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HDFC Bank Ltd.

BSE: 500180 Sector: Financials
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OPEN 1424.75
VOLUME 289879
52-Week high 1650.00
52-Week low 994.00
P/E 24.36
Mkt Cap.(Rs cr) 784,175
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 1424.75
CLOSE 1417.60
VOLUME 289879
52-Week high 1650.00
52-Week low 994.00
P/E 24.36
Mkt Cap.(Rs cr) 784,175
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

Dear Stakeholders

Your Directors take great pleasure in presenting the 26th AnnualReport on the business and operations of your Bank together with the audited accounts forthe year ended March 31 2020. FY 2019-20 was one of the most challenging years for theIndian economy which faced several headwinds from a slowdown in domestic and globalgrowth and geopolitical uncertainties. This was exacerbated by the outbreak of the COVID19 pandemic in the second part of the fourth quarter. Faced with a crisis with noparallels in recent history most governments across the world including in Indiaprioritised life over anything else and imposed a lockdown to break the chain oftransmission. Needless to say the ‘Great Lockdown' came with an economic price aswell with the International Monetary Fund (IMF) forecasting the "worst economicdownturn" globally since the Great Depression in the 1930s.

To minimise the negative impact of the coronavirus outbreak and revive the economygovernments and central banks across the world announced a host of fiscal and monetarypolicy measures. The Indian government rolled out a Rs. 1.7 lakh crore interimrelief package primarily directed towards daily wage earners and farm labourers. Thefinance ministry also waived late fee interest and penalties on GST returns for threemonths and eased various statutory filing deadlines to provide regulatory relief tobusinesses. The RBI announced an emergency cut in policy rates: by 115 basis points in therepo rate and 130 basis points in the reverse repo rate. The Central Bank also announced athree-month moratorium on repayments of term loans and then extended it by another threemonths. The Union Government has also announced a stimulus package of 20 lakh crore with afocus on the MSME and NBFC sectors.(Please refer to the Macroeconomic and IndustryDevelopments section on pages 89-90 for details).

In this uncertain environment your Bank continued on its growth path byconducting its business responsibly and reinforcing its commitment to the environment andcommunity at large.

1) Financial Performance

Your Bank recorded an improvement in majority of its key financial parameters largelydue to its prudent credit evaluation of targeted customers and diversified loan bookacross customer segments products and sectors. Managing risk-return decisions withdiscipline also contributed to the Bank's performance. Net Profit at Rs. 26257.3 crorewent up by 24.6 per cent. Net Interest Income at Rs. 56186.3 crore rose 16.5 per cent.Net Interest Margin remained stable 4.3 per cent. Gross Non-Performing Assets (NPAs) at1.26 per cent was among the lowest in the industry.

2) Parivartan

Your Bank continued to transform lives through its umbrella CSR brand Parivartan whichdenotes change.

The Bank believes that businesses can only prosper if the communities in which theyoperate prosper as well. This belief has inspired its social initiatives which havepotentially made a difference to the lives of over 7.8 crore people predominantly inrural India. Driving this change is the Sustainable Livelihood Initiative (SLI) teamwhich employs about 10 per cent of the Bank's workforce and works exclusively on improvinglivelihood opportunities. The ‘Teaching-The-Teacher' initiative has impacted over 2crore students. The Holistic Rural Development Programme has touched another 16 lakhpeople across more than 1200 villages. Having an umbrella brand enables the Bank to lenda sharper focus to these efforts. Your Directors are also happy to report that your Bankmet the mandatory CSR expenditure through a spend of Rs. 535 crore. The Bank contributedRs. 70 crore towards Prime Minister's CARES Fund to support the government's fight againstthe COVID-19 pandemic.


Although the economy and HDFC Bank are facing immediate-term challenges from the haltin economic activities due to the lockdown the market in the post-pandemic recoveryperiod presents tremendous opportunities given the under-penetration of banking servicesin the country. Your Bank is well positioned to capitalise on those opportunities giventhe strength of its major franchises. Your Bank is also poised to make a greatercontribution to bridge the urban-rural divide – be it through its business or socialinitiatives. This of course will not be possible without the contribution of the evergrowing family of over two lakh employees (including that of the subsidiaries) across thecountry who remain at the forefront of taking your Bank forward every day. Your Directorswould like to especially thank those who went well beyond their call of duty during theCovid-19 pandemic to keep your Bank functioning.

Mission and Strategic Focus

Your Bank's mission is to be a ‘World-Class Indian Bank'. Its business philosophyis based on five core values: Customer Focus Operational Excellence Product LeadershipPeople and Sustainability. Sustainability should be viewed in unison with EnvironmentalSocial and Governance performance. As a part of this HDFC Bank through its umbrella CSRbrand Parivartan seeks to bring about change in the lives of communities mainly in ruralIndia. During the year under review the business objective was to continue building soundcustomer franchises across distinct businesses to achieve healthy growth in profitabilityconsistent with your Bank's risk appetite.

In line with the above objective the Bank aims to take digitalisation to the nextlevel to:

• Deliver superior experience and greater convenience to customers

• Increase market share in India's growing banking and financial services industry

• Expand geographical reach

• Cross-sell the broad financial product portfolio

• Sustain strong asset quality through disciplined credit risk management

• Maintain low cost of funds

Your Bank remains committed to the highest levels of ethical standards professionalintegrity corporate governance and regulatory compliance which is articulated in itsCode of Conduct. Every employee affirms to abide by the Code annually.

Summary of Financial Performance

For the year ended / As on

March 31 2020 March 31 2019
Deposits and Other Borrowings 1292130.8 1040226.1
Advances 993702.9 819401.2
Total Income 138073.5 116597.9
Profit Before Depreciation and Tax 37803.0 33339.8
Profit After Tax 26257.3 21078.1
Profit Brought Forward 49223.3 40453.4
Total Profit Available for Appropriation 75480.6 61531.5
Transfer to Statutory Reserve 6564.3 5269.5
Transfer to General Reserve 2625.7 2107.8
Transfer to Capital Reserve 1123.8 105.3
Transfer to / (from) Investment Reserve - -
Transfer to / (from) Investment Fluctuation Reserve 1134.0 773.0
Dividend (including tax / cess thereon) pertaining to previous year paid during the year net of dividend tax credits 4893.4 4052.6
Special dividend (including tax / cess thereon) 1646.9 -
Balance carried over to Balance Sheet 57492.5 49223.3


During FY 2019-20 the Bank has paid special interim dividend of Rs. 2.50 per equityshares (post split) to commemorate 25 years of the Bank's operation. In light of theReserve Bank of India (RBI) Circular dated April 17 2020 all banks were directed not tomake dividend pay-outs pertaining to the financial year ended March 31 2020 until furtherinstructions from RBI with a view that banks must conserve capital in an environment ofheightened uncertainty caused by COVID-19. Accordingly the Board of Directors of the Bankhas not proposed any final dividend for the year ended March 31 2020. In general yourBank's dividend policy among other things balances the objectives of rewardingshareholders and retaining capital to fund future growth. It has a consistent track recordof dividend distribution with the Dividend Pay-out Ratio ranging between 20 percent and 25 per cent which the Board endeavours to maintain. The dividend policy of yourBank is available on your Bank's website:

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

Issuance of Equity Shares and Employee Stock Options (ESOP)

As on March 31 2020 the issued subscribed and paid up capital of your Bank stood atRs. 5483286460/- comprising of 5483286460 equity shares of Rs. 1 each. This issubsequent to the sub-division of one equity share of your Bank having face value of Rs.2/- into two equity shares of face value of Rs. 1/- each and consequent alteration in theCapital Clause of the Memorandum of Association of the Bank. Further 36673240 equityshares of face value of Rs. 1/- each were issued by your Bank pursuant to the exercise ofEmployee Stock Options (ESOPs) (for information pertaining to ESOPs please refer Annexure1 to the Directors' Report)

Capital Adequacy Ratio (CAR)

As on March 31 2020 your Bank's total CAR calculated as per Basel III capitalregulations stood at 18.5 per cent well above the regulatory minimum requirement of11.075 per cent including a Capital Conservation Buffer of 1.875 per cent and anadditional requirement of 0.20 per cent on account of the Bank being identified as aDomestically Systemic Important Bank. Tier I Capital was at 17.2 per cent as of March 312020.

Management Discussion And Analysis Macroeconomic and Industry Developments

The Indian economy faced several domestic and external headwinds for most part of theyear under review due to protectionist trade policies geopolitical uncertainties andslowdown in major trading partners. Weakness in the auto sector lingering issues in theNBFC sector and a moderation in private sector investments contributed to the slowdown.Although growth moderated to 4.2 per cent in FY 2019-20 from 6.1 per cent in FY 2018-19India became the 3fth largest economy in the world surpassing the UK and France.

India's external sector continued to gain stability as the current account de3cit(balance of exports minus imports) declined to 0.2 per cent of GDP in the third quarter ofFY 2019-20. This was driven by lower crude oil prices for most part of the year reducingIndia's import bill (imports 80 per cent of total oil demand). Foreign direct investment(FDI) and portfolio flows remained strong rising to over US$ 32 billion and US$ 15billion in April-December 2019 respectively.

Domestic demand also began to show green shoots in the second half of the yearespecially in the rural sector. Better food price realisations and government measuresfocusing on doubling farm income such as increase in Minimum Support Prices (MSPs)supported rural demand. Government consumption expenditure remained the support lever ingrowth dynamics. As per the Central Statistical Organisation government consumptionexpenditure grew at 11.9 per cent in FY 2019-20 vis--vis 10.2 per cent in FY 2018-19.

However the outbreak of the coronavirus pandemic has clouded the growth outlook. Thenationwide lockdown is likely to hit consumption of non-essential items and weigh onactivity in the services (particularly in tourism aviation and hospitality) as well asthe manufacturing sector. Moreover lower global growth is likely to have a bearing onexport demand. The World Bank expects the overall global economy to contract by 5.2percent due to the coronavirus impact significantly affecting the US Eurozone and UKeconomies.

In the financial sector credit growth moderated to 6.8 per cent in May 2020 from 13.5per cent a year ago. The weakness was recorded in agriculture and services while creditdeployment to industrial sector improved at the margin. The NPA ratio improved from itspeak of 11.2 per cent in the year ended March 31 2018 to 9.3 per cent in the year endedMarch 31 2019 though the pace of improvement has slowed down in recent quarters. As perthe RBI's December 2019 Financial Stability Report Gross Non-Performing Assets (GNPA)ratio of scheduled commercial banks remained unchanged at 9.3 per cent between March 2019and September 2019. That said the Central Bank estimates the ratio to deteriorate to 9.9per cent by September 2020. The current COVID-19 related slowdown could add further stressin the system.

