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Directors Report of Housing Development Finance Corporation Ltd.

Mar 31, 2015

TO THE MEMBERS

The directors are pleased to present the Thirty-eighth annual report of your Corporation with the audited accounts for the year ended March 31, 2015.

FINANCIAL RESULTS For the For the year ended year ended March 31, March 31, 2015 2014 (Rs. in crore) (Rs. in crore)

Profit before Tax 8,624.14 7,440.24

Tax Expense (net of Deferred Tax 2,269.23 2,000.00 Liability (DTL) on Special Reserve)

Profit after Tax but before DTL on 6,354.91 5,440.24 Special Reserve

DTL on Special Reserve 364.77 -

Profit after Tax 5,990.14 5,440.24

Appropriations have been made as under:

Special Reserve No. II 1,054.00 890.00

General Reserve 2,003.33 1,037.98

Statutory Reserve (under Section 29C of the National Housing Bank Act, 1987) 150.00 900.00

Shelter Assistance Reserve - 60.00

Interim and Proposed Dividend (Rs.15 2,362.05 2,184.75 per equity share of Rs. 2 each)

Additional Tax on Interim and Proposed 420.76 367.51

Dividend net of previous year adjustments 5,990.14 5,440.24

Dividend

In March 2015, your directors declared and paid an interim dividend of Rs. 2 per equity share of Rs. 2 each.

Your directors recommend payment of final dividend for the financial year ended March 31, 2015 of Rs. 13 per equity share of Rs. 2 each.

The total dividend for the year is Rs. 15 per equity share as against Rs. 14 per equity share for the previous year.

The dividend payout ratio for year ended March 31, 2015 will be 47%, which was the same as in the previous year.

Lending Operations

The demand for individual home loans remained healthy during the year, with growth predominantly coming from Tier 1, Tier 2 and Tier 3 cities. Improved affordability due to rising incomes and continued fiscal benefits available on home loans have encouraged more people to avail of home loans.

The Corporation remains committed towards offering a bouquet of home loan products so as to ensure that it addresses a wide spectrum of customers. The Corporation has made a concerted effort to grow its rural housing portfolio. It has developed requisite skills to assess agricultural income and has built robust legal and technical appraisal mechanisms to cater to the rural housing finance market.

Addressing housing needs of those from the unorganised sector is another segment that the Corporation has ventured into with the launch of ''HDFC Reach''. Different credit assessment and appraisal techniques are needed to cater to the self- employed and employed customers from the unorganised sector.

Individual loan disbursements grew by 16% during the year. The average size of individual loans stood at Rs. 23.3 lac as against Rs. 22.1 lac in the previous year.

As at March 31, 2015, the loan book stood at Rs. 2,28,181 crore as against Rs. 1,97,100 crore in the previous year. Loans sold during the preceding twelve months amounted to Rs. 8,249 crore. The growth in the individual loan book, after adding back loans sold was 23% (17% net of loans sold). The non-individual loan book grew at 14%. The growth in the total loan book after adding back loans sold was 20% (16% net of loans sold).

Of the total loan book, individual loans comprise 71%. Further, 78% of the incremental growth in the loan book during the year came from individual loans.

Sale of Loans

During the year, the Corporation, under the loan assignment route sold individual loans amounting to Rs. 8,249 crore to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank.

As at March 31, 2015, total loans outstanding in respect of loans sold/ assigned stood at Rs. 25,152 crore. HDFC continues to service loans and is entitled to the residual interest on the loans sold. The residual interest on the outstanding individual loans sold/assigned is 1.25% per annum. The residual income on the loans sold/assigned is being recognised over the life of the underlying loans and not on an upfront basis.

Loan pools which were rated by external rating agencies carry a rating indicating the highest degree of safety.

Repayments

During the year under review, Rs. 66,422 crore was received by way of scheduled repayment of principal through monthly instalments as well as redemptions ahead of schedule, as compared to Rs. 58,410 crore received last year.

Resource Mobilisation

Subordinated Debt

During the year, the Corporation raised Rs. 3,000 crore through the issue of long-term unsecured redeemable non-convertible subordinated debentures. The subordinated debt was assigned the highest rating of ''CRISIL AAA/Stable'' and ''ICRA AAA/Stable'' by CRISIL and ICRA respectively.

As at March 31, 2015, the Corporation''s outstanding subordinated debt stood at Rs. 6,475 crore. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating by CRISIL and ICRA respectively. Based on the balance term to maturity, as at March 31, 2015, Rs. 5,495 crore of the book value of subordinated debt was considered as Tier II under the guidelines issued by the National Housing Bank (NHB) for the purpose of capital adequacy computation.

Non-Convertible Debentures (NCD)

During the year, the Corporation issued NCD amounting to Rs. 26,170 crore on a private placement basis. The Corporation''s NCD issues have been listed on the Wholesale Debt Market segment of the National Stock Exchange of India Limited and the BSE Limited. The NCD issues have been assigned the highest rating of ''CRISIL AAA/Stable'' and ''ICRA AAA/ Stable''. As at March 31, 2015, NCD outstanding stood at Rs. 84,183 crore. The Corporation has been regular in making payments of principal and interest on the NCD.

The Corporation is in compliance with the provisions of the Housing Finance Companies Issuance of Non- Convertible Debentures on Private Placement (NHB) Directions, 2014.

Term Loans from Banks, Institutions and Refinance from the National Housing Bank (NHB)

As at March 31, 2015, the total loans outstanding from banks, institutions and NHB amounted to Rs. 26,194 crore as compared to Rs. 32,952 crore as at March 31, 2014.

HDFC''s long-term and short-term bank loan facilities have been assigned the highest rating of ''CARE AAA'' and ''CARE A1 '' respectively by CARE Ratings, signifying highest safety for timely servicing of debt obligations.

During the year, the Corporation has drawn NHB refinance amounting to Rs. 529 crore under the Golden Jubilee Rural Housing Refinance Scheme and Urban Housing Fund.

Deposits

Total deposits outstanding increased from Rs. 56,578 crore at the beginning of the financial year to Rs. 66,088 crore as at March 31, 2015. The number of deposit accounts grew from 17.5 lac to 18.1 lac.

CRISIL, a subsidiary of Standard & Poor''s Rating Services and ICRA, an associate of Moody''s Investors Service have for the twentieth consecutive year, reaffirmed a rating of ''CRISIL FAAA/Stable'' and ''ICRA MAAA/Stable'' respectively for HDFC''s deposits. These ratings represent the highest degree of safety regarding timely servicing of financial obligations and carries the lowest credit risk.

The support of the agents and their commitment to the Corporation has been instrumental in HDFC''s deposit products continuing to be a preferred investment for households and trusts.

There has been no default in repayment of deposits or payment of interest during the year. All the deposits accepted by the Corporation are in compliance with the requirements of Chapter V of the Companies Act, 2013.

Unclaimed Deposits

As of March 31, 2015, public deposits amounting to Rs. 609 crore had not been claimed by 50,352 depositors. Since then, 12,868 depositors have claimed or renewed deposits of Rs. 219 crore. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits. Where the deposit remains unclaimed, reminder letters are sent to depositors periodically and follow up action is initiated through the concerned agent or branch.

Deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the central government. Accordingly, during the year, an amount of Rs. 1.43 crore has been transferred to the IEPF.

Non-Performing Loans

Gross non-performing loans as at March 31, 2015 amounted to Rs. 1,542 crore. This is equivalent to 0.67% of the loan portfolio (as against 0.69% in the previous year). The non- performing loans of the individual portfolio stood at 0.51% while that of the non-individual portfolio stood at 1.01%.

As per NHB norms, the Corporation is required to carry a total provision of Rs. 1,703 crore.

The balance in the provision for contingencies account as at March 31, 2015 stood at Rs. 2,034 crore of which Rs. 481 crore is on account of non-performing loans and the balance Rs. 1,553 crore is in respect of general provisioning and other provisions. This balance in the provision for contingencies is equivalent to 0.89% of the loan portfolio. The Corporation carries an additional provision of Rs. 331 crore over the regulatory requirements.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporation has been able to successfully initiate recovery action under this Act.

Regulatory Guidelines /Amendments

The Corporation has complied with the Housing Finance Companies (NHB) Directions, 2010 prescribed by NHB regarding accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy, credit rating, concentration of investments and capital market exposure norms.

The Corporation creates Special Reserve through appropriation of profits in order to avail tax deduction under Section 36 (1)(viii) of the Income Tax Act, 1961. NHB vide its circular dated May 27, 2014, directed HFCs to create Deferred Tax Liability (DTL) on Special Reserve as a matter of prudence. Further, vide circular dated August 22, 2014, NHB permitted HFCs to create DTL in respect of Special Reserve outstanding as at March 31, 2014 by adjusting the same directly from the reserves over a period of three years, starting from the financial year under review, in a phased manner, in the ratio of 25:25:50. DTL for amounts transferred to Special Reserve from the year ended March 31, 2015 onwards is to be charged to the Statement of Profit and Loss of that year.

The Corporation''s capital adequacy ratio (CAR) after reducing the investment in HDFC Bank from Tier I capital stood at 16.1%. Of this, Tier I capital was 12.5% and Tier II capital was 3.6%.

The CAR without reducing the investment in HDFC Bank from Tier I capital, while treating it as a 100% risk weight stood at 18.5%, of which Tier I capital was 15% and Tier II capital was 3.5%. As per the regulatory norms, the minimum requirement for the capital adequacy ratio and Tier I capital is 12% and 6% respectively.

Codes and Standards

The Corporation has adopted various codes and standards set out by NHB including inter alia Know Your Customer (KYC) Guidelines, Anti Money Laundering Standards, Fair Practices Code, Model Code of Conduct for Direct Selling Agents, Guidelines for Recovery Agents engaged by HFCs and Most Important Terms and Conditions of housing loans.

The Corporation has mechanisms in place to review and monitor adherence to these codes and standards and ensure reporting and compliances as required.

Marketing and Distribution

During the year, efforts were concentrated on further strengthening the distribution network. The Corporation''s distribution network now spans 378 outlets, which includes 103 offices of HDFC''s wholly owned distribution company, HDFC Sales Private Limited (HSPL).

To further augment the network, HDFC covers additional locations through its outreach programmes. HDFC has overseas offices in London, Singapore and Dubai. The Dubai office reaches out to its customers across Middle East through its service associates based in Kuwait, Qatar, Oman, Abu Dhabi and Saudi Arabia.

The Corporation''s distribution channels which include HSPL, HDFC Bank and third party direct selling associates (DSAs) play an important role in sourcing home loans. In value terms, HSPL, HDFC Bank and third party DSAs sourced 49%, 24% and 18% of home loans disbursed respectively during the year.

The Corporation has distribution tie-ups with banks such as IndusInd Bank, RBL Bank and Lakshmi Vilas Bank as well as with Sundaram Finance Limited, IIFL Limited and Cholamandalam Distribution Services Limited. All distribution channels only source loans, while the control over the credit, legal and technical appraisal continues to rest with HDFC, thereby ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels.

In order to reach out and connect more effectively with customers, the Corporation embarked on a number of digital initiatives including a revamped website, development of a mobile application, introduction of a ''live chat'' with non-resident Indian customers as well as building a stronger presence on various social media platforms. The Corporation organised an online property fair to enable customers to identify and select homes.

Property fairs across major cities in India were organised. To cater to the Indian diaspora, ''India Homes'' fairs were held in London, Singapore and Muscat where developers were invited by HDFC to show case their properties.

Value Added Services and Cross Selling

HDFC''s subsidiary companies have strong synergies with HDFC. This enables the Corporation to provide property related value added services and cross sell products and services under the ''HDFC'' brand.

HDFC Realty Limited, a property advisory company, has a presence in 23 locations across India and helps individuals and corporate institutions to buy, sell or lease real estate. HDFCRED.com, an on-line real estate search engine assists potential home buyers in identifying properties and provides leads for potential home loan customers.

HDFC and HSPL are Composite Corporate Agents for HDFC Standard Life Insurance Company Limited

(HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC ERGO).

International Housing Finance Initiatives

HDFC''s expertise in housing finance is well regarded and therefore a number of existing and new housing finance companies are keen to tap the Corporation for training and technical assistance in housing finance.

The Frankfurt School of Finance & Management and HDFC jointly organised the seventh ''Housing Finance Summer Academy'' in Germany, which is a course that aims to provide housing finance solutions for emerging markets through a combination of academic knowledge and practical experience.

The Corporation remains committed to sharing its expertise in countries which have nascent mortgage markets. The Corporation continues to lend its support to housing finance players in Bangladesh, Sri Lanka, Maldives and Indonesia. Currently, the Corporation is in the process of setting up a greenfield housing finance company in Tanzania, along with International Finance Corporation (IFC) and three local based investors.

With a perspective of developing the capital markets to facilitate access to long-term funding for housing finance, the Corporation participated in the first international conference on capital markets in East Africa. The conference was held in Rwanda and was co-hosted by the Rwanda government and IFC.

Corporate Social Responsibility

In accordance with the provisions of Section 135 of the Companies Act, 2013 and rules framed there under, the Corporation has a Corporate Social Responsibility (CSR) Committee of Directors comprising Mr. Deepak S. Parekh (Chairman), Mr. D. N. Ghosh (independent director) and the whole- time directors.

The role of the committee is to review the CSR policy, indicate activities to be undertaken by the Corporation towards CSR and formulate a transparent monitoring mechanism to ensure implementation of projects and activities undertaken by the Corporation towards CSR.

The Corporation contributed directly and through H T Parekh Foundation to identified social sectors such as education, health and sanitation, community development, child welfare and livelihood and supporting differently abled persons.

During the year, the Corporation supported educational initiatives such as primary and secondary school education (rural and urban), girl child education, scholarships, alternate educational programmes, special education and teacher training and vocational skills training for underprivileged children. In the healthcare sector, the Corporation has been a strong supporter of institutions that work towards the prevention, treatment, rehabilitation and palliation for cancer patients and also for community based hospitals serving the rural population. Recognising health related risks attached to poor sanitation, the Corporation associated with organisations focusing on urban slum sanitation.

The Corporation supports initiatives towards the health, safety, nutrition and development of orphaned and underprivileged children. Additionally, assistance was provided to institutions educating children with physical and mental disabilities to improve their livelihood. The Corporation also supported organisations promoting environmental preservation and Indian athletes competing at an international level.

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

Human Resource Development

The Corporation recognises that training and continuous upgradation of skill sets are essential to ensure a high calibre workforce. During the year, new recruits participated in an induction programme at the Centre for Housing Finance, which is the Corporation''s training centre in Lonavla. Other in-house training programmes were conducted on subjects like Know Your Customer, Credit Fraud Risk and Mitigation, Disbursement Processes, Rural Housing and Appraisal Techniques for Customers from the Unorganised Sector. Training was also imparted in specialised fields of legal and credit risk management. Staff members were nominated for a variety of external training programmes in India and overseas.

Awards and Recognitions

During the year, some of the awards received by the Corporation included:

- The Dun & Bradstreet- Corporate Awards, 2014 in the FIs / NBFCs / Financial Services sector;

- Best Home Loan Provider by CNBC Awaaz Real Estate Awards, 2014;

- Best Loan Finance Bank and Best Overall Bank for Real Estate in India at the Euromoney Real Estate Awards, 2014.

The Board of Directors of the Corporation was selected as one of the ''Five Best Boards'' for the second consecutive year in a study conducted by The Economic Times and Hay Group on India''s Best Boards 2014.

Subsidiary/Associate Companies

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

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

During the year under review, Magnum Foundations Private Limited was acquired as an associate by a subsidiary of the Corporation. There were no new subsidiary or joint venture companies incorporated during the year. H T Parekh Foundation ceased to be a subsidiary of the Corporation during the year.

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

Review of Key Subsidiary and Associate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue to maintain an arm''s length relationship in accordance with the regulatory framework. Both organisations, however, capitalise on the strong synergies through a system of referrals, special arrangements and cross selling in order to effectively provide a wide range of products and services under the ''HDFC'' brand name.

As at March 31, 2015, advances of HDFC Bank stood at Rs.365,495 crore - an increase of 21% over the previous year. Total deposits stood at Rs. 450,796 crore - an increase of 23%. As at March 31, 2015, HDFC Bank''s distribution network includes 4,014 branches and 11,766 ATMs in 2,464 locations.

For the year ended March 31, 2015, HDFC Bank reported a profit after tax of Rs. 10,216 crore as against Rs. 8,478 crore in the previous year, representing an increase of 21%. HDFC Bank has recommended a dividend of Rs. 8 per share of Rs. 2 each as against Rs. 6.85 per share for the previous year.

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 21.7% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC Life)

Gross premium income of HDFC Life for the year ended March 31, 2015 stood at Rs. 14,830 crore as compared to Rs. 12,063 crore in the previous year. The sum assured in force at the end of FY 2015 was Rs. 3,66,755 crore as compared to Rs. 2,72,697 crore in the previous year, representing a growth of 34%.

The Company has a portfolio of 24 retail products and 7 group products covering saving, investment, protection and retirement needs of its customers, along with 9 optional rider benefits.

HDFC Life''s distribution network includes 414 branches, covering 1,000 locations and a liaison office in Dubai. In addition, the company has 86,000 financial consultants, 4 bancassurance partners and 9 pan-India brokers and corporate agency tie-ups. In FY 2015, HDFC Life ranked third among private sector life insurers in terms of market share based on the weighted received premium of individual business.

During the year, the Corporation sold 0.95% of the total issued and paid-up share capital of HDFC Life to Azim Premji Trust.

HDFC Life has reported a profit after tax of Rs. 786 crore for the year ended March 31, 2015 as against Rs. 725 crore in the previous year. The back book is generating sufficient profits to offset the new business strain incurred in writing of new policies.

The new business margin for individual business stood at 22.5% (based on loaded acquisition expenses). The post overrun margins (after considering the impact of the acquisition overrun) was 17.5% (PY 16.1%). At the company level, the post overrun margin was 18.5% for the year ended March 31, 2015.

As at March 31, 2015, the Market Consistent Embedded Value stood at Rs. 8,805 crore (previous year Rs. 6,992 crore).

