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As on: Jun 27, 2019 05:54 AM
HDFC Bank Ltd
Industry: Banks - Private Sector
BSE Code ISIN Demat Book Value(Rs) NSE Symbol Mar.Cap(Rs Cr.) P/E(TTM) EPS(TTM) Face Value(Rs)
500180 INE040A01026 545.9879364 HDFCBANK 674212.12 31.99 77.13 2

To the Members,


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

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

The performance is a reflection of the following:

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

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

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

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

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

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

Summary of Financial Performance

For the year ended / As on

March 31, 2017 March 31, 2016
Deposits and Other Borrowings 7,17,668.5 6,31,393.2
Advances 5,54,568.2 4,64,594
Total Income 81,602.5 70,973.2
Profit Before Depreciation and Tax 22,972.2 19,343.8
Profit After Tax 14,549.6 12,296.2
Profit Brought Forward 23,527.7 18,627.8
Total Profit Available for Appropriation 38,077.3 30,924
Transfer to Statutory Reserve 3,637.4 3,074.1
Transfer to General Reserve 1,455 1,229.6
Transfer to Capital Reserve 313.4 222.2
Transfer to / (from) Investment Reserve 4.3 (8.5)
Proposed Dividend* - 2,401.8
Tax (including cess) on Dividend* - 488.9
Dividend (including tax / cess thereon) pertaining to previous year paid during the year, net of dividend tax credits (1.7) (11.7)
Balance carried over to Balance Sheet 32,668.9 23,527.6

*The Board of Directors, at the meeting held on April 21, 2017 has proposed a dividend of Rs.11.00 per equity share aggregating Rs.3,392.7 crore, inclusive of tax on dividend. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of revised Accounting Standard (AS) 4-Contingencies and Events Occurring after the Balance Sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend from Statement of Profit and Loss for the year ended March 31, 2017. However, the effect of the proposed dividend has been reckoned in determining capital funds in the computation of the Capital Adequacy Ratio as on March 31, 2017.

The Bank's Total Income rose to Rs.81,602.5 crore for the year under review from Rs.70,973.2 crore in the previous year. Its Net Profit increased by 18.3 per cent to Rs.14,549.7 crore from Rs.12,296.2 crore. Appropriations from Net Profit have been effected as per the table given above.


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

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

Issuance of Equity Shares

During the year under review, 3,43,59,200 equity shares were allotted to the employees of your Bank in respect of the equity stock options exercised under the Employee Stock Option Schemes. As on March 31, 2017, the issued, paid up and authorised capital of your Bank stood at Rs.512,50,91,434 comprising 256,25,45,717 equity shares of Rs.2 each.

Employee Stock Options

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

Capital Adequacy Ratio

Your Bank's total Capital Adequacy Ratio (CAR) calculated in line with Basel III capital regulations stood at 14.6 per cent as on March 31, 2017, well above the regulatory minimum of 10.25 per cent including Capital Conservation Buffer of 1.25 per cent. Of this, Tier I CAR was 12.8 per cent. The effect of the proposed dividend has been taken into account in computing these ratios.

Subsidiary Companies

Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC Securities Limited (HSL). The detailed financial performance of the companies is given below.

HDB Financial Services Limited

HDBFSL is a leading Non-Banking Financial Company that caters to segments not covered by the Bank through a network of 1,151 branches in 22 states and 3 Union Territories. Using both physical and digital channels, the company offers loan and asset finance products to individuals, emerging businesses, and micro enterprises across manufacturing, trading and services sectors. Additionally, the company provides Business Process Outsourcing (BPO) solutions to HDFC Bank.

In the year under review, HDBFSL's Net Interest Income grew by 41 per cent to Rs.2,037.2 crore from Rs.1,444.5 crore in the previous year. Net Profit rose 28 per cent to Rs.684.2 crore from Rs.534.4 crore.HDBFSL is rated AAA for its long-term debt and A1+ for its short-term debt facilities by CARE & CRISIL respectively indicating the highest degree of safety regarding timely servicing of financial obligations.

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

In the year under review, HDBFSL raised Rs.1,099.4 crore through a rights issue. This resulted in a higher capital base and Capital Adequacy Ratio (CAR) of 20.8 per cent, well beyond the mandatory requirement of 15 per cent. The proceeds of this issue will be utilised for capital expenditure, working capital and business growth. As on March 31, 2017, your Bank held 96.2 per cent stake in the company.

HDFC Securities Limited

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

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

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

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

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

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

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


Macroeconomic and Industry Developments

India's economy recorded a growth rate of 7.1 per cent in terms of real Gross Domestic Product (GDP) in 2016-17. While agriculture growth rose to 4.4 per cent in 2016-17 from 0.8 per cent in 2015-16, services sector growth declined to 7.9 per cent from 9.8 per cent during the same period. Inflation moderated, with the average level of Consumer Price Inflation declining to an estimated level of 4.6 per cent in 2016-17 from 4.9 per cent in 2015-16. Foreign Direct Investment inflows (FDI) increased by 12 per cent in the April–December period of 2016 over the corresponding period of the previous year.

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

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

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

Mission, Business Strategy and Approach to Business

Your Bank's mission is to be a ‘World Class Indian Bank', benchmarking itself against international standards and best practices in terms of product offerings, technology, service levels, risk management, audit and compliance. The objective is to continue building sound customer franchises across distinct businesses so as to be a preferred provider of banking services for its target retail and wholesale customer segments, and to achieve a healthy growth in profitability consistent with the Bank's risk appetite.

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

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

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

• Increase geographical reach

• Cross-sell broad financial product portfolio across customer base

• Continue investments in technology to support digital strategy

• Maintain strong asset quality through disciplined credit risk management

• Maintain a low cost of funds

Financial Performance

The financial performance of your Bank during the year ended March 31, 2017 remained healthy with Total Net Revenues (Net Interest Income plus Other Income) increasing by 18.5 per cent to Rs.45,435.7 crore from Rs.38,343.2 crore in the previous year. Revenue growth was driven by an increase in both Net Interest Income and Other Income. Net Interest Income grew by 20.1 per cent due to acceleration in loan growth coupled with a core Net Interest Margin (NIM) of 4.3 per cent in the year ended March 31, 2017.

Other Income grew 14.4 per cent to Rs.12,296.5 crore. The largest component was fees and commissions, which increased by 13.6 per cent to Rs.8,812 crore. Foreign exchange and derivatives revenue was Rs.1,263.4 crore, gain on revaluation and sale of investments was Rs.1,139.4 crore and recoveries from written-off accounts was Rs.864.3 crore in the year under review.

