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Housing Development Finance Corporation Ltd.

BSE: 500010 Sector: Financials
NSE: HDFC ISIN Code: INE001A01036
BSE 00:00 | 13 Nov 1824.05 29.00
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NSE 00:00 | 13 Nov 1824.70 28.80
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OPEN 1802.40
PREVIOUS CLOSE 1795.05
VOLUME 34170
52-Week high 2051.00
52-Week low 1642.00
P/E 31.27
Mkt Cap.(Rs cr) 313,271
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1802.40
CLOSE 1795.05
VOLUME 34170
52-Week high 2051.00
52-Week low 1642.00
P/E 31.27
Mkt Cap.(Rs cr) 313,271
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Housing Development Finance Corporation Ltd. (HDFC) - Director Report

Company director report

TO THE MEMBERS

Your directors are pleased to present the forty-first annual report of your Corporationwith the audited accounts for the year ended March 31 2018.

FINANCIAL RESULTS For the year ended March 31 2018 For the year ended March 31. 2017
( Rs. in crore) ( Rs. in crore)
Profit Before Exceptional Items & Tax 11582.10 10726.64
Exceptional Items 3681.59 -
Profit before Tax 15263.69 10726.64
Tax Expense 3100.00 3284.00
Profit after Tax 12163.69 7442.64
Surplus in the Statement of Profit & Loss Opening Balance 5295.72
Profit for the Year 12163.69 7442.64
Amount Available for Appropriations Appropriations: 17459.41 7442.64
Special Reserve No. II 1355.00 1247.00
Statutory Reserve (under Section 29C of the National Housing Bank Act 1987) 1078.00 245.00
General Reserve 2432.10 -
Shelter Assistance Reserve - 185.00
Interim Dividend ( Rs. 3.50 per equity share of Rs. 2 each) & Tax on Interim Dividend 590.87 476.18
Final Dividend & Tax on Dividend for FY17 2863.62 -
Additional Tax on Dividend written back - (9.98)
Dividend & tax pertaining to previous year paid during the year - 3.72
Surplus in the Statement of Profit & 9139.82 5295.72
Loss

Dividend

In March 2018 your directors declared an interim dividend of Rs. 3.50 per equity shareof Rs. 2 each as compared to Rs. 3.00 per equity share in the previous financial year.

The interim dividend was paid in March 2018.

Your directors recommend payment of final dividend for the financial year ended March31 2018 of Rs. 16.50 per equity share of Rs. 2 each compared to

Rs. 15 per equity share for the previous year.

The total dividend for the year is Rs. 20 per equity share as against Rs. 18 per equityshare for the previous year.

The dividend pay-out ratio excluding exceptional items for the year ended March 312018 is 46.2%.

The dividend declared/recommended is in accordance with the principles and criteria asset out in the Dividend Distribution Policy which has been approved by the Board ofDirectors. The policy is placed on the Corporation's website www.hdfc.com .

Management Discussion and Analysis Report Report of the Directors on CorporateGovernance Business Responsibility Report & Integrated Report

In accordance with the Securities and Exchange Board of India (Listing Obligations andDisclosure Requirements) Regulations 2015 (Listing Regulations) and directions issued bythe National Housing Bank (NHB) the Management Discussion and Analysis Report and theReport of the Directors on Corporate Governance form part of this report.

In accordance with the Listing Regulations the Business Responsibility Report (BRR)has been placed on the Corporation's website. Members who wish to receive a physical copyof the BRR are requested to write to the Corporation. The policy on BusinessResponsibility is also placed on the Corporation's website.

In accordance with SEBI's circular on Integrated Reporting by Listed Entities theCorporation has prepared a report based on the guiding principles of the InternationalIntegrated Reporting Council. This has been done on a voluntary basis and the report isplaced on the Corporation's website.

Increase in the Authorised Share Capital

During the year the authorised share capital of the Corporation increased from Rs. 350crore to Rs. 457.61 crore. This includes the increase pursuant to the merger of WindermereProperties Private Limited Haddock Properties Private Limited Grandeur PropertiesPrivate Limited Winchester Properties Private Limited and Pentagram Properties PrivateLimited wholly- owned subsidiaries of the Corporation into and with the Corporation asapproved by the National Company Law Tribunal (NCLT) Mumbai Bench vide its order datedMarch 28 2018.

