during the year, your Bank has crossed the mandatory 2 per cent CSR spend.

Last but not the least, words cannot be enough to thank our employees who made all this possible. Especially during demonetisation when they were faced with chaos and crises by the day and went beyond the call of duty.

Summary of Financial Performance

(Rs. crore)

Particulars

For the year ended / As on

March 31, 2017

March 31, 2016

Deposits and Other Borrowings

7,17,668.5

6,31,393.2

Advances

5,54,568.2

4,64,594

Total Income

81,602.5

70,973.2

Profit Before Depreciation and Tax

22,972.2

19,343.8

Profit After Tax

14,549.6

12,296.2

Profit Brought Forward

23,527.7

18,627.8

Total Profit Available for Appropriation

38,077.3

30,924

Appropriations

Transfer to Statutory Reserve

3,637.4

3,074.1

Transfer to General Reserve

1,455

1,229.6

Transfer to Capital Reserve

313.4

222.2

Transfer to / (from) Investment Reserve

4.3

(8.5)

Proposed Dividend1

-

2,401.8

Tax (including cess) on Dividend*

-

488.9

Dividend (including tax / cess thereon) pertaining to previous year paid during the year, net of dividend tax credits

(1.7)

(11.7)

Balance carried over to Balance Sheet

32,668.9

23,527.6

The Board of Directors, at the meeting held on April 21, 2017 has proposed a dividend of Rs.11.00 per equity share aggregating Rs.3,392.7 crore, inclusive of tax on dividend. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of revised Accounting Standard (AS) 4-Contingencies and Events Occurring after the Balance Sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend from Statement of Profit and Loss for the year ended March 31, 2017. However, the effect of the proposed dividend has been reckoned in determining capital funds in the computation of the Capital Adequacy Ratio as on March 31, 2017.

The Bank’s Total Income rose to Rs.81,602.5 crore for the year under review from Rs.70,973.2 crore in the previous year. Its Net Profit increased by 18.3 per cent to Rs.14,549.7 crore from Rs.12,296.2 crore.

Appropriations from Net Profit have been effected as per the table given above.

Dividend

Your Bank has a dividend policy that, inter alia, balances the objectives of appropriately rewarding shareholders and retaining capital in order to maintain a healthy Capital Adequacy Ratio. It has had a consistent track record of steady increase in dividend distribution over its history with the Dividend Pay-Out Ratio ranging between 20 to 25 per cent. The dividend policy of your Bank is available on the Bank’s website at the following link: http://www.hdfcbank.com/htdocs/common/pdf/corporate/Dividend-Distribution-Policy.pdf Consistent with this policy and in recognition of the overall performance during the year under review, your Directors are pleased to recommend a dividend of Rs.11 per equity share of Rs.2 as against Rs.9.50 in the previous year. As you are aware, this dividend shall be subject to tax to be paid by the Bank.

Ratings

Instrument

Rating

Rating Agency

Comments

Fixed Deposit Programme

CARE AAA (FD)

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

IND Taaa

India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Certificate of Deposits Programme

CARE A1

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

IND A1

India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Long Term Unsecured, Subordinated (Lower Tier 2) Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

IND AAA

India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Tier I Perpetual Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Upper Tier 2 Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Infrastructure Bonds

CARE AAA

CARE Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

CRISIL AAA

CRISIL

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Tier I Bonds (Under Basel III)

CARE AA

CARE Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

CRISIL AA

CRISIL

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

IND AA

India Ratings

Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Issuance of Equity Shares

During the year under review, 3,43,59,200 equity shares were allotted to the employees of your Bank in respect of the equity stock options exercised under the Employee Stock Option Schemes. As on March 31, 2017, the issued, paid up and authorised capital of your Bank stood at Rs.512,50,91,434 comprising 256,25,45,717 equity shares of Rs.2 each.

Employee Stock Options

The information pertaining to Employee Stock Options is given in ANNEXURE 1 to this report.

Capital Adequacy Ratio

Your Bank’s total Capital Adequacy Ratio (CAR) calculated in line with Basel III capital regulations stood at 14.6 per cent as on March 31, 2017, well above the regulatory minimum of 10.25 per cent including Capital Conservation Buffer of 1.25 per cent. Of this, Tier I CAR was 12.8 per cent. The effect of the proposed dividend has been taken into account in computing these ratios.

Subsidiary Companies

Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC Securities Limited (HSL). The detailed financial performance of the companies is given below.

HDB Financial Services Limited

HDBFSL is a leading Non-Banking Financial Company that caters to segments not covered by the Bank through a network of 1,151 branches in 22 states and 3 Union Territories. Using both physical and digital channels, the company offers loan and asset finance products to individuals, emerging businesses, and micro enterprises across manufacturing, trading and services sectors. Additionally, the company provides Business Process Outsourcing (BPO) solutions to HDFC Bank.

In the year under review, HDBFSLs Net Interest Income grew by 41 per cent to Rs.2,037.2 crore from Rs.1,444.5 crore in the previous year. Net Profit rose 28 per cent to Rs.684.2 crore from Rs.534.4 crore.

HDBFSL is rated AAA for its long-term debt and A1 for its short-term debt facilities by CARE & CRISIL respectively indicating the highest degree of safety regarding timely servicing of financial obligations.

Under the scheme of amalgamation approved by the Bombay and Gujarat High Courts, two associate companies, Atlas Documentary Facilitators Company Private Limited (ADFC) and HBL Global Private Limited (HBL) have been amalgamated with HDBFSL with effect from December 1, 2016. The appointed date of the merger was April 1, 2014. The scheme has accordingly been given effect to in these financial statements. HBL provided marketing and promotion services while ADFC was in the BPO business.

In the year under review, HDBFSL raised Rs.1,099.4 crore through a rights issue. This resulted in a higher capital base and Capital Adequacy Ratio (CAR) of 20.8 per cent, well beyond the mandatory requirement of 15 per cent. The proceeds of this issue will be utilised for capital expenditure, working capital and business growth. As on March 31, 2017, your Bank held 96.2 per cent stake in the company.

HDFC Securities Limited

HDFC Securities Limited (HSL) is among India’s largest retail broking firms offering its 18 lakh customers a large bouquet of services. The company had the second highest number of active (transacting) customers among all broking houses.

In the year under review, the capital markets surged on the back of a good monsoon, higher FII inflows, improved corporate performance and the passing of the Goods and Services Tax Bill. This is reflected in the company’s performance.

HSLs Total Income grew by 37.7 per cent to Rs.553.2 crore from Rs.401.6 crore in the previous year. Net Profit grew by 61.9 per cent to Rs.215.9 crore from Rs.133.3 crore.

Digital channels remain a core focus with more than 20 per cent of customers transacting through the mobile app and overall 68 per cent of customers being serviced digitally. In line with its increased thrust on digitisation, HSL added 11 branches in the year under review as against 12 in the previous year. As on March 31, 2017, it had 273 branches.

During the year under review, HSL won three prestigious PFRDA Awards for National Pension Scheme (NPS), viz. Best Point of Presence (POP) All Citizen, Best POP NPS Corporate and Best POP NPS Private Sector. It was adjudged runner up in the Best e-Brokerage category at the Outlook Money Awards 2016.

As on March 31, 2017, your Bank held 97.9 per cent stake in HSL.

The annual reports of HDBFSL and HSL are available on the website of the Bank (www.hdfcbank.com). Shareholders who wish to have a copy of the annual accounts and detailed information may write to the Bank. These documents shall also be available for inspection by shareholders at the registered offices of the Bank and its two subsidiaries.

Other Statutory Disclosures Board and Board Committees

The details of Board meetings held during the year, attendance of Directors at the meetings and constitution of various Committees of the Board are included separately in the Corporate Governance Report.

Extract of Annual Return

Pursuant to section 92 (3) of the Companies Act, 2013 and Rule 12 (1) of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return is annexed as ANNEXURE 3 to this report.

Directors’ Responsibility Statement

Pursuant to Section 134 (3) (c) read with Section 134 (5) of the Companies Act, 2013, the Board of Directors hereby state that:

- In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any

- We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2017 and of the profit of the Bank for the year ended on that date

- We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities

- We have prepared the annual accounts on a going concern basis

- We have laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively

- We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and were operating effectively

Auditors

The Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants, will retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment. During the year under review, fees paid to the auditors were as follows:

Fees (including taxes)

Rs. lacs

Statutory Audit (Rs.1,90,00,000 plus taxes)

218.50

Certification & other services provided as statutory

39.08

auditors

Total

257.58

Members are requested to consider their re-appointment for financial year 2017-18.

Disclosure under Foreign Exchange Management Act, 1999

The Bank is in compliance with the Foreign Exchange Management Act, 1999 (FEMA) provisions with respect to downstream investments made in its subsidiaries. Further, the Bank has obtained a certificate from its statutory auditors certifying that the Bank is in compliance with the FEMA provisions with respect to downstream investments made in its subsidiaries in the year under review.

Related Party Transactions

Particulars of transactions with related parties referred to in Section 188 (1), as prescribed in Form AOC-2 under Rule 8 (2) of the Companies (Accounts) Rules, 2014 is enclosed as ANNEXURE 4.

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided by a banking company in the ordinary course of business. Further, in terms of the Companies (Removal of Difficulties) Order, 2015, nothing in Section 186 except sub section (1) shall apply to any acquisition made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank’s subsidiaries and associates are enclosed as ANNEXURE 5 to this report. There were no entities which became or ceased to be the Bank’s subsidiaries, associates or joint ventures during the year, except Atlas Documentary Facilitators Company Private Limited and HBL Global Private Limited, associates of the Bank, which amalgamated with the Bank’s subsidiary HDB Financial Services Limited, pursuant to the approval of the Honourable High Court of Gujarat and Bombay with effect from December 1, 2016. The appointed date of the merger as per the scheme of amalgamation was April 1, 2014.

Whistle Blower Policy/Vigil Mechanism

The Bank has adopted a Whistle Blower Policy pursuant to which employees of the Bank can raise their concerns relating to fraud, malpractice or any other activity or event which is against the interest of the Bank or society as a whole. Details of complaints received and the action taken are reviewed by the Audit Committee. The functioning of the Whistle Blower mechanism is reviewed by the Audit Committee from time to time. None of the Bank’s personnel have been denied access to the Audit Committee.

Declaration by Independent Directors

Mrs. Shyamala Gopinath, Mr. Partho Datta, Mr. Bobby Parikh, Mr. A. N. Roy, Mr. Malay Patel and Mr. Umesh Chandra Sarangi are Independent Directors on the Board of the Bank as on March 31, 2017. All the Independent Directors have given their respective declarations under Section 149 (6) and (7) of the Companies Act, 2013 and the Rules made thereunder. In the opinion of the Board, the Independent Directors fulfil the conditions relating to their status as Independent Directors as specified in Section 149 of the Companies Act, 2013 and the Rules made thereunder.

Board Performance Evaluation

The Nomination and Remuneration Committee (NRC) has approved a framework/policy for evaluation of the Board, Committees of the Board and the individual members of the Board. The said framework/policy was duly reviewed during the year. A questionnaire for the evaluation of the Board and its Committees, designed in accordance with the said framework and covering various aspects of the performance of the Board and its Committees, including composition and quality, roles and responsibilities, processes and functioning, adherence to Code of Conduct and Ethics and best practices in Corporate Governance was sent out to the Directors. The responses received to the questionnaires on evaluation of the Board and its Committees were placed before the meeting of the Independent Directors for consideration. The assessment of the Independent Directors on the performance of the Board and its Committees was subsequently discussed by the Board at its meeting.

Your Bank has in place a process wherein declarations are obtained from the directors regarding fulfilment of the ‘fit and proper’ criteria in accordance with the guidelines of the Reserve Bank of India. The declarations from the Directors other than members of the NRC are placed before the NRC and the declarations of the members of the NRC are placed before the Board. Assessment on whether the Directors fulfil the said criteria is made by the NRC and the Board on an annual basis. In addition, the framework/policy approved by the NRC provides for a performance evaluation of the Non-Independent Directors by the Independent Directors on key personal and professional attributes and a similar performance evaluation of the Independent Directors by the Board, excluding the Director being evaluated. Such performance evaluation has been duly completed as above.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

The Nomination and Remuneration Committee (NRC) recommends the appointment of Directors to the Board. It identifies persons who are qualified to become Directors on the Board and evaluates criteria such as academic qualifications, previous experience, track record and integrity of the persons identified before recommending their appointment to the Board.

The remuneration of whole time Directors is governed by the compensation policy of the Bank. The compensation policy of the Bank, duly reviewed and recommended by the NRC has been articulated in line with the Reserve Bank of India guidelines.

Your Bank’s compensation policy is aimed to attract, retain, reward and motivate talented individuals critical for achieving strategic goals and long term success. Compensation policy is aligned to business strategy, market dynamics, internal characteristics and complexities within the Bank. The ultimate objective is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity.

Your Bank’s approach is to have a pay for performance culture based on the belief that the Performance Management System provides a sound basis for assessing performance holistically. The compensation system should also take into account factors like roles, skills/competencies, experience and grade / seniority to differentiate pay appropriately on the basis of contribution, skill and availability of talent on account of competitive market forces. The details of the compensation policy are also included in Schedule 18 Notes forming part of the Accounts - Note no. 25. Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its Committees, which are determined by the Board based on applicable regulatory prescriptions. Non-Executive Directors are also reimbursed expenses incurred by them for attending meetings of the Board and its Committees at actuals. The remuneration payable to the Non-Executive Directors and Independent Directors is governed by the provisions of the Banking Regulation Act, 1949, RBI guidelines issued from time to time and the provisions of the Companies Act, 2013 and related rules to the extent it is not inconsistent with the provisions of the Banking Regulation Act, 1949 and RBI guidelines. In terms of the guidelines issued by RBI for compensation of Non-Executive Directors of private sector banks dated June 1, 2015 and the approval of shareholders at the 22nd Annual General Meeting, Non-Executive Directors of the Bank, other than the Chairperson, are paid profit-related commission of Rs.10,00,000/- (Rupees Ten Lakh only) per annum for each Non-Executive Director.

Mr. Aditya Puri is the Non-Executive Chairman of HDB Financial Services Limited, Bank’s subsidiary. Mr. Puri does not receive any remuneration from the subsidiary. None of the Directors of your Bank other than Mr. Puri is a director of the Bank’s subsidiaries as on March 31, 2017.

Significant and Material Orders Passed By Regulators

During the financial year 2016-17, further to the media reports in October 2015 about irregularities in advance import remittances in various banks, the Reserve Bank of India (RBI) had conducted a scrutiny of the transactions carried out by the Bank under Section 35 (1A) of the Banking Regulation Act, 1949. The RBI issued a Show Cause notice to which the Bank had submitted its detailed response. After considering the Bank’s submission, the RBI imposed a penalty of Rs.2 crore on the Bank vide its letter dated July 19, 2016 on account of pendency in receipt of bill of entry relating to advance import remittances made and lapses in adhering to KYC/AML guidelines in this respect. The penalty has since been paid. The Bank has implemented a comprehensive corrective action plan, to strengthen its internal control mechanisms so as to ensure that such incidents do not recur.

Directors and Key Managerial Personnel

The Bank proposes to re-appoint Mr. Paresh Sukthankar and Mr. Kaizad Bharucha as Deputy Managing Director and Executive Director of the Bank, respectively, for a period of three years each with effect from June 13, 2017, subject to the approval of the Reserve Bank of India and the shareholders at the ensuing Annual General Meeting. In compliance with Section 152 of the Companies Act, 2013, Mr. Sukthankar and Mr. Bharucha will also retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. The Bank also proposes to re-appoint Mrs. Shyamala Gopinath at the ensuing Annual General Meeting as the Part Time Non-Executive Chairperson of the Bank for a period of three years commencing from January 2, 2018 till January 1, 2021 or till such other earlier or later date(s) as may be approved by Reserve Bank of India, and as subsequently extended by the Reserve Bank of India from time to time.

During the year, Mr. Srikanth Nadhamuni was appointed as an Additional Director of the Bank with effect from September 20, 2016 to hold office till the conclusion of the ensuing Annual General Meeting. Mr. Nadhamuni has been appointed as a director having expertise in the field of Information Technology. In terms of Section 152 of the Companies Act, 2013, it is proposed to appoint Mr. Nadhamuni as a Director of the Bank at the ensuing Annual General Meeting. The Bank has received a notice from a member proposing his candidature as Director of the Bank. Mr. Nadhamuni shall be liable to retire by rotation.

The brief resume/details regarding the Directors proposed to be appointed/re-appointed as above are furnished in the report on Corporate Governance. There have been no changes in the Directors and Key Managerial Personnel of the Bank other than the above.

Familiarisation Programme for Independent Directors

The various programmes undertaken for familiarising Independent Directors with the functions and procedures of the Bank are disclosed in the Corporate Governance Report.

Particulars of Employees

The information in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in ANNEXURE 6 and ANNEXURE 7 to this report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as

- Installation of green locks and AC controllers in air conditioning machines in order to save energy and support go-green initiative

- Installation of energy capacitors at high consumption offices to control the power factor and to reduce energy consumption

- All main signboards in branches switched off post 10 p.m.

- Put controls on usage of lifts, ACs, common passage lights and other electrical equipment

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluates innovative technology with multiple fintech partners. In the year under review, it organised its 2nd ’Digital Innovation Summit’ and shortlisted several fintech startups to carry out multiple proof of concepts in both customer facing and internal processes.

Your Bank uses advanced analytics to create a 360 degree view of all 4.05 crore customers. The analytics engine uses machine learning to analyze structured and unstructured data which help in offering relevant product/ service recommendations using advanced algorithms. These are delivered via personalized campaigns through an omni-channel approach. Your Bank has also begun using robotics and artificial intelligence in digital commerce, corporate supply chain and payment settlement systems to reduce time to market and turnaround time.

(C) Foreign Exchange Earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs.1,263.4 crore (on account of net gains arising on all exchange/derivative transactions) and the total foreign exchange outgo was about Rs.221 crore towards the operating and capital expenditure requirements.

Secretarial Audit

In terms of Section 204 of the Companies Act, 2013 and the Rules made thereunder, M/s. BNP & Associates, Practising Company Secretaries have been appointed as Secretarial Auditors of the Bank for the financial year 2016-17. The report of the Secretarial Auditors is enclosed as ANNEXURE 8 to this Report. The observations in the said report are self-explanatory and no further comments/explanations are called for.

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate report on Corporate Governance along with a certificate of compliance from the Secretarial Auditors, forms an integral part of this Report.

Business Responsibility Report

The Bank’s Business Responsibility Report containing a report on its Corporate Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site www.hdfcbank.com

Information under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The relevant information is included in Section E-Principle 3 of the Business Responsibility Report for 2016-17.

Acknowledgement

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank’s employees and look forward to their continued contribution in building a ‘World Class Indian Bank.’

Conclusion

The global economy is facing risks emanating from policy uncertainty in the US, imminent elections in several European countries and rising protectionism. The Indian economy seems better placed. And so is your Bank which is on course to continue to outgrow the system, as it has in the year under review.

Like in the past, the Bank will continue to leverage its distribution strength and digital platforms especially in the rural and semi-urban parts of the country for sustainable growth.

Needless to say, the Bank will continue to focus on its 5 core values namely Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. Its commitment to the highest possible standards of corporate governance remains unwavering. All of this will help the Bank on its onward growth journey and help create long-term shareholder value.

On behalf of the Board of Directors

Mrs. Shyamala Gopinath

Chairperson

Mumbai, May 29, 2017


Mar 31, 2015

To the Members,

The Directors take great pleasure in presenting the Twenty First Annual Report on the business and operations of your Bank together with the audited accounts for the year ended March 31, 2015.

