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EQUITY - MARKET SCREENER

HDFC Bank Ltd
Industry :  Banks - Private Sector
BSE Code
ISIN Demat
Book Value()
500180
INE040A01034
449.350659
NSE Symbol
P/E(TTM)
Mar.Cap( Cr.)
HDFCBANK
20.83
800319.56
EPS(TTM)
Face Value()
Div & Yield %
68.99
1
1.07
 

As on: Oct 07, 2022 06:19 PM

Dear Stakeholders,

Your Directors take great pleasure in presenting the 28th Annual Report on the business and financial operations of your Bank, together with the audited accounts for the year ended March 31, 2022.

Like last year, let me start by wishing all of you health and happiness on behalf of the HDFC Bank family. The entire world has learnt the importance of this all over again during the pandemic.

The good news is that the pandemic more or less appears to be behind us, thanks to the pick-up in the vaccination program rolled out by the Union Government and the virus mutants being less and less dangerous. As the shadow over the health of individuals lifts, the health of the economy has been improving too.

India's GDP grew by 8.7 per cent in FY 2021-22 compared to a contraction of 6.6 per cent in FY 2020-21 as per the Central Statistical Organisation (CSO), surpassing pre-pandemic levels of output. The biggest drivers of growth were pick up in investment and exports. Capital expenditure was led by the Union Government, with the private sector playing a supporting role. The Government and the RBI also announced a host of measures to contain the impact of the second wave on domestic economic activity. This was followed by stepping up allocation on capital expenditure in the Union Budget for FY 2022-23 by 24.5 per cent to Rs.7.5 lakh crore.

The economy now faces headwinds from rising inflationary pressures brought about by supply chain disruptions and geopolitical tensions, particularly the Ukraine crisis. This can affect private consumption, lead to reduced profit margins due to rising input costs and slowdown the recovery in the private sector capital expenditure cycle.

In an effort to contain inflation, the RBI on May 4, 2022 in an off cycle announcement, hiked the policy rate by 40 basis points to 4.4 per cent and increased the Cash Reserve Ratio by 50 basis points to 4.5 per cent. It further hiked the Repo Rate by another 50 points to 4.90 per cent in the June 8, 2022 Monetary Policy announcement.

To sum up, despite the current headwinds, India is expected to be the fastest growing economy in the world in FY 202223, clocking a 7.3 per cent growth rate, and is well poised to withstand any external volatility and shocks.

(For more details, please refer to the Macroeconomic and Industry section on page no. 135)

In spite of the challenges, your Bank continued on its growth path by conducting its business responsibly and reinforcing its commitment to the environment and community at large.

Financial Parameters

Your Bank recorded an improvement in a majority of its key financial parameters, largely due to its prudent credit evaluation of targeted customers and diversified loan book across customer segments, products, and sectors. Managing risk- return decisions with discipline was an important element in the Bank's performance. Net Profit at Rs.36,961.3 crore went up by 18.8 per cent. Net Interest Income at Rs.72,009.6 crore rose 11.0 per cent. Net Interest Margin stood at 4.0 per cent. Gross Non-Performing Assets (NPAs) at 1.17 per cent was among the lowest in the industry.

Parivartan

Your Bank continued to transform lives through its umbrella CSR brand, Parivartan, which denotes change.

The Bank believes that businesses can only prosper if the communities in which they operate prosper as well. This belief has inspired its social initiatives, which have potentially made a difference to the lives of over 9.6 crore people, predominantly in rural India. Driving this change is the Sustainable Livelihood Initiative (SLI) team, which works on improving livelihood opportunities.

The ‘Teaching-The-Teacher' initiative has impacted over 2 crore students since inception. The Holistic Rural Development Programme has touched 9.88 lakh households across more than 3,335 villages. Having an umbrella brand enables the Bank to lend a sharper focus to these efforts. Your Directors are also happy to report that your Bank met the mandatory CSR expenditure through a spend of 736.01 crore.

CSR SPEND

736.01 crore

in FY 2021-22

For further details on Parivartan please refer to page no. 94.

Summary

The economy recovered in FY 2021-22 and India is expected to be the fastest growing economy in the world in FY 2022-23. There are of course inflationary pressures, but the country has the ability to absorb these and the uncertainties brought about by geopolitical issues. In the long run, the market presents tremendous opportunities given the sheer level of under penetration of banking services in the country. Your Bank is well positioned to capitalise on these opportunities given the strength of its franchise. It has geared up for the years ahead through its Future Ready Strategy. This can be envisaged as 10 strategic pillars backed by key enablers to catalyse, create and capture the next wave of growth. (To know more about this please refer to page no. 32)

Your Bank is also poised to make a greater contribution to bridge the urban-rural divide through both its business and social activities and help build a country where more can prosper together.

This will, of course, not be possible without the contribution of the ever-growing family of over two lakh employees (including those of the subsidiaries) across the country, who remain at the forefront of taking your Bank forward every day. In the previous two financial years, which were characterised by the pandemic, our colleagues went beyond the call of duty to keep the bank functioning. Many of them soldiered on despite the loss of loved ones. We also lost some colleagues during the pandemic.

While we structured and delivered a compassion package to the families of the deceased, no word or action can adequately convey our sorrow.

Your Directors would also like to place on record that we did not reduce salaries during this trying period. Your Bank paid bonuses and increments on time in the year under review and followed the normal promotion cycle. It is doing the same this year as well.

Mission and Strategic Focus

Your Bank's mission is to be a ‘World-Class Indian Bank'. Its business philosophy is based on five core values: Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. Sustainability should be viewed in unison with Environmental, Social and Governance performance. As a part of this, your Bank, through its umbrella CSR brand Parivartan, seeks to bring about change in the lives of communities mainly in rural India.

During the year under review, the Bank did not lose its human touch but continued building sound customer franchises across distinct businesses to achieve healthy growth in profitability consistent with your Bank's risk appetite.

In line with the above objective, the Bank aims to take digitalisation to the next level to:

• Deliver superior experience and greater convenience to customers

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

• Expand geographical reach

• Cross-sell the broad financial product portfolio

• Sustain strong asset quality through disciplined credit risk management

• Maintain low cost of funds

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

Summary of Financial Performance

(Rs. crore)

For the year ended/As on

March 31, 2022 March 31, 2021
Deposits and Borrowings 1,744,034.6 1,470,547.5
Advances 1,368,820.9 1,132,836.6
Total Income 157,263.0 146,063.1
Profit Before Depreciation and Tax 50,615.3 42,961.4
Profit After Tax 36,961.4 31,116.5
Profit Brought Forward 73,652.8 57,492.4
Total Profit Available for Appropriation 110,614.1 88,608.9
Appropriations
Transfer to Statutory Reserve 9,240.3 7,779.1
Transfer to General Reserve 3,696.1 3,111.6
Transfer to Capital Reserve 666.5 2,291.7
Transfer to / (from) Investment Reserve 233.1 61.7
Transfer to / (from) Investment Fluctuation Reserve - 1,712.0
Dividend pertaining to previous year paid during the year 3,592.4 -
Balance carried over to Balance Sheet 93,185.7 73,652.8

Dividend

The Board of Directors of the Bank, at its meeting held on April 23, 2022, has recommended a dividend of Rs.15.50 (Fifteen Rupees Fifty Paise only) per equity share of Rs.1/- (Rupee 1 only) each, for the financial year ended March 31, 2022. This translates to a Dividend Payout Ratio of 23.28 % of the profits for the financial year ended March 31,2022.

In general, your Bank's dividend policy, among other things, balances the objectives of rewarding shareholders and retaining capital to fund future growth. It has a consistent track record of dividend distribution, with the Dividend Payout Ratio ranging between 20 per cent and 25 per cent, which the Board endeavours to maintain.

The dividend policy of your Bank is available on your Bank's website: https:/ /v1.hdfcbank.com/htdocs/common/pdf/corporate/Dividend-Distribution-Policy.pdf

Ratings

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

Issuance of Equity Shares and Employee Stock Option Scheme (ESOP)

As on March 31, 2022, the issued, subscribed and paid up capital of your Bank stood at Rs.5,545,540,976/- comprising 5,545,540,976 equity shares of Rs.1/- each. Further, 32,764,494 equity shares of face value of Rs.1/- each were issued by your Bank pursuant to the exercise of Employee Stock Options (ESOPs). (For information pertaining to ESOPs, please refer Annexure 1 of the Directors' Report).

Capital Adequacy Ratio (CAR)

As on March 31, 2022, your Bank's total CAR, calculated as per Basel III Regulations, stood at 18.9 per cent, well above the regulatory minimum requirement of 11.70 per cent, including a Capital Conservation Buffer of 2.50 per cent and an additional requirement of 0.20 per cent on account of the Bank being identified as a Domestic Sytemically Important Bank. Tier I Capital was at 17.9 per cent as of March 31,2022.

TOTAL CAR

18.9 per cent

I well above regulatory minimum requirement of 11.70 per cent

Management Discussion and Analysis Macroeconomic and Industry developments

The Indian economy expanded in FY 2021-22, surpassing pre-pandemic levels of output. As per the Central Statistical Organisation, GDP grew by 8.7 per cent compared with a contraction of 6.6 per cent in FY 2020-21. Growth was supported by reopening of the economy and a pick-up in the vaccination rate. Private consumption recovery picked up pace (registered a growth of 7.9 per cent in FY 2021-22) and rose above prepandemic levels. The biggest support came from a pick-up in investment (supported by Government capital expenditure and some revival in private capital expenditure) and strong export growth.

In addition, both the Central Government and the RBI announced a host of measures to contain the impact of the second wave on domestic economic activity. The Government focused on providing relief and credit flow to small business, health, tourism sectors and other service sectors that were affected by the pandemic. On the monetary policy side, the RBI kept its stance accommodative and policy rates unchanged at 4.0 per cent in FY 2021-22 and announced measures to provide liquidity support. Some of the measures included extension of Targeted Long Term Repo Operations (TLTRO), providing on-tap liquidity window for contact intensive sectors, and extension of priority sector lending.

Economic activity is poised to gain further momentum in FY 202223 supported by a recovery in consumption, continued rise in exports and a push through Government capital expenditure. In the Union Budget for FY 2022-23, the Government increased its allocation on capital expenditure by 24.5 per cent (from FY 2021- 22 Revised Estimates) to Rs.7.5 lakh crore. In addition, it announced measures in the Union Budget for FY 2022-23 such as extension of credit guarantee scheme by a year and an increase in guaranteed amount earmarked for the hospitality sector. This was to address the sectors worst affected by the pandemic.

However, recent geopolitical tensions do present some headwinds for the growth outlook. Higher crude oil prices and resulting higher fuel and transportation costs are likely to weigh on private consumption. In addition, higher input costs are likely to put stress on profit margins and could slow down the recovery in the private capex cycle. Moreover, lower global growth (due to a slowdown in China and geopolitical tensions) could have a bearing on India's export demand. The International Monetary Fund expects the world economy to grow at a slower pace of 3.6 per cent in 2022 from 6.1 per cent in 2021. On balance, India's GDP growth is expected to rise by 7.3 per cent in FY 2022-23, making it the fastest growing economy in the world. External stability related indicators (short-term debt, Forex reserves, FDI flows) show that India is better positioned than the 2013 taper tantrum episode to withstand shocks.