Issue of Equity Shares on a Preferential and Qualified Institutions Placement Basis

Pursuant to receipt of approval of the members through postal ballot in February 2018the Corporation issued 64329882 equity shares of Rs. 2 each at an issue price of Rs.1726.05 per equity share on preferential basis in accordance with the provisions ofChapter VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009(SEBI ICDR Regulations). The Corporation also issued 10389041 equity shares at an issueprice of Rs. 1825 per equity share to qualified institutional buyers on a qualifiedinstitutions placement basis in accordance with the provisions of Chapter VIII of the SEBIICDR Regulations. The Corporation raised an aggregate amount of Rs. 13000 crore from boththe issuances.

The key objective of raising capital is to participate in the proposed preferentialissue of HDFC Bank Limited for an amount not exceeding Rs. 8500 crore.

The Corporation is also exploring inorganic opportunities in the health insurancesector in conjunction with its subsidiary HDFC ERGO General Insurance Company Limited andis evaluating opportunities in the acquisition and resolution of stressed assets in thereal estate sector. The Corporation will also need capital to sponsor funds it has set upto invest in the equity and mezzanine debt of affordable housing projects support capitalrequirements of its subsidiary companies as and when required and capitalise on organicand inorganic growth opportunities in the affordable housing finance space.

Conversion of Warrants

In October 2015 the Corporation had issued 3.65 crore Warrants at an issue price ofRs. 14 per Warrant with a right exercisable by the Warrant holder to exchange each Warrantfor one equity share of Rs. 2 each of the Corporation at any time on or before October 52018 at a Warrant exercise price of Rs. 1475 per equity share to be paid by the Warrantholder at the time of exchange of the Warrants. The Warrants are listed on the BSE Limited(BSE) and National Stock Exchange of India Limited (NSE).

As at March 31 2018 514600 Warrants have been exercised and exchanged into 514600equity shares of Rs. 2 each of the Corporation. The equity shares so issued rank paripassu with the existing equity shares of the Corporation.

Lending Operations

The Corporation is a housing finance company registered with the National Housing Bank(NHB) and is engaged in financing the purchase and construction of residential housesreal estate and certain other purposes in India. All other activities of the Corporationrevolve around the main business.

The Assets Linder Management (AUM) as at March 31 2018 was Rs. 399511 crore ascompared to Rs. 338478 crore in the previous year.

On an AUM basis the growth in the individual loan book was 18% and the non-individualloan book was 17%. The growth in the total loan book on an AUM basis was 18%.

During the year the Corporation's loan book increased from Rs. 296472 crore to Rs.359442 crore in March 2018 representing a growth of 21%. In addition total loanssecuritised and/or assigned by the Corporation and outstanding as at March 31 2018amounted to Rs. 40069 crore.

Further details of lending operations are provided in the Management Discussion andAnalysis Report.

Market Borrowings

The Corporation is in compliance with the provisions of the Housing Finance CompaniesIssuance of Non- Convertible Debentures on private placement basis (NHB) Directions 2014and has been regular in making payment of principal and interest on the non-convertibledebentures. Details of market borrowings are provided in the Management Discussion andAnalysis Report.

Deposits

Deposits outstanding as at March 31 2018 amounted to Rs. 92242 crore. There has beenno default in repayment of deposits or payment of interest during the year. All thedeposits accepted by the Corporation are in compliance with the requirements of Chapter Vof the Companies Act 2013.

As of March 31 2018 public deposits amounting to Rs. 696 crore had not been claimedby 43895 depositors. Since then 9467 depositors have claimed or renewed deposits of Rs.231 crore. Depositors were intimated regarding the maturity of deposits with a request toeither renew or claim their deposits. Where the deposit remains unclaimed reminderletters are sent to depositors periodically and follow up action is initiated through theconcerned agent or branch.

Deposits remaining unclaimed for a period of seven years from the date they became duefor payment have to be transferred to the Investor Education and Protection Fund (IEPF)established by the central government. The concerned depositor can claim the deposit fromthe IEPF. During the year an amount of Rs. 1.45 crore was transferred to the IEPF.