SUMMARY OF FINANCIAL PERFORMANCE

(Rs. crore)

For the year ended March 31, 2015 March 31, 2014

Deposits and Other Borrowings 496,009.2 406,776.5

Advances 365,495.0 303,000.3

Total Income 57,466.3 49,055.2

Profit before Depreciation and Tax 15,985.0 13,443.7

Net Profit 10,215.9 8,478.4

Profit brought forward 14,654.2 11,132.2

Total Profit available for Appropriation 24,870.1 19,610.6

Appropriations:

Transfer to Statutory Reserve 2,554.0 2,119.6

Transfer to General Reserve 1,021.6 847.8

Transfer to Capital Reserve 224.9 58.3

Transfer to Investment Reserve 27.5 3.2

Proposed Dividend 2,005.2 1,643.4

Tax including Surcharge and Education cess on Dividend 408.2 279.3

Dividend (including tax / cess thereon) pertaining to previous year paid during the year 0.8 4.8

Balance carried over to Balance Sheet 18,627.9 14,654.2

The Bank posted total income and net profit of Rs. 57,466.3 crore and Rs. 10,215.9 crore respectively for the financial year ended March 31, 2015 as against Rs. 49,055.2 crore and Rs. 8,478.4 crore respectively in the previous year.

Appropriations from net profit have been effected as per the table given above.

DIVIDEND

Your Bank has had a dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increase in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy and in recognition of the overall performance during this financial year, your directors are pleased to recommend a dividend of Rs. 8.00 per equity share of Rs. 2 for the year ended March 31, 2015 as against Rs. 6.85 per equity share of Rs. 2 for the previous year ended March 31, 2014. This dividend shall be subject to tax on dividend to be paid by the Bank.

AWARDS

As in the past years, awards and recognition were conferred upon your Bank by leading domestic and international organizations and publications during the financial year ended March 31, 2015.

Some of them are: Asiamoney

- Best of Best Domestic Banks - India Asiamoney FX Poll 2014

- Best Domestic Provider of FX options

- Best Domestic Provider of FX products & services

- Best Domestic Provider of FX research & market coverage

- Best Domestic Provider for FX services Barron''s List of World''s Best CEOs

- Mr Aditya Puri named in list of Top 30 Global CEOs

BrandZTM Top 50 Most Valuable Indian Brands study by Millward Brown

- India''s Most Valuable Brand Business Today - KPMG Study 2014

- Best Large Bank - Overall

- Best Large Bank - Growth

Businessworld - PwC India Best Banks Survey 2014

- Best Large Bank

- Fastest Growing Large Bank CNBC-TV18 CFO Awards

- Best performing CFO in the Banking Sector

Dun & Bradstreet - Manappuram Finance Limited Corporate Award 2014

- Best Corporate in Banking Sector

Dun & Bradstreet - Polaris Financial Technology Banking Awards 2014

- Best Bank - Managing IT Risk (Large Banks)

- Best Bank - Mobile Banking (Large Banks)

- Best Bank - Best IT Team (Private Sector Banks)

Euromoney Private Banking and Wealth Management Survey 2015

- Best Private Banking Services award for Net-worth- specific services category for super affluent clients (US$ 1 million to US$ 5 million)

- Best Private Banking Services award Asset Management.

FE Best Bank Awards

- Best Bank in the New Private sector

- Winner - Profitability

- Winner - Efficiency

Finance Asia Country Awards 2014

- Best Bank- India

Finance Asia''s poll on Asia''s best managed companies

- Best Managed Company in India

- Best CEO in India (Mr Aditya Puri) Forbes Asia

- Fab 50 Companies List for the 8th year

IDRBT Banking Technology Excellence Awards 2013-14

- Best Bank Award for Best IT team among Large Banks J. P. Morgan Quality Recognition Award

- Best in class straight Through Processing Rates Legal Era Magazine

- Best In - House Legal Team in Banking Sector

National Payment Corporation of India (NPCI) Excellence Awards

- Best Bank in Cheque Transaction System (CTS) - Large Bank Category

- Best Bank in National Automated Clearing House (NACH) - Large Bank Category

The Asset Triple A Awards 2014

- India - Best in Treasury and Working Capital - SME''s The Asian Banker

- Strongest Bank in India in the Asian Banker 500 (AB 500) Strongest Bank by Balance Sheet Ranking 2014

The Asian Banker Transaction Banking Awards 2014

- The Best Cash Management Bank in India Outlook Money 2014

- Best Bank Award

ISSUANCE OF EQUITY SHARES

Your Bank has issued 66,000,000 underlying equity shares pursuant an ADR offering in February 2015 and also allotted 18,744,142 equity shares pursuant to a Qualified Institutional Placement (QIP) offering. As a result of these issuances, the equity of your Bank increased by Rs. 9,722.8 crore, net of share issue expenses. The capital was raised for meeting capital requirements in accordance with the capital adequacy norms and to ensure adequate capital to support growth and expansion, including enhancing your Bank''s solvency and capital adequacy ratio and for general corporate purposes.

During the year under review, 22,700,740 equity shares were allotted to the employees of your Bank in respect of the equity stock options exercised under the Employee Stock Option schemes of the bank.

As at 31st March 2015, the issued, subscribed and paid- up capital of your bank stood at Rs. 501.30 crore comprising 2,506,495,317 equity shares of Rs. 21- each.

EMPLOYEE STOCK OPTIONS

The information pertaining to Employee Stock Options is given in as ANNEXURE 1 to this report.

CAPITAL ADEQUACY RATIO

Your Bank''s total Capital Adequacy Ratio (CAR) calculated in line with Basel III capital regulations stood at 16.8%, well above the regulatory minimum of 9.0%. Of this, Tier I CAR was 13.7%.

SUBSIDIARY COMPANIES

Your Bank has two subsidiaries, HDB Financial Services Limited (''HDBFS'') and HDFC Securities Limited (''HSL)

HDB FINANCIAL SERVICES LIMITED

HDBFS is a non-deposit taking non-bank finance company (''NBFC''). The customer segments being addressed by HDBFS are typically under serviced by larger commercial banks, and thus create a profitable niche for the company. Apart from lending to individuals, the company grants loans to micro, small and medium business enterprises. It also runs call centers for collection services to the Bank''s retail loan products.

As on March 31, 2015, HDBFS had 425 branches in 265 cities. During the financial year ended March 31, 2015, the company''s total income increased by 50% to Rs. 2,527.3 crore as compared to Rs. 1,688.3 crore in the previous year. During the same period the company''s net profit after tax grew 67% to reach Rs. 349.4 crore compared to Rs. 209.2 crore in the previous year.

During the year ended March 31, 2015, HDBFS issued 185,153,857 equity shares under the Rights Issue at a ratio of 9:25 (nine shares for every twenty five shares held). Your bank subscribed 180,000,000 shares under the Rights Issue at Rs. 65 per share (includes premium of Rs. 55 per share). As on 31 March 2015, your bank held 97.2 per cent stake in HDBFS. Further 565,800 equity shares were also issued under Employees Stock Options Scheme.

HDFC SECURITIES LIMITED

HDFC Securities Limited (HSL) continued to be a strong player in the financial services space offering complete financial services along with the core broking product. During the year under review, your Bank has further consolidated its stake in HSL by buying the shares from the other minority shareholders. Consequently, your Bank held 97.9 per cent stake in HSL as on March 31, 2015.

HSL increased its distribution network by a further fifty branches during the year, and by the end of the year had 250 branches across 186 cities in the country. During the year under review, HSLs total income has increased by over 58% to Rs. 417.0 crore as against Rs. 263.1 crore in the previous year. During the same period, the net profit after tax more than doubled to Rs. 165.0 crore compared to Rs. 78.4 crore in the previous year.

During the year under review, HSL received the following awards

- "Best e-Brokerage Award - 2014" in the Outlook Money Awards in the runner up category.

- "Best Market Analyst Award 2014" in the Equity Banking category by Zee Business and

- "Best Financial Markets Technology Implementation - 2014" during the eighth Asian Bankers Awards Program, 2014.

Shareholders who wish to have a copy of the annual accounts and detailed information on HDBFS and HSL may write to the Bank for the same. Further, the said documents shall also be available for inspection by shareholders at the registered offices of the Bank, HDBFS and HSL.

RELATED PARTY TRANSACTIONS

The details of transactions entered into with related parties are enclosed as ANNEXURE 4 to this report pursuant to Section 134 (3) (h) of the Companies Act, 2013 and Rule 8 of the Companies (Accounts) Rules, 2014.

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided by a banking company in the ordinary course of business. As required by Section 186 (4) of Companies Act, 2013, the particulars of investments made by the Bank are disclosed in Schedule 8 of the financial statements as per the applicable provisions of Banking Regulation Act, 1949.

FINANCIAL STATEMENTS OF SUBSIDIARIES AND ASSOCIATES

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank''s subsidiaries and associates are enclosed as ANNEXURE 5 to this report. There were no entities which became or ceased to be the Bank''s subsidiaries, associates or joint ventures during the year.

WHISTLE BLOWER POLICY/ VIGIL MECHANISM

The Bank has adopted a Whistle Blower Policy pursuant to which employees of the Bank can raise their concerns relating to fraud, malpractice or any other activity or event which is against the interest of the Bank or society as a whole. Details of complaints received and the action taken are reviewed by the Audit Committee.

The functioning of the Whistle Blower mechanism is reviewed by the Audit Committee from time to time. None of the Bank''s personnel have been denied access to the Audit Committee.

DECLARATION BY INDEPENDENT DIRECTORS

Mrs. Shyamala Gopinath, Mr. Partho Datta, Mr. Bobby Parikh, Mr. Anami Roy and Dr. Pandit Palande are Independent Directors on the Board of the Bank. All the above named Independent Directors have given their respective declarations under Section 149 (6) and Section 149 (7) of Companies Act, 2013 and the Rules made thereunder. In the opinion of the Board, the Independent Directors fulfill the conditions relating to their status as Independent Directors as specified in Section 149 of the Companies Act, 2013 and rules made thereunder.

BOARD PERFORMANCE EVALUATION

The Nomination and Remuneration Committee (NRC) has approved a framework/policy for evaluation of the Board, Committees of the Board and the individual members of the Board. A questionnaire for the evaluation of the Board and its Committees, designed in accordance with the said framework and covering various aspects of the performance of the Board and its Committees, including composition and quality, roles and responsibilities, processes and functioning, adherence to Code of Conduct and Ethics and best practices in Corporate Governance was sent out to the directors. The responses received to the questionnaire on evaluation of the Board and its Committees were placed before the meeting of the Independent Directors for consideration. The assessment of the Independent Directors on the performance of the Board and its

Committees was subsequently discussed by the Board at its meeting. The framework/policy for evaluation of the Board, Committees and the directors is subject to an annual review.

The Bank has in place a process wherein declarations are obtained from the Directors regarding fulfillment of "Fit and Proper" criteria in accordance with the guidelines of the Reserve Bank of India. The declarations from the Directors other than members of the NRC are placed before the NRC and the declarations of the members of the NRC are placed before the Board. Assessment on whether the directors fulfill the said criteria is made by the NRC and the Board on an annual basis. In addition, the framework/policy approved by the NRC provides for a performance evaluation of the non- independent directors by the Independent Directors on key personal and professional attributes and a similar performance evaluation of the independent directors by the Board, excluding the director being evaluated.

POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL

The Nomination and Remuneration Committee (NRC) recommends the appointment of Directors to the Board. The NRC identifies persons who are qualified to become directors on the Board and evaluates criteria such as academic qualifications, previous experience, track record and integrity of the persons identified before recommending their appointment to the Board.

The remuneration policy for whole time Directors is governed by the compensation policy of the Bank. The compensation policy of the bank, duly reviewed and recommended by the Nomination and Remuneration committee has been articulated in line with the Reserve Bank of India guidelines.

Your Bank''s compensation policy is aimed to attract, retain, reward and motivate talented individuals critical for achieving strategic goals and long term success. Compensation policy is aligned to business strategy, market dynamics, internal characteristics and complexities within the Bank. The ultimate objective is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity.

Your Bank''s approach is to have a pay for performance culture based on the belief that the performance management system provides a sound basis for assessing performance holistically The compensation system should also take into account factors like roles, skills / competencies, experience and grade / seniority to differentiate pay appropriately on the basis of contribution, skill and availability of talent on account of competitive market forces. The details of the compensation policy are also included in Schedule 18 - Notes forming part of the Accounts-Note No.23.

Non-executive directors are paid remuneration by way of sitting fees for attending meetings of the Board and its Committees, which are determined by the Board based on applicable regulatory prescriptions. Non-executive directors are also reimbursed expenses incurred by them for attending meetings of the Board and its Committees at actuals. The remuneration payable to the non-executive directors and Independent Directors is governed by the provisions of the Banking Regulation Act, 1949, RBI guidelines issued from time to time and the provisions of the Companies Act, 2013 and related rules to the extent it is not inconsistent with the provisions of the Banking Regulation Act, 1949 and RBI guidelines.

None of the Directors of your Bank other than Mr. Kaizad Bharucha is a Director of the Bank''s subsidiaries. During the year Mr. Bharucha has not received any commission from the subsidiary in which he is a Director.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY REGULATORS

During the year under review no significant or material Orders were passed by any regulators against the Bank other than those disclosed separately in the financial statements and in the Corporate Governance Report.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Mr. Paresh Sukthankar and Mr. Kaizad Bharucha will retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

Mr. CM. Vasudev ceased to be the Chairman of the Bank from the close of business hours on August 26, 2014 pursuant to his retirement. Mr. Vijay Merchant ceased to be a director of the Bank with effect from the close of business hours on October 4, 2014 on attaining the age of 70 years, the maximum age limit prescribed as per the guidelines of the Reserve Bank of India for non-executive directors. Your directors wish to place on record their sincere appreciation of the contributions made by Mr. Vasudev and Mr. Merchant during their tenures as Directors of the Bank.

Mrs. Shyamala Gopinath was appointed as the non-executive, part time Chairperson of the Bank for a period of three (3) years and she assumed office on January 2, 2015. Mrs. Gopinath has a rich and varied experience in various facets of banking and finance.

Mr. Malay Patel was appointed as an additional director with effect from March 31, 2015 to hold office till the conclusion of the ensuing Annual General Meeting. Mr.Patel has been appointed as a Director possessing specialized knowledge and experience in the "Small Scale Industries" sector as per the provisions of Section 10-A (2 a) of the Banking Regulation Act, 1949. In terms of the provisions of Section 149 of the Companies Act, 2013, it is proposed to appoint Mr. Malay Patel as an Independent Director for a tenure of five (5) years determined in accordance with the applicable provisions of the Banking Regulation Act, 1949 and the guidelines of the Reserve Bank of India in this regard. The Bank has received a notice from a member proposing the candidature of Mr. Malay Patel as Director of the Bank at the ensuing Annual General Meeting.

The brief resume/details relating to Directors who are to be appointed/re-appointed as above are furnished in the report on Corporate Governance.

There have been no changes in the Directors and Key Managerial Personnel of the Bank other than the above.

FAMILIARIZATION PROGRAMME FOR INDEPENDENT DIRECTORS

The various programmes undertaken for familiarizing Independent Directors with the functions and procedures of the Bank are disclosed in the Corporate Governance Report.

PARTICULARS OF EMPLOYEES

The information in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in ANNEXURE 6 to this report.

The Bank had 76,286 employees as on March 31, 2015. 224 employees employed throughout the year were in receipt of remuneration of more than Rs. 60 lacs per annum and 20 employees employed for part of the year were in receipt of remuneration of more than Rs. 5 lacs per month. The details of such employees in terms of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are appended separately and form part of this report. The Report and Accounts are being sent to the shareholders excluding these particulars and any shareholder interested in obtaining the said details may write to the Company Secretary at the Registered Office of the Bank.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

(A) Conservation of Energy

Your Bank has undertaken several initiatives in the conservation of energy, to name a few:

- Installed energy capacitors at its high consumption offices to control the power factor and to reduce energy consumption.

- Installed energy saving electrical devices for saving energy and supporting go-green initiative.(Device in ACs)

- Advocated switching off of lights and ACs when not required, turning off of PCs when not in use, (post 10 pm thru remote control) setting higher temperatures on air conditioners etc. to reduce consumption.

- All main Sign Boards in Branches switched off during the night post 10 pm

- Put Controls on usage of Lifts, Air Conditioners, Common Passage lights and other electrical equipments.

(B) Technology Absorption

(i) The efforts made towards technology absorption;

Your Bank continues to make substantial investments in its technology platforms and systems and spread its electronically linked branch network. Telecom infrastructure is skeletal and of lower capacity in semi-urban and rural areas. Besides using the conventional VSAT technology in such geographies, where data connectivity is weak, to offer state-of-art IT enabled core banking services, your Bank has implemented CDMA (mobile data) based networking options, to link your Bank branches to its data centers, besides using traditional Radio Frequency based network options, where available and feasible. Your Bank also implemented Desktop Virtualization, a Cloud Technology solution, which reduces the bandwidth consumption to one-third of what a conventional desktop requires to run core banking services, in semi-urban or rural branches. Over 10,000 such virtual desktops have been deployed in the past two years, to ensure that your Bank is serving you in semi-urban and rural India.

Your Bank''s direct banking platforms continue to be stable and robust, supporting ever increasing transaction volumes. Due to technology initiatives implemented, the availability of your Bank''s NetBanking platform has improved considerably. Besides having over 75 on-line real time transacting features in Mobile Banking App in both Hindi and English across cross-section of Mobile devices, your Bank has also implemented cutting edge innovative Person-to-Person Payment solution, in partnership with relevant industry players. This has made paying to your friends, domestic help people, taxi drivers, tuition teachers of your children and others easier, at the click of a button on your smart mobile phone!

Your Bank is also committed to bring you the best deals in the town and offer a higher value proposition on your HDFC Bank Credit and Debit Cards or while using Bank''s Mobile Apps. SmartBuy is one such initiative in partnership with respective industry and technology platform providers, where you can enjoy offers which have higher level of discounts vis-a-vis the popular on-line travel portals or e-commerce sites. Your bank has used CLOUD services to Host SmartBuy, so that, it can dynamically scale on demand.

Your Bank supported over 2 million payment transactions on the peak day last year. This was possible through 4X scalability implemented through innovative Performance Engineering techniques on our RTGS and NEFT platforms and numerous Middleware components in the path of such Payment Transactions. Numerous e-tailing brands, on-line travel portals, government''s very own and country''s largest e-commerce platform for railway tickets, to high volume on-line retailers, your bank successfully processed more than 50% of the entire Credit Cards, Debit Cards and Direct Debit Payment Modes linked volumes of such e-commerce portals on their peak season sales days. Your bank has already initiated measures to double such e-commerce processing capability in the coming fiscal, on many of its relevant Payment processing platforms. Your Bank also plans to implement electronic Wallet and technologies like Contactless Cards.

With a view to support the Digital initiatives and focusing squarely on customer-centricity your Bank has set up and augmented systems for data warehouse, analytics, campaign management and lead management. Your Bank has embarked on a program to equip its Core Banking System with more processing capacity to meet the scale and transaction volume requirements in the coming years.

Your Bank has implemented a Private Virtual Cloud in its data centers, to ensure that its IT infrastructure usage is highly optimized. Over 3,000 virtual machines now run over much smaller physical technology infrastructure footprint to power numerous IT enabled business services.

Live switch-over and switch-back drills of major IT applications have successfully been completed, as part of your Bank''s Business Continuity and Disaster Recovery management strategy, thereby enhancing your Bank''s readiness in responding to emergency situations. These switch-over and switch-back drills have also been successfully completed for your Bank''s Primary Data Centre.

RBI had issued guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds and provided recommendations for implementation. Your Bank had embarked on a program to implement these guidelines and is nearing full implementation of the requirements stated in the guidelines.

(ii) the benefits derived like product improvement, cost reduction, product development or import substitution

Technology has continued to provide business and customers with state of the art products and services. Through use of carefully evaluated and implemented technology solutions, business has been able to offer world class products and customer services at optimal costs. Your bank continues to achieve first mover advantage with introduction of products like Chillr and Smart Buy. While offering these products your bank is equally focused on security of our customers and mitigation of risks due to increasing cyber threats. Using superlative combination of Real time decisioning, self-learning model and on line tie back with host system, your Bank has restricted cyber frauds to minimum levels.

Technology initiatives in the areas of enterprise data warehousing and advanced analytics have further enabled your Bank with much more effective and targeted campaigns and acquisition as well as heightened cross sell opportunities and customer retentions.