Operating (Non-Interest) Expenses increased to Rs.19,703.3 crore from Rs.16,979.7 crore. During the year under review, your Bank opened 195 new branches and 260 ATMs. This, along with strong growth in retail asset and card products resulted in higher infrastructure and staffing expenses. Staff expenses also increased on account of annual wage revisions. Despite the addition to the infrastructure, your Bank's Cost to Income Ratio improved to 43.4 per cent.

Total Provisions & Contingencies was Rs.3,593.3 crore as compared to Rs.2,725.6 crore. Your Bank's provisioning policies remain more stringent than regulatory requirements. The Coverage Ratio based on specific provisions alone excluding write-offs stood at around 69 per cent and including general and floating provisions around 130 per cent as on March 31, 2017. Your Bank made General Provisions of Rs.392.2 crore during the year.

In the year under review, your Bank's Profit Before Tax grew by 18.8 per cent to Rs.22,139.1 crore. After providing for Income Tax of Rs.7,589.4 crore, the Net Profit increased by 18.3 per cent to Rs.14,549.7 crore from Rs.12,296.2 crore. Return on Average Net Worth was 18 per cent while the Basic Earnings Per Share was Rs.57.2 up from Rs.48.8.

CUSTOMER As on March 31, 2017, your Bank's Total Balance Sheet stood at Rs.8,63,840 crore, an increase of 16.6 per cent over Rs.7,40,796 crore on March 31, 2016. Total Deposits increased by 17.8 per cent toDIGITALI Rs.6,43,640 crore from Rs.5,46,424 crore. This was after considering maturities of about US $ 3 billion of Foreign Currency Non-Resident (FCNR) deposits raised (and swapped

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

Savings Account Deposits grew by 30.9 per cent to Rs.1,93,579 crore while Current Account Deposits grew by 30.7 per cent to Rs.1,15,574 crore. Time Deposits stood at Rs.3,34,487 crore representing an increase of 7.9 per cent. CASA Deposits accounted for 48 per cent of the Total Deposits as against 43 per cent earlier. Advances stood at Rs.5,54,568 crore, an increase of 19.4 per cent. This was after considering repayments during the year of about US $ 2 billion of overseas loans linked to FCNR deposits. The Bank's domestic loan portfolio of Rs.5,38,642 crore grew by 23.7 per cent over March 31, 2016. The Bank had a share of 5.9 per cent in Total Domestic Deposits and 6.8 per cent in Total Domestic Advances. Its Credit Deposit (CD) Ratio stood at 86 per cent on March 31, 2017.

Business Segments Update

Retail Banking

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

The growth in your Bank's retail banking business was robust during the year under review. Total Retail Deposits grew by 17.7 per cent to Rs.5,06,843 crore on the back of a higher than usual CASA which, thanks to demonetisation, grew at 32.9 per cent.

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

The Bank's Retail Advances grew by 18.9 per cent to Rs.2,95,161 crore.

During the year under review, your Bank added 195 branches taking its physical distribution network to 4,715 branches in 2,657 cities/towns. Number of ATMs increased to 12,260 from 12,000 during the same period. The Bank grew its customer base to 4.05 crore from 3.77 crore with a continued focus on semi-urban and rural markets that accounted for more than 52 per cent of its branches.

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

In addition to this, the Bank operates in the Home Loan business in conjunction with HDFC Limited. As per this arrangement, the former sells loans provided by the latter through its branches, while the latter approves and disburses it. The Bank receives sourcing fee for these loans and has the option to purchase up to 70 per cent of the fully disbursed loans either through the issue of mortgage backed Pass Through Certificates (PTCs) or by a direct assignment of loans. The balance is retained by HDFC Limited. Your Bank originated, on an average, Rs.1,500 crore of Home Loans every month in the year under review. It also purchased loans worth Rs.13,146 crore under the ‘Loan Assignment' route during the year ended March 31, 2017.

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

Wholesale Banking

Like in retail, the Wholesale Banking business logged a strong growth ending the year under review with a loan book of about Rs.2,63,000 crore constituting 47 per cent of the Bank's total book. It grew 20.1 per cent in the year under review catering to institutional customers like large and emerging corporates, and SMEs. Government business is another major contributor. The breadth of offering includes Working Capital and Term Loans as well as Trade, Cash Management, Foreign Exchange and Investment Banking services.

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

Corporate Banking, which focuses on large and well rated companies was the biggest contributor with its asset size growing by over 20 per cent to cross Rs.1,25,000 crore in the year under review. This growth was achieved, in an otherwise subdued credit environment, through securing a higher share of the customer wallet, addition of new clients, introduction of differentiated product offerings in the market place and gaining market share from competition. It pioneered in creating products and services to match the changing market dynamics and customer behaviour.

Emerging Corporates Group, which focuses on the mid-market segment, recorded a 34 per cent growth in asset size to cross Rs.65,000 crore on March 31, 2017. The strength of this business lies in its diversified portfolio in terms of both industry and geography. Its success was due to its ability to acquire a higher share of wallet from existing clients as well as securing new ones on the strength of a strong product offering plus a solution based approach.

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

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

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

International Operations

Your Bank currently has branches at three locations outside India. These are at Bahrain, Hong Kong and Dubai International Finance Centre (DIFC) in Dubai. The DIFC branch offers advisory services to High Net Worth Individuals and Corporates. Your Bank also has Representative Offices in Abu Dhabi, Dubai and Nairobi which are engaged in promotional and marketing activities of the Bank's brand name among the Non-Resident Indians. As on March 31, 2017, the combined balance sheet size of overseas branches was around US $ 4 billion. Advances at these branches constituted close to 4 per cent of the Bank's gross advances as on March 31, 2017. The total income of the overseas branches constituted over 1.2 per cent of the Bank's total income for the year.

Your Bank had mobilised US $ 3.4 billion in special FCNR (B) deposits from NRI clients under RBI swap window in 2013. As a major portion of these deposits were for a 3-year tenor, they came up for redemption during September-November 2016. US $ 3.02 billion of these flowed out and US $ 355.67 million was outstanding for the year ended March 31, 2017.


The Treasury Group is responsible for compliance with reserve requirements and management of liquidity and interest rate risk on the Bank's balance sheet. On the foreign exchange and derivatives front, revenues accrue from spreads on customer transactions based on trade flows and their demonstrated hedging needs. Your Bank recorded revenues of Rs.1,263.4 crore from foreign exchange and derivative transactions in the year under review. These revenues were distributed across large and emerging corporates, business banking and retail customer segments for plain vanilla foreign exchange products and across primarily large and emerging corporate segments for derivatives. The Bank offers Indian Rupee and foreign exchange derivative products to its customers, who use them to hedge their market risks.