Capital Adequacy Ratio

The Corporation's capital adequacy ratio (CAR) stood at 19.2% of which Tier I capitalwas 17.3% and Tier II capital was 1.9%. Deferred tax liability on Special Reserve and theinvestment in HDFC Bank has been considered as a deduction in the computation of Tier Icapital. Further the proposed final dividend and tax thereon for the year ended March 312018 has been considered in determining the net owned funds in the computation of thecapital adequacy ratio.

As per regulatory norms the minimum requirement for the capital adequacy ratio andTier I capital is 12% and 6% respectively.

Regulatory Guidelines

The Corporation has complied with the Housing Finance Companies (NHB) Directions 2010and other directions prescribed by NHB regarding deposit acceptance accounting standardsprudential norms for asset classification income recognition provisioning capitaladequacy credit rating corporate governance concentration of investments and capitalmarket exposure norms.

Corporate Social Responsibility (CSR)

The Corporation contributed directly and through H T Parekh Foundation to identifiedsocial sectors in urban and rural areas in sectors such as education water &sanitation skilling & livelihoods healthcare community development differentlyabled persons child welfare and environmental sustainability.

Further details on the prescribed CSR spend under Section 135 of the Companies Act2013 and the amount committed and disbursed during the year under review are provided inthe Annual Report on CSR activities annexed to this report.

Subsidiary Companies

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

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

During the year the NCLT and the Insurance Regulatory and Development Authority ofIndia (IRDAI) granted their approval for

the merger of HDFC ERGO General Insurance Company Limited with HDFC General InsuranceLimited (formerly L&T General Insurance Company Limited). Subsequent to the mergerHDFC General Insurance Limited was renamed HDFC ERGO General Insurance Company Limited.

In November 2017 the Corporation offered for sale 9.52% of the paid- up and issuedequity share capital of HDFC Standard Life Insurance Company Limited (HDFC Life) asubsidiary of the Corporation in the Initial Public Offer (IPO) of HDFC Life. HDFC Life'sequity shares were listed on BSE and NSE on November 17 2017. As at March 31 2018 theCorporation's shareholding in HDFC Life stood at 51.6%.

In January 2018 the Corporation sold its entire stake in its wholly- owned subsidiarycompanies HDFC Developers Limited and HDFC Realty Limited to Quikr India PrivateLimited. Consequently HDFC Realty Limited and HDFC Developers Limited ceased to besubsidiaries of the Corporation with effect from January 24 2018.

During the year the Corporation has approved offering of up to 4.08% of the paid-upand issued equity share capital of HDFC Asset Management Company Limited (HDFC AMC) asubsidiary of the Corporation for sale in the IPO of HDFC AMC. The IPO is expected to bein the first half of FY 2018-19 subject to regulatory approvals and market conditions.

The Board of Directors at its earlier meeting had approved the scheme of amalgamationof five of its wholly- owned subsidiaries Windermere Properties Private Limited HaddockProperties Private Limited Grandeur Properties Private Limited Winchester PropertiesPrivate Limited and Pentagram Properties Private Limited with itself. The applications forthe proposed merger were filed with the NCLT Mumbai bench and in March 2018 the schemeof amalgamation was approved by the NCLT. The order was filed with the Registrar ofCompanies Mumbai on April 27 2018. Accordingly the Corporation has considered theoperations of the said subsidiaries from April 1 2016 as its own operations andaccounted for the same in its books of accounts after making necessary adjustments.

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

The Corporation has obtained a certificate from its statutory auditors that it is incompliance with the provisions of Foreign Exchange Management Act 1999 with respect todownstream investments made in/by its subsidiaries and in other companies during the yearunder review.

A review of the key subsidiary and associate companies of the Corporation form part ofthe Management Discussion and Analysis Report which forms part of this report.

Particulars of Employees

HDFC had 2575 employees as of March 31 2018. During the year 8 employees employedthroughout the year were in receipt of remuneration of Rs. 1.02 crore or more per annumand 1 employee employed for the part of the year was in receipt of remuneration of Rs. 8.5lac or more per month.