In order to optimize costs and offer products and services at reasonably lower costs to customers, your Bank has evaluated and implemented cutting edge technologies like desktop virtualization and server virtualization, storage virtualization, data compression techniques and private cloud.

Apart from product improvisations & optimizing costs your Bank has focused on ensuring uninterrupted services are made available to its customers by strengthening its technology infrastructure so that there are no single points of failure. Towards this front, your Bank has also strengthened its DR BCP initiative and conducted regular mock drills so that DR BCP serves meaningfully when it is required.

(iv) the expenditure incurred on Research & Development.

Being in the Financial Services space, your Bank evaluates innovative technology solutions that are readily available or near-ready for deployment and broadly fit its business requirements. Solutions that are commercially viable are then tested in collaboration with the relevant technology partners. Once proven, the technology solutions are then procured and commissioned for active business use.

Research and Development expenses are not applicable to IT solutions absorption in the Bank given the above technology introduction process & strategy of your bank.

(C) Foreign Exchange Earnings and Outgo:

During the year the total foreign exchange earned by the Bank was Rs. 1,028.0 crore (on account of net gains arising on all exchange / derivative transactions) and the total foreign exchange outgo was about Rs. 196.1 crore towards the operating and capital expenditure requirements.

SECRETARIAL AUDIT

In terms of Section 204 of the Companies Act, 2013 and the rules made thereunder, M/s. BNP & Associates, practicing Company Secretaries have been appointed as Secretarial Auditors of the Bank for the financial year 2014-15. The Report of the Secretarial Auditors is enclosed as ANNEXURE 7 to this Report. The observations in the said report are self explanatory and no further comments/explanations are called for.

CORPORATE GOVERNANCE

In compliance with the provisions of Clause 49 of the Listing Agreement, a separate report on Corporate Governance along with a certificate from the Secretarial Auditors of its compliance, forms an integral part of this Report.

BUSINESS RESPONSIBILITY REPORT

The Bank''s Business Responsibility Report containing a report on its Corporate Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site www.hdfcbank.com.

INFORMATION UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013

The relevant information is included in Section E-Principle 3 of the Business Responsibility Report for 2014-15.

ACKNOWLEDGEMENT

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank''s employees and look forward to their continued contribution in building a World Class Indian Bank.

On behalf of the Board of Directors

Mrs. Shyamala Gopinath Chairperson

Mumbai, April 23, 2015


Mar 31, 2014

The Directors take great pleasure in presenting the Twentieth Annual Report on the business and operations of your Bank together with the audited accounts for the year ended March 31, 2014.

FINANCIAL PERFORMANCE

(Rs. crore) For the year ended

March 31, 2014 March 31, 2013

Deposits and Other Borrowings 406,776.5 329,253.6

Advances 303,000.3 239,720.6

Total Income 49,055.2 41,917.5

Profit before Depreciation and Tax 13,443.7 10,402.3

Net Profit 8,478.4 6,726.3

Profit brought forward 11,132.2 8,399.6

Total Profit available for Appropriation 19,610.6 15,125.9

Appropriations:

Transfer to Statutory Reserve 2,119.6 1,681.6

Transfer to General Reserve 847.8 672.6

Transfer to Capital Reserve 58.3 85.8

Transfer to / (from) Investment Reserve 3.2 17.7

Proposed Dividend 1,643.4 1,309.1

Tax Including Surcharge and Education cess on Dividend 279.3 222.5

Dividend (including tax / cess thereon) pertaining to previous year paid during the year 4.8 4.5

Balance carried over to Balance Sheet 14,654.2 11,132.2

The Bank posted total income and net profit of Rs. 49,055.2 crore and Rs. 8,478.4 crore respectively for the financial year ended March 31, 2014 as against Rs. 41,917.5 crore and Rs. 6,726.3 crore respectively in the previous year.

Appropriations from net profit have been effected as per the table given above.

DIVIDEND

Your Bank has had a dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increase in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy and in recognition of the overall performance during this financial year, your directors are pleased to recommend a dividend of Rs. 6.85 per equity share of Rs. 2 for the year ended March 31, 2014 as against Rs. 5.50 per equity share of Rs. 2 for the previous year ended March 31, 2013. This dividend shall be subject to tax on dividend to be paid by the Bank.

AWARDS

As in the past years, awards and recognition were conferred upon your Bank by leading domestic and international organizations and publications during the financial year ended March 31, 2014.

Some of them are :

Asiamoney

- Best Domestic Bank in India

- Best Local Cash Management Bank in India

- Aditya Puri - Best Executive in India

Business India

- Best Bank

Business Standard

- Aditya Puri - Banker of the Year

Business Today - KPMG Best Banks Survey

- Best Bank

Businessworld

- Best Bank in India (Large Banks)

Dun & Bradstreet Corporate Awards

- Best in Banking Sector

Dun & Bradstreet Polaris Financial Technology Banking Awards

- Best Private Sector Bank - Technology Adoption

- Best Private Sector Bank - Retail

- Overall Best Private Sector Bank

FE-EY Best Banks Survey

- Best Bank - New Private Sector

- Best in Strength and Soundness

- Best in Profitability

Finance Asia Country Awards for Achievement

- Best Bank- India Forbes Asia

- Fab 50 Companies List (for the 7th Year) Global Finance Survey -World''s Best Banks

- Best Bank in India

GUINNESS WORLD RECORDTM

- Largest Blood Donation Drive across multiple venues, in a single day

IBA Banking Technology Awards

- Best Technology Bank of the Year

- Best Internet Bank

- Best Customer Management Initiative

- Best Use of Mobility Technology in Banking

IBA Innovation Awards

- Most Innovative Use of Technology

Institute for Development and Research in Banking Technology Awards

- Best Bank - Managing IT Risk (Large Banks)

- Best Bank - Mobile Banking (Large Banks)

- Best Bank - Best IT Team (Private Sector Banks)

Institutional Investor

- Best Investor Relations Company (Banking Sector)

- Best CEO (Banking Sector)

- Best CFO (Banking Sector)

MACCIA Awards

- Best in Financial Services - Bank Category

NDTV Profit Business Leadership Awards

- Winner in the Banking Category

Outlook Money Awards

- Best Bank in Large Banks Category

Sunday Standard Best Banker Awards

- Best Private Sector Bank - Large

- Safest Bank - Large

- Aditya Puri - Top Achiever

The Asian Banker Achievement Awards

- International Transaction Banking

UTI Mutual Fund CNBC TV 18 Financial Advisory Awards

- Best Performing Bank - Private

RATINGS

Instrument Rating Rating Agency

Fixed Deposit Program CARE AAA (FD) CARE Ratings

tAAA (ind) India Ratings

Certificate of Deposits CARE A1 CARE Ratings Program

A1 (ind) India Ratings

Long term unsecured, CARE AAA CARE Ratings

subordinated

(Lower Tier 2) Bonds

AAA (ind) with a India Ratings Stable outlook

Tier 1 Perpetual Bonds CARE AAA CARE Ratings

AAA Stable CRISIL

Upper Tier 2 Bonds CARE AAA CARE Ratings

AAA stable CRISIL

Comments

Instruments with this rating are considered to have very strong

degree of safety regarding timely payment of financial obligations.

Such instruments carry lowest credit risk.

Instruments with this rating are considered to have very strong

degree of safety regarding timely payment of financial obligations.

Such instruments carry lowest credit risk.

Instruments with this rating are considered to have very strong

degree of safety regarding timely payment of financial obligations.

Such instruments carry lowest credit risk.

Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk. Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk

ISSUANCE OF EQUITY SHARES

During the year under review, 196.3 lac shares were allotted to the employees of your Bank in respect of the stock options exercised. These include the shares allotted under the Employee Stock Option Schemes of the erstwhile Centurion Bank of Punjab.

EMPLOYEE STOCK OPTIONS

The information pertaining to Employee Stock Options is given in an annexure to this report.

CAPITAL ADEQUACY RATIO

The Reserve Bank of India issued the Basel III capital regulations which were effective from April 1, 2013. Accordingly Bank''s in India are now required to report Capital Adequacy ratios under Basel III guidelines. Your Bank''s total Capital Adequacy Ratio (CAR) calculated in line with Basel III capital regulations stood at 16.1%, well above the regulatory minimum of 9.0%. Of this, Tier I CAR was 11.8%.

SUBSIDIARY COMPANIES

Your Bank has two subsidiaries, HDB Financial Services Limited (''HDBFS'') and HDFC Securities Limited (''HSL)

HDB FINANCIAL SERVICES LIMITED

HDBFS is a non-deposit taking non-bank finance company (''NBFC''). The customer segments being addressed by HDBFS are typically underserviced by larger commercial banks, and thus create a profitable niche for the company. Apart from lending to individuals, the company grants loans to micro, small and medium business enterprises. It also runs call centers for collection services to the Bank''s retail loan products.

As on March 31, 2014, HDBFS had 275 branches in 202 cities. During the financial year ended March 31, 2014, the company''s total income increased by over 75% to Rs. 1,688.3 crore as compared to Rs. 963.2 crore in the previous year. During the same period the company''s net profit after tax grew 104% to reach Rs. 209.2 crore compared to Rs. 102.5 crore in the previous year.

During the year ended March 31, 2014, HDBFS issued 10,26,91,469 shares at Rs. 56 per share (includes premium of Rs. 46) on right basis at 1:4 ratio (one share for every four shares held). Your bank subscribed 10,00,00,000 shares in the issue at Rs. 56 per share .

HDFC SECURITIES LIMITED

HDFC Securities Limited has emerged as a strong player in the financial services space offering complete financial services along with the core broking product. The Company continued strengthening its distribution network and by the end of the year had 200 branches across 160 cities in the country. During the year under review, the Company''s total income amounted to Rs. 263.1 crore as against Rs. 232.1 crore in the previous year. The operations have resulted in a net profit after tax of Rs. 78.4 crore as against Rs. 66.8 crore in the previous year.

During the year under review, your Bank increased its stake in HSL by buying out the entire shareholding (27.82 per cent) of the minority partner Indocean e-Securities Holdings Ltd. Consequently, your Bank held 89.24 per cent stake in HSL as on March 31, 2014.

Shareholders who wish to have a copy of the annual accounts and detailed information on HDBFS and HSL may write to the Bank for the same. Further, the said documents shall also be available for inspection by shareholders at the registered offices of the Bank, HDBFS and HSL.

Financial Performance

The financial performance of your Bank during the financial year ended March 31, 2014 remained healthy with total net revenues (net interest income plus other income) increasing by 16.5% to Rs. 26,402.3 crore from Rs. 22,663.7 crore in the previous financial year. Revenue growth was driven by an increase in both, net interest income and other income. Net interest income grew by 16.9% due to acceleration in loan growth of 26.4% coupled with a net interest margin (NIM) of 4.4% for the year ending March 31, 2014.

Other income grew 15.6% over that in the previous year to Rs. 7,919.6 crore during the financial year ended March 31, 2014. The largest component of other income was fees and commissions, which increased by 11.0% to Rs. 5,734.9 crore with the primary drivers being commissions on debit and credit cards, transactional charges, fees on deposit accounts, processing fees on retail assets and commission on distribution of Insurance products. Foreign exchange and derivatives revenues were Rs. 1,401.1 crore, gain on revaluation / sale of investments were Rs. 110.5 crore and recoveries from written- off accounts were Rs. 622.6 crore in the financial year ended March 31, 2014.

Operating (non-interest) expenses increased from Rs. 11,236.1 crore in the previous financial year to Rs. 12,042.2 crore in the year under consideration. During the year, your Bank opened 341 new branches and 513 ATMs which resulted in higher infrastructure and staffing expenses. Staff expenses also increased on account of annual wage revisions. Cost to income ratio was at 45.6% for the year ended March 31, 2014, as against 49.6% for the previous year.

Total provisions and contingencies were Rs. 1,588.0 crore for the financial year ended March 31, 2014 as compared to Rs. 1,677.0 crore during the previous year. Your Bank''s provisioning policies for specific loan loss provisions remain higher than regulatory requirements. The coverage ratio based on specific provisions alone without including write-offs was 73%, and including general and floating provisions was 176% as on March 31, 2014. Your Bank made general provisions of Rs. 221.3 crore during the financial year ended March 31, 2014.

Your Bank''s profit before tax was Rs. 12,772.1 crore, an increase of 31.0% over the year ended March 31, 2013. With the effective tax rate for the year at 33.6% as against 31.0% for the previous year, the net profit for year ended March 31, 2014 was Rs. 8,478.4 crore, up 26.0%, over the year ended March 31, 2013. Return on average net worth was 20.9% while the basic earnings per share increased from Rs. 28.5 to Rs. 35.5 per equity share.

As at March 31, 2014, your Bank''s total balance sheet was at Rs. 491,600 crore, an increase of 22.8% over Rs. 400,332 crore as at March 31, 2013. Total deposits increased 24.0% from Rs. 296,247 crore as on March 31, 2013 to Rs. 367,337 crore as on March 31, 2014. These included US$ 3.4 billion deposits raised under the RBI window for attracting Foreign Currency Non-Resident (FCNR) deposits. Under this window the Bank could raise foreign currency denominated deposits and swap them into rupees with RBI at a concessional rate. Savings account deposits grew by 16.9% to Rs. 103,133 crore while current account deposits grew by 17.5% to Rs. 61,488 crore as on March 31, 2014. The proportion of current and savings deposits to total deposits was at 44.8% as on March 31, 2014.

During the financial year under review, net advances grew by 26.4% to Rs. 303,000 crore. Your Bank''s retail advances grew by 20.8% to reach Rs. 164,763 crore. Adjusted for the one time increase in FCNR deposits swapped with RBI under the special window and the related foreign currency loans, core deposits and advances growth for the year ended March 31, 2014 was 16.9% and 21.8% respectively. The Bank had a market share of approximately 4.4% and 4.7% in total domestic system deposits and advances respectively. Your Bank''s Credit Deposit (CD) Ratio was 82.5% as on March 31, 2014.

Business Segments'' Update

Consistent with its past performance, your Bank has achieved healthy growth across various operating and financial parameters in the last financial year. This performance reflected the strength and diversity of three primary business franchises -retail banking, wholesale banking and treasury and of its disciplined approach to risk-reward management.

Retail Banking

Your Bank caters to various customer segments with a wide range of products and services. Your Bank is a ''one stop shop'' financial services provider of various deposit products, of retail loans (auto loans, personal loans, commercial vehicle loans, mortgages, business banking, loan against gold jewellery etc.), credit cards, debit cards, depository (custody services), bill payments and several transactional services. Apart from its own products, your Bank distributes third party financial products such as mutual funds and life and general insurance.

The growth in your Bank''s retail banking business was robust during the financial year ended March 31, 2014. Your Bank''s total retail deposits grew by 29.4% to Rs. 287,157 crore in the financial year ended March 31, 2014, driven by retail term deposits which grew faster at 42.7% during the same period. Adjusted for US$ 3.4 billion deposits raised under the RBI window for attracting Foreign Currency Non-Resident (FCNR) deposits, core total retail deposits and retail term deposits growth was 20.0% and 22.8% respectively for the year ended March 31, 2014.

The Bank''s retail advances grew 20.8% to Rs. 164,763 crore during the financial year ended March 31, 2014 driven primarily by a growth in personal loans, home loans, mortgage loans and credit cards. Retail advances include loans which fulfill the criteria of orientation, nature of product, granularity and low value of individual exposures for retail exposures as laid down by the Basel Committee. The auto finance business grew at relatively lower pace and commercial transportation finance de- grew in line with the general market conditions.

During this year your Bank expanded its distribution network from 3,062 branches in 1,845 cities / towns as on March 31, 2013 to 3,403 branches in 2,171 cities / towns as on March 31, 2014. Number of ATMs increased from 10,743 to 11,256 during the same period. The Bank''s focus on semi-urban and under- banked markets continued, with over 80% of the Bank''s new branches in semi-urban and rural areas. The Bank''s customer base currently stands at 28.9 million customers.

In order to provide its customers greater choices, flexibility and convenience, your Bank continued to make significant headway in its multichannel servicing strategy, offering its customers the use of ATMs, internet, phone and Mobile Banking in addition to its expanded branch network to serve their banking needs. Phone Banking services are available even for Non Resident Indian (NRI) customers of your Bank across the globe.

Your Bank''s Mobile Banking product has been developed keeping in mind data connections which can be either 2G or 3G. Technology has played a key role in the push into rural hinterlands. For local customers there are Hindi Mobile App, Hindi SMS Banking and a Toll Free number to carry out basic banking activities. A great response was received on the toll-free service from our customers in Rural and Semi-Urban centers, since they could get instant updates on account balance, last 3 transactions etc through an instant SMS response from the Bank by simply giving a missed call on a toll-free number.

The Bank continued its focus on internal customers for its credit cards portfolio with over 70% of new cards issued to internal customers. During the year, the Bank launched three premium variants of credit cards as part of the Diners brand under an exclusive arrangement with Diners. This will enable the Bank to cater to the specific need of super-premium customers requiring global card benefits. As part of its strategy to drive usage of its credit cards the Bank also has a significant presence in the ''merchant acquiring'' business with the total number of point-of- sale (POS) terminals installed at over 215,000.

In addition to the aforementioned products the Bank does home loans in conjunction with HDFC Limited. Under this arrangement the Bank sells loans provided by HDFC Limited through its branches. HDFC Limited approves and disburses the loans, which are booked in their books, with the Bank receiving a sourcing fee for these loans. The Bank has the option but not an obligation to purchase up to 70% (or 55% in case all the loans purchased qualified for priority sector) of the fully disbursed home loans sourced under this arrangement either through the issue of mortgage backed pass through certificates (PTCs) or by a direct assignment of loans; the balance is retained by HDFC Limited. A fee is paid to HDFC Limited for the administration and servicing of the loans. As required by the current securitization guidelines, the loan assignments bought during the year are without credit enhancement. Your Bank originated an average Rs. 1,000 crore of home loans every month in the financial year ended March 31, 2014. During the year, the Bank purchased from HDFC Limited under the "loan assignment" route approximately Rs. 5,560 crore of home loans which also qualified as priority sector advances.

Your Bank also distributes life, general insurance and mutual fund products through its tie-ups with insurance companies and mutual fund houses. Changes in regulations and product mix have adversely impacted fees from these sources, though increase in volumes has offset to some extent the drop in commission rates. Third party distribution income contributes approximately 11% of total fee income for the year ended March 31, 2014, compared to 15% of the total fee income for the previous year.

The Bank''s data warehouse, Customer Relationship Management (CRM) and analytics solutions have helped it target existing and potential customers in a cost effective manner and offer them products appropriate to their profile and needs. Apart from reducing costs of acquisition, this has also helped in deepening of customer relationships and greater efficiency in fraud control and collections activities resulting in lower credit losses. The Bank is committed to investing in advanced technology in this area which will provide a cutting edge in the Bank''s product and service offerings.

Wholesale Banking

Your Bank provides its corporate and institutional clients a wide range of commercial and transactional banking products, backed by high quality service and relationship management. The Bank''s commercial banking business covers not only the top end of the corporate sector but also the emerging corporate segments and small and medium enterprises (SMEs). Your Bank has a number of business groups catering to various segments of its wholesale banking customers with a wide range of banking services covering their working capital, term finance, trade services, cash management, investment banking services, foreign exchange and electronic banking requirements.

Your Bank''s financial institutions and government business group (FIG) offers commercial and transaction banking products to financial institutions, mutual funds, public sector undertakings, central and state government departments. The main focus for this segment remained the offering of various deposit and transaction banking products to this segment besides deepening these relationships by offering funded, non- funded, treasury and foreign exchange products. Your Bank is authorised to collect Direct Taxes & made total collection of Rs. 139,433 crore during the year and was ranked No.2 in terms of total collections made by any bank. Your Bank is also authorised to collect Excise & Service Tax and collected Rs. 53,019 crore, during the year. Governments of 12 States have authorised your Bank to collect State Taxes / duties. These mandates enable a greater convenience to the customers and help the exchequer in mobilizing resources in a seamless manner.

