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HDFC Bank Ltd.

BSE: 500180 Sector: Financials
BSE 00:00 | 18 Jan 2131.20 2.15






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OPEN 2126.00
VOLUME 50299
52-Week high 2219.05
52-Week low 1830.00
P/E 30.42
Mkt Cap.(Rs cr) 579,580
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 2126.00
CLOSE 2129.05
VOLUME 50299
52-Week high 2219.05
52-Week low 1830.00
P/E 30.42
Mkt Cap.(Rs cr) 579,580
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

HDFC Bank Ltd. (HDFCBANK) - Director Report

Company director report

To the Members


Your Directors take great pleasure in presenting the 23rd Annual Report onthe business and operations of your Bank together with the audited accounts for the yearended March 31 2017.

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

The performance is a reflection of the following:

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

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

3) Establishing itself as India's leading rural focused bank with unmatched reachproduct range and innovation

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

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

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

Summary of Financial Performance

For the year ended / As on

March 31 2017 March 31 2016
Deposits and Other Borrowings 717668.5 631393.2
Advances 554568.2 464594
Total Income 81602.5 70973.2
Profit Before Depreciation and Tax 22972.2 19343.8
Profit After Tax 14549.6 12296.2
Profit Brought Forward 23527.7 18627.8
Total Profit Available for Appropriation 38077.3 30924
Transfer to Statutory Reserve 3637.4 3074.1
Transfer to General Reserve 1455 1229.6
Transfer to Capital Reserve 313.4 222.2
Transfer to / (from) Investment Reserve 4.3 (8.5)
Proposed Dividend* - 2401.8
Tax (including cess) on Dividend* - 488.9
Dividend (including tax / cess thereon) pertaining to previous year paid during the year net of dividend tax credits (1.7) (11.7)
Balance carried over to Balance Sheet 32668.9 23527.6

*The Board of Directors at the meeting held on April 21 2017 has proposed a dividendof Rs.11.00 per equity share aggregating Rs.3392.7 crore inclusive of tax on dividend.The proposal is subject to the approval of shareholders at the Annual General Meeting. Interms of revised Accounting Standard (AS) 4-Contingencies and Events Occurring after theBalance Sheet date as notified by the Ministry of Corporate Affairs through amendments toCompanies (Accounting Standards) Amendment Rules 2016 the Bank has not appropriatedproposed dividend from Statement of Profit and Loss for the year ended March 31 2017.However the effect of the proposed dividend has been reckoned in determining capitalfunds in the computation of the Capital Adequacy Ratio as on March 31 2017.

The Bank's Total Income rose to Rs.81602.5 crore for the year under review fromRs.70973.2 crore in the previous year. Its Net Profit increased by 18.3 per cent toRs.14549.7 crore from Rs.12296.2 crore. Appropriations from Net Profit have beeneffected as per the table given above.


Your Bank has a dividend policy that inter alia balances the objectives ofappropriately rewarding shareholders and retaining capital in order to maintain a healthyCapital Adequacy Ratio. It has had a consistent track record of steady increase individend distribution over its history with the Dividend Pay-Out Ratio ranging between 20to 25 per cent. The dividend policy of your Bank is available on the Bank's website at thefollowing link: with this policy and in recognition of the overall performance during the yearunder review your Directors are pleased to recommend a dividend of Rs.11 per equity shareof Rs.2 as against Rs.9.50 in the previous year. As you are aware this dividend shall besubject to tax to be paid by the Bank.

Ratings Instrument Rating Rating Agency Comments
Fixed Deposit Programme CARE AAA (FD) CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
IND Taaa India Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
Certificate of Deposits Programme CARE A1+ CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.
IND A1+ India Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
Long Term Unsecured Subordinated (Lower Tier 2) Bonds CARE AAA CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
IND AAA India Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
Tier I Perpetual Bonds CARE AAA CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
CRISIL AAA CRISIL Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
Upper Tier 2 Bonds CARE AAA CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
CRISIL AAA CRISIL Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
Infrastructure Bonds CARE AAA CARE Ratings Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
CRISIL AAA CRISIL Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations.
Such instruments carry lowest credit risk.
Tier I Bonds (Under Basel III) CARE AA+ CARE Ratings Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
CRISIL AA+ CRISIL Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
IND AA+ India Ratings Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Issuance of Equity Shares

During the year under review 34359200 equity shares were allotted to the employeesof your Bank in respect of the equity stock options exercised under the Employee StockOption Schemes. As on March 31 2017 the issued paid up and authorised capital of yourBank stood at Rs.5125091434 comprising 2562545717 equity shares of Rs.2 each.

Employee Stock Options

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

Capital Adequacy Ratio

Your Bank's total Capital Adequacy Ratio (CAR) calculated in line with Basel IIIcapital regulations stood at 14.6 per cent as on March 31 2017 well above the regulatoryminimum of 10.25 per cent including Capital Conservation Buffer of 1.25 per cent. Of thisTier I CAR was 12.8 per cent. The effect of the proposed dividend has been taken intoaccount in computing these ratios.

Subsidiary Companies

Your Bank has two subsidiaries HDB Financial Services Limited (HDBFSL) and HDFCSecurities Limited (HSL). The detailed financial performance of the companies is givenbelow.

HDB Financial Services Limited

HDBFSL is a leading Non-Banking Financial Company that caters to segments not coveredby the Bank through a network of 1151 branches in 22 states and 3 Union Territories.Using both physical and digital channels the company offers loan and asset financeproducts to individuals emerging businesses and micro enterprises across manufacturingtrading and services sectors. Additionally the company provides Business ProcessOutsourcing (BPO) solutions to HDFC Bank.

In the year under review HDBFSL's Net Interest Income grew by 41 per cent toRs.2037.2 crore from Rs.1444.5 crore in the previous year. Net Profit rose 28 per centto Rs.684.2 crore from Rs.534.4 crore.HDBFSL is rated AAA for its long-term debt and A1+for its short-term debt facilities by CARE & CRISIL respectively indicating thehighest degree of safety regarding timely servicing of financial obligations.

Under the scheme of amalgamation approved by the Bombay and Gujarat High Courts twoassociate companies Atlas Documentary Facilitators Company Private Limited (ADFC) and HBLGlobal Private Limited (HBL) have been amalgamated with HDBFSL with effect from December1 2016. The appointed date of the merger was April 1 2014. The scheme has accordinglybeen given effect to in these financial statements. HBL provided marketing and promotionservices while ADFC was in the BPO business.

In the year under review HDBFSL raised Rs.1099.4 crore through a rights issue. Thisresulted in a higher capital base and Capital Adequacy Ratio (CAR) of 20.8 per cent wellbeyond the mandatory requirement of 15 per cent. The proceeds of this issue will beutilised for capital expenditure working capital and business growth. As on March 312017 your Bank held 96.2 per cent stake in the company.

HDFC Securities Limited

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

In the year under review the capital markets surged on the back of a good monsoonhigher FII inflows improved corporate performance and the passing of the Goods andServices Tax Bill. This is reflected in the company's performance.

HSL's Total Income grew by 37.7 per cent to Rs.553.2 crore from Rs.401.6 crore in theprevious year. Net Profit grew by 61.9 per cent to Rs.215.9 crore from Rs.133.3 crore.

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

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

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

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


Macroeconomic and Industry Developments

India's economy recorded a growth rate of 7.1 per cent in terms of real Gross DomesticProduct (GDP) in 2016-17. While agriculture growth rose to 4.4 per cent in 2016-17 from0.8 per cent in 2015-16 services sector growth declined to 7.9 per cent from 9.8 per centduring the same period. Inflation moderated with the average level of Consumer PriceInflation declining to an estimated level of 4.6 per cent in 2016-17 from 4.9 per cent in2015-16. Foreign Direct Investment inflows (FDI) increased by 12 per cent in theApril–December period of 2016 over the corresponding period of the previous year.

A range of supply side measures including prudent food stock management appropriatemonetary policy action and subdued global commodity prices led to the decline ininflation. Meanwhile a close to normal monsoon liberalisation of FDI rules and highergovernment capital expenditure supported domestic economic growth in 2016-17. While thecash-squeeze in the third quarter of the year under review had an impact on privateconsumption there has been a speedy recovery in consumer demand since then.

Going forward weakness in private investment cycle and asset quality strain in thebanking sector could prevent a full-fledged recovery though some improvement in the growthrate is quite likely. Risks on the external front continue to loom on account of policyuncertainty in the US and a slew of impending elections in Europe.

The growth inflation mix should continue to remain broadly unchanged in 2017-18. Goingby the Union Budget the focus of fiscal policy in the coming year will be the revival ofrural economy and sustained increase in capital expenditure. Besides higher outlay onvarious social sector programmes and implementation of 7th Central PayCommission Awards should boost consumer spending. Going forward headline GDP growth islikely to increase to 7.5 per cent in 2017-18 from 7.1 per cent in 2016-17.

Mission Business Strategy and Approach to Business

Your Bank's mission is to be a ‘World Class Indian Bank' benchmarking itselfagainst international standards and best practices in terms of product offeringstechnology service levels risk management audit and compliance. The objective is tocontinue building sound customer franchises across distinct businesses so as to be apreferred provider of banking services for its target retail and wholesale customersegments and to achieve a healthy growth in profitability consistent with the Bank's riskappetite.

Your Bank's business philosophy has been based on 5 core values: Customer FocusOperational Excellence Product Leadership People and Sustainability. Based on thesecornerstones it is your Bank's aim to build an Indian Bank that meets the financial needsof and provides services of a high quality to its customers across the country. Your Bankis committed to do this while ensuring the highest levels of ethical standardsprofessional integrity corporate governance and regulatory compliance. This isarticulated through a well-documented Code of Conduct that every employee includingsenior management has to affirm annually that he/she will abide by.

Consistent with the mission and approach your Bank's business strategy emphasises thefollowing:

• Increase market share in India's expanding banking and financial servicesindustry

• Increase geographical reach

• Cross-sell broad financial product portfolio across customer base

• Continue investments in technology to support digital strategy

• Maintain strong asset quality through disciplined credit risk management

• Maintain a low cost of funds

Financial Performance

The financial performance of your Bank during the year ended March 31 2017 remainedhealthy with Total Net Revenues (Net Interest Income plus Other Income) increasing by 18.5per cent to Rs.45435.7 crore from Rs.38343.2 crore in the previous year. Revenue growthwas driven by an increase in both Net Interest Income and Other Income. Net InterestIncome grew by 20.1 per cent due to acceleration in loan growth coupled with a core NetInterest Margin (NIM) of 4.3 per cent in the year ended March 31 2017.