Besides growth, geopolitical tensions and lingering supply side disruptions are likely to weigh on domestic retail inflation as well. CPI headline inflation rose to an 8-year high of 7.8 per cent in April-22 (vs. 6.95 per cent in March-22) led by a broad-based increase in food prices, which rose to a 17-month high, fuel and core inflation (CPI excluding food and fuel). Core inflation rose to around 8-year high of 7.0 per cent in Apr-22. Going forward, CPI inflation is expected to average at 7.3 per cent in H1 FY23 and ease to 6.2 per cent in H2 FY23 assuming crude oil prices average at USD 105 pbl in FY23. For the full FY23, CPI infation is expected to average at 6.7 per cent, assuming a normal monsoon, some moderation in global commodity prices in H2, and elevated services inflation. Support from recently announced excise duty cuts on petrol and diesel is likely to be offset by some pass through of high crude oil prices to pump prices by Oil Marketing Companies to cover up their under recoveries.

To rein in elevated inflation amid Russia-Ukraine crisis, the RBI raised rate by 40 bps in an off-cycle meeting on 4th May 2022 and delivered another rate hike of 50 bps in its June 2022 policy, taking the repo rate to 4.9%. The central bank justified its rate action as a step to control the second-round impact of inflationary pressures and an effort to anchor inflation expectations. The RBI raised its inflation forecast by 100 bps to 6.7% for FY23. On the liquidity front, the central bank reiterated that it would provide enough liquidity in the system --- balancing any change due to its FX operations, Government spending or seasonality - in a manner that the normalization is non-disruptive for growth. The average liquidity in the system as of May 2022 stood at INR 5.2 lakh crore. The MPC voted to remain focused on withdrawal of accommodation in a calibrated fashion to ensure inflation remains within the RBI's upper band while supporting growth. The RBI dropped the phrase "remain accommodative" from its stance. RBI's concern about the broad-based nature of the increase in inflation and the risk of the second-round impact on inflation expectations makes a case for an aggressive path by the central bank going forward. The policy rate is likely to be raised well beyond the pre-pandemic level, close to 5.75-6% by fiscal year-end. (HDFC Bank expectations).

Overall, the Indian economy recovered from the impact of the pandemic in FY 2021-22 and is estimated to be the fastest growing economy in the world in FY 2022-23. Though there are new headwinds that could cloud the economic outlook, India is better positioned (as gauged by external indicators) to withstand extreme volatile episodes/shocks.

Financial Performance

The financial performance of your Bank during the year ended March 31, 2022, remained healthy with Total Net Revenue (Net Interest Income plus Other Income) rising 12.7 per cent to Rs.101,519.5 crore from Rs.90,084.5 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 11.0 per cent to Rs.72,009.6 crore coupled with a Net Interest Margin (NIM) of 4.0 per cent.

Other Income grew by 17.1 per cent to Rs.29,509.9 crore. The largest component was Fees and Commissions at Rs.19,536.6 crore. Gain on Revaluation and Sale of Investments was Rs.2,282.6 crore. Foreign Exchange and Derivatives Revenue was Rs.3,907.9 crore, and recoveries from written-off accounts were Rs.2,765.1 crore.

The outbreak of the COVID-19 pandemic had led to a nationwide lockdown in April-May 2020. This was followed by localised lockdowns in areas with a significant number of COVID-19 cases. Following the easing of lockdown measures, there was an improvement in economic activity in the second half of fiscal 2021. Since then, India experienced two waves of the COVID-19 pandemic following the discovery of mutant coronavirus variants, leading to the reimposition of regional lockdowns which were subsequently lifted. The impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, led to significant volatility in global and Indian financial markets and a significant decrease in global and local economic activities. The disruptions following the outbreak impacted loan originations, the sale of third-party products, the use of credit and debit cards by customers and the efficiency in collection efforts resulting in increase in customer defaults and consequent increase in provisions there against. India is emerging from the COVID-19 pandemic. The extent to which any new wave of COVID-19 will impact the Bank's results will depend on ongoing as well as future developments, including, among other things, any new information concerning the severity of the COVID-19 pandemic, and any action to contain its spread or mitigate its impact whether Government-mandated or elected by us.

Operating (Non-Interest) Expenses rose to Rs.37,442.2 crore from Rs.32,722.6 crore. During the year, your Bank set up 734 new branches and 2,043 ATMs / Cash Deposit and Withdrawal Machines (CDMs). This, along with higher spend on IT, resulted in higher infrastructure and staffing expenses. Staff expenses also went up due to employee additions and annual wage revisions. Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) premium cost increased due to deposit growth and rate increase. Despite higher staff and infrastructure expenses, the Cost to Income Ratio was 36.9 per cent as compared to 36.3 per cent during the previous year.

Total Provisions and Contingencies were Rs.15,061.8 crore as compared to Rs.15,702.8 crore in the preceding year. Your Bank's provisioning policies remain more stringent than regulatory requirements. Total provisions for the fourth quarter of the financial year included credit reserves in the form of contingent provisions of approximately Rs.1,000.0 crore.

The Coverage Ratio based on specific provisions alone excluding write-offs was 72.7 per cent and including general, floating and contingent provisions was 182.3 per cent. Your Bank made General Provisions of Rs.1,257.9 crore during the year. Gross Non-Performing Assets (GNPAs) were at 1.17 per cent of Gross Advances, as against 1.32 per cent in the previous year. Net NPA ratio stood at 0.32 per cent as against 0.40 per cent in the previous year.

Profit Before Tax grew by 17.1 per cent to Rs.49,015.4 crore. After providing for Income Tax of Rs.12,054.1 crore, Net Profit increased by 18.8 per cent to Rs.36,961.3 crore from Rs.31,116.5 crore. Return on Average Net Worth was 16.90 per cent while Basic Earnings Per Share was Rs.66.80 up from Rs.56.58.

As on March 31,2022, your Bank's Total Balance Sheet stood at Rs.2,068,535 crore, an increase of 18.4 per cent over Rs.1,746,871 crore on March 31, 2021. Total Deposits rose by 16.8 per cent to Rs.1,559,217 crore from Rs.1,335,060 crore. Savings Account Deposits grew by 26.8 per cent to Rs.511,739 crore while Current Account Deposits rose by 12.8 per cent to Rs.239,311 crore. Time Deposits stood at Rs.808,168 crore, representing an increase of 12.3 per cent. CASA Deposits accounted for 48.2 per cent of Total Deposits. Advances stood at Rs.1,368,821 crore, representing an increase of 20.8 per cent. Domestic Loan Portfolio of Rs.1,337,504 crore grew by 20.3 per cent over March 31, 2021.

Business Review

Your Bank's operations are split into Domestic and International.

A) Domestic Business comprises the following: Retail Banking

The Retail Business operated under challenging circumstances in the year under review but these were less pronounced compared with the previous year. This business is directly linked to consumption, which slowed down in general during the lockdown. The lockdown was less severe in the year under review and as the unlock gathered momentum, the business too gained momentum with Domestic Retail Advances rising by 13.7 per cent.

Domestic Retail Deposits grew by 18.5 per cent to Rs.1,262,093 crore from Rs.1,064,684 crore in the preceding year, while Retail Advances rose 13.7 per cent to Rs.599,608 crore from Rs.527,586 crore.

Personal Loans continue to exhibit strong growth with overall portfolio reaching Rs.1,40,000 crore at the end of the year. A greater focus on the Government segment as well as top corporates resulted in improved portfolio quality.

This year, your Bank maintained leadership position in Auto Loan segment, which underwent supply chain constraints, by outpacing industry growth, thus increasing marketshare and crossing Rs.100,000 crore.

There is continued focus on digitalising processes and customer touchpoints to better your Bank's reach. After the great success of Personal Loan in 10 Seconds, Digital Loan Against Shares and Digital Loan against Mutual Funds, the Bank has recently launched an end-to-end digital car loan process (Application to Disbursement). This is an industry first car loan process with a completely digital, contactless and paperless experience, wherein New to the Bank customers can avail disbursement within 30 Minutes (which includes Video KYC Process) and existing pre-approved customers can get loan disbursement in 10 seconds.

The Payments Business, where your Bank has a strong presence not only acts as a catalyst for cashless transactions but also spurs consumption. With 4.30 crore debit cards, 1.65 crore credit cards and about 28.94 lakh acceptance points, it is among the largest facilitators of cashless payments in the country. Your Bank's payments business has launched digital offerings such as Bharat QR Code, UPI, and SMS pay solutions. It has also pioneered products such as the SmartHub app for small merchants and DigiPos, which enables traditional PoS machines to accept digital payments.

RBI, through its order dated December 2, 2020, advised your Bank to immediately (i) stop sourcing of new credit card customers and (ii) stop all launches of digital business generating activities planned under program Digital 2.0.

RBI lifted the restrictions on new credit card acquisitions in August 2021 followed by the removal of the embargo on the Digital 2.0 program in March 2022.

The Bank has since been working on the following four pillars: making credit cards more powerful and customer focused, entering into strategic alliances and forging partnerships, enhancing focus on customers' experience and complaints and digitalising the user journeys

The Virtual Relationship Management practice is an integrated customer centric approach covering three pillars - Virtual Relationships, Virtual Sales and Virtual Care. A banking experience with digital ease and personalised conversations is at the core of our VRM strategy. As digital or contactless banking became a necessity during the pandemic, this programme gained further traction in the year under review. Under VRM, relationship managers reach out to customers through remote and digital platforms resulting in deeper and cost effective engagement. As digital literacy and exposure increases exponentially, VRMs are gaining wider acceptance through deeper engagement and relationships backed by a strong product offering.

Meanwhile, your Bank also added 734 branches during the year, taking the total to 6,342. As of March 31, 2022, the Bank's distribution network was at 6,342 branches and 18,130 ATMs / Cash Deposit & Withdrawal Machines (CDMs) across 3,188 cities / towns as against 5,608 branches and 16,087 ATMs / CDMs across 2,902 cities / towns as of March 31,2021. Fifty per cent of our branches are in semi-urban and rural areas. In addition, the Bank has 15,341 business correspondents, which are primarily manned by Common Service Centres (CSCs). The total number of customers your Bank catered to as on March 31, 2022 was over 7.10 crore, up from over 6.18 crore in the previous year.

As you are aware, your Bank operates in the Home Loan Business in conjunction with HDFC Limited. As per this arrangement, your Bank sells HDFC home loans while HDFC Limited approves and disburses them. Your Bank receives sourcing fee for these loans and as per the arrangement, has the option to purchase up to 70 per cent of fully disbursed loans either through the issuance of mortgage-backed Pass Through Certificates (PTCs) or a direct assignment of loans. The balance is retained by HDFC Limited. Your Bank originated, on an average Rs.3,550 crore of home loans every month in the year under review and purchased Rs.28,205 crore as direct assignment of loans.

Third Party Products

Your Bank distributes Life, General and Health Insurance, and Mutual Funds (third party products). Income from this business grew by 24 per cent to Rs.4,422 crore from Rs.3,573 crore and accounted for 23 per cent of Total Fee Income in the year ended March 31,2022, compared with 22 per cent in the preceding year.