Your Bank''s wholesale deposits grew around 7.8%, while wholesale advances showed a growth of 33.6%. Your Bank provides its customers access to both working capital and term financing. Although the Bank witnessed an increase in the proportion of its medium tenor term lending, working capital loans and short tenor term loans continued to account for a large share of its wholesale advances.

During the financial year ended March 31, 2014, growth in the wholesale banking business continued to be driven by new customer acquisition and higher cross-sell with a focus on optimizing yields and increasing product penetration. Your Bank''s cash management, vendor and distributor (supply chain) finance products continued to be an important contributor to growth in the corporate banking business. Your Bank further consolidated its position as a leading player in the cash management business (CMS) (covering all outstation collection, disbursement and electronic fund transfer products across the Bank''s various customer segments) with volumes of over Rs. 33 trillion. The Bank is one of the front runners in making significant progress in web-enabling its CMS business. The Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share by offering customised solutions. From customised ERP integrations to high end SAP certified solutions, the Bank has been a leading proponent of adopting innovative technology. The Bank continues to be the market leader in cash settlement services for major stock & commodity exchanges in the country.

Your Bank''s Investment Banking Group established itself as a leading player in debt capital markets and is now ranked amongst the top 5 book runners in Rupee corporate loans and bonds. The group arranged financing for client relationships across sectors including telecom, toll roads, steel, energy, LNG terminals, chemicals and cement. The group managed to close Rs. 120 billion worth of corporate bonds across public sector undertakings, financial institutions and corporate clients of the bank. In the advisory business, the Bank advised and closed transactions in capital goods, agrochemicals and BFSI sector. In the capital markets business, Bank advised clients on public offerings and buy-back of shares and is now well positioned to offer the entire gamut of investment banking services.

The Bank met the overall priority sector lending requirement of 40% of net bank credit and also strived for healthy growth in the sub-targets such as weaker sections, direct agriculture, and the micro and SME segments.

International Operations

Your Bank currently has two overseas branches: a wholesale banking branch in Bahrain and a branch in Hong Kong. Your Bank also has three representative offices in Dubai, Abu Dhabi and Kenya. The Bank also has RBI approval to open a branch at DIFC Dubai and the office is likely to be operational in the next year. The overseas branches offer multiple banking services including treasury products, trade finance and loans to customers. The representative offices are engaged in offering wealth management products, remittance facilities and marketing deposits to the non-resident Indian (NRI) community. As of March 31, 2014 the combined balance sheet size of both the overseas branches was over USD 5.0 billion. To capture the one time opportunity offered by RBI in September - November 2013 to commercial banks for raising FCY monies at concessional rupee swap cost, the Bank issued USD 500 million bonds for 3 years through a public deal. In addition, USD 880 million were raised through bilateral loans in international loan market. With the above fund raising along with funds sourced through tie up with other foreign banks and FCNR deposits received directly, the bank raised USD 325 million as tier 1 borrowing and USD 3.4 billion of FCNR deposits, which was approximately 13% of the total inflows into the country under the special RBI window.

Treasury

The treasury group is responsible for compliance with reserve requirements, and management of liquidity and interest rate risk on the Bank''s balance sheet. On the foreign exchange and derivatives front, revenues are driven primarily by spreads on customer transactions based on trade flows and customers'' demonstrated hedging needs. The financial year ended March 31, 2014 recorded Rs. 1,401.1 crore revenues from foreign exchange and derivative transactions. These revenues were distributed across large corporate, emerging corporate, business banking and retail customer segments for plain vanilla foreign exchange products and across primarily large corporate and emerging corporate segments for derivatives. The Bank offers Indian rupee and foreign exchange derivative products to its customers, who use them to hedge their market risks. The Bank enters into foreign exchange and derivative deals with counterparties after it has set up appropriate counterparty credit limits based on its evaluation of the ability of the counterparty to meet its obligations in the event of crystallization of the exposure. Appropriate credit covenants may be stipulated where required as trigger events to call for collaterals or terminate a transaction and contain the risk. Where the Bank enters into foreign currency derivative contracts, not involving the Indian Rupee, with its customers it lays them off in the inter- bank market on a matched basis. For such foreign currency derivatives, the Bank does not have any open positions or does not assume any market risks but carries only the counterparty credit risk (where the customer has crystallized payables or mark-to-market losses). The Bank also deals in derivatives on its own account; including for the purpose of its own balance sheet risk management. The Bank recognizes changes in the market value of all derivative instruments (other than those designated as hedges) in the profit and loss account in the period of change. Derivative contracts designated as hedges are not marked to market unless their underlying transaction is marked to market.

Given the regulatory requirement of holding government securities to meet the statutory liquidity ratio (SLR) requirement, your Bank maintains a portfolio of government securities. While a significant portion of these SLR securities are held in the ''Held-to-Maturity'' (HTM) category, some of these are held in the ''Available for Sale'' (AFS) category. The Bank is also a Primary Dealer for government securities. As part of this business, as well as otherwise, the Bank holds fixed income securities in the "Held for Trading" (HFT) category.

Information Technology

Your Bank had successfully completed the program to refresh its Retail Core Banking System to the latest technology platform. Continuing with the program from the previous financial year, your Bank migrated the remaining 60% of the Retail Accounts to this new technology platform during the financial year ended March 31, 2014. This new Retail Core Banking System is deployed on a more robust architecture, enabling your Bank to provide more features to its customers and respond faster to business and market needs.

Your Bank continues to make substantial investments in its technology platforms and systems and spread its electronically linked branch network. Your Bank''s direct banking platforms continue to be stable and robust, supporting ever increasing transaction volumes, as customers adopt newer self-service technologies.

Over 2,15,000 of your Bank''s Point-Of-Sale terminals have been made safer and more secure, following implementation of RBI''s security and encryption mandates. Also, Repay cards are now accepted on these terminals and at Internet merchants enlisted with your Bank.

Your bank had implemented state-of-the-art engineered systems technology for some of the important systems. The capacity of the EFT switch has been upgraded to cater to growing ATM and other payment transaction volumes and enhance scalability. Your Bank has doubled the capacity of its operational Customer Relationship Management system in a very innovative manner, by implementing the latest version of its database engine and has doubled the supported user concurrency.

Live switch-over and switch-back drills of major IT applications have successfully been completed, as part of your Bank''s Business Continuity and Disaster Recovery management strategy, thereby enhancing your Bank''s readiness in responding to emergency situations. These switch-over and switch-back drills have been successfully completed for the new Retail Core banking System also.

RBI had issued guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds and provided recommendations for implementation. Your Bank embarked on a program to implement these guidelines and has since implemented substantial portion of the requirements stated in the guidelines.

Service Quality Initiatives

Your Bank continued its drive towards improvements in service quality across all customer touch points namely branches, ATMs, Phone Banking, Net Banking and email channels. With a view to ensure comprehensive improvement, your Bank extended its service quality initiatives to the back office support functions. Your Bank regularly captures ''voice of customers'' and ''voice of employees'' and uses those towards simplification of processes to delight customers. Your Bank has also augmented the training and skill development mechanism to empower and equip employees to deliver improved quality of customer service.

Your Bank has taken various steps to improve the effectiveness of its grievance redressal mechanism across its delivery channels. The effectiveness of grievance handling in particular and overall customer service initiatives are periodically reviewed at different levels including by the Board of Directors of the Bank. All these initiatives have helped in consistent reduction in the total number of customer complaints. Your Bank has established a very strong and dispassionate review mechanism for complaint disposal in this year. Review is done by an independent cross functional team of senior staff ensuring unbiased resolution.

As a result of the continued focus on customer service, your Bank has not only received written appreciation from some of the Banking Ombudsmen appointed by the Reserve Bank of India, but has also received many accolades e.g. "Qualtech Award" in the Lean Sigma Project Competition for "Empowering Rural Livelihood: Re-engineering the Kisan Gold Card" (popularly known as 7 DAY KGC) and winner in Best Customer Management Initiative at the IBA Banking Technology Awards to name a few.

Risk Management and Portfolio Quality

Integral to its business, the Bank takes on various types of risk, the most important of which are credit risk, market risk and operational risk. The identification, measurement, monitoring and management of risks remain a key focus area for the Bank. Sound risk management and balancing risk-reward trade-offs are critical to the Bank''s success. Business and revenue growth are therefore to be weighed in the context of the risks implicit in the Bank''s business strategy. The Board of Directors of your Bank endorses the risk strategy and approves the risk policies. The Risk Policy & Monitoring Committee of the Board supervises implementation of the risk strategy. It guides the development of policies, procedures and systems for managing risk. The Committee periodically reviews risk level and direction, portfolio composition, status of impaired credits as well as limits for treasury operations.

The Bank has a comprehensive centralized risk management function, independent from the operations and business units of the Bank. For credit risk, distinct policies, processes and systems are in place for the retail and wholesale businesses. In the retail loan businesses, the credit cycle is managed through appropriate front-end credit, operational and collection processes. For each product, programs defining customer segments, underwriting standards, security structure etc., are specified to ensure consistency of credit buying patterns. Given the granularity of individual exposures, retail credit risk is monitored largely on a portfolio basis, across various products and customer segments. For wholesale credit exposures, management of credit risk is done through target market definition, appropriate credit approval processes, ongoing post-disbursement monitoring and remedial management procedures. Overall portfolio diversification and periodic as well as proactive reviews facilitate risk mitigation and management.

The banking industry in India continued to face a challenging environment, reflected in increased rating downgrades, debt restructuring and non-performing assets. Your Bank, however, has been able to maintain a high quality loan book and have relatively low delinquencies. The credit quality in the wholesale segment continued to be stable, supported by tighter credit standards, appropriate credit filters and robust monitoring systems as well as a balanced portfolio. The commercial vehicle and construction equipment segments continued to see some stress due to the ban on mining activity, low industrial growth and slowdown in investment activity. The credit quality of the other retail lending book of the Bank continued to be healthy in line with the expectations. As of March 31, 2014, your Bank''s ratio of gross non-performing assets (NPAs) to gross advances was 0.98%. Net non-performing assets (gross non- performing assets less specific loan loss provisions) were 0.3% of net advances as of March 31, 2014. Restructured assets including pipeline cases were 0.2% of gross advances as of March 31, 2014. The specific loan loss provisions that the Bank has made for its non-performing assets continue to be more conservative than the regulatory requirement. In addition, the Bank has made general provisions for standard assets which are as per regulatory prescription. The coverage ratio taking into account specific, general and floating provisions was 176% as of March 31, 2014.

A dedicated team within the risk management function is responsible for assessment, monitoring and reporting of operational risk exposures across the bank. Board approved Operational Risk Management Framework is put in place. A bottom up self-assessment process identifies high risk areas so that bank can initiate timely remedial measures. Key Operational Risk Indicators are employed to alert the bank on impending problems in a timely manner to ensure risk mitigation actions. Material operational risk losses are examined thoroughly to identify areas of risk exposures and gaps in controls basis which appropriate risk mitigating actions are initiated.

Market Risk in the trading portfolio of your Bank has been adequately managed through a well-defined Board approved market risk policy and stringent trading risk limits such as positions limits, gap limits, tenor restrictions; sensitivity limits viz. PV01, Modified Duration and Option Greeks, Value-at-Risk (VaR) limit and Stop Loss Trigger Level (SLTL). The Bank also has an approved investment policy which is adhered while investing or trading. Additionally, Bank has a Board approved stress test policy and framework which encompasses the market risk stress test scenarios and simulations so that stress losses can be measured and adequate control measures can be initiated.

Liquidity risk is the risk that the Bank may not be able to fund increases in assets or meet obligations as they fall due without incurring unacceptable losses. Interest rate risk is the risk where changes in market interest rates affect the Bank''s earnings through changes in its net interest income (NII) and the market value of equity through changes in the economic value of its interest rate sensitive assets, liabilities and off-balance sheet positions. The policy framework for liquidity and interest rate risk management is established in the Bank''s ALM policy which is guided by regulatory instructions. Your Bank has established various Board approved limits viz., maturity gap limits and limits on stock ratios for liquidity risk and limits on income impact and market value impact for interest rate risk. Your Bank''s Asset Liability Committee (ALCO) ensures that liquidity risk and interest rate risk are within the tolerance limits. Additionally, your Bank has a comprehensive Board approved stress testing programme covering liquidity and interest rate risk which is aligned with the regulatory guidelines.

In accordance with RBI''s guidelines, the Bank is currently on the Standardized Approach for Credit Risk, the Basic Indicator Approach for Operational Risk and the Standardized Approach for Market Risk. Parallely, the Bank is progressing with its initiatives for migrating to the advanced approaches for these risks. The framework of the advanced approaches is in harmony with the Bank''s objective of adopting best practices in risk management.

INTERNAL CONTROLS, AUDIT AND COMPLIANCE

Your Bank has Internal Audit and Compliance functions which are responsible for independently evaluating the adequacy of all internal controls and ensuring operating and business units adhere to internal processes and procedures as well as to regulatory and legal requirements. The audit function also proactively recommends improvements in operational processes and service quality. To mitigate operational risks, the Bank has put in place extensive internal controls including restricted access to the Bank''s computer systems with strong audit trails, appropriate segregation of front and back office operations, post transaction monitoring processes at the back end to ensure independent checks and balances, adherence to the laid down policies and procedures of the Bank and to all applicable regulatory guidelines. Your Bank has always adhered to the highest standards of compliance and governance and has put in place controls and an appropriate structure to ensure this. To ensure independence, the internal audit function has a reporting line to the Chairman of the Audit and Compliance Committee of the Board and only a dotted line reporting to the Managing Director. The Audit and Compliance Committee of the Board also reviews the performance of the audit and compliance functions and reviews the effectiveness of controls and compliance with regulatory guidelines.

CORPORATE SOCIAL RESPONSIBILITY

Your Bank continues its endeavors to build a sustainable business philosophy through three platforms namely governance, social responsibility and environmental responsibility.

Your Bank has undertaken several community interventions/ projects through the year to create a positive impact on society. These projects take shape in many ways from corporate philanthropy to employee driven projects. The Bank has partnered with over 18 NGOs and over 70,000 lives impacted through our initiatives.

In keeping with its mission for community interventions its projects/programs have largely focused in the areas as outlined below.

Education

Education is one of the building blocks of any nation, one of the core focuses of the CSR strategy is the promotion of education. Your Bank''s programs aim at mainstreaming out of school children and strengthening the quality of education. In order to meet these objectives we have initiated a multitude of programs reaching out to about 5,500 students.

1. Integration of out of school children: Integration of first time learners into mainstream education through pre-primaries within the community. In FY 13 -14 we were able to enroll over 1,000 children.

2. Improving the reading and learning ability of children: Through programs such as ''Grow with Books'' initiated in 7 Municipal Schools in Pune and the ''Library Projects'' in 10 schools in the Kharu block of Leh, your Bank aims to improve the reading and learning ability of the child. Another project aimed to stimulate the cognitive abilities of children exposes them to practical scientific experiences through a ''Mobile Science Lab'' The Mobile Lab travels to schools reaching out to over 22,000 children annually.

3. Rehabilitation of children with special needs: In continuation of our inclusive approach we support efforts of mainstreaming/rehabilitation differently abled children with special needs such as physiotherapy treatment, speech therapy etc. In addition to providing ongoing assistance we have also established an Audiology room for children with hearing impairments.

4. Educational assistance: In addition to initiatives that directly impact the learning ability of the child, your Bank also sponsors the educational expenses of disadvantaged or destitute children in institutional care, schools, colleges and professional courses. Currently close to 1,000 students receive educational assistance through direct or institutional support. In addition to these your Bank also differentiates positively in favor of the Girl Child through a special sponsorship for education of the girl child.

5. Special educational sponsorships: Your Bank launched the Educational Crisis Scholarship Support (ECSS) in 2011. ECSS aims to provide assistance to students to tide over difficult situation / personal/family crisis / without any adverse impact on their education. In the year 2013-14, 338 students in schools and colleges were supported for completing their education.

Financial Literacy

Your Bank supports Financial literacy projects in 600 schools across Andhra Pradesh and Odisha, inculcating social and financial habits among students aged 8 to 14. So far we have reached out to over 63,000 students studying in Government schools. In addition through our Sustainable Livelihood Initiative (SLI), Bank also offers non-financial services such as credit counseling and financial literacy training. The Bank also conducts rural financial literacy initiatives across the country to complement its efforts to support inclusive growth. Under its ''Power of Banking Program'' the Bank continues to train school children on basic concepts of Finance such as the origin of money, role of banks, importance of savings, etc. Driven by employee volunteers, the program covered over 3,300 children in 2013-14.

Training

Your Bank consistently strives to empower and provide occupational training to people at the bottom of the pyramid, which in turn will create employment opportunities for them. Bank''s livelihood initiatives are aimed at training and capacity development of youth and women from economically weaker sections of society and to empower them to gain access to opportunities and growth. Bank''s livelihood support programs are aimed at empowering competency-based, skill-oriented technical and vocational training.

In continuation of our initiative in Kolar district of Karnataka, the bank extended its support to another batch of 150 students, in the computer, life skill and retail management. 70% of the trainees were successfully placed through industry tie-ups.

In Jharkhand, Bank''s project trained 399 youth in Mobile Repairing, BSPA (Bedside Patient Attendant) and ITES (Information Technology). The project aims to train a second batch of 480 youth and introduce additional courses for Beauticians, Electrical repairing, Driving and Automobile Repairing. Trainees have been successfully placed through the project with salary ranging from Rs. 3,500 to Rs. 5,000 p.m.

In addition over 630 youth have been trained in various skills as part of our Capacity Building programs. We have since inception conducted over 6,088 programs covering 157,646 people.

Community Initiatives

Your Bank has supported a number of need-based projects within the community to make a difference to more than 4,900 lives. These have ranged from infrastructural support to community based campaigns. In response to the water crisis in Maharashtra, the Bank sponsored the constructing of rain water harvesting structures in three villages in Maharashtra. Another project implemented in Mangaon aimed at creating sanitation and water storage facilities for tribal children.

Traffic safety is another concern area we support. We have installed branded boards with messages on traffic safety such as ''Wear a helmet'', ''Wear a seatbelt'', ''Don''t use your mobile while driving'', etc. In addition to this, Your Bank has also identified villages across the country where it provides branded message boards for road identification, and social message boards.

One of Bank''s largest community based initiatives is organizing blood donation drives. In 2007, the Bank introduced the idea of a one-day nationwide blood donation drive and encouraged people to support a single social cause across the Bank''s vast network. Engaging the community as a team proved to be an important success factor in the years that followed. The seventh edition of the event was held from December 5, 2013 to December 8, 2013. 86,774 units of blood were collected during the campaign. The HDFC Bank Blood Donation Drive of 2013 set a GUINNESS WORLD RECORD™ as the organizer of the "Largest Blood Donation (across multiple venues) in a single day" in the world. The campaign involved 61,902 participants donating blood at 1,115 camps across 709 locations in India on December 6, 2013.

Response To Disasters:

Your Bank has always responded to the need of those affected by natural disasters such as flood, landslides, drought, etc. During times of crisis the bank has extended its support to provide relief to victims of such disasters and support the rehabilitation efforts of the state.

As a responsible Corporate Citizen Your Bank joined hands to support the victims.

During the landslide and flash floods in Uttarakhand and Orissa, Bank''s employees donated towards relief efforts and the amounts were matched by the Bank.

Bank''s employees joined relief teams in Uttarakhand to distribute Solar Lamps to 22 villages. Having identified lack of health facilities as a major need your Bank has tied-up with an NGO to set up and support the cost of running a primary Healthcare center at KedarGhati which will cater to the primary and the secondary healthcare needs of 50 villages.

Employee Volunteering:

Your Bank continues to encourage employees to participate and contribute to society through both time and funds. Through the employee payroll giving program employees continues to donate on a monthly basis. Currently 5,464 employees are active payroll donors. The Bank supports this gesture by donating a matching amount

Structures volunteering activities were created to encourage employees to engage in various acts of charity. The Banks annual volunteering day branded as the ''Make a Difference day'' saw an enthusiastic participation of more than 79 teams.