The Government and the RBI have announced a host of measures to cushion the directimpact of the lockdown on the economy. The stimulus package (Rs. 20 Lakh crore) announcedby the GOI in five tranches had a clear focus on the MSME sector a key provider ofemployment in both the organized and unorganized segments and a critical component of thedomestic industrial supply chain. The MSME sector that encompasses a wide range ofindustries had been under considerable stress for a prolonged period before the incidenceof COVID. This made them particularly vulnerable to the lockdown and its aftermath. TheNBFC sector a major provider of funding to the MSMEs had also been going through a periodof stress particularly in its access to finances both from banks and the market. Thus thestimulus package focuses on the survival of both MSMEs and NBFCs through the COVID crisisand also their revival. The critical element of the stimulus is its attempt to facilitatethe flow of credit to both MSMES directly and to NBFCS. The government aims to do this byreducing the risk taken by banks and other institutions in lending to them by providingexplicit guarantees either on the entire loan or a fraction. The guarantees delivered arethrough Special Purpose Vehicles (SPVs) in which the government has initially taken anequity stake. Thus for instance the targeted credit flow of Rs. 300 billion in the formof collateral free loans to the smaller MSMEs is backed by a 100 per cent GOI guaranteegiven through NCGTC. Other measures include creating a fund of funds for MSMEs partialcredit guarantee scheme for NBFCs/MFIs and providing subordinate debt for stressed MSMEsthrough a Credit Guarantee Fund Trust.

There are non-financial measures as well that aims to benefit MSMEs. The upwardrevision of turnover and investment limit (Micro: turnover increased to Rs. 5 croreinvestment increased to Rs. 1 crore; Small: Turnover increased to Rs. 50 crore andinvestment increased to Rs. 10 crore; Medium: Turnover increased to Rs. 250 croreand investment increased to Rs. 50 crore) would help MSMEs expand operations considerablywithout fear of losing some of the fiscal and other benefits that the segment enjoys. Thedirect fiscal spending component (on MNREGA EPF support for business and workers foodgrain supply for migrant workers and enhancing Micro food enterprises among other things)is relatively low and stands at Rs. 2 trillion or 1 per cent of GDP. Instead the broadstrategy of the stimulus is to remove bottlenecks on the supply side for the smaller andlabour intensive firms to set off a "virtuous cycle" of more viable operationsincreased production and employment and higher incomes that would translate into enhanceddemand.

On the monetary policy side the RBI has taken a number of steps to provide liquidityand enhance credit flow in the system. The RBI recently delivered an off-cycle rate cut of40 bps taking the repo rate to 4.0 per cent and lowered the reverse repo rate by 40 bpsto 3.35 per cent. The RBI has delivered a total rate cut (repo) of 115 bps since February2020. The RBI has also taken a slew of measures to address liquidity constraints such asthe announcement of the moratorium liquidity infusion through TLTRO (Targeted Long TermRepo Operations) for NBFCs (Rs. 50000 crore) liquidity facility Rs. 50000 crore formutual funds and a cut in the CRR (Cash Reserve Ratio) by 100 bps to 3%. We expectthe Central Bank to deliver further rate cuts and keep liquidity in surplus in the comingmonths bringing down the cost of borrowing and pushing credit growth in the system.

CPI inflation remained in a comfortable zone in H1 FY 2019-20. However inflation rosefrom October 2019 onwards peaking in January 2020 (to 7.6 per cent) mainly due to rise infood prices on account of higher onion prices. In FY 2020-21 we (HDFC Bank) expect theheadline inflation to ease gradually on lower food prices drop in crude oil prices anddwindling demand conditions due to the lockdown. For the year ending March 31 2021 weexpect the headline inflation at 3.7 per cent well within the RBI's target range of 4+/-2 per cent. Thus with inflation expected to be below the RBI's median target of 4 percent the Central Bank could deliver further rate cuts to support growth. Overall weexpect the growth to remain subdued in the first half of FY 2020-21 with growthcontracting in the first and second quarters and a gradual recovery in the second halfsupported by fiscal and monetary policy stimulus.

Financial Performance

The financial performance of your Bank during the year ended March 31 2020 remainedhealthy with Total Net Revenue (Net Interest Income Plus Other Income) rising 20.6 percent to Rs. 79447.1 crore from Rs. 65869.1 crore in the previous year. Revenue growthwas driven by an increase in both Net Interest Income and Other Income. Net InterestIncome grew by 16.5 per cent to Rs. 56186.3 crore due to acceleration in loan growthcoupled with a Net Interest Margin (NIM) of 4.3 percent.

Other Income grew by 32.0 per cent to Rs. 23260.8 crore. The largest component wasFees and Commissions which increased by 18.5 per cent to Rs. 16333.7 crore. ForeignExchange and Derivatives Revenue was Rs. 2154.8 crore gain on revaluation and sale ofinvestments was Rs. 1934.4 crore and recoveries from written-off accounts were Rs.2253.5 crore. Following the outbreak of the coronavirus pandemic in March 2020 thecentral government imposed a nationwide lockdown from March 24 to break the chain oftransmission. Economic activities slowed down considerably. As a result your Bankwitnessed an impact on business volumes in terms of loan originations distribution ofthird party products and payments product activities as well as on collections. Due tothese pressures fees/other income was lower by Rs. 450 crore during the year. Operating(Non-Interest) Expenses rose to Rs. 30697.5 crore from Rs. 26119.4 crore. During theyear your Bank set up 313 new Banking Outlets and 1412 ATMs / Cash Deposit andWithdrawal Machines (CDMs). This along with strong growth in retail asset and cardproducts resulted in higher infrastructure and staf3ng expenses. Staff expenses also wentup due to employee additions and annual wage revisions. Despite higher infrastructureexpenses the Cost to Income Ratio improved to 38.6 per cent from 39.7 per cent. TotalProvisions and Contingencies were Rs. 12142.4 crore as compared to Rs. 7550.1 crore thepreceding year. Your Bank's provisioning policies remain more stringent than regulatoryrequirements. Total provisions for the fourth quarter of the financial year includedcredit reserves relating to the coronavirus pandemic in the form of contingent provisionsof approximately Rs. 1550.0 crore.

The Coverage Ratio based on specific provisions alone excluding write-offs was 72 percent; including General and Floating provisions it was 118 per cent. Your Bank madeGeneral Provisions of Rs. 796.0 crore during the year. Gross Non-Performing Assets (GNPA)were at 1.26 per cent of Gross Advances as against 1.36 per cent in the preceding year.Net NPA ratio stood at 0.36 per cent as against 0.39 per cent in the previous year. Inaccordance with the RBI guidelines related to the COVID-19 Regulatory Package announced onMarch 27 2020 and April 17 your Bank granted a moratorium of three months on the paymentof all instalments and/or interest as applicable falling due between March 1 2020 andMay 31 2020 to all eligible borrowers classified as Standard even if overdue as onFebruary 29 2020. For all such accounts where the moratorium is granted the assetclassification shall remain unchanged during the moratorium period. The Bank has madeprovisions above the RBI prescribed requirements against the potential impact of thecoronavirus pandemic (based on the information available at this point in time). ProfitBefore Tax grew by 13.7 per cent to Rs. 36607.1 crore. After providing for Income Tax ofRs. 10349.8 crore Net Profit increased by 24.6 per cent to Rs. 26257.3 crore from Rs.21078.1 crore. Return on Average Net Worth was 16.76 per cent while Basic Earnings PerShare was Rs. 48.01 up from Rs. 39.33.

As on March 31 2020 your Bank's Total Balance Sheet stood at Rs. 1530511 crore anincrease of 23.0 per cent over

Rs. 1244541 crore on March 31 2019. Total Deposits rose by 24.3 per cent to Rs.1147502 crore from Rs. 923141 crore. Savings Account Deposits grew by 24.8 per cent toRs. 310377 crore while Current Account Deposits rose by 22.3 per cent to Rs.174248 crore. Time Deposits stood at Rs. 662877 crore representing an increase of 24.6per cent. CASA Deposits accounted for 42.2 per cent of Total Deposits. Advances stood atRs. 993703 crore an increase of 21.3 per cent. Domestic loan portfolio of Rs. 974161crore grew by 21.4 per cent over March 31 2019. Your Bank had a share of approximately8.2 per cent in Total Domestic Deposits and 9.3 per cent in Total Domestic Advances.


Your Bank's operations are split into domestic and international.

Domestic Business

A) Retail Banking

Your Bank's Retail Banking Business registered robust growth in the year under review.Domestic Retail Deposits grew by 24.0 per cent to Rs. 879145 crore from Rs.709085 crore in the preceding year while Retail Advances rose 14.6 per cent to Rs.494401 crore from Rs. 431357 crore.

Retail deposits

Rs. 879145 crore up 24.0 per cent*

Retail advances

Rs. 494401 crore up 14.6 per cent*

*Over 2018-19

Your Bank continues to be a leader in the auto loans segment with strong presence inpassenger commercial vehicle and two-wheeler financing. The performance must be seen inthe context of a market that has de-grown by about 15 per cent in the last two yearsacross segments. Your Bank has countered this by tapping new customers in the interiors ofthe country leveraging its tie-up with Common Service Centres and also selling loanproducts to Kisan Gold Card/Sustainable Livelihood Initiative (SLI) customers. There hasalso been a strong focus on internal bank customers. The Personal Loan Business witnessedsteady growth to cross the milestone of Rs. 100000 crore and end the year at over Rs.115500 crore. About 80 per cent of the loans were to employees of top rated corporateswith reasonably high disposable income. Your Bank also continues to drive value throughits digital platforms increasing penetration in its internal customer base.Digitalisation also plays a key role for your Bank in pioneering various digital loans -10 second Personal Loan Digital Loan Against Shares and Loan Against Mutual Funds. ThePayments Business where your Bank has a dominant presence not only acts as a catalyst forcashless transactions but also spurs consumption. With 3.21 crore debit cards1.45 crorecredit cards and about 1.79 million acceptance points (across all form factors) it isamong the largest facilitators of cashless payments in the country. Your Bank's paymentsbusiness has launched digital offerings such as Bharat QR Code UPI and SMS paysolutions. It has also pioneered products such as the SmartHub app for small merchants andDigiPos which enables traditional PoS machines to accept digital payments.

In the credit card business your Bank continued to build on its strong base. Afterbecoming the first bank in the country to issue one crore credit cards in FY 2017-18 itended the year under review with 1.45 crore credit cards. Credit cards constitute about 6per cent of the overall Bank book.

In the year under review your Bank deepened its credit card customer base by launchingcards catering to millennials. It took the co-branded route to tap new markets or expandits presence in existing markets. The co-branded card with IOC helps expand its reach inthe semi-urban and rural locations; that with Indigo catches the huge aviation market andthe one with Walmart helps cater to the SME segment. The Virtual Relationship Management(VRM) programme gained substantial traction during the year under review. Under VRMRelationship Managers reach out to customers through remote and digital platforms leadingto deeper engagement in a cost-effective manner. These managers are a single point ofcontact for customers' banking and financial needs. This programme offers tailor-madesolutions using carefully drawn customer level plans and has been well received since itslaunch.

Banking Outlets


Opened 313 outlets# ATMs/Cash Deposit and Withdrawal Machines


Opened 1412 units#

#During 2019-20

*In addition we have 5379 Banking Outlets managed by CSCs Meanwhile your Bank alsoadded 313 Banking Outlets during the year taking the total to 5416 across 2803cities/towns. The share of semi-urban and rural outlets in the network is 52 per centreflecting our continued focus on penetrating further into these markets. In additionyour Bank has 5379 banking outlets managed by the Common Service Centres. The number ofATMs / Cash Deposit & Withdrawal Machines also increased to 14901 from 13489. Thetotal number of customers your Bank catered to as on March 31 2020 was over 5.60 crore upfrom 4.90 crore in the previous year.