In accordance with the provisions of Rule 5(2) of the Companies

(Appointment and Remuneration of Managerial Personnel) Rules 2014 the names andparticulars of the top ten employees in terms of remuneration drawn and of the aforesaidemployees are set out in the annex to the Directors' Report. In terms of the provisions ofSection 136(1) of the Companies Act 2013 read with the rule the Directors' Report isbeing sent to all shareholders of the Corporation excludingthe annex. Any shareholderinterested in obtaining a copy of the annex may write to the Corporation.

Further disclosures on managerial remuneration are annexed to this report.

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

The Corporation has a policy on prevention prohibition and redressal of sexualharassment at the workplace. Members of the Internal Complaints Committee constituted bythe Corporation are responsible for reporting and conducting inquiries pertaining to suchcomplaints. The Corporation on a regular basis sensitises all employees on prevention ofsexual harassment at the workplace through workshops group meetings online trainingmodules and awareness programmes. During the year one complaint was received by thecommittee. The case has been reviewed and appropriately closed and thus there were nopending complaints with the committee as at March 31 2018.

Particulars of Loans Guarantees or Investments

Since the Corporation is a housing finance company the disclosures regardingparticulars of the loans given guarantees given and security provided is exempt under theprovisions of Section 186(11) of the Companies Act 2013.

As regards investments made by the Corporation the details of the same are providedunder notes 16 and 18 in the financial statements of the Corporation for the year endedMarch 31 2018.

Particulars of Contracts or Arrangements with Related Parties

The particulars of contracts or arrangements with related parties as prescribed in FormNo. AOC-2 of the Companies (Accounts) Rules 2014 is annexed to this report. Details ofrelated party transactions are given in the notes to the financial statements.

The Related Party Transactions policy of the Corporation ensures proper approval andreporting of the concerned transactions between the Corporation and related parties. Thepolicy on Related Party Transactions is set out elsewhere in the Annual Report and is alsoplaced on the Corporation's website.

Particulars Regarding Conservation of Energy Technology Absorption and ForeignExchange Earnings and Outgo

The particulars regarding foreign exchange earnings and expenditure appear under notes24.5 and 27.4 in the financial statements.

The Corporation is in the business of housing finance and hence its operations are notenergy intensive. The Corporation is cognisant of the importance of imbibing measurestowards optimum energy utilisation and conservation.

Employees Stock Option Scheme (ESOS)

Presently stock options granted to the employees operate under the following schemes -ES0S-07 ES0S-08 ESOS-11 ESOS-14 and ESOS-17. There has been no material variation inthe terms of the options granted under any of these schemes and all the schemes are incompliance with the SEBI (Share Based Employee Benefits) Regulations 2014. Thedisclosures as required under the regulations have been placed on the website of theCorporation.

During the year the Corporation approved the grant of 42845977 stock optionsrepresenting 42845977 equity shares of Rs. 2 each to eligible employees and directorsof the Corporation under ESOS-17. The exercise price was determined in accordance with thepricing formula approved by the members i.e. at the latest available closing price of theequity share on the NSE prior to the date of the meetings of the Nomination &Remuneration Committee at which the options were granted.

The options are exercisable over a period of five years from the date of theirrespective vesting. None of the options granted have vested during the year andconsequently no options have been exercised under ESOS-17. Further details are disclosedon the website of the Corporation.

Unclaimed Dividend and Shares

As at March 31 2018 dividend amounting to Rs. 25.15 crore had not been claimed byshareholders of the Corporation. The Corporation takes various initiatives to reduce thequantum of unclaimed dividend and has been periodically intimating the concernedshareholders requesting them to encash their dividend before it becomes due for transferto the Investor Education and Protection Fund (IEPF).

Unclaimed dividend amounting to Rs. 1.31 crore for FY 2009-10 was transferred to theIEPF on September 11 2017. Further in compliance with the Investor Education andProtection Fund Authority (Accounting Audit Transfer and Refund) Rules 2016 as amendedthe Corporation transferred 1415471 equity shares of Rs. 2 each (corresponding to thedividend for the FY 2009-10 remaining unclaimed for a continuous period of 7 years) infavour of the IEPF on November 28 2017. However the concerned shareholders may claim theunclaimed dividend and shares from IEPF the procedure for which is detailed in theShareholders' Information section.