The ''BE-A-SANTA'' campaign initiated this year encouraged employees to bring in the New Year by sharing their fortunes. Employees contributed in fulfilling small wishes made by children and senior citizens. Wish Trees bearing wish cards were placed at different locations and employees could choose a wish card and fulfill the wishes.

Sustainable Livelihood Initiative:

Your Bank is committed to reaching out to the unbanked and under banked people at the bottom of the pyramid, particularly in rural India and bringing them into the banking fold. Your Bank''s Sustainable Livelihood Initiative has helped empower thousands of people, particularly women, in rural parts of India. Through this initiative, the Bank reaches out to the un-banked and under-banked segment of the population and in doing so, helps as many people as possible at the bottom of the pyramid by providing them with livelihood training and finance.

It involves a holistic approach - from offering training and enhancing occupation skills to providing credit counseling, financial literacy and market linkages - which financially empowers people and brings them into the banking fold. About 9 lac families were covered this year and about 27 lac families have so far benefitted from this initiative.

Environmental Responsibility

Your Bank regards climate change mitigation and environmental improvements as essential elements of a sustainable business. This belief embodies the Bank''s approach on reduction of carbon emissions. The Bank has taken various steps to manage GHG emissions, through Multi-channel delivery such as ATMs, Phone Banking, Net Banking and Mobile Banking which have cut down customers'' need to commute to our branches.

Your bank has ensured that many of its major locations have energy efficient lighting systems in place.

We have also adopted a ''Phase-out'' policy to replace inefficient lighting options and have also started incorporating the use of unconventional energy sources to power our ATMs in areas with fluctuating power supply. Promotion of video conference and video chatting on IP phone has also resulted in reducing travelling and fuel consumption; Bank has also introduced server and desktop Virtualization thereby reducing power consumption.

FINANCIAL INCLUSION

Over the last few years, your Bank has been working on a number of initiatives to promote Financial Inclusion across identified sections of rural and semi urban, under-banked and un-banked consumers. These initiatives target segments of the population that have limited or no access to the formal banking system by building a robust and sustainable model that provides relevant services and viable timely credit that ultimately results in economically uplifting its customers and substitutes borrowings at usurious rates.

Your Bank''s initiatives in the rural or deeper geography are dovetailed into its financial inclusion plans and also complements its Corporate Social Responsibility initiative where the endeavor has been to provide banking services which are viable both for the customer and the Bank. As of March 31, 2014 your bank had 318 unbanked branches. The Bank also had 4 one man and 201 two men branches to carry on business in deeper geographies.

Your Bank''s financial inclusion initiatives have been integrated across its various businesses, and product groups. As of March 31, 2014 your Bank had brought over 9.5 million households who were hitherto excluded from basic banking services, into the banking fold.

Rural Initiatives

Your Bank offers products and services such as savings, current, fixed and recurring deposits, loans, ATM facilities, investment products such as mutual funds and insurance, electronic funds transfers, drafts and remittances etc. in its branches located in rural and under banked locations. The Bank also leverages some of these branches as hubs for other inclusion initiatives such as direct linkages to self-help groups and to promote Joint Liability Group Loans, POS terminals and information technology enabled kiosks. The Bank covers over 14,000 villages in the country through various distribution set ups, which include branches, bank staff reaching out to the villages and business correspondents. Around 44% of the above mentioned villages have a population of less than 2,000 that have largely been financially excluded from the formal banking sector.

A number of retail credit products such as two-wheeler loans, car loans, mortgages etc. that are consumption products in urban centers happen to be means of income generation for rural consumers. Apart from loans directly linked to agriculture such as pre and post harvest credit, there are many other credit products that the Bank uses to aid financial betterment in rural locations. Your Bank has extended provision of its retail loans to large segments of the rural population where the end use of the products acquired (by availing Bank''s loans) is used for income generating activities. For example, loans for tractors, commercial vehicles, two wheelers etc. supplement the farmer''s income by improving productivity and reducing expenses.

Basic Banking Saving Deposit and Micro Deposits (BSBDA)

A savings account is the primary requirement for the provision of other banking services; the account promotes the habit of savings, provides security, and inculcates confidence among the target segment in the banking sector.

This product was launched by your Bank with a specific objective to provide customers a platform that enables them to inculcate the habit of savings.

Given the specific segment that is being targeted, namely customers who do not have any other Bank account, this product truly addresses the cause of Financial Inclusion. Additionally the Bank also periodically tracks the behavior in these accounts to ensure that the accounts opened maintain a balance and are active. From current financial year SLI has initiated Overdraft facility on these accounts.

The total number of Basic Banking Saving Deposit accounts was 27.5 lac as of March 31,2014 as against 15.8 lac as of March 31, 2013. Your bank has provided OD facility of Rs. 8.3 lac to 1,384 BSBDA accounts

Agriculture and Allied Activities

A large portion of India''s un-banked population relies on agriculture as the main source of livelihood. We believe provision of credit to farmers through various methods that your Bank has employed replaces the traditional money lending channel, while simultaneously providing income generating activities. Your Bank provides various loans to farmers through its suite of specifically designed products such as the Kisan Gold Card, tractor and cattle loans etc. In addition, the Bank offers post-harvest cash credit, warehouse receipt financing and bill discounting facilities to mandi (markets for grain and other agricultural produce) participants and farmers. These facilities enable the mandi participants to make timely payments to farmers. The Bank carries out this business through branches that are located in close proximity to mandis.

The Bank targets specific sectors to capture supply chain of certain crops from the production stage to the sales stage. On the basis of these cash flows, your Bank is able to finance specific needs of the farmers. This model has currently been implemented with dairy and sugarcane farmers. The initiative currently underway includes the appointment of dairy societies and sugarcane co-operatives as business correspondents, through whom the Bank opens accounts of individual farmers attached to these societies. The societies route all payments to the farmers through this account.

The use of appropriate technology is necessary to bring about efficiency in the agri value chain. One such technology initiative is the Milk to Money Terminal (MFT) used in Dairy supply chain. The technology captures milk quality and quantity data at a farmer level each time milk is poured by connecting to the fat tester and weighing machine. It converts this data into an accounting entry instantaneously and credits the farmer''s account. The MFT contains a cash dispenser that functions as standard ATM, thus the farmer can withdraw the amount from his account immediately if needed. The transparency in the milk collection process benefits both farmers and corporate as they get data at farmer level accurately and quickly, which enables the corporate to improve farmer productivity through their direct intervention.

Loans against Gold Jewellery

This offering allows customers a reliable source of credit in times of need. In the absence of this product, customers might be unable to access credit or alternatively might avail of credit at much higher rates in the form of unsecured loans from money lenders. Gold loans provide an alternate source of funds by monetising the household gold. It provides financial independence to small traders, small entrepreneurs and housewives. It also substitutes borrowing at usurious rates, particularly by small borrowers and weaker sections.

Small and Micro Enterprises

Your Bank offers complete banking solutions to micro, small and medium scale enterprises across industry segments including manufacturers, retailers, wholesalers / traders and services. The entire suite of financial products including cash credit, overdrafts, term loans, bills discounting, export packing credit, letter of credit, bank guarantees, cash management services and other structured products are made available to these customers. One of the means to financial inclusion is by supporting small and micro enterprises which in turn provide employment opportunities to the financially excluded. Though indirect, we believe this model may in many instances be more effective than providing subsidies that are often unsustainable, or never reach the intended beneficiary.

Promoting Financial Awareness

In addition to providing various products and services to the financially excluded, your Bank believes that imparting education and training to these target segments is equally essential to ensure transparency and create awareness. To this effect the Bank has put in place various training programs. These are conducted by Bank staff in local languages and cover not only the customers but also various intermediaries such as the Bank''s business correspondents. Through these programs your Bank provides credit counseling and information on parameters like savings habit, better utilization of savings, features of savings products, credit utilization, asset creation, insurance, income generation program etc. The Bank also facilitates need based capacity building and market place for the customers with the objective of sustaining their livelihood in holistic manner. During the financial year ended March 31, 2014, over 44,000 financial awareness programs covering over 6.5 lac households were conducted by Sustainable Livelihood Initiative, RIG and Branches. These camps are conducted using the RBI prescribed Financial Literacy Material (Posters, Financial Guide and Financial Diary).

HUMAN RESOURCES

Human Resources Development has been a key and constant focus area for your bank. The human resources agenda, that includes within its gamut the attraction and retention of talent, skills development, reward and recognition, performance management and employee engagement are realized through a number of key initiatives, systems and processes.

Employee Development

Performance Management is one of the most critical dimensions pertaining to the management of human resources and the organisation has a comprehensive Performance Management System (PMS) to assess performance. The PMS facilitates the differentiation between the various categories of performance. Higher rewards for higher levels of performance have been a fundamental philosophy of your bank. Apart from rewards, the PMS also allows for identification of training and development needs for employees. Employee development and growth is realized through an array of functional and behavioral programs that your bank conducts throughout the year as well as on the job training. Further your bank lays emphasis in rotating key talent for professional development and growth and building a leadership pipeline for the future.

Rewards and Recognition

Rewards and Recognition play a key role to attract, retain and engage employees. Your Bank is committed to ensure that employees are competitively positioned vis-a-vis market with respect to both fixed as well as variable pay. Your Bank also grants employee stock options to a certain segment of the employee population in order to align employee efforts to the creation of shareholder value. Apart from the standard compensation your Bank also has a well institutionalized recognition program called "Star Awards" to recognize the contribution of employees on an ongoing basis.

Employee Engagement

Fun at work is something your Bank feels should be an integral part of every HDFC Bank employee''s life. Your Bank believes in conducting activities that help individuals showcase their talent or pursue their interests other than work. Your Bank conducted comprehensive sports activities like ''Josh Unlimited'', a multi-city, multi-discipline sports event held across 15 cities. Stepathlon - a race around a Virtual World is a unique initiative which creates an ecosystem that promotes corporate health, fitness & productivity by increasing daily activities. Your Bank has been the largest participant and has bagged the ''Most Active Company'' and the ''Most Active Bank'' award for two consecutive years. The Voice Hunt contest in association with Shankar Mahadevan Academy, Sensations - the Bank''s ''ln-house musical band contest'' and the corporate photography contest were some of the other prominent engagement initiatives.

STATUTORY DISCLOSURES

The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under as amended, are given in the annexure appended hereto and forms part of this report. In terms of section 219(1)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. The Bank had 68,165 employees as on March 31, 2014. 213 employees employed throughout the year were in receipt of remuneration of more than Rs. 60 lacs per annum and 8 employees employed for part of the year were in receipt of remuneration of more than Rs. 5 lacs per month.

The provisions of Section 217(1)(e) of the Act relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used information technology extensively in its operations.

The report on Corporate Governance is annexed herewith and forms part of this report.

The Ministry of Corporate Affairs has issued "Corporate Governance Voluntary Guidelines" in December 2009. While these guidelines are recommendatory in nature, the Bank has adopted most of these guidelines as detailed in the Corporate Governance Report. The Bank will examine the possibilities of adopting the remaining guidelines in an appropriate manner.

BUSINESS RESPONSIBILITY REPORT

The Bank''s Business Responsibility Report containing a report on its Corporate Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site www.hdfcbank.com

RESPONSIBILITY STATEMENT

The Board of Directors hereby state that

i) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2014 and of the profit of the Bank for the year ended on that date;

iii) We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;

iv) We have prepared the annual accounts on a going concern basis.

DIRECTORS

Mr. Keki Mistry and Mrs. Renu Karnad will retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

Mr. Harish Engineer ceased to be a director from the closing hours of business on September 30, 2013 on his retirement from the services as an Executive Director in the whole-time employment of the Bank. Mr. Engineer served the Bank since its inception and played the lead role in setting up and developing the Wholesale Banking Business of the Bank over the years. As the Head of the Wholesale Banking Group, Mr. Engineer has contributed significantly in achieving the growth objectives of the Bank. Your directors wish to place on record their sincere appreciation of the contributions made by Mr. Engineer during his tenure with the Bank.

Mr. Paresh Sukthankar was elevated to the position of Deputy Managing Director by the Board with effect from 24th December 2013 subject to the approval of the shareholders and the Reserve Bank of India. The approval of the shareholders has since been obtained by means of a resolution passed by postal ballot, the results for which were announced on 12th March 2014. The approval of the Reserve Bank of India is awaited.

Mr. Kaizad Bharucha was appointed as an additional director by the Board and designated as an Executive Director in the whole-time employment of the Bank with effect from 24th December 2013 subject to the approval of the shareholders and the Reserve Bank of India. The approval of the shareholders has since been obtained by means of a resolution passed by postal ballot, the results for which were announced on 12th March 2014. The approval of the Reserve Bank of India is awaited.

In terms of the provisions of Section 149 of the Companies Act, 2013 it is proposed to appoint Mr.C.M.Vasudev, Dr. Pandit Palande, Mr.Partho Datta, Mr. Bobby Parikh, Mr. A.N.Roy and Mr.Vijay Merchant as Independent Directors for tenures determined in accordance with the applicable provisions of the Banking Regulation Act, 1949 and the guidelines of the Reserve Bank of India in this regard.

The brief resume/details relating to Directors who are to be appointed/re-appointed as above are furnished in the report on Corporate Governance.

AUDITORS

The Auditors, M/s. BSR & Co., Chartered Accountants have been the Statutory Auditors of the Bank since 2010. As per the regulations of the Reserve Bank of India the same auditors cannot be re-appointed for a period beyond four years. It is proposed to appoint Deloitte Haskins and Sells, LLP as the new Statutory Auditors of the Bank, on an annual remuneration (statutory audit fees) of Rs. 1,10,00,000, plus applicable taxes, subject to the approval of the members and the Reserve Bank of India. Your Directors place on record their sincere appreciation of the professional services rendered by BSR & Co., as Statutory Auditors of the Bank.

ACKNOWLEDGEMENT

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank''s employees and look forward to their continued contribution in building a World Class Indian Bank.



On behalf of the Board of Directors

Mr. C. M. Vasudev

Chairman

Mumbai, April 22, 2014


Mar 31, 2011

The Directors have great pleasure in presenting the Seventeenth Annual Report on the business and operations of your Bank together with the audited accounts for the year ended March 31, 2011.

FINANCIAL PERFORMANCE

(Rs. in crore)

For the year ended March 31, 2011 March 31, 2010

Deposits and Other Borrowings 222,980.5 180,320.1

Advances 159,982.7 125,830.6

Total Income 24,263.4 20,155.8*

Profit before Depreciation and Tax 6,316.1 4,683.5

Net Profit 3,926.4 2,948.7

Profit brought forward 4,532.8 3,455.6

Total Profit available for Appropriation 8,459.2 6,404.3

Appropriations :

Transfer to Statutory Reserve 981.6 737.2

Transfer to General Reserve 392.6 294.9

Transfer to Capital Reserve 0.4 199.5

Transfer to / (from) Investment Fluctuation Reserve 15.6 (1.5)

Proposed Dividend 767.6 549.3

Tax Including Surcharge and Education Cess on Dividend 124.5 91.2

Dividend (including tax/cess thereon) pertaining to previous year paid during the year 2.7 0.9

Balance carried over to Balance Sheet 6,174.2 4,532.8

* Change pursuant to reclassification

The Bank posted total income and net profit of Rs. 24,263.4 crore and Rs. 3,926.4 crore respectively for the financial year ended March 31, 2011 as against Rs. 20,155.8 crore and Rs. 2,948.7 crore respectively in the previous year. Appropriations from net profit have been effected as per the table given above.

DIVIDEND

Your Bank has had a consistent dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital, in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increases in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy, and in recognition of the overall performance during this financial year, your directors are pleased to recommend a dividend of Rs. 16.50 per share for the financial year ended March 31, 2011, as against Rs. 12 per share for the year ended March 31, 2010. This dividend shall be subject to tax on dividend to be paid by the Bank.

AWARDS

As in the past years, awards and recognition were conferred on your Bank by leading domestic and international

HDFC Bank Limited Annual Report 2010-11 organizations during the fiscal year ended March 31, 2011. Some of them are :

- Asian Banker 2011

- Strongest Bank in the Asia Pacific region

- Bloomberg UTV’s Financial Leadership Awards 2011

- Best Bank

- Outlook Money 2010 Awards

- Best Bank

- Businessworld Best Bank Awards 2010

- Best Bank (Large)

- NDTV Business Leadership Awards 2010

- Best Private Sector Bank

- IDRBT Technology 2009 Awards

- Best IT Infrastructure

- Best use of IT within the Bank

- Dun & Bradstreet Banking Awards 2010

- Overall Best Bank

- Best Private Sector Bank

- Best Private Sector Bank in SME Financing

- Celent’s 2010 Banking Innovation Award

- Model Bank Award

- Global Finance Awards

- Best Trade Finance Provider in India for 2010

- The Asset Triple A Awards

- Best Cash Management Bank in India

- IDC FIIA Awards 2011

- Excellence in Customer Experience

- The Banker and PWM 2010 Global Private Banking Awards

- Best Private Bank in India

- IBA Banking Technology Awards 2010

- Technology Bank of the Year

- Best Online Bank

- Best Customer Initiative

- Best Use of Business Intelligence

- Best Risk Management System

- Forbes Asia

- Fab 50 Companies – 5th Year in a Row

- MIS Asia IT Excellence Award 2010

- Best Bottom-Line IT Category

- FE-EVI Green Business Leadership Award

- Best Performer in the Banking Category

- Avaya Global Connect 2010

- Customer Responsiveness Award – Banking and Financial Services Category

ISSUANCE OF EQUITY SHARES

During the year under review, 74.8 lac shares were allotted to the employees of your Bank pursuant to the exercise of options under the Employee Stock Option Schemes of the Bank. These include the shares allotted under the Employee Stock Option Schemes of the erstwhile Centurion Bank of Punjab.

The Board of Directors of your Bank considered and approved the sub-division (split) of one equity share of your Bank having a nominal value of Rs. 10 each into five equity shares of nominal value of Rs. 2 each. The record date for the same shall be determined subsequently. The sub- division of shares will be subject to approval of the shareholders and any other statutory and regulatory approvals, as applicable. The stock split has been recommended with a view to make the stock more affordable from the retail investors’ perspective and thereby encourage greater participation from the retail segment.

EMPLOYEE STOCK OPTIONS

The information pertaining to Employee Stock Options is given in an annexure to this report.

CAPITAL ADEQUACY RATIO

Your Banks total Capital Adequacy Ratio (CAR) calculated in line with the Basel II framework stood at 16.2%, well above the regulatory minimum of 9.0%. Of this, Tier I CAR was 12.2%.

SUBSIDIARY COMPANIES

Your Bank has two subsidiaries, HDFC Securities Limited (HSL) and HDB Financial Services Limited (HDBFS).

HSL is primarily in the business of providing brokerage services through the internet and other channels with a focus to emerge as a full-fledged financial services provider offering a bouquet of financial services along with the core broking product. The company continued to strengthen its distribution franchise and as on March 31, 2011 had a network of 150 branches across the country catering to the needs of its customers. During the year under review, the company’s total income amounted to Rs. 260.5 crore as against Rs. 235.3 crore in the previous year. The operations resulted in a net profit after tax of Rs. 77.2 crore.

HDBFS is a non-deposit taking non-bank finance company (NBFC), the customer segments being addressed by HDBFS are typically underserviced by the larger commercial banks, and thus create a profitable niche for the company to operate. Apart from lending to individuals, the company grants loans to small and medium business enterprises and micro small and medium enterprises. The principle businesses of HDBFS are as follows :

- Loans – The company offers a range of loans in the unsecured and secured loans space that fulfill the financial needs of its target segment.

- Insurance Services – HDBFS is a corporate agent for HDFC Standard Life Insurance Company and sells standalone insurance products as well as products such as Loan Cover and Asset Cover.

- Collections - BPO Services – The Company runs 6 call centers with a capacity of over 1,500 seats. These centers cover collection requirements at over 100 towns through its calling and field teams. Currently the company has a contract with your Bank for collection services.