During the year, HDFC Life paid an interim dividend of Rs. 0.70 per equity share of Rs. 10 each. The solvency ratio of the company was 196% as at March 31, 2015 as against the minimum regulatory requirement of 150%.

HDFC holds 70.7% of the equity share capital in HDFC Life.

HDFC Asset Management Company Limited (HDFC-AMC)

As at March 31, 2015, HDFC-AMC managed 55 debt, equity, gold exchange traded fund and fund of fund schemes of HDFC Mutual Fund. The average assets under management for the month of March 2015 stood at Rs. 1,67,161 crore (which is inclusive of average assets under discretionary portfolio management/ advisory services). HDFC Mutual Fund has been ranked first in the industry on the basis of quarterly average assets under management for the year ended March 31, 2015. The number of investor accounts was in excess of 52 lac as at March 31, 2015. HDFC-AMC has 141 investor service centres across the country.

For the year ended March 31, 2015, HDFC-AMC reported a profit after tax of Rs. 416 crore as against Rs. 358 crore in the previous year.

HDFC holds 59.8% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC ERGO)

HDFC ERGO continued to retain its market ranking as the fourth largest private sector player in the general insurance industry. Further, the company continued to be the largest player in the personal accident line of business.

The Company offers a complete range of insurance products like motor, health, travel, home and personal accident in the retail segment and customised products like property, marine, aviation and liability insurance in the corporate segment. The Company continues to leverage on the HDFC group''s distribution capability to drive its growth and on the technical capability of ERGO in the field of general insurance. The Company has a balanced portfolio mix with the retail segment accounting for 59% of the business.

The gross written premium (excluding motor and declined risk pool) of the Company increased by 9% to Rs. 3,256 crore as against Rs. 2,978 crore in the previous year.

The profit before tax of the Company for the year stood at Rs. 141 crore as against Rs. 224 crore in the previous year. Lower profits during the year under review was mainly on account of the impact of natural catastrophes such as the Jammu & Kashmir floods, Cyclone Hudhud and Cyclone Phailin and due to a change in the depreciation policy, aligning it with the Companies Act, 2013. For the year ended March 31, 2015, the profit after tax stood at Rs. 104 crore.

During the year, HDFC ERGO paid an interim dividend of Rs. 0.75 per equity share of Rs. 10 each as against Rs. 0.50 per equity share in the previous year.

The combined ratio as at March 31, 2015 stood at 108.6% (after motor and declined risk pool losses). The solvency ratio of the company was 165% as at March 31, 2015 as against the minimum regulatory requirement of 150%.

HDFC holds 73.6% of the equity share capital of HDFC ERGO.

HDFC Property Funds

HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, a registered venture capital fund with the Securities and Exchange Board of India (SEBI).

HDFC Property Fund has two schemes -- the first scheme is HDFC India Real Estate Fund (HI-REF), which had an initial corpus of Rs. 1,000 crore. HI-REF has, as on date distributed the entire investment corpus and also profits to its investors. HI-REF is in the midst of concluding final exits from the balance portfolio. The second scheme was HDFC IT Corridor Fund, a Rs. 464 crore rent yielding portfolio. This scheme has been fully exited.

HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indian and overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indian and offshore private equity funds.

HDFC holds 80.5% of the equity share capital of HVCL and 100% of the equity share capital of HPVL.

The Corporation has sponsored two off shore funds -- HIREF International LLC and HIREF International Fund II Pte Ltd. HIREF International LLC was launched in 2007 and has a corpus of USD 800 million. Exits have commenced and the fund is in the process of exiting the balance investments. HIREF International Fund II Pte Ltd. had its second and final closing in April 2015 with a total corpus of USD 321 million.

GRUH Finance Limited (GRUH)

GRUH is a housing finance company with a retail network of 154 offices spread across 8 states. During the year, GRUH disbursed loans amounting to Rs. 3,121 crore as compared to Rs. 2,577 crore in the previous year - an increase of 21%. As at March 31, 2015, the loan portfolio stood at Rs. 8,915 crore, recording a growth of 27% over the previous year. The gross non-performing loans stood at 0.28% of the total loans outstanding and the net non performing loans are nil. The average size of loans disbursed during the year was Rs. 8.4 lac.

As at March 31, 2015, the capital adequacy ratio stood at 15.4%, of which Tier I capital was 13.9% and Tier II capital was 1.5%.

For the year ended March 31, 2015, GRUH reported a profit after tax before DTL on Special Reserve of Rs. 223 crore as compared to Rs. 177 crore - representing a growth of 26%. The profit after tax after the factoring DTL on Special Reserve for the year ended March 31, 2015 stood at Rs. 204 crore.

The board recommended payment of a dividend for the year ended March 31, 2015 of Rs. 2 per equity share of Rs. 2 each as against Rs. 3 per equity share in the previous year. Considering the company declared a 1:1 bonus during the year, the effective dividend for the year is Rs. 4 per equity share (pre bonus) as compared to Rs. 3 per share in the previous year (pre bonus).

HDFC''s holding in GRUH currently stands at 58.6%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL) continues to strengthen the Corporation''s marketing and sales efforts by providing a dedicated sales force to sell home loans and other financial products.

HSPL has a presence in 103 locations. During the year under review, HSPL

sourced loans accounting for 49% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Credila Financial Services Private Limited (Credila)

Credila is India''s first dedicated education loan company, providing loans to students pursuing higher education in India and abroad. As on March 31, 2015, Credila had cumulatively disbursed Rs. 2,221 crore to 21,031 customers. The outstanding loan book stood at Rs. 1,690 crore, registering a growth of 43% over the previous year. The average loan amount disbursed was Rs. 10.5 lac. For the year ended March 31, 2015, Credila reported a profit after tax of Rs. 28 crore as against Rs. 19 crore in the previous year - representing a growth of 45%.

In addition to having its own offices and sourcing applications through the web, Credila capitalises on HDFC''s distribution network to source and market education loans. Credila''s borrowers are entitled to income tax exemption under Section 80E of the Income Tax Act, 1961.

HDFC holds 89.5% of the share holding in Credila on a fully diluted basis.

HDFC Education and Development Services Private Limited (HDFC Edu)

HDFC Edu is the Corporation''s wholly owned subsidiary which focuses on the education sector.

The objective of the Corporation entering the education space is to imbibe best practices in education and facilitate innovation, thereby creating a visible impact on the schooling system in the country.

In March 2015, the Corporation''s first school called ''The HDFC School'' was inaugurated in Gurgaon. The motto of the school is ''Educate, Excel and Empower.'' The school has started the primary wing and is in the process of setting up a 5-acre school campus for its secondary wing. The HDFC School is intended to be a full-fledged K-12 school, which will follow the National Curriculum Framework, 2005 and will be a Central Board of Secondary Education (CBSE) affiliated school.

Particulars of Employees

HDFC had 2,081 employees as of March 31, 2015. During the year, 16 employees employed throughout the year were in receipt of remuneration of Rs. 60 lac or more per annum.

In accordance with the provisions of Rule 5.2 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the names and other particulars of such employees are set out in the annex to the Directors'' Report. In terms of the provisions 136(1) of the Companies Act, 2013 read with the said rule, the Directors'' Report is being sent to all the shareholders of the Corporation excluding the annex. Any shareholder interested in obtaining a copy of the said annex may write to the Corporation.

Further disclosures on managerial remuneration are provided in Annex 1 appended to the Directors'' Report.

Particulars of Loans, Guarantees or Investments

Since the Corporation is a housing finance company, the disclosures regarding particulars of the loans given, guarantee given and security provided is exempt under the provisions of Section 186(11) of the Companies Act, 2013.

As regards investments made by the Corporation, the details of the same are provided under Notes 13 and 17 forming part of the standalone financial statements of the Corporation for the year ended March 31, 2015.

Particulars of Contracts or Arrangements with Related Parties

The particulars of contracts or arrangements with related parties referred to Section 188(1), as prescribed in Form AOC - 2 under Rule 8(2) of the Companies (Accounts) Rules, 2014, is annexed to this report.

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

The particulars regarding foreign exchange earnings and expenditure appear as Item Nos. 25.1 and 26.3 in the Notes to the Accounts. Since HDFC does not own any manufacturing facility, the other particulars relating to conservation of energy and technology absorption as stipulated in the Companies (Accounts) Rules, 2014, are not applicable.

Employees Stock Option Scheme (ESOS)

Presently, stock options granted to the employees operate under the following schemes: ESOS-07, ESOS- 08, ESOS-11 and ESOS-14. There has been no variation in the terms of the options granted under any of these schemes. One stock option is equivalent to 5 equity shares of the Corporation.

ESOS-07, ESOS-08 and ESOS-11 (Schemes)

No fresh options were either granted or vested under ESOS-07 and ESOS-08. No fresh options were granted under ESOS-11, however, 1,80,438 options vested during the year, under ESOS-11.

During the year, an aggregate of 28,33,013 options were exercised. Pursuant to the exercise, the Corporation received Rs.684.28 crore as exercise consideration (excluding tax), of which Rs. 2.83 crore was towards share capital and Rs. 681.45 crore towards securities premium. During the year, pursuant to exercise of options, 1,41,65,065 equity shares of Rs. 2 each were allotted to the concerned option grantees.

During the year, 63,287 options lapsed, while options in force (including unvested) as on March 31, 2015 stood at 99,80,684.

ESOS-14

At the 37th Annual General Meeting (AGM) held on July 21, 2014, you had approved the issue of 62,42,130 stock options representing 3,12,10,650 equity shares of Rs. 2 each to the eligible employees and directors of the Corporation. The Nomination & Remuneration Committee of Directors of the Corporation at its meeting held on October 8, 2014, reserved 10,876 options for grant in future, out of total available 62,83,940 options (including 41,810 options lapsed under previous schemes). Accordingly, 62,73,064 stock options were granted representing 3,13,65,320 equity shares of Rs. 2 each at an exercise price of Rs. 5,073.25 per option i.e., Rs. 1,014.65 per equity share of Rs. 2 each under ESOS-14.

The price was determined in accordance with the pricing formula approved by you i.e. at the latest available closing price of the equity share at the NSE, prior to the meeting of the Nomination & Remuneration Committee at which the options are granted. The options granted will vest over a period of 1 to 3 years from the date of grant. The options are exercisable over a period of five years from the date of respective vesting. None of the options granted have vested during the year (and consequently, no options have been exercised). As at March 31, 2015, 49,045 options have lapsed and 62,24,019 options are in force. Under ESOS-14, 19,79,633 options have been granted to 86 employees, in the grades of Deputy General Manager and above up to and including the Vice Chairman & Chief Executive Officer. The minimum number of options granted to any of these employees was 6,000.

No employee was granted options equal to or in excess of 1% of the total issued and paid-up share capital of the Corporation as on the date of grant.

Fair value

Since options were granted at the market price, the intrinsic value of the option is nil. Consequently, the compensation cost was nil. However, if the fair value of the options using the Black-Scholes model was used, considering the assumptions as of the date of grant, the compensation cost (net) would have been Rs. 198.64 crore and the profit after tax would have been lesser by Rs. 198.64 crore and the basic and diluted Earnings Per Share (EPS) would have been Rs. 36.86 and Rs. 36.52 respectively.

The key assumptions used in Black- Scholes model for calculating the fair value under ESOS-14, as on the date of grant, are (a) risk-free interest rate: 8.28% (b) expected life: up to 3 years (c) expected volatility of share price: 15% and (d) expected growth in dividend: 20%. The market price of the equity share on the date of grant ranged from Rs. 1,006.85 to Rs. 1,025.65.

All the options were granted at an exercise price of Rs. 1,014.65 per share and hence the weighted average exercise price is Rs. 1,014.65 per share. The weighted average fair value of the option granted under ESOS-14 (using the Black-Scholes model) works out to Rs. 1,035.91 per option i.e. Rs. 207.18 per share of the face value of Rs. 2 each.

The diluted EPS is Rs. 37.78 as against a basic EPS of Rs. 38.13.

Unclaimed Dividend

As at March 31, 2015, dividend amounting to Rs. 16.94 crore had not been claimed by shareholders of the Corporation. The Corporation has been periodically intimating the concerned shareholders, requesting them to encash their dividend before it becomes due for transfer to the IEPF. The Corporation continues to take various initiatives to reduce the quantum of unclaimed dividend.

Unclaimed dividend amounting to Rs. 0.75 crore for FY 2006-07 was transferred to the IEPF on August 22, 2014. Further, the unclaimed dividend in respect of FY 2007-08 must be claimed by shareholders by August 22, 2015, failing which it will be transferred to the IEPF within a period of 30 days from the said date.

In terms of the IEPF (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012, the Corporation has made the relevant disclosures to the Ministry of Corporate Affairs (MCA) regarding unclaimed dividends and unclaimed matured deposits along with interest accrued thereon. The Corporation has uploaded the prescribed information on www.iepf.gov.in and www.hdfc.com.

Unclaimed Shares

Details on unclaimed shares are provided in the section on ''Shareholders'' Information'' provided elsewhere in the annual report.

Directors and Key Managerial Personnel

In accordance with the provisions of the Companies Act, 2013 and the Articles of Association of the Corporation, Mr. Deepak S. Parekh is liable to retire by rotation at the ensuing AGM. He is eligible for re-appointment.

The necessary resolution for the re- appointment of Mr. Deepak S. Parekh has been included in the notice convening the ensuing AGM.

All the directors of the Corporation have confirmed that they are not disqualified from being appointed as directors in terms of Section 164(2) of the Companies Act, 2013.

Dr. S. A. Dave is the Corporation''s nominee director on the board of HDFC Life. This is in accordance with Clause 49 of the listing agreements, which requires the Corporation to nominate at least one of its independent directors on the board of HDFC Life, which is a material unlisted Indian subsidiary company of the Corporation.

The details on number of board/ committee meetings held are provided in the Report of the Directors on Corporate Governance, which forms part of this report.

During the year under review, Mr. Girish V. Koliyote resigned as the company secretary - a key managerial person of the Corporation, with effect from the close of business hours on March 19, 2015.

The Board of Directors, at its meeting held on March 19, 2015 appointed Mr. Ajay Agarwal as the company secretary -- a key managerial person in accordance with the provisions of Section 203 of the Companies Act, 2013, with effect from March 20, 2015.

Auditors

At the 37th AGM held on July 21, 2014, the members had appointed Messrs Deloitte Haskins & Sells LLP, Chartered Accountants, having registration number 117366W/W- 100018 as the statutory auditors of the Corporation and branch auditors to audit the accounts at the Corporation''s branches in India and offices in London and Singapore, for a period of 3 years, to hold office as such until the conclusion of the 40th AGM, subject to them ratifying the said appointment at every AGM.

The Corporation has received a confirmation from Messrs Deloitte Haskins & Sells LLP to the effect that their appointment, if ratified at the ensuing AGM would be in terms of Sections 139 and 141 of the Companies Act, 2013 and rules made thereunder. The board proposes to the members to ratify the said appointment of Messrs Deloitte Haskins & Sells LLP.

Messrs PKF, Chartered Accountants, having registration number 10 issued by the Ministry of Economy, United Arab Emirates (UAE) was also appointed for a period of 3 years to hold office as such until the conclusion of the 40th AGM, subject to the members ratifying the said appointment at every AGM. The board proposes to ratify the appointment of Messrs PKF.

Secretarial Audit

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Corporation appointed Messrs N. L. Bhatia & Associates, practising company secretaries to undertake the secretarial audit of the Corporation. The Secretarial Audit Report is annexed to this report.

Litigations

During the year under review, no significant or material orders were passed by any regulatory/statutory authorities or courts/tribunals against the Corporation impacting its going concern status and operations in future.

Directors'' Responsibility Statement

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

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

b) Accounting policies selected have been applied consistently. Reasonable and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Corporation as at the end of March 31, 2015 and of the profit of the Corporation for the year ended on that date;

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

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

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

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

Management Discussion and Analysis Report, Report of the Directors on Corporate Governance and Business Responsibility Report

In accordance with Clause 49 of the listing agreements, the Management Discussion and Analysis Report and the Report of the Directors on Corporate Governance form part of this report.

In accordance with the provisions of Clause 55 of the listing agreements, the Business Responsibility Report (BRR) has been prepared and placed on the Corporation''s website. Members who wish to receive a physical copy of the BRR are requested to write to the Corporation.

Extract of Annual Return - Form MGT 9

The details forming part of the extract of the Annual Return in Form MGT 9 is annexed to this report.

Acknowledgements

The Corporation would like to acknowledge the role of all its stakeholders - shareholders, borrowers, channel partners, depositors, key partners and lenders for their continued support to the Corporation.

The directors appreciate the guidance received from various regulatory authorities including NHB, RBI, SEBI, MCA, Registrar of Companies, Financial Intelligence Unit (India), Foreign Investment Promotion Board, the stock exchanges and the depositories.

Your directors place on record their appreciation of the hard work and dedication of all the employees of the Corporation.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH April 29, 2015 Chairman


Mar 31, 2013

TO THE MEMBERS

The directors are pleased to present the Thirty-sixth annual report of your Corporation with the audited accounts for the year ended March 31, 2013.

FINANCIAL RESULTS

For the For the year ended year ended March 31, 2013 March 31, 2012 (Rs. in Crores) (Rs. in Crores)

Profit before Tax 6,572.84 5,665.62

Tax Expense 1,724.50 1,543.00

Profit after Tax 4,848.34 4,122.62

Appropriations have been made as under:

Special Reserve No. II 775.00 730.00

General Reserve 956.62 870.87

Additional Reserve (under Section 29C of the National Housing Bank Act, 1987) 825.00 620.00

Shelter Assistance Reserve 40.00 15.00

Proposed Dividend (at Rs. 12.50 per equity share of face value of Rs. 2 each) 1,932.93 1,624.67

Additional Tax on Proposed Dividend 328.50 263.56

Additional Tax on Dividend (24.62) (4.66)

Dividend pertaining to Previous Year paid during the year 14.91 3.18

4,848.34 4,122.62

Dividend

Your directors recommend payment of dividend for the financial year ended March 31, 2013 of Rs. 12.50 per equity share of face value of Rs. 2 per share as against Rs. 11 per equity share for the previous year.