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

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

Implementation of Indian Accounting Standards (IND-AS)

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

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

The Bank has undertaken a diagnostic analysis of the differences between the current accounting framework and IND-AS, including the disclosure requirements.The Bank is currently in the process of finalising its accounting policies under IND-AS. The Bank has evaluated the systems requiring significant changes and identified additional system and process requirements for implementation of IND-AS. The Bank is engaging with vendors for technology solutions for implementation of IND-AS. The Bank undertakes training programs for its personnel in business and support functions.

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

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

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

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

Stage 1: 12 Months ECL

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

Stage 3: Lifetime ECL- Credit Impaired

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

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

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

Information Technology

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

• Centralized Core Banking System

• Enterprise data warehouse

• Online real time centralised ATM switch

• Debit cards

• Analytical CRM system for direct marketing

• Solution to check retail loan application fraud

• Mobile banking app

• SMS based mobile commerce

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

Cyber Security

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

Further your Bank conducts:

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

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

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

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

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

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

Particularly in the year under review, your Bank made significant investments in strengthening protection against Distributed Denial of Service (DDoS) attacks and Web Application Firewall (WAF). Various simulation exercises were carried out to learn from techniques like ethical hacking and smoke screen & decoy testing. The Bank also participated in IDBRT's cyber security drills to identify weak links and strengthen defence. It will continue to invest further in the coming years in the areas of cyber security to take it to the next level.

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

Service Quality Initiatives

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

ENSURE THAT are also undertaken across branches and retail asset centres to continuously evaluate regulatory compliance, process adherence and quality of service delivery to customers. The findings are workedARER upon using Lean and Six Sigma methodologies to bring in process improvements. The effectiveness of these measures is reviewed periodically at different levels including the Customer Service Committee of the Board. In addition to SECURITY__ the aforementionedYOURU measures, in compliance with regulatory guidelines, your Bank has appointed a senior retired banker as Internal Ombudsman.

As a result of the continued focus on customer service, your Bank has received written appreciation from many Banking Ombudsmen appointed by Reserve Bank of India across locations such as Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Himachal Pradesh, Kerala, Lakshadweep, Madhya Pradesh, Maharashtra, Odisha, Puducherry, Punjab, Sikkim, Tamil Nadu and West Bengal.

Risk Management and Portfolio Quality

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

• Credit Risk including Residual Risks

• Credit Concentration Risk

• Market Risk

• Business Risk

• Operational Risk

• Strategic Risk

• Interest Rate Risk in the Banking Book

• Compliance Risk

• Liquidity Risk

• Reputation Risk

• Intraday Risk

• Model Risk

• Technology Risk

• Counterparty Credit Risk

• Outsourcing Risk

• Group Risk (covering HDBFSL and HSL)

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

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

Credit Risk

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

The asset quality of the Indian banking industry continued to be under severe pressure due to macroeconomic factors as well as sector specific issues. The banking industry on an overall basis saw a sharp increase in stress and non-performing assets. Your Bank did not witness any significant deterioration in overall asset quality and continues to maintain the highest standards of governance in respect of recognition and provisioning of non-performing loans.

As on March 31, 2017, your Bank's ratio of Gross Non-Performing Assets (NPAs) to gross advances was 1.05 per cent. Net Non-Performing Assets (Gross Non-Performing Assets less Specific Loan Loss provisions) was 0.3 per cent of Net Advances as on March 31, 2017. Total restructured assets (including applications under process for restructuring) was 0.06 per cent of gross advances as on March 31, 2017. As a matter of abundant caution, the Bank provides more than regulatory requirements for its NPAs while adhering to regulatory norms for the provision of Standard Assets.

Market Risk

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

Liquidity Risk

The framework for liquidity and interest rate risk management is established in the Bank's Asset Liquidity-Management policy which is in line with regulatory requirements. Your Bank has established various Board approved limits like maturity gap limits and limits on stock ratios for liquidity risk and limits on income impact and market value impact for interest rate risk. Your Bank's Asset Liability Committee (ALCO) is responsible for adherence to liquidity risk and interest rate risk limits. Additionally, your Bank has a comprehensive Board approved stress testing programme covering liquidity and interest rate risk which is aligned with the regulatory guidelines. The Liquidity Coverage Ratio (LCR) is a global minimum standard for Bank liquidity. The ratio aims to ensure that a bank has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be converted into cash easily and immediately to meet its liquidity needs for a 30-day calendar liquidity stress scenario. In June 2014, RBI released Basel III Framework on Liquidity Standards-Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards. Based on the guidelines, LCR became effective on January 1, 2015.

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

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

Its Board approved Stress Testing Policy and Framework entails the use of various techniques to assess potential vulnerability to extreme but plausible stressed business conditions. The changes in the levels of various risks and the changes in the on and off balance sheet positions of the Bank are assessed under such assumed scenarios and sensitivity factors which generally relate to the impact on its profitability and capital adequacy.

Operational Risk

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

Internal Controls, Audit and Compliance

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

Corporate Social Responsibility (CSR)-Creating Sustainable Communities

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

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

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

Promoting Education

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

The distinctiveness of these programmes is the focus on improving the skills of teachers, which in turn benefits the students. More than 65,000 students have benefitted through these programmes.

Through the Zero Investment Innovation for Educational Initiatives (ZIIEI), your Bank has reached out to more than 5.5 lakh school teachers. ZIIEI is a unique platform to implement best practices in education across more than 75,000 schools in Uttar Pradesh. The project has been executed jointly with a leading NGO for the state government.

Skills Training and Livelihood Enhancement

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

Nearly 16,000 individuals have benefited through the Bank's efforts in skills based training. It has supported more than 1,100 individuals to become entrepreneurs. The projects are spread across varied geographies from Jammu & Kashmir in the North, Meghalaya in the North East, Tamil Nadu in the South to Gujarat in the West. One of the projects to provide job-based skills training in Uttar Pradesh, has benefitted more than 5,000 individuals.

Natural Resource Management

While working on issues such as livelihood and water, your Bank makes a concerted effort towards managing local natural resources. The multi-focused interventions include the areas of soil and water conservation, water management, construction, renovation and maintenance of water harvesting structures for improving surface and ground water availability as well as for promoting organic fertilisers and renewable energy.

