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Directors Report of HDFC Bank Ltd.

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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