5.6 crore+

Addition of about 70 lakh customers#

#During 2019-20

As you are aware that your Bank operates in the Home Loan Business in conjunction withHDFC Limited. As per this arrangement your Bank sells HDFC home loans while HDFC Limitedapproves and disburses them. Your Bank receives sourcing fee for these loans and as perthe arrangement has the option to purchase up to 70 per cent of fully disbursed loanseither through the issuance of mortgage-backed Pass Through Certificates (PTCs) or adirect assignment of loans. The balance is retained by HDFC Limited. Your Bank originatedon an average Rs. 2350 crore of home loans every month in the year under review andpurchased Rs. 24127 crore as direct assignment of loans.

Third Party Products

Your Bank distributes Life General & Health Insurance and Mutual Funds(Third-Party Products). Income from this business grew by 28% per cent to Rs. 2817 crorefrom Rs. 2200 crore and accounted for 17 per cent of Total Fee Income in the year endedMarch 31 2020 compared with 16 per cent in the preceding year.


The open architecture adopted by your Bank for insurance distribution with nine (9)insurers was made more robust by leveraging more branches and expanding the productbouquet. Continuing with the digital focus straight through process from prospecting toproposal stage was introduced with real time integration across all insurers. All productofferings were made available on the Netbanking platform. Premium mobilisation in lifeInsurance for the year ended March 31 2020 was Rs. 4587 crore.

In the Non-Life insurance space your Bank along with its six Non-Life insurancepartners introduced new and innovative products and increased customer offerings. All theproducts offered are enabled through Netbanking and Telesales platforms. Employees acrosschannels have been trained on the new products and processes. Manpower has beenstrengthened across non-life insurers to increase our business in the non-motor insurancespace. Premium mobilisation in General and Health Insurance grew by 3.61 per cent over theyear earlier to Rs. 2356 crore.

B) Wholesale Banking

The Wholesale Banking business was a key growth engine for your Bank in the year underreview. This business focuses on institutional customers such as the Government Large andEmerging Corporates and SMEs. Your Bank's strong offerings include Working Capital andTerm Loans Supply Change Financing as well as Trade Credit Cash Management SupplyChain Financing Foreign Exchange and Investment Banking services. The Wholesale Bankingbusiness recorded healthy growth ending FY 2019-20 with a domestic loan book size of overRs. 4.79 lakh crore recording a growth of 29.3 per cent over the year earlier. Thisconstituted about 49 per cent of your Bank's domestic loans as per Basel IIclassification. Your Bank was able to expand its share of the customer wallet primarilyusing sharper customisation cross-selling and expanding into greater geographiesCorporate Banking which focuses on large well-rated companies continued to be thebiggest contributor to Wholesale Banking in terms of asset size. This business was able tocapitalise on the trend of large companies preferring to deal with fewer banks. Your Bankdeepened its existing relationships as well as gained market share by leveraging its wideproduct offering. This business ended FY 2019-20 with a domestic loan book size of Rs. 2.4lakh crore recording a rise of 57 per cent over the year earlier. The Emerging CorporatesGroup which focuses on the mid-market segment too witnessed significant growth. YourBank leveraged its vast geographical reach technology backbone automated processessuite of financial products and quick turnaround times to offer a differentiated servicewhich has resulted in new customer acquisitions as well as a higher share of the walletfrom existing customers. The business continues to have a diversified portfolio in termsof both industry and geography. In the last five years this business has more thandoubled its presence to over 50 cities in India.

The year under review witnessed increased formalisation of the Micro Small and MediumEnterprises (MSMEs) sector due to the adoption of the Goods and Service Tax. This hasresulted in greater transparency on data regarding cash flows (for details on thebusiness please refer to the section on MSME on page 95). The Investment Banking businesscemented its prominent position in the Debt and Equity Capital Markets. Your Bank wasranked 3rd in the Bloomberg rankings of Rupee Bond Book Runners. YourBank is actively assisting clients in equity fund raising and your Bank was ranked 7thin the PRIME Database League Tables for IPOs Rights Issues and QIPs for FY 2019-20 forprivate sector issues.

In the Government business your Bank sustained its focus on tax collectionscollecting direct tax of over Rs. 3 lakh crore and indirect tax of approximatelyRs. 3925 crore during FY 2019-20. In addition your Bank collected over Rs. 1.82 lakhcrore in GST. It continues to enjoy a pre-eminent position among the country's major stockand commodity exchanges in both Cash Management Services and Cash Settlement Services.Your Bank has led the way in providing Digital Banking Services to not only its retailcustomers but also to its wholesale banking customers. It was an early adopter of digitaltechnology through the Corporate Net Banking Platform ENet.

HDFC Bank offers the entire gamut of financial services such as Payments CollectionTax Solutions Government Business Trade Finance Services Cash Management Solutions andCorporate Cards through its 3agship platform besides seamlessly connecting its customersthrough API S2S (Server to Server) and Host to Host services.

Your Bank's pre-eminent position in the Wholesale Banking business has securedrecognition from Greenwich Associates a leading provider of proprietary benchmarkingdata analytics and qualitative insights to financial services firms worldwide. It hasranked HDFC Bank:

• Joint No. 1 in Large Corporate Banking with 75 per cent share of market

• Leader in overall Quality of client relationship in Corporate Banking

• No. 1 in Middle-Market Banking with 60 per cent share of market 3

• Leader in overall Quality of client relationship in Middle-Market Banking

C) Treasury

The Treasury is the custodian of your Bank's cash/liquid assets and handles itsinvestments in securities foreign exchange and cash instruments. It manages the liquidityand interest rate risks on the balance sheet and is also responsible for meeting reserverequirements. The vertical also helps manage the treasury needs of customers and earns asubstantial part of its revenues through fee income generated from transactions customersundertake with your Bank while managing their foreign exchange and interest rate risks.

Revenue accrues from spreads on customer transactions based on trade and remittanceflows and demonstrated hedging needs. Your Bank recorded revenue of Rs. 2154.8 crore fromforeign exchange and derivative transactions in the year under review. While plain vanillaforex products were in demand across all customer segments demand for derivativesproducts came mostly from large and emerging corporates.

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

Your Bank maintains a portfolio of Government Securities in line with the regulatorynorms governing the Statutory Liquidity Ratio (SLR). A significant portion of these SLRsecurities are ‘Held-to-Maturity' (HTM) category while some are ‘Available forSale' (AFS). Your Bank is also a primary dealer for government securities. As a part ofthis business your Bank holds fixed income securities as ‘Held for Trading' (HFT).

In the year under review your Bank continued to be a significant participant in thedomestic exchange and interest rate markets. It also capitalised on falling bond yields tobook profits and is now looking at tapping opportunities arising out of the liberalisationin the foreign exchange and interest rate markets.

D) Partnering with the Government

1) CSC Partnership

Your Bank has been closely working with the Government both at the central and statelevels. It has an equity investment of over 9 per cent in CSC e-Governance ServicesIndia Ltd. CSCs operated by Village Level Entrepreneurs (VLEs) are the access points forthe delivery of essential public utility services social welfare schemes healthcarefinancial education and agriculture services apart from a host of B2C services tocitizens in rural and remote areas of the country. It is a pan-India network facilitatingthe Government's mandate of a socially financially and digitally inclusive society. TheGovernment of India envisages at least one VLE per 2.54 gram panchayat. Your bank will usethis network to offer retail products and banking services and further contribute to theGovernment's ‘Digital India' initiative. During the year under review your Bankconsiderably strengthened its relationship with CSCs by empanelling over 5300 BusinessCorrespondents covering nearly 600 districts over 1800 sub-districts and more than 4500revenue centres. Also 55000 VLEs are now business facilitators. This implies that theBank is able to cover a much larger footprint at lower costs.

This initiative will not only enable Financial Inclusion but will also help generateemployment opportunities particularly in rural India. Through CSCs your Bank alsosupports women self-help groups by providing loans to improve their standard of livingthrough income generating activities. During the period under review more than 50000women received SHG/JLG loans through CSC VLEs. Your Bank along with CSC e-GovernanceServices India Limited and the Confederation of All India Traders (CAIT) signed an MOU tooffer its complete range of financial and banking services to CAIT members even in remotevillages. Your Bank launched ‘Small Business Money Back' card co-branded with CSCe-Governance Services India Limited for small merchants traders farmers and otherbusiness entities. They will be able to avail credit limit by simply uploading theirone-year bank statement. The sourcing of this card is being done exclusively by CSC

3) Taking Banking to the Unbanked

Your Bank is fully committed to taking banking to the remotest parts of the countrythrough the combination of an extensive physical network and a robust digital suiteof products and services. Today over 52 per cent of the Bank's outlets are located inrural and semi-urban areas. The Bank also offers last mile access through mobileapplications such as BHIM UPI USSD Scan and Pay and RuPay enabled Micro-ATMs.

To bring more under-banked sections of the population into formal financial channelsyour Bank has opened over 24.9 lakh accounts under the Pradhan Mantri Jan Dhan Yojana(PMJDY) and enrolled 33.4 lakh customers in social security schemes since their inception.We now rank among the leading private sector banks in this regard. In the year underreview loans to the tune of Rs. 8149.3 crore were extended under the Pradhan MantriMudra Yojana (PMMY) and nearly Rs. 503 crore under the ‘Stand up India' scheme toScheduled Caste Scheduled Tribe and women borrowers.

4) Sustainable Livelihood Initiative

This is primarily a social initiative with elements of business. It entails skilltraining livelihood financing and creating market linkages.

International Business

To address the needs of NRI clients and Indian corporates your Bank has openedbranches and representative offices in Manama (Bahrain) Hong Kong Dubai DIFC Abu Dhabi& Nairobi (Kenya). These offices increase awareness of your Bank's brand with existingand prospective clients. It also has a presence in International Financial Service Centre(IFSC) at GIFT City in Gandhinagar Gujarat. This unit was opened three years ago. YourBank offers products such as trade credits foreign currency term loans including externalcommercial borrowings (ECB) and derivatives to hedge loans.

As on March 31 2020 the Balance Sheet size of the international business was US 5.7billion. Advances constituted 2.85 per cent of the Bank's Gross Advances. The Total Incomeof the overseas branches constituted 0.85 per cent of the Bank's Total Income for theyear. The numbers may appear small but what is significant here is your Bank's ability tocater to a large and growing Indian diaspora and maintain its leadership position amongthe peer group.

Non-Business Operations Social Commitment

To reiterate your Bank's social philosophy: businesses can only prosper if thecommunities in which they operate prosper as well. To add to this the change must beholistic and sustainable. This has been the guiding spirit of your Bank's socialinitiatives since inception. (For details refer page numbers 70-77.)

(Please refer to Annexure 2 of this report for disclosures pertaining to CSR asrequired under Rule 8 of the Companies (Accounts) Rules 2014).

Environmental Sustainability

Banking by the very nature of its business is environment friendly. During the yearunder review your Bank has gone a little further. It has now committed to reducing ScopeI and Scope II emissions by 10 per cent over the next 2 to 3 years as a part of itscommitment to climate change. To encapsulate the Bank's philosophy maintaining a balancebetween natural capital and communities is now integral to our functioning. To this endour ATMs have gone paperless contributing to a reduction of the carbon footprint. YourBank has given this effort a further 3llip by ensuring multi-channel delivery through NetBanking Phone Banking and Mobile Banking. This results in lower carbon emission not justfrom operations but also from reduced customer travel. Another source for reducing theenvironmental footprint is solar ATMs which use rechargeable lithium ion batteries thatreduce power consumption.