Your Bank has planted more than 67,000 trees, with the twin objectives of developing horticulture and ensuring top soil retention for better agriculture yield. A little over 3,800 acres of agricultural land has been treated for enhanced agricultural produce. In order to provide proper irrigation support more than 200 water harvesting structures have been constructed or renovated. Crop diversification has been carried out in over 840 acres for higher output as well as enriched fertility of the soil.

Healthcare & Hygiene

Your Bank promotes the cause of good hygiene and sanitation practices in the community. Towards this end, the Bank supports construction of toilets and provision of clean drinking water facilities. Close to 7,500 households and 900 schools in rural India have been covered under the toilet programme so far. A primary healthcare centre was set up in the flood affected regions of Uttarakhand, which benefited around 50,000 people.

Financial Literacy

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

Dhanchayat, is the Bank's financial literacy programme on wheels and this has been running successfully, making more and more people in the rural areas aware of the perils of informal banking. Your Bank also disseminates information on general banking, credit counselling and digital banking across a wider society such as schools, colleges, pensioners and senior citizens.

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

Financial Inclusion

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

In another ongoing effort to bring more of the under-banked sections of the population into formal financial channels, your Bank has opened over 17 lakh accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and enrolled over 26 lakh customers in social security schemes since inception. It now ranks among the leading private sector banks in this regard. Loans to the tune of Rs.5,522.5 crore were extended under the Pradhan Mantri Mudra Yojana (PMMY) and nearly Rs.143.5 crore under the ‘Stand Up India' scheme to Scheduled Caste/Scheduled Tribe women borrowers in the year under review.

Environment Sustainability

Maintaining a balance between the natural capital and communities is now integral to the Bank's functioning. Towards this end, your Bank's ATMs have gone paperless, enabling reduction of carbon footprint. The Bank has given this effort a further fillip by ensuring multi-channel delivery through NetBanking, PhoneBanking and MobileBanking. This reduces carbon emission from operations as well as on account of reduced customer travel requirements. Another source for reducing the environmental footprint is solar ATMs. These use rechargeable Lithium Ion batteries that reduce power consumption.

Blood Donation Campaign

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

Sustainable Livelihood Initiative (SLI)

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

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

Apart from the holistic approach, what makes this programme one-of-its-kind in the world is its scale. Sample this; 8,000 dedicated bank employees working with millions of people at the bottom of the pyramid in trying conditions driven purely by a passion to transform lives.

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

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

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

Agriculture & Allied Activities

Your Bank's credit to Agriculture & Allied activities stood at Rs.77,921 crore on March 31, 2017 representing an increase of about 17 per cent over the March 31, 2016 figure of Rs.66,890.4 crore.

With about half of India's population living on agriculture, this is an important business segment for the Bank. The suite of products offered include the Kisan Gold Card, Tractor and Cattle Loans. Apart from loans directly linked to agriculture, the Bank offers other credit products such as two-wheeler loans, car loans, loans against gold jewellery and mortgage loans.

The Kisan Gold Card is now being offered in 60,000 villages. Your Bank has designed a range of crop and geography specific products keeping in mind the harvest cycles and local needs of farmers spread across diverse agro climatic zones. Credit is targeted at allied agricultural activities like dairy, pisciculture and sericulture through specific products.

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

HDFC Bank's focus in the rural markets has not just been on increasing credit off-take but also on cementing relationships with customers by empowering them. As a part of these efforts, 11 Kisan Dhan Vikas Kendras have been rolled out across Punjab, Maharashtra, Uttar Pradesh and Madhya Pradesh where farmers secure information on soil health, mandi prices, various government initiatives and expert advice. These services are also available on the Bank's website in vernacular languages. Advisories on weather, cropping and harvesting are also shared through SMS.

Milk-to-Money (MTM)

The Bank's MTM footprint (including Micro ATMs) crossed the landmark of 1,000 in the year under review. Approximately 3.17 lakh farmers are covered across 16 states including Gujarat, Maharashtra, Punjab and Rajasthan. Farmers receive Direct Benefit Transfers from the Government in the same account.

Under this initiative, Multi-function Terminals (MFTs), popularly known as Milk-to-Money ATMs, are deployed in dairy societies. The MFTs link the milk procurement system of the dairy society to the farmers' account to enable faster payments. MFTs have cash dispensers that function as standard ATMs. The transparency in the milk collection process benefits both farmers and society. Payments are credited without the difficulties associated with the cash distribution process. What is more, this creates a credit history which can then be used as the basis for accessing bank credit. Apart from the Dairy and Cattle Loans, customers gain access to all bank products including digital offerings such as

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

Loans against Gold Jewellery

As on March 31, 2017, Loans against Gold Jewellery stood at Rs.4,800 crore as against Rs.4,531 crore on March 31, 2016.

Banks have started making inroads in a market traditionally dominated by the unorganised sector and pawn brokers. The entry of such players has resulted in increased awareness, and at the same time provided greater transparency by substituting the money lenders. The availability of the asset and the ease of securing a loan have made this a convenient and viable credit option.

Micro, Small and Medium Enterprises (MSME)

The year under review has been a challenging but defining one for the MSME business. Demonetisation was a temporary setback for a business whose customers traditionally transact in cash. Your Bank was able to overcome this in the last quarter. The Bank's advances to MSMEs grew by 14.4 per cent to touch Rs.85,166.6 crore on March 31, 2017 from Rs.74,657.3 crore on March 31, 2016.

Demonetisation and the advent of the next-generation of entrepreneurs has seen a steady shift towards digital transactions. In what could be a potential game changer for the business, the Bank launched a complete online solution-the ‘SM@Bank'. Through this, customers can access-credit facility information, request adhoc/temporary overdraft facilities, ask for new facilities and submit documents to the Bank for straight through processing on a 24*7 basis. This gained significant traction in the very first year and is now poised to gain further momentum.

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


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

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

The Bank hosted the 2nd Digital Innovation Summit in February 2017 to tap into the fin-tech and start-up ecosystem and harness the emerging technological trends. In the 2nd Digital Innovation Summit, the Bank invited entries in rural fin-tech category as well along with submissions in other categories. Five companies have been chosen as winners, whose solutions the Bank is evaluating for potential application. These companies are in Artificial Intelligence, Marketing, Mobile Payments, Quality Assurance and Biometric Payments domains with special focus on solutions that will help semi-urban and rural customers.

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

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

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

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

• Expense Tracker: This personal financial management tool gives customers a snapshot of their income, expenses, and investments and helps them secure control over their finances. This enhancement in your Bank's MobileBanking app has received encouraging customer response.