The dividend payout ratio for the current year, inclusive of additional tax on dividend will be 46.6% as compared to 45.8% for the previous year.

Increase in the Shareholding Limit for Foreign Institutional Investors (FIIs)

At the last annual general meeting, you had through a special resolution granted approval to increase the limit of shareholding by FIIs under the Portfolio Investment Scheme from 74% to 100% of the paid-up share capital of the Corporation.

Accordingly, the Reserve Bank of India (RBI) has notified the enhanced limit for purchase of equity shares of the Corporation by FIIs through the primary market and stock exchanges under the Portfolio Investment Scheme up to 100% of the paid-up share capital of the Corporation. As at March 31, 2013, the total foreign shareholding of the Corporation stood at 74%.

Conversion of Warrants

In August 2009, the Corporation had issued 1,09,53,706 Warrants with a right exercisable by the Warrant holders to exchange each Warrant with one equity share of face value of Rs. 10 per share, on or before August 24, 2012, at a Warrant Exercise Price of Rs. 3,000 per equity share.

Consequent to the sub-division of the nominal face value of the equity shares of the Corporation to Rs. 2 per share, with effect from August 21, 2010, the Warrant Exercise Price was accordingly adjusted to Rs. 600 per equity share of face value of Rs. 2 each, to be paid by the Warrant holder at the time of exchange of the Warrants. Accordingly, the number of Warrants issued was adjusted to 5,47,68,530.

As at August 24, 2012, 5,47,43,150 Warrants had been lodged for exchange with equity shares of the Corporation, representing 99.95% of the Warrants issued. Accordingly, the Corporation issued and allotted 5,47,43,150 equity shares of Rs. 2 each and realised an amount of Rs. 3,284.59 crores. The said equity shares rank pari passu with the existing equity shares of the Corporation in all respects.

The proceeds from the exchange of Warrants were utilised to replace the Zero Coupon Debentures and consequently, the Corporation will not earn any additional interest income on the amounts raised. 25,380 Warrants which were not submitted for exchange with equity shares of the Corporation by 15 Warrant holders have lapsed and cease to be valid. Accordingly, the amounts paid towards them stands forfeited.

Lending Operations

Loan approvals during the year were Rs. 1,03,260 crores as compared to Rs. 90,154 crores in the previous year and loan disbursements during the year were Rs. 82,452 crores as against Rs. 71,113 crores in the previous year.

Individual loan approvals and disbursements grew by 29% and 33% respectively duringthe year. The average size of individual loans stood at Rs. 21.6 lacs as against Rs. 19.5 lacs in the previous year.

Cumulative loan approvals and disbursements as at March 31, 2013 were Rs. 5,66,660 crores and Rs. 4,56,098 crores respectively. This is in respect of 4.4 million housing units.

Despite an increase in residential property prices during the year, the demand for individual home loans remained buoyant, with stronggrowth coming from Tier 2 and Tier 3 cities. Other enabling factors that kept the demand strong for individual home loans include rising disposable incomes and fiscal incentives on housing loans.

In an effort to continue to widen the bouquet of products offered, an innovative product called Rs.TRUFIXED Home Loans'' was introduced during the year. This product is aimed at customers who wish to be insulated from interest rate volatility. Underthis product, a customer has the option to choose a fixed interest rate period ranging between 3 to 10 years and post the fixed rate period, the loan automatically converts to a variable rate product. The product has been well received by customers.

With younger customers opting for a home loan and to help improve affordability, the Corporation offers the Telescopic Repayment Option under which customers have the option of a loan tenor of up to 30 years.

As at March 31, 2013, the loan book stood at Rs. 1,70,046 crores as against Rs. 1,40,875 crores in the previous year. Loans sold during the preceding twelve months amounted to Rs. 5,175 crores. The growth in the individual loan book, after adding back loans sold was 31% (25% net of loans sold). Non-individual loans grew by 13%. The growth in the total loan book after adding back loans sold was 24% (21% net of loans sold).

Of the total loan book, individual loans comprise 68%. Further, 81% of the incremental growth in the loan book during the year came from individual loans.

Sale of Loans

In May 2012, the RBI revised the guidelines on transfer of assets through securitisation and direct assignment of cash flows. The key changes in the guidelines for the sale of home loans included a minimum holding period of 12 months, a minimum retention ratio of 10%, no credit enhancement for loans assigned and banks purchasing the loans are required to undertake a detailed due diligence prior to the assignment of loans.

All the individual loans sold during the year were in accordance with the revised guidelines. The Corporation, under the loan assignment route sold individual loans amounting to Rs. 5,125 crores to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank.

As at March 31, 2013, total loans outstanding in respect of loans sold/ assigned stood at Rs. 16,964 crores. HDFC continues to service loans and is entitled to the residual interest on the loans sold. The residual interest on the individual loans sold/ assigned is 1.33% per annum. The residual income on the loans sold/ assigned is being recognised over the life of the underlying loans and not on an upfront basis.

Issues through which loans have been sold/assigned prior to the introduction of the revised guidelines continue to be rated by external rating agencies and carry a rating indicating the highest degree of safety.

Repayments

During the year under review, Rs. 48,089 crores were received by way of scheduled repayment of principal through monthly instalments as well as redemptions ahead of schedule, as compared to Rs. 42,362 crores received last year.

Resource Mobilisation

Subordinated Debt

As at March 31,2013, the Corporation''s outstanding subordinated debt stood at Rs. 3,475 crores. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating by CRISIL and ICRA. Based on the balance term to maturity, as at March 31, 2013, Rs. 2,985 crores of the book value of subordinated debt is considered as Tier II under the guidelines issued by the National Housing Bank (NHB) for the purpose of capital adequacy computation. The Corporation did not issue any subordinated debt during the year.

Non-Convertible Debentures (NCD)

During the year, the Corporation issued NCD amounting to Rs. 33,180 crores on a private placement basis. The Corporation''s NCD issues have been listed on the Wholesale Debt Market segment of the National Stock Exchange of India Limited and the BSE Limited. The NCD issues have been assigned the highest rating of ''CRISIL AAA'' and ''ICRA AAA'' by CRISIL and ICRA respectively. As at March 31, 2013, NCD outstanding stood at Rs. 75,984 crores.

Term Loans from Banks, Financial Institutions and Refinance from the National Housing Bank (NHB)

As at March 31, 2013, the total loans outstanding from banks, financial institutions and NHB amounted to Rs. 17,824 crores as compared to Rs. 40,697 crores as at March 31, 2012. The fall in the outstanding loan amount is due to a reduction in the outstanding bank loans. As the Base Rates of commercial banks remained high for most part of the financial year under review, the Corporation reduced its exposure to bank loans and substituted it with market borrowings and deposits.

HDFC''s long-term and short-term bank loan facilities have been assigned the highest rating of ''CARE AAA'' and ''CARE A1 '' respectively by CARE Ratings, signifying highest safety for timely servicing of debt obligations.

During the year, the Corporation has drawn NHB refinance amounting to Rs. 627 crores, of which over one-third was drawn as refinance under the Rural Housing Fund.

Deposits

During the year, the Corporation witnessed a robustgrowth in deposits from Rs. 36,293 crores to Rs. 51,933 crores. The depositor base too grew from 12.9 lacs to 15.6 lacs depositors.

CRISIL and ICRA have for the eighteenth consecutive year, reaffirmed their ''CRISIL FAAA'' and ''ICRA MAAA'' ratings respectively for HDFC''s deposits. These ratings represent the highest degree of safety regarding timely servicing of financial obligations and also carries the lowest credit risk.

The support of the agents and their commitment to the Corporation has been instrumental in HDFC''s deposit products continuing to be a preferred investment for households and trusts.

Unclaimed Deposits

As of March 31, 2013, public deposits amounting to Rs. 270.58 crores had not been claimed by 28,330 depositors. Since then, 6,236 depositors have claimed or renewed deposits of Rs. 82.89 crores. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits. Where the deposit remains unclaimed, reminder letters are sent to depositors periodically and follow up action is initiated through the concerned agent or branch.

As per the provisions of Section 205C of the Companies Act, 1956, deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government. Accordingly, during the year, despite repeated reminders being sent to depositors, an amount of Rs. 59.19 lacs has been transferred to the IEPF. In terms of the said section, no claims would lie against the Corporation or the IEPF after the transfer.

Non-Performing Loans

Gross non-performing loans as at March 31, 2013 amounted to Rs. 1,199 crores. This is equivalent to 0.70% of the portfolio (as against 0.74% in the previous year). This is the thirty-third consecutive quarter end at which the percentage of non- performing loans have been lower than the corresponding quarter in the previous year. The non-performing loans of the individual portfolio stood at 0.58% while that of the non- individual portfolio stood at 0.91%.

Based on a six months overdue basis, the non-performing loans as at March 31, 2013 stood at 0.40% of the loan portfolio as against 0.44% in the previous year.

As per NHB norms, the Corporation is required to carry a total provision of Rs. 1,506 crores of which only Rs. 387 crores is on account of non- performing assets and the balance Rs. 1,119 crores is in respect of general provisioning on standard loans including Dual Rate Home Loans (DRHL). Thus the Corporation carries an additional provision of Rs. 286 crores over the regulatory requirements.

As against non-performing loans of Rs. 1,199 crores, the balance in the provision for contingencies account as at March 31, 2013 stood at Rs. 1,792 crores (inclusive of provision for non-performing loans). This is equivalent to 1.05% of the portfolio.

All DRHL had converted into floating rate loans linked to HDFC''s Retail Prime Lending Rate with effect from April 1, 2012. As per NHB guidelines, the Corporation was mandated to carry a higher provisioning of 2% on standard DRHL up to one year after the interest rates were re-set. Accordingly, with effect from April 1, 2013, the Corporation will no longer need to maintain a higher provisioning on these loans.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporation has been able to successfully initiate recovery action under this Act in the case of wilful individual and corporate defaulters.

Regulatory Guidelines/Amendments

HDFC has complied with the Housing Finance Companies (NHB) Directions, 2010 prescribed by NHB regarding accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy, credit rating, concentration of investments and capital market exposure norms.

HDFC''s capital adequacy ratio stood at 16.35% of the risk weighted assets, as against the minimum requirement of 12%. Tier I capital was 13.85% as against a minimum requirement of 6%.

In December 2012, the RBI issued guidelines on External Commercial Borrowings (ECB) for low cost affordable housing projects. As per the notification, Housing Finance Companies (HFC) can avail of ECB for on-lending to prospective owners of low cost affordable housing units under the approval route. The Corporation had in January 2013, made an application to raise funds under this scheme, which is awaiting regulatory approval.

Codes and Standards

NHB has issued comprehensive Know Your Customer (KYC) Guidelines and Anti Money Laundering Standards in the context of recommendations made by the Financial Action Task Force on Anti Money Laundering Standards and on Combating Financing of Terrorism Standards. During the year, the board reviewed and approved the amendments to the Corporation''s KYC and Prevention of Money Laundering Policy as stipulated by NHB. The Corporation has adhered to the compliance requirements in terms of the said policy relating to monitoring and reporting of cash/ suspicious transactions.

The Fair Practices Code framed by NHB seeks to promote good and fair practices by setting minimum standards in dealingwith customers, increase transparency so customers have a better understanding of what they can reasonably expect of the services being offered, encourage marketforces through competition to achieve higher operating standards, promotefairand cordial relationships between customers and the HFC and foster confidence in the housing finance sector. The Corporation has put in place a mechanism to monitor and review adherence to the Fair Practices Code as approved by the Board of Directors.

The Corporation has adopted the Model Code of Conduct for Direct Selling Agents and Guidelines for Recovery Agents engaged by HFCs as stipulated by NHBand dulyapproved by the Board of Directors.

The Corporation has formulated and adopted a Share Dealing Code in accordance with the model code of conduct as prescribed under the SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended. The code is applicable to all directors, employees and their dependents. The said persons are restricted from dealing in the securities of the Corporation during the ''restricted trading periods'' notified by the Corporation, from time to time. During the year, the code was amended to enforce higher standards of compliance relating to insider trading norms.

Marketing and Distribution

During the year, efforts were concentrated on further strengthening the distribution network. The Corporation''s distribution network now spans 331 outlets, which includes 81 offices of HDFC''s wholly owned distribution company, HDFC Sales Private Limited (HSPL). To further augment the network, HDFC covers over 90 additional locations through its outreach programmes. HDFC has overseas offices in London, Singapore and Dubai. The Dubai office reaches out to its customers across Middle East through its service associates based in Kuwait, Qatar, Oman, Sharjah, Abu Dhabi and Saudi Arabia.

HDFC''s reach and presence is also enhanced by its distribution channels, which include HSPL, HDFC Bank and a few third party direct selling associates (DSAs). Besides local and regional DSAs, tie-ups with some banks and distribution houses have enhanced incremental business. Prominent banks with whom the Corporation has distribution tie-ups include IndusInd Bank and Ratnakar Bank. These channels only source loans, while the control over the credit, legal and technical appraisal continues to rest with HDFC, thereby ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels.

Various online facilities such as e-approval for prospective customers, accounting facilities for existing customers and HDFC''s mobile site has helped improve customer service. The Corporation also uses various online platforms to source home loan leads.

The Corporation organised property fairs across major cities in the country as well as organised events for developers to showcase their properties to the Indian diaspora in overseas locations like London, Singapore and the Middle East.

Cross Selling and Distribution of Financial Products and Services

HDFC''s subsidiary companies have strong synergies with HDFC and hence efforts are channelled into cross selling so as to offer customers a wide range of financial products and services underthe ''HDFC'' brand.

HDFC and HSPL are Composite Corporate Agents for HDFC Standard Life Insurance Company Limited (HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC ERGO). In addition, the distribution networks of HDFC and HSPL are used by Credila Financial Services Private Limited, which offers education loans. Property related services offered by HDFC Realty Limited and HDFC Real Estate Destination (HDFCRED.com) also supplement the Corporation''s distribution network.

International Housing Finance Initiatives

HDFC''s expertise in housing finance is well regarded and therefore a number of existing and new housing finance companies are keen to tap

HDFC for training, strategic input and technical assistance in housing finance.

During the year, senior executives of the Corporation were invited to Indonesia and Tanzania for training assignments and consultancy services in housing finance. The International Finance Corporation under its technical assistance projects commissioned a team from the Corporation to undertake a feasibility study for the establishment of a primary mortgage institution in Rwanda.

In July 2012, the Frankfurt School of Finance & Management and HDFC jointly organised the fifth ''Housing Finance Summer Academy'' in Germany, which is a course that aims to provide housing finance solutions for emerging markets through a combination of academic knowledge and practical experience.

In November2012, HDFC conducted its own international training programme ''Housing Finance Management'' at its training centre, Centre for Housing Finance, located at Lonavla, India. Participants from different countries across Asia and Africa attended a week-long residential training programme.

Shelter Assistance Reserve (SAR)

HDFC partners and supports worthwhile projects undertaken by development associations and non-government organisations through the SAR. During the year, the Corporation disbursed Rs. 9.13 crores from the SAR, covering over 180 partner organisations spread across the country.

Corpus contributions were made towards the Marrow Donor Registry, Tata Medical Centre, Maithri

Education & Charitable Trust and the Foundation for Promotion of Sports & Games, amongst several others. The SAR was also utilised towards supporting the purchase of medical equipment for a blood bank in Pune, towards a school for impoverished children in Tripura and supporting rural development initiatives in Boudh and Kandhamal in Odisha. HDFC also supported The Bombay Community Public Trust, The Light of Life Trust and Indian Association for Promotion of Adoption & Child Welfare.

The Corporation extended grant support to The Pestalozzi Children''s Village Society in Dehradun by providing scholarships to deserving students, the Wildlife Conservation Trust for their ''Save the Tiger'' campaign, Masoom, which runs night schools in Mumbai and to Saksham Trust towards educational programmes for visually impaired children in New Delhi.

H T Parekh Foundation

2011 marked the birth centenary year of late Shri H. T. Parekh, founder chairman ofthe Corporation. To commemorate his enormous contribution to the development of housing finance and other financial services in India, the board approved the proposal to set up the H T Parekh Foundation. Shri H. T. Parekh was associated with several philanthropic causes and welfare organisations during his lifetime.

During the year, the Corporation incorporated the H T Parekh Foundation as a not for profit company licensed under Section 25 ofthe Companies Act, 1956. Some of the key objectives of the foundation include undertaking welfare activities for the socially and economically disadvantaged, provision of education and medical services and assisting in the preservation and conservation of India''s rich heritage. Subject to the receipt of requisite approvals, the Corporation has committed to contribute an amount of upto Rs. 200 crores to fund the charitable activities of the foundation over a period of 3 financial years. During the year, the Corporation infused an amount of Rs. 10 crores as equity capital to enable the foundation to commence its activities.

Training and Human Resource Management

During the year, the Corporation continued its emphasis on competency development programmes. These programmes entail competency mapping, wherein employees'' strengths and development needs are assessed and worked upon. The template developed for competency mapping is used as a leadership development tool.

A number of in-house programmes were conducted to enhance functional knowledge of frontline as well as back office executives across the country. Other internal programmes included developing in-house trainers, leadership programmes for senior managers and team building programmes. Staff members also participated in a number of external conferences on an array of subjects including affordable housing, taxation, business analytics, capital markets, risk management, fraud detection and forensic accounting.

Building Service and Productivity Excellence

In order to raise the bar on customer service, it is important to constantly assess and evaluate the service delivery mechanism. In this context, during the year, the Corporation embarked on a project called ''Customer Relationship Enhancement through System Transformation'' (CREST).

CREST is a business process re- engineering initiative, with the aim of making a difference in the service delivery process and bringing about a greater degree of efficiency with the Corporation''s channel partners and its customers.

CREST entails a significant upgrade in the loan appraisal and processing system. It involves process standardisation, centralisation and adoption of new technology. The aim is to increase business growth through improved productivity levels, better customer service and cost efficiencies. The new process is being rolled out in a phased manner across all branches.