Life Insurance

The open architecture adopted by your Bank for insurance distribution with eight insurers was made more robust through enhancements in digital journeys and product innovation with all the partners. End- to-end solicitation journey for all the products offered is now seamlessly integrated between the Bank and insurance partners. More than 50 products are available for solicitation on HDFC Bank NetBanking platform - which now contributes almost 50 per cent of the total policies. Premium mobilisation in Life Insurance for the year ended March 31,2022 was Rs.6,819 crore.

Non-Life Insurance

In the Non-Life insurance space, your Bank along with its insurance partners, introduced new and innovative products and increased customer offerings with an objective of providing wider health insurance coverage during the pandemic. All the products offered are enabled through NetBanking and telesales platforms. Employees across channels have been trained on the new products and processes. Manpower has been strengthened across Non-Life insurers to increase our business in the health insurance space keeping the customer requirement in mind. Premium mobilisation in General and Health Insurance stood at Rs.2,270 crore as of March 31, 2022.

Mutual Funds

Your Bank adopts an open architecture in Mutual Funds distribution as well and distributes funds of 35 Asset Management Companies (AMCs) with continued focus on digital journeys which enables customers to register for an online Investment Services Account (ISA); 85 per cent of ISAs are now opened through digital mediums. AUM of the Bank grew by 22.7 per cent to Rs.92,479 crore for the year ended March 31, 2022.

Wealth

The Private Banking Group was rebranded as HDFC Bank Wealth with a focussed strategy to reach out to Super Affluent and Mass Affluent Customers in B30 cities in addition to the current setup in metros. In the year under review, the business has expanded to 67 new locations and is now catering to 216 cities with 46 per cent increase in total families managed and total Assets under management of Rs. 4.11 lakh crores. Your bank is on track to reach 800+ locations by the end of this financial year through a hub and spoke model. Your bank is currently ranked 2nd amongst distributors in terms of distributor managed Mutual Fund Assets under management with market share of 4 per cent. The business has been ranked No. 1 in Mass Affluent (US$100K to US$5m) Category by Euromoney Private Banking & Wealth Management Survey 2022 in addition to receiving prestigious awards like Best Private Bank in India by Global Private Banking Awards 2021 and Best Bank for Succession Planning by Asiamoney Asia Private Banking Awards 2021.

Our dedicated service team for Wealth Clients ensures that we deliver on our Service First philosophy. Further, to ensure transition from transactional approach of wealth management to client centric portfolio management approach, your bank tracks the Annual Recurring Revenue (ARR) of its Wealth business as a key metric of client retention. Your bank has an open architecture framework across investment products to ensure that the recommended investment options are based on robust quantitative and qualitative evaluation model re-accentuating our customer centricity. Your bank is developing a mobile first Wealth application that will leverage on advanced analytics and intuitive client experience/ journeys to provide differentiated wealth solutions across customer segments. The digital platform will focus on agile digital journeys and personalisation to cater to customers across the country. The goal is to deliver a highly personalised experience that democratises wealth management and makes it accessible for all our customers.

wholesale Banking

The Wholesale Banking business was a key growth engine for your Bank in the year under review. This business focuses on institutional customers such as the Government, PSUs, large and emerging corporates, and SMEs. Your Bank's strong offerings include working capital and term loans, as well as trade credit, cash management, supply chain financing, foreign exchange, and investment banking services.

The Wholesale Banking business recorded healthy growth, ending FY 2021 -22 with a domestic loan book size of Rs.737,896 crore, recording a growth of 26.4 per cent over the year earlier. This constituted about 55 per cent of your Bank's domestic loans as per Basel II classification. Your Bank was able to expand its share of the customer wallet, primarily using sharper customisation, cross-selling and expanding into greater geographies. And continuing to lend during the pandemic while being prudent.

Corporate Banking, which focuses on large, well-rated companies, continued to be the biggest contributor to Wholesale Banking in terms of asset size. It was able to do so as it was armed with sufficient cash due to its strong capital base and balance sheet.

In Corporate banking, your Bank refocused on its engagement with MNCs. This business also continued to capitalise on the trend of large companies preferring to deal with fewer banks. Your Bank deepened its existing relationships as well as gained market share by leveraging its wide product offering. This business supported customer requirements under the Production Linked Incentive Scheme. The Emerging Corporates Group, which focuses on the mid- market segment, too witnessed significant growth. Your Bank leveraged its vast geographical reach, technology backbone, automated processes, suite of financial products and quick turnaround times to offer a differentiated service, which has resulted in new customer acquisitions as well as a higher share of the wallet from existing customers. The business continues to have a diversified portfolio in terms of both industry and geography.

In the year under review, the Bank continued its focus on the MSME sector. There has already been increased formalistion/ digitalisation of the MSME sector due to the adoption of the Goods and Service Tax (GST). The COVID-19 pandemic led to the sector experiencing substantial stress, prompting the Union Government to identify it for special support through various schemes like Moratorium, ECLGS, ECLGS Extension and COVID support loans. Your Bank supported its customers during this period by participating in the Government schemes.

The Investment Banking business further cemented its prominent position in the Debt Capital Markets, Equity Capital Markets and INR Loan Syndication. Your Bank maintained its position amongst the top 3 in the Bloomberg rankings of Rupee Bond Book Runners for FY 2021-22, with a market share of 14.42 per cent. Your Bank is actively assisting clients in equity fund raising and was ranked 5th in the PRIME Database League Tables for IPOs and Rights Issues for FY 2021-22 for private sector issues against 9th for FY 2020-21. Your Bank is ranked 2nd in the Bloomberg rankings of Syndicated INR term loans for FY 2021-22, with a market share of 11.32 per cent against ranking of 3rd for FY 2020-21.

In the Government business, your Bank sustained its focus on tax collections, collecting direct tax (CBDT) of Rs 4,08,869.61 crore and Indirect tax (CBIC+ GST) of over Rs 2,24,712.76 crore during FY 2021-22. It continues to enjoy a pre-eminent position among the country's major stock and commodity exchanges in both Cash Management Services and Cash Settlement Services.

Your Bank has been a pioneer in providing Digital Banking Services to its wholesale banking customers. It was an early adopter of digital technology through the Corporate Net Banking Platform, ENet. It has now launched an upgraded Corporate Internet Banking Platform CBX which offers a better UI/UX and richer dashboard. New customers will be onboarded on this and existing customers will be migrated to this platform.

The bank has introduced a unique Supply Chain digital platform that allows its corporate clients and their supply chain network consisting of dealers, vendors, and corporate customers to connect seamlessly with the bank's system. The platform is designed to provide a convenient, easy to use and efficient interface across all supply chain products for all members of the supply chain thus enhancing customer experience.

Your Bank offers the entire gamut of financial services, such as payments, collection, tax solutions, Government business, trade finance services, cash management solutions and corporate cards through its flagship platform, besides seamlessly connecting its customers through API, S2S (Server to Server) and Host-to-Host services.

Treasury

The Treasury is the custodian of your Bank's cash/liquid assets and handles its investments in securities, foreign exchange and cash instruments. It manages the liquidity and interest rate risks on the balance sheet and is also responsible for meeting reserve requirements. The vertical also helps manage the treasury needs of customers and earns a fee income generated from transactions customers undertake with your Bank while managing their foreign exchange and interest rate risks.

Revenue accrues from spreads on customer transactions based on trade and remittance flows and demonstrated hedging needs. Your Bank recorded revenue of Rs.3,907.9 crore from foreign exchange and derivative transactions in the year under review. While plain vanilla forex products were in demand across all customer segments, demand for derivatives products increased with the RBI liberalizing regulations and allowing Indian banks to participate in Non-Deliverable Offshore markets.

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

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

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

B) intematlona! Business

During the year, your Bank stayed on course to cater to NRI clients and deepen its product and service proposition. Your Bank has global footprints by way of representative offices and branches in countries like Bahrain, Hong Kong, the UAE and Kenya. It also has a presence in International Financial Service Centre (IFSC) at GIFT City in Gandhinagar, Gujarat.

The Bank's product strategy in International Markets is customer centric and it has products to cater to client needs across asset classes. Your Bank now has plans to extend the product offering from GIFT City Branch under Liberalized Remittance Scheme to Resident and Non Resident clients.

As on March 31, 2022, the Balance Sheet size of International Business was US$ 7.66 billion. Advances constituted 3.12% of the Bank's gross advances. The Total Income contributed by Overseas Branches constituted 0.55% of Bank's Total Income for the year.

C) Partnering with the Government

Government and Institutions Business

The past year has been momentous for the Government and Institutions Business vertical in your Bank. Some key Highlights for your Bank include:

1. Declared the single largest collector of direct taxes by the Controller General of Accounts, Government of India in FY 2020-21

2. Received mandates and began collecting customs duty

3. Received mandates from the Railways Board for e-freight collections, and pension business

4. Integrated with Government of India's e-National Agricultural Marketplace

5. Enabled more than 90,000 MSMEs to be eligible to transact on the Government e-marketplace

6. Processed more than 130 million transactions using Government of India's Public Financial Management System to transfer funds to beneficiaries

7. Processed about 26% of the funds flowing from the Central Government to the states for development programs under the aegis of the Centrally sponsored schemes, Central sector schemes, and 15th Finance Commission

8. Received collection mandates from the following two state Governments - Rajasthan and Himachal Pradesh

D) Semi-Urban and Rural

The Semi-urban and Rural markets have always been a focus of your Bank's strategy. In the last few years, your Bank has made a renewed push into the Semi-urban and rural markets as rising income levels and aspirations of rural customers are leading to demand for better quality financial products and services. The rural groups in every department of your Bank work together to tap these opportunities.

Apart from meeting its statutory obligations under PSL (Agri & Allied activities, Small and Marginal Farmers and weaker sections etc), your Bank has been offering a wide range of products on the asset side, such as auto, two-wheeler, personal, gold, Light Commercial Vehicle (LCV), small shopkeeper loans in these markets. Now it plans to increase its coverage of villages and deepen relationships in existing ones. The semi-urban and rural push has been backed by the Bank's digital strategy.

Your Bank's operations in Semi-urban and Rural locations are explained below:

Agriculture and Allied Activities

Your Bank's assets in Agriculture & Allied activities stood at '134,487.50 crore as on March 31,2022.

In general, the key to your Bank's success in the existing market is its ability to tap the opportunities through:

- Wide product range

- Faster turnaround time

- Digital solutions

The Bank's product range includes pre-and post-harvest crop loans, farm development/investment loans, two- wheeler loans, auto loans, tractor loans, small agri business loans, loan against gold, among others. This has helped the Bank establish a strong footprint in the rural hinterland with its asset products.

Apart from advising farmers on their financial needs, your Bank is increasingly focusing on facilitating various Government/ Regulatory schemes and non-crop segment covering agri allied and small agri business enterprises including rural MSMEs.

Your Bank has designed a range of crop and geography- specific products in line with the harvest cycles and the local needs of farmers across diverse Agro-climatic zones. It has transformed rural banking services from being product centric to customer centric.

Products such as post-harvest cash credit and warehouse receipt financing enable faster cash flows to farmers. Credit is also offered for allied agricultural activities such as dairy, pisciculture, and sericulture.