The unclaimed dividend in respect of FY 2010-11 must be claimed by shareholders on orbefore August 8 2018 failing which the Corporation will be transferring the unclaimeddividend and the corresponding shares to the IEPF within a period of 30 days from the saiddate.

Directors

Dr. S. A. Dave independent director of the Corporation resigned with effect fromAugust 10 2017. The board placed on record its appreciation for the invaluable guidanceand service rendered by him during his association with the Corporation.

With effect from April 30 2018 non-executive directors of the Corporation Mr. D. N.Ghosh and Mr. D. M. Sukthankar resigned from the board. The board placed on record itssincere appreciation for their invaluable contribution to the board over the years.

The board appointed Mr. U. K. Sinha and Mr. Jalaj Dani as independent directors of theCorporation for a term of 5 years with effect from April 30 2018 subject to the approvalof members at the ensuing Annual General Meeting (AGM).

At its meeting on April 30 2018 the board re-appointed Mr. Keki M. Mistry as theManaging Director (designated as Vice-Chairman & Chief Executive Officer) of theCorporation for a period of three years with effect from November 14 2018 subject tothe approval of members at the ensuing AGM.

In accordance with the provisions of the Companies Act 2013 and the Articles ofAssociation of the Corporation Mr. Deepak S. Parekh is liable to retire by rotation atthe ensuing AGM. He is eligible for reappointment.

The necessary resolutions for the appointment/re-appointment of the above mentioneddirectors and their brief profiles have been included in the notice convening the ensuingAGM.

All the directors of the Corporation have confirmed that they satisfy the fit andproper criteria as prescribed under the applicable regulations and that they are notdisqualified from being appointed as directors in terms of Section 164(2) of the CompaniesAct 2013.

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

Auditors

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

The Auditors' Report annexed to the financial statements for the year under review doesnot contain any qualifications.

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 hasappointed Messrs Vi nod Kothari & Company practicing company secretaries to undertakethe secretarial audit of the Corporation. The Secretarial Audit Report is annexed to thisreport and does not contain any qualifications.

Significant and Material Orders Passed by Regulators

During the year no significant or material orders were passed by any regulatorsagainst the Corporation other than that disclosed separately in the notes to the financialstatements and in the Report of the Directors on Corporate Governance.

Directors' Responsibility Statement

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

a) In the preparation of annual accounts the applicable accounting standards have beenfollowed;

b) Accounting policies selected have been applied consistently. Reasonable and prudentjudgements and estimates have been made so as to give a true and fair view of the state ofaffairs of the Corporation as at March 31 2018 and of the profit of the Corporation forthe year ended on that date;

c) Proper and sufficient care has been taken for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act 2013 for safeguarding theassets of the Corporation and for preventing and detecting frauds and otherirregularities;

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

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

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

Internal Financial Control

The Corporation has put in place adequate policies and procedures to ensure that thesystem of internal financial control is commensurate with the size and nature of theCorporation's business. These systems provide a reasonable assurance in respect ofproviding financial and operational information complying with applicable statutessafeguarding of assets of the Corporation prevention and detection of frauds accuracyand completeness of accounting records and ensuring compliance with corporate policies.

Extract of Annual Return - Form No. MGT-9

The details forming part of the extract of the Annual Return in Form No. MGT-9 isannexed to this report.

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

There are no material changes and commitments affecting the financial position of theCorporation which have occurred after March 31 2018 till the date of this report.

Acknowledgements

The directors place on record their gratitude for the support of various regulatoryauthorities including National Housing Bank Reserve Bank of India Securities andExchange Board of India Insurance Regulatory and Development Authority of India PensionFund Regulatory and Development Authority Ministry of Housing and Urban Affairs Ministryof Corporate Affairs Registrar of Companies Financial Intelligence Unit (India) thestock exchanges and the depositories.

The Corporation acknowledges the role of all its key stakeholders - shareholdersborrowers channel partners depositors deposit agents and lenders for their continuedsupport to the Corporation.

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

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKH
April 30 2018 Chairman