Rural Housing

Being a leading housing finance provider, the Corporation has felt the need to address the demand for rural housing. Over the past four years, the Corporation has developed a more focused strategy on rural housing. The Corporation''s rural housing finance portfolio has grown steadily and consists of housing loans to progressive farmers who derive their income from agriculture or allied activities and loans to salaried/self employed persons for properties in rural areas. The Corporation has appraisal systems to assess incomes from agriculture and has put in place a strong legal and technical framework for rural home loans. The Corporation will continue its efforts to identify potential rural areas, where development is taking place and customers have clear and marketable title deeds.

Property Related Services

The Corporation strongly believes that it must endeavour to offer a range of value added services and property related solutions to its customers. HDFC Realty Limited and HDFC RED are examples of such support services offered.

HDFC Realty Limited is a property advisory company which helps individuals and corporate institutions to buy, sell or lease real estate. During the year, the company closed more than 2,000 residential transactions, resulting in a 70% growth in billings from brokerage operations. The company continued to strengthen its presence in metro cities like Mumbai and the National Capital Region (NCR), whilst also focusing on expanding to new cities like Coimbatore and Cuttack, amongst others. Currently, HDFC Realty has a presence across 24 locations in India.

HDFCRED.com, the on-line real estate search engine assists potential home buyers in short listing properties that suit their requirements. The portal gives HDFC an advantage to touch base with potential home loan customers at a very early stage of the buying cycle. HDFC RED has expanded its foothold to 23 cities across India, showcasing over 9,900 projects.

Education Initiatives

HDFC Education and Development Services Private Limited (HEADS) is the Corporation''s wholly owned subsidiary which focuses on the education sector. During the year, HEADS focused on graduate employment programmes in the states of Andhra Pradesh and Gujarat for creating entry level talent for the financial and IT services sectors. These programmes were well received by students and HEADS plans to scale up such programmes in other states.

HEADS is also working towards setting up flagship K-12 schools. In order to develop the infrastructure for the schools, the company is working on both, land ownership structures and long-term lease arrangements.

Awards and Recognitions

During the year, the Corporation was awarded the ''Leading Housing Finance Company'' by CNBC TV18 at the India Best Bank and Financial Institution Awards, 2012. The Corporation was also adjudged the ''Best Home Loan Provider'' by Outlook Money Awards, 2012. This is the second consecutive year that the Corporation has won this award. The Corporation was ranked amongst India''s best companies to work for by Great Place to Work Institute®, 2012.

Subsidiary Companies

The Government of India, Ministry of Corporate Affairs vide General Circular No. 2/2011 dated February 8, 2011, had granted general exemption to companies from the requirement of attaching to their annual report, balance sheet, statement of profit and loss and the report of the directors and auditors in respect of their subsidiary companies as required under Section 212(8) of the Companies Act, 1956, subject to fulfilling certain conditions.

The Board of Directors has passed the necessary resolutions granting the requisite approvals for not attaching to the annual report of the Corporation, a copy of the balance sheet, statement of profit and loss, reports of the directors and auditors of the following 16 subsidiary companies of the Corporation: HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Asset Management Company Limited, HDFC Trustee Company Limited, HDFC Realty Limited, HDFC Standard Life Insurance Company Limited, HDFC ERGO General Insurance Company Limited, GRUH Finance Limited, HDFC Sales Private Limited, HDFC Ventures Trustee Company Limited, HDFC Venture Capital Limited, HDFC Property Ventures Limited, Credila Financial Services Private Limited, HDFC Education and Development Services Private Limited and H T Parekh Foundation and the following step-down subsidiary companies: HDFC Asset Management Company (Singapore) Pte. Limited, HDFC Pension Management Company Limited, Griha Investments, Mauritius and Griha Pte. Limited, Singapore - have not been attached to the balance sheet of the Corporation for the financial year ended March 31, 2013.

The annual report of the Corporation, the annual accounts and the related documents of the Corporation''s subsidiary companies are posted on the website ofthe Corporation, www. hdfc.com. Shareholders who wish to have a copy of the annual accounts and detailed information on any subsidiary company can download the same from the website or may write to the Corporation for the same. Further, the said documents shall be available for inspection by the shareholders at the registered office of the Corporation.

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

Review of Key Subsidiary and Associate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue to maintain an arm''s length relationship in accordance with the regulatory framework. Both organisations, however, capitalise on the strong synergies through a system of referrals, special arrangements and cross selling in order to effectively provide a wide range of products and services underthe HDFC brand name.

As at March 31, 2013, net advances of HDFC Bank stood at Rs. 2,39,721 crores - an increase of 23% over the previous year. Total deposits stood at Rs. 2,96,247 crores - an increase of 20%. As at March 31, 2013, HDFC Bank''s distribution network includes 3,062 branches and 10,743 ATMs in 1,845 cities as against 2,544 branches and 8,913 ATMs in 1,399 cities as of March 31, 2012.

For the year ended March 31, 2013, HDFC Bank reported a profit after tax of Rs. 6,726 crores as against Rs. 5,167 crores in the previous year, representing an increase of 30%. For the year ended March 31, 2013, HDFC Bank recommended a dividend of Rs. 5.5 per share of face value of Rs. 2 each as against Rs. 4.30 per share for the previous year. During the year the Corporation received a dividend of Rs. 169 crores from HDFC Bank.

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 22.8% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC Life)

Gross premium income of HDFC Life for the year ended March 31, 2013 stood at Rs. 11,323 crores as compared to Rs. 10,202 crores in the previous year. The sum assured in force at the end of FY 2013 was Rs. 2,01,858 crores as compared to Rs. 1,38,718 crores in the previous year, representing a growth of 46%.

The company has a portfolio of 32 retail products and 10 group products coveringsaving, investment, protection and retirement needs of the customers, alongwith 10 optional rider benefits.

HDFC Life''s distribution network includes 450 branches, covering 961 cities. In addition, the company has 95,000 financial consultants, 3 large bancassurance partners and 10 pan- India brokers and corporate agency tie-ups. In FY 2013, HDFC Life ranked number 2, for the second consecutive year, among private sector life insurers in terms of market share based on the weighted received premium of individual business.

HDFC Life has reported a profit of Rs. 451.48 crores for the year ended March 31, 2013 as against Rs. 271.02 crores in the previous year. The back book is generating sufficient profits to offset the new business strain incurred in writing of new policies. The solvency ratio of the company was 217% as at March 31, 2013 as against the minimum regulatory requirement of 150%.

HDFC holds 72.4% of the equity share capital in HDFC Life.

HDFC Asset Management Company Limited (HDFC-AMC)

HDFC and Standard Life Investment Limited are the co-sponsors of HDFC Mutual Fund.

As at March 31, 2013, HDFC-AMC managed 42 debt, equity, exchange traded fund and fund of fund schemes of HDFC Mutual Fund. The average assets under management during the month of March 2013 stood at Rs. 1,02,142 crores (which is inclusive of average assets under discretionary portfolio management/ advisory services). HDFC Mutual Fund has been ranked first in the industry on the basis of Average Assets under Management. The number of investor accounts stood at 49 lacs as at March 31, 2013. HDFC- AMC has over 130 investor service centres across the country.

For the year ended March 31, 2013, HDFC-AMC reported a profit after tax of Rs. 318.75 crores as against Rs. 269.14 crores in the previous year.

HDFC holds 59.8% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC ERGO)

During the year, HDFC ERGO continued to retain its market ranking as the fourth largest private sector player in the general insurance industry. Further, the company continued to be the largest player in the personal accident line of business.

The company offers a complete range of insurance products like motor, health, travel, home and personal accident in the retail segment and customised products like property, marine, aviation and liability insurance in the corporate segment. The company continues to leverage on the HDFC group''s distribution capability to drive its growth and on the technical capability of ERGO in the field of general insurance. The company has a balanced portfolio mix with the retail segmentaccountingfor 58% of the business.

The gross direct premium of the company increased by 33% to Rs. 2,491 crores as against Rs. 1,874 crores in the previous year. During the year, the company achieved a profit before tax of Rs. 248.3 crores as against Rs. 141.9 crores in the previous year before considering the losses from the Indian Motor Third Party Insurance Pool (IMTPIP) and the Indian Motor Third Party Declined Risk Insurance Pool (IMTDRIP). The losses from IMTPIP and IMTDRIP were Rs. 66.4 crores (previous year Rs. 181.6 crores). Thus the profit before tax including the pool losses amounted to Rs. 181.9 crores (previous year loss of Rs. 39.7 crores). The overall profit after tax for the year stood at Rs. 154.5 crores as against a loss of Rs. 39.7 crores in the previous year.

The combined ratio stood at 91.6% and the solvency ratio ofthe company was 161% as at March 31, 2013 as against the minimum regulatory requirement of 140%.

HDFC holds 73.9% of the equity share capital of HDFC ERGO.

HDFC Property Funds

HDFCVenture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, a registered venture capital fund with the Securities and Exchange Board of India (SEBI).

HDFC Property Fund currently has two schemes. The first scheme is HDFC India Real Estate Fund (HI- REF), with a corpus of Rs. 1,000 crores, which has been fully invested and has made several profitable exits. The term of the scheme was to have ended on June 17, 2012, however, the scheme has been extended by a period of one year. As at March 31, 2013, the balance corpus stood at Rs. 379 crores and exits are being made for the balance investments of the scheme.

The second scheme, HDFC IT Corridor Fund has a corpus of Rs. 464.40 crores. This scheme has invested the entire corpus in rental income yielding commercial properties spread across four major cities in India. The term of this scheme was to have ended on June 28, 2012, however, it has been extended by a period of one year. As at March 31, 2013, the balance corpus stood at Rs. 409.26 crores and exits are being explored for investments of the scheme.

HDFC holds 80.5% of the equity share capital of HVCL.

HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indian and overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indian and offshore private equity funds. During the year, HPVL made a profit after tax of Rs. 3.05 crores.

HDFC holds 100% ofthe equityshare capital of HPVL.

GRUH Finance Limited (GRUH)

GRUH is a housing finance company with a retail network of 134 offices spread across 7 states. During the year, GRUH disbursed loans amounting to Rs. 2,174 crores as compared to Rs. 1,487 crores in the previous year - an increase of 46%. As at March 31, 2013, the loan portfolio stood at Rs. 5,438 crores, recording a growth of 34% over the previous year. The average size of loans stood at Rs. 7.36 lacs.

For the year ended March 31, 2013,

GRUH reported a profit after tax of Rs. 145.88 crores as compared to Rs. 120.34 crores in the previous year - an increase of 21%.

HDFC''s holding in GRUH currently stands at 59.7%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL) continues to strengthen the Corporation''s marketing and sales efforts by providinga dedicated sales force to sell home loans and other financial products.

HSPL has a presence in 81 locations. During the year under review, HSPL sourced loans accounting for 46% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Credila Financial Services Private Limited (Credila)

Credila is India''s first dedicated education loan company, providing loans to students pursuing higher education in India and abroad. As on March 31, 2013, Credila had cumulatively disbursed Rs. 892 crores to 10,700 customers. The average loan amount disbursed is Rs. 8.3 lacs.

In addition to having its own offices and sourcing applications through the web, Credila capitalises on HDFC''s distribution network to source and market education loans.

The Reserve Bank of India has categorised education loans as ''priority sector'' lending. Credila''s borrowers are entitled to income tax exemption under Section 80E of the Income Tax Act, 1961.

HDFC holds 89.1% of the share holding in Credila on a fully diluted basis.

Particulars of Employees

HDFC had 1,833 employees as of March 31, 2013. During the year, 13 employees employed throughout the year were in receipt of remuneration of Rs. 60 lacs or more per annum.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed there under, the names and other particulars of employees are set out in the annexto the Directors'' Report. In terms of the provisions of Section 219(l)(b)(iv) of the Companies Act, 1956, the Directors'' Report is being sent to all the shareholders of the Corporation excluding the annex. Any shareholder interested in obtaininga copy of the said annex may write to the Corporation.

Employees Stock Option Scheme (ESOS)

Presently, stock options granted to the employees operate under the following schemes: ES0S-05, ESOS- 07, ES0S-08 and ESOS-11. There has been no variation in the terms of the options granted under any of these schemes.

ESOS-05, ESOS-07 and ESOS-08 (Schemes)

No fresh options were either granted or vested under these Schemes. During the year, an aggregate of 29,38,799 options of Rs. 10 each were exercised. Pursuant thereto the Corporation received Rs. 551.97 crores as exercise consideration (excluding tax), of which Rs. 2.94 crores was towards share capital and Rs. 549.03 crorestowards securities premium. In all 1,46,93,995 equity shares of Rs. 2 each were allotted to the concerned employees. In accordance with the provisions of ES0S-05, the last date for exercise of the options was October 24, 2012.

During the year, 12,922 options lapsed, while options in force as on March 31, 2013 stood at 34,27,390.

ESOS-11

At the 34th annual general meeting held on July 8, 2011, you had approved the issue of 58,67,546 stock options representing 2,93,37,730 equity shares of Rs. 2 each to the employees and directors of the Corporation. The Nomination & Compensation Committee of the Corporation at its meeting held on May 23, 2012, granted the said options together with options lapsed under previous schemes (aggregating 2,34,929 options). In the aggregate, 61,02,475 stock options of Rs. 10 each were granted representing 3,05,12,375 equity shares of Rs. 2 each at an exercise price of Rs. 635.50 per equity share under ESOS-11.

The said price was determined in accordance with the pricing formula approved by you i.e. at the latest available closing price of the equity share of the Corporation on the NSE, prior to the meeting of the Nomination & Compensation Committee at which the options were granted. The options granted will vest over a period of 1 to 3 years from the date of grant, depending upon the option grantee completing a continuous service of three years with the Corporation. The options are exercisable over a period of five years from the date of respective vesting. None of the options granted have vested during the year (and consequently, no options have been exercised). As at March 31, 2013, 31,200 options have lapsed and 60,71,275 options are in force. Under ESOS-11, 20,86,000 options have been granted to 83 senior management employees, in the grades of deputy general manager and above up to and including the Managing Director and the Vice Chairman & Chief Executive Officer. The minimum number of options granted to any of these employees was 6,000.

No employee was granted options equal to or in excess of 1% of the total issued and paid-up share capital of the Corporation as on the date of grant.

Fair value

Since options were granted at the market price, the intrinsic value of the option is nil. Consequently, the accounting value of the option (compensation cost) was also nil. However, if the fair value of the options using the Black-Scholes model was used, considering the assumptions made at the time of the grant, the compensation cost (net) would have been higher and the profit after tax would have been lesser by Rs. 157.93 crores and the basicand diluted Earnings PerShare (EPS) would have been Rs. 30.80 and Rs. 30.42 respectively.

The key assumptions used in Black- Scholes model for calculating the fair value under ESOS-11, as on the date of grant, are (a) risk-free interest rate: 8.06% (b) expected life: up to 2 years (c) expected volatility of share price: 15% and (d) expected growth in dividend: 20%. The market price of the equity share on the date of grant ranged from Rs. 629.10 to Rs. 643.45.

All the options were granted at an exercise price of Rs. 635.50 per share and hence the weighted average exercise price is Rs. 635.50 per share. The weighted average fair value of the option granted under ESOS-11 (using the Black-Scholes model) works out to Rs. 474.56 per option of the face value Rs. 10 i.e. Rs. 94.91 per share of the face value of Rs. 2 each.

The diluted EPS is Rs. 31.45 as against a basic EPS of Rs. 31.84.

Unclaimed Dividend

As at March 31, 2013, dividend amounting to Rs. 11.61 crores had not been claimed by shareholders of the Corporation. The Corporation has been periodically intimating the concerned shareholders requesting them to encash their dividend before it becomes due for transfer to the IEPF. The Corporation continues to take various initiatives to reduce the quantum of unclaimed dividend.

As per the provisions of Section 205C of the Companies Act, 1956, unclaimed dividend amounting to Rs. 52.39 lacs for FY 2004-05 was transferred to the IEPF on September 7, 2012. Further, the unclaimed dividend in respect of FY 2005-06 must be claimed by shareholders by August 24, 2013, failing which it will be transferred to the IEPF within a period of 30 days from the said date. In terms of said section, no claim would lie against the Corporation or the IEPF after the transfer.

In terms of the IEPF (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012, which was notified on May 10, 2012, the Corporation has made the relevant disclosures to the Ministry of Corporate Affairs (MCA) regarding unclaimed dividends and unclaimed matured deposits, along with interest accrued thereon. The Corporation has uploaded the prescribed information on www.iepf. gov.in and www.hdfc.com.

Unclaimed Shares

Details on unclaimed shares is provided in the section on ''Shareholders'' Information'' in the annual report.

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

The particulars regarding foreign exchange earnings and expenditure appear as Item Nos. 25.1 and 26.3 in the Notes to the Accounts. Since HDFC does not own any manufacturing facility, the other particulars relating to conservation of energy and technology absorption as stipulated in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, are not applicable.

Directors

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Corporation, Mr. Deepak S. Parekh, Mr. Keshub Mahindra, Mr. D. M. Sukthankar and Mr. Nasser Munjee are liable to retire by rotation at the ensuing AGM. They are eligible for re-appointment.

Necessary resolutions for the re-appointment of the aforesaid directors have been included in the notice convening the ensuing AGM.

All the directors of the Corporation have confirmed that they are not disqualified from being appointed as directors in terms of Section 274(1) (g) of the Companies Act, 1956.

Dr. S. A. Dave is the Corporation''s nominee director on the board of HDFC Life. This is in accordance with Clause 49 of the listing agreements, which requires the Corporation to nominate at least one of its independent directors on the board of HDFC Life, which is a material unlisted Indian subsidiary company of the Corporation.

Auditors

Messrs Deloitte Haskins & Sells, Chartered Accountants, having registration number 117366W, statutory auditors of the Corporation and branch auditors to audit the accounts at the Corporation''s branches in India and offices in London and Singapore hold office until the conclusion of the ensuing AGM and are eligible for appointment.

The Corporation has received a confirmation from Messrs Deloitte Haskins & Sells to the effect that their appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956.

Messrs PKF, Chartered Accountants, having registration number 10 issued by the Ministry of Economy, U.A.E. was appointed as the branch auditors to audit the accounts of the Corporation''s branch office in Dubai. Their term expires at the end of the ensuing AGM and they are eligible for appointment.