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


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

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

• Resourcing and Hiring: In an industry where agility in talent acquisition and deployment is key to geographic expansion and growth, your Bank has leveraged online recruitment along with other channels like job-ready model to develop reach and quality of hires. It has created a strong leadership pipeline across levels by identifying the right talent internally and grooming them for challenging roles. This has resulted in an 84,000 plus work force that is well motivated and trained to deliver value to the customer. Increased digitisation, improved process efficiencies and rebalancing capacities over the years has led to a small decrease in the employee base.

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

• Employee Engagement: The Bank has nurtured an enabling performance culture in line with its vision to be a `World Class Indian Bank'. The Performance Management System aligns organization goals with key objectives for each business. Role-based scorecards at the employee level coupled with managerial feedback provide clarity and support to help employees excel.

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

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

? Stepathlon: An Employee Wellness initiative that saw the participation rise by 1,000 to about 3,500

? Hunar: Pan-India in-house talent competition

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

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

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

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

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

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

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

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

Other Statutory Disclosures

Board and Board Committees

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

Extract of Annual Return

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

Directors' Responsibility Statement

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

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

• We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31,2017 and of the profit of the Bank for the year ended on that date

• We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities

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

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

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

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

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

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

• Put controls on usage of lifts, ACs, common passage lights and other electrical equipment


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

Fees (including taxes) Rs.lacs
Statutory Audit (Rs.1,90,00,000 plus taxes) 218.50
Certification & other services provided as statutory auditors 39.08
Total 257.58

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

Disclosure under Foreign Exchange Management Act, 1999

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

Related Party Transactions APPLICABLE

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

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, THEHMAINTENANCEE the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided by a banking company in the ordinary course of business. Further, in terms of the Companies (Removal of Difficulties) Order, 2015, nothing in Section 186 except sub section (1) shall apply to any acquisition made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 BE FOLLOWED of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank's subsidiaries and associates are enclosed as ANNEXURE 5 to this report. There were no entities which became or ceased to be the Bank's subsidiaries, associates or joint ventures during the year, except Atlas Documentary Facilitators Company Private Limited and HBL Global Private Limited, associates of the Bank, which amalgamated with the Bank's subsidiary HDB Financial Services Limited, pursuant to the approval of the Honourable

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

Whistle Blower Policy/Vigil Mechanism

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

Declaration by Independent Directors

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

Board Performance Evaluation

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

Your Bank has in place a process wherein declarations are obtained from the directors regarding fulfilment of the ‘fit and proper' criteria in accordance with the guidelines of the Reserve Bank of India. The declarations from the Directors other than members of the NRC are placed before the NRC and the declarations of the members of the NRC are placed before the Board. Assessment on whether the Directors fulfil the said criteria is made by the NRC and the Board on an annual basis. In addition, the framework/policy approved by the NRC provides for a performance evaluation of the Non-Independent Directors by the Independent Directors on key personal and professional attributes and a similar performance evaluation of the Independent Directors by the Board, excluding the Director being evaluated. Such performance evaluation has been duly completed as above.

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

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

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

Your Bank's compensation policy is aimed to attract, retain, reward and motivate talented individuals critical for achieving strategic goals and long term success. Compensation policy is aligned to business strategy, market dynamics, internal characteristics and complexities within the Bank. The ultimate objective is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity.

Your Bank's approach is to have a pay for performance culture based on the belief that the Performance Management System provides a sound basis for assessing performance holistically. The compensation system should also take into account factors like roles, skills/competencies, experience and grade / seniority to differentiate pay appropriately on the basis of contribution, skill and availability of talent on account of competitive market forces. The details of the compensation policy are also included in Schedule 18 Notes forming part of the Accounts - Note no. 25. Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its Committees, which are determined by the Board based on applicable regulatory prescriptions. Non-Executive Directors are also reimbursed expenses incurred by them for attending meetings of the Board and its Committees at actuals. The remuneration payable to the Non-Executive Directors and Independent Directors is governed by the provisions of the Banking Regulation Act, 1949, RBI guidelines issued from time to time and the provisions of the Companies Act, 2013 and related rules to the extent it is not inconsistent with the provisions of the Banking Regulation Act, 1949 and RBI guidelines. In terms of the guidelines issued by RBI for compensation of Non-Executive Directors of private sector banks dated June 1, 2015 and the approval of shareholders at the 22nd Annual General Meeting, Non-Executive Directors of the Bank, other than the Chairperson, are paid profit-related commission of Rs.10,00,000/- (Rupees Ten Lakh only) per annum for each Non-Executive Director.

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

Significant and Material Orders Passed By Regulators

During the financial year 2016-17, further to the media reports in October 2015 about irregularities in advance import remittances in various banks, the Reserve Bank of India (RBI) had conducted a scrutiny of the transactions carried out by the Bank under Section 35 (1A) of the Banking Regulation Act, 1949. The RBI issued a Show Cause notice to which the Bank had submitted its detailed response. After considering the Bank's submission, the RBI imposed a penalty of Rs.2 crore on the Bank vide its letter dated July 19, 2016 on account of pendency in receipt of bill of entry relating to advance import remittances made and lapses in adhering to KYC/AML guidelines in this respect. The penalty has since been paid. The Bank has implemented a comprehensive corrective action plan, to strengthen its internal control mechanisms so as to ensure that such incidents do not recur.

Directors and Key Managerial Personnel

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

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

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

Familiarisation Programme for Independent Directors

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

Particulars of Employees

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

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

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluates innovative technology with multiple fintech partners. In the year under review, it organised its 2nd ‘Digital Innovation Summit' and shortlisted several fintech startups to carry out multiple proof of concepts in both customer facing and internal processes.

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

(C) Foreign Exchange Earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs.1,263.4 crore (on account of net gains arising on all exchange/derivative transactions) and the total foreign exchange outgo was about Rs.221 crore towards the operating and capital expenditure requirements.