Participation in Government Schemes

As a part of Atmanirbhar Bharat Abhiyan, to give a fillip to the Indian economy and to make every Indian citizen self-reliant, the Government of India has announced several schemes/enablers across several sectors, more particularly in the agriculture sector.

Your Bank is implementing almost all such initiatives/schemes targeting multiple stakeholders of the agri ecosystem.

Agricultural Infrastructure Fund (AIF) Scheme: Through this scheme the Bank is offering medium to long-term debt facility for investment in viable projects pertaining to post harvest management, infrastructure development such as construction of warehouses/silos.

Your Bank has actively participated in agri infrastructure campaigns conducted by PMU, AIF (Ministry of Agriculture) and stood #1 amongst private sector Banks. As on March 31, your Bank has sanctioned Rs.427 crore covering 298 projects.

Farmer Produce Organisations (FPOs): Leveraging the Government scheme for formation and promotion of 10k new FPOs (Credit guarantee is available from SFAC/NABARD), your Bank is funding eligible FPOs for working capital and term loan requirements. Through this initiative, your Bank will be able to reach a larger number of small and marginal farmers.

Pradhan Mantri Formalisation of Food and Micro Enterprises (PMFME): Your Bank is actively implementing the scheme and passing the benefits to all eligible borrowers in the food processing sector.

Other Agri schemes include Agri Marketing Infrastructure Fund, Animal Husbandry Infrastructure Fund, Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PMKUSUM), Mission for Integrated Development of Horticulture (MIDH) as well as state specific Government schemes.

Your Bank's focus in the rural markets has not just been on increasing credit offtake, but also on cementing relationships with customers by empowering them. As part of these efforts, farmer centres or Kisan Dhan Vikas Kendras have been rolled out in Punjab, Maharashtra, Uttar Pradesh and Madhya Pradesh. At these centres, farmers access information on soil health, mandi prices, and various Government initiatives and also receive expert advice. Moreover, these services are also available on the Bank's website in vernacular languages. Kisan Dhan Vikas e-Kendra is one of its kind in the Banking Industry to reach out to farmers as a one-stop solution for all their requirements viz. loan eligibility, online application facility, training though kiosks, call an expert facility, soil testing and much more. Your Bank also provides advisory on weather, cropping and harvesting through SMS.

In line with this, the Bank also launched the e-KISAN Dhan app, a unique digital app for the rural/farming community. This is an exclusive mobile app for all rural banking and agriculture information needs from HDFC Bank.

This app aggregates crucial information required by the farmers. There have been about 100,000 downloads of the app.

Multiple needs of the farmers can be serviced such as purchase of agri inputs, agro products, information on best practices, weather alerts, mandi rates, expert advice, agri news, information on Government schemes like debt waiver, interest subvention, crop insurance and livestock centre amongst others.

Digital Interventions

Digitising Milk Procurement: This initiative brings transparency in the milk procurement and payment process, which benefits both farmers and dairy societies. 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 farmer's account to enable faster payments. MFTs have cash dispensers that function as standard ATMs. Payments are credited without the hassles of cash distribution. Further, this process creates a credit history which can then be used for accessing bank credit. Apart from dairy and cattle loans, customers gain access to all the Bank's products including digital offerings such as 10 Second Personal Loans, Kisan Credit Card, Bill Pay, and Missed Call Mobile Recharge. So far, your Bank has digitised payments at over 1,700 milk cooperatives across 21 states, benefiting more than 5.2 lakh dairy farmers. The Dairy business witnessed 73% per cent year-on-year growth in disbursements and 61% in the book.

Substituting Moneylenders:

The bank is making inroads into a market dominated by the unorganised sector, moneylenders and pawn brokers. The bank is keen on making the gold loan facility available across the length and breadth of the country. In FY 2021-22 your bank made gold loans available in 351 more branches taking the total number of branches where it can be availed of to 1,362. The bank has ended the year with a porfolio of Rs.8,367 crore.

The bank is implementing its blueprint for gold loans being made available in every branch of the country. The Bank is also planning strategically to partner with channels who have the solutions available to increase the reach.

Social initiatives in Farm Sector

Farm yield and income are subject to the vagaries of the weather. In addition, factors like soil health, input quality (seeds and fertilizers), water availability, and Government policy have significant impact, along with price realisations and storage facilities. Your Bank has launched a variety of initiatives to ease the stress on farm income and rural households.

Over the last few years, several parts of the country have been severely impacted by natural calamities such as drought, unseasonal rains, hailstorms, floods and the pandemic. Within regulatory guidelines, your Bank has been providing relief to the impacted farmers. It also has put in place systems designed to enable direct benefit transfers in a time-bound manner.

Lending to the agriculture sector, including to small and marginal farmers, is a regulatory mandate as part of priority sector lending requirements. The Bank has leveraged its extensive knowledge of rural customers to create as well as deliver products and services at affordable price points and with quick turnaround time. This has enabled the Bank to establish a strong footprint in the rural geographies, which it has now leveraged to increase its penetration of liability products. Further, your Bank is building a segment-specific approach like funding to horticulture clusters, supply chain finance, agri business, MSMEs and dairy farmers. It also continues to engage closely with farmers to mitigate risks and protect portfolio quality.

Micro, Small and Medium Enterprises (MSME)

The MSME sector serves as an important engine for economic growth and is one of the largest employers in the economy. Your Bank's assets in the MSME segment stood at Rs.313,919.49 crore as on March 31,2022. Its Micro Enterprises assets alone stood at Rs.112,564.77 crore as on March 31,2022.

The MSME sector was one of the sectors identified for special support by the Government and the RBI during the pandemic through various schemes like Interest Moratorium, ECLGS. ECLGS extension, COVID support loans etc.

Your Bank has ensured support for its customers through ECLGS and ECLGS extension schemes during the year and has also supported the customers through ad hoc enhancements as needed by them. Your Bank emerged as a star performer under the ECLGS 1.0, 2.0, 3.0 and ECLGS extension schemes. It disbursed loans amounting to Rs.17,100.89 crore to over 0.78 lakh customers in all ELGS schemes. This swift support enabled existing customers to meet their operational liabilities and helped in the smooth functioning of their businesses.

The silver lining has been that the pace of digitalisation among MSMEs has gained further momentum. This will not only help the pace of disbursement but also increase transparency in the sector. The process started with the Government's digitalisation push and the adoption of GST, which resulted in easy availability of data for banks regarding cash flows of these companies. It has been further expanded to enable customers to apply online by submitting requisite documents online and post sanction disbursement execution in digital way.

The SME portal continues to offer ad hoc approvals, preapproved TODs on an STP basis to existing customers. They can request top-up of loans and submit the required documents online. The SME portal also helps customers access your Bank's services related to sanctioned credit facilities 24/7 from anywhere.

On the trade side, your Bank's focus has been on customer engagement for increasing the penetration of Trade on Net applications. This is a complete enterprise trade solution for customers engaged in domestic as well as foreign trade, enabling them to initiate online requests and track them seamlessly, resulting in reduced time and costs.

Taking Banking to the Unbanked

Your Bank is fully committed to taking banking to the remotest parts of the country through a combination of an extensive physical network and a robust digital suite of products and services. Today, about half of your Bank's outlets are located in rural and semi-urban areas. Your Bank also offers last mile access through mobile applications such as BHIM, UPI, USSD, Scan and Pay, and RuPay enabled Micro-ATMs.

To bring more under-banked sections of the population into formal financial channels, your Bank has opened over 26.02 lakh accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and enrolled 38.58 lakh customers in social security schemes since inception. We now rank among the leading private sector banks in this regard. In the year under review, loans to the tune of Rs.7,028 crore to 12.76 lakh beneficiaries were extended under the Pradhan Mantri Mudra Yojana (PMMY) and nearly Rs.216 crore to 1,014 beneficiaries under the ‘Stand up India' scheme to Scheduled Caste, Scheduled Tribe and women borrowers. Your Bank also has actively supported PM Street Vendor's AtmaNirbhar Nidhi (PMSVANIDHI) a special scheme under microcredit facility for street vendors with a collateral free affordable term loan of Rs.10,000 for 1 year. Your Bank has disbursed Rs.10,000 each to 16,286 street vendors to support them during the pandemic and has also educated the street vendors in using the digital mode for making financial transactions.

Sustainable Livelihood initiative

This is primarily a social initiative with elements of business. It entails skill training, livelihood financing, and creating market linkages. (Please refer to page no. 95 for details)

E) Environmental Sustainability

Sustainability is one of the core values of the Bank. Please refer to page no. 56 where it is covered in detail.

F) Business Enablers

1) People Transformation

People is one of the core values of the Bank. For details please refer to page no. 80.

2) Information Technology

Summary

The Bank has accelerated the Technology and Digital Transformation with a continued focus on creating a seamless digital experience for customers. RBI, through its order dated December 2, 2020, advised your Bank to immediately (i) stop sourcing of new credit card customers and (ii) stop all launches of digital business generating activities planned under program Digital 2.0. RBI lifted the restrictions on new credit card acquisitions in August 2021 followed by the removal of the embargo on the Digital 2.0 program in March 2022. The Bank is fully geared to launch the next wave of strategic technology & digital programs which will pave the way for new customer journeys and best-in-class products and services through innovation and transformation.

Your Bank has taken significant strides to ensure further fortification of its IT infrastructure and architecture as a robust, scalable and secure ecosystem. Strategic technology initiatives such as hybrid cloud approach, DR Resiliency, capacity enhancements, data centre migration to state-of-the-art facilities, comprehensive obsolescence management and monitoring, next-gen security operations centre and more are pivotal to the Bank to move from strength to strength and usher in the next age of digital banking.

(A) Technology Absorption

The Bank is accelerating the technology and digital transformation agenda. It continues to stay invested in creating a seamless digital and customer experience across digital touchpoints. Your Bank's focused factory approach is enabling the building of its own capabilities to co-create Tech IP. Additionally, the imbibing of agile and DevSecOps principles and practices and cloudification of the Bank's tech stack are pivotal enablers in the next leg of its technology and digital transformation journey.

Initiatives such as DR Resiliency and the Bank's Hybrid Cloud Strategy continue to fortify its IT infrastructure and architecture backbone.

Focus on its digital programs will pave the way for the Bank to create next level neo-banking experiences for its customers. From shaping new customer journeys to introducing best-inclass products and services, transformation and innovation shall be at the forefront.

Key initiatives in this space are:

• Vyapar: Digital onboarding of merchants for payment acceptance and servicing of banking transactions for the merchant community

• API based digital journeys for the auto industry:

Launched a digital API platform for auto financing

• PayZapp 2.0: Enhanced experience of app customers to onboard, auto-link HDFC Bank cards, wallet and limit management, transaction display via rich statement

• Wealth management system: A new wealth management app with client self-profiling, goal setting, mutual fund order execution and portfolio re-balancing

• SME customer experience transformation: New technology to support business volume at larger scale, revamp the entire SME customer experience across commercial and retail business lines

• Biz Express: A new web portal for SME segments covering digital on-boarding, managing their multiple accounts, making payments with hierarchy, raising GST compliant invoices for payment, multiple collection modes, raise service requests online etc.

Your Bank has taken multiple steps to ensure that its robust, scalable and secure technology set-up is strengthened even further. The Bank continues to rigorously monitor the progress against commitments to the regulator.