Business Enablers

1) People Transformation

People is one of the Core Values of your Bank and it firmly believes that Talent can bea source of competitive advantage in the marketplace. Your Bank has articulated itsvision: To be an Employer of Choice. Especially in the BFSI Sector.

This can only happen if we have totally engaged colleagues who are willing to givetheir best on a day-to-day basis. With the objective of creating a great employeeexperience which will drive a highly engaged and future ready workforce your Bank hasrebooted its entire people strategy and created a three tiered structure.

The first tier is the Centres of Excellence. These drive best practices and thoughtleadership in the areas of Talent Management and Organisation Effectiveness Technologyand Analytics Talent Acquisition Learning and Development and Compensation andBenefits. The second and third tiers of the structure are a hub and spoke model fordelivery. The central Corporate Business Partnering ensures a centralised point ofinterface with Business Leaders alignment of HR practices and customised solutions tomeet business needs. A strong decentralised regional leadership team drives executioncollaboratively across businesses. This truly captures the spirit of ‘ONE BANK'. Itacquires significance given the HDFC Bank's strong presence in semi-urban and rurallocations and collaborative nature of work between different business units.

It is important that all employees are aligned with your Bank's vision and sharedgoals. The Bank is therefore focused on creating a common Culture Code based on theprinciples of ‘Nurture' ‘Care' and ‘Collaborate' which will guidemanagerial and individual actions while in pursuit of our common goals. All peopleinterventions are sought to be underpinned by a common defined set of LeadershipCompetencies which will further help us embody these principles through demonstratedleadership behaviours. Your Bank is an equal opportunity employer and is striving toenhance diversity. Its inclusion agenda branded as ‘Valuing Differences' is focusedon creating an inclusive work environment where every individual is respected anddifferences are valued. The objective is to sensitise employees about ‘UnconsciousBiases' to introspect and work towards removing them. ‘Shrishti' is your Bank's3agship programme on diversity. It targets providing a level-playing field to our womenemployees to help them realise their potential and help them develop and grow asprofessionals and leaders.

Wellness is Wealth. The 3agship initiative ‘HDFC Bank Cares' is designed to enablepeople to take ownership of their wellbeing and thus creating an emotionally committedworkforce along the four dimensions of Physical Mental and Emotional Financial andSocial Wellbeing. There are several initiatives under this umbrella focused on proactiveand preventive healthcare like health checkups nutrition counselling employee assistanceprogramme for employee counselling as well as reactive support in the form of medicalsecond opinion facility of medical top-up cover and welfare support. Your Bank encouragesopen and transparent communication and dialogue among employees and the leadership team.Its philosophy is to build an emotional connect by creating a culture of openness andcollaboration where employees believe that senior leaders genuinely care for them areempathetic towards their needs and not just hear but also listen to them. Employees havemultiple platforms and opportunities ranging from one-on-one conversations with leaders aswell as larger forums and townhalls to connect with senior leadership. In addition‘Vibes' is a developmental tool which institutionalises a listening mechanism for allour managers to receive feedback from their respective teams. The feedback survey isdesigned around 3 critical tenets of leadership - Nurture Care and Collaborate. Your Bankalso launched ‘Voice' an organisation-wide sentiment survey through an externalpartner which is our barometer of Engagement@Work. The Bank has been spearheading digitaltransformation in the industry. To support this it is imperative for your Bank to haveready availability of talent with not only functional expertise but also the rightdigital skills. The Bank has initiated a collaborative journey with reputed educationalinstitutions for ‘preskilling' and creating a talent pool for the financial servicessector who can take on existing and emerging roles. The hub and spoke recruitment modelbacked by centres of excellence and emerging technologies like artificial intelligencehas helped realise significant productivity gains while ensuring hiring of the righttalent during the year under review. There is an equally strong focus on deepeningexpertise and expanding the digital skills footprint of our existing workforce to make itfuture ready. The Learning and Development team of your Bank offers an extensive bouquetof programmes across a gamut of functional and behavioural themes. The programmes are madeavailable primarily through digital platforms to ensure that these are accessible toemployees in the remotest locations. The Bank also aims to be a friend to the retiringemployees. Specific learning programmes have been developed for them as well as theirfamilies. This is in line with its belief that to enable employees have a long andfulfilling career with your Bank it is important to involve their family members in theco-creation of their development journey. Your Bank's belief in a ‘High Tech- HighTouch' approach towards employee connect is also realised through its annual sports event‘Josh' the annual Talent Competition ‘Hunar' which has also brought your Bankcloser to employees' families. In FY 2019-20 more than 46000 employees participatedacross ten different employee connect programmes which were as wide ranging as the cookerycontest ‘Zaika' painting competition for the children of employees ‘Xpressions'and trekking event ‘Wanderers'. Your Bank has always believed in creating leadersfrom within. Our current leadership team stands testimony to this. An institutionalisedapproach based on the premise that ‘all are talent' guides your Bank's talentmanagement interventions.

Talent philosophy

• We believe that everybody has potential and can contribute more qualitatively

• People may have diverse talents and we offer opportunities for all to succeedand grow.3

• We encourage difference in thought and ideas.

• We believe together we can achieve more

• We are driven by Merit

• We value Character

In a nutshell your Bank's talent philosophy is to "identify build and nurtureleaders across the organisation to deliver superior business results and addressindividual career aspirations". To actualise the philosophy the Bank has designed acomprehensive and holistic development framework which caters to all employees acrosslevels and businesses. The principle is to have a structured process by which allemployees have access to development opportunities that will prepare them for futureroles.

An institutionalised talent review approach through formalised review panels to arriveat an organisational view of talent using multiple data-points helps identify hi-potentialemployees possible successors to critical roles and development plans for individuals toprepare them for their desired future roles. Outcomes of Development Centre are one suchcritical input to the talent management process. Your Bank has introduced VirtualDevelopment Centres to enable managers in remote locations to have the same footing intheir development journeys as their counterparts in urban locations. Learning journeysbased on individual development plans (IDPs) will help address development areas over athree-year horizon. Sustained success of a large Bank cannot happen without theindefatigable contribution of its several ‘solid citizens'. In recognition of thissentiment your Bank extended the participation of this large segment of employees intoits annual Bonus payouts in FY 2019-20. The promotion and increment cycles were alsomerged which brought considerable streamlining and robustness to the rewards cycle of theBank. Besides the annual rewards cycle several recognition programmes are run in acentralised as well as business specific manner to motivate employees to give their best.Your Bank's continued recognition in the 25 Best Employers Survey by Business Today bearstestimony to its focus on ‘People'.

2) Information Technology

In the technology space your Bank continues to maintain its leadership position. Over95 per cent of its transactions are through digital channels. This has been achieved bycreating the right technology solutions by marrying intuition and scalability. Take thecase of the new MobileBanking App launched in March 2019. It has intuitive features likeSave Pay and Invest. UPI is another case in point where your Bank has demonstrated itsability to process a large volume of business transactions on a single day. HDFC Bank hastaken the story further by implementing an open API platform. Application ProgrammeInterface or API as it is popularly known is a software intermediary code which allowsexchange of data between your Bank and its customers in a seamless and secure manner. TheBank has already tied up with over 100 such customers using API. These includee–commerce platforms automotive companies aggregators merchants corporatescentral and state government portals housing societies hospitals mobile devicemanufacturers and retails schools and colleges 3ntech companies and start-ups. One ofyour Bank's key initiatives its tie-up with CSC has been enabled through API.

HDFC Bank's focus on offering assisted digital services through its relationshipmanagers and field force through a Smart Account Opening Mobile App has been very popular.Your Bank has also embraced cloud computing with the implementation of technologyplatforms such as Docker/Kubernetes for its core middleware. Being a cloud-based model itgenerates substantial cost savings as it is pay per use and can be scaled up or down basedon demand.

3) Cyber Security

A robust cyber information security and risk management framework is a must forcreating and growing digital autobahns. Your bank has implemented next generation3rewalls upgraded its security devices to support new ciphers and implemented the NetworkAdmission control defence mechanism to prevent unauthorised devices from connecting to theBank's network. HDFC Bank has successfully participated in various cyber security drillsconducted by IDRBT and DSCI. It has implemented a database activity monitoring solution toensure secure management of customer data. Your Bank has also ensured that its systemshave multiple layers of protection from security threats especially those emanating fromthe ‘dark web'.

4) Service Quality Initiatives and Grievance Redressal

Customer Focus is one of the five core values of your Bank. Your Bank has adopted aholistic approach for improving customer experience across multiple channels especiallysince it has various lines of businesses. In a highly competitive environment ensuringproduct quality and service delivery is vital for business growth. Your Bank seeks toachieve this by regularly reviewing service levels and capturing feedback from customers.Moreover it has constituted three committees at different levels to monitor customerservice - Branch Level Customer Service Committees (BLCSCs) Standing Committee onCustomer Service (SCCS) and Customer Service Committee of the Board (CSCB).

While your Bank has various touch points for its customers such as branch managedprogramme and phone banking it has further enhanced customer experience through a VirtualRelationship Manager (VRM). All these touch points along with state-of-the-art platformslike Netbanking and MobileBanking ensure that customers have an omnichannel experiencefor any of their financial needs. Your Bank has put robust processes in place to regularlymonitor and measure quality of service levels not only at various touch points but also ata product and process level by Quality Initiatives Group.

As part of its continuous efforts to enhance quality of service regular reviewsincluding mystery shopping are carried out for various products/channels by following astructured calendar. Such reviews cover key service parameters like adherence ofstipulated TAT complaints reduction and transactions monitoring to ensure meeting thecommitted service levels along with process enhancements. The effectiveness of quality ofservice is reviewed periodically at different levels including the Customer ServiceCommittee of the Board.

Your Bank has provided multiple channels to its customers to share feedback on itsservices as well as register their grievances. It has a Grievance Redressal Policy dulyapproved by its Board available in the public domain for ready reference of thecustomers.

The Bank is at the forefront of developing innovative financial solutions and digitalplatforms. This coupled with concerted efforts at creating awareness among customers hasled to an increase in the use of its digital channels as well as customer loyalty. Keepingcustomer interest as the focus your Bank has formulated a Board Approved CustomerProtection Policy which limits the liability of customers in case of unauthorisedelectronic banking transactions. The Bank has embarked on the journey to measure customerloyalty through a high velocity closed loop customer feedback system. This customerexperience transformation programme will help employees empathise better with customersand improve turnaround times. Branded as ‘Infinite Smiles' the programme would helpestablish behaviours and practices that result in customer-centric actions throughcontinuous improvement in product services process and policies.

Risk Architecture

I. Risk Management and Portfolio Quality

Traditionally the key risks that your Bank is exposed to in the course of its businesshave been the Pillar 1 risks - credit risk market risk and operational risk. Given theevolving banking landscape liquidity risk and cyber security risk are also vital. Theserisks not only have a bearing on your Bank's financial strength and operations but also onits reputation. Keeping this in mind the Bank has put in place Board-approved RiskStrategy and Policies whose implementation is supervised by the Risk Policy and MonitoringCommittee (RPMC). The committee periodically reviews risk levels and direction portfoliocomposition status of impaired credits and limits for treasury operations. It guides thedevelopment of policies procedures and systems for managing risks. It ensures that theseare adequate and appropriate to changing business conditions the structure and needs ofyour Bank and its risk appetite.