Secretarial Audit

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

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate report on Corporate Governance along with a certificate of compliance from 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 Social Responsibility Activities and Initiatives in the format adopted by companies in India as per the guidelines of the Securities and Exchange Board of India in this regard is available on its web site

Information under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

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


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


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

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

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

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

ANNEXURE 1 to the Directors' Report

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


Plan / Schemes Date of Shareholders' Approval Total No. of Options Approved Grant Price (') Number of Options Outstanding at the beginning of the year Number of Options Granted / Options Re-instated Options Vested Number of Options Exercised & Shares Allotted during the year Number of Options Forfeited during the year Number of Options Lapsed during the year Number of Options in Force at the end of the year
Plan E- ESOS XVI 30th June, 2010 100,000,000 440.16 1,674,000 - - 1,674,000 - - -
Plan E- ESOS XVII 30th June, 2010 100,000,000 508.23 111,600 - - 111,600 - - -
Plan E- ESOS XVIII 30th June, 2010 100,000,000 468.40 12,552,500 - - 10,413,000 - 100 2,139,400
Plan E- ESOS XIX 30th June, 2010 100,000,000 680.00 23,512,100 - 8,878,500 10,449,800 86,100 21,000 12,955,200
Plan D- ESOS XX 16th June, 2007 75,000,000 680.00 5,133,900 - 1,835,400 1,748,800 30,000 20,800 3,334,300
Plan C- ESOS XXI 17th June, 2005 50,000,000 680.00 5,260,800 - 1,719,300 942,400 - - 4,318,400
Plan E- ESOS XXII 30th June, 2010 100,000,000 664.45 - - - - - - -
Plan C- ESOS XXIII 17th June, 2005 50,000,000 835.50 480,000 - 142,200 122,600 24,000 7,400 326,000
Plan F- ESOS XXIV 27th June, 2013 100,000,000 835.50 36,442,200 - 11,282,900 7,059,900 651,400 59,000 28,671,900
Plan F- ESOS XXV 27th June, 2013 100,000,000 1092.65 43,484,200 - 17,291,600 1,837,100 1,201,000 38,000 40,408,100
Plan F- ESOS XXVI 27th June, 2013 100,000,000 1097.80 3,000 - 1,200 - - - 3,000
Total - - - 128,654,300 - 411,51,100 343,59,200 1,992,500 146,300 92,156,300


Options Exercised during the aforesaid period 34,359,200
Share Capital Money received during the above period (?) 68,718,400
Share Premium Money received during the above period (?) 22,546,443,173
Perquisite Tax Amount collected during the aforesaid period (?) 7,074,356,786
Total Amount collected during the aforesaid period (?) 29,689,518,359


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

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

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


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

ANNEXURE 4 to the Directors' Report

Form No. AOC - 2

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

Form for disclosure of particulars of contracts/arrangements entered into by the company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arm's length transactions under third proviso thereto

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

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

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

HDB Financial Services Limited

HDFC Securities Limited
Nature of relationship

Subsidiary of the Bank

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

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

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

ANNEXURE 5 to the Directors' Report

Performance and financial position of subsidiaries and associates of the Bank as on March 31,2017

(' crore)

Name of entity

Net assets as of March 31,2017

Profit or loss for the year ended March 31,2017

As percentage of consolidated net assets** Amount*** As percentage of consolidated profit or loss Amount***
HDFC Bank Limited 97.46% 89,462.38 95.39% 14,549.66
1. HDFC Securities Limited 0.88% 807.41 1.42% 215.90
2. HDB Financial Services Limited 5.84% 5,362.90 4.49% 684.21
Minority Interest in all subsidiaries 0.32% 291.44 0.24% 36.72

*The subsidiaries are domestic entities

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

(' crore)

Name of entity

Investment as per equity method as of March 31,2017

Share of profit or loss for the year ended March 31,2017

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

*The associate is a domestic entity

ANNEXURE 6 to the Directors' Report

Disclosures on Remuneration

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

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


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

b. Fixed pay includes-Salary Allowances, Retiral Benefits as well as value of perquisites excluding ESOPs

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

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

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

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

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

The percentage increase in median remuneration of employees in the financial year was 11.12 per cent. The percentage movement in the median remuneration of the employees for the financial year was 1.51 per cent.

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

As of March 31,2017 the number of permanent employees on the rolls of the Bank was 84,325.

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

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

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

ANNEXURE 7 to the Directors' Report

Statement under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 for year ended March 31,2017