Other Income grew 14.4 per cent to Rs.12296.5 crore. The largest component was feesand commissions which increased by 13.6 per cent to Rs.8812 crore. Foreign exchange andderivatives revenue was Rs.1263.4 crore gain on revaluation and sale of investments wasRs.1139.4 crore and recoveries from written-off accounts was Rs.864.3 crore in the yearunder review.

Operating (Non-Interest) Expenses increased to Rs.19703.3 crore from Rs.16979.7crore. During the year under review your Bank opened 195 new branches and 260 ATMs. Thisalong with strong growth in retail asset and card products resulted in higherinfrastructure and staffing expenses. Staff expenses also increased on account of annualwage revisions. Despite the addition to the infrastructure your Bank's Cost to IncomeRatio improved to 43.4 per cent.

Total Provisions & Contingencies was Rs.3593.3 crore as compared to Rs.2725.6crore. Your Bank's provisioning policies remain more stringent than regulatoryrequirements. The Coverage Ratio based on specific provisions alone excluding write-offsstood at around 69 per cent and including general and floating provisions around 130 percent as on March 31 2017. Your Bank made General Provisions of Rs.392.2 crore during theyear.

In the year under review your Bank's Profit Before Tax grew by 18.8 per cent toRs.22139.1 crore. After providing for Income Tax of Rs.7589.4 crore the Net Profitincreased by 18.3 per cent to Rs.14549.7 crore from Rs.12296.2 crore. Return on AverageNet Worth was 18 per cent while the Basic Earnings Per Share was Rs.57.2 up from Rs.48.8.

CUSTOMER As on March 31 2017 your Bank's Total Balance Sheet stood at Rs.863840crore an increase of 16.6 per cent over Rs.740796 crore on March 31 2016. TotalDeposits increased by 17.8 per cent toDIGITALI Rs.643640 crore from Rs.546424 crore.This was after considering maturities of about US $ 3 billion of Foreign CurrencyNon-Resident (FCNR) deposits raised (and swapped

RISK into rupees with RBI at a concessional rate) during the year ended March 31 2014.Current Account and Savings Account (CASA) Deposit growth witnessed a spurt during theyear under review largely attributable to the demonetisation exercise.

Savings Account Deposits grew by 30.9 per cent to Rs.193579 crore while CurrentAccount Deposits grew by 30.7 per cent to Rs.115574 crore. Time Deposits stood atRs.334487 crore representing an increase of 7.9 per cent. CASA Deposits accounted for 48per cent of the Total Deposits as against 43 per cent earlier. Advances stood atRs.554568 crore an increase of 19.4 per cent. This was after considering repaymentsduring the year of about US $ 2 billion of overseas loans linked to FCNR deposits. TheBank's domestic loan portfolio of Rs.538642 crore grew by 23.7 per cent over March 312016. The Bank had a share of 5.9 per cent in Total Domestic Deposits and 6.8 per cent inTotal Domestic Advances. Its Credit Deposit (CD) Ratio stood at 86 per cent on March 312017.

Business Segments Update

Retail Banking

Your Bank follows a multi-channel strategy to reach out to its customers bringing tothem choice convenience and a superior experience. Innovation has been the springboard ofgrowth in this segment. So has a strong focus on analytics and Customer RelationshipManagement (CRM) which has helped the Bank know the customer better and offer tailor-madesolutions. This leads to deeper customer engagement in a cost effective manner.

The growth in your Bank's retail banking business was robust during the year underreview. Total Retail Deposits grew by 17.7 per cent to Rs.506843 crore on the back of ahigher than usual CASA which thanks to demonetisation grew at 32.9 per cent.

Auto Loans Personal Loans and Credit Cards accounted for a bulk of the retail businessrevenues. Your Bank is a leader in the Auto Loans segment with a strong presence incommercial vehicle and two wheeler financing.

The Bank's Retail Advances grew by 18.9 per cent to Rs.295161 crore.

During the year under review your Bank added 195 branches taking its physicaldistribution network to 4715 branches in 2657 cities/towns. Number of ATMs increased to12260 from 12000 during the same period. The Bank grew its customer base to 4.05 crorefrom 3.77 crore with a continued focus on semi-urban and rural markets that accounted formore than 52 per cent of its branches.

In Credit Cards the Bank's focus on existing customers continued who accounted forabout 75 per cent of the new cards issued with the number of Point-of-Sale (PoS) terminalscrossing 4.25 lakh. What is more the transactions on these witnessed a sharp spurt in thethird quarter due to demonetisation.

In addition to this the Bank operates in the Home Loan business in conjunction withHDFC Limited. As per this arrangement the former sells loans provided by the latterthrough its branches while the latter approves and disburses it. The Bank receivessourcing fee for these loans and has the option to purchase up to 70 per cent of the fullydisbursed loans either through the issue of mortgage backed Pass Through Certificates(PTCs) or by a direct assignment of loans. The balance is retained by HDFC Limited. YourBank originated on an average Rs.1500 crore of Home Loans every month in the year underreview. It also purchased loans worth Rs.13146 crore under the ‘Loan Assignment'route during the year ended March 31 2017.

Your Bank also distributes Life Insurance General Insurance and Mutual Fund productsthrough its tie-ups with insurance companies and mutual fund houses. Third PartyDistribution Income contributed approximately 16 per cent of total fee income for the yearended March 31 2017 compared to 14 per cent in the previous year.

Wholesale Banking

Like in retail the Wholesale Banking business logged a strong growth ending the yearunder review with a loan book of about Rs.263000 crore constituting 47 per cent of theBank's total book. It grew 20.1 per cent in the year under review catering toinstitutional customers like large and emerging corporates and SMEs. Government businessis another major contributor. The breadth of offering includes Working Capital and TermLoans as well as Trade Cash Management Foreign Exchange and Investment Banking services.

Growth came primarily on the back of impeccable execution of your Bank's time-testedstrategy of offering customers a wide range of products and services customisation andcross selling. Dedicated Relationship Managers helped in the customisation and crossselling process. Technology further aided to improve the customer experience. All this ledto higher share of customer wallet.

Corporate Banking which focuses on large and well rated companies was the biggestcontributor with its asset size growing by over 20 per cent to cross Rs.125000 crore inthe year under review. This growth was achieved in an otherwise subdued creditenvironment through securing a higher share of the customer wallet addition of newclients introduction of differentiated product offerings in the market place and gainingmarket share from competition. It pioneered in creating products and services to match thechanging market dynamics and customer behaviour.

Emerging Corporates Group which focuses on the mid-market segment recorded a 34per cent growth in asset size to cross Rs.65000 crore on March 31 2017. The strength ofthis business lies in its diversified portfolio in terms of both industry and geography.Its success was due to its ability to acquire a higher share of wallet from existingclients as well as securing new ones on the strength of a strong product offering plus asolution based approach.

The Investment Banking business cemented its prominent position in Debt CapitalMarkets. A testimony to this is the Bloomberg rankings of INR Bond book runners where yourBank was placed 2nd for two consecutive years.

In Government business your Bank's focus on tax collections continued to gatherpace. In the year under review the direct tax collected by your Bank was about Rs.2.16lakh crore and indirect tax Rs.1.19 lakh crore. Apart from the several state Governmentsfor which your Bank has been collecting taxes/duties the Bank has also been authorised tocollect GST. Your Bank continues to enjoy its eminent position in both Cash ManagementServices (CMS) and Cash Settlement Services for major stock and commodityexchanges in the country.

In line with the Bank's drive towards digitisation it has further ensured a largerconversion of cash payments into electronic ones. The ‘Trade-on-Net' offering whichprovides customers access to a host of services like Remittances Letters of Credit andGuarantees gained even greater acceptance.

International Operations

Your Bank currently has branches at three locations outside India. These are atBahrain Hong Kong and Dubai International Finance Centre (DIFC) in Dubai. The DIFC branchoffers advisory services to High Net Worth Individuals and Corporates. Your Bank also hasRepresentative Offices in Abu Dhabi Dubai and Nairobi which are engaged in promotionaland marketing activities of the Bank's brand name among the Non-Resident Indians. As onMarch 31 2017 the combined balance sheet size of overseas branches was around US $ 4billion. Advances at these branches constituted close to 4 per cent of the Bank's grossadvances as on March 31 2017. The total income of the overseas branches constituted over1.2 per cent of the Bank's total income for the year.

Your Bank had mobilised US $ 3.4 billion in special FCNR (B) deposits from NRI clientsunder RBI swap window in 2013. As a major portion of these deposits were for a 3-yeartenor they came up for redemption during September-November 2016. US $ 3.02 billion ofthese flowed out and US $ 355.67 million was outstanding for the year ended March 312017.


The Treasury Group is responsible for compliance with reserve requirements andmanagement of liquidity and interest rate risk on the Bank's balance sheet. On the foreignexchange and derivatives front revenues accrue from spreads on customer transactionsbased on trade flows and their demonstrated hedging needs. Your Bank recorded revenues ofRs.1263.4 crore from foreign exchange and derivative transactions in the year underreview. These revenues were distributed across large and emerging corporates businessbanking and retail customer segments for plain vanilla foreign exchange products andacross primarily large and emerging corporate segments for derivatives. The Bank offersIndian Rupee and foreign exchange derivative products to its customers who use them tohedge their market risks.

Your Bank enters into foreign exchange and derivative deals with counterparties afterit has set up appropriate counterparty credit limits based on its evaluation of theability of the counterparty to meet its obligations in the event of crystallisation of theexposure. Appropriate credit covenants may be stipulated where required as trigger eventsto call for collaterals or terminate a transaction and contain the risk. Where the Bankenters into foreign currency derivative contracts not involving the Indian Rupee with itscustomers it lays them off in the inter-Bank market on a matched basis. For such foreigncurrency derivatives the Bank primarily carries the counterparty credit risk (where thecustomer has crystallised payables or mark-to-market losses). The Bank also deals inderivatives on its own account including for the purpose of its own balance sheet riskmanagement.

Given the regulatory requirement of holding government securities to meet the StatutoryLiquidity Ratio (SLR) requirement your Bank maintains a portfolio of GovernmentSecurities. While a significant portion of these SLR securities are held in the‘Held-to-Maturity' (HTM) category some of these are held in the ‘Available forSale' (AFS) category. Your Bank is also a Primary Dealer for Government Securities. As apart of this business as well as otherwise the Bank holds fixed income securities in the‘Held for Trading' (HFT) category.