The hallmark of your Bank's risk management function is that it is independent of thebusiness sourcing unit with the convergence only at the CEO level. The gamut of key risksfaced by the Bank which are dimensioned and managed include:

• Credit Risk including Residual Risk

• Credit Concentration Risk

• Counterparty Credit Risk

• Market Risk

• Operational Risk

• Liquidity Risk

• Interest Rate Risk in the Banking Book

• Intraday Risk

• Model Risk

• Technology Risk

• Outsourcing Risk

• Strategic Risk

• Business Risk

• Compliance Risk Reputation Risk

Credit Risk

Credit Risk is defined as the possibility of losses associated with diminution in thecredit quality of borrowers or counterparties. Losses stem from outright default orreduction in portfolio value. Your Bank has a distinct credit risk architecture policiesprocedures and systems for managing credit risk in both its retail and wholesalebusinesses. Wholesale lending is managed on an individual as well as portfolio basis. Bycontrast retail lending given the granularity of individual exposures is managedlargely on a portfolio basis across various products and customer segments. For bothcategories there are robust front-end and back-end systems in place to ensure creditquality and minimise loss from default. The factors considered while sanctioning retailloans include income demographics credit history loan tenor and banking behaviour. Inaddition there are multiple credit risk models developed and used to appraise and scoredifferent segments of customers on the basis of portfolio behaviour. In wholesale loanscredit risk is managed by capping exposures on the basis of borrower group industrycredit rating grades and country among others. This is backed by portfoliodiversification stringent credit approval processes and periodic post-disbursementmonitoring and remedial measures. Your Bank has been able to ensure strong asset qualitythrough volatile times in the lending environment by stringently adhering to prudent normsand institutionalised processes.

As on March 31 2020 your Bank's ratio of Gross Non-Performing Assets (GNPAs) to GrossAdvances was 1.26 per cent. Net Non- Performing Assets (Gross Non-Performing Assets LessSpecific Loan Loss provisions) was 0.36 per cent of Net Advances. Your Bank has aconservative and prudent policy for specific provisions on NPAs. Its provision for NPAs ishigher than the minimum regulatory requirements and adheres to the regulatory norms forStandard Assets.

Digital Lending and Credit Risk

Driven by rapid advancements in technology digitalisation is increasingly becoming akey differentiator for customer retention and service delivery in the banking sector.Digital lending enables customers to secure loans at the click of a button in a matter ofminutes if not seconds. However there are also attendant risks associated with it andyour Bank has put in place appropriate checks and balances to manage these risks. Suchloans are sanctioned primarily to your Bank's existing customers. Often they arecustomers across multiple products thus enabling the Bank ready access to their credithistory and risk profile. This facilitates evaluation on their loan eligibility. Besidesmost of the credit checks and scores used by your Bank in process-based underwriting arereplicated for digital loans. The Bank has an independent model validation unit thatminutely assesses the models used to generate the credit scores for such loans. Thesemodels are monitored reviewed periodically back tested and corrective action is takenwhenever needed.

Market Risk

Market Risk arises largely from your Bank's statutory reserve management and tradingactivity in interest rates equity and currency market. These risks are managed through awell-defined Board approved Market Risk Policy Investment Policy Foreign ExchangeTrading Policy and Derivatives Policy that caps risk in different trading desks or varioussecurities through trading risk limits/triggers. The risk measures include positionlimits gap limits tenor restrictions sensitivity limits namely PV01 ModifiedDuration of Hold to Maturity Portfolio and Option Greeks Value-at-Risk (VaR) Limit StopLoss Trigger Level (SLTL) Potential Loss Trigger Level (PLTL) and are monitored on anend-of-day basis. In addition forex open positions currency option delta and interestrate sensitivity limits are computed and monitored on an intraday basis. This issupplemented by a Board-approved stress testing policy and framework that simulatesvarious market risk scenarios to measure losses and initiate remedial measures. The marketrisk capital charge of your Bank is computed on a daily basis using the StandardisedMeasurement Method applying the regulatory factors.

Liquidity Risk

Liquidity Risk is the risk that a bank may not be able to meet its short term financialobligations due to an asset–liability mismatch or interest rate 3uctuations. YourBank's framework for liquidity and interest rate risk management is spelt out in its AssetLiability Management Policy that is implemented monitored and periodically reviewed bythe Asset Liability Committee (ALCO). As part of this process the Bank has establishedvarious Board-approved limits both for liquidity and interest rate risks. While thematurity gap and stock ratio limits help manage liquidity risk net interest income andmarket value impacts help mitigate interest rate risk. This is reinforced by acomprehensive Board-approved stress testing programme covering both liquidity and interestrate risk.

Your Bank conducts various studies to assess the behavioural pattern of non-contractualassets and liabilities and embedded options available to customers which are used whilemanaging maturity gaps. Further your Bank also has the necessary framework in place tomanage intraday liquidity risk. The Liquidity Coverage Ratio (LCR) a global standard isalso used to measure your Bank's liquidity position. LCR seeks to ensure that the Bank hasan adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be convertedinto cash easily and immediately to meet its liquidity needs under a 30-day calendarliquidity stress scenario. Based on Basel III norms the RBI has mandated a minimum LCR of100 per cent from January 1 2019 and your Bank's LCR stood at 132.43 per cent on aconsolidated basis for FY 2019-20. The RBI has also mandated a minimum Net Stable FundingRatio (NSFR) of 100 per cent with effect from April 1 2020. The NSFR seeks to ensure thatthe Bank maintains a stable funding profile in relation to the composition of its assetsand off-balance sheet activities. As a prudent risk management practice your Bank hasbeen monitoring this ratio and is thus adequately prepared to meet the RBI mandatedrequirements.

Operational Risk

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

a. Framework and Process

To manage operational risks your Bank has in place a comprehensive and operationalrisk management framework whose implementation is supervised by the Operational RiskManagement Committee (ORMC) and reviewed by the RPMC of the Board. An independentOperational Risk Management Department (ORMD) implements the framework. Under theframework the Bank has three lines of defence. The first line of defence is the businessline (including support and operations). The first line is primarily responsible formanaging operational risk on a daily basis in addition to implementing internalcontrol-related policies and procedures.

The second line of defence is the ORMD which develops policies procedures tools andtechniques to assess and monitor the adequacy and effectiveness of your Bank's internalcontrols. In order to achieve the aforesaid objective pertaining to operational riskmanagement framework the ORMC oversees the ORMD with special focus on:

1) Identification and Assessment of risks across the Bank through the Risk and ControlSelf-Assessment (RCSA) and Scenario analysis;

2) Measurement of operational risk based on the actual loss data;

3) Monitoring of risk through Key Risk Indicators (KRI)) Management and reportingthrough KRI RCSA and loss data of the Bank. Internal Audit is the last line of defence.The team reviews the effectiveness of governance risk management and internal controlswithin your Bank.

b. Internal Control

Your Bank has implemented sound internal control practices across all processes unitsand functions. Your Bank has well laid down policies and processes for management of itsday-to-day activities. Your Bank follows established well-designed controls whichinclude traditional four eye principles effective segregation of business and supportfunctions segregation of duties call back processes reconciliation exception reportingand periodic MIS. Specialised risk control units function in risk prone products /functions to minimise operational risk. Controls are tested as part of the SOX controltesting framework.

c. Information Technology and Security Practices

Your Bank operates in a highly automated environment and makes use of the latesttechnologies to support various operations. This throws up operational risks such asbusiness disruption risks related to information assets data security integrityreliability and availability among others. Your Bank has put in place a governanceframework information security practices and business continuity plan to mitigateinformation technology-related risks. An independent assurance team within Internal Auditprovides assurance on the management of information technology-related risks. Your Bankhas a robust Business Continuity and Disaster Recovery plan that is periodically tested toensure that it can meet any operational contingencies. There is an independent InformationSecurity Group that addresses information security related risks. A well-documentedBoard-approved information security policy and cyber security policy is in place. The Bankalso has a well-documented crisis management plan in place to address the strategic issuesof a crisis impacting the Bank and to direct and communicate the corporate response to thecrisis including cyber crisis. In addition employees mandatorily and periodically undergoinformation security training and sensitisation exercises.

d. Fraud Monitoring and Control

Your Bank has put in place a Whistle Blower & Vigilance policy. The centralvigilance team based on investigation recommends implementation of fraud preventionmeasures. Frauds are investigated to identify the root cause and relevant corrective stepsare taken to prevent recurrence.

Fraud prevention committees at the senior management and Board level also deliberate onmaterial fraud events and advises preventive actions. Periodic reports are submitted tothe Board and senior management committees.

Compliance Risk

Compliance Risk is defined as the risk of impairment of your Bank's integrity leadingto damage to its reputation legal or regulatory sanctions or financial loss as a resultof a failure (or perceived failure) to comply with applicable laws regulations andstandards. Your Bank has a Compliance Policy to ensure the highest standards ofcompliance. A dedicated team of subject matter experts in the Compliance Department workswith business and operations teams to ensure active compliance risk management andmonitoring. The team also provides advisory services on regulatory matters. The focus ison identifying and reducing risk by rigorously testing products and also putting in placerobust internal policies. Products that adhere to regulatory norms are tested afterrollout and shortcomings if any are fully addressed till the product stabilises on itsown. Internal policies are reviewed and updated periodically as per agreed frequency orbased on market actions or regulatory guidelines/actions. The compliance team also seeksregular feedback on regulatory compliance from product business and operation teamsthrough self-certifications and monitoring.


Your Bank has a structured management framework in the Internal Capital AdequacyAssessment Process (ICAAP) to identify assess and manage all risks that may have amaterial adverse impact on its business/financial position/capital adequacy. The ICAAPframework is guided by Board-approved ICAAP Policy. Additionally the Board approvedStress Testing Policy and Framework entails the use of various techniques to assesspotential vulnerability to extreme but plausible stressed business conditions. Changes inthe Bank's risk levels and in the on/off-balance sheet positions are assessed under suchassumed scenarios using sensitivity factors that generally relate to their impact onprofitability and capital adequacy.

Group Risk

Your Bank has two subsidiaries HDB Financial Services Limited and HDFC SecuritiesLimited. The Board of each subsidiary is responsible for managing their respectivematerial risks (Credit Risk Market Risk Operational Risk Liquidity Risk TechnologyRisk Reputation Risk etc.). The Group Risk Management Committee (GRMC) was instituted inyour Bank under the ICAAP framework to establish a formal and dedicated structure toperiodically assess the nature/quantum of material risks of the subsidiaries and adequacyof its risk management processes. Stress testing for the group as a whole is carried outby integrating the stress tests of the subsidiaries. Similarly capital adequacyprojections are formulated for the group after incorporating the business/capital plans ofthe subsidiaries.

Business Continuity Planning (BCP)

Your Bank has an ISO 22301 certified Business Continuity Plan (BCP) in place tominimise service disruptions and potential impact on its business employees and customersduring any unforeseen adverse event or circumstances. The central Business ContinuityOffice works towards strengthening the continuity preparedness. The Plan is designed inaccordance with the regulatory guidelines and is reviewed regularly. The implementationis overseen by the Information Security Group and the Business Continuity SteeringCommittee which is chaired by the Chief Risk Officer (CRO). The Business Continuity Policyand Procedure defines roles for Crisis Management Business Recovery Emergency Responseand IT Disaster Recovery Planning teams.