Name of the Employee Designation Date of joining the Bank Qualifications Age Exp. Total (') Last Employment
Details of top ten employees in terms of remuneration drawn
Aditya Puri Managing Director 12-Sep-94 B.Com, CA. 66 44 100,572,147 Citibank
2 Paresh Sukthankar Deputy Managing Director 01-Sep-94 B.Com, M.M.S, A.M.P (Harvard Business School) 54 32 60,808,440 Citibank
3 Kaizad M. Bharucha Executive Director 04-Oct-95 B.Com 52 31 46,610,835 SBI Commercial & International Bank Ltd.
4 Abhay Aima Group Head 02-Jan-95 Grad. from National Defence Academy 55 30 26,264,867 INDSEC Securities & Finance Ltd.
5 Rakesh Singh Group Head 11-Apr-11 MBA, B.Sc 48 24 24,476,625 Roth Child
6 Navin Puri Group Head 01-Feb-99 B.Com, MBA, CA 59 34 24,090,454 ANZ Grindlays Bank
7 Ashish Parthasarthy Group Head 01-Nov-94 B.E., PGDM 49 28 23,523,385 INDSEC Investments Ltd.
8 Bhavesh Zaveri Group Head 13-Apr-98 M.Com., CAIIB 51 28 23,389,168 Barclays Bank
9 Sashidhar Jagdishan Group Head 05-Feb-96 B.Sc., ACA., M.A (Economics) 52 25 23,134,669 Deutsche Bank
10 Payal Mandhyan* Vice President 18-Jan-05 PGDBM 39 13 22,684,467 India Bulls Securities Ltd.
Persons in service for the whole year and drawing emoluments more than ' 10,200,000/- per annum, other than the above
Abhishek Bhuwalka Sr Vice President-I 10-Jun-99 MBA, CWA, B.Com 40 21 13,784,220 Matchless Packaging Industries (P) Ltd.
2 Ajay Kumar Kapoor Sr Exe Vice President 09-Oct-95 M.Sc. 53 31 12,955,221 Times Bank Ltd.
3 Akshat Lakhera Sr Vice President-I 09-Sep-10 PGDM, B.Sc 40 16 15,567,571 BNP Paribas
4 Ameya Shekhar Shenoy Vice President 20-Mar-06 MBA, CA, B.Com 38 13 11,499,582 Tionale Enterprises Pvt Ltd
5 Amit Dayal Exe. Vice President 19-Dec-94 B.Sc., DBM 50 26 16,814,052 SBI Commercial & International Bank Ltd
6 Anil L. Bhavnani Exe. Vice President 16-Jun-03 CS, B.Com 44 23 11,082,765 CitiCorp Finance I Ltd.
7 Ankush Pitale Exe. Vice President 28-Jul-14 MMS 45 21 13,324,739 Religare Capital Markets Pvt. Limited
8 Anupama Rajesh Munagekar Sr Vice President-I 14-Feb-07 LL.B, B.Com 49 25 13,680,448 Strategic Capital Corporation Pvt Ltd
9 Arun Mohanty Exe. Vice President 09-Nov-05 BA 59 35 12,791,009 Reserve Bank Of India
10 Arup Kumar Rakshit Sr Exe Vice President 01-Aug-06 PGDM, B.E 48 31 21,287,305 ABN Amro Bank
11 Arvind Kapil Group Head 18-Dec-98 MMS, B.E 46 23 15,214,374 GE Countrywide Consumer Financial Services Ltd.
12 Aseem Dhru Group Head 02-May-15 CA,CWA, B.Com 47 22 18,399,069 HDFC Securities Ltd
13 Ashima Khanna Bhat Group Head 07-Nov-94 B. Bus, MMS 46 24 17,617,273 A F Ferguson & Co
14 Ashok Khanna Group Head 19-Jun-02 MA 60 36 15,977,850 Centurion Bank
15 Ashtosh Raina Sr Vice President-I 03-Sep-07 CAIIB, B.Sc 49 26 13,352,345 State Bank Of India
16 Atul Sadashiv Barve Exe. Vice President 28-Feb-07 MMS, MA, B.Sc 54 33 11,704,496 IDBI Ltd
17 Benjamin Frank Sr Exe Vice President 05-Apr-04 MBA, B.Sc 53 31 12,044,784 IDBI Bank Ltd.
18 Bhaskar C. Panda Sr Vice President-II 21-Nov-97 BA 55 32 17,049,345 Times Bank Ltd.
19 Charmaine Pereira Sr Vice President-II 01-Nov-94 DBM, BA 44 22 13,759,774 Fresher
20 Debajeet Das Sr Vice President-II 06-Aug-96 MA 45 22 18,032,347 Texport Syndicate
21 Dolreich D'Mello* Dy. Vice President 09-Jan-97 B.Com 41 20 12,406,545 ANZ Grindlays Bank
22 Farid Ahmed* Asst. Vice President 07-May-07 MBA, B.Sc 39 17 11,767,196 Kotak Mahindra Bank Ltd
23 Fayaz Ainodin Patel* Asst. Vice President 02-Aug-10 MBA, B.Com 38 14 10,303,038 Sharekhan Ltd
24 Gopalkrishnan Santosh Exe. Vice President 17-Jan-01 B.Com 47 25 10,882,803 American Express Bank
25 Govind Pandey Sr Exe Vice President 05-Aug-98 MSC 60 34 13,312,806 State Bank of Saurashtra
26 Gulzar Singh Sr Exe Vice President 28-Oct-96 PGDM, BA 46 23 12,895,189 Times Bank Ltd.
27 Harsh S Gupta* Sr Vice President-I 04-Sep-00 PGDBA, B.Sc 41 19 18,189,331 ICICI Cap Ltd
28 Imran Ali Baig* Vice President 05-Jun-97 PGDBA, CFA-A, B.Sc 44 20 11,440,147 Fresher
29 Jay Sonawala Sr Vice President-II 12-Aug-99 MMS, B.Com 41 18 12,498,838 Fresher
30 Jimmy Tata Group Head 15-Dec-94 B.Com., M.F.M., CFA 51 29 20,012,753 Apple Industries Ltd.
31 K. Manohara Raj Sr Exe Vice President 06-Dec-96 CAIIB, B.Com 59 37 11,579,370 Times Bank Ltd.
32 Kapil Bansal Sr Vice President-I 30-Sep-04 PGPM, B.Com 39 18 13,053,654 ICICI Bank Ltd.
33 Kinjul Sharma* Asst. Vice President 22-Sep-08 Master's Degree/Dip,B.Com 36 12 11,004,904 Citifinancial
34 Madhusoodan Hegde Exe. Vice President 11-Feb-97 CAIIB, B.Sc. 56 32 12,095,216 Times Bank Ltd.
35 Mahesh KumarJugal Kishoretaparia Sr Vice President-I 11-Jun-05 LLB, CS, CA, B.Com 40 15 11,183,867 UTI Bank Ltd
36 Maheswara P Reddy Sr Vice President-I 06-May-02 MBA, BA 46 21 14,042,294 American Express Bank
37 Makarand Shrikant Khandekar Asst. Vice President 18-Mar-14 B.E 42 19 12,260,022 ICICI Securities Limited
38 Manu Joseph* Dy. Vice President 13-Nov-11 MMS,B.E 40 15 12,467,442 Citibank
39 Mathew Varghese* Asst. Vice President 15-Jul-10 MMS,B.E 38 15 10,613,306 Citibank
40 Mayuresh Vasant Apte Sr Vice President-II 06-Nov-00 MMS, B.TECH, C.H.S.E, C.B.S.E 48 24 11,889,576 Centurion Bank Ltd
41 Michael Andrade Exe. Vice President 01-Aug-97 MFA, DSM, B.Sc. 49 29 10,359,492 Barclays Bank
42 Mohammed Hannan Abdul* Asst. Vice President 01-JUI-09 MBA, BSc 38 14 12,313,621 Barclays Bank PLC
43 Munish Mittal Group Head 17-Aug-96 PGDM, B.Sc. 49 30 14,329,500 Bank Of Punjab
44 N. Srinivasan Exe. Vice President 11-Nov-96 CA, CWA, CS., B.Com 49 27 11,349,866 Credential Finance
45 Neil Percy Francisco Group Head 20-May-02 MBA, M.Sc., BE 55 26 13,108,718 Standard Chartered bank