Implementation of Indian Accounting Standards (IND-AS)

The Ministry of Corporate Affairs in its press release dated January 18 2016 issueda roadmap for implementation of Indian Accounting Standards (IND-AS) for scheduledcommercial banks insurers/insurance companies and non-banking financial companies. Thisroadmap requires these institutions to prepare IND-AS based financial statements for theaccounting periods beginning from April 1 2018 onwards with comparatives for the periodsbeginning April 1 2017 and thereafter. The Reserve Bank of India (RBI) vide its circulardated February 11 2016 requires all scheduled commercial banks to comply with the IndianAccounting Standards (IND-AS) for financial statements for the periods stated above. RBIdoes not permit banks to adopt IND-AS earlier than the timelines stated above. The saidguidelines also state that RBI shall issue necessary instructions/ guidance/clarificationson the relevant aspects for implementation of IND-AS as and when required.

Your Bank has formed a steering committee comprising members from cross-functionalareas for the purpose of implementation oversight. Under the guidance of the steeringcommittee the Bank has formed working groups including external consultants dedicatedto specific functional areas. The objective of these working groups is to undertake areview of the diagnostic analysis of the differences between the current accountingframework and IND-AS review the accounting policy options provided under IND-AS 101-FirstTime Adoption determine the methodologies for each accounting treatment finalise processand system changes review and update policies and incorporate in business planning anyspecific action points over the transition period. In addition the Audit Committee of theBoard of Directors oversees the progress of the IND-AS implementation process.

The Bank has undertaken a diagnostic analysis of the differences between the currentaccounting framework and IND-AS including the disclosure requirements.The Bank iscurrently in the process of finalising its accounting policies under IND-AS. The Bank hasevaluated the systems requiring significant changes and identified additional system andprocess requirements for implementation of IND-AS. The Bank is engaging with vendors fortechnology solutions for implementation of IND-AS. The Bank undertakes training programsfor its personnel in business and support functions.

The implementation of IND-AS is expected to result in significant changes to the waythe Bank prepares and presents its financial statements. The areas that are expected tohave significant accounting impact on the application of IND-AS are summarised below: a)Financial assets (which include advances and investments) shall be classified underamortised cost fair value through other comprehensive income (a component of Reserves andSurplus) or fair value through profit/loss categories on the basis of the nature of thecash flows and the intention of holding the financial assets.

b) Interest will be recognised in the income statement using the effective interestmethod whereby the coupon fees net of transaction costs and all other premiums ordiscounts will be amortised over the life of the financial instrument.

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

d) The impairment requirements of IND-AS 109 Financial Instruments are based on anExpected Credit Loss (ECL) model that replaces the incurred loss model under the extantframework. The Bank will be generally required to recognise either a 12-Month or LifetimeECL depending on whether there has been a significant increase in credit risk sinceinitial recognition. IND-AS 109 will change the Bank's current methodology for calculatingthe provision for standard assets and non-performing assets (NPAs). The Bank will berequired to apply a three-stage approach to measure ECL on financial instruments accountedfor at amortised cost or fair value through other comprehensive income. Financial assetswill migrate through the following three stages based on the changes in credit qualitysince initial recognition:

Stage 1: 12 Months ECL

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

Stage 2: Lifetime ECL-Not Credit Impaired

For credit exposures where there has been a significant increase in credit risk sinceinitial recognition but are not credit-impaired a lifetime ECL will need to berecognised.

Stage 3: Lifetime ECL- Credit Impaired

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

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

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

Information Technology

A pioneer in digital banking among private banks in India your Bank has a followingfirsts to its credit:

• Centralized Core Banking System

• Enterprise data warehouse

• Online real time centralised ATM switch

• Debit cards

• Analytical CRM system for direct marketing

• Solution to check retail loan application fraud

• Mobile banking app

• SMS based mobile commerce

The list has only been growing. The recent ones being the ‘10 Second Loan' and‘Digital Loan Against Securities' (Digital LAS). Technology has enabled your Bank toimprove process and system efficiencies scale up and offer customer convenience acrossthe country. To address the infrastructure limitations in deep geographies branches andATMs have been commissioned using both fixed line and mobile broadband telecom networks.Bandwidth acceleration and compression technology has been implemented to improve telecomnetwork speeds in rural/semi urban branches. QuickBanking a mobile app catering to theoff-line Internet has been further enhanced this year to incorporate Unified PaymentInterface (UPI) which rides on the USSD 2.0 platform of National Payments Corporation ofIndia and enables fund transfer to beneficiaries across banks on a 24*7 basis.

Cyber Security

Your Bank has set up an effective governance framework to manage cyber security. Asuitable organisational structure has been put in place to monitor various cyber securitythreats and minimize them. In order to protect critical assets from cyber attacks theCyber Security Operations Center (SoC) operates on a 24*7 basis. In the year under reviewyour Bank further enhanced SoC to manage respond and resolve cyber security incidents inan effective/timely manner.

Further your Bank conducts:

• Regular vulnerability assessments and penetration tests to assess/ remedyvulnerabilities in applications and IT infrastructure

• Anti-phishing services have been subscribed to ensure that the phishing sitesare shutdown in a timely manner and customers prevented from being lured to fraudulentsites

• Risk engine and transaction monitoring systems are implemented to monitorsuspicious transactions on Internet Banking ATM and e-commerce channels

• Humans being the weakest link in cyber security your Bank has been carrying outcontinuous awareness among employees and customers

• The critical websites of the Bank are scanned and monitored continuously forearly detection of any malware

A testimony to the Bank's crisis preparedness is that it has secured PCI DSS 3.0certification and ISO 27001 certification for its critical information assets. Its effortshave been further recognized through awards from IDRBT DSCI-NASSCOM for various cybersecurity initiatives.

Particularly in the year under review your Bank made significant investments instrengthening protection against Distributed Denial of Service (DDoS) attacks and WebApplication Firewall (WAF). Various simulation exercises were carried out to learn fromtechniques like ethical hacking and smoke screen & decoy testing. The Bank alsoparticipated in IDBRT's cyber security drills to identify weak links and strengthendefence. It will continue to invest further in the coming years in the areas of cybersecurity to take it to the next level.

During the year under review it implemented a 3-way disaster recovery solution for itsCore Banking platform. This ensured that Core Banking Systems went without any prolongedoutage. In addition your Bank has a well-rehearsed disaster recovery set-up so as toensure 99.5 per cent up-time of important applications.

Service Quality Initiatives

A regular process of reviewing the service levels and capturing feedback from customersis undertaken for continuous improvement in product processes and services. Themulti-channel strategy of the Bank necessitates real-time monitoring of customerexperience securing feedback and response. This process is critical as the customer cannow access the Bank's services across traditional touchpoints like branches ATMs as wellas the digital ones like the Internet and Mobile. Your Bank has therefore augmented thetraining and skill development mechanism to empower and equip employeesTESTSS to deliverimproved quality of customer service as well as put in place a more stringent grievancemonitoring and redressal mechanism. Mystery shopping activities using decoy customers

ENSURE THAT are also undertaken across branches and retail asset centres tocontinuously evaluate regulatory compliance process adherence and quality of servicedelivery to customers. The findings are workedARER upon using Lean and Six Sigmamethodologies to bring in process improvements. The effectiveness of these measures isreviewed periodically at different levels including the Customer Service Committee of theBoard. In addition to SECURITY__ the aforementionedYOURU measures in compliance withregulatory guidelines your Bank has appointed a senior retired banker as InternalOmbudsman.

As a result of the continued focus on customer service your Bank has received writtenappreciation from many Banking Ombudsmen appointed by Reserve Bank of India acrosslocations such as Andhra Pradesh Chhattisgarh Goa Gujarat Himachal Pradesh KeralaLakshadweep Madhya Pradesh Maharashtra Odisha Puducherry Punjab Sikkim Tamil Naduand West Bengal.

Risk Management and Portfolio Quality

The Bank is exposed to risk by the very nature of its business. These can be classifiedas:

• Credit Risk including Residual Risks

• Credit Concentration Risk

• Market Risk

• Business Risk

• Operational Risk

• Strategic Risk

• Interest Rate Risk in the Banking Book

• Compliance Risk

• Liquidity Risk

• Reputation Risk

• Intraday Risk

• Model Risk

• Technology Risk

• Counterparty Credit Risk

• Outsourcing Risk

• Group Risk (covering HDBFSL and HSL)

These material risks are factored in while determining the capital requirements. Themost important of these are Credit Risk Market Risk Liquidity Risk and Operational Riskwhich are explained below. Identifying measuring monitoring and managing these arecritical to balancing the risk-return trade off and determining the ultimate success ofthe Bank.

Your Bank has a Board approved risk strategy and policy in place. The implementation ofthis well-defined policy is supervised by the Risk Policy and Monitoring Committee of theBoard. The committee periodically reviews risk level and direction portfolio compositionstatus of impaired credits as well as limits for treasury operations.

Credit Risk

The Bank has a comprehensive centralised risk management function independent of theoperations and business units of the Bank. Distinct policies processes and systems are inplace for the Retail and Wholesale Lending businesses. In the Retail Loan business thecredit cycle is managed through appropriate front-end credit operational and collectionprocesses. For each product programmes defining customer segments underwriting standardsand security structure are specified to ensure consistency of credit buying patterns.Given the granularity of individual exposures retail credit risk is monitored largely ona portfolio basis across various products and customer segments. For wholesale creditexposures management of credit risk is done through target market definition appropriatecredit approval processes ongoing post-disbursement monitoring and remedial managementprocedures. Overall portfolio diversification prudential ceilings across variousdimensions (individual/ borrower group industry credit risk rating grades and country)product mix security structures and periodic as well as proactive reviews facilitate riskmitigation and management.

The asset quality of the Indian banking industry continued to be under severe pressuredue to macroeconomic factors as well as sector specific issues. The banking industry on anoverall basis saw a sharp increase in stress and non-performing assets. Your Bank did notwitness any significant deterioration in overall asset quality and continues to maintainthe highest standards of governance in respect of recognition and provisioning ofnon-performing loans.

As on March 31 2017 your Bank's ratio of Gross Non-Performing Assets (NPAs) to grossadvances was 1.05 per cent. Net Non-Performing Assets (Gross Non-Performing Assets lessSpecific Loan Loss provisions) was 0.3 per cent of Net Advances as on March 31 2017.Total restructured assets (including applications under process for restructuring) was0.06 per cent of gross advances as on March 31 2017. As a matter of abundant caution theBank provides more than regulatory requirements for its NPAs while adhering to regulatorynorms for the provision of Standard Assets.

Market Risk

This arises out of the Bank's trading portfolio and is managed through a well-definedBoard approved investment policy which caps exposures to various securities throughstringent trading risk limits/triggers. These include position limits gap limits tenorrestrictions sensitivity limits viz. PV01 Modified Duration of Hold To MaturityPortfolio and Option Greeks Value-at-Risk (VaR) Limit Stop Loss Trigger Level (SLTL) andPotential Loss Trigger Level (PLTL). This is backed up further by a Board approved stresstesting policy and framework which simulates various market risk scenarios in order tomeasure losses and initiate control measures.