To this effect, significant strides were taken in the following technology areas:

1. Implementation of a landing zone for Hyperscalers

Your Bank has invested in a hybrid-cloud approach with the leading cloud service partners i.e, AWS, Azure and GCP. A common landing zone has been implemented across these partners to create a secure and streamlined environment for all cloud deployments in the future. The landing zone also enables the Bank's agenda of imbibing agility and DevSecOps in the technology and digital transformation journey.

2. Capacity Upgrades

The capacity management program has made significant inroads to ensure capacity planning and management are commensurate with the rapid business growth witnessed by the Bank. Strengthening of capacity management practices has culminated into a threshold of 70 per cent across key parameters such as user concurrency, utilisation of database, server, storage, network and security devices. This has resulted in planned capacity upgrades of critical applications such as:

• 90,000 concurrent users capacity for using NetBanking and MobileBanking.

• The foundations of the banking platform being upgraded along with modernisation of 300+ services. This enhances the Bank's scalability and capacity to cater to triple the load of UPI transactions. Successfully managing over 45 crore bank customer transactions per month which had doubled in the last 12 months. Your Bank has already been ranked among the top players as published in NPCI's UPI performance metrics dashboard. Overall, the Bank's average customer uptime was 99.94 per cent.

The senior management and the Board continue to keep strong focus on capacity, performance, scalability and availability of the Bank's critical applications.

3. DR and Resiliency

The Bank has notably intensified the rigour in its DR drills for critical applications and will continue to further work on strengthening its DR processes and capabilities as outlined and communicated in its periodic submissions. The pivotal enablers in this journey are:

• A rigorous focus on reducing RTO for key applications to 40-60 minutes, which has been completed for 56 key applications

• Deep automation to improve configuration drift management between primary and DR sites

• Enrichment of existing automation tools for DR to cover all DR scenarios and reduce the RTO time further

• Refactoring key applications into an ‘Hot DR' / ‘Active- Active' design

4. Migration of the Primary Data Centre

Your Bank embarked on a journey to fully migrate and consolidate its primary data centre to state-of-the-art facilities in Mumbai and Bengaluru partnering with Sify and NTT. A systematic plan helped achieve 100 per cent migration of production applications in November 2021 followed by 100 per cent migration of UAT applications in March 2022. Further, a phase-wise plan is in place to migrate the Bank's Chandivali, Mumbai data centre to the NTT facility over the next 6 months.

The new facilities help ensure the Board's continued focus on ensuring a robust IT infrastructure for the Bank's applications and operations with higher customer uptimes across digital touchpoints.

5. Technology Obsolescence Management

A technology obsolescence program management office was established in June 2021 for comprehensive obsolescence tracking and management. Processes and procedures have been introduced to identify and remediate obsolete components 6 months before the end of support. The scope covers more than 19,000 components across the Bank's IT environment as of today. A detailed plan is in place to remediate components pertaining to high-risk applications by June 2022. The Bank continues to maintain rigorous monitoring on obsolescence through periodic reviews and reporting along with the senior management.

6. Cyber Security

Cyber security is at the heart of the technology transformation journey with substantial advancements being made to further fortify the Bank's infrastructure and applications. A few initiatives in this regard are:

• Foundation of a next-gen Security Operations Centre (SOC) with advanced technologies for predictive security and incident management - To this effect, the Bank has provisioned the Securonix platform on AWS and configured more than 10,000 logging sources and devices for monitoring

• Introduction of Security Orchestration, Automation & Response (SOAR) to reduce the incident response time by connecting security solutions with each other and automating the incident life cycle

• Micro-segmentation is being enabled in the data centre network to allow higher visibility across network flows as well as stronger preparedness and management against ransomware related events/incidents

• 24x7 defacement monitoring and vulnerability management of the Bank's internet properties minimise the surface area for cyber security attacks.

Technology related challenges over the past few years have only made the Bank's resolve stronger to consolidate and fortify its technology environment. Focused technology and digital investments and programs in technology are pivotal to the Bank to usher in the new age of digital banking and experiences for its customers.

Service Quality Initiatives and Grievance Redressal

Customer Focus is one of the five core values of your Bank. Driven by this core value, your Bank has always endeavoured to improve customer experience and has adopted a holistic approach for the same across multiple channels. This is critical in a highly competitive business environment, especially since it has various lines of businesses. Ensuring product quality and service delivery becomes vital for business growth. Your Bank desires to achieve this by seeking customer feedback as well as benchmarking with best-in-class business entities. Your bank has adopted a three-step strategy with regards to Customer Service - Define, Measure, and Improve.

Your Bank has adopted a multi-pronged approach to provide an omnichannel experience to its customers. On one side, your Bank has traditional touch points like Branch, Email Management team and Phone banking, and on the other side, it has state- of- the-art platforms like NetBankinbg, MobileBanking, the chatbot Eva and the bank's exclusive social care handles which offer a wide range of channel choice to its customers. Your Bank has also improvised on the relationship-based banking programmes. In addition to the branch-based relationship managers, it also has a Virtual Relationship Manager (VRM) programme to cater to various financial needs in a personalized manner. Your Bank invites and reviews the performance on customer service as well as grievance redressal at different levels which are Branch Level Customer Service Committees (BLCSCs), Standing Committee on Customer Service (SCCS) and Customer Service Committee of the Board (CSCB). Your Bank has put robust processes in place to regularly monitor and measure quality of service levels not only at various touch points but also at a product and process level by Quality Initiatives Group.

As part of its continuous efforts to enhance quality of service, the Service Quality team carries out regular reviews across various products/processes/channels. The effectiveness of the quality of service provided is also reviewed at different levels, including the Customer Service Committee of the Board.

One of the basic building blocks of providing acceptable level of customer service is to have an effective internal Grievance Redressal mechanism / framework. In this regard, the bank has outlined a framework for redressal of customer grievances and documented it in the form of a Grievance Redressal Policy - duly approved by its Board. Bank has also made this policy available in public domain (on the website as well as in the branches).

Your Bank has provided multiple channels to its customers to share feedback on its services as well as register their grievances. Your Bank is at the forefront of developing innovative financial solutions and digital platforms. This, coupled with concerted efforts at creating awareness among customers, has led to an increase in the use of its digital channels as well as customer loyalty. Keeping customer interest in focus, your Bank has formulated a Board approved Protection Policy, which limits the liability of customers in case of unauthorized electronic banking transactions

Your Bank is on a journey to measure customer loyalty through a high velocity, closed loop customer feedback system. This customer experience transformation programme will help employees empathize better with customers and improve turnaround times. Branded as ‘Infinite Smiles', the programme would help establish behaviours and practices that result in customer-centric actions through continuous improvements in product, services, process, and policies.

Thanks to these initiatives, your Bank's customer complaints for FY 21-22 decreased by 21 percent from 4,67,453 Rs. to 3,68,291.

*Restated complaints number based on reclassification of queries into complaints from 3,25,786.

Risk Management and Portfolio Quality

1) Risk Management and Portfolio Quality

Traditionally, the key risks that your Bank is exposed to in the course of its business have been the Pillar 1 risks - Credit Risk, Market Risk and Operational Risk. Given the evolving banking environment, Liquidity Risk, Information Technology Risk and Information Security Risk have also become vital. These risks not only have a bearing on your Bank's financial strength and operations but also on its reputation. Keeping this in mind, the Bank has put in place Board-approved risk strategy and policies, whose implementation is supervised by the Risk Policy and Monitoring Committee (RPMC). The Committee ensures that frameworks are established for assessing and managing various risks faced by your Bank, systems are developed to relate risk to the Bank's capital level and methods are in place for monitoring compliance with internal risk management policies and processes. The Committee guides the development of policies, procedures and systems for managing risks. It ensures that these are adequate and appropriate to changing business conditions, the structure and needs of your Bank and its risk appetite.

The hallmark of your Bank's risk management function is that it is independent of the business sourcing unit with convergence only at the CEO level.

The gamut of key risks faced by the Bank which are dimensioned and managed include:

• Credit Risk, including Residual Risks

• Market Risk

• Operational Risk

• Interest Rate Risk in the Banking Book

• Liquidity Risk

• Intraday Liquidity Risk

• Intra Day Credit Risk

• Credit Concentration Risk

• Counterparty Credit Risk

• Model Risk

• Outsourcing Risk

• People Risk

• Business Risk

• Strategic Risk

• Compliance Risk

• Reputation Risk

• Technology Risk

• Group Risk

Credit Risk

Credit Risk is defined as the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. Losses stem from outright default or reduction in portfolio value. Your Bank has a distinct credit risk architecture, policies, procedures and systems for managing credit risk in both its retail and wholesale businesses. Wholesale lending is managed on an individual as well as portfolio basis. In contrast, retail lending, given the granularity of individual exposures, is managed largely on a portfolio basis across various products and customer segments. For both categories, there are robust front-end and back-end systems in place to ensure credit quality and to minimise loss from default. The factors considered while sanctioning retail loans include income, demographics, credit history, loan tenor and banking behaviour. In addition, there are multiple credit risk models developed and used to appraise and score different segments of customers on the basis of portfolio behaviour. In wholesale loans, credit risk is managed by capping exposures on the basis of borrower group, industry, credit rating grades and country, among others. This is backed by portfolio diversification, stringent credit approval processes and periodic post-disbursement monitoring and remedial measures. Your Bank has been able to ensure strong asset quality through volatile times in the lending environment by stringently adhering to prudent norms and institutionalised processes. Your Bank also has a robust framework for assessing Counterparty Banks, which are reviewed periodically to ensure interbank exposures are within approved appetite.

As on March 31,2022, your Bank's ratio of Gross Non Performing Assets (GNPAs) to Gross Advances was 1.17 per cent. Net Nonperforming Assets (Gross Non-Performing Assets Less Specific Loan Loss provisions) was 0.32 per cent of Net Advances.

Your Bank has a conservative and prudent policy for specific provisions on NPAs. Its provision for NPAs is higher than the minimum regulatory requirements and adheres to the regulatory norms for Standard Assets.

Digital and Credit Risk

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

Market Risk

Market Risk arises largely from your Bank's statutory reserve management and trading activity in interest rates, equity and currency market. These risks are managed through a well- defined Board approved Market Risk Policy, Investment Policy, Foreign Exchange Trading Policy and Derivatives Policy that caps risk in different trading desks or various securities through trading risk limits/triggers. The risk measures include position limits, tenor restrictions, sensitivity limits, namely, PV01, Modified Duration of Hold to Maturity Portfolio and Option Greeks, Value- at-Risk (VaR) Limit, Stop Loss Trigger Level (SLTL), Scenario based P&L Triggers, Potential Loss Trigger Level (PLTL), and are monitored on an end-of-day basis. In addition, forex open positions, currency option delta and interest rate sensitivity limits are computed and monitored on an intraday basis. This is supplemented by a Board-approved stress testing policy and framework that simulates various market risk scenarios to measure losses and initiate remedial measures. The Market Risk capital charge of your Bank is computed on a daily basis using the Standardised Measurement Method applying the regulatory factors.