Directors'' Responsibility Statement

In accordance with the provisions of Section 217(2AA) ofthe Companies Act, 1956 and based on the information provided by the management, your directors state that:

i. In the preparation of annual accounts, the applicable accounting standards have been followed;

ii. Accounting policies selected were applied consistently. Reasonable and prudent judgements and estimates were made so as to give a true and fair view of the state of affairs of the Corporation as at the end of March 31, 2013 and of the profit of the Corporation for the year ended on that date;

iii. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities;

iv. The annual accounts of the Corporation have been prepared on a going concern basis.

Management Discussion and Analysis Report, Report of the Directors on Corporate Governance and Business Responsibility Report

In accordance with Clause 49 of the listingagreements, the Management Discussion and Analysis Report and the Report of the Directors on Corporate Governance form part of this report.

SEBI vide Circular No. CIR/CFD/ DIL/8/2012 dated August 13, 2012, has mandated the inclusion of a Business Responsibility Report(BRR) as part of the Annual Report for the top 100 listed companies based on their market capitalisation on the BSE Limited and National Stock Exchange of India Limited as at March 31, 2012. Accordingly, your Corporation has prepared a BRR and the same has been uploaded on its website. Members who wish to receive a physical copy of the BRR are requested to write to the Corporation.

Acknowledgements

The Corporation would like to acknowledge the role of all its stakeholders-shareholders, borrowers, channel partners, depositors, key partners and lenders for their continued support to the Corporation.

The directors appreciate the guidance received from various regulatory authorities including NHB, RBI, SEBI, MCA, Registrar of Companies, Financial Intelligence Unit (India), Foreign Investment Promotion Board, the Stock Exchanges and the Depositories.

Your directors value the professionalism of all the employees of the Corporation who have relentlessly worked in challenging environments and whose efforts have stood the Corporation in good stead.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH

May 8, 2013 Chairman


Mar 31, 2011

The directors are pleased to present the Thirty-fourth Annual Report of your Corporation with the audited accounts for the year ended March 31, 2011.

FINANCIAL RESULTS

For the For the year ended year ended March 31, 2011 March 31, 2010 (Rs. in crores) (Rs. in crores)

Profit before Tax 4,866.96 3,915.99

Provision for Tax 1,332.00 1,089.50

Profit after Tax 3,534.96 2,826.49

Appropriations have been made as under:

Special Reserve No. II 625.00 500.00

General Reserve 816.40 695.01

Additional Reserve (under Section 29C of the National Housing Bank Act, 1987) 530.00 432.00

Shelter Assistance Reserve 12.00 9.00

Proposed Dividend

(Rs. 9 per share of face value of Rs. 2 each) 1,320.20 1,033.60

Additional Tax on Proposed Dividend 214.17 171.67

Additional Tax on Dividend 1.07 (15.16)

Dividend pertaining to Previous Year paid during the year 16.12 0.37

3,534.96 2,826.49

Dividend

Your directors recommend payment of dividend for the year ended March 31, 2011 of Rs. 9 per equity share of face value of Rs. 2 each. In the previous year, a dividend of Rs. 36 per equity share of face value of Rs. 10 each was paid ( Rs. 7.2 per equity share of face value of Rs. 2 each).

The dividend payout ratio for the current year, inclusive of additional tax on dividend will be 43.4% as compared to 42.7% for the previous year.

Sub-division of Shares

Pursuant to your approval at the 33rd Annual General Meeting (AGM) of the Corporation held on July 14, 2010, the nominal face value of the equity shares of the Corporation was sub-divided from Rs. 10 per equity share to Rs. 2 per equity share, with effect from August 21, 2010.

To facilitate this sub-division, shareholders were issued 5 equity shares of Rs. 2 each in lieu of one equity share of Rs. 10 each held by them as on the record date i.e. August 20, 2010, fixed for this purpose.

The total number of retail shareholders has increased to over 2,03,000 representing an increase of 52% post the sub-division of shares.

Warrants

Consequent to the sub-division of the nominal face value of the equity shares of the Corporation from Rs. 10 per share to Rs. 2 per share, the Warrant Exercise Price was adjusted from Rs. 3,000 per equity share of Rs. 10 each to Rs. 600 per equity share of Rs. 2 each, to be paid by the Warrant holder at the time of exchange of each Warrant at any time on or before August 24, 2012. As of date, no Warrants have been lodged with the Corporation for exchange into equity shares of the Corporation.

Lending Operations

Loan approvals during the year were Rs. 75,185 crores as compared to Rs. 60,611 crores in the previous year, representing a growth of 24%. Loan disbursements during the year were Rs. 60,314 crores as against Rs. 50,413 crores in the previous year, representing a growth of 20%.

Cumulative loan approvals and disbursements as at March 31, 2011 were Rs. 3,73,246 crores and Rs. 3,02,533 crores respectively. This is in respect of approximately 3.8 million housing units.

The demand for individual home loans continued to be robust, despite rising interest rates. Other enabling factors included rising disposable incomes and continued fiscal incentives on housing loans. During the year, individual approvals grew at 25% and disbursements grew by 27% as compared to the previous year. The average size of individual loans stood at Rs. 18.6 lakhs.

Sale of Loans

During the year, the Corporation, under the loan assignment route sold individual loans of Rs. 4,379 crores to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank. Out of the total loans assigned during the year, Rs. 4,053 crores qualify as priority sector advances for the bank.

As at March 31, 2011, total loans outstanding in respect of loans sold stood at Rs. 12,147 crores. HDFC continues to service the loans sold under these transactions and is entitled to the residual interest on the loans sold. The residual interest on the individual loans sold is 1.57% per annum.

The residual income on the loans sold is being recognised over the life of the underlying loans and not on an upfront basis. Issues through which loans have been sold have been rated by external agencies and carry a rating indicating the highest degree of safety.

Repayments

During the year under review, Rs. 36,756 crores were received by way of scheduled repayment of principal through monthly instalments as well as redemptions ahead of schedule, as compared to Rs. 31,872 crores received last year.

Loan Book

As at March 31, 2011, the loan book stood at Rs. 1,17,127 crores as against Rs. 97,967 crores in the previous year – an increase of 20%. The growth in the loan book would have been higher at 24% if the loans sold were included in the loan book.

Foreign Currency Convertible Bonds (FCCB)

In September 2005, the Corporation concluded the issue of USD 500 million zero coupon FCCB. The bonds were convertible into equity shares of the Corporation of the face value of Rs. 10 each up to the close of business hours on July 29, 2010 at the option of the holders, at Rs. 1,399 per equity share, representing a conversion premium of 50% over the initial reference share price.

All the bonds were lodged with the Corporation for conversion into equity shares on or prior to the last date for conversion. In aggregate, the Corporation allotted 1,56,23,732 equity shares of Rs. 10 each pursuant to the conversion of the FCCB. Hence, there are no outstanding FCCB. The increase in net worth as a result of the FCCB over the life was Rs. 2,186 crores.

During the year an amount of Rs. 2.83 crores has been credited to the Share Capital Account and an amount of Rs. 407.89 crores has been credited to the Securities Premium Account.

Resource Mobilisation

Subordinated Debt

During the year, the Corporation raised Rs. 1,000 crores through the issue of long-term Unsecured Redeemable Non-Convertible Subordinated Debentures. The subordinated debt was assigned a AAA rating from both, CRISIL Limited (CRISIL) and ICRA Limited (ICRA).

As at March 31, 2011, the Corporations outstanding subordinated debt stood at Rs. 2,875 crores. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating by CRISIL and ICRA. Based on the balance term to maturity, as at March 31, 2011, Rs. 2,375 crores of the book value of subordinated debt is considered as Tier II under the guidelines issued by the National Housing Bank (NHB) for the purpose of capital adequacy computation.

Non-Convertible Debentures (NCD)

During the year, the Corporation issued NCD amounting to Rs. 13,865 crores on a private placement basis. The Corporations NCD issues have been listed on the Wholesale Debt Market segment of the NSE and have been assigned the highest rating of AAA by both, CRISIL and ICRA. As at March 31, 2011, NCD outstanding stood at Rs. 41,624 crores.

Loans from Banks

During the year, the Corporation raised loans amounting to Rs. 29,538 crores from commercial banks, of which Rs. 2,610 crores were under the priority sector category of commercial banks. The Corporation further raised Rs. 2,528 crores from the banking sector as FCNR (B) loans.

HDFCs long-term and short-term bank loan facilities have been assigned the highest rating of AAA and PR1+ respectively by CARE Limited, signifying highest safety for timely servicing of debt obligations.

Refinance from National Housing Bank (NHB)

NHB has an internal rating mechanism for housing finance companies (HFCs) and the Corporation has been assigned the highest rating for its refinance schemes by NHB. During the year, the

Corporation has drawn refinance amounting to Rs. 687 crores under NHBs Refinance Scheme to Housing Finance Companies, 2003.

Deposits

Deposits continued to grow during the financial year under review despite strong competition from banks. As at March 31, 2011, outstanding deposits stood at Rs. 24,625 crores. The depositor base stood at approximately 9.67 lakh depositors.

CRISIL and ICRA have for the sixteenth consecutive year, reaffirmed their AAA rating for HDFCs deposits. This rating represents highest safety, attractive returns and impeccable service standards as regards timely repayment of principal and interest.

The support of the agents and their commitment to the Corporation has been instrumental in HDFCs deposit products continuing to be a preferred investment for households and trusts.

Unclaimed Deposits

As of March 31, 2011, public deposits amounting to Rs. 250 crores had not been claimed by 35,898 depositors. Since then, 8,595 depositors have claimed or renewed deposits of Rs. 68 crores. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits. Where the deposit remains unclaimed, reminder letters are sent to depositors periodically and follow up action is initiated through the concerned distributor/branch.

As per the provisions of Section 205C of the Companies Act, 1956, deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government. Accordingly, during the year, despite repeated reminders being sent to depositors, an amount of Rs. 31.76 lakhs has been transferred to the IEPF. In terms of the said section, no claims would lie against the Corporation or the IEPF after the transfer.

Non-Performing Loans

Gross non-performing loans as at March 31, 2011 amounted to Rs. 903.85 crores. This is equivalent to 0.77% of the portfolio (as against 0.79% in the previous year). This is the twenty-fifth consecutive quarter end at which the percentage of non-performing loans have been lower than the corresponding quarter in the previous year.

Based on a six months overdue basis, the non-performing loans as at March 31, 2011 stood at 0.46% of the loan portfolio as against 0.53% in the previous year.

In terms of the prudential norms as stipulated by NHB, the Corporation is required to carry a provision in respect of non-performing assets and a general provision on outstanding standard non-housing loans. In addition, during the year, NHB further stipulated a general provision of 0.40% on standard assets under housing loans to non- individuals and a 2% provision on standard assets in respect of housing loans granted under the Dual Rate Home Loan scheme. This requirement has been partly met by utilisation of Rs. 298.59 crores (net) from Additional Reserve under Section 29 C of the National Housing Bank Act, 1987. Based on the aforesaid as per NHB norms, the Corporation is required to carry a total provision of Rs. 813.53 crores.

The balance in the provision for contingencies account as at March 31, 2011 stood at Rs. 1,124.37 crores, which is equivalent to 0.95% of the portfolio. Thus as at March 31, 2011, the Corporations net non-performing loans was nil.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporation has been able to successfully initiate recovery action under this Act in the case of wilful individual and corporate defaulters.

Regulatory Guidelines/Amendments

HDFC has complied with the Housing Finance Companies (NHB) Directions, 2010 prescribed by NHB regarding accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy and credit rating. The Corporation is in compliance with the concentration of investments and capital market exposure norms other than on its investments in HDFC Bank and GRUH Finance Limited. NHB has granted the Corporation time for such compliance.

During the year, NHB stipulated that the loan to value ratio (LTV) for individual housing loans up to Rs. 20 lakhs should not exceed 90% and for loans above Rs. 20 lakhs, the LTV should not exceed 80%.

NHB also amended the risk weights for individual housing loans. Thus risk weights on individual housing loans range from 50% to 125%, depending on the loan amount and LTV.

HDFCs capital adequacy ratio stood at 14% of the risk weighted assets, as against the minimum requirement of 12%. Tier I capital was 12.2% against a minimum requirement of 6%.

Codes and Standards

NHB has issued comprehensive Know Your Customer (KYC) Guidelines and Anti Money Laundering Standards in the context of recommendations made by the Financial Action Task Force on Anti Money Laundering Standards and on Combating Financing of Terrorism Standards. During the year, the board reviewed and approved the amendments to the Corporations KYC and Prevention of Money Laundering Policy as stipulated by NHB. The Corporation has adhered to the compliance requirements in terms of the said policy relating to monitoring and reporting of cash/suspicious transactions.

The Fair Practices Code framed by NHB seeks to promote good and fair practices by setting minimum standards in dealing with customers, increase transparency so customers have a better understanding of what they can reasonably expect of the services being offered, encourage market forces through competition to achieve higher operating standards, promote fair and cordial relationships between customers and the housing finance company and foster confidence in the housing finance system. During the year, the board reviewed and approved the amendments to the Corporations Fair Practices Code as notified by NHB. The Corporation has put in place a mechanism to monitor and review adherence to the Fair Practices Code as approved by the Board of Directors.

The Corporation has adopted the Model Code of Conduct for Direct Selling Agents and Guidelines for Recovery Agents engaged by HFCs as stipulated by NHB and duly approved by the Board of Directors.

Risk Management Framework

The Corporation has a Risk Management Framework, which provides the mechanism for risk assessment and mitigation. The Risk Management Committee (RMC) of the Corporation comprises the Managing Director as the chairperson, the Executive Director and some members of senior management.

The RMC reviewed the risks associated with the business of the Corporation, its root causes and the efficacy of the measures taken to mitigate the same, twice during the year. Thereafter, the Board of Directors also reviewed the key risks associated with the business of the Corporation, the procedures adopted to assess the risks and efficacy of the mitigation measures.

Marketing and Distribution

To reach out effectively to customers, the Corporations distribution network now spans 289 outlets, which include 71 offices of the HDFCs wholly owned distribution company, HDFC Sales Private Limited (HSPL). To further augment this network, HDFC covers over 90 additional locations through its outreach programmes. HDFC has international offices in London, Singapore and Dubai. The Dubai office reaches out to its customers across West Asia through its service associates based in Kuwait, Qatar, Oman, Sharjah, Abu Dhabi and Saudi Arabia – Al Khobar, Jeddah and Riyadh.

HDFCs reach and presence is also enhanced by its distribution channels, which include HSPL, HDFC Bank and a third party direct selling associates (DSAs). During the year, efforts were focused on empanelling financial consultants with a pan-India presence as business sourcing associates for HDFC. All distribution channels only source loans, while HDFC continues to retain control over the credit, legal and technical appraisal, thereby ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels.

HDFC organises property fairs across major cities in the country. The aim of these fairs is to provide a wide spectrum of approved projects under a single roof. These fairs in turn help customers in making their decision to buy a home. Under India Homes Fair, HDFC brings together eminent builders who showcase their properties for the Indian Diaspora. During the year, HDFC organised India Homes Fair in London, Singapore, Kuwait, Saudi Arabia and Qatar.

Besides running various product-based campaigns during the year, the Corporation also ran a brand campaign highlighting its leadership position in the Indian mortgage industry.

Cross Selling and Distribution of Financial Products and Services

HDFCs subsidiary companies have strong synergies with HDFC and hence efforts are channelled into cross selling so as to offer customers a wide range of financial products and services under the HDFC brand.

HDFC is a Composite Corporate Agent for HDFC Standard Life Insurance Company Limited (HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC-ERGO). In addition, the distribution networks of HDFC and HSPL are used by Credila Financial Services Private Limited, which offers education loans.

International Housing Finance Initiatives

HDFCs expertise in housing finance is well regarded and therefore a number of existing and new housing finance companies in various parts of the world are keen to tap HDFC for training, strategic input and technical assistance in housing finance.

During the year, the Corporation under its Technical Services Agreement with Housing Development Finance Corporation Plc., Maldives, provided technical and consultancy services in key mortgage functions.

Senior executives of the Corporation were invited to Indonesia, Maldives, Mauritius and Ghana for seminars, consultancy or training assignments in housing finance.

In July 2010, the Frankfurt School of Finance & Management and HDFC jointly organised the third Housing Finance Summer Academy in Germany, which is a course that aims to provide housing finance solutions for emerging markets through a combination of academic knowledge and practical experience.

In November 2010, HDFC conducted its own international training programme Housing Finance Management at its training centre, Centre for Housing Finance, located at Lonavla, India. Participants from different countries across Asia and Africa attended a weeklong residential training programme.

Delegates from Bangladesh, Indonesia and Kenya visited the Corporation to understand key mortgage finance operations.

Shelter Assistance Reserve (SAR)

HDFC continued to partner and support worthwhile projects undertaken by non-government organisations, foundations and local bodies through the SAR. During the year, the Corporation disbursed Rs. 11.48 crores from the SAR towards a wide spectrum of development programmes and activities.

Corpus contributions were made out of the SAR to the Indian Council for Research on International Economic Relations (ICRIER) – New Delhi, Armed Forces Flag Day Fund – Mumbai, M. S. Swaminathan Research Foundation – Chennai and Folk Arts – Rajasthan, amongst others. Support was also extended towards running a centre for rehabilitation of adults affected by cerebral palsy in Pune, partnering The Energy and Resources Institute (TERI) in undertaking an integrated development scheme for sustainable livelihood across remote villages in Uttarakhand, providing scholarships to children from impoverished backgrounds through an organisation working with the rural poor in West Bengal and supporting the construction of a centre catering to the rehabilitation of hearing impaired individuals in New Delhi. The Corporation supported the Indian Cancer Society towards meeting the treatment expenses of patients. HDFC continued partnering municipal schools to showcase high-performing schools through public-private partnerships, through initiatives such as the Akanksha School Project, Bhavishya Yaan and Teach for India. The SAR was also utilised towards providing relief assistance to victims of the Leh cloudburst in August 2010.