As on March 31, 2011 HDBFS had 100 branches in 65 cities in order to distribute its products and services. During the financial year ended March 31, 2011 the company’s total income increased by over 80% to Rs. 179.4 crore as compared to Rs. 97.6 crore in the previous year. During the same period the company’s net profit was Rs. 16.1 crore as compared to Rs. 9.9 crore in the previous year. During the year under review the loan disbursements made by HDBFS increased to Rs. 1,208 crore as compared to Rs. 525 crore in the previous year.

In terms of the approval granted by the Government of India, the provisions contained under Section 212(1) of the Companies Act, 1956 shall not apply in respect of the Bank’s subsidiaries. Accordingly, a copy of the balance sheet, profit and loss account, report of the Board of Directors and the report of the auditors of HSL and HDBFS have not been attached to the accounts of the Bank for the year ended March 31, 2011.

Shareholders who wish to have a copy of the annual accounts and detailed information on HSL and HDBFS may write to the Bank for the same. Further, the said documents shall also be available for inspection by shareholders at the registered offices of the Bank, HSL and HDBFS.

MANAGEMENT’S DISCUSSIONS AND ANALYSIS

Macro-economic and Industry Developments

After a strong revival last year, the domestic growth cycle remained robust, extending and consolidating the recovery set forth in the fiscal year ended March 31, 2011. While emerging headwinds from tightening monetary conditions and a scale back in fiscal stimulus measures (put in place during the global credit crisis of the calendar year 2008) led to some moderation in industrial growth, service sector growth and agricultural performance were strong and picked up the slack from industry. This is likely to have pushed the headline GDP growth in the year ended March 31, 2011 to 8.6% from 8.0% in the previous year.

Stimulus driven government spending has dissipated as a major driver of growth and private demand has successfully taken over. Structural factors such as strong rural demand, low product penetration and favorable demographics have remained key supports for private consumption. While government consumption growth is likely to have eased substantially from 16.4% in the fiscal year ended March 31, 2010 to 2.6% in fiscal year ended March 31, 2011, private consumption has remained strong growing by 8.2% in the financial year ended March 31, 2011 as against 7.3% a year ago.

However, even as domestic consumption growth has remained robust, investment demand has somewhat disappointed with infrastructure project execution by the government remaining tardy and the corporate capital expenditure cycle remaining subdued. Investments are likely to have grown by 8.2% in the fiscal year ended March 31, 2011 against 12.2% a year ago and this has impinged on industrial performance. Growth in capital goods has fallen from 29.0% in the first half of the fiscal year ended March 31, 2011 to -1.3% in the second half pulling industrial growth lower from 10.3% in the first half of the financial year to 6.3% for the full year.

The service sector has however remained strong with services such as finance, insurance, trade, transportation and communication performing well and taking overall service sector growth to 9.6% against 10.0% a year ago, despite a visible slowdown in government related services such as community, personal and social services. Further, a good monsoon season has meant that agricultural production has recovered from last year’s drought. Total food grain production is expected to grow by a strong 8.3% while agricultural growth is likely to have been close to 5.4% against 0.4% a year ago. This, along with income support schemes by the government such as the Mahatma Gandhi National Rural Employment Scheme (MGNREGS) have meant that the rural economy has performed well and has been an active participant in domestic growth dynamics.

While the rural sector has added to the robustness of the domestic growth cycle it has also contributed to the stickiness in inflationary pressures. Strong agricultural growth has meant that food inflation has cooled from 21% in June, 2010 to 9.2% in March, 2011 but the pace of decline has been diluted by demand-supply mismatches in specific categories such as protein-based food items (milk, eggs, meat, fish) and fruits and vegetables - an indication of rising rural incomes and the change in dietary patterns this entails. This has been exacerbated by supply chain problems and an inefficient food distribution system. As a result, while WPI inflation has fallen from a peak of 11.0 % in April, 2010 it has been slower to ease than initially anticipated settling in the 8.5-9.0% range in the fourth quarter of the fiscal year ended March 31, 2011 and averaging a rate of 9.4% in the full fiscal year.

Domestic inflationary pressures however, are no longer driven by food prices alone and inflation has become more broad- based over the past year. Firm international commodity prices, especially items such as crude oil, as well as the return of pricing power amongst domestic manufacturing firms amidst firm demand have pushed manufactured goods inflation higher. Further, ‘core’ inflation or manufactured goods inflation net of food price effects has been rising steadily. While headline inflation eased from 9.0% in October, 2010 to 8.3% in February, 2011, core inflation has picked up from 5.0% to 6.0%.

Monetary policy has, as a result, become more restrictive over the past year with the RBI changing policy focus from calibrating the exit from an accommodative stance to tackling inflation more aggressively. Policy rates (repo and reverse repo rate) have been hiked by 225-275 basis points over the last year but the effective tightening in rates has been far higher. Structural pressures on banking system liquidity from subdued deposit growth such as leakages from the deposit base towards currency in circulation have meant that the monetary transmission mechanism has been quick. Additionally, frictional liquidity stress from tardy government spending has also kept liquidity under pressure swinging the system from a surplus of over Rs. 1,00,000 crore in March, 2010 ( as measured by the Liquidity Adjustment Facility (LAF) reverse repo window) to an average deficit of a similar magnitude in March, 2011 (as measured by the LAF repo window). A heavy government borrowing target of Rs. 4,37,000 crore has only exaggerated the pressure on the system.

As a result, the effective policy rate has shifted from the reverse repo rate (rate consistent with surplus liquidity) to the repo rate (rate consistent with deficit liquidity) involving incremental tightening of 100-150 basis points over and above the policy rate hikes over the year. While short-term interest rates such as the overnight MIBOR has moved higher by close to 300 basis points, the yield on the benchmark 10-yr G-sec has increased by 15-20 basis points. Liquidity pressure has meant that the yield curve has flattened with the spread between the 10-yr G-sec and the 1-yr G-sec yields moving from 280 basis points to 50 basis points.

Lending rates have moved higher by an average of 100-150 basis points as funding conditions have come under strain. However, credit growth has been robust despite interest rate increases and has gathered pace over the year moving from 16.0% in March, 2010 to 23.0% in March, 2011. While infrastructure has continued to dominate credit growth in the past year, credit off-take has been relatively more broad-based with retail credit disbursements such as vehicle loans and housing loans as well as funding to services such as trade and Non Banking Financial Companies gathering ground. Credit growth towards infrastructure continued to grow at last year’s level of around 40%, growth in personal loans accelerated sharply from 4% to 16% while the growth in service sector credit picked up from 15% to 24%.

Deposit rates have also been hiked by an average of 150-200 basis points and while this has helped deposit growth move higher from a low of 14.0% in June, 2010 to 16.9% in March, 2011, deposit mobilization has been weak in the last year. Net foreign inflows into the country have been subdued and have been a major factor constraining money supply and deposit growth. Capital inflows into the country have been strong in the past year and are likely to have been USD 66 billion against USD 54 billion a year ago on the back of strong portfolio flows (both debt and equity), heavy external commercial borrowings and strong trade credit. However, the bulk of these inflows have been absorbed in financing a large current account deficit. The current account gap over the last financial year is likely to be close to 2.5-2.8% of GDP or USD 48 billion leaving net foreign inflows into the country at close to USD 16.4 billion - just slightly higher than net inflows of USD 13.4 billion in the previous year.

That said, there have been some offsets in recent months. A recovery in export growth and a turn in invisibles (private transfers and service exports) as well as a normalization in import growth in line with moderating industrial momentum in the third quarter of the last fiscal year has meant that the current account gap has reduced from 4.3% of GDP in the second quarter of the last year to 2% in the third quarter. While the drag on foreign inflows during the last year is still expected to be a long term concern, the pressure on external balances has relatively eased in the near term.

Reflecting the improvement in global growth conditions driven by fiscal and monetary stimulus measures, export growth in the last quarter of the fiscal year ended March 31, 2011 was a strong 42.0%. Growth was driven by categories such as engineering goods, chemicals, gems and jewellery and electronic goods, this has been a vital support to the domestic industry amidst flagging investment momentum. Import growth slowed down from 32.8% in the first half of the last financial year to 10.0% in the second half, inflows from invisibles picked up pace in the third quarter of the fiscal year ended March 31, 2011 growing by 17.0% on the year against a decline of 2.6% Y-o-Y in the first half of the same year. The risk however is that firm global commodity prices could push import growth higher going ahead and the likelihood of further improvement in external balances is somewhat limited.

(Sources : Ministry of Finance, RBI, CSO, Ministry of Commerce)

Macroeconomic Risks and Concerns

While the balance of risks in the last financial year were largely

external, rising domestic interest rates as well as firm inflationary pressures have meant that domestic factors have now emerged as points of concern for growth in the current fiscal year. Further, the withdrawal of monetary and fiscal stimulus measures last year has meant that the domestic growth cycle is likely to be far more vulnerable to external shocks going ahead.

Even as food inflation is likely to stabilize, firm international commodity prices are likely to keep manufactured goods inflation strong. Rising global oil prices remain a foremost risk to inflation and India’s fiscal and current account deficits this year. With uncertainty surrounding the political crisis in the Middle East and North Africa (MENA) region oil prices are unlikely to move to lower levels in a hurry. The price of crude (as measured by the India crude oil basket) has already spiked up by 40% on the year to USD 108 per barrel and the expectation is that the average price of crude oil is unlikely to fall below the USD 95-100 per barrel mark. It is anticipated that inflation is likely to average close to 8.5% in the fiscal year ended March 31, 2012 just slightly lower than the average inflation rate of 9.4% in the past year, this is likely to see the Reserve Bank of India (RBI) hike its repo and reverse repo rate by a total of 100-125 basis points this year. The risk however is that further escalation in oil prices and a faster than expected build up of inflation could push the central bank to tighten interest rates to a level that could impinge on private investment and leveraged consumer spending and constrain future growth.

The government has indicated its resolve to tame its imbalances and is targeting a fiscal deficit of 4.6% of GDP in the current year against 5.1% last year. It will be a challenge to achieve this target should key outlays such as oil, fertilizer and food subsidy payments turn out to be higher than budgeted. There is an additional risk that moderating industrial growth could dampen government revenues below budgeted levels. This could entail a larger government draft on the market and the banking system posing an upside risk to interest rates.

While the fundamentals of the Indian economy remain strong, the domestic equity markets and for that matter fund flows into the domestic financial system on the whole are dependent on the developments in the global economy and general risk appetite to a large extent. Any adverse changes therefore in the global economic or financial environment could have a negative impact on the domestic markets and the availability of foreign funds. In this regard, we see a few risks on the global front that could adversely impact the domestic markets.

The single largest external risk that could impact inflows into the country stems from the normalization in global liquidity and monetary conditions. The great wall of liquidity provided by accommodative monetary conditions in major developed economies like the United States of America, Japan, United Kingdom and the Euro-area have been crucial in driving yield seeking flows to risky assets and emerging markets such as India. Inflation concerns however are gradually building up and with global commodity prices likely to remain firm it is unlikely that the magnitude of liquidity pumped into the global financial system over the last two years will continue.

However the risks to external balances are not only limited to capital inflows. The likelihood of firm commodity prices as well as escalating oil prices means that the current account deficit could come under stress. With foreign exchange reserves of USD 305 billion in March, 2011 pressure on external liquidity and solvency in this event is unlikely to pose a serious threat to external stability in the near-term. However, there are implications for both exchange rate volatility as well as domestic liquidity. A large current account deficit is likely to trim net foreign inflows into the country placing undue depreciation pressure on the rupee and impacting domestic liquidity.

Stress on domestic funding conditions is likely to get exacerbated by an oil price shock and this is likely to make for a challenging operating environment for the banking system. Offsets could come from open market operations by the RBI which bought back government securities of nearly Rs. 70,000 crore in the last fiscal year but the strain on system liquidity could sustain.

While adequate capital provisioning and stringent prudential regulations largely shielded the domestic banking system from the global crisis, some cyclical deterioration in asset quality remains a concern. There is some evidence, both formal and anecdotal that credit quality in both the retail and wholesale portfolios of banks has deteriorated. There is also some concern that a portion of the loans that banks were allowed to restructure given the sharp cyclical deterioration in the economy may remain impaired and will add to the stock of non- performing loans. Recent stress tests have revealed however that the banking system as a whole remains robust enough to withstand a sharp increase in asset quality slippages.

Outlook

Further withdrawal of stimulus measures-both fiscal and monetary, are likely to moderate headline GDP growth in the year ahead and the expectation is that growth is likely to soften slightly from 8.6% in the last year to 8.0%. Additional monetary tightening in the current fiscal year could curtail private investment and leveraged consumer spending from entirely picking up the slack from fiscal compression and a cut back in government spending. However, this is unlikely to detract from structural positives and the premium attached to India as a rapidly growing economy. World output is likely to grow by 3.5% in 2011 and despite the configuration of external and domestic risks looming over the horizon, India is likely to continue to outperform the global economy by a large margin. Pressures are likely to be cyclical and key structural supports from a growing rural economy, favorable demographics and low product penetration are likely to continue to keep private consumption strong. Structural positives are likely to therefore offset downside risks to growth and keep India an attractive investment destination next year.

Mission and Business Strategy

Your Bank’s mission is to be ‘a World Class Indian Bank’, benchmarking itself against international standards and best practices in terms of product offerings, technology, service levels, risk management and audit and compliance. The objective is to continue building sound customer franchises across distinct businesses so as to be a preferred provider of banking services for its target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank’s risk appetite. Your Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance.

The Bank’s business strategy emphasizes the following :

- Develop innovative products and services that attract its targeted customers and address inefficiencies in the Indian financial sector;

- Increase its market share in India’s expanding banking and financial services industry by following a disciplined growth strategy focusing on balancing quality and volume growth while delivering high quality customer service;

- Leverage its technology platform and open scaleable systems to deliver more products to more customers and to control operating costs;

- Maintain high standards for asset quality through disciplined credit risk management;

- Continue to develop products and services that reduce its cost of funds; and

- Focus on healthy earnings growth with low volatility.

Financial Performance :

The financial performance of your Bank during the fiscal year ended March 31, 2011 remained healthy with total net revenues (net interest income plus other income) increasing by 20.3% to Rs. 14,878.3 crore from Rs. 12,369.5 crore in the previous financial year. Revenue growth was driven both by an increase in net interest income and other income. Net interest income grew by 25.7% primarily due to acceleration in loan growth to 27.1% coupled with a stable net interest margin (NIM) of 4.3% for the year ending March 31, 2011.

From April 01, 2010 the RBI mandated that interest payable on savings deposits be calculated on daily average balances, this resulted in an increase in savings deposit costs by approximately 70-80 basis points. Further, due to tight liquidity conditions that were prevalent in the monetary system during the second half of the fiscal year ended March 31 2011, your Bank witnessed an increase of over 200 basis points in its retail term deposit rates during this period. Your Bank has however maintained steady NIMs which are amongst the highest within its peer group by managing the yields across its various customer and product segments in line with its cost of funds.

Other income grew 8.8% over that in the previous year to Rs. 4,335.2 crore during the financial year ended March 31, 2011. This growth was driven primarily by an increase in fees and commissions earned and income from foreign exchange and derivatives, offset in part by a loss on sale / revaluation of investments of Rs. 52.6 crore as compared to a gain of Rs. 345.1 crore in the previous financial year. In the fiscal year ended March 31, 2011, commission income increased by 19.7% to Rs. 3,596.7 crore with the primary drivers being commissions from the distribution of third party insurance and mutual funds, fees on debit and credit cards, transactional charges and fees on deposit accounts and processing fees on retail assets. The banking industry witnessed regulatory changes that resulted in the capping of earnings from the distribution of insurance products, however the increase in your Bank’s sales volumes partly made up for the reduction in unit commissions, as a result the growth in income from the distribution of third party products remained a healthy 28.0%. Foreign exchange and derivatives revenues grew by 26.2% from Rs. 623.2 crore in the previous financial year to Rs. 786.3 crore in the fiscal year ended March 31, 2011.

Operating (non-interest) expenses grew in line with net revenues and increased from Rs. 5,939.8 crore in the previous financial year to Rs. 7,152.9 crore in the year under consideration. During the year your Bank opened 261 new branches and over 1,200 ATMs which resulted in higher infrastructure and staffing expenses. In spite of that, the ratio of operating cost to net revenues (excluding bonds gains) for your Bank improved to 47.9% during the fiscal year ended March 31, 2011, from 49.4% in the previous year.

Total loan loss provisions including specific provisions for non-performing assets and floating provisions decreased from Rs. 1,988.9 crore to Rs. 1,433.0 crore for the financial year ended March 31, 2011, on account of healthy asset quality across customer and product segments. Your Bank’s provisioning policies for specific loan loss provisions remain higher than regulatory requirements, the coverage ratio based on specific provisions alone without including write- offs technical or otherwise was 82.5% and that including general and floating provisions was well over 100% as on March 31, 2011. Your Bank has made contingent provisions on account of contingencies towards the loans that it has extended to micro finance institutions, in view of the credit concerns arising out of the disruptions in that sector. The Reserve Bank of India had reduced the general provisioning requirements for certain asset classes in May 2008, this reduced the requirements for general provisions for the Bank’s loan book. Your Bank however, continued to maintain the general provisions that were already created. As a result of the above, the requirement for general asset provisions was lower than what the Bank held on its books as on March 31, 2011 and the Bank did not have to make any additional general asset provisions on account of the increase in its loan book.

Your Bank’s profit after tax increased by 33.2% from Rs. 2,948.5 crore in the previous financial year to Rs. 3,926.4 crore in the year ended March 31, 2011. Return on average net worth was 16.5% while the basic earnings per share increased from Rs. 67.56 to Rs. 85.02 per equity share.

As at March 31, 2011, your Bank’s total balance sheet size was Rs. 277,353 crore an increase of 24.7% over Rs. 222,458 crore as at March 31, 2010. Total Deposits increased 24.6% from Rs. 167,404 crore as on March 31, 2010 to Rs. 208,586 crore as on March 31, 2011. Savings account deposits grew by 27.2% to Rs. 63,448 crore while current account deposits at Rs. 46,460 crore witnessed an increase of 24.8% as compared to those on March 31, 2010. Adjusting current account deposits for one offs at year end amounting to Rs. 3,700 crore the growth was 14.9%. The proportion of core current and savings deposits (CASA) to total deposits continued to be healthy at 51% as on March 31, 2011. During the financial year under review, gross advances grew by 26.8% to Rs. 161,359 crore, while system loan growth was approximately 21%. Your Bank’s loan growth was driven by an increase of 26.8% in retail advances to Rs. 80,113 crore, and an increase of 26.7% in wholesale advances to Rs. 81,246 crore. The Bank had a market share of 3.7% in total system deposits and 4.2% in total system advances. The Bank’s Credit Deposit (CD) Ratio was 76.7% as on March 31, 2011. Adjusted for overseas funding by its international operations, primarily funded from term borrowings, the CD Ratio was lower at 74.5%.

Business Segments’ Update :

Consistent with its performance in the past, in the last financial year, your Bank has achieved healthy growth across various operating and financial parameters. This performance reflected the strength and diversity of the Bank’s three primary business franchises - retail banking, wholesale banking and treasury, and of its disciplined approach to risk - reward management.

Retail Banking

Your Bank caters to various customer segments with a wide range of products and services. The Bank is a ‘one stop shop’ financial services provider of various deposit products, of retail loans (auto loans, personal loans, commercial vehicle loans, mortgages, business banking, loan against gold jewellery etc.), credit cards, debit cards, depository (custody services), investment advisory, bill payments and several transactional services. Apart from its own products, the Bank distributes third party financial products such as mutual funds and life and general insurance.

The growth in your Bank’s retail banking business was robust during the financial year ended March 31, 2011. The Bank’s total retail deposits grew by over 23.3% to - 139,961 crore in the financial year ended March 31, 2011, driven by retail savings balances which grew much faster at 28.0% during the same period. The Bank’s retail assets grew by 26.8% to - 80,113 crore during the financial year ended March 31, 2011 driven primarily by a growth in mortgages, business banking, commercial vehicle loans and auto loans.