(Please refer to page 62 for more details).

Ensuring Business Continuity during the Coronavirus Lockdown

Your Bank rose to the challenge of delivering banking services during the coronavirusoutbreak and the subsequent nationwide lockdown. Although your Bank has braved manycalamities in the past such as the Kerala 3oods and cyclone Fani in Odisha the pandemicis comparable to none in terms of scale and impact. Your Bank's first priority wasto ensure the safety of its people. They were advised to either work from their homes or anearby location. The Crisis Management Plan was invoked. The Crisis Management Team alongwith other Group Heads/Senior Management swung into action. The team prioritised criticalfunctions such as IT and Treasury to ensure minimal or no business disruptions. While thishas been an unprecedented crisis it has also been a period where your Bank's employeesworked as one unit across functions and verticals.

(Please refer to page 63 for more details).

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

The Ministry of Corporate Affairs in its press release dated January 18 2016 hadissued a roadmap for implementation of Indian Accounting Standards (IND-AS) for scheduledcommercial banks insurers/insurance companies and non-banking financial companies. Thisroadmap required these institutions to prepare IND-AS based financial statements for theaccounting periods beginning April 1 2018 with comparatives for the periods beginningApril 1 2017. The Reserve Bank of India (RBI) through its circular dated February 112016 required all scheduled commercial banks to comply with IND-AS for financialstatements for the stated periods. The RBI did not permit banks to adopt IND-AS earlierthan the stated timelines. The said guidelines also stated that the RBI shall issuenecessary instructions/guidance/clarifications on the relevant aspects for implementationof IND-AS as and when required.

The implementation of IND-AS by banks requires certain legislative changes in theformat of financial statements to comply with the disclosures required under IND-AS. Thechange in the format requires an amendment to the third schedule of the Banking RegulationAct 1949 to make it compatible with the presentation of financial statements underIND-AS. Considering the amendments needed to the Banking Regulation Act 1949 as well asthe level of preparedness of several banks the RBI through its Statement on Developmentaland Regulatory Policies dated April 5 2018 had deferred the implementation of IND-AS by ayear by when the necessary legislative amendments were expected. The legislativeamendments recommended by the RBI are under consideration by the Government of India.Accordingly the RBI through its circular dated March 22 2019 deferred theimplementation of IND-AS until further notice.

The implementation of IND-AS is expected to result in significant changes to the wayyour 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:

1) 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.

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

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

4) 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. Your 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). Your 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-Month 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 rateapplied on the gross carrying amount for assets falling under stages 1 and 2 and onwritten down amount for the assets falling under stage 3.

5) Accounting impact on the application of IND-AS at the transition date shall berecognised in equity (reserves and surplus). Your Bank being an associate of HousingDevelopment Finance Corporation Limited (the ‘Corporation') is required to submitits consolidated financial information (‘3t-for-consolidation information') preparedin accordance with the recognition and measurement principles of IND-AS as specified underSection 133 of the Companies Act 2013 to the Corporation for the purposes of theconsolidated financial statements/results of the Corporation. The results of the Bank uponits first time adoption of and transition to IND-AS based on the updated regulations andaccounting standards/guidance and business strategy at the date of actual transitioncould differ from those reported in the 3t-for-consolidation information.

III. Internal Controls Audit and Compliance

Your Bank has put in place extensive internal controls and processes to mitigateoperational risks including centralised operations and ‘segregation of duty' betweenthe front office and back office. The front-office units usually act as customertouch-points and sales and service outlets while the back-office carries out the entireprocessing accounting and settlement of transactions in the Bank's core banking system.The policy framework definition and monitoring of limits is carried out by variousmid-office and risk management functions. The credit sanctioning and debt management unitsare also segregated and do not have any sales and operations responsibilities.

Your Bank has set up various executive-level committees with participation fromvarious business and control functions that are designed to review and oversee matterspertaining to capital assets and liabilities business practices and customer serviceoperational risk information security business continuity planning and internalrisk-based supervision among others. The control functions set standards and lay downpolicies and procedures by which the business functions manage risks including compliancewith applicable laws compliance with regulatory guidelines adherence to operationalcontrols and relevant standards of conduct. At the ground level your Bank has a mix ofpreventive and detective controls implemented through systems and processes ensuring arobust framework in your Bank to enable correct and complete accounting identification ofoutliers (if any) by the Management on a timely basis for corrective action and mitigatingoperational risks.

Your Bank has put in place various preventive controls: (a) Limited and need-basedaccess to systems by users (b) Dual custody over cash and near-cash items (c) Segregationof duty in processing of transactions vis--vis creation of user IDs (d) Segregation ofduty in processing of transactions vis--vis monitoring and review oftransactions/reconciliation (e) Four eye principle (maker-checker control) for processingof transactions (f) Stringent password policy (g) Booking of transactions in core bankingsystem mandates the earmarking of line/limit (fund as well as non-fund based) assigned tothe customer (h) STP processes between core banking system and payment interface systemsfor transmission of messages (i) Additional authorisation leg in payment interface systemsin applicable cases (j) Audit logs directly extracted from systems (k) Empowerment gridYour Bank also has detective controls in place: (a) Periodic review of user IDs (b) Posttransaction monitoring at the back-end by way of call back process (through daily logreports) by an independent person i.e. to ascertain that entries in the core bankingsystem/messages in payment interface systems are based on valid/authorised transactionsand customer requests (c) Daily tally of cash and near-cash items at end of day (d)Reconciliation of Nostro accounts (by an independent team) to ascertain and match-off theNostro credits and debits (External or Internal) regularly to avoid/identify anyunreconciled/unmatched entries passing through the system (e) Reconciliation of allSuspense Accounts and establishment of responsibility in case of outstanding (f)Independent and surprise checks periodically by supervisors.

Your Bank has an Internal Audit Department which is responsible for independentlyevaluating the adequacy and effectiveness of all internal controls risk managementgovernance systems and processes and is manned by appropriately qualified personnel.

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

The Internal Audit Department also independently reviews your Bank's implementation ofInternal Rating Based (IRB)-approach for calculation of capital charge for Credit Riskthe appropriateness of Bank's Internal Capital Adequacy Assessment Process (ICAAP) aswell as evaluates the quality and comprehensiveness of the Bank's disaster recovery andbusiness continuity plans and also carries out management self-assessment of adequacy ofthe Bank's internal financial controls and operating effectiveness of such controls interms of Sarbanes Oxley (SOX) Act and Companies Act 2013.

Any new product/process introduced in the Bank is reviewed by Compliance function inorder to ensure adherence to regulatory guidelines and also by Internal Audit from theperspective of existence of internal controls. The Audit function also proactivelyrecommends improvements in operational processes and service quality wherever deemed 3t.

To ensure independence the Internal Audit Function has a reporting line to theChairman of the Audit Committee of the Board and a dotted line reporting to the ManagingDirector. The Compliance function independently tracks reviews and ensures compliancewith regulatory guidelines and promotes a compliance culture in the Bank.

Your Bank has a comprehensive Know Your Customer Anti Money Laundering (AML) andCombating Financing of Terrorism (CFT) policy (based on the

RBI guidelines/provisions of the Prevention of Money Laundering Act 2002)incorporating the key elements of Customer Acceptance Policy Customer IdentificationProcedures Risk Management and Monitoring of Transactions. The policy is subjected to anannual review and is duly approved by the Board.

The Bank has taken significant measures in developing and enhancing an effective andsustainable KYC AML and CFT Compliance Programme. The adherence to the guidelinesprescribed in the policy is monitored by your Bank at various stages of the customerlifecycle. Your Bank has robust controls in place to ensure adherence to the KYCguidelines at the time of account opening. The Bank also has a continuous review processin the form of transaction monitoring including a dedicated AML CFT monitoring team whichcarries out transaction reviews for identification of suspicious patterns/trends thathelps your Bank to further carry out enhanced due diligence and appropriate actionsthereafter. The status of adherence to the KYC AML and CFT guidelines is also placedbefore the Audit Committee of the Board for their review at quarterly intervals.

The Audit team and the Compliance team undergo regular training both in-house andexternal to equip them with the necessary knowhow and expertise to carry out the function.The Audit Committee of the Board reviews the effectiveness of controls compliance withregulatory guidelines as also the performance of the Audit and Compliance functions inyour Bank and provides direction wherever deemed 3t. Your Bank has always adhered to thehighest standards of compliance and has put in place appropriate controls and riskmeasurement and risk management tools to ensure a robust compliance and governancestructure.

IV. Responsible Financing

Your Bank is committed to Responsible Financing and refrains from funding projects thathave an adverse impact on Environment Health and Safety (EHS). EHS is an integral part ofthe Bank's overall credit risk assessment and monitoring process. Every project funded hasto pass the Bank's muster in terms of the EHS risk it entails potential impact andmitigation measures in place or proposed. The key aspects of the assessment process are:For all loans exceeding Rs. 10 crore in amount and five years in tenure borrowers have tosubmit a declaration of compliance with EHS norms.

In select large-ticket projects your Bank appoints a Lender's Independent Engineer(LIE) who conducts due diligence across several parameters including EHS. The 3ndings ofthe LIE's assessment report are then discussed with the client to ensure compliance.

The LIE regularly monitors such projects during the construction period through sitevisits and reports progress which includes status of approvals and relief andrehabilitation measures undertaken. Your Bank of3cials also conduct independent siteinspections from time to time to ensure that the project is progressing to the Bank'ssatisfaction. After the project becomes operational the borrower has to submit an annualdeclaration of compliance with various national laws including those related to EHS. Thisis also followed up by onsite visits of bank executives.

Your Bank deals with the client primarily through its Relationship Manager (RM). The RMhas to report compliance with EHS norms in the Credit Assessment Memorandum (CAM) both atthe time of initial sanction and during the annual review process. Such certification isbased on information/disclosures provided by the borrower at the time of initial appraisaland during periodic review of the facilities. The RM records outstanding EHS issues if anyand follows them up with the client for prompt resolution. The Bank levies defaultinterest in case of deviations and thus ensures compliance with the agreed EHS norms. Ifthere are significant deviations that could affect the viability of the project your Bankreserves the right to either reduce its exposure or recall the loan.

Performance of Subsidiary Companies

Your Bank has two subsidiaries HDB Financial Services Limited (HDBFSL) and HDFCSecurities Limited (HSL). HDBFSL is a leading NBFC that caters primarily to segments notcovered by the Bank while HSL is among India's largest retail broking firms. The financialresults of the subsidiaries are prepared in accordance with noti3ed Indian AccountingStandards (‘Ind-AS') with effect from April 1 2018 (April 1 2017 being thetransition date). Accordingly the financial results for the comparative reporting periodhave also been prepared in accordance therewith. The detailed financial performance of thecompanies is given below.