Liquidity Risk

The framework for liquidity and interest rate risk management is established in theBank's Asset Liquidity-Management policy which is in line with regulatory requirements.Your Bank has established various Board approved limits like maturity gap limits andlimits on stock ratios for liquidity risk and limits on income impact and market valueimpact for interest rate risk. Your Bank's Asset Liability Committee (ALCO) is responsiblefor adherence to liquidity risk and interest rate risk limits. Additionally your Bank hasa comprehensive Board approved stress testing programme covering liquidity and interestrate risk which is aligned with the regulatory guidelines. The Liquidity Coverage Ratio(LCR) is a global minimum standard for Bank liquidity. The ratio aims to ensure that abank has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can beconverted into cash easily and immediately to meet its liquidity needs for a 30-daycalendar liquidity stress scenario. In June 2014 RBI released Basel III Framework onLiquidity Standards-Liquidity Coverage Ratio (LCR) Liquidity Risk Monitoring Tools andLCR Disclosure Standards. Based on the guidelines LCR became effective on January 12015.

The minimum requirement for the ratio was 80 per cent on January 1 2017. This was toincrease by 10 percentage points every year to touch 100 per cent on January 1 2019. TheBank's average LCR was in excess of this stipulation and was 99.52 per cent on aconsolidated basis for the quarter ended March 31 2017.

In accordance with RBI's guidelines the Bank is currently on the Standardized Approachfor Credit as well as Market Risk and the Basic Indicator Approach for Operational Risk.It is at the same time progressing towards migrating to an advanced approach for theserisks when permitted by the regulator. The Bank has a structured management framework inthe Internal Capital Adequacy Assessment Process (ICAAP) for the identification andevaluation of the significance of all risks that the Bank faces which may have a materialadverse impact on its business and financial position and the adequacy of capital to coverthese risks.

Its Board approved Stress Testing Policy and Framework entails the use of varioustechniques to assess potential vulnerability to extreme but plausible stressed businessconditions. The changes in the levels of various risks and the changes in the on and offbalance sheet positions of the Bank are assessed under such assumed scenarios andsensitivity factors which generally relate to the impact on its profitability and capitaladequacy.

Operational Risk

A Board approved Operational Risk Management Framework has been put in place which isimplemented by a dedicated team within the Risk Management function. A bottom up riskcontrol self-assessment process identifies high risk areas potential gaps and serves asan early warning system so that remedial measures can be initiated in a timely manner.

Internal Controls Audit and Compliance

Your Bank has Internal Audit and Compliance functions which are responsible forindependently evaluating the adequacy of all internal controls and ensuring operating andbusiness units adhere to internal processes and procedures as well as to regulatory andlegal requirements. The audit function also proactively recommends improvements inoperational processes and service quality. To mitigate operational risks the Bank has putin place extensive internal controls including audit trails appropriate segregation offront and back office operations post transaction monitoring processes at the back end toensure independent checks and balances adherence to the laid down policies and proceduresof the Bank and to all applicable regulatory guidelines. The internal audit function alsocarries out management self-assessment of adequacy of the Bank's internal financialcontrols and operating effectiveness of such controls in terms of Sarbanes Oxley (SOX) Actand Companies Act 2013. Your Bank has always adhered to the highest standards ofcompliance and governance and has put in place controls and an appropriate structure toensure this. To ensure independence the internal audit function has a reporting line tothe Chairman of the Audit Committee of the Board and only a dotted line reporting to theManaging Director. The Audit Committee of the Board also reviews the performance of theaudit and compliance functions and reviews the effectiveness of controls and compliancewith regulatory guidelines.

Corporate Social Responsibility (CSR)-Creating Sustainable Communities

‘Creating Sustainable Communities' is the underlying philosophy that drives yourBank's CSR initiatives and it springs from one of its Core Values: Sustainability. Theobjective is to enable families break the vicious circle of poverty and draw them into acycle of growth development and empowerment without disturbing the ecological balance.

Your Bank is committed to identifying and supporting outreach programmes aimed atdeveloping and advancing the community in this manner. The Bank works through partnershipswith Non-Governmental Organisations (NGOs) as well as directly through its variousbusinesses to create social value through its products and services.

Your Bank's Holistic Rural Development Programme (HRDP) is its flagship CSR initiative.This programme aims to improve the economic and social conditions of the villages where itoperates. The focus areas of HRDP are Promoting Education; Skills Training and LivelihoodEnhancement; Natural Resources Management; Healthcare and Hygiene; Financial Literacy andInclusion. Under the programme the Bank is working in over 500 villages across 14 statesin the country.

Promoting Education

Your Bank's education programmes are structured to create a conducive and effectivelearning environment in schools. This includes providing basic infrastructure teachertraining learning improvements scholarships and career guidance programmes. Theprogrammes are spread across a wide geography and close to 900 schools are being covered.

The distinctiveness of these programmes is the focus on improving the skills ofteachers which in turn benefits the students. More than 65000 students have benefittedthrough these programmes.

Through the Zero Investment Innovation for Educational Initiatives (ZIIEI) your Bankhas reached out to more than 5.5 lakh school teachers. ZIIEI is a unique platform toimplement best practices in education across more than 75000 schools in Uttar Pradesh.The project has been executed jointly with a leading NGO for the state government.

Skills Training and Livelihood Enhancement

To create a sustainable community your Bank believes that people must have a steadysource of income which will contribute to a thriving economy. To this end the Bankprovides skills training and development to enable beneficiaries to earn a living with aspecial focus on women and youth. Your Bank addresses this need through multiple projectsranging from competency-based skill-oriented training and placement capacity buildingpromoting entrepreneurial activities and upskilling for agricultural and allied practices.These initiatives are tailor-made programmes that focus on addressing the specific needsof a community.

Nearly 16000 individuals have benefited through the Bank's efforts in skills basedtraining. It has supported more than 1100 individuals to become entrepreneurs. Theprojects are spread across varied geographies from Jammu & Kashmir in the NorthMeghalaya in the North East Tamil Nadu in the South to Gujarat in the West. One of theprojects to provide job-based skills training in Uttar Pradesh has benefitted more than5000 individuals.

Natural Resource Management

While working on issues such as livelihood and water your Bank makes a concertedeffort towards managing local natural resources. The multi-focused interventions includethe areas of soil and water conservation water management construction renovation andmaintenance of water harvesting structures for improving surface and ground wateravailability as well as for promoting organic fertilisers and renewable energy.

Your Bank has planted more than 67000 trees with the twin objectives of developinghorticulture and ensuring top soil retention for better agriculture yield. A little over3800 acres of agricultural land has been treated for enhanced agricultural produce. Inorder to provide proper irrigation support more than 200 water harvesting structures havebeen constructed or renovated. Crop diversification has been carried out in over 840 acresfor higher output as well as enriched fertility of the soil.

Healthcare & Hygiene

Your Bank promotes the cause of good hygiene and sanitation practices in the community.Towards this end the Bank supports construction of toilets and provision of cleandrinking water facilities. Close to 7500 households and 900 schools in rural India havebeen covered under the toilet programme so far. A primary healthcare centre was set up inthe flood affected regions of Uttarakhand which benefited around 50000 people.

Financial Literacy

Financial literacy is the first step towards real financial inclusion. With thisbelief the Bank conducts financial literacy workshops for communities to enable them tomake smart financial decisions and sustain themselves. These workshops are executedthrough the Bank's business units as well as its NGO partners.

Dhanchayat is the Bank's financial literacy programme on wheels and this has beenrunning successfully making more and more people in the rural areas aware of the perilsof informal banking. Your Bank also disseminates information on general banking creditcounselling and digital banking across a wider society such as schools collegespensioners and senior citizens.

Over 40 lakh households have benefited from the Bank's financial literacy drive.

Financial Inclusion

Your Bank is fully committed to digital transactions and the recent push given to it bythe Union Government. It now offers last mile access through mobile applications likeBHIM UPI USSD Scan & Pay as well as Aadhaar and RuPay enabled Micro-ATMs.

In another ongoing effort to bring more of the under-banked sections of the populationinto formal financial channels your Bank has opened over 17 lakh accounts under thePradhan Mantri Jan Dhan Yojana (PMJDY) and enrolled over 26 lakh customers insocial security schemes since inception. It now ranks among the leading private sectorbanks in this regard. Loans to the tune of Rs.5522.5 crore were extended under thePradhan Mantri Mudra Yojana (PMMY) and nearly Rs.143.5 crore under the ‘Stand UpIndia' scheme to Scheduled Caste/Scheduled Tribe women borrowers in the year under review.

Environment Sustainability

Maintaining a balance between the natural capital and communities is now integral tothe Bank's functioning. Towards this end your Bank's ATMs have gone paperless enablingreduction of carbon footprint. The Bank has given this effort a further fillip by ensuringmulti-channel delivery through NetBanking PhoneBanking and MobileBanking. This reducescarbon emission from operations as well as on account of reduced customer travelrequirements. Another source for reducing the environmental footprint is solar ATMs. Theseuse rechargeable Lithium Ion batteries that reduce power consumption.

Blood Donation Campaign

The year 2016 was a milestone year for the campaign for two reasons. One it was its 10thyear. Two it witnessed record participation in terms of cities camps and collegesresulting in over 1.7 lakh blood units being collected from more than 2 lakh people. Thetie up with corporate and defence establishments to organise camps at their premises alsohelped in the unprecedented collection.

Sustainable Livelihood Initiative (SLI)

Your Bank's Sustainable Livelihood Initiative (SLI) is about ‘Creating SustainableCommunities' by empowering people and helping them break the vicious circle of poverty.The Bank takes immense pride in stating that through its Board mandated SLI it has made adifference in the lives of lakhs of women at the bottom of the pyramid by creatinglong-term sustainable solutions rather than just providing short-term relief.

The basic premise of the SLI model is that empowering women means empowering families.Women participants form Self Help Groups (SHGs) or Joint Liability Groups (JLGs) that arenurtured by the Bank's employees. The approach under SLI covers occupational skillstraining financial literacy credit counselling livelihood finance and market linkage.Today SLI is harnessing the collective power of women's groups to make an impact invillage communities by implementing health and sanitation programmes.

Apart from the holistic approach what makes this programme one-of-its-kind in theworld is its scale. Sample this; 8000 dedicated bank employees working with millions ofpeople at the bottom of the pyramid in trying conditions driven purely by a passion totransform lives.

The SLI programme is being accelerated further through digitisation notwithstandinghurdles like poor awareness and telecom infrastructure. These are being overcome by usingplatforms like USSD which work on feature phones. Furthermore to facilitate card-basedtransactions the Bank has installed PoS machines in more than 200 villages.