46 Nirav Shah Group Head 15-Jul-99 MMS, B.Com 45 22 19,186,484 Global Trust Bank
47 Nishant Nangia* Asst. Vice President 04-Apr-05 B.Com 35 14 12,816,723 E-Serve International Ltd
48 Nishikant Das Exe. Vice President 23-Apr-12 PGDM, B.TECH 45 19 18,011,034 Standard Chartered Bank
49 Nitin Chugh Group Head 16-Apr-01 PGDM, B.TECH 46 22 17,069,362 Standered Chartered Bank
50 Nitin Subramanya Rao Group Head 25-JUI-02 BE, MBA 50 27 19,003,464 BNP Paribas
51 Pallava Rathore* Vice President 27-Jun-08 Master's Degree/Dip, BSc 41 16 10,566,455 IDBI Bank Ltd
52 Parag Rao Group Head 15-Apr-02 MMS, B.E 52 28 14,487,588 IBM Global Services
53 Philip Mathew Group Head 03-Apr-02 MA, B.Sc 54 28 13,402,369 SSKI Investor Services
54 Pratap Luthra Dy. Vice President 13-Aug-05 MBA,BA 35 14 12,284,191 ABN Amro Bank Ltd
55 Rahul Bhandari* Vice President 05-Feb-02 PGDBM, B.Com 39 15 14,318,661 Fresher
56 Rajeev Sengupta Exe. Vice President 21-Sep-07 PG (Gen Mgmt), B.E 56 34 11,452,865 Hutchison Essar Ltd
57 Rajeev Wariar* Vice President 15-Apr-10 PGDBA, B.E 42 18 16,800,081 Citi Bank
58 Rajender Sehgal Group Head 23-Feb-98 B.Sc, MBA 62 40 17,558,390 Times Bank Ltd.
59 Rajesh Kumar Rathanchand Group Head 22-May-00 PGDM, B.Sc 46 28 14,425,888 Trans America Apple Finance Ltd.
60 Rajesh Sharma Sr Vice President-II 15-Nov-00 CA,CS, B.Com 41 23 10,326,591 LCC Infotech Ltd
61 Rajinder Babbar Exe. Vice President 16-Jan-01 LLB, B.Sc 50 30 13,530,295 Centurion Bank Ltd
62 Raveesh Kumar Bhatia Sr Exe Vice President 03-May-10 PGDM, B.Com 51 26 13,371,292 Fore Consultants Pvt Ltd
63 Ravi Narayan Group Head 03-May-99 MBA, B.TECH 48 24 15,488,261 Bank Of America
64 Ravi Ssn Sr Vice President-II 26-Nov-10 B.Com 49 17 11,133,605 Deutsche Bank
65 Reji John* Manager 30-Aug-10 PG Diploma, MA, BA 36 13 11,600,552 Aviva India Life Insurance Co Ltd
66 Resham A. Mahtani Sr Vice President-I 01-May-01 PGPIM, PGDBM, BA 41 19 12,978,555 Mecklai Financial & Commercial Services Ltd.
67 Ritesh Sampat Sr Vice President-II 03-Jan-12 CA, B.Com 41 17 15,096,463 Standard Chartered Bank
68 Roli Jamthe* Asst. Vice President 05-Apr-11 MBA, B.Sc, PGDSM 40 16 19,818,230 Royal Bank Of Scotland
69 Sanjay Dongre Exe. Vice President 02-May-95 B.Com, ACS, CWAINT, LL.B. 59 35 10,608,483 Boehringer Mannheim Ltd.
70 Sanjay K.Singla Sr Vice President-II 10-Nov-07 PGDM, B.Com 58 35 14,887,359 State Bank of India
71 Sanmoy Chakrabarti Exe. Vice President 15-Jun-10 MS, B.Sc 42 18 12,792,397 Bank Danamon
72 Sathyamurthy Sampath Kumar Exe. Vice President 07-Aug-00 B.Com 45 27 14,737,500 Integrated Finance Co. Ltd.
73 Shailesh B. Sukhthankar Exe. Vice President 01-Dec-94 MMS, B.Com 52 30 10,430,441 Citicorp Overseas s/w Ltd
74 Sharad Rungta Sr Vice President-II 02-Jun-12 CFA, CA, B.Com 40 16 15,368,533 Credit Suisse AG
75 Sheetal Kapadia* Asst. Vice President 06-May-09 PGDMS, B.Com 40 17 13,535,124 ICICI Bank Ltd
76 Silvestre Anthony Pereira Vice President 15-Sep-06 MBA, PG Diploma, B.Com 39 15 14,974,588 UTI Bank Ltd
77 Sitanshu Mitra Exe. Vice President 01-Sep-95 MBA, B.Sc 49 29 10,609,777 ABN Amro Bank Ltd.
78 Smita Bhagat Sr Exe Vice President 12-Jul-99 M.Com, MBA 52 29 13,347,040 PDCOR Ltd.
79 Sukarm Bali* Sr Vice President-I 23-JUI-99 CA, B.Com 50 25 18,515,532 Times Bank Ltd.
80 Sumant Rampal Exe. Vice President 10-Aug-99 MBA, B.Com 42 20 10,834,497 Walchnad Capital Ltd.
81 Sundaresan M. Exe. Vice President 02-May-02 B.E (Mechanical), PSG, MBA 46 30 10,289,554 GE Countrywide Consumer Financial Services Ltd.
82 Umashankar Gopalan* Dy. Vice President 13-Dec-12 B.Com 49 23 14,509,765 ICICI Bank
83 V S Unnikrishnan* Vice President 12-Apr-03 MBA, B.Sc, PUC 42 19 13,101,738 Global Trust Bank Ltd
84 V. Chakrapani Group Head 24-Nov-94 B.Com, CAIIB, ACS 53 33 17,244,662 Standard Chartered Bank
85 Veerendra Rai* Asst. Vice President 23-Apr-11 PGDBA, BBA 38 14 11,350,131 RAK Bank
86 Vijay Krishna Mulbagal Exe. Vice President 02-Jan-07 PGPM, B.Sc 46 22 14,077,651 Diamond Management & Technology Consultants
87 Vitthal Mangesh Kulkarni Sr Vice President-I 22-Sep-07 M.Sc., B.E 46 23 12,147,623 Barclays Capital
Persons employed for part of the year drawing emoluments more than ' 850,000 per month
88 Deepak Maheshwari Group Head 09-Feb-96 CAIIB, B.Com 62 42 12,429,522 Times Bank Ltd.
89 Harsh Dugar Executive Vice President 23-Oct-96 CFA, CWA, B.Com 44 26 8,840,172 ICFAI Business School
90 K Balasubramanian Group Head 03-May-16 CA, ICWA, B.Com 46 21 15,479,725 Citibank
91 KartikJain Executive Vice President 09-May-11 PGDM, B.Tech 47 24 12,623,837 ICICI Lombard General Insurance Company Limited
92 Nitin Jain Sr Vice President-II 29-Sep-14 PGDBM, B.E 52 29 2,818,964 Cipher Capital Advisors Pvt Ltd
93 Ravi Santhanam Exe. Vice President 01-Mar-17 PG Diploma, B.E 47 24 1,154,682 Vodafone India
94 T V N Raghuram* Senior Vice President - I 09-Oct-98 B.Com 48 28 9,989,208 Times Bank Ltd


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

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

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

4. 'Employee in overseas location.

5. None of the employees listed above hold 2% or more of the paid-up share capital of the Bank as at March 31,2017.

6. Other than Mr. Aditya Puri, Managing Director who holds 0.13% of the paid up share capital of the Bank, the shareholding of the employees listed above does not exceed 0.05% of the paid up share capital of the Bank as at March 31,2017.

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