1) HDB Financial Services Limited

Incorporated in 2007 HDB Financial Services Limited (‘HDB') is a subsidiarycompany of HDFC Bank. It has a network of 1468 branches in 1070 towns and cities. HDB'snet interest revenue grew 22.9% to Rs. 4152 crore for the year ended March 31 2020 fromRs. 3378.80 crore in the previous year. This resulted in a net profit of

Rs. 1004.8 crore (Rs. 1153.2 crore in previous year). Its Assets Under Management forFY 2019-20 stood at

Rs. 58832.75 crore.

HDB is a leading NBFC that caters to the growing needs of an aspirational Indiaserving retail small and medium commercial clients. HDB offer loans to first time buyersand other underserved-segments through its distribution network and digital channels.

HDB has a wide range of financial solutions that help customers meet their growingfinancial needs. These include Consumer Loans Enterprise Loans and Asset Finance. With aseamless distribution channel and a committed workforce HDB brings in convenience tocustomers.


The current product portfolio consists of Loans Fee based products and BPO services.


The Company offers a wide range of loan products (secured and unsecured) to variouscustomer segments. These include Consumer Loans Enterprise Loans and Asset Finance.

Consumer Loans

The Company provides loans for purchase of white goods (such as washing machines andrefrigerators etc.) brown goods (such as televisions audio equipment and similarhousehold appliances etc.) digital products (such as mobile phones computer/laptop etc.)and life style products.

The Company also provides loans to individuals for personal family or householdpurposes to meet their short or medium term requirements.

Enterprise Loans

Small & Micro Enterprises need funding whether it is for the working capital orfor setting up new machinery for faster production. The Company offers secured andunsecured Loans to cater to the needs of these Enterprises.

Asset Finance

The Company offers loans for purchase of new & used vehicles and equipment's thatgenerate income for the borrowers. It provides finance to a broad spectrum of customersincluding 3eet owners first time users first time buyers and captive use buyers.

Fee based products/Insurance Services

The Company distributes third party products. The Company is a registered CorporateInsurance Agent having license from Insurance Regulatory & Development Authority ofIndia (IRDAI). IRDAI has renewed Corporate Agency license of the Company for a period of 3years from April 01 2019 to March 31 2022. The Company sells Life and General insuranceproducts of HDFC Standard Life Insurance Company Limited and HDFC Ergo General InsuranceCompany Limited respectively.

BPO Services

HDB runs a collections BPO business offering end-to-end specialised collectionservices with domain expertise in collections tele-calling recovery managementcollections analytics and cash reconciliation management. Its call centres with fulfilmentinfrastructure in over 200 towns offer best-in-class performance to its clients.

HDB's BPO services division delivers back-office services such as formsprocessing documents veri3cation finance and accounting services andcorrespondence management. HDB also delivers front office services such as contact centremanagement outbound marketing and collection services.

The Enablers

Compelling Product Offering

HDB brings in a compelling product offering across secured/unsecured loans investmentsor insurance. The company offers instant loan approvals for consumer loans withintelligent web application forms as well as personalised credit appraisal for largebusiness loans.

Robust Risk Management

The quest for growth has also been balanced by a robust risk management frameworkwhich has enabled HDB to maintain net NPA levels at about 2 per cent (among the lowest inthe industry) and strong credit ratings. HDB's long-term debt is rated AAA/stable by CAREand CRISIL and its short-term debt is rated A1+ by CARE and CRISIL indicating thehighest degree of safety regarding timely servicing of financial obligations.

Focus on Phygital: Physical cum Digital

With its ever-growing network of 1468 branches across 1070 cities/towns HDB isreaching out to customers across the country. Over 85 percent of its branches are outsidethe top 25 cities of India. The company leverages digital channels to offer financialsolutions to customers. For instance customers can access their loan account through thewebsite The self-service mobile application and customer service portal"HDB On-The-Go" aims to bring account management to the customer's3ngertips. As on March 31 2020 your Bank held 95.30% stake in HDB.

2) HDFC Securities Limited (‘HSL')

HSL's Total Income under Indian Accounting Standards was Rs. 862.2 crore as against Rs.770.6 crore in the previous year and Net Profit was Rs. 384.1 crore as against Rs. 329.8crore in the previous year. The company has a customer base of 24.1 lakh to whom it offersan exhaustive range of investment and protection products. In the year under review HSLhad 7.6 lakh transacting customers the third highest number of active (transacting)customers among all broking houses. The focus on digitisation continued. NotablyCustomers accessing HSL's services digitally increased to 79 per cent from 68 per cent inthe previous year. For the mobile app this increased to 50 per cent from 37 per cent. Ina conscious effort to rationalise the distribution network with greater emphasis ondigital offerings HSL consolidated its existing branches to end with 262 branches across161 cities/towns at the end of the year.

The company's performance was influenced by the sluggish macroeconomic environment andthe fall in stock markets over the year. Benchmark Indices like the Sensex and Nifty fellby 24 per cent and 26 per cent respectively over the year. This was their worst everperformance in over a decade caused by the slowing economy global trade wars and theCOVID pandemic towards the end of the year. 3 As on March 31 2020 your Bank held 96.57%stake in HSL. The annual reports of HDB 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 HDFC Bank. These documents will also be available forinspection by shareholders at the registered offices of the Bank and its two subsidiaries.

Other Statutory Disclosures

Number of Meetings of the Board attendance meetings and constitution of variousCommittees Nine meetings of the Board were held during the year under review. Thedetails of Board meetings attendance of Directors at the meetings and constitution ofvarious Committees of the BoardareincludedseparatelyintheCorporateGovernanceReport.

Extract of Annual Return

Pursuant to Section 134(3)(a) and Section 92(3) of the Companies Act 2013 the extractof the Annual Return in the prescribed format (MGT-9) is annexed as Annexure 3 tothis Report. Further the Annual Return of the Bank in the prescribed Form MGT-7 isavailable on the website of the Bank at the link

Requirement for maintenance of cost records

The cost records as specified by the Central Government under Section 148(1) of theCompanies Act 2013 are not required to be maintained by the Bank.

Reporting of Frauds by Auditors

During the year under review no instances of fraud committed against the Bank by itsofficers or employees were reported by the Statutory Auditors and Secretarial Auditorunder Section 143(12) of the Companies Act 2013 to the Audit Committee or the Board ofDirectors of the Bank.

Directors' Responsibility Statement

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

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

• 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 31 2020 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 andhave ensured that such internal financial controls were adequate and operatingeffectively.

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

Compliance with Secretarial Standards

The Bank is in compliance with all applicable Secretarial Standards as noti3ed fromtime to time.

Statutory Auditors

The Bank's current Statutory Auditors are MSKA & Associates Chartered AccountantsMumbai. MSKA & Associates were appointed as Statutory Auditor at the previous AnnualGeneral Meeting (AGM) of the Bank to hold office for a period of four consecutive yearswhich is the maximum permissible tenure as per RBI from FY 2019-20 till (and including)FY 2022-23 subject to the approval of the RBI.

During the year ended March 31 2020 fees paid to the MSKA & Associates and itsnetwork firms are as follows:

Fees (including taxes) HDFC Bank to Statutory Auditors HDFC Bank to network firms of Statutory Auditors Subsidiaries of HDFC Bank to Statutory Auditors and its network firms
Statutory Audit 2.85 - -
Certification & other attest services 0.54 - -
Non-audit services - - -
Outlays and Taxes 0.39 - -
Total 3.78 - -

The requirement to place the matter relating to appointment of Statutory Auditors forrati3cation by Members at every AGM has been done away with by the Companies (Amendment)Act 2017 with effect from May 7 2018. Accordingly no resolution is being proposed forrati3cation of appointment of Statutory Auditors at the ensuing AGM and a note in respectof the same has been included in the Notice for this AGM. However resolution is beingproposed for rati3cation of additional fees paid to Statutory Auditors for FY 2019-20 aswell as for approval of fees payable to them for FY 2020-21.

Disclosure under Foreign Exchange Management Act 1999

As far as FEMA compliances in relation to strategic downstream investments in theBank's subsidiaries are concerned during the year under review there have been nostrategic downstream investments made by Bank in its subsidiaries. Accordingly the Bankhas obtained a certificate from its Statutory Auditors to this effect.

Related Party Transactions

Particulars of transactions with related parties referred to in Section 188 (1) 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 the provisions of Section 186of Companies Act 2013 except sub-section (1) do not apply to a loan made guaranteegiven or security provided or any investment made by a banking company in the ordinarycourse of business. The particulars of investments made by the Bank are disclosed in NoteNo. 11 of Schedule 18 of the Financial Statements as per the applicable provisions ofBanking 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.

Whistle Blower Policy / Vigil Mechanism

The Bank encourages an open and transparent system of working and dealing amongst itsstakeholders. While the Bank's ‘Code of Conduct & Ethics Policy' directsemployees to uphold Bank's values and conduct business worldwide with integrity andhighest ethical standards the Bank has also adopted a ‘Whistle Blower Policy' whichencompasses a comprehensive framework of managing complaints of every stakeholder. Itencourages its employees and various stakeholders to raise concerns about illegal/unethical behaviour observed in the Bank compromise/ violation of Bank's code of conductand ethics policy or legal or regulatory provisions corruption misuse of officecriminal offences actual or suspected fraud and other malpractices detrimental to theinterest of the Bank without any fear of reprisal discrimination harassment orvictimization of any kind. Thepolicyalsocoversreportingofinstancesofleakage/suspectedleakage of unpublished price sensitive information which are in violation to SEBI(Prohibition of Insider Trading) Regulations 2015 and the Share Dealing Code of the Bank.

All such concerns/ complaints are received by the Chief of Internal Vigilance of theBank and/or by the Whistle Blower Committee through a dedicated email ID or by way ofletters etc. All such complaints are enquired into by the appropriate authority within theBank while ensuring confidentiality of the identity of such complainants. On the basis oftheir investigation if the allegations are proved to be correct then the CompetentAuthority shall recommend to the appropriate Disciplinary Authority to take suitableaction against the responsible of3cial and corrective measures in consultation with theconcerned stakeholders. The decision of the Whistle Blower Committee is final and bindingon all. Other actions/measures considered necessary to prevent/ curb recurrence of eventsis also taken by the Competent Authority.

Details of Whistle blower complaints received and subsequent action taken and thefunctioning of the Whistle Blower mechanism are reviewed periodically by the AuditCommittee of the Board. No person has been denied access to the Audit Committee of theBoard. During the FY 2019-20 a total of 84 such complaints were received and taken up forinvestigation which has resulted in certain staff actions in 34 cases post investigation.The broad categories of whistle blower complaints were in the areas of improper businesspractices unethical HR practices and corruption related.

The Policy is available on the website of the Bank at the link-

Statement on Declaration by Independent Directors

Mrs. Shyamala Gopinath Mr. Malay Patel Mr. Umesh Chandra Sarangi Mr. Sanjiv SacharMr. M. D. Ranganath and Mr. Sandeep Parekh are the Independent Directors on the Board ofthe Bank as on March 31 2020. Pursuant to the provisions of Section 149 of the CompaniesAct 2013 the independent directors have submitted declarations that each of them meet thecriteria of independence as provided in Section 149(6) of the Act along with Rules framedthereunder and Regulation 16(1)(b) of the Securities and Exchange Board of

India (Listing Obligations and Disclosure Requirements) Regulations 2015 ("SEBIListing Regulations"). There has been no change in the circumstances affecting theirstatus as independent directors of the Bank. In the opinion of the Board the independentdirectors possess the requisite integrity experience expertise and pro3ciency requiredunder all applicable laws and the policies of the Bank. In compliance with Section 149 and152 of the Companies Act 2013 Mr. Malay Patel is proposed to be re-appointed as anIndependent Director of the Bank at the ensuing Annual General Meeting. A resolutionseeking shareholders' approval for his re-appointment forms a part of the Notice of thisAGM. A brief profile is furnished in the report on Corporate Governance for theinformation of shareholders.