During the year, the Corporation disbursed Rs. 2 crores to the Indian Institute of Human Settlements (IIHS) – Bengaluru, taking the Corporations total contribution to IIHS to Rs. 4 crores. IIHS is a privately funded education institution focusing on various aspects of urban practice.

Training and Human Resource Management

The Corporation believes that the ability to keep learning is a key sustainable advantage and hence strong emphasis is placed on constantly upgrading the skills of its employees.

During the year, all new recruits underwent an induction training programme. In addition, employees who were promoted across various grades attended Executive Development and Managerial Skills programmes. During the year, a leadership programme was designed and conducted by the Indian Institute of Management, Ahmedabad, for a select group of employees identified on the basis of their performance and future potential.

Amongst many others, internal training programmes were conducted in the areas of rural housing finance, corporate risk management, negotiative selling skills, credit risk management and six sigma.

The Corporation also nominated staff members for a variety of external programmes including real estate and housing, education, treasury and risk management, information technology, taxation and International Financial Reporting Standards.

New Initiatives

HDFC RED

During the year, HDFC Real Estate Destination (HDFC RED), an on-line real estate portal was launched with the key objective of providing a single destination to potential home buyers to search and short-list desired properties that suit their requirements. HDFC RED functions as a centralised digital platform to bridge the gap between home buyers and developers across India. Developers are charged a subscription fee to list their projects on HDFC RED and in turn are able to attract potential buyers. HDFC RED is currently operational in six cities in India – Bengaluru, Chennai, Hyderabad, Mumbai, New Delhi and Pune.

Awards and Recognitions

During the year, some of the awards and recognitions received by the Corporation include:

- HDFC is the only Indian company to be included in the fifth annual list of the 2011 Worlds Most Ethical Companies by Ethisphere Institute, USA.

- Best Governed Company Award, 2010 – Asian Centre for Corporate Governance & Sustainability.

- India Shining Star CSR Award – for outstanding CSR in the Banking and Financial Sector.

- HDFC one of Indias Best Managed Companies – Finance Asias 10th Annual Poll.

- HDFC the most admired company in the Financial Sector in India – Wall Street Journals Asia 200 survey.

Subsidiary Companies

In terms of Section 212(8) of the Companies Act, 1956, the Central Government has granted its approval, exempting the Corporation from the requirement of attaching to its annual report, the balance sheet, profit and loss account and the report of the directors and auditors thereon, in respect of all its sixteen subsidiary companies. Accordingly, a copy of the balance sheet, profit and loss account, report of the Board of Directors and Report of the Auditors of the following subsidiary companies of the Corporation – HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Asset Management Company Limited, HDFC Trustee Company Limited, HDFC Realty Limited, HDFC Standard Life Insurance Company Limited, HDFC ERGO General Insurance Company Limited, GRUH Finance Limited, HDFC Sales Private Limited, HDFC Ventures Trustee Company Limited, HDFC Venture Capital Limited, HDFC Property Ventures Limited and Credila Financial Services Private Limited and the following step-down subsidiary companies - HDFC Asset Management Company (Singapore) Pte. Limited and Griha Investments have not been attached to the balance sheet of the Corporation for the financial year ended March 31, 2011.

The Annual Report of the Corporation, the annual accounts and the related documents of the Corporations subsidiary companies are posted on the website of the Corporation, www.hdfc.com. Shareholders who wish to have a copy of the annual accounts and detailed information on any subsidiary company can download the same from the website or may write to the Corporation for the same. Further, the said documents shall be available for inspection by the shareholders at the registered office of the Corporation.

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

Review of Key Subsidiary and Associate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue to maintain an arms length relationship in accordance with the regulatory framework. Both organisations, however, capitalise on the strong synergies through a system of referrals, special arrangements and cross selling in order to effectively provide a wide range of products and services under the HDFC brand name.

As at March 31, 2011, net advances of HDFC Bank stood at Rs.1,59,983 crores - an increase of 27% over the previous year. As at March 31, 2011, HDFC Banks distribution network included 1,986 branches and 5,471 ATMs in 996 cities as against 1,725 branches and 4,232 ATMs in 779 cities as of March 31, 2010. The bank has a customer base of 21.9 million as at March 31, 2011.

For the year ended March 31, 2011, HDFC Bank reported a profit after tax of Rs. 3,926 crores as against Rs. 2,949 crores in the previous year, representing an increase of 33%. HDFC Bank recommended a dividend of Rs. 16.50 per share as against Rs. 12 per share in the previous year.

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 23.4% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC Life)

Gross premium income of HDFC Life for the year ended March 31, 2011 stood at Rs. 9,004 crores as compared to Rs. 7,005 crores in the previous year – a growth of 29%. The sum assured in force for the current year was Rs. 98,917 crores as compared to Rs. 72,610 crores in the previous year.

The company has a portfolio of 27 retail products and 6 group products covering saving, investment, protection and retirement needs of the customers, along with 9 optional rider benefits.

HDFC Life covers approximately 495 cities and towns in India through its 780 distribution points in the country with approximately 1.36 lakh financial consultants appointed by the company. HDFC Life also has a strong association with its bancassurance partners, which has contributed significantly to the growth of the company during the year.

HDFC Life has reported a loss of Rs. 99 crores for the year ended March 31, 2011. Like most life insurance companies in the initial phase, HDFC Life has reported losses. This is essentially due to the accounting norms applicable to insurance companies wherein the commission expenses are charged upfront in the year in which they are incurred while the corresponding income is recognised over the entire life of the policies issued. The mismatch between expenses and income has the effect of magnifying the initial losses of HDFC Life.

HDFC holds 72.4% of the equity share capital in HDFC Life.

HDFC Asset Management Company Limited (HDFC-AMC)

HDFC and Standard Life Investment Limited are the co-sponsors of HDFC Mutual Fund.

As at March 31, 2011, HDFC-AMC managed 36 debt, equity and exchange traded fund schemes of HDFC Mutual Fund. During the year, the average assets under management stood at Rs. 95,950 crores (which is inclusive of average assets under discretionary portfolio management/advisory services). The number of investor accounts increased to over 46 lakhs as at March 31, 2011 as compared to 39 lakhs in the previous year.

As at March 31, 2011, HDFC-AMC has points of acceptances in 114 locations across the country.

For the year ended March 31, 2011, HDFC-AMC reported a profit after tax of Rs. 242.18 crores as against Rs. 208.37 crores in the previous year. HDFC-AMC paid an interim dividend of Rs. 29 per share for the financial year ended March 31, 2011.

HDFC holds 60% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC-ERGO)

For the year ended March 31, 2011, HDFC-ERGO retained the ranking as the fifth largest private sector player in the general insurance industry. Continuing its multi-product and multi-channel strategy, HDFC-ERGO leverages on its distribution infrastructure developed over the years.

The company offers a complete range of insurance products like motor, health, travel, home and personal accident in the retail segment and customised products like property, marine, aviation and liability insurance in the corporate segment. The company continues to leverage on the HDFC groups distribution capability to drive its growth and relies on the technical capability of ERGO in the field of general insurance. The company has a balanced portfolio mix with the retail segment accounting for 57% of the business.

The general insurance industry registered a growth of 23% in FY 2010- 11 as compared to 13% in the previous year. In comparison, during the year, HDFC-ERGO recorded a growth of 40%, with a Gross Written Premium (including cessions from the motor pool) of Rs. 1,408 crores as against Rs. 1,005 crores in the previous year.

After providing for the higher losses from the Indian Motor Third Party Insurance Pool (IMTPIP), during the year, the company made a loss of Rs. 36.4 crores as against a loss of Rs. 94.3 crores in the previous year. Loss from IMTPIP was Rs. 69 crores as against loss of Rs. 15 crores in the previous year.

HDFC holds 74% of the equity share capital of HDFC-ERGO.

HDFC Property Funds

HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, a registered venture capital fund with the Securities and Exchange Board of India (SEBI).

HDFC Property Fund currently has two schemes. The first scheme is HDFC India Real Estate Fund (HI-REF), with a corpus of Rs. 1,000 crores, which has been fully invested. During the year, the scheme fully exited from one investment and made partial exits from two other investments.

The second scheme, HDFC IT Corridor Fund has a corpus of Rs. 446.40 crores. This scheme has disbursed the entire corpus in rental income yielding commercial properties in major cities in India and exits are being explored for some investments of the scheme.

During the year, HVCL made a profit after tax of Rs. 12.21 crores. The directors of HVCL approved the payment of two interim dividends aggregating Rs. 200 per equity share.

HDFC holds 80.5% of the equity share capital of HVCL.

HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indian and overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indian and offshore private equity funds.

During the year, HPVL made a profit after tax of Rs. 3.39 crores. The directors of HPVL approved the payment of two interim dividends aggregating Rs. 20 per equity share.

HDFC holds 100% of the equity share capital of HPVL.

GRUH Finance Limited (GRUH)

GRUH is a housing finance company with operations primarily in the states of Gujarat and Maharashtra and has now expanded its network to other states like Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh and Tamil Nadu. During the year, GRUH disbursed loans amounting to Rs. 1,211 crores as compared to Rs. 780 crores in the previous year – an increase of 55%.

For the year ended March 31, 2011, GRUH reported a profit after tax of Rs. 91.51 crores as compared to Rs. 68.96 crores in the previous year - an increase of 33%. The company recommended a dividend of Rs. 8.50 per share and in addition also recommended a special dividend of Rs. 2.50 per share to commemorate the Silver Jubilee of the company, taking the total recommended dividend to Rs. 11 per share as compared to Rs. 6.50 per share in the previous year.

HDFCs holding in GRUH currently stands at 60.6%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL) continues to strengthen the Corporations marketing and sales efforts by providing a dedicated sales force to sell home loans and other financial products.

HSPL has a presence in 71 locations. During the period under review, HSPL sourced loans accounting for 46% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Credila Financial Services Private Limited (Credila)

Credila is Indias first dedicated education loan company, providing loans to students pursuing higher education in India and abroad. Credila has funded students studying in over 500 educational institutes, pursuing higher studies in more than 20 countries.

As at March 31, 2011, Credila had cumulatively disbursed Rs. 190 crores in respect of 2,741 loans. The average loan amount disbursed is Rs. 7 lakhs.

In addition to having its own offices and sourcing applications through the web, Credila capitalises on HDFCs distribution network to source and market education loans.

The Reserve Bank of India has categorised education loans as priority sector lending. Credilas borrowers are entitled to income tax exemption under Section 80E of the Income Ta x Act, 1961.

HDFC holds 62.3% of the equity share capital of Credila.

Particulars of Employees

HDFC had 1,607 employees as of March 31, 2011. During the year, 8 employees employed throughout the year were in receipt of remuneration of Rs. 60 lakhs or more per annum.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the annex to the Directors Report. In terms of the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Directors Report is being sent to all the shareholders of the Corporation excluding the annex. Any shareholder interested in obtaining a copy of the said annex may write to the Corporation.

Employees Stock Option Scheme (ESOS)

The Corporation had not granted any stock options during the year. The options were last granted in November 2008. Unexercised options as at April 1, 2010 relates to ESOS-05, ESOS-07 and ESOS-08.

During the year, options vested aggregated to 1,54,668 and options exercised aggregated to 34,36,095. Pursuant to the said exercise, the Corporation received from the employees Rs. 473.54 crores as exercise consideration (excluding tax), of which Rs. 3.44 crores was towards share capital and Rs. 470.10 crores towards securities premium. During the year, pursuant to the exercise of options, 1,71,80,475 equity shares of Rs. 2 each have been allotted to the concerned employees.

During the year, 9,736 options lapsed. Options in force as at March 31, 2011 stood at 83,22,488. Pursuant to the sub- division of the face value of the equity shares of the Corporation from Rs. 10 to Rs. 2, upon exercise, each option is entitled to 5 equity shares of Rs. 2 each as against one equity share of Rs. 10 each prior to the sub-division.

There has been no variation in the terms of the options granted.

The Corporation had granted the stock options at the market price and hence the intrinsic value of the option was nil. Consequently, the compensation cost was nil. As no options were granted during the year, the compensation cost under the fair value method was also nil.

The diluted EPS is Rs. 23.66 against a basic EPS of Rs. 24.18.

Unclaimed Dividend

As at March 31, 2011, dividend amounting to Rs. 8.60 crores has not been claimed by shareholders of the Corporation. The Corporation has been periodically intimating the concerned shareholders requesting them to encash their dividend before it becomes due for transfer to the IEPF. The Corporation continues to take various initiatives to reduce the quantum of unclaimed dividend. These inter alia include periodic reminders to shareholders requesting them to claim their dividend, including final reminders to those shareholders who have not claimed their dividend before the same is due for transfer to the IEPF. The Corporation also provides direct credit of unclaimed dividend to the shareholders having a bank account with HDFC Bank or whose 9 digit MICR code is made available to the Corporation by the Depositories and dispatches duplicate dividend warrants directly to the concerned banks wherever the details are made available by the Depositories.

As per the provisions of Section 205C of the Companies Act, 1956, unclaimed dividend amounting to Rs. 33.96 lakhs for the financial year 2002-03 was transferred to the IEPF on September 8, 2010. Further, the unclaimed dividend amounting to Rs. 47.84 lakhs in respect of the financial year 2003-04 must be claimed by August 24, 2011, failing which it is required to be transferred to the IEPF within a period of 30 days from the said date. In terms of said section, no claim would lie against the Corporation or the IEPF after the transfer.

Unclaimed Shares

Pursuant to an amendment to Clause 5A of the Listing Agreements, the Corporation has identified share certificates issued by it in physical form to its shareholders which are lying unclaimed.

The Corporation has sent reminders to the concerned shareholders requesting them to contact the Investor Services Department of the Corporation to claim their shares, subject to submission and verification of requisite documents and compliance with procedures as prescribed in the said clause.

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

The particulars regarding foreign exchange earnings and expenditure appear as Item No. 13 in the Notes to the Accounts. Since HDFC does not own any manufacturing facility the other particulars relating to conservation of energy and technology absorption as stipulated in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are not applicable.

Directors

Mr. D. M. Satwalekar resigned as a director of the Corporation with effect from November 13, 2010. Mr. Satwalekar had joined the Corporation in 1979. He was the Managing Director of the Corporation from 1993 up to 2000. He was thereafter appointed as the Managing Director & Chief Executive Officer of HDFC Standard Life Insurance Company Limited (HDFC Life) and was appointed as a non-executive director of the Corporation in 2000.

The Board of Directors wish to place on record its sincere appreciation and gratitude for the dedicated service and invaluable contribution made by Mr. Satwalekar during his tenure with the Corporation and HDFC Life.

The Board of Directors, at its meeting held on October 18, 2010, re-appointed Mr. Keki M. Mistry as the Managing Director of the Corporation (designated as the Vice Chairman & Chief Executive Officer) for a period of 5 years, with effect from November 14, 2010, subject to the approval of the members at the ensuing AGM.

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Corporation, Mr. D. N. Ghosh, Dr. Ram S. Tarneja and Dr. Bimal Jalan are liable to retire by rotation at the ensuing AGM. They are eligible for re-appointment.

Necessary resolutions for the re-appointment of the aforesaid directors have been included in the notice convening the ensuing AGM.

All the directors of the Corporation have confirmed that they are not disqualified from being appointed as directors in terms of Section 274(1)(g) of the Companies Act, 1956.

Auditors

Messrs Deloitte Haskins & Sells, Chartered Accountants, having registration number 117366W, statutory auditors of the Corporation and branch auditors to audit the accounts at the Corporations branches in India and offices in London and Singapore hold office until the conclusion of the ensuing AGM and are eligible for re-appointment.

The Corporation has received a confirmation from Messrs Deloitte Haskins & Sells to the effect that their appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956.

Messrs PKF, Chartered Accountants, having registration number 10 issued by the Ministry of Economy, U.A.E. was appointed as the branch auditors to audit the accounts of the Corporations branch office in Dubai. Their term expires at the end of the ensuing AGM and they are eligible for re-appointment.

Directors Responsibility Statement

In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956 and based on the information provided by the management, your directors state that:

i. In the preparation of annual accounts, the applicable accounting standards have been followed;

ii. Accounting policies selected were applied consistently. Reasonable and prudent judgements and estimates were made so as to give a true and fair view of the state of affairs of the Corporation as at the end of March 31, 2011 and of the profit of the Corporation for the year ended on that date;

iii. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities;

iv. The annual accounts of the Corporation have been prepared on a going concern basis.

Management Discussion and Analysis Report and Report of the Directors on Corporate Governance

In accordance with Clause 49 of the listing agreements, the Management Discussion and Analysis Report and the Report of the Directors on Corporate Governance form part of this report.

Corporate Governance – Voluntary Guidelines

The Board of Directors have taken cognisance of the Corporate Governance Voluntary Guidelines 2009 issued by the Ministry of Corporate Affairs (MCA) in December 2009. While

the guidelines are recommendatory in nature, the board recognises the importance and need to constantly assess governance practices thereby ensuring a sustainable business environment that generates long-term value to all key stakeholders. The board has adopted several provisions of the said guidelines.

Acknowledgements

The Corporation would like to acknowledge the role of all its stakeholders - shareholders, borrowers, depositors, key partners and lenders for their continuing support to the Corporation.

The directors appreciate the guidance received from various regulatory authorities including NHB, RBI, SEBI, MCA, Registrar of Companies, Financial Intelligence Unit (India), Foreign Investment Promotion Board, the Stock Exchanges and the Depositories.

Your directors value the professionalism of all the employees of the Corporation who have relentlessly worked in a challenging environment and whose efforts have stood the Corporation in good stead.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH

May 10, 2011 Chairman


Mar 31, 2010

The directors are pleased to present the Thirty-third Annual Report of your Corporation with the audited accounts for the year ended March 31, 2010.