At the end of the year under review 68 lakh households in 25 states were coveredthrough this programme. These include Assam Bihar Chhattisgarh Meghalaya MadhyaPradesh Odisha Rajasthan Sikkim Tripura Uttar Pradesh and Uttarakhand.

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

Agriculture & Allied Activities

Your Bank's credit to Agriculture & Allied activities stood at Rs.77921 crore onMarch 31 2017 representing an increase of about 17 per cent over the March 31 2016figure of Rs.66890.4 crore.

With about half of India's population living on agriculture this is an importantbusiness segment for the Bank. The suite of products offered include the Kisan Gold CardTractor and Cattle Loans. Apart from loans directly linked to agriculture the Bank offersother credit products such as two-wheeler loans car loans loans against gold jewelleryand mortgage loans.

The Kisan Gold Card is now being offered in 60000 villages. Your Bank has designed arange of crop and geography specific products keeping in mind the harvest cycles and localneeds of farmers spread across diverse agro climatic zones. Credit is targeted at alliedagricultural activities like dairy pisciculture and sericulture through specificproducts.

Using technology your Bank is able to deliver some loans within three working days inselect geographies and loan enhancements in a few seconds through ATMs or mobile phones.The Bank also enables faster cash flows to the farmer through products like post-harvestCash Credit and Warehouse Receipt Financing.

HDFC Bank's focus in the rural markets has not just been on increasing credit off-takebut also on cementing relationships with customers by empowering them. As a part of theseefforts 11 Kisan Dhan Vikas Kendras have been rolled out across Punjab MaharashtraUttar Pradesh and Madhya Pradesh where farmers secure information on soil health mandiprices various government initiatives and expert advice. These services are alsoavailable on the Bank's website in vernacular languages. Advisories on weather croppingand harvesting are also shared through SMS.

Milk-to-Money (MTM)

The Bank's MTM footprint (including Micro ATMs) crossed the landmark of 1000 in theyear under review. Approximately 3.17 lakh farmers are covered across 16 states includingGujarat Maharashtra Punjab and Rajasthan. Farmers receive Direct Benefit Transfers fromthe Government in the same account.

Under this initiative Multi-function Terminals (MFTs) popularly known asMilk-to-Money ATMs are deployed in dairy societies. The MFTs link the milk procurementsystem of the dairy society to the farmers' account to enable faster payments. MFTs havecash dispensers that function as standard ATMs. The transparency in the milk collectionprocess benefits both farmers and society. Payments are credited without the difficultiesassociated with the cash distribution process. What is more this creates a credit historywhich can then be used as the basis for accessing bank credit. Apart from the Dairy andCattle Loans customers gain access to all bank products including digital offerings suchas

10 Second Personal Loans Kisan Credit Card Bill Pay and Missed Call Mobile Recharge.

Loans against Gold Jewellery

As on March 31 2017 Loans against Gold Jewellery stood at Rs.4800 crore as againstRs.4531 crore on March 31 2016.

Banks have started making inroads in a market traditionally dominated by theunorganised sector and pawn brokers. The entry of such players has resulted in increasedawareness and at the same time provided greater transparency by substituting the moneylenders. The availability of the asset and the ease of securing a loan have made this aconvenient and viable credit option.

Micro Small and Medium Enterprises (MSME)

The year under review has been a challenging but defining one for the MSME business.Demonetisation was a temporary setback for a business whose customers traditionallytransact in cash. Your Bank was able to overcome this in the last quarter. The Bank'sadvances to MSMEs grew by 14.4 per cent to touch Rs.85166.6 crore on March 31 2017 fromRs.74657.3 crore on March 31 2016.

Demonetisation and the advent of the next-generation of entrepreneurs has seen a steadyshift towards digital transactions. In what could be a potential game changer for thebusiness the Bank launched a complete online solution-the ‘SM@Bank'. Through thiscustomers can access-credit facility information request adhoc/temporary overdraftfacilities ask for new facilities and submit documents to the Bank for straight throughprocessing on a 24*7 basis. This gained significant traction in the very first year and isnow poised to gain further momentum.

Within this segment the Bank continued its approach of targeting the manufacturingretailing wholesale trading and services sectors.


Your Bank has embarked on a ‘Mobile First' digital strategy that builds on thelast two decades of investment in technology. This strategy enables your Bank to offer anentire spectrum of banking products which can now be accessed not only on high-end smartphones and tablets but also on feature phones that require little or no Internetconnectivity.

As you are aware digital innovation has been the prime driver across businesses forthe last two years. It has got further impetus with emphasis on artificial intelligencechatbots and machine learning enabling your Bank to offer a superior customer experience.

The Bank hosted the 2nd Digital Innovation Summit in February 2017 to tapinto the fin-tech and start-up ecosystem and harness the emerging technological trends. Inthe 2nd Digital Innovation Summit the Bank invited entries in rural fin-techcategory as well along with submissions in other categories. Five companies have beenchosen as winners whose solutions the Bank is evaluating for potential application. Thesecompanies are in Artificial Intelligence Marketing Mobile Payments Quality Assuranceand Biometric Payments domains with special focus on solutions that will help semi-urbanand rural customers.

Some of the major digital innovations introduced in the year ended March 31 2017 are:

• Interactive Humanoid ‘IRA': HDFC Bank now has a humanoid IRA which isa technology demonstrator in the field of artificial intelligence and robotics. It cansupport customer service.

• HDFC Bank's Virtual Assistant ‘EVA': An Artificial Intelligence basedcustomer service chatbot deployed on your Bank's website that responds to customer queriesand provides product information.

• HDFC Bank OnChat: Your Bank has forayed into social media banking to reachout to the millennial customers. At present customers and non-customers can completee-commerce transactions on Facebook Messenger.

• Expense Tracker: This personal financial management tool gives customers asnapshot of their income expenses and investments and helps them secure control overtheir finances. This enhancement in your Bank's MobileBanking app has received encouragingcustomer response.

• Other innovations like PayZapp SmartBuy and the 10 second personal loancontinued to gather momentum in the year under review.


Your Bank believes that the key to building an organization is People. The philosophyof the Bank can be summarised as: Hiring right talent and retaining them by creating aconducive environment through a combination of financial and non-financial incentives.Besides innovation the organization also fosters a culture of empowerment and ownership.This paid-off during demonetisation when our employees went well beyond the call-of-dutyto make customers comfortable. In an extremely chaotic environment with crises erupting bythe day they came up with creative solutions.

To reiterate the five broad pillars of HDFC Bank's People Strategy are:

• Resourcing and Hiring: In an industry where agility in talent acquisitionand deployment is key to geographic expansion and growth your Bank has leveraged onlinerecruitment along with other channels like job-ready model to develop reach and quality ofhires. It has created a strong leadership pipeline across levels by identifying the righttalent internally and grooming them for challenging roles. This has resulted in an 84000plus work force that is well motivated and trained to deliver value to the customer.Increased digitisation improved process efficiencies and rebalancing capacities over theyears has led to a small decrease in the employee base.

• Career Management: Your Bank's talent management processes createopportunities for employees to develop and grow. The systematic investment of time incareer discussion with employees competency assessment and intensive functional as wellas behavioural training through the Gurukul programmes reiterate the Bank's commitment toemployees on career progression.

• Employee Engagement: The Bank has nurtured an enabling performance culturein line with its vision to be a `World Class Indian Bank'. The Performance ManagementSystem aligns organization goals with key objectives for each business. Role-basedscorecards at the employee level coupled with managerial feedback provide clarity andsupport to help employees excel.

In addition your Bank strives to strengthen its connect with employees. The Bankconducted an employee survey to understand various aspects of their experience andfollowed through with appropriate interventions spanning from the local to pan-Bank level.The Bank also conducts several employee engagement events both at local and nationallevels.

? Josh Unlimited: Pan-India Sports event conducted in 27 cities

? Stepathlon: An Employee Wellness initiative that saw the participation rise by1000 to about 3500

? Hunar: Pan-India in-house talent competition

? Corporate Online Library: A knowledge resource available to all employees foraccessing nearly 1.5 lakh books

? Employees can also participate in the ‘HDFC Bank Voice Hunt Contest' inassociation with Shankar Mahadevan Academy and ‘Corporate Photography Contest' whichis an inter-corporate event.

The Bank encourages employees to participate in community and social work. Through yourBank's Employee Payroll Giving' programme personnel can choose to donate a certain amountfrom their salary each month towards specific social causes.

The other flagship programmes are the Blood Donation Drive and the Bank's volunteeringprogramme which entails employees imparting financial literacy and contributing to reliefefforts in case of natural calamities.

‘HDFC Bank Cares' is an initiative to address healthcare needs of employees.Benefits under this programme include health mailers doctor on call health check-upcamps and talks on wellness by experts. The Bank runs an on-site crche at KanjurmargMumbai.

These initiatives create a connect among employees and also helps them forge anemotional bond with the organization. Further a strong feedback mechanism helps shape theprogrammes and aligns them with people's expectations and organisation policies.

• Training and Development: Training plans are developed based on analysis oftraining needs identified in consultation with various businesses. An extensive bouquet oftraining programmes are delivered covering on-boarding product and process trainingadvanced programmes and behavioural training. The on-boarding training ensures that newemployees are trained comprehensively and equipped with necessary know-how as well asfunctional and behavioural skills required for the role. The product training and advancedprogrammes enable skill development regular updates and build expertise. The trainingmethodology has evolved to application based training including simulations case studiesand games. Leveraging technology many of the class room programmes are now beingdelivered through online mode. The role specific learning plan ensures effective use ofblended learning method.

• Rewards: Merit is the driving force in the organisation and objectivity thewatchword while rewarding employees on a financial and non-financial basis. This fair andequitable approach encourages people to give their best. The compensation policy ensuresthat remuneration is not only competitive but also includes wealth creation opportunitiesthrough long-term rewards like ESOPs. Your Bank's comprehensive compensation policy isaligned with the guidelines of the Reserve Bank of India. The ‘Star Awards' is aninstitutionalised recognition programme that periodically recognizes performers. The‘Tejaswini Awards' is a special category to recognize women achievers.