Board Performance Evaluation

The Nomination and Remuneration Committee (NRC) has approved a framework / policy forformal annual evaluation of the Board Committees of the Board and the individual membersof the Board (including the Chairperson) which is reviewed annually by the NRC. Aquestionnaire for the evaluation of the Board its Committees and the individual membersof the Board (including the Chairperson) 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 hasin place a process wherein declarations are obtained from the Directors regardingfulfilment of the ‘3t and proper' criteria in accordance with RBI guidelines. Thedeclarations from the Directors other than members of the NRC are placed before the NRCand the declarations of the members of the NRC are placed before the Board. Assessment onwhether the Directors fulfil the said criteria is made by the NRC and the Board on anannual basis. In line with the Bank's Board-approved policy on appointment and 3t andproper criteria for directors any director appointed during the financial year for whichperformance review / evaluation exercise of the Board of Directors is being conductedmust have attended at least three (3) Board meetings convened in that financial year inorder to participate in such review / evaluation exercise. Since Mrs. Renu Karnad wasappointed on the Board with effect from March 3 2020 she has attended one Board meetingheld in FY 2019-20 and is thus not eligible for the Board performance evaluation for FY2019-20. In addition the framework / policy approved by the NRC provides for aperformance evaluation of the Non-Independent

Directors by the Independent Directors on key personal and professional attributes. Inaddition to the above parameters the Board also evaluates fulfillment of the independencecriteria as specified in SEBI (Listing Obligations and Disclosure Requirement)Regulations 2015 by the Independent Directors of the Bank and their independence from themanagement. Such performance evaluation has been duly completed as above.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

Your Bank has in place a Policy for appointment and 3t and proper criteria forDirectors of the Bank. The Policy lays down the criteria for identification of persons whoare qualified and ‘3t and proper' to become Directors on the Board such as academicqualifications competence track record integrity etc. which shall be considered by theNRC while recommending appointment of Directors. The Policy is available on the website ofthe Bank at the link The remuneration of WholeTime Directors key managerial personnel and senior management is governed by theCompensation Policy of the Bank. The same is available at theweb-link- The CompensationPolicy of the Bank duly reviewed and recommended by the NRC has been articulated in linewith the relevant Reserve Bank of India guidelines. Your Bank's Compensation Policy isaimed to attract retain reward and motivate talented individuals critical for achievingstrategic goals and long term success. The Compensation policy is aligned to businessstrategy market dynamics internal characteristics and complexities within the Bank. Theultimate objective is to provide a fair and transparent structure that helps the Bank toretain and acquire the talent pool critical to building competitive advantage and brandequity.

Your Bank's approach is to have a "pay for performance" culture based on thebelief that the Performance Management System provides a sound basis for assessingperformance holistically. The compensation system should also take into account factorssuch as roles skills / competencies experience and grade / seniority to differentiatepay appropriately on the basis of contribution skill and availability of talent onaccount of competitive market forces. The details of the compensation policy are alsoincluded in Note No. 26 of Schedule 18 forming part of the Acoounts. Non-ExecutiveDirectors are paid remuneration by way of sitting fees for attending meetings of the Boardand its Committees which are determined by the Board based on applicable regulatoryprescriptions. Further expenses incurred by them for attending meetings of the Board andCommittees are reimbursed at actuals. Pursuant to the relevant RBI guidelines and approvalof the shareholders the Non-Executive Directors other than the

Chairperson are paid profit-related commission of Rs. 1000000 (Rs. Ten Lakh Only)per annum for each Non-Executive Director. Mr. Aditya Puri is the Non-Executive Chairmanof HDB Financial Services Limited subsidiary of the Bank. Mr. Puri does not receive anyremuneration including stock options from the subsidiary. Mr. Malay Patel is anindependent director on the Board of HDFC Securities Limited subsidiary of the Bank. Mr.Patel receives sitting fess from the said subsidiary. None of the Directors of your Bankother than Mr. Puri and Mr. Patel is a director of the Bank's subsidiaries as on March 312020.

Succession Planning

The Bank's Nomination and Remuneration Committee (NRC) oversees matters of successionplanning of its Directors Senior Management and Key Managerial Personnel. With respect tothe tenure of the current Managing Director Mr. Aditya Puri ending in October 2020 theBoard of Directors of the Bank had constituted a Search Committee comprising certain Boardmembers and Mr. Puri acting as advisor to the Search Committee to identify the successorto the Managing Director. On the recommendations of the Search Committee and the NRC theBoard of Directors of the Bank at its meeting held on April 18 2020 had finalized thenames of three (3) candidates in the order of preference for the position of ManagingDirector & Chief Executive Officer of the Bank. In terms of the Banking Regulation Actand the extant RBI norms the Bank has submitted its application to RBI with the names ofthe candidates in the order of preference for RBI's approval.

Significant and Material Orders Passed by Regulators

During the FY 2019-20 Reserve Bank of India (RBI) had vide its order dated June 132019 imposed a monetary penalty of

Rs. 10 million (Rupees ten million only) on the Bank for non-compliance with directionsissued by RBI on Know Your Customer (KYC) / Anti-Money Laundering (AML) Norms and onreporting of frauds. The penalty was imposed in exercise of powers vested in RBI under theprovisions of Section 47A (1)(c) read with Section 46(4)(i) of the Banking Regulation Act1949. In the instant case the Bank had made a reference to the Custom Authorities forveri3cation of Bill of Entry submitted by certain importers. Examination of thesecustomers revealed violations of RBI directions on ‘KYC/AML norms' and on reportingof frauds. The Bank has taken necessary measures to strengthen its internal controlmechanisms so as to ensure that such incidents do not recur.

RBI had also vide its order dated January 29 2020 imposed a monetary penalty of Rs.10 million (Rupees ten million only) on the Bank for failure to undertake on-going duediligence in case of 39 current accounts opened for bidding in Initial Public Offer (IPO).The penalty was imposed by RBI in exercise of the powers conferred under the provisions ofSection 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act 1949. The Bankhas since strengthened its internal control mechanisms so as to ensure that such incidentsdo not recur.

Directors and Key Managerial Personnel

In compliance with Section 152 of the Companies Act 2013 Mr. Kaizad Bharucha willretire by rotation at the ensuing Annual General Meeting and is eligible forre-appointment. A resolution seeking shareholders' approval for his re-appointment forms apart of the Notice of this AGM. A brief profile is furnished in the report on CorporateGovernance for the information of shareholders.

During the year Mr. Keki Mistry ceased to be Director of the Bank from close ofbusiness hours on January 18 2020 on completing the maximum permitted tenure of eightyears as per Banking Regulation Act 1949. Your Directors place on record their sincereappreciation of the contribution made by Mr. Keki Mistry during his tenure with the Bankand wishes him well in future endeavors.

Mrs. Renu Karnad was appointed as an Additional Non-Executive Director (nominee ofHousing Development Finance Corporation Ltd) on the Board of the Bank with effect fromMarch 3 2020 subject to approval of shareholders at the ensuing AGM. The Board ofDirectors had appointed Mr. Sashidhar Jagdishan and Mr. Bhavesh Zaveri each as AdditionalDirector and Executive Director on the Board of the Bank subject to the approval of theReserve Bank of India and shareholders for a period of three (3) years each from November28 2019 or for such other period / from such other date as may be approved by the ReserveBank of India. The Bank had also made an application to the RBI seeking approval for theaforementioned appointments. RBI through its communication dated April 7 2020advised the Bank to examine and submit the proposal after a new MD and CEO assumes chargelater this year. Accordingly their appointments as Executive Directors have not takeneffect and further Mr. Sashidhar Jagdishan and Mr. Bhavesh Zaveri resigned as AdditionalDirectors from the Board of the Bank in terms of Companies Act 2013 on April 182020.

Mr. Srinivasan Vaidyanathan was appointed as the Chief Financial Officer of the Bankwith effect from August 22 2019. There have been no changes in the Directors and KeyManagerial Personnel of the Bank other than the above.

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:

• 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 pm

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

• Provision of LED lamps at branches and offices

• Provision of solar panels for captive power generation at our offices in Puneand Bhubaneswar Noida It has also reduced contract demand at Kanjurmarg Hub in Mumbai andHinjewadi in Maharashtra.

Your Bank has also replaced CFL lamps with LED fixtures at Kanjurmarg Hub / WBO / Fortin Mumbai / Bank House Mumbai

(B) Technology Absorption

This year your Bank has extended the on-line real-time Digital API Technology basedcollaboration with third party and 3ntech platforms to shopkeepers and small merchants inline with the Bank's Dukaandaar Dhamaka initiative.Loans worth over Rs. 650 crore weredisbursed using this technology in FY 2019-20. Leveraging API based Service OrientedArchitecture your bank has implemented a Consumer Durable Loans origination solutionwhich should now strengthen your Bank's position on the leader board. Personalization ofBank's Brand New website for returning visitors and Omni channel targeting for next bestoffers to customer's transacting with the Bank on Mobile Internet Home Page Face BookInstagram etc. have been other significant Technology enablement in FY 2019-20. A SmartAccount Opening App has been launched which helps Relationship Managers to Digitallyon-board the New to Bank customers.

(C) Foreign Exchange Earnings and Outgo

During the year the total foreign exchange earned by the Bank was Rs. 2154.8 crore(on account of net gains arising on all exchange /derivative transactions) and the totalforeign exchange outgo was Rs. 2342.86 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.Alwyn Jay & Co. Company Secretaries have been appointed as Secretarial Auditors ofthe Bank for the FY 2019-20. The report of the Secretarial Auditors is enclosed as Annexure8 to this Report. There are no observations/ qualifications/ comments in the Report ofthe Secretarial Auditor.

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 the Corporate Governance Report


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 year under review ended with the lockdown and the new year began with it. Thismeant that these are genuinely troubled times for both the global and Indian economy. Thefirst half of the financial year is likely to be largely about contraction with growthexpected to rebound only in the second half. Your Bank cannot remain immune to this. Whatworks in its favour are inherent strengths like : strong capitalisation asset quality andfranchise. These do not constrain its ability to lend expand into new geographies andcome up with out of the box solutions in response to an unprecedented situation.

At the macro-economic level there is still substantial scope for financialpenetration particularly banking in India. India is also expected to capture asignificant part of the global production that is expected to shift from China. In such ascenario the country's traditional strengths like demographic dividend will come intoplay. All these open up substantial growth opportunities for your Bank.

It will continue to chase growth but maintain its traditional prudence. And leverageits distribution strength and digital platforms to offer a similar experience to customersacross urban semi-urban and rural India.

It will of course continue to focus on its 5 Core Values : Customer Focus OperationalExcellence Product Leadership People and Sustainability. Its commitment to the highestpossible standards of corporate governance remains unwavering as it embarks on the nextstage of its Responsible Growth story.

On behalf of the Board of Directors
Shyamala Gopinath
June 20 2020 Chairperson