Liquidity Risk

Liquidity risk is the risk that the Bank may not be able to meet its financial obligations as they fall due without incurring unacceptable losses. Your Bank's framework for liquidity and interest rate risk management is spelt out through a well-defined Board approved Asset Liability Management Policy. As part of this process, your Bank has established various Board-approved limits, both for liquidity risk and interest rate risk in banking book. Implementation of the policy, monitoring of limits is reviewed by the Asset Liability Committee (ALCO). While the maturity gap, Basel III ratios and stock ratio limits help manage liquidity risk, Net Interest Income and market value impacts help mitigate interest rate risk. This is reinforced by a comprehensive Board- approved stress testing programme covering both liquidity and interest rate risk.

Your Bank conducts various studies to assess the behavioural pattern of non-contractual assets and liabilities and embedded options available to customers, which are used while managing maturity gaps and repricing risk. Further, your Bank also has the necessary framework in place to manage intraday liquidity risk.

The Liquidity Coverage Ratio (LCR), a global standard, is also used to measure your Bank's liquidity position. LCR seeks to ensure that the 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 under a 30-day calendar liquidity stress scenario. Based on Basel III norms, your Bank's average LCR stood at 121.16 per cent on a consolidated basis for FY 2021-22 as against the regulatory threshold at 100 per cent.

The Net Stable Funding Ratio (NSFR), a key liquidity risk measure under BCBS liquidity standards, is also used to measure your Bank's liquidity position. The NSFR seeks to ensure that your Bank maintains a stable funding profile in relation to the composition of its assets and off-balance sheet activities. The RBI guidelines stipulated a minimum NSFR requirement of 100 per cent at a consolidated level with effect from October 1,2021. Your Bank has maintained the NSFR well above 100 per cent since its implementation. Based on guidelines issued by RBI, your Bank's NSFR stood at 124.00 per cent on a consolidated basis at March 31, 2022.

Operational Risk

This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It also includes risk of loss due to legal risk.

Given below is a detailed explanation under four different heads: Framework and Process, Internal Control, Information Technology and Security Practices and Fraud Monitoring and Control.

a. Framework and Process

To manage Operational Risks, your Bank has in place a comprehensive Operational Risk Management Framework, whose implementation is supervised by the Operational Risk Management Committee (ORMC) and reviewed by the RPMC of the Board. An independent Operational Risk Management Department (ORMD) implements the framework. Under the framework, the Bank has three lines of defence. The first line of defence is the business line (including support and operations).

The first line is primarily responsible for developing risk mitigation strategies in managing operational risk for their respective units.

The second line of defence is the ORMD, which is responsible for implementing the operational risk management framework across the Bank. It designs and develops tools required for implementing the framework including policies and processes, guidelines towards implementation and maintenance of the framework. In order to achieve the aforesaid objective pertaining to operational risk management framework, the ORMC guides and oversees the functioning, implementation and maintenance of operational risk management activities of Bank, with special focus on:

• Identification and assessment of risks across the Bank through the Risk and Control Self-Assessment (RCSA) and Scenario analysis

• Measurement of Operational Risk based on the actual loss data

• Monitoring of risk through Key Risk Indicators (KRI)

• Management and reporting through KRI, RCSA and loss data of the Bank

Internal Audit is the third line of defence. The team reviews the effectiveness of governance, risk management and internal controls within your Bank.

b. Internal Control

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

c. Information Technology and Information Security Practices

Your Bank operates in a highly automated environment and makes use of the latest technologies available on cloud or on Premises Data centres to support various business segments. This results in various risks such as those associated with the use, ownership, operation, involvement, influence, and adoption of IT within an enterprise, as well as business disruption due to technological failures. Additionally, it can lead to risks related to information assets, data security, integrity, reliability and availability, among others. Your Bank has put in place a governance framework, information security practices and business continuity plan to mitigate Information Technology & Information Security-related risks.

The three lines of defence approach is adopted for enterprisewide Technology Risk management. The first line of defence holds primary responsibility of managing the risk and ensuring proper controls are in place.

The second line of defence defines policies, frameworks and controls. Information Technology Risk and Information Security Group addresses technology and information security related risks. A well-documented Board-approved information security policy and cyber security policy are in place. Your Bank has a robust Business Continuity and Disaster Recovery plan that is periodically tested to ensure that it can meet any operational contingencies. Further, there is a well-documented crisis management plan in place to address the strategic issues of a crisis impacting the Bank and to direct and communicate the corporate response to the crisis including cyber crisis. In addition, employees mandatorily and periodically undergo information security training and sensitisation exercises.

For details on robust cyber security measures please refer page no. 51.

An independent assurance team within Internal Audit acts as a third line of defence that provides assurance on the management of IT-related risks.

d. Fraud Monitoring and Control

Your Bank has put in place a Whistle Blower and Vigilance Policy and a central vigilance team that oversees the implementation of fraud prevention measures. Frauds are investigated to identify the root cause and relevant corrective steps are taken to prevent recurrence.

Fraud Monitoring committees at the senior management and Board level also deliberate on material fraud events and advise preventive actions. Periodic reports are submitted to the Board and senior management committees.

Compliance Risk

Compliance Risk is defined as the risk of impairment of your Bank's integrity, leading to damage to its reputation, legal or regulatory sanctions, or financial loss, as a result of a failure (or perceived failure) to comply with applicable laws, regulations and standards. Your Bank has a Compliance Policy to ensure the highest standards of compliance. A dedicated team of subject matter experts in the Compliance Department works with business, support and operations teams to ensure active Compliance Risk management and monitoring. The team also provides advisory services on regulatory matters. The focus is on identifying and reducing risk by rigorously testing products and also putting in place robust internal policies. Products that adhere to regulatory norms are tested after rollout and shortcomings, if any, are fully addressed till the product stabilises on its own. Internal policies are reviewed and updated periodically as per agreed frequency or based on market actions or regulatory guidelines/actions. The compliance team also seeks regular feedback on regulatory compliance from product, business and operation teams through self-certifications and monitoring.

ICAAP

Your Bank has a structured management framework in the Internal Capital Adequacy Assessment Process (ICAAP) to identify, assess and manage all risks that may have a material adverse impact on its business/financial position/capital adequacy. The ICAAP framework is guided by the Board approved ICAAP Policy.

Stress Testing Framework

Your Bank has implemented a Board approved Stress Testing Policy and Framework which forms an integral part of the Bank's ICAAP. Stress testing involves the use of various techniques to assess your Bank's potential vulnerability to extreme but plausible stressed business conditions. The changes in the levels of Pillar I risks and select Pillar II risks, along with the changes in the on and off Balance Sheet positions of your Bank are assessed under assumed ‘stress' scenarios and sensitivity factors. The suite of stress scenarios include topical themes as well as prevailing geopolitical / macroeconomic / sectoral and other trends. The stress testing outcome may be analysed through capital impact and/or identification of vulnerable borrowers depending on the scenario.

Group Risk

Your Bank has two subsidiaries, HDB Financial Services Limited and HDFC Securities Limited. The Board of each subsidiary is responsible for managing their respective material risks (Credit Risk, Concentration Risk, Market Risk, Operational Risk,

Liquidity Risk, Interest Rate Risk on Banking Book, Technology Risk, Reputation Risk, Compliance Risk, Business Risk and others). The Group Risk Management Committee (GRMC) was instituted in your Bank under the ICAAP framework to establish a formal and dedicated structure to periodically assess the nature/ quantum of material risks of the subsidiaries and adequacy of its risk management processes. Stress testing for the group as a whole is carried out by integrating the stress tests of the subsidiaries. Similarly, capital adequacy projections are formulated for the group after incorporating the business/capital plans of the subsidiaries.

Business Continuity Planning (BCP)

Your Bank has an ISO22301:2019 certified Business Continuity Program in place to minimise service disruptions and potential impact on its employees, customers and business during any unforeseen adverse events or circumstances. This program is designed in accordance with the guidelines issued by regulatory bodies and is subject to regular internal, external and regulatory reviews. The central Business Continuity Office works towards strengthening the bank's continuity preparedness. The implementation is overseen by the Business Continuity Steering Committee which is chaired by the Chief Risk Officer. The Business Continuity Procedure has well defined roles and responsibilities for Crisis Management, Business Recovery, Emergency Response and IT Disaster Recovery Teams. Please refer to page no. 52 for more details.

Some of the key aspects of thisprogram include thefollowing:

• Presence of a Steering Committee for centralised monitoring of your Bank's Business Continuity program implementation

• Presence of Crisis Management teams for effective management of recovery operations during disruptive events

• Presence of a dedicated DR site for recovery of critical core and customer facing applications

• Decentralised recovery plans at functional and regional levels for structured and speedy recovery of operations

• Periodic drills are exercises for testing the effectiveness of these recovery plans.

These robust practices have enabled your bank to continue delivering banking services seamlessly to customers throughout the COVID-19 pandemic phases coupled with other major disruptive events. Your Bank has successfully emerged from all these difficult situations with a hybrid approach comprising of well-adopted continuity and recovery strategies like remote working (work from home), split operations, work transfer and/ or staff transfer to available sites, in accordance with prevailing protocols and norms.

7) Internal Controls, Audit and Compliance

Your Bank has put in place extensive internal controls and processes to mitigate Operational Risks, including centralised operations and ‘segregation of duty' between the front office and back office. The front-office units usually act as customer touch-points and sales and service outlets while the back-office carries out the entire processing, accounting and settlement of transactions in the Bank's core banking system. The policy framework, definition and monitoring of limits is carried out by various mid-office and risk management functions. The credit sanctioning and debt management units are also segregated and do not have any sales and operations responsibilities.

Your Bank has set up various executive-level committees, with participation from various business and control functions, that are designed to review and oversee matters pertaining to capital, assets and liabilities, business practices and customer service, Operational Risk, information security, business continuity planning and internal risk-based supervision among others. The second line of defense functions set standards and lay down policies and procedures by which the business functions manage risks, including compliance with applicable laws, compliance with regulatory guidelines, adherence to operational controls and relevant standards of conduct. At the ground level, your Bank has a mix of preventive and detective controls implemented through systems and processes, ensuring a robust framework in your Bank to enable correct and complete accounting, identification of outliers (if any) by the Management on a timely basis for corrective action and mitigating Operational Risks.

Your Bank has put in place various preventive controls:

(a) Limited and need-based access to systems by users

(b) Dual custody over cash and near-cash items

(c) Segregation of duty in processing of transactions vis-a-vis creation of user IDs

(d) Segregation of duty in processing of transactions vis-a-vis monitoring and review of transactions/reconciliation

(e) Four eye principle (maker-checker control) for processing of transactions

(f) Stringent password policy

(g) Booking of transactions in core banking system mandates the earmarking of line/limit (fund as well as non-fund based) assigned to the customer

(h) STP processes between core banking system and payment interface systems for transmission of messages

(i) Additional authorisation leg in payment interface systems in applicable cases

(j) Audit logs directly extracted from systems

(k) Empowerment grid

Your Bank also has detective controls in place:

(a) Periodic review of user IDs

(b) Post-transaction monitoring at the back-end by way of call back process (through daily log reports) by an independent person, i.e., to ascertain that entries in the core banking system/messages in payment interface systems are based on valid/authorised transactions and customer requests

(i) Daily tally of cash and near-cash items at end of day

(ii) Reconciliation of Nostro accounts (by an independent team) to ascertain and match-off the Nostro credits and debits (External or Internal) regularly to avoid / identify any unreconciled/unmatched entries passing through the system

(c) Reconciliation of all Suspense Accounts and establishment of responsibility in case of outstanding

(d) Independent and surprise checks periodically by supervisors

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

This department adopts a risk-based audit approach and carries out audits across various businesses i.e. Retail, Wholesale and Treasury (for India and Overseas books), audit of Operations units, Management and Thematic audits, Information Security audit, Revenue audit and Concurrent audit in order to independently evaluate the adequacy and effectiveness of internal controls on an ongoing basis and pro-actively recommending enhancements thereof. The Internal Audit Department, during the course of audit, also ascertains the extent of adherence to regulatory guidelines, legal requirements and operational processes and provides timely feedback to the Management for corrective actions. A strong oversight on the operations is also kept through off-site monitoring by use of data analytics to study trends/patterns to detect outliers (if any) and alert the Management.