FINANCIAL RESULTS

For the For the year ended year ended March 31, 2010 March 31, 2009 (Rs. in crores) (Rs. in crores)

Profit before Tax 3,915.99 3,219.04

Provision for Tax 1,089.50 934.00

Provision for Fringe Benefit Tax -- 2.50

Profit after Tax 2,826.49 2,282.54

Appropriations have been made as under:

Special Reserve No. II 500.00 400.00

General Reserve 695.01 553.04

Additional Reserve (under Section 29C of the National Housing Bank Act, 1987) 432.00 342.00

Shelter Assistance Reserve 9.00 7.00

Proposed Dividend (at Rs. 36 per share) 1,033.60 853.36

Additional Tax on Proposed Dividend 171.67 140.69

Additional Tax on Dividend - Credit taken (15.16) (14.05)

Dividend pertaining to Previous Year paid during the year 0.37 0.50

2,826.49 2,282.54

Dividend

Your directors recommend payment of dividend for the year ended March 31, 2010 of Rs. 36 per equity share as against Rs. 30 per equity share for the previous year.

The dividend payout ratio for the current year, inclusive of additional tax on dividend will be 42% as compared to 43% for the previous year.

Sub-division of Shares

With the objective of increasing retail participation in the equity shares of the Corporation and considering the requests received from several individual shareholders, the Board of Directors at its meeting held on May 3, 2010, approved a proposal to sub-divide the nominal face value of the equity shares of the Corporation from Rs. 10 per equity share to Rs. 2 per equity share. The proposal is subject to the approval of the members and the requisite resolutions for approval of the members have been set out in the notice convening the 33rd Annual General Meeting (AGM).

Simultaneous Issue of Warrants and Non-Convertible Debentures

Pursuant to the approval of the Shareholders of the Corporation at the 32nd AGM held on July 22, 2009, the Corporation raised Rs. 4,301 crores through the first ever issue of Warrants simultaneously with Non-Convertible Debentures (NCDs) to Qualified Institutional Buyers (QIBs) on a Qualified Institutions Placement (QIP) basis, in accordance with the provisions of Chapter XIII-A of SEBI (Disclosure and Investor Protection) Guidelines, 2000.

The Corporation issued and allotted 1,09,53,706 Warrants at an issue price of Rs. 275 per Warrant with a right exercisable by the Warrant holders to exchange each Warrant with one equity share of face value of Rs. 10 each of the Corporation, at any time on or before August 24, 2012, at a Warrant Exercise Price of Rs. 3,000 per equity share, to be paid by the Warrant holder at the time of exchange of the Warrants.

Simultaneously, the Corporation also issued and allotted 20,000 zero coupon NCDs of the face value of Rs. 10,00,000 each due August 24, 2011 aggregating to Rs. 2,000 crores at an annualised yield to maturity (YTM) of 7.15% and 20,000 zero coupon NCDs of the face value of Rs. 10,00,000 each due August 24, 2012 aggregating to Rs. 2,000 crores at an annualised YTM of 7.85%.

The Warrants and NCDs are listed on the respective segments of the Bombay Stock Exchange Limited and National Stock Exchange of India Limited.

The maximum dilution that could take place in future, if all the Warrants are exchanged for equity shares of the Corporation at the Warrant Exercise Price would be up to 3.5% of the expanded equity share capital of the Corporation.

Lending Operations

Loan approvals during the year were Rs. 60,611 crores as compared to Rs. 49,166 crores in the previous year, representing a growth of 23%. Loan disbursements during the year were Rs. 50,413 crores as against Rs. 39,650 crores in the previous year, representing a growth of 27%.

Cumulative loan approvals and disbursements as at March 31, 2010 were Rs. 2,98,061 crores and Rs. 2,42,219 crores respectively. This is in respect of approximately 3.5 million housing units.

The demand for individual home loans picked up significantly in the second half of the financial year, reflecting rising consumer confidence and overall improvement of economic conditions. Other enabling factors included the strong demand for residential housing, lower interest rates, rising disposable incomes and continued fiscal incentives on housing loans. The average size of individual loans stood at Rs. 16.90 lacs.

Sale of Loans

During the year, the Corporation, under the loan assignment route sold individual loans of Rs. 4,870 crores to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank. Out of the total loans assigned, Rs. 3,258 crores qualify as priority sector advances for the bank.

As at March 31, 2010, loans outstanding in respect of loans sold under the mortgage backed securities and loan assignment route to HDFC Bank and other parties stood at Rs. 9,216 crores.

HDFC continues to service the loans sold under these transactions and is entitled to the residual interest on the loans sold.

During the year, the Corporation also sold Rs. 885 crores of its non- individual loan portfolio. The outstanding amount of the non- individual loans sold by the Corporation as at March 31, 2010 stood at Rs. 1,085 crores. The Corporation, however, continues to hold the security of these loans on a pari passu basis with the purchaser.

The residual income on the loans sold is being recognised at the time of actual collections, (i.e. over the life of the underlying loans), and not on an upfront basis. Where individual loans have been sold, the issues carry a rating indicating the highest degree of safety.

Repayments

During the year under review, Rs. 31,872 crores were received by way of scheduled repayment of principal through monthly instalments as well as redemptions ahead of schedule, as compared to Rs. 23,525 crores received last year.

Loan Book

As at March 31, 2010, the loan book stood at Rs. 97,967 crores as against Rs. 85,198 crores in the previous year – an increase of 15%. The growth in the loan book would have been higher at 22% if the loans sold were included in the loan book.

Foreign Currency Convertible Bonds (FCCB)

In September 2005, the Corporation concluded the issue of USD 500 million zero coupon FCCB. The bonds are convertible into equity shares of the Corporation of the face value of Rs. 10 each up to the close of business hours on July 29, 2010 at the option of the holders, at Rs. 1,399 per equity share, representing a conversion premium of 50% over the initial reference share price. The premium payable on redemption of the bonds is charged to the Securities Premium Account over the life of the bonds.

Up to March 31, 2010, the Corporation had allotted 1,27,92,711 equity shares of Rs. 10 each pursuant to the conversion of the FCCB, representing 81.9% of the bonds.

If the balance bonds are not converted within the above- mentioned conversion period, the remaining bondholders would have the right to redeem the outstanding bonds on September 27, 2010 at a YTM of 4.62% per annum.

Conversion of Warrants Issued by HDFC Bank Limited (HDFC Bank) into Equity Shares

In order for HDFC as a promoter to retain its current shareholding in HDFC Bank pursuant to the merger of Centurion Bank of Punjab with HDFC Bank and having obtained the requisite approvals, HDFC Bank had made a preferential offer to the Corporation to subscribe to 2,62,00,220 Warrants convertible into 2,62,00,220 equity shares of Rs. 10 each of HDFC Bank, at a price of Rs. 1,530.13 per equity share, in accordance with the provisions of Chapter XIII of the SEBI (Disclosure and Investor Protection) Guidelines, 2000.

In June 2008, under the terms and conditions of the said Warrants, the Corporation had paid a sum of 10% of the price of the equity shares to be issued upon exercise of such Warrants at the time of allotment.

In November 2009, the Corporation exercised its right to convert 2,62,00,220 Warrants into an equivalent number of equity shares of Rs. 10 each of HDFC Bank for an amount of Rs. 3,608.06 crores, being the balance 90% of the subscription amount.

Resource Mobilisation

Subordinated Debt

During the year, the Corporation raised Rs. 500 crores through the issue of long-term Unsecured Redeemable Non-Convertible Subordinated Debentures. The subordinated debt was assigned a ‘AAA’ rating from both CRISIL Limited (CRISIL) and ICRA Limited (ICRA).

As at March 31, 2010, the Corporation’s outstanding

subordinated debt stood at Rs. 1,875 crores. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating by CRISIL and ICRA. Based on the balance term to maturity, as at March 31, 2010, Rs. 1,555 crores of the book value of subordinated debt is considered as Tier II under the guidelines issued by the National Housing Bank (NHB) for the purpose of capital adequacy computation.

Non-Convertible Debentures (NCD)

During the year, the Corporation issued NCDs amounting to Rs. 7,400 crores on a private placement basis (excluding Rs. 4,000 crores of NCDs raised under the Simultaneous Issue of Warrants and Non-Convertible Debentures). The Corporation’s NCD issues have been listed on the Wholesale Debt Market segment of the NSE. The Corporation’s NCDs have been assigned the highest rating of ‘AAA’ by both CRISIL and ICRA. As at March 31, 2010, NCDs outstanding stood at Rs. 33,093 crores.

Short-Term Foreign Currency Borrowings by Housing Finance Companies

As a temporary measure, the Reserve Bank of India (RBI) had permitted Housing Finance Companies to raise short-term foreign currency borrowings for a maximum period of three years, under the approval route for refinancing short-term liabilities.

Under this borrowing route, the RBI stipulated that the all-in-cost ceiling should not exceed 6 months LIBOR + 200 bps and the borrowing needs to be fully swapped into Indian Rupees.

During the year, HDFC availed loans amounting to USD 175 million under the said scheme for a period of three years.

Loans from Banks

During the year, the Corporation raised loans amounting to Rs. 25,037 crores from commercial banks, of which Rs. 9,319 crores were under the priority sector category of commercial banks. The Corporation further raised Rs. 2,357 crores from the banking sector as FCNR (B) loans.

HDFC’s long-term and short-term bank loan facilities have been assigned the highest rating of ‘AAA’ and ‘PR1+’ respectively by CARE, signifying highest safety for timely servicing of debt obligations.

Refinance from National Housing Bank (NHB)

NHB has an internal rating mechanism for Housing Finance Companies (HFCs) and the Corporation has been assigned the highest rating for its refinance schemes by NHB. During the year, the Corporation has drawn refinance amounting to Rs. 239 crores under NHB’s Refinance Scheme to Housing Finance Companies, 2003.

Deposits

Deposits continued to grow during the financial year under review despite strong competition from banks. During the year, deposits accounted for 29% of the incremental borrowing of the Corporation. As at March 31, 2010, outstanding deposits stood at Rs. 23,081 crores as against Rs. 19,375 crores in the previous year – an increase of 19%. The depositor base stood at approximately 9 lac depositors.

CRISIL and ICRA have for the fifteenth consecutive year, reaffirmed their ‘AAA’ rating for HDFC’s deposits. This rating represents ‘highest safety, attractive returns and impeccable service standards’ as regards timely repayment of principal and interest.

During the year, the Corporation introduced ‘HDFC Systematic Savings Plan’, which is a monthly savings plan offering a variable rate of interest.

The support of the agents and their commitment to the Corporation has been instrumental in HDFC’s deposit products continuing to be a preferred investment for households and trusts.

Unclaimed Deposits

As of March 31, 2010, public deposits amounting to Rs. 251.78 crores had not been claimed by 38,846 depositors. Since then, 9,277 depositors have claimed or renewed deposits of Rs. 83.88 crores. Depositors were intimated regarding the maturity of deposits with a request to either renew or claim their deposits.

As per the provisions of Section 205C of the Companies Act, 1956, deposits remaining unclaimed for a period of seven years from the date they became due for payment have to be transferred to the Investor Education and Protection Fund (IEPF) established by the Central Government. Accordingly, during the year, despite repeated reminders being sent to depositors, an amount of Rs. 31.14 lacs has been transferred to the IEPF. In terms of the said section, no claims would lie against the Corporation or the IEPF after the transfer.

KfW Lines/Grant

During the year, the Corporation disbursed Rs. 9.14 crores under the KfW Entwicklungsbank (KfW) lines in the area of low-income housing and micro-finance by way of bulk loans to partner non-government organisations (NGOs) and micro- finance institutions (MFIs). These schemes have been approved out of the third line from KfW of Euro 15.3 million. The projects are administered as group or individual loans designed for the economically weaker sections (EWS) of society for improving their access to institutional credit. Against the cumulative loan approvals of Rs. 94.02 crores, the Corporation has disbursed Rs. 86.02 crores as at March 31, 2010.

The surplus funds of Euro 1.12 million available under the fourth line of grant (Euro 10.22 million) were reprogrammed by KfW towards EWS housing projects with objectives and criteria similar to the third line. During the year, HDFC has concluded the utilisation of these surplus funds.

Non-Performing Loans

Despite the financial turbulence during part of the year under review, the recovery performance of the Corporation continued to be very good. Gross non-performing loans as at March 31, 2010 amounted to Rs. 782.85 crores. This is equivalent to 0.79% of the portfolio (as against 0.81% in the previous year) comprising loans as well as debentures issued by corporates and corporate deposits placed for financing their real estate projects. This is the twenty-first consecutive quarter end at which the non- performing loans have been lower than the corresponding quarter in the previous year.

Based on a six months overdue basis, the non-performing loans as at March 31, 2010 stood at 0.53% of the loan portfolio as against 0.56% in the previous year.

In terms of the prudential norms as stipulated by NHB, the Corporation is required to carry a provision of Rs. 325.29 crores in respect of non- performing assets and general provision on outstanding standard non-housing loans.

The balance in the provision for contingencies account as at March 31, 2010 stood at Rs. 655.57 crores, which is equivalent to 0.66% of the portfolio. As at March 31, 2010, the Corporation’s net non- performing loans stood at 0.13%.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporation has been able to successfully initiate recovery action under this Act in the case of wilful individual and corporate defaulters.

Regulatory Guidelines/ Amendments

HDFC has complied with the Housing Finance Companies (NHB) Directions, 2001 prescribed by NHB regarding accounting standards, prudential norms for asset classification, income recognition, provisioning, capital adequacy and credit rating. The Corporation is also in compliance with the concentration of investments and capital market exposure norms other than on its investment in HDFC Bank, wherein NHB has granted the Corporation time for such compliance as the Corporation is a promoter of HDFC Bank.

HDFC’s capital adequacy ratio stood at 14.6% of the risk weighted assets, as against the minimum requirement of 12%. Tier I capital was 12.8% against a minimum requirement of 6%.

Codes and Standards

NHB has issued comprehensive Know Your Customer (KYC) Guidelines and Anti Money Laundering Standards in the context of recommendations made by the Financial Action Task Force on Anti Money Laundering Standards and on Combating Financing of Terrorism Standards. During the year, the board reviewed and approved the amendments to the Corporation’s KYC and Prevention of Money Laundering Policy as stipulated by NHB. The Corporation has adhered to the compliance requirements in terms of the said policy for monitoring and reporting cash/ suspicious transactions.

The Fair Practices Code framed by NHB seeks to promote good and fair practices by setting minimum standards in dealing with customers, increase transparency so customers have a better understanding of what they can reasonably expect of the services being offered, encourage market forces through competition to achieve higher operating standards, promote fair and cordial relationships between customers and the housing finance company and foster confidence in the housing finance system. During the year, the Corporation has adhered to the Fair Practices Code as approved by the Board of Directors.

The Corporation has adopted the Model Code of Conduct for Direct Selling Agents and Guidelines for Recovery Agents engaged by HFCs as approved by the Board of Directors.

Risk Management Framework

The Corporation has a Risk Management Framework, which provides the mechanism for risk assessment and mitigation. The Risk Management Committee (RMC) comprises the Managing Director as the chairperson, the Executive Director and some members of senior management.

During the year, the RMC reviewed the risks associated with the business of the Corporation, its root causes and the efficacy of the measures taken to mitigate the same. Thereafter, the Board of Directors also reviewed the key risks associated with the business of the Corporation, the procedures adopted to assess the risks and their mitigation mechanisms.

Marketing and Distribution

To reach out effectively to customers, the Corporation’s distribution network now spans 279 outlets, which include 65 offices of the HDFC’s wholly owned distribution company, HDFC Sales Private Limited (HSPL). To further augment this network, HDFC covers over 90 additional locations through its outreach programmes. HDFC has offices in London, Singapore and Dubai. The Dubai office reaches out to its customers across West Asia through its service associates based in Kuwait, Qatar, Oman, Sharjah, Abu Dhabi and Saudi Arabia – Al Khobar, Jeddah and Riyadh.

HDFC’s reach and presence is also enhanced by its distribution channels, which include HSPL, HDFC Bank and a few third party direct selling associates (DSAs). These channels only source loans, while HDFC continues to retain control over the credit, legal and technical appraisal, thereby ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels.

During the year, HDFC ran a key brand campaign – “HDFC - because every family needs a home.” The objective of the campaign was to connect with HDFC’s existing customers as well as prospective customers, making the HDFC brand synonymous with a home.

HDFC organises property fairs across major cities in the country. The aim of these fairs is to provide a wide spectrum of approved projects under a single roof. These fairs in turn help customers in making their decision to buy a home. Under ‘Indian Homes Fair’, HDFC brings together eminent builders who show case their properties for the Indian Diaspora. During the year, HDFC organised ‘Indian Homes Fair’ in London, Singapore and Kuwait.

Cross Selling and Distribution of Financial Products and Services

HDFC’s subsidiary companies have strong synergies with HDFC and hence efforts are channelled into cross selling so as to offer customers a wide range of financial products and services under the ‘HDFC’ brand.

HDFC is a Composite Corporate Agent for HDFC Standard Life Insurance Company Limited (HDFC-SL) and HDFC ERGO General Insurance Company Limited (HDFC-ERGO).

International Housing Finance Initiatives

HDFC’s expertise in housing finance is well regarded and therefore a number of existing and new housing finance companies in various parts of the world are keen to tap HDFC for training, strategic input and technical assistance in housing finance.

During the year, the Corporation under its Technical Services Agreement with Housing Development Finance Corporation, Plc., Maldives, provided technical and consultancy services in key mortgage functions.

Senior executives of the Corporation were invited to Indonesia, Maldives, Philippines and Oman for seminars, consultancy or training assignments in housing finance.

In July 2009, the Frankfurt School of Finance & Management and HDFC jointly organised the second ‘Housing Finance Summer Academy’ in Germany, which is a course that aims to provide housing finance solutions for emerging markets through a combination of academic knowledge and practical experience.

In November 2009, HDFC conducted its own international training programme ‘Housing Finance Management’ at its training centre, Centre for Housing Finance, located at Lonavla, India. Participants from different countries across Asia and Africa attended a weeklong residential training programme.

Delegates from Bangladesh, Indonesia and Romania visited the Corporation to understand key mortgage finance operations.

Shelter Assistance Reserve (SAR)

HDFC continued to partner and support worthwhile projects undertaken by NGOs, foundations and local bodies through the SAR. During the year, HDFC has made a commitment of Rs. 10.48 crores and disbursed Rs. 8.48 crores from the SAR towards a wide spectrum of development programmes and activities.