Branch Banking

This year your Bank expanded its distribution network from 1,725 branches in 779 cities as on March 31, 2010 to 1,986 branches in 996 Indian cities on March 31, 2011. The Bank’s ATMs increased from 4,232 to 5,471 during the same period. Your Bank’s branch network is deeply entrenched across the country with significant density in areas conducive to the growth of its businesses. The Bank’s focus on semi-urban and under-banked markets continued, with over 70% of the Bank’s branches now outside the top nine Indian cities. The Bank’s customer base grew in line with the growth in its network and increased product penetration initiatives, this currently stands at 21.9 million customers. The average savings balance per account which is a good indicator of the strength of the Bank’s retail liability franchise grew over 17%. The Bank continues to provide unique products and services with customer centricity a key objective.

In order to provide its customers increased choices, flexibility and convenience the Bank continued to make significant headway in its multi channel servicing strategy. Your Bank offered its customers the use of ATMs, internet, phone and mobile banking in addition to its expanded branch network to serve their banking needs.

The increase in the Bank’s debit card base this year coupled with a growth in its ATM network translated to an increase in ATM transactions by 14%. The Bank also made strong inroads in its internet banking channel with around 60% of its registered customers now using net banking facilities for their banking requirements. Your bank now offers phone banking in 996 locations in addition to giving its customers the convenience of accessing their bank accounts over their mobile phones. The success of the Bank’s multi-channel strategy is evidenced in the fact that over 80% of customer initiated transactions are serviced through the non-branch channels.

Retail Assets

Your Bank continued to grow at a healthy pace in almost all the retail loan products that it offers and further consolidated its position amongst the top retail lenders in India. The Bank grew its retail asset portfolio in a well balanced manner focusing on both returns as well as risk. While the Bank’s auto finance business remained a key business driver for its retail asset portfolio, other retail loan products exhibited robust growth rates and good asset quality.

The Bank continued its focus on internal customers for its credit cards portfolio. Overall credit cards remained a profitable business for your Bank with over 5 million cards in force as at March 2011. As part of its strategy to drive usage of its credit cards the Bank also has a significant presence in the ‘merchant acquiring’ business with the total number of point-of-sale (POS) terminals installed at over 120,000.

In addition to the above products the Bank does home loans in conjunction with HDFC Limited. Under this arrangement the Bank sells loans provided by HDFC Limited through its branches. HDFC Limited approves and disburses the loans, which are booked in their books, with the Bank receiving a sourcing fee for these loans. HDFC Limited offers the Bank an option to purchase up to 70% of the fully disbursed home loans sourced under this arrangement through either the issue of mortgage backed pass through certificates (PTCs) or by a direct assignment of loans; the balance is retained by HDFC Limited. Both the PTCs and the loans thus assigned are credit enhanced by HDFC Limited upto a AAA level. The Bank purchases these loans at the underlying home loan yields less a fee paid to HDFC Limited for the administration and servicing of the loans. Your Bank originated approximately an average Rs. 700 crore of mortgages every month in the financial year ended March 31, 2011, an increase from the Rs. 550 crore per month that it originated in the previous year. During the year the Bank also purchased from HDFC Ltd. under the “loan assignment” route approximately Rs. 4,300 crores of AAA credit enhanced home loans most of which qualified as priority sector advances.

Your Bank also distributes life, general insurance and mutual fund products through its tie-ups with insurance companies and mutual fund houses. The income from these businesses continued to demonstrate robust growth largely due to an expanded branch network and the increased penetration of the Bank’s managed portfolio despite the fact that during the year there were regulatory changes which in some cases impacted the commission paid by the manufacturers of these products to the Bank. The success in the distribution of the above products has been demonstrated with the growth in the Bank’s fee income. Third party distribution income contributes approximately 25% of total fee income.

The Bank’s data warehouse, Customer Relationship Management (CRM) and analytics solutions have helped it target existing and potential customers in a cost effective manner and offer them products appropriate to their profile and needs. Apart from reducing costs of acquisition, this has also led to deepening of customer relationships and greater efficiency in fraud control and collections resulting in lower credit losses. The Bank is committed to investing in advanced technology in this area which will provide cutting edge in the Bank’s product and service offerings.

Wholesale Banking

The Bank provides its corporate and institutional clients a wide range of commercial and transactional banking products, backed by high quality service and relationship management. The Bank’s commercial banking business covers not only the top end of the corporate sector but also the emerging corporate segments and some small and medium enterprises (SMEs). The Bank has a number of business groups catering to various segments of its wholesale banking customers with a wide range of banking services covering their working capital, term finance, trade services, cash management, foreign exchange and electronic banking requirements.

The business from this segment registered a healthy growth in the financial year ended March 31, 2011. The Bank’s wholesale deposits grew by around 27.4%, while wholesale advances showed a growth of over 26.7% both of which were significantly faster than the growth in the system during the same period. Your Bank provides its customers both working capital and term financing. The Bank witnessed an increase in the proportion of its medium tenor term lending, however working capital loans and short tenor term loans retained a large share of its wholesale advances. While the duration of the Bank’s term loans largely remained small to medium term, the Bank did witness an increase in its longer duration term loans, and project lending including loans to the infrastructure segment.

During the financial year ended March 31, 2011, growth in the wholesale banking business continued to be driven by new customer acquisition and higher cross-sell with a focus on optimizing yields and increasing product penetration. Your Bank’s cash management and vendor & distributor (supply chain) finance products continued to be an important contributor to growth in the corporate banking business. Your Bank further consolidated its position as a leading player in the cash management business (covering all outstation collection, disbursement and electronic fund transfer products across the Bank’s various customer segments) with volumes growing to over Rs. 30 trillion. The Bank also strengthened its market leadership in cash settlement services for major stock exchanges and commodity exchanges in the country. The Bank met the overall priority sector lending requirement of 40% of net bank credit and also strived for healthy growth in the sub-targets such as weaker sections, direct agriculture and the micro and SME segments.

The Bank’s financial institutions and government business group (FIG) offers commercial and transaction banking products to financial institutions, mutual funds, public sector undertakings, central and state government departments. The main focus for this segment remained offering various deposit and transaction banking products to this segment besides deepening these relationships by offering funded, non-funded treasury and foreign exchange products.

International Operations

The Bank has a wholesale banking branch in Bahrain, a branch in Hong Kong and two representative offices in UAE and Kenya. The branches offer the Bank’s suite of banking services including treasury and trade finance products to its corporate clients. Your Bank has built up an asset book over USD 1 billion through its overseas branches. The Bank offers wealth management products, remittance facilities and markets deposits to the non-resident Indian community from its representative offices.

Treasury

The treasury group is responsible for compliance with reserve requirements and management of liquidity and interest rate risk on the Bank’s balance sheet. On the foreign exchange and derivatives front, revenues are driven primarily by spreads on customer transactions based on trade flows and customers’ demonstrated hedging needs. During the financial year ended March 31, 2011, revenues from foreign exchange and derivative transactions grew by 26.2% to Rs. 786.3 crore. These revenues were distributed across large corporate, emerging corporate, business banking and retail customer segments for plain vanilla foreign exchange products and across primarily large corporate and emerging corporate segments for derivatives. The Bank offers Indian rupee and foreign exchange derivative products to its customers, who use them to hedge their market risks. The Bank enters into foreign exchange and derivative deals with counterparties after it has set up appropriate counterparty credit limits based on its evaluation of the ability of the counterparty to meet its obligations in the event of crystallization of the exposure. Appropriate credit covenants may be stipulated where required as trigger events to call for collaterals or terminate a transaction and contain the risk. Where the Bank enters into foreign currency derivative contracts with its customers it lays them off in the inter-bank market on a matched basis. For such foreign currency derivatives, the Bank does not have any open positions or assume any market risks but carries only the counterparty credit risk (where the customer has crystallized payables or mark-to-market losses). The Bank also deals in Indian rupee derivatives on its own account including for the purpose of its own balance sheet risk management. The Bank recognizes changes in the market value of all rupee derivative instruments (other than those designated as hedges) in the profit and loss account in the period of change. Rupee derivative contracts classified as hedge are recorded on an accrual basis.

Given the regulatory requirement of holding government securities to meet the statutory liquidity ratio (SLR) requirement, your Bank maintains a portfolio of government securities. While a significant portion of these SLR securities are held in the ‘Held-to-Maturity’ (HTM) category, some of these are held in the ‘Available for Sale’ (AFS) category.

Information Technology

Since its inception, your Bank has made substantial investments in its technology platform and systems, built multiple distribution channels, including an electronically linked branch network, automated telephone banking, internet banking and banking through mobile phones, to offer its customers convenient access to various products.

The Bank has templatized credit underwriting through automated customer data de-duplication and real-time scoring in its loan origination process. Having enhanced its cross selling and up-selling capabilities through data mining and analytical customer relationship management solutions, the Bank’s technology enables it to have a 360 0 view of its customers. Your Bank employs event detection technology based customer messaging and has deployed an enterprise wide data warehousing solution as a back bone to its business intelligence system.

Implementation of a risk management engine for internet transactions has reduced the phishing and man in the middle attacks significantly. The bank has also implemented a digital certificates based security engine for corporate internet banking customers. Credit and debit cards usage of the Bank’s customers is secured by powerful proactive risk manager technology solutions which does rules based SMS alerts as well as prompts customer service representatives to call the customer on detecting abnormal usage behavior. This prevents frauds and minimizes losses to customers, if the card has been stolen and yet to be hot listed.

Sophisticated automated switch-over and switch-back solutions power the Bank’s disaster recovery management strategy for key core banking solutions in its data center, improving availability of your Bank’s services to its customers.

With the various initiatives that your Bank has taken using technology, it has been successful in driving the development of innovative product features, reducing operating costs, enhancing customer service delivery and minimizing inherent risks.

Service Quality Initiatives

Your Bank was one of the few banks in the country to have put in place a team dedicated to improve service quality through the Lean and Six Sigma methodologies with a focus on right origination, cost effective and error free operations and effective complaint resolution. The Bank continued driving improvements in Service Quality (SQ) initiatives encompassing all customer touch points namely branches, ATMs, phone banking, net banking, e-mail service as well as back office support functions impacting customer service through a dedicated Quality Initiatives Group (QIG) team. Some of the key elements covered by the QIG team are workplace management, etiquette and courtesy, lobby management, complaints management, management of turn-around times, overall customer service and compliance with the Bank’s internal processes as well as regulatory compliance. The group also runs programs such as ‘voice of the customer’ and ‘voice of the employee’ for effective complaint resolution and process improvement. Various departments of the Bank are empowered to deliver superior customer experience through improvements in products, processes and people skills. To this effect, your Bank has designed and implemented customized Lean Sigma Project Management (LSPM) methodology that incorporates the Lean philosophy into the Six Sigma framework to deliver faster and sustainable results clubbed with customer delight and improved profitability. The Bank also takes advantage of various information technology platforms to improve products, processes and services. Your Bank does not believe in designing a product and fitting it into the customers’ needs rather it designs products to meet customer needs. The Bank has always ensured that its products and services are delivered through processes which are in line with the prevalent regulatory framework and has adequate controls to safe-guard against possible misuse.

Your Bank has taken various steps to improve the effectiveness of its grievance re-dressal mechanism across its delivery channels. Some key measures taken up by the Bank include a three layered grievance re-dressal mechanism, bank-wide online complaint resolution system, root cause remediation, customer service committees at the branch level and at the corporate headquarters level with representation from customers. The levels of customer service are periodically reviewed by the board of directors of the Bank.

Apart from the above, your Bank continued with the ongoing service quality initiatives which include the audit of services as well as mystery shopping at various customer touch points to capture and improve customer experiences. Your Bank has also set up a robust training mechanism; both on the online platform as well as using conventional class room sessions, to enable its employees improve the quality of customer service.

Risk Management and Portfolio Quality

Taking on various types of risk is integral to the banking business. Sound risk management and balancing risk-reward trade-offs are critical to a bank’s success. Business and revenue growth have therefore to be weighed in the context of the risks implicit in the Bank’s business strategy. Of the various types of risks your Bank is exposed to, the most important are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. The identification, measurement, monitoring and management of risks accordingly remain a key focus area for the Bank. For credit risk, distinct policies and processes are in place for the retail and wholesale businesses. In the retail loan businesses, the credit cycle is managed through appropriate front-end credit, operational and collection processes. For each product, programs defining customer segments, underwriting standards, security structure etc., are specified to ensure consistency of credit buying patterns. Given the granularity of individual exposures, retail credit risk is monitored largely on a portfolio basis, across various products and customer segments. During the financial year ended March 31, 2008 the Bank obtained an ISO 9001:2008 certification of its retail asset underwriting. Last year, the second surveillance audit was conducted successfully at key locations and the certification was confirmed with no instances of non-conformity. For wholesale credit exposures, management of credit risk is done through target market definition, appropriate credit approval processes, ongoing post-disbursement monitoring and remedial management procedures. Overall portfolio diversification and reviews also facilitate mitigation and management.

The Risk Policy and Monitoring Committee of the Board monitors the Bank’s risk management policies and procedures, vets treasury risk limits before they are considered by the Board, and reviews portfolio composition and impaired credits.

As of March 31, 2011, the Bank’s ratio of gross non-performing assets (NPAs) to gross advances was 1.05%. Net non- performing assets (gross non-performing assets less specific loan loss provisions, Export Credit Guarantee Corporation (ECGC) claims received and provision in lieu of diminution in the fair value of restructured assets) were 0.2% of customer assets as of March 31, 2011. The specific loan loss provisions that the Bank has made for its non-performing assets continue to be more conservative than the regulatory requirement.

In accordance with the guidelines issued by the Reserve Bank of India on Basel II, your Bank migrated to the standardized approach for Credit Risk and the Basic Indicator approach for operational risk in the financial year ended March 31, 2009. Through the year, your Bank has been continuing work on various initiatives which would enable it to comply with the standards laid out for the more advanced capital approaches under Basel II. While the core systems which support such initiatives are more or less in place, the Bank has been working towards testing the results and fine-tuning such systems and plugging the gaps to meet the operational requirements for the advanced approaches. This is a long process, which requires not only having the quantitative inputs in place, but also a strong culture of risk management and awareness in the Bank, which rely on these inputs for decision making. The Bank has made reasonable progress in this regard. The implementation of the Basel II framework is in harmony with the Bank’s objective of adopting best practices in risk management.

INTERNAL AUDIT AND COMPLIANCE

The Bank has Internal Audit and Compliance functions which are responsible for independently evaluating the adequacy of all internal controls and ensuring operating and business units adhere to internal processes and procedures as well as to regulatory and legal requirements. The audit function also pro- actively recommends improvements in operational processes and service quality. To ensure independence, the audit department has a reporting line to the Chairman of the Board of Directors and the Audit and Compliance Committee of the Board and only a dotted line to the Managing Director. To mitigate operational risks, the Bank has put in place extensive internal controls including restricted access to the Bank’s computer systems, appropriate segregation of front and back office operations and strong audit trails. The Audit and Compliance Committee of the Board also reviews the performance of the audit and compliance functions and reviews the effectiveness of controls and compliance with regulatory guidelines.

CORPORATE SOCIAL RESPONSIBILITY

Your Bank views Corporate Social responsibility as its commitment to operate ethically and contributing to economic development while improving the quality of life of its employees as well as that of the local communities and society at large. Pursuing a vision towards the socio-economic empowerment of underprivileged and marginalized sections of society, the Bank reiterates its commitment to support social initiatives with a special focus on education and livelihood support.

The major initiatives that your Bank has taken in this direction over the last few years cover the following areas :

- Education

- Livelihood training and support

- Environmental sustainability

- Employee welfare, health and well being

- Employee engagement

Education Initiatives

School adoption project

This is a public private partnership to ensure that children in municipal schools have access to quality education; the program provides direct learning inputs to slow learners through academic support centers. These centers provide children with access to concept based, child friendly focused teaching methods. Teachers are also assisted with innovative teaching methods and learning material. Your Bank is presently supporting seven schools in Mumbai covering 1,850 children; in addition the Bank is working with 10 schools in Pune on a reading program that covers over 5,000 children.

Special educational sponsorships for the girl child

Girls who are at the risk of dropping out of school on account of affordability and poor academic performance are identified and supported under a special sponsorship program. This program covers their material needs with regard to their education as well as provides them with academic support. Presently, this program covers 1,500 girls in Mumbai, Sheopur and Chattisgarh.

Educational assistance

Under this program your Bank provides education support to children who have dropped out of school with an aim to reintegrate them into the mainstream education channels. Simultaneously, support classes are also conducted in high risk areas to reduce dropouts and increase the level of learning. Over 1,000 children in Mumbai, Bangalore, Hyderabad and Kolkata are being covered through this educational assistance program.

Pre-schools

The Bank has initiated partnerships to operate pre-schools in areas where there is a high concentration of out of school children. These are focused predominantly towards first generation learners, the pre-primaries prepare children for schooling while at the same time counseling their parents on the importance of education. On completion of the pre-school module children are enrolled into school. Your Bank currently reaches out to over 9,000 children in Mumbai, Delhi and Hyderabad under this program.

Financial Literacy

We believe that by inculcating sound economic practices in rural children, we can tangibly demonstrate the power of the savings habit. This financial education program aims to inculcate practices in children that would over time empower them with the right decision making skills in terms of saving money, making financial decisions based on real needs, and differentiate between good and bad spending. Your Bank has tied up with 464 schools in Maharashtra covering over 69,000 children through this program.

Livelihood Training and Support

With the economic upliftment of the underprivileged in mind, the Bank provides support for vocational training to individuals in order to enable them to have regular and sustainable income. Under this program your Bank supports non formal vocational and technical education programs in trades such as welding, plumbing, electrical maintenance, mobile repair, tailoring etc. We also support training courses in making of paper bags, gel candles, wax candles, chef caps and courses on physiotherapy for visually challenged candidates. Further through onsite skills up-gradation courses in basic trades related to the construction industry, we are reaching out to the unorganized sector and have provided training to over 2,650 youth and women.

Your bank has an active lending program wherein it focusses on lending to customers typically below the poverty line for income generation purposes through the formation of self- help groups. The bank believes that this lending should be supported with training programs that nurture the appropriate skill sets as well as the provision of market linkages to the primary markets in order to ensure that the livelihood activities are sustainable.

To this effect your bank conducts capacity building and training sessions that focus on enhancing the skills of the borrowers, some of these in the past have included basket weaving, agarbatti rolling etc. The bank also has in place a program that assists in providing market linkages to the self help groups so that they can sell the products produced at a fair price and in a hassle free manner. In addition to the above the bank provides counselling to all the self help groups that it works with on the benefits of the savings habit, wise investing habits etc.

Environmental Sustainability

Your Bank believes in taking responsibility for the effects of its operations in society and on the environment and this belief embodies its approach to the reduction of carbon emissions. Taking forward this commitment the Bank has undertaken the following projects :

Annual Foot-printing / Calculation of its carbon emissions

The Bank has developed and put in place a template to collate and calculate its carbon emissions on an annual basis. This provides us with our emissions regarding travel, electricity, paper and other utilities, which then enables us to take efforts in specific areas in order for the Bank to reduce the impact of its operations on the environment.

Carbon Disclosure Project

The Bank has been associated with the carbon disclosure project since 2007, adhering to their disclosure practices, each year we have strived to improve the quality of reporting and the number of parameters that go into the disclosure. In the year 2010, your Bank registered as a signatory to the carbon disclosure project.

Carbon Management Awareness

Employees are made aware of the importance of conservation of natural resources and smart resource management techniques through various e-mailers and other communications sent out periodically.

Sustainability Reporting

We have engaged consultants to create an in-house capability for triple bottom line / sustainability reporting, based on the Global Reporting Initiative guidelines. This is a disclosure tool used to communicate important information regarding the organization and its performance across social, environmental, and economic parameters to stakeholders.

Green Initiative

In line with its commitment to green and sustainable development your bank has followed green principles in the construction of its back office premises located in Mumbai. The building core and shell has been designed and implemented in lines with a LEED rating of gold. All materials used in the construction of the interiors of the building conform to green norms for commercial premises. The operations of the premises consume less than one watt per square foot of space. Indoor air quality is monitored through Co2 control and sewage for the building is treated and recycled.