The Internal Audit Department also independently reviews your Bank's implementation of Internal Rating Based (IRB)- approach for calculation of capital charge for Credit Risk, the appropriateness of your Bank's ICAAP, as well as evaluates the quality and comprehensiveness of your Bank's disaster recovery and business continuity plans and 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. The Internal Audit Department plays an important role in strengthening of the Control functions by periodically reviewing their practices and processes as well as recommending enhancements thereof. Additionally, oversight is also kept on the functioning of the subsidiaries, related party transactions and extent of adherence to the licensing conditions of the RBI.

Any new product/process introduced in your Bank is reviewed by Compliance function in order to ensure adherence to regulatory guidelines and also by Internal Audit from the perspective of existence of internal controls. The Audit function also proactively recommends improvements in operational processes and service quality, wherever deemed fit.

To ensure independence, the Internal Audit Function has a reporting line to the Audit Committee of the Board and a dotted line reporting to the Managing Director for administrative purposes.

The Compliance function independently tracks, reviews and ensures compliance with regulatory guidelines and promotes a compliance culture in the Bank.

Your Bank has a comprehensive Know Your Customer, Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) policy (based on the RBI guidelines/provisions of the Prevention of Money Laundering Act, 2002) incorporating the key elements of Customer Acceptance Policy, Customer Identification Procedures, Risk Management and Monitoring of Transactions. The policy is subjected to an annual review and is duly approved by the Board.

Your Bank besides having robust controls in place to ensure adherence to the KYC guidelines at the time of account opening also has monitoring process at various stages of the customer lifecycle including a continuous review process in the form of transaction monitoring carried out by a dedicated AML CFT monitoring team, which carries out transaction reviews for identification of suspicious patterns/trends that enables your Bank to further carry out enhanced due diligence (wherever required) and appropriate actions thereafter. The status of adherence to the KYC, AML and CFT guidelines is also placed before the Audit Committee of the Board for their review at quarterly intervals.

The Audit team and the Compliance team undergo regular training both in-house and external to equip them with the necessary knowhow and expertise to carry out the function.

The Audit Committee of the Board reviews the effectiveness of controls, compliance with regulatory guidelines as also the performance of the Audit and Compliance functions in your Bank and provides direction, wherever deemed fit. Your Bank has always adhered to the highest standards of compliance and has put in place appropriate controls and risk measurement and risk management tools to ensure a robust compliance and governance structure.

G) Performance of Subsidiary Companies

Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC Securities Limited (HSL). HDBFSL is a leading NBFC that caters primarily to segments not covered by the Bank while HSL is among India's leading retail broking firms. The financial results of the subsidiaries are prepared in accordance with notified Indian Accounting Standards (‘Ind-AS').

The detailed financial performance of the companies is given below.

HDFC Securities Limited (HSL)

HSL's Total Income under Indian Accounting Standards was Rs.1,990.30 crore as against Rs.1,399.43 crore in the previous year and Net Profit was Rs.984.34 crore as against Rs.703.22 crore in the previous year. The company has a customer base of 38.30 lakh to whom it offers an exhaustive range of investment and protection products. In the year under review, HSL had 12.73 lakh transacting customers. The focus on digitalisation continued. Notably, 91 per cent of its customers accessed its services digitally, against 92 per cent in the previous year.

In a conscious effort to rationalise the distribution network with greater emphasis on digital offerings, HSL consolidated its existing branches to end with 216 branches across 147 cities / towns at the end of the year. It created digital Boarding Journeys which led to more than 50 per cent customers being onboarded digitally.

In the case of Margin Trade Funding (MTF), the average book size during the year was Rs.2,992 crore, which is more than three times the average book size of Rs.930 crore in the last financial year. The book size at the year end stands at Rs.3,288 crore.

Nifty rose right from the beginning of FY 2021-22 to touch a peak in mid-October 2021. It corrected later to a low in early March 2022. An upward bounce later led to Nifty closing the fiscal not very far from the all-time high of October 2021. The Indian equity market gave solid returns in FY 2021-22, despite geopolitical turmoil playing spoilsport in the last quarter of the financial year. Nifty50 recorded an impressive 19 per cent year-on-year gain and ended the financial year with the second-best returns in seven years. Broader markets also put up an impressive performance. The Nifty Midcap 100, up more than 25 per cent y-o-y, and the Nifty Smallcap 100, up more than 29 per cent y-o-y, out performed the benchmark in FY 2021-22. Sectoral indices also posted decent performance during this period.

As on March 31, 2022, your Bank held 95.96 per cent stake in HSL.

HDB Financial Services Limited

Incorporated in 2007, HDB is a leading NBFC that caters to the evolving needs of its customers by re-imagining opportunities and fulfilling their aspirations. It has a strong network of over 1,374 branches spread across 989 cities/towns. HDB's net interest income grew 9.4 per cent to Rs.5,037.5 crore for the year ended March 31, 2022, from Rs.4,605.0 crore in the year ended March 31, 2021. Profit for the year under review was Rs.1,011.4 crore against Rs.391.5 crore in the previous year. Its Assets Under Management for the year ended March 31, 2022 stood at Rs.61,444.3 crore compared to Rs.61,560.7 crore in the previous year.

HDB offers a comprehensive suite of products and service offerings that are tailor-made to suit its customers' requirements, including first-time borrowers and the under- served segments.

Products and Services

HDB is engaged in the business of Financing, fee-based products and BPO services.

Financing: HDB offers a diverse range of product offerings (secured and unsecured) to various customer segments. These include Consumer Loans, Enterprise Loans, Asset Finance and Micro-Lending.

Consumer Loans

Consumer loans are offered to customers to buy consumer durables, lifestyle products and digital products. HDB also provides personal and Gold loans to individuals for personal, family or household purposes to meet their short or medium term requirements. The Company also provides auto loans and two-wheeler loans.

Enterprise Loans

HDB offers secured and unsecured loans designed for SMEs, including working capital and term loans.

Asset Finance

HDB offers loans for the purchase of new and used commercial vehicles and construction equipment that generate income for the borrowers. The customer base includes fleet owners, first time users, first time borrowers and captive use buyers.

Micro Lending

HDB offers micro-loans to borrowers through the Joint Liability Groups (JLGs) framework. With Micro-Lending, HDB endeavours to empower and promote financial inclusion within these sections, thus resulting in sustainable development of the nation.

Fee-based products/Insurance Services

HDB is a registered Corporate Insurance Agent having licence from Insurance Regulatory & Development Authority of India (IRDAI). The company is engaged in the sale of both Life and General (Non-Life) Insurance products.

BPO Services

HDB runs a Collections BPO business, offering end-to end, specialised collection services with domain expertise in collections tele-calling, recovery management, collections analytics and cash reconciliation management. The division also delivers back-office services such as forms processing, documents verification, finance and accounting services and correspondence management and front office services such as contact centre management and outbound marketing.

The Enablers

HDB's presence across diverse digital channels has enabled the company to offer a wide variety of financial solutions to its customers. HDB's customers can access and manage their loan account 24/7 through its Mobile Banking Application - ‘HDB On The Go', Customer Service Portal to manage the loan account, Missed Call Service, WhatsApp Account Management Service and the Chatbot #AskPriya.

As on March 31, 2022, your Bank held 94.96 per cent stake in HDB.

Other Statutory Disclosures

Number of Meetings of the Board, attendance, meetings and constitution of various Committees

Fourteen (14) meetings of the Board were held during the year under review. 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.

Annual Return

In accordance with the provisions of Companies Act, 2013, the Annual Return of the Bank in the prescribed Form MGT-7 is available on the website of the Bank at the link https://www. hdfcbank.com/personal/about-us/investor-relations/annual- reports.

Requirement for maintenance of cost records

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

Details in respect of frauds reported by auditors under section 143 (12)

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

Directors' Responsibility Statement

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

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

• 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 31,2022 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 have ensured that such internal financial controls were adequate and 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.

Compliance with Secretarial Standards

The Bank is in compliance with all applicable Secretarial Standards as notified from time to time.

Statutory Auditors

M. M. Nissim & Co. LLP, Chartered Accountants and MSKA & Associates, Chartered Accountants, have conducted the joint statutory audit of the Bank for FY 2021-22, pursuant to the approval of the RBI and the shareholders of the Bank.

The Board of Directors, on the recommendation of the Audit Committee, has finalized for recommendation to RBI for approval, the name of M/s. Price Waterhouse LLP, Chartered Accountants as the first preferred firm to act as Joint Statutory Auditors of the Bank in relation to the Financial Years 2022-23, 2023-24 and 2024-25, subject to approval of the shareholders at the ensuing Annual General Meeting (AGM). This firm shall act as the Joint Statutory Auditors along with M.M. Nissim & Co. LLP, Chartered Accountants for the remainder of the latter's tenure.

Appropriate resolutions in this regard are also being proposed at the ensuing AGM.

During the year ended March 31, 2022, fees paid to MSKA & Associates and M.M. Nissim & Co. LLP and their respective network firms on consolidated basis are as follows:

Fees (excluding taxes) HDFC Bank to Statutory Auditors HDFC Bank to network firms of Statutory Auditors Subsidiaries of HDFC Bank to Statutory Auditors and its network firms
Statutory Audit* 3.85 - -
Certification & other attestation services 1.88 - -
Non-audit services - - -
Outlays 0.02 - -
Total 5.75 - -

*Out of the total statutory audit fees, Rs.3.30 crore were approved at the AGM held on July 17, 2021 and the balance Rs.0.55 crore is proposed to the shareholders for approval at the ensuing AGM

Disclosure under Foreign Exchange Management Act, 1999

As far as FEMA compliances in relation to strategic downstream investments in the Bank's subsidiaries is concerned, during the year under review, there have been no strategic downstream investments made by Bank in its subsidiaries. Accordingly, the Bank has obtained a certificate from MSKA & Associates, Chartered Accountants, to this effect.

Corporate Social Responsibility

The brief outline of the CSR policy of the Bank and the initiatives undertaken by the Bank on CSR activities during the year are set out in Annexure 2 of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. This Policy is available on the Bank's website at https://v1.hdfcbank.com/csr/index.aspx.

Related Party Transactions

Particulars of contracts or arrangements 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 3.