HDFC supported the mid-day meal scheme for children reaching 285 schools in Gandhinagar and Ahmedabad, partnered a society in raising awareness on multiple sclerosis and helped an organisation refurbish a rehabilitation centre for the physically challenged in Bhubaneshwar. Support and financial assistance was also extended towards realisation of ‘Adivasi’ (tribal) children’s right to education through ‘ashram shalas’ (residential schools) in Raigad, construction of a dormitory in a shelter home for boys in Ajmer and towards treatment and medical aid for patients suffering from haemophilia in New Delhi. HDFC made corpus contributions from the SAR to the Indian Cancer Society – New Delhi, Vision Research Foundation – Chennai, Society for the Rehabilitation of Crippled Children – Mumbai and the Deep Griha Society – Pune, amongst others.

In addition, the SAR was utilised towards providing relief assistance to victims in the flood-affected areas of Karnataka and Andhra Pradesh during October 2009.

Training and Human Resource Management

The Corporation believes that the HDFC brand comes alive at various touch points where the customer interacts with HDFC. Hence, strong emphasis is placed on appraisal of competencies and upgradation of skills of employees to achieve current and emerging business needs.

During the year, besides the induction training for management trainees, specific orientation programmes were designed for staff members in operations, accounts, recoveries and deposits.

The Corporation also nominated staff members for a variety of external programmes on affordable housing, rural housing, treasury and risk management, taxation, information security, business management and International Financial Reporting Standards.

Other Initiatives

Education

The Corporation is keen to develop sustainable business models in the education space. As an initial step, during the year, the Corporation acquired a 41% stake in the fully diluted share capital of Credila Financial Services Private Limited, which is a company that exclusively focuses on providing education loans.

Indian Institute for Human Settlements (IIHS)

The urban environment is embedded in increasing density of traffic, insufficient infrastructure and lack of quality amenities – all of which impact the value and joy of housing. In order to improve the urban environment, there is a need for trained professionals.

During the year, the Corporation disbursed Rs. 2 crores out of a commitment of Rs. 4 crores to IIHS. IIHS will establish a privately funded National University focused on urban practice – a new multidisciplinary profession, drawing on transportation and infrastructure planning, architecture, sociology, economics, law and management. IIHS will provide in-service training as well as educate graduates and post graduates to work on planning, implementation and governance for towns and cities. Various reputed international universities and a number of India’s leading academicians and practitioners are participating in this venture. The first IIHS campus will be set up in Bengaluru.

Awards and Recognitions

During the year, some of the awards and recognitions received by the Corporation include:

• Top Indian Company in the ‘Financial Institutions/Non-Banking Financial Companies/Financial Services’ category at the Dun & Bradstreet – Rolta Corporate Awards 2009. The Corporation has won this award for four consecutive years.

• Motilal Oswal Financial Services for the second time ranked HDFC as the ‘Most Consistent Wealth Creator’ in its 14th Annual Wealth Creation Study that analyses the top 100 wealth creating companies in India.

• HDFC featured amongst the ‘Top 50 Best Companies to Work For – 2009’ in a study by the Great Place to Work® Institute - India in association with The Economic Times. In addition, HDFC was adjudged as the ‘Best Company for Management Credibility’.

Subsidiary Companies

In terms of Section 212(8) of the Companies Act, 1956, the Central Government has granted its approval, exempting the Corporation from the requirement of attaching to its annual report, the balance sheet, profit and loss account and the report of the directors and auditors thereon, in respect of all its fifteen subsidiary companies. Accordingly, a copy of the balance sheet, profit and loss account, report of the Board of Directors and Report of the Auditors of the following subsidiary companies of the Corporation – HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Asset Management Company Limited, HDFC Trustee Company Limited, HDFC Realty Limited, HDFC Standard Life Insurance Company Limited, HDFC ERGO General Insurance Company Limited, GRUH Finance Limited, HDFC Sales Private Limited, HDFC Ventures Trustee Company Limited, HDFC Venture Capital Limited and HDFC Property Ventures Limited, and the following step-down subsidiary companies - HDFC Asset Management Company (Singapore) Pte. Limited and Griha Investments have not been attached to the balance sheet of the Corporation for the financial year ended March 31, 2010.

The Annual Report of the Corporation, the annual accounts and the related documents of the Corporation’s subsidiary companies are posted on the website of the Corporation, www.hdfc.com. Shareholders who wish to have a copy of the annual accounts and detailed information on any subsidiary company can download the same from the website or may write to the Corporation for the same. Further, the said documents shall be available for inspection by the shareholders at the registered office of the Corporation and at the office of the respective subsidiary company.

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

Review of Key Subsidiary and Associate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue to maintain an arm’s length relationship in accordance with the regulatory framework. Both organisations, however, capitalise on the strong synergies through a system of referrals, special arrangements and cross selling in order to effectively provide a wide range of products and services under the HDFC brand name.

As at March 31, 2010, gross advances of HDFC Bank stood at Rs. 1,27,262 crores - an increase of 27% over the previous year. As at March 31, 2010, HDFC Bank’s distribution network included 1,725 branches and 4,232 ATMs in 779 cities as against 1,412 branches and 3,295 ATMs in 528 cities as of March 31, 2009.

For the year ended March 31, 2010, HDFC Bank reported a profit after tax of Rs. 2,949 crores as against Rs. 2,245 crores in the previous year, representing an increase of 31%. HDFC Bank recommended a dividend of Rs. 12 per share as against Rs. 10 per share in the previous year.

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 23.73% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC-SL)

Gross premium income of HDFC-SL for the year ended March 31, 2010 stood at Rs. 7,005 crores as compared to Rs. 5,565 crores in the previous year. The sum assured inforce for the current year was Rs. 72,610 crores as compared to Rs. 57,158 crores in the previous year.

The company has a portfolio of 32 retail products and 4 group products covering saving, investment, protection and retirement needs of the customers, along with five optional rider benefits.

HDFC-SL covers approximately 700 cities and towns in India through its 568 distribution points in the country with approximately 2,00,000 financial consultants appointed by the company. HDFC-SL also has a strong association with its bancassurance partners, which has contributed significantly to the growth of the company during the year.

HDFC-SL has reported a loss of Rs. 275 crores for the year ended March 31, 2010. Like most life insurance companies in the initial phase, HDFC-SL has reported losses. This is essentially due to the accounting norms applicable to insurance companies wherein the commission expenses are charged upfront in the year in which they are incurred while the corresponding income is recognised over the entire life of the policies issued. The mismatch between expenses and income has the effect of magnifying the initial losses of HDFC-SL.

HDFC holds 72.56% of the equity share capital in HDFC-SL.

HDFC Asset Management Company Limited (HDFC-AMC)

HDFC and Standard Life Investment Limited are the co-sponsors of HDFC Mutual Fund.

As at March 31, 2010, HDFC-AMC managed 33 debt and equity oriented schemes of HDFC Mutual Fund. During the year, the average assets under management was Rs. 1,00,898 crores (which is inclusive of average assets under discretionary portfolio management/ advisory services). The number of investor accounts increased to over 39 lacs as at March 31, 2010 as compared to 34 lacs in the previous year.

As at March 31, 2010, HDFC-AMC has points of acceptances in 206 locations across the country.

For the year ended March 31, 2010, HDFC-AMC reported a profit after tax of Rs. 208.37 crores as against Rs. 129.11 crores in the previous year. HDFC-AMC paid an interim dividend of Rs. 22 per share for the financial year ended March 31, 2010.

HDFC holds 60% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC-ERGO)

For the year ended March 31, 2010, HDFC-ERGO emerged as the fifth largest private sector player in the general insurance industry. Following a multi-product and multi-channel strategy, HDFC-ERGO has expanded its branch network to 78 as compared to 50 last year.

The company offers a complete range of insurance products like motor, health, travel, home and personal accident in retail segment and customised products like property, marine, aviation and liability insurance in the corporate segment. In addition, HDFC-ERGO continues to leverage on HDFC group’s distribution capability to drive its growth. The company has a balanced portfolio mix with corporate business accounting for 52% for the business and retail accounting for the balance.

The general insurance industry registered a growth of 13% in FY 2009-10 as compared to 9% in the previous year. In comparison, during the year, HDFC-ERGO recorded a growth of 168% as compared to 56% in the previous year with a Gross Written Premium (including cessions from the motor pool) of Rs. 1,004 crores as against Rs. 374 crores in the previous year.

During the year, the company made a loss of Rs. 94 crores. The loss for the year was primarily on account of significant investments in the

scale-up of business, continued pricing pressure as a result of detariffing and higher share of losses from Indian Motor Third Party Pool.

HDFC holds 74% of the equity share capital of HDFC-ERGO.

HDFC Property Funds

HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, a registered venture capital fund with the Securities and Exchange Board of India (SEBI).

HDFC Property Fund currently has two schemes. The first scheme is HDFC India Real Estate Fund (HI- REF), with a corpus of Rs. 1,000 crores, which has been fully invested. Exits are being explored for some of the investments of the scheme.

The second scheme, HDFC IT Corridor Fund has a corpus of Rs. 446.40 crores. This scheme has disbursed the entire corpus in rental income yielding commercial properties in major cities in India and exits are being explored for some investments of the scheme.

During the year, HVCL made a profit after tax of Rs. 12.73 crores. The directors of HVCL approved the payment of two interim dividends aggregating Rs. 205 per equity share.

HDFC holds 80.5% of the equity share capital of HVCL.

HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indian and overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indian and offshore private equity funds.

HDFC holds 100% of the equity share capital of HPVL.

GRUH Finance Limited (GRUH)

GRUH is a housing finance company with operations primarily in the states of Gujarat and Maharashtra and has now expanded its network to other states like Karnataka, Madhya Pradesh, Rajasthan, Chhatisgarh and Tamil Nadu. During the year, GRUH disbursed loans amounting to Rs. 780 crores.

For the year ended March 31, 2010, GRUH reported a profit after tax of Rs. 68.96 crores as compared to Rs. 50.28 crores in the previous year - an increase of 37%. The company recommended a dividend of Rs. 6.50 per share as compared to Rs. 4.80 per share in the previous year.

HDFC’s holding in GRUH currently stands at 61.36%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL) continues to strengthen the Corporation’s marketing and sales efforts by providing a dedicated sales force to sell home loans and other financial products.

HSPL has a presence in 65 locations. During the period under review, HSPL sourced loans accounting for 46% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Particulars of Employees

HDFC had 1,505 employees as of March 31, 2010. During the year, 44 employees employed throughout the year and 1 employee employed for part of the year were in receipt of remuneration of Rs. 24 lacs or more per annum.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the annex to the Directors’ Report. In terms of the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Directors’ Report is being sent to all the shareholders of the Corporation excluding the annex. Any shareholder interested in obtaining a copy of the said annex may write to the Corporation.

Employees Stock Option Scheme (ESOS)

Presently, stock options granted by the Corporation to the employees operate under the following schemes: ESOS-05, ESOS-07 and ESOS-08. Further, ESOS-02 was in force up to October 16, 2009 and in accordance with its provisions was inoperative from October 17, 2009. During the year, no new options were granted by the Corporation.

ESOS-05, ESOS-07 and ESOS-08 (Schemes)

During the year, under these Schemes, options vested aggregated to 56,47,778 and options exercised aggregated to 20,31,366. The money realised due to exercise of the said options was Rs. 233.93 crores and consequently, 20,31,366 equity shares of Rs. 10 each have been allotted to the concerned employees.

During the year, under these Schemes, 1,69,458 options lapsed. Options in force as on March 31, 2010 under these Schemes stood at 1,16,09,033. During the financial year under review, there has been no variation in the terms of the options granted earlier.

Listed below are disclosures in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as amended:

Since options were granted at the market price, the intrinsic value of the option is nil. Consequently, the accounting value of the option (compensation cost) was also nil. However, if the fair value of the options using the Black-Scholes model was used, considering the assumptions as of the date of grant, the compensation cost (net) would have been Rs. 59.28 crores, the profit after tax would have been lesser by Rs. 59.28 crores and basic and diluted Earnings Per Share (EPS) would have been Rs. 96.72 and Rs. 93.90 respectively.

The diluted EPS is Rs. 95.92 against a basic EPS of Rs. 98.80.

Unclaimed Dividend

As at March 31, 2010, dividend amounting to Rs. 7.52 crores has not been claimed by shareholders of the Corporation. The Corporation has been periodically intimating the concerned shareholders requesting them to encash their dividend before it becomes due for transfer to the IEPF.

As per the provisions of Section 205C of the Companies Act, 1956, unclaimed dividend amounting to Rs. 35.41 lacs for the financial year 2001-02 was transferred to the IEPF on September 23, 2009. Further, the unclaimed dividend amounting to Rs. 37.63 lacs in respect of the financial year 2002-03 must be claimed by August 23, 2010, as it is required to be transferred to the IEPF within a period of 30 days from the said date. In terms of said section, no claim would lie against the Corporation or the IEPF after the transfer.

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

The particulars regarding foreign exchange earnings and expenditure appear as Item No. 13 in the Notes to the Accounts. Since HDFC does not own any manufacturing facility the other particulars relating to conservation of energy and technology absorption as stipulated in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are not applicable.

Directors

Mr. Deepak S. Parekh retired as the Managing Director of the Corporation (designated as ‘Chairman’) with effect from the close of business hours on December 31, 2009. Mr. Parekh had joined the Corporation in a senior management position in 1978. Mr. Parekh was inducted as a whole- time director of the Corporation in 1985 and appointed as the Managing Director of the Corporation (designated as ‘Chairman’) in 1993 and he continued to be re-appointed as such, from time to time.

The Board of Directors wishes to place on record its appreciation and gratitude for the dedicated service and contributions made by Mr. Parekh during his tenure as the Managing Director of the Corporation (designated as ‘Chairman’).

The Board of Directors, at its meeting held on December 4, 2009, appointed Mr. Parekh as an additional director of the Corporation with effect from January 1, 2010, to hold office as such, up to the date of the ensuing Annual General Meeting (AGM), pursuant to the provisions of Section 260 of the Companies Act, 1956. Mr. Parekh continues as the Chairman of the Corporation.

Pursuant to receipt of notices from some members under the provisions of Section 257 of the Companies Act, 1956 along with deposits of Rs. 500 each, the Board of

Directors, at its meeting held on May

3, 2010, recommended, for the approval of the members, the appointment of Mr. Parekh as a director of the Corporation, liable to retire by rotation in terms of the provisions of the Companies Act, 1956 and Articles of Association of the Corporation. Mr. Parekh would be eligible for re-appointment and on being re-appointed, would continue to be the Chairman of the Corporation.

At the meeting held on December

4, 2009, the board re-designated Mr. Keki M. Mistry as the Vice Chairman & Chief Executive Officer of the Corporation and subject to the approval of the members at the ensuing AGM, appointed Ms. Renu Sud Karnad as the Managing Director of the Corporation for a period of 5 years with effect from January 1, 2010.

At the said meeting, the board also appointed Mr. V. Srinivasa Rangan as an additional director of the Corporation, to hold office as such up to the date of the ensuing AGM pursuant to the provisions of Section 260 of the Companies Act, 1956 and pursuant to receipt of a notice under the provisions of Section 257 of the Companies Act, 1956, along with a deposit of Rs. 500, approved his appointment as the whole-time director of the Corporation (designated as ‘Executive Director’) for a period of 5 years with effect from January 1, 2010, subject to the approval of the members at the ensuing AGM.

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Corporation, Mr. Keshub Mahindra, Mr. D. M. Sukthankar and Mr. N. M. Munjee are liable to retire by rotation at the ensuing AGM. They are eligible for re-appointment.

Necessary resolutions for the appointment/re-appointment of the aforesaid directors have been included in the notice convening the ensuing AGM.

All the directors of the Corporation have confirmed that they are not disqualified from being appointed as directors in terms of Section 274(1)(g) of the Companies Act, 1956.

Auditors

Messrs Deloitte Haskins & Sells, Chartered Accountants, having registration number 117366W, statutory auditors of the Corporation and branch auditors to audit the accounts at the Corporation’s branches in India and offices in London and Singapore hold office until the conclusion of the ensuing AGM and are eligible for re-appointment.

The Corporation has received a confirmation from Messrs Deloitte Haskins & Sells to the effect that their appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956.

Messrs PKF, Chartered Accountants, having registration number 10 was appointed as the branch auditors to audit the accounts of the Corporation’s branch office in Dubai. Their term expires at the end of the ensuing AGM and they are eligible for re-appointment.

Directors’ Responsibility Statement

In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956 and based on the information provided by the management, your directors state that:

i. In the preparation of annual accounts, the applicable accounting standards have been followed;

ii. Accounting policies selected were applied consistently. Reasonable and prudent judgements and estimates were made so as to give a true and fair view of the state of affairs of the Corporation as at the end of March 31, 2010 and of the profit of the Corporation for the year ended on that date;

iii. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Corporation and for preventing and detecting frauds and other irregularities;

iv. The annual accounts of the Corporation have been prepared on a going concern basis.

Management Discussion and Analysis Report and Report of the Directors on Corporate Governance

In accordance with Clause 49 of the listing agreements, the Management Discussion and Analysis Report and the Report of the Directors on Corporate Governance form part of this report.

Corporate Governance – Voluntary Guidelines

The Board of Directors have taken cognisance of the ‘Corporate Governance Voluntary Guidelines 2009’ issued by the Ministry of Corporate Affairs (MCA) in December 2009. While the guidelines are recommendatory in nature, the board recognises the importance and need to constantly assess governance practices thereby ensuring a sustainable business environment that generates long- term value to all key stakeholders. The board would consider adopting the relevant provisions of the said guidelines as and when deemed appropriate.

Acknowledgements

The Corporation would like to acknowledge the role of all its stakeholders - shareholders, borrowers, depositors, key partners and lenders for their continuing support to the Corporation.

The directors appreciate the guidance received from various regulatory authorities including NHB, RBI, SEBI, MCA, Registrar of Companies, Financial

Intelligence Unit (India), Foreign Investment Promotion Board, the Stock Exchanges and the Depositories.

Your directors value the professionalism of all the employees of the Corporation who have relentlessly worked in a challenging environment and whose efforts have stood the Corporation in good stead.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH

May 3, 2010 Chairman