Other Statutory Disclosures

Board and Board Committees

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

Extract of Annual Return

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

Directors' Responsibility Statement

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

• In the preparation of the annual accounts the applicable accounting standardshave been followed along with proper explanation relating to material departures if any

• We have selected such accounting policies and applied them consistently and madejudgments and estimates that are reasonable and prudent so as to give a true and fair viewof the state of affairs of the Bank as on March 312017 and of the profit of the Bank forthe year ended on that date

• We have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Bank and for preventing and detecting fraud and otherirregularities

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

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

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

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

• Installation of energy capacitors at high consumption offices to control thepower factor and to reduce energy consumption

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

• Put controls on usage of lifts ACs common passage lights and other electricalequipment


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

Fees (including taxes) Rs.lacs
Statutory Audit (Rs.19000000 plus taxes) 218.50
Certification & other services provided as statutory auditors 39.08
Total 257.58

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

Disclosure under Foreign Exchange Management Act 1999

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

Related Party Transactions APPLICABLE

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

Particulars of Loans Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act 2013 THEHMAINTENANCEE theprovisions of Section 186 of Companies Act 2013 except sub-section (1) do not apply toa loan made guarantee given or security provided by a banking company in the ordinarycourse of business. Further in terms of the Companies (Removal of Difficulties) Order2015 nothing in Section 186 except sub section (1) shall apply to any acquisition made bya banking company in the ordinary course of business. The particulars of investments madeby the Bank are disclosed in Schedule 8 BE FOLLOWED of the Financial Statements as per theapplicable provisions of Banking Regulation Act 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act 2013 and read with Rule 8 (1) of theCompanies (Accounts) Rules 2014 the performance and financial position of the Bank'ssubsidiaries and associates are enclosed as ANNEXURE 5 to this report. There wereno entities which became or ceased to be the Bank's subsidiaries associates or jointventures during the year except Atlas Documentary Facilitators Company Private Limitedand HBL Global Private Limited associates of the Bank which amalgamated with the Bank'ssubsidiary HDB Financial Services Limited pursuant to the approval of the Honourable

High Court of Gujarat and Bombay with effect from December 1 2016. The appointed dateof the merger as per the scheme of amalgamation was April 1 2014.

Whistle Blower Policy/Vigil Mechanism

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

Declaration by Independent Directors

Mrs. Shyamala Gopinath Mr. Partho Datta Mr. Bobby Parikh Mr. A. N. Roy Mr. MalayPatel and Mr. Umesh Chandra Sarangi are Independent Directors on the Board of the Bank ason March 31 2017. All the Independent Directors have given their respective declarationsunder Section 149 (6) and (7) of the Companies Act 2013 and the Rules made thereunder. Inthe opinion of the Board the Independent Directors fulfil the conditions relating totheir status as Independent Directors as specified in Section 149 of the Companies Act2013 and the Rules made thereunder.

Board Performance Evaluation

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

Your Bank has in place a process wherein declarations are obtained from the directorsregarding fulfilment of the ‘fit and proper' criteria in accordance with theguidelines of the Reserve Bank of India. The declarations from the Directors other thanmembers of the NRC are placed before the NRC and the declarations of the members of theNRC are placed before the Board. Assessment on whether the Directors fulfil the saidcriteria is made by the NRC and the Board on an annual basis. In addition theframework/policy approved by the NRC provides for a performance evaluation of theNon-Independent Directors by the Independent Directors on key personal and professionalattributes and a similar performance evaluation of the Independent Directors by the Boardexcluding the Director being evaluated. Such performance evaluation has been dulycompleted as above.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

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

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

Your Bank's compensation policy is aimed to attract retain reward and motivatetalented individuals critical for achieving strategic goals and long term success.Compensation policy is aligned to business strategy market dynamics internalcharacteristics and complexities within the Bank. The ultimate objective is to provide afair and transparent structure that helps the Bank to retain and acquire the talent poolcritical to building competitive advantage and brand equity.

Your Bank's approach is to have a pay for performance culture based on the belief thatthe Performance Management System provides a sound basis for assessing performanceholistically. The compensation system should also take into account factors like rolesskills/competencies experience and grade / seniority to differentiate pay appropriatelyon the basis of contribution skill and availability of talent on account of competitivemarket forces. The details of the compensation policy are also included in Schedule 18Notes forming part of the Accounts - Note no. 25. Non-Executive Directors are paidremuneration by way of sitting fees for attending meetings of the Board and itsCommittees which are determined by the Board based on applicable regulatoryprescriptions. Non-Executive Directors are also reimbursed expenses incurred by them forattending meetings of the Board and its Committees at actuals. The remuneration payable tothe Non-Executive Directors and Independent Directors is governed by the provisions of theBanking Regulation Act 1949 RBI guidelines issued from time to time and the provisionsof the Companies Act 2013 and related rules to the extent it is not inconsistent with theprovisions of the Banking Regulation Act 1949 and RBI guidelines. In terms of theguidelines issued by RBI for compensation of Non-Executive Directors of private sectorbanks dated June 1 2015 and the approval of shareholders at the 22nd AnnualGeneral Meeting Non-Executive Directors of the Bank other than the Chairperson are paidprofit-related commission of Rs.1000000/- (Rupees Ten Lakh only) per annum for eachNon-Executive Director.

Mr. Aditya Puri is the Non-Executive Chairman of HDB Financial Services Limited Bank'ssubsidiary. Mr. Puri does not receive any remuneration from the subsidiary. None of theDirectors of your Bank other than Mr. Puri is a director of the Bank's subsidiaries as onMarch 31 2017.

Significant and Material Orders Passed By Regulators

During the financial year 2016-17 further to the media reports in October 2015 aboutirregularities in advance import remittances in various banks the Reserve Bank of India(RBI) had conducted a scrutiny of the transactions carried out by the Bank under Section35 (1A) of the Banking Regulation Act 1949. The RBI issued a Show Cause notice to whichthe Bank had submitted its detailed response. After considering the Bank's submission theRBI imposed a penalty of Rs.2 crore on the Bank vide its letter dated July 19 2016 onaccount of pendency in receipt of bill of entry relating to advance import remittancesmade and lapses in adhering to KYC/AML guidelines in this respect. The penalty has sincebeen paid. The Bank has implemented a comprehensive corrective action plan to strengthenits internal control mechanisms so as to ensure that such incidents do not recur.

Directors and Key Managerial Personnel

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

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

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

Familiarisation Programme for Independent Directors

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

Particulars of Employees

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

Conservation of Energy Technology Absorption Foreign Exchange Earnings and Outgo

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluatesinnovative technology with multiple fintech partners. In the year under review itorganised its 2nd ‘Digital Innovation Summit' and shortlisted severalfintech startups to carry out multiple proof of concepts in both customer facing andinternal processes.

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

(C) Foreign Exchange Earnings and Outgo

During the year the total foreign exchange earned by the Bank was Rs.1263.4 crore (onaccount of net gains arising on all exchange/derivative transactions) and the totalforeign exchange outgo was about Rs.221 crore towards the operating and capitalexpenditure requirements.

Secretarial Audit

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

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities andExchange Board of India (Listing Obligations and Disclosure Requirements) Regulations2015 a separate report on Corporate Governance along with a certificate of compliancefrom the Secretarial Auditors forms an integral part of this Report.

Business Responsibility Report

The Bank's Business Responsibility Report containing a report on its Corporate SocialResponsibility Activities and Initiatives in the format adopted by companies in India asper the guidelines of the Securities and Exchange Board of India in this regard isavailable on its web site

Information under the Sexual Harassment of Women at Workplace (Prevention Prohibitionand Redressal) Act 2013

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


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


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

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

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

On behalf of the Board of Directors
Mrs. Shyamala Gopinath
Mumbai May 29 2017

ANNEXURE 1 to the Directors' Report

The ESOP Schemes of the Bank are in compliance with SEBI (Share Based EmployeeBenefits) Regulations 2014 ("the Regulations") and the details as per theRegulations are as under:


Plan / Schemes Date of Shareholders' Approval Total No. of Options Approved Grant Price (') Number of Options Outstanding at the beginning of the year Number of Options Granted / Options Re-instated Options Vested Number of Options Exercised & Shares Allotted during the year Number of Options Forfeited during the year Number of Options Lapsed during the year Number of Options in Force at the end of the year
Plan E- ESOS XVI 30th June 2010 100000000 440.16 1674000 - - 1674000 - - -
Plan E- ESOS XVII 30th June 2010 100000000 508.23 111600 - - 111600 - - -
Plan E- ESOS XVIII 30th June 2010 100000000 468.40 12552500 - - 10413000 - 100 2139400
Plan E- ESOS XIX 30th June 2010 100000000 680.00 23512100 - 8878500 10449800 86100 21000 12955200
Plan D- ESOS XX 16th June 2007 75000000 680.00 5133900 - 1835400 1748800 30000 20800 3334300
Plan C- ESOS XXI 17th June 2005 50000000 680.00 5260800 - 1719300 942400 - - 4318400
Plan E- ESOS XXII 30th June 2010 100000000 664.45 - - - - - - -
Plan C- ESOS XXIII 17th June 2005 50000000 835.50 480000 - 142200 122600 24000 7400 326000
Plan F- ESOS XXIV 27th June 2013 100000000 835.50 36442200 - 11282900 7059900 651400 59000 28671900
Plan F- ESOS XXV 27th June 2013 100000000 1092.65 43484200 - 17291600 1837100 1201000 38000 40408100
Plan F- ESOS XXVI 27th June 2013 100000000 1097.80 3000 - 1200 - - - 3000
Total - - - 128654300 - 41151100 34359200 1992500 146300 92156300


Options Exercised during the aforesaid period 34359200
Share Capital Money received during the above period (?) 68718400
Share Premium Money received during the above period (?) 22546443173
Perquisite Tax Amount collected during the aforesaid period (?) 7074356786
Total Amount collected during the aforesaid period (?) 29689518359


1. One (1) share of the face value of' 2/- each would arise on exercise of One (1)Equity Stock Option.

2. No Stock Options were granted during the year 2016-17.

Vesting Requirements Except for the death / permanent disablement or retirement of the employee the options will vest only if the employee is in the continuous employment of the Bank as on the date of vesting
Maximum Term of Options Provided the employee is in the continuous employment of the Bank the options vested will lapse in case the same are not exercised by the employee within 4 years from the date of vesting. Except in the case of death/ permanent disablement or retirement of the employee all unvested options get forfeited on the employee's last working date in the Bank.
Source of shares Primary
Variation in terms of ESOS Nil


Diluted Earnings Per Share (EPS) pursuant to the issue of shares on exercise of option calculated in accordance with Accounting Standard (AS) - 20 (Earnings Per Share) The diluted EPS of the Bank calculated after considering the effect of potential equity shares arising on account of exercise of options is ' 56.4
Where the company has calculated the employee compensation cost using the intrinsic value of the stock options the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed Had the Bank followed fair value method for accounting the stock option compensation expense would have been higher by ' 812.7 crore. Consequently profit after tax would have been lower by ' 812.7 crore and the basic EPS of the Bank would have been ' 54.0 per share (lower by ' 3.2 per share) and the diluted EPS would have been '53.3 per share (lower by ' 3.2 per share)
Weighted average exercise prices and weighted average fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock options The weighted average price of the stock options exercised is '658.2 and the weighted average fair value is '235.3
Method used and assumptions made to incorporate effects of expected early exercise The exercise multiple which is based on historical data of early option exercise decisions of the employees incorporates early exercise price effect in the valuation of ESOPs. The exercise multiple indicates that option holders tend to exercise their options when the share price reaches a particular multiple of the exercise price.
How expected volatility was determined including explanation of the extent to which expected volatility was based on historical volatility Stock expected volatility is completely based on GARCH volatility forecasting model using historical stock prices from the market.
Whether and how any other features of the option grant were incorporated into the measurement of fair value such as a market condition Stock price and risk free interest rate are variables based on actual market data at the time of ESOP valuation.