Employee Health, Welfare and Well Being

Your Bank has its people as one of its stated values. Keeping in line with this we ensure equal opportunities, living wages, social security and well being of our employees. Employee development is integral to the bank, which is achieved through a range of training and developmental program and activities.

Employee Participation

The Bank encourages employee participation at all levels to strengthen its corporate social responsibility initiatives as well as inculcate a stronger sense of ownership amongst its employees of each of these initiatives.

Employee Payroll Giving

Employees are provided with an easy and convenient system to donate through the employee payroll giving. The donor enjoys the flexibility of choice with regards to the amount that they wish to donate and the cause that they wish to support. The Bank adds a matching amount to the contribution to endorse its support to the cause chosen by the employees.

Employee Volunteering

Employees are an integral part of the Bank’s social initiatives, they are encouraged to participate in philanthropy work involving their time and skills in many possible ways. Employees can choose NGO partners they would like to work with and the manner in which they would like to dedicate their time and skill. Your Bank’s employees have increasingly participated in summer camps; conducted english-speaking classes; collected paper waste, assisted in academic support programs, donated blood and so on.

With its focus on creating self-reliance and promoting education in the interiors of the country, your Bank has been able to make meaningful differences a small group of individuals through its many programs. Going forward we would like to look at CSR not as a stand-alone function but as an ideology that is interwoven into every aspect of your Bank’s operations.

FINANCIAL INCLUSION

Over the last few years, your Bank has been working on a number of initiatives to promote Financial Inclusion across identified sections of rural, under-banked and un-banked consumers. These initiatives target segments of the population that have limited or no access to the formal banking system for their basic banking and credit requirements, by building a robust and sustainable model that provides relevant services and viable and timely credit that ultimately results in economically uplifting its customers. The Banks financial inclusion initiatives have been integrated across its various businesses, across product groups. By March 31, 2014 your Bank will endeavor to bring 10 million households currently excluded from basic banking services under the fold of this program.

Rural Initiative

The Bank has a number of its branches in rural and under- banked locations. In these branches the Bank offers products and services such as savings, current, fixed & recurring deposits, loans, ATM facilities, investment products such as mutual funds and insurance, electronic funds transfers, drafts and remittances etc. The Bank also leverages some of these branches as hubs for other inclusion initiatives such as direct linkages to self help groups and to promote mutual guarantee micro-loans, POS terminals and information technology enabled kiosks, as well as other ICT initiatives such as mobile ba


Mar 31, 2010

The Directors have great pleasure in presenting the Sixteenth Annual Report on the business and operations of your Bank together with the audited accounts for the year ended March 31, 2010.

FINANCIAL PERFORMANCE

(Rs. in crores)

For the year ended

March 31, 2010 March 31, 2009

Deposits and Other Borrowings 180,320.1 151,975.2*

Advances 125,830.6 98,883.0

Total Income 19,980.5 19,622.9

Profit before Depreciation and Income Tax 4,683.5 3,659.2

Net Profit 2,948.7 2,245.0

Profit brought forward 3,455.6 2,574.6

Total Profit available for Appropriation 6,404.3 4,819.6

Appropriations

Transfer to Statutory Reserve 737.2 561.2

Transfer to General Reserve 294.9 224.5

Transfer to Capital Reserve 199.5 93.9

Transfer from Investment Fluctuation Reserve (1.5) (13.9)

Proposed Dividend 549.3 425.4

Tax Including Surcharge and Education Cess on Dividend 91.2 72.3

Dividend (including tax/cess thereon) pertaining to previous year paid during the year 0.9 0.6

Balance carried over to Balance Sheet 4,532.8 3,455.6

* Change pursuant to reclassification

The Bank posted total income and net profit of Rs. 19,980.5 crores and Rs. 2,948.7 crores respectively for the financial year ended March 31, 2010 as against Rs. 19,622.9 crores and Rs. 2,245.0 crores respectively in the previous year. Appropriations from net profit have been effected as per the table given above.

DIVIDEND

Your Bank has had a consistent dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital, in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increases in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy, and in recognition of the Banks overall performance during this financial year, your directors are pleased to recommend a dividend of Rs. 12 per share for the financial year ended March 31, 2010, as against Rs. 10 per share for the year ended March 31, 2009. This dividend shall be subject to tax on dividend to be paid by the Bank.

AWARDS

As in the past years, awards and recognition were conferred on your Bank by leading domestic and international organizations during the fiscal year ended March 31, 2010. Some of them are:

• Asian Banker Excellence Awards 2009

- Best retail bank in India (4th year in a row)

- Excellence in automobile lending

• The Asset Triple A Awards

- Best cash management bank in India

• Euromoney Private Banking and Wealth Management poll 2010

- Best local bank in India (2nd year in a row)

- Best private banking services overall

• Financial Insights Innovation Awards 2010

- Innovation in branch operations

• Global Finance Award

- Best trade finance provider in India (2010)

• Business Today Best Employer Survey

- Listed in the top 10 best employers in the country

• Business World Best Bank Awards 2009

- Most tech-savvy bank

• Outlook Money NDTV Profit Awards 2009

- Best bank

• Forbes Asia

- Fab 50 companies in Asia-Pacific

• UTI MF-CNBC TV18 Financial Advisor Awards 2009

- Best performing bank

• Wall Street Journal survey of Asia’s best 200 companies 2009

- Rated amongst India’s 10 most admired companies

- Rated 3rd in terms of Financial Reputation

• FE Best Bank Awards 2009

- Best in strength and soundness award

• Asia Money 2009 awards

- Best domestic bank in India

RATINGS

Instrument Rating Rating Agency

Fixed Deposit Program CARE AAA (FD) CARE1

tAAA (ind) with a FITCH2 stable outlook

Certificate of Deposit PR 1+ CARE

Long term unsecured, CARE AAA CARE subordinated (Tier II) bonds

AAA (ind) with a FITCH stable outlook

Tier I perpetual Bonds CARE AAA CARE

AAA / Stable CRISIL3

Upper Tier II Bonds CARE AAA CARE

AAA / Stable CRISIL













Instrument Comments

Fixed Deposit Program Represents instruments considered to be ‘of the best quality, carrying negligible investment risk’.

Certificate of Deposit Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the country.

Long term unsecured, subordinated (Tier II) bonds Representing superior capacity for repayment of short term promissory obligations

Represents instruments considered to be of the best quality, carrying negligible investment risk’.

Represents the best credit risk relative to all other issuers or issues in the country.

Tier I perpetual Bonds Represents instruments considered to be ‘of the best quality, carrying negligible investment risk’.

Judged to offer the highest degree of safety with regard to timely payment of financial obligations. Any adverse changes in circumstances are most unlikely to affect the payments of the instrument.

Upper Tier II Bonds Represents instruments considered to be ‘of the best quality, carrying negligible investment risk’.

Judged to offer the highest degree of safety with regard to timely payment of financial obligations. Any adverse changes in circumstances are most unlikely to affect the payments of the instrument.

1 - CARE – Credit Analysis & Research Limited

2 - FITCH – Fitch Ratings India Private Limited (100% subsidiary of Fitch Inc.)

3 - CRISIL – CRISIL Ltd. (A Standard & Poor’s company)

ISSUANCE OF EQUITY SHARES AND WARRANTS

Post merger of the erstwhile Centurion Bank of Punjab with your Bank, 26,200,220 warrants convertible into an equivalent number of equity shares were issued to HDFC Limited on a preferential basis at a rate of Rs. 1,530.13 each. This was done in order to enable the promoter group to restore its shareholding percentage in the Bank to the pre-merger level in line with shareholder and regulatory approvals. On November 30, 2009 the said warrants were converted by HDFC Limited and consequently the Bank issued them 26,200,220 equity shares.

During the year under review, 61.59 lac shares were allotted to the employees of your Bank pursuant to the exercise of options under the employee stock option scheme of the Bank. These include the shares allotted under the employee stock option scheme of the erstwhile Centurion Bank of Punjab.

EMPLOYEE STOCK OPTIONS

The information pertaining to Employee Stock Options is given in an annexure to this report.

CAPITAL ADEQUACY RATIO

Your Bank’s total Capital Adequacy Ratio (CAR) calculated in line with the Basel II framework stood at 17.4%, well above the regulatory minimum of 9.0%. Of this, Tier I CAR was 13.3%.

SUBSIDIARY COMPANIES

Your Bank has two subsidiaries, HDFC Securities Limited (“HSL”) and HDB Financial Services Limited (“HDBFS”). HSL is primarily in the business of providing brokerage services through the internet and other channels. HDBFS is a non-deposit taking non-bank finance company (“NBFC”), for the establishment of which the Bank received Reserve Bank of India (“RBI”) approval during the fiscal year ended March 31, 2008.

In terms of the approval granted by the Government of India, the provisions contained under Section 212(1) of the Companies Act, 1956 shall not apply in respect of the Bank’s subsidiaries. Accordingly, a copy of the balance sheet, profit and loss account, report of the Board of Directors and the report of the Auditors of HSL and HDBFS have not been attached to the accounts of the Bank for the year ended March 31, 2010.

Shareholders who wish to have a copy of the annual accounts and detailed information on HSL and HDBFS may write to the Bank for the same. Further, the said documents shall also be available for inspection by shareholders at the registered offices of the Bank, HSL and HDBFS.



CORPORATE SOCIAL RESPONSIBILITY

Your Bank is a socially responsible corporate citizen committed to deliver a positive impact across social, economic and environmental parameters. The Bank acknowledges its responsibility on the manner that its activities influence its consumers, employees, and stake holders, as well as the environment. Your Bank strives to proactively encourage community growth and development thereby contributing in building a sustainaible future.

Your Bank’s CSR initiatives range across the spectrum of purely operational and financial parameters at one end to social and altruistic at the other. Together, these elements go towards fulfilling its CSR objectives.

The Bank seeks to achieve its corporate and social objectives by focusing on the following strategic areas

• Environmental Responsibility

• Employee Engagement

• Community Initiatives

Environmental Responsibility

Your Bank is aware of its role of an influencer towards the environment, which is embodied in its approach to Carbon Emission Reduction. The Bank demonstrates this commitment to contribute positively to the environment and sustainable development by calculating its carbon footprint and preparing a carbon management plan to reduce it. In addition, in order to create awareness amongst employees on climate change and the need to reduce and recycle, various drives to conserve the environment including tree plantation are organized on a regular basis.

Employee Engagement

The Bank’s employees are encouraged to volunteer time and skills through the ‘Corporate Volunteering Program’. This year your Bank’s employees have engaged in activities such as academic support classes, held English speaking courses and helped in organizing special events in order to celebrate festivals with the underprivileged. Additionally the Bank has facilitated employee donations to charities of their choice through ‘Give India’, a donation platform that enables individuals to support social causes by donating to over 200 charities that have been screened for transparency and credibility. The bank makes a donation matching the amounts donated by its employees on a monthly basis.

Community Initiatives

As a responsible Corporate Citizen your Bank strives for community empowerment through socio-economic development of underprivileged and marginalized sections of society. The Bank partners with NGOs across India to support educational initiatives and livelihood training programs.

In the year ended March 31, 2010 the Bank supported a variety of educational programs ranging from educational sponsorships for girls, adoption of state-run schools, running of academic support classes and reading classes. The Bank also supports projects that provide skills training to school dropouts, youth, women and other disadvantaged groups. The Bank’s social development programs have so far touched the lives of over 73,000 children and 700 women and youth.

FINANCIAL INCLUSION

Over the last few years, your Bank has been working on a number of initiatives to promote Financial Inclusion across identified sections of rural, under-banked and un-banked consumers. These initiatives target segments of the population that have limited or no access to the formal banking system for their basic banking and credit requirements, by building a robust and sustainable model that provides relevant services and viable and timely credit that ultimately result in the economic upliftment of its customers. The Banks financial inclusion initiatives have been integrated across its various businesses, across product groups. Over the next five years your Bank will endeavor to bring 10 million households currently excluded from basic banking services under the fold of this program.

Rural Initiative

The Bank has approximately 33% of its branches in rural and underbanked locations. In these branches the Bank offers products and services such as savings, current, fixed & recurring deposits, loans, ATM facilities, investment products such as mutual funds and insurance, electronic funds transfers, drafts & remittances, etc. The Bank also leverages these branches as hubs for other inclusion initiatives such as direct linkages to self help groups and joint liability groups, bank on wheels, point of sale (POS) terminals and information technology enabled kiosks, and other information & communication technology (ICT) backed initiatives in these locations.

A number of retail credit products such as two-wheeler loans, car loans, mortgages etc. are typically consumption products in urban centers. These however are means of income generation for of rural consumers. We believe that apart from agricultural loans, there are many other credit products that the Bank can use to aid financial betterment in rural locations. The Bank has extended provision of its retail loans to large segments of the rural population where the end use of the products acquired (by availing our loans) are used for income generating activities. For example, loans for tractors, commercial vehicles, etc. supplement the farmer’s income by improving productivity and reducing expenses.

No Frills Savings Accounts

A savings account is the opening requirement for the provision of other banking services; the account promotes the habit of saving, provides a security, and inculcates confidence among the target segment in the banking sector.

The Bank provides ‘No Frills’ savings accounts through all its branches as a stepping stone towards financial inclusion. These accounts are offered only to customers who do not have any other bank account (are un-banked) and who are either beneficiaries of a government welfare scheme or have annual incomes less than a defined threshold (constitute the bottom of the economic pyramid). Apart from the basic no frills savings account your Bank also offers these segments other accounts such as no frills salary accounts and limited KYC accounts.

Lending to self help groups and Microfinance Institutions

Your Bank has been working with various self help groups in order to cover a wider consumer base than through its own branch network. The groups that the Bank partners work with the objective of providing credit for income generation activities, (often by providing training, vocational guidance, and marketing support to their members). Leveraging their distribution, credit expertise and on-ground knowledge, the Bank funds these groups who in turn lend to the end consumer. Till date the Bank has lent to over 45,000 self help groups covering approximately

7 lakh households supporting their income generation activities. The Bank works with these groups either by appointing business correspondents or through its own branch network. To this effect the Bank has opened 27 branches catering exclusively to this target segment.

The Bank also extends loans to Microfinance Institutions for on-lending to financially excluded households or in many cases to them through self help groups. This program is currently spread across the country covering 18 states with tie-ups with 110 accredited microfinance institutions. The above institutions typically face challenges in the areas of funding, credit underwriting and scaling up of operations. The Bank brings in the necessary expertise related to these areas and enters into a symbiotic arrangement that benefits all parties involved. As on March 31, 2010 with a micro lending book of over Rs. 1,400 crores the Bank’s micro lending initiative has reached approximately 2 million households.

Agriculture and Allied Activities

A large portion of India’s un-banked population relies on agriculture as their main source of livelihood. We believe provision of credit to marginal farmers through various methods that your Bank has employed replaces the traditional money lending channel, while at the same time providing income generating activities. The Bank provides various loans to farmers through its suite of specifically designed products such as the Kisan Gold Card, tractor, cattle loans etc. In addition the Bank offers post-harvest cash credit, warehouse receipt financing and bill discounting facilities to mandi (markets for grain and other agricultural produce) participants and farmers. These facilities enable the mandi participants to make timely payments to farmers. The Bank carries out this business through approximately 200 branches that are located in close proximity to mandis.

The Bank targets specific sectors to capture supply chain of certain crops from the production stage to the sales stage. On the basis of these cashflows, your Bank is able to finance specific needs of the farmers. This is further supported by using business correspondents closer to their respective locations and helping them to create a savings and banking habit. This model has currently been implemented with dairy and sugarcane farmers.

The initiative currently underway includes the appointment of milk societies as BCs, through whom the Bank opens accounts of individual farmers attached to these societies. The societies route all payments to the farmers through this account.

Small and Micro Enterprises

One of the means to financial inclusion is by supporting small and micro enterprises which in turn provide employment opportunities to the financially excluded. Though indirect, we believe this model may in many instances be more effective than providing subsidies that are often unsustainable, or never reach the intended beneficiary.

The Bank offers complete banking solutions to micro, small and medium scale enterprises across industry segments including manufacturers, retailers, wholesalers / traders and services. The entire suite of financial products including cash credit, overdrafts, term loans, bills discounting, export packing credit, letter of credit, bank guarantees, cash management services and other structured products are made available to these customers.

Promoting Financial Awareness

In addition to providing various products and services to the financially excluded, that Bank believes that imparting education and training to these target segments is equally essential to ensure transparency and create awareness. To this effect the Bank has put in place various training programs, these are conducted by Bank staff in local languages and cover not only the customers but also various intermediaries such as the Bank’s business correspondents. Through these programs the Bank provides credit counseling and information on parameters like savings habit, better utilization of savings, features of savings products, credit utilization, asset creation, insurance, income generation program etc.

HUMAN RESOURCES

The total number of employees of your bank were 51,888 as of March 31, 2010. The Bank continued to focus on training its employees, both on-the-job as well as through training programs conducted by internal and external faculty. The Bank has consistently believed that broader employee ownership of its shares has a positive impact on its performance and employee motivation.

HDFC Bank lists ‘people’ as one of its stated core values. The Bank believes in empowering its employees and constantly takes various measures to achieve this.

STATUTORY DISCLOSURES

The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, are given in the annexure appended hereto and forms part of this report. In terms of section 219(1)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. The Bank had 51,888 employees as on March 31, 2010. 630 employees employed throughout the year were in receipt of remuneration of Rs. 24 lacs per annum and 35 employees employed for part of the year were in receipt of remuneration of more than Rs. 2 lacs per month.

The provisions of Section 217(1)(e) of the Act relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used information technology extensively in its operations.

The report on the Corporate Governance is annexed herewith and forms part of this report.

The Ministry of Corporate Affairs has issued “Corporate Governance Voluntary Guidelines” in December 2009. While these guidelines are recommendatory in nature, the Bank has adopted most of these guidelines as detailed in the Corporate Governance Report. The Bank will examine the possibilities of adopting the remaining guidelines in an appropriate manner.

RESPONSIBILITY STATEMENT

The Board of Directors hereby state that

i) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2010 and of the profit of the Bank for the year ended on that date;

iii) We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Bank and for preventing and detecting the fraud and other irregularities;

iv) We have prepared the annual accounts on a going concern basis.

DIRECTORS

Mr. C.M.Vasudev and Dr. Pandit Palande will retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment.

The Board at its meeting held on 15th January 2010 re-appointed Mr. Aditya Puri as Managing Director of the Bank for a period of 3 years from 1st April 2010 to 31st March 2013 subject to the approval of the shareholders at the ensuing Annual General Meeting and the Reserve Bank of India. The Reserve Bank of India has since approved the re-appointment of Mr. Puri as Managing Director and the terms of re-appointment are being placed before the shareholders for approval at the ensuing Annual General Meeting.

The Board at its meeting held on 24th April 2010 also approved the re-appointment of Mr. Harish Engineer and Mr. Paresh Sukthankar as Executive Directors for further periods from the expiry of their current terms subject to the approval of the shareholders at the ensuing Annual General Meeting and the Reserve Bank of India.

The brief resume/details relating to Directors who are to be appointed/re-appointed are furnished in the report on Corporate Governance.

AUDITORS

M/s. Haribhakti & Co., Chartered Accountants have been the Statutory Auditors of your Bank since 2006. As per the regulations of the Reserve Bank of India, the same auditors cannot be re-appointed for a period beyond four years. It is proposed to appoint M/s. BSR & Co., Chartered Accountants as the new Statutory Auditors of the Bank, subject to the approval of the members and the Reserve Bank of India. Your Directors place on record their sincere appreciation of the professional services rendered by M/s.Haribhakti & Co., as Statutory Auditors of the Bank.

ACKNOWLEDGEMENT

Your Directors would like to place on record their gratitude for all the guidance and co-operation received from the Reserve Bank of India and other government and regulatory agencies. Your Directors would also like to take this opportunity to express their appreciation for the hard work and dedicated efforts put in by the Bank’s employees and look forward to their continued contribution in building a World Class Indian Bank.

On behalf of the Board of Directors

Jagdish Capoor Mumbai, April 24, 2010 Chairman

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