ANNEXURE 4 to the Directors' Report

Form No. AOC - 2

(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) ofthe Companies (Accounts) Rules 2014)

Form for disclosure of particulars of contracts/arrangements entered into by thecompany with related parties referred to in sub-section (1) of section 188 of theCompanies Act 2013 including certain arm's length transactions under third provisothereto

1. Details of contracts or arrangements or transactions not at arm's length basis: Nil

2. Details of material contracts or arrangement or transactions at arm's length basis

(? crore
(a) Name(s) of the related party

HDB Financial Services Limited

HDFC Securities Limited
Nature of relationship

Subsidiary of the Bank

Subsidiary of the Bank
(b) Nature of contracts/ arrangements/ transactions Receipt of Deposits Payment towards collection services availed Payment of Back Office Support Service Fees Payment of Sales Support Service Fees Credit facility provided Interest earned on Credit Facility provided Syndicator/ Arranger & Investor Receipt of Deposits
(c) Duration of the contracts / arrangements/ transactions Varying maturities Until termination 5 years 2 years Up to 42 months Varying maturities Varying maturities
(d) Salient terms of the contracts or arrangements or transactions including the value if any: Term and demand deposits placed with the Bank Services availed for follow-up and collection of customer dues and claims from insurance companies Back office support services such as data processing availed by the Bank Sales support services for loans and third party products provided by the Bank Cash Credit and Term Loans provided Interest earned Syndicator/ Arranger Fees for NCDs/ Bonds Value: 0.83 Term and demand deposits placed with the Bank
Outstanding Value: 126.44 Value: 103.13 Value: 561.52 Value: 786.11 Outstanding Value: 1180.15 Value: 139.21 Investment Value: 1427.00 Outstanding Value : 471.22
(e) Date(s) of approval by the Board if any: N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
(f) Amount paid as advances if any: Nil Security deposit: 9.75 Nil Nil Nil Nil Nil Nil

• The above mentioned transactions were entered into by the Bank in its ordinarycourse of business. Materiality threshold is as prescribed in Rule (3) of the Companies(Meetings of Board and its Powers) Amendment Rules 2017.

• Certain transactions are not disclosed due to banker- customer relationship.These transactions are at arm's length basis.

ANNEXURE 5 to the Directors' Report

Performance and financial position of subsidiaries and associates of the Bank as onMarch 312017

(' crore)

Name of entity

Net assets as of March 312017

Profit or loss for the year ended March 312017

As percentage of consolidated net assets** Amount*** As percentage of consolidated profit or loss Amount***
HDFC Bank Limited 97.46% 89462.38 95.39% 14549.66
1. HDFC Securities Limited 0.88% 807.41 1.42% 215.90
2. HDB Financial Services Limited 5.84% 5362.90 4.49% 684.21
Minority Interest in all subsidiaries 0.32% 291.44 0.24% 36.72

*The subsidiaries are domestic entities

**Consolidated net assets are total assets minus total liabilities including minorityinterest ***Amounts are before inter-company adjustments.

(' crore)

Name of entity

Investment as per equity method as of March 312017

Share of profit or loss for the year ended March 312017

As percentage of consolidated net assets Amount As percentage of consolidated profit or loss Amount
International Asset Reconstruction Company Private Limited 0.04% 40.30 0.02% 2.34

*The associate is a domestic entity

ANNEXURE 6 to the Directors' Report

Disclosures on Remuneration

1. Ratio of Remuneration of each director to the median employees' remuneration for theyear

Designation Ratio
Managing Director 187:1
Deputy Managing Director 113:1
Executive Director 93:1


a. We have considered fixed pay for the computation of ratios as the performance bonusfor the previous year for Whole time Directors is subject to RBI approval.

b. Fixed pay includes-Salary Allowances Retiral Benefits as well as value ofperquisites excluding ESOPs

c. The above includes all employees of the Bank excluding overseas employees.

2. Percentage increase in remuneration of each Director CFO CEO CS or Manager ifany in the FY

Designation Percentage Increase
Managing Director 20.00
Deputy Managing Director 20.00
Executive Director * 40.00
Chief Financial Officer 5.00
Company Secretary 7.00

The increase in the remuneration includes increase given for salary alignment withWhole Time Directors both internally and externally.

3. Percentage Increase in the median remuneration of employees in the financial year

The percentage increase in median remuneration of employees in the financial year was11.12 per cent. The percentage movement in the median remuneration of the employees forthe financial year was 1.51 per cent.

4. The number of permanent employees on the rolls of the Bank

As of March 312017 the number of permanent employees on the rolls of the Bank was84325.

5. Average percentage increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentageincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration.

The average percentage increase for Key Managerial Personnel 18.40 per cent
The average percentage increase for Non Managerial Staff 9.69 per cent

6. Affirmation that the remuneration is as per the remuneration policy of the company:YES

ANNEXURE 7 to the Directors' Report

Statement under Rule 5(2) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 for year ended March 312017

Name of the Employee Designation Date of joining the Bank Qualifications Age Exp. Total (') Last Employment
Details of top ten employees in terms of remuneration drawn
Aditya Puri Managing Director 12-Sep-94 B.Com CA. 66 44 100572147 Citibank
2 Paresh Sukthankar Deputy Managing Director 01-Sep-94 B.Com M.M.S A.M.P (Harvard Business School) 54 32 60808440 Citibank
3 Kaizad M. Bharucha Executive Director 04-Oct-95 B.Com 52 31 46610835 SBI Commercial & International Bank Ltd.
4 Abhay Aima Group Head 02-Jan-95 Grad. from National Defence Academy 55 30 26264867 INDSEC Securities & Finance Ltd.
5 Rakesh Singh Group Head 11-Apr-11 MBA B.Sc 48 24 24476625 Roth Child
6 Navin Puri Group Head 01-Feb-99 B.Com MBA CA 59 34 24090454 ANZ Grindlays Bank
7 Ashish Parthasarthy Group Head 01-Nov-94 B.E. PGDM 49 28 23523385 INDSEC Investments Ltd.
8 Bhavesh Zaveri Group Head 13-Apr-98 M.Com. CAIIB 51 28 23389168 Barclays Bank
9 Sashidhar Jagdishan Group Head 05-Feb-96 B.Sc. ACA. M.A (Economics) 52 25 23134669 Deutsche Bank
10 Payal Mandhyan* Vice President 18-Jan-05 PGDBM 39 13 22684467 India Bulls Securities Ltd.
Persons in service for the whole year and drawing emoluments more than ' 10200000/- per annum other than the above
Abhishek Bhuwalka Sr Vice President-I 10-Jun-99 MBA CWA B.Com 40 21 13784220 Matchless Packaging Industries (P) Ltd.
2 Ajay Kumar Kapoor Sr Exe Vice President 09-Oct-95 M.Sc. 53 31 12955221 Times Bank Ltd.
3 Akshat Lakhera Sr Vice President-I 09-Sep-10 PGDM B.Sc 40 16 15567571 BNP Paribas
4 Ameya Shekhar Shenoy Vice President 20-Mar-06 MBA CA B.Com 38 13 11499582 Tionale Enterprises Pvt Ltd
5 Amit Dayal Exe. Vice President 19-Dec-94 B.Sc. DBM 50 26 16814052 SBI Commercial & International Bank Ltd
6 Anil L. Bhavnani Exe. Vice President 16-Jun-03 CS B.Com 44 23 11082765 CitiCorp Finance I Ltd.
7 Ankush Pitale Exe. Vice President 28-Jul-14 MMS 45 21 13324739 Religare Capital Markets Pvt. Limited
8 Anupama Rajesh Munagekar Sr Vice President-I 14-Feb-07 LL.B B.Com 49 25 13680448 Strategic Capital Corporation Pvt Ltd
9 Arun Mohanty Exe. Vice President 09-Nov-05 BA 59 35 12791009 Reserve Bank Of India
10 Arup Kumar Rakshit Sr Exe Vice President 01-Aug-06 PGDM B.E 48 31 21287305 ABN Amro Bank
11 Arvind Kapil Group Head 18-Dec-98 MMS B.E 46 23 15214374 GE Countrywide Consumer Financial Services Ltd.
12 Aseem Dhru Group Head 02-May-15 CACWA B.Com 47 22 18399069 HDFC Securities Ltd
13 Ashima Khanna Bhat Group Head 07-Nov-94 B. Bus MMS 46 24 17617273 A F Ferguson & Co
14 Ashok Khanna Group Head 19-Jun-02 MA 60 36 15977850 Centurion Bank
15 Ashtosh Raina Sr Vice President-I 03-Sep-07 CAIIB B.Sc 49 26 13352345 State Bank Of India
16 Atul Sadashiv Barve Exe. Vice President 28-Feb-07 MMS MA B.Sc 54 33 11704496 IDBI Ltd
17 Benjamin Frank Sr Exe Vice President 05-Apr-04 MBA B.Sc 53 31 12044784 IDBI Bank Ltd.
18 Bhaskar C. Panda Sr Vice President-II 21-Nov-97 BA 55 32 17049345 Times Bank Ltd.
19 Charmaine Pereira Sr Vice President-II 01-Nov-94 DBM BA 44 22 13759774 Fresher
20 Debajeet Das Sr Vice President-II 06-Aug-96 MA 45 22 18032347 Texport Syndicate
21 Dolreich D'Mello* Dy. Vice President 09-Jan-97 B.Com 41 20 12406545 ANZ Grindlays Bank
22 Farid Ahmed* Asst. Vice President 07-May-07 MBA B.Sc 39 17 11767196 Kotak Mahindra Bank Ltd
23 Fayaz Ainodin Patel* Asst. Vice President 02-Aug-10 MBA B.Com 38 14 10303038 Sharekhan Ltd
24 Gopalkrishnan Santosh Exe. Vice President 17-Jan-01 B.Com 47 25 10882803 American Express Bank
25 Govind Pandey Sr Exe Vice President 05-Aug-98 MSC 60 34 13312806 State Bank of Saurashtra
26 Gulzar Singh Sr Exe Vice President 28-Oct-96 PGDM BA 46 23 12895189 Times Bank Ltd.
27 Harsh S Gupta* Sr Vice President-I 04-Sep-00 PGDBA B.Sc 41 19 18189331 ICICI Cap Ltd
28 Imran Ali Baig* Vice President 05-Jun-97 PGDBA CFA-A B.Sc 44 20 11440147 Fresher
29 Jay Sonawala Sr Vice President-II 12-Aug-99 MMS B.Com 41 18 12498838 Fresher
30 Jimmy Tata Group Head 15-Dec-94 B.Com. M.F.M. CFA 51 29 20012753 Apple Industries Ltd.
31 K. Manohara Raj Sr Exe Vice President 06-Dec-96 CAIIB B.Com 59 37 11579370 Times Bank Ltd.
32 Kapil Bansal Sr Vice President-I 30-Sep-04 PGPM B.Com 39 18 13053654 ICICI Bank Ltd.
33 Kinjul Sharma* Asst. Vice President 22-Sep-08 Master's Degree/DipB.Com 36 12 11004904 Citifinancial
34 Madhusoodan Hegde Exe. Vice President 11-Feb-97 CAIIB B.Sc. 56 32 12095216 Times Bank Ltd.
35 Mahesh KumarJugal Kishoretaparia Sr Vice President-I 11-Jun-05 LLB CS CA B.Com 40 15 11183867 UTI Bank Ltd
36 Maheswara P Reddy Sr Vice President-I 06-May-02 MBA BA 46 21 14042294 American Express Bank
37 Makarand Shrikant Khandekar Asst. Vice President 18-Mar-14 B.E 42 19 12260022 ICICI Securities Limited
38 Manu Joseph* Dy. Vice President 13-Nov-11 MMSB.E 40 15 12467442 Citibank
39 Mathew Varghese* Asst. Vice President 15-Jul-10 MMSB.E 38 15 10613306 Citibank
40 Mayuresh Vasant Apte Sr Vice President-II 06-Nov-00 MMS B.TECH C.H.S.E C.B.S.E 48 24 11889576 Centurion Bank Ltd
41 Michael Andrade Exe. Vice President 01-Aug-97 MFA DSM B.Sc. 49 29 10359492 Barclays Bank
42 Mohammed Hannan Abdul* Asst. Vice President 01-JUI-09 MBA BSc 38 14 12313621 Barclays Bank PLC
43 Munish Mittal Group Head 17-Aug-96 PGDM B.Sc. 49 30 14329500 Bank Of Punjab
44 N. Srinivasan Exe. Vice President 11-Nov-96 CA CWA CS. B.Com 49 27 11349866 Credential Finance
45 Neil Percy Francisco Group Head 20-May-02 MBA M.Sc. BE 55 26 13108718 Standard Chartered bank
46 Nirav Shah Group Head 15-Jul-99 MMS B.Com 45 22 19186484 Global Trust Bank
47 Nishant Nangia* Asst. Vice President 04-Apr-05 B.Com 35 14 12816723 E-Serve International Ltd
48 Nishikant Das Exe. Vice President 23-Apr-12 PGDM B.TECH 45 19 18011034 Standard Chartered Bank
49 Nitin Chugh Group Head 16-Apr-01 PGDM B.TECH 46 22 17069362 Standered Chartered Bank
50 Nitin Subramanya Rao Group Head 25-JUI-02 BE MBA 50 27 19003464 BNP Paribas
51 Pallava Rathore* Vice President 27-Jun-08 Master's Degree/Dip BSc 41 16 10566455 IDBI Bank Ltd
52 Parag Rao Group Head 15-Apr-02 MMS B.E 52 28 14487588 IBM Global Services
53 Philip Mathew Group Head 03-Apr-02 MA B.Sc 54 28 13402369 SSKI Investor Services
54 Pratap Luthra Dy. Vice President 13-Aug-05 MBABA 35 14 12284191 ABN Amro Bank Ltd
55 Rahul Bhandari* Vice President 05-Feb-02 PGDBM B.Com 39 15 14318661 Fresher
56 Rajeev Sengupta Exe. Vice President 21-Sep-07 PG (Gen Mgmt) B.E 56 34 11452865 Hutchison Essar Ltd
57 Rajeev Wariar* Vice President 15-Apr-10 PGDBA B.E 42 18 16800081 Citi Bank
58 Rajender Sehgal Group Head 23-Feb-98 B.Sc MBA 62 40 17558390 Times Bank Ltd.
59 Rajesh Kumar Rathanchand Group Head 22-May-00 PGDM B.Sc 46 28 14425888 Trans America Apple Finance Ltd.
60 Rajesh Sharma Sr Vice President-II 15-Nov-00 CACS B.Com 41 23 10326591 LCC Infotech Ltd
61 Rajinder Babbar Exe. Vice President 16-Jan-01 LLB B.Sc 50 30 13530295 Centurion Bank Ltd
62 Raveesh Kumar Bhatia Sr Exe Vice President 03-May-10 PGDM B.Com 51 26 13371292 Fore Consultants Pvt Ltd
63 Ravi Narayan Group Head 03-May-99 MBA B.TECH 48 24 15488261 Bank Of America
64 Ravi Ssn Sr Vice President-II 26-Nov-10 B.Com 49 17 11133605 Deutsche Bank
65 Reji John* Manager 30-Aug-10 PG Diploma MA BA 36 13 11600552 Aviva India Life Insurance Co Ltd
66 Resham A. Mahtani Sr Vice President-I 01-May-01 PGPIM PGDBM BA 41 19 12978555 Mecklai Financial & Commercial Services Ltd.
67 Ritesh Sampat Sr Vice President-II 03-Jan-12 CA B.Com 41 17 15096463 Standard Chartered Bank
68 Roli Jamthe* Asst. Vice President 05-Apr-11 MBA B.Sc PGDSM 40 16 19818230 Royal Bank Of Scotland
69 Sanjay Dongre Exe. Vice President 02-May-95 B.Com ACS CWAINT LL.B. 59 35 10608483 Boehringer Mannheim Ltd.
70 Sanjay K.Singla Sr Vice President-II 10-Nov-07 PGDM B.Com 58 35 14887359 State Bank of India
71 Sanmoy Chakrabarti Exe. Vice President 15-Jun-10 MS B.Sc 42 18 12792397 Bank Danamon
72 Sathyamurthy Sampath Kumar Exe. Vice President 07-Aug-00 B.Com 45 27 14737500 Integrated Finance Co. Ltd.
73 Shailesh B. Sukhthankar Exe. Vice President 01-Dec-94 MMS B.Com 52 30 10430441 Citicorp Overseas s/w Ltd
74 Sharad Rungta Sr Vice President-II 02-Jun-12 CFA CA B.Com 40 16 15368533 Credit Suisse AG
75 Sheetal Kapadia* Asst. Vice President 06-May-09 PGDMS B.Com 40 17 13535124 ICICI Bank Ltd
76 Silvestre Anthony Pereira Vice President 15-Sep-06 MBA PG Diploma B.Com 39 15 14974588 UTI Bank Ltd
77 Sitanshu Mitra Exe. Vice President 01-Sep-95 MBA B.Sc 49 29 10609777 ABN Amro Bank Ltd.
78 Smita Bhagat Sr Exe Vice President 12-Jul-99 M.Com MBA 52 29 13347040 PDCOR Ltd.
79 Sukarm Bali* Sr Vice President-I 23-JUI-99 CA B.Com 50 25 18515532 Times Bank Ltd.
80 Sumant Rampal Exe. Vice President 10-Aug-99 MBA B.Com 42 20 10834497 Walchnad Capital Ltd.
81 Sundaresan M. Exe. Vice President 02-May-02 B.E (Mechanical) PSG MBA 46 30 10289554 GE Countrywide Consumer Financial Services Ltd.
82 Umashankar Gopalan* Dy. Vice President 13-Dec-12 B.Com 49 23 14509765 ICICI Bank
83 V S Unnikrishnan* Vice President 12-Apr-03 MBA B.Sc PUC 42 19 13101738 Global Trust Bank Ltd
84 V. Chakrapani Group Head 24-Nov-94 B.Com CAIIB ACS 53 33 17244662 Standard Chartered Bank
85 Veerendra Rai* Asst. Vice President 23-Apr-11 PGDBA BBA 38 14 11350131 RAK Bank
86 Vijay Krishna Mulbagal Exe. Vice President 02-Jan-07 PGPM B.Sc 46 22 14077651 Diamond Management & Technology Consultants
87 Vitthal Mangesh Kulkarni Sr Vice President-I 22-Sep-07 M.Sc. B.E 46 23 12147623 Barclays Capital
Persons employed for part of the year drawing emoluments more than ' 850000 per month
88 Deepak Maheshwari Group Head 09-Feb-96 CAIIB B.Com 62 42 12429522 Times Bank Ltd.
89 Harsh Dugar Executive Vice President 23-Oct-96 CFA CWA B.Com 44 26 8840172 ICFAI Business School
90 K Balasubramanian Group Head 03-May-16 CA ICWA B.Com 46 21 15479725 Citibank
91 KartikJain Executive Vice President 09-May-11 PGDM B.Tech 47 24 12623837 ICICI Lombard General Insurance Company Limited
92 Nitin Jain Sr Vice President-II 29-Sep-14 PGDBM B.E 52 29 2818964 Cipher Capital Advisors Pvt Ltd
93 Ravi Santhanam Exe. Vice President 01-Mar-17 PG Diploma B.E 47 24 1154682 Vodafone India
94 T V N Raghuram* Senior Vice President - I 09-Oct-98 B.Com 48 28 9989208 Times Bank Ltd


1. Remuneration shown above includes basic salary allowances performance bonus cashallowances in lieu of perquisites or taxable value of perquisites if availed as computedas per Income-tax rules but excludes Gratuity PF settlement Super Annuation settlementPerquisite on ESOP & Super Annuation perquisite.

2. All appointments are terminable by one / three months' notice as the case may be oneither side.

3. The above list does not include Employees sent on Deputation whose salary isreimbursed by the other company.

4. 'Employee in overseas location.

5. None of the employees listed above hold 2% or more of the paid-up share capital ofthe Bank as at March 312017.

6. Other than Mr. Aditya Puri Managing Director who holds 0.13% of the paid up sharecapital of the Bank the shareholding of the employees listed above does not exceed 0.05%of the paid up share capital of the Bank as at March 312017.

7. None of the employees listed above is a relative of any director of the Bank.