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of the Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided or any investment made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in note number 10 of Schedule 18 of the Financial Statements as per the applicable provisions of the 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 4 to this report. There were no entities which became or ceased to be the Bank's subsidiaries, associates or joint ventures during the year.

Whistle Blower Policy / vigil Mechanism

The Bank encourages an open and transparent system of working and dealing amongst its stakeholders. While the Bank's "Code of Conduct & Ethics Policy" directs employees to uphold Bank values and conduct business worldwide with integrity and highest ethical standards, the Bank has also adopted a "Whistle Blower Policy" to encourage and empower the Employees/ Stakeholders to make or report any Protected Disclosures under the Policy, without any fear of reprisal, retaliation, discrimination or harassment of any kind.

This Policy has also been put in place to provide a mechanism through which adequate safeguards can be provided against victimization of employees who avail of this mechanism. The policy would cover and will be applicable to the Protected Disclosures related to violation/ suspected violation of the Code of Conduct including (a) breach of applicable law; (b) fraud or corruption; (c) leakage/suspected leakage of unpublished price sensitive information which are in violation to SEBI (Prohibition of Insider Trading) Regulations, 2015 and related internal policy of the Bank, i.e. Share Dealing Code of the Bank, (d) wilful data breach and/ or unauthorized disclosure of Bank's proprietary data including customer data.

All Protected Disclosures made under the policy shall be made to the Whistle Blower Committee through the following modes; (a) By letter in a closed / sealed envelope addressed to Whistle Blower committee, (b) by submission of the same on the information portal of the Bank, (c) by way of an email addressed to whistleblower@hdfcbank.com. In exceptional circumstances, the Whistle Blower may make such Protected Disclosures directly to the Chairperson of the Audit Committee of the Bank.

All Protected Disclosures received under this Policy would be examined by the Whistle Blower Committee and further assign the investigation to an appropriate Investigation Officer(s) depending on the nature of the subject matter of the Protected Disclosure. The Investigation Authority shall place the investigation report in respect of any Protected Disclosure before the Whistle Blower Committee together with any other supporting documents which may be required by the Whistle Blower Committee and shall discuss the findings of the investigation with the Whistle Blower Committee. After review of the investigation report and the requisite supporting documents, the Whistle Blower Committee shall take the necessary actions in relation to the Protected Disclosure.

Details of Whistle blower complaints received and subsequent action taken and the functioning of the Whistle Blower mechanism are reviewed periodically by the Audit Committee of the Board. During the financial year 2021-22, a total of 147 such complaints were received and taken up for investigation which has resulted in certain staff actions in 47 cases post investigation. The broad categories of whistle blower complaints were in the areas of improper business practices, behavioural related issues and corruption.

The Policy is available on the website of the Bank at the link- https://www.hdfcbank.com/personal/about-us/corporate- governance/codes-and-policies

Securities Class Action Suit

On September 3, 2020, a securities class action lawsuit was filed against the Bank and certain of its current and former officers in the United States District Court for the Eastern District of New York. The complaint was amended on February 8, 2021. The amended complaint alleges that the Bank, its former Managing Director, Mr. Aditya Puri, and the present Managing Director & CEO, Mr. Sashidhar Jagdishan made materially false and misleading statements regarding certain aspects of the Bank's business and compliance policies, which resulted in the Bank's American Depository Share price declining on July 13, 2020 thereby allegedly causing damage to the Bank's investors. On April 9, 2021, the Bank, Mr. Puri, and Mr. Jagdishan served their motion to dismiss the amended complaint, and on July 23, 2021, they served their reply brief in support of the motion and filed all of the motion papers. The Court held oral argument on the motion to dismiss on January 14, 2022, and the motion remains pending before the Court. The Bank believes that the asserted claims are baseless and without merit and intends to vigorously defend against the allegations.

Material Developments: Proposed Scheme of Amalgamation

The Board of Directors of HDFC Bank Limited (‘HDFC Bank') at its meeting held on April 4, 2022, approved a composite scheme of amalgamation (‘Scheme') for the amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, wholly-owned subsidiaries of the Housing Development Finance Corporation Limited (‘HDFC Limited'), with and into HDFC Limited and (ii) HDFC Limited with and into HDFC Bank and matters related thereto.

With effect from the appointed date and upon the amalgamation of HDFC Limited with and into HDFC Bank becoming effective, HDFC Limited along with all its assets, liabilities, contracts, employees, licenses, records and approvals being their respective integral parts shall stand transferred to and vest in or shall be deemed to have been transferred to and vested in HDFC Bank, as a going concern.

Upon the Scheme becoming effective and in consideration of the proposed amalgamation of HDFC Limited with and into HDFC Bank, HDFC Limited will stand dissolved without being wound up and the shareholders of HDFC Limited as on the record date will receive 42 shares of HDFC Bank (each of face value of Rs.1), for 25 shares held in HDFC Limited (each of face value of Rs.2). This share exchange ratio has been arrived at based on a joint valuation report submitted by two Registered Valuers and independent Chartered Accountancy firms appointed by HDFC Bank and HDFC Limited, which was supported by a Fairness Opinion provided by two SEBI registered merchant bankers.

During the period between the approval of the Scheme by the respective boards of HDFC Bank and HDFC Limited and up to the effectiveness of the Scheme, the business of HDFC Bank and HDFC Limited shall be carried out with reasonable diligence and business prudence in the ordinary course, consistent with past practice, in accordance with the applicable laws and as mutually agreed.

The Board of Directors of HDFC Bank and HDFC Limited have opined that the proposed amalgamation would be in the best interest of the respective companies, their shareholders, employees, creditors and other stakeholders, since the proposed amalgamation will yield advantages as set out, inter alia, below:

(a) the amalgamation, through the Scheme, shall enable HDFC Bank to build its housing loan portfolio and enhance its existing customer base;

(b) The amalgamation is based on leveraging the significant complementarities that exist amongst the parties to the Scheme. It would create meaningful value for various stakeholders including respective shareholders, customers, employees, as the combined business would benefit from increased scale, comprehensive product offering, balance sheet resiliency and the ability to drive synergies across revenue opportunities, operating efficiencies and underwriting efficiencies, amongst others;

(c) HDFC Bank is a private sector bank and has a large base of over 6.8 Crore customers. The Bank platform will provide a well-diversified low cost funding base for growing the long tenor loan book acquired by the HDFC Bank pursuant to the amalgamation;

(d) HDFC Bank is a banking company with a large distribution network that offers product offerings in the retail and wholesale segments. HDFC Limited is a premier housing finance company in India and provides housing loans to individuals as well as loans to corporates, undertakes lease rental discounting and construction finance apart from being a financial conglomerate. A combination of HDFC Limited and HDFC Bank is entirely complementary to, and enhances the value proposition of, HDFC Bank;

(e) HDFC Bank would benefit from a larger balance sheet and networth which would allow underwriting of larger ticket loans and also enable a greater flow of credit into the Indian economy;

HDFC Limited has invested capital and developed skills and has set up approximately 464 (Four Hundred and Sixty Four) offices across the country. These offices can be used to sell the entire product suite of both HDFC Bank and HDFC Limited;

(f) The loan book of HDFC Limited is diversified having cumulatively financed over 9 million dwelling units. With HDFC Limited's leadership in the home loan arena, developed over the past 45 years, HDFC Bank would be able to provide to customers flexible mortgage offerings in a cost-effective and efficient manner;

(g) HDFC Bank has access to funds at lower costs due to its high level of current and savings accounts deposits (CASA). With the amalgamation of HDFC Limited with and into HDFC Bank, HDFC Bank will be able to offer more competitive housing products;

(h) HDFC Limited's rural housing network and affordable housing lending is likely to qualify for HDFC Bank as priority sector lending and will also enable a higher flow of credit into priority sector lending, including agriculture;

(i) the amalgamation will result in reducing HDFC Bank's proportion of exposure to unsecured loans;

(j) HDFC Limited has built technological capabilities to evaluate the credit worthiness of customers using analytical models, and has developed unique skills in financing various customer segments. The models have been tested and refined over the years at scale and HDFC Bank will benefit from such expertise in underwriting and financing of mortgage offerings;

(k) HDFC Bank can leverage on the loan management system, comprising rule engines, IT tools and rules, agents connected through a central system;

(l) The amalgamation is expected to result in bolstering the capital base and bringing in resiliency in the balance sheet of HDFC Bank.

(m) HDFC Investments Limited and HDFC Holdings Limited are Systemically Important Non - Deposit Taking Non - Banking Financial Companies and are also wholly owned subsidiaries of HDFC Limited. The proposed amalgamation shall result in simplified corporate structure.

The Scheme is subject to receipt of requisite approvals, including from statutory and regulatory authorities, as required under applicable laws. The scheme has been filed with BSE Limited, National Stock Exchange of India Limited and Reserve Bank of India.

Statement on Declaration by Independent Directors

Mr. Atanu Chakraborty, Mrs. Lily Vadera, Mr. Malay Patel, Mr. M.D. Ranganath, Mr. Sanjiv Sachar, Mr. Sandeep Parekh, Dr. (Mrs.) Sunita Maheshwari and Mr. Umesh Chandra Sarangi are the Independent Directors on the Board of the Bank as on March 31, 2022.

Pursuant to the provisions of Section 149 of the Act, the Independent Directors have submitted declarations that each of them meets the criteria of independence as provided in Section 149(6) of the Act along with Rules framed thereunder and Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. There has been no change in the circumstances affecting their status as Independent Directors of the Bank. In the opinion of the Board, the Independent Directors possess the requisite integrity, experience, expertise and proficiency required under all applicable laws and the policies of the Bank.

Board Performance Evaluation

The performance evaluation of the Board, Committees of the Board and the individual members of the Board (including the Chairman) for FY 2021-22, was carried out internally pursuant to the framework laid down by the Nomination and Remuneration Committee (NRC). A questionnaire for the evaluation of the Board, its Committees and the individual members of the Board (including the Chairman), designed in accordance with the said framework and covering various aspects of the performance of the Board and its Committees, including composition, roles and responsibilities, Board processes, Boardroom culture, adherence to Code of Conduct and Ethics, quality and flow of information, as well as measurement of performance in the areas of strength and areas of focus, as identified in the previous year's evaluation, was sent out to the Directors. The Committees were evaluated inter alia on parameters such as composition, terms of reference, quality of discussions, contribution to Board decisions and balance of agenda between the Committee and the Board. 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 performance of Non-Independent Directors on key personal and professional attributes was also carried out at the meeting of Independent Directors. The assessment of performance of the Independent Directors on the Board (including Chairman) was subsequently discussed by the Board. In addition to the above parameters, the Board also evaluated fulfillment of the independence criteria as specified in SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 by the Independent Directors of the Bank and their independence from the management.

The evaluation brought out the cohesiveness of the Board, a Boardroom culture of trust and cooperation, and Boardroom discussions which are open, transparent and encourage diverse viewpoints. Other areas of strength included effective discharge of Board's roles and responsibilities. Some of the areas of focus for the Board going forward included increasing time dedicated to strategy- competitive positioning and benchmark, long term succession planning and talent management, improvement in Board processes and quality of information. The Board also noted that while there has been positive development in the areas of focus identified in the previous year's evaluation, efforts need to continue in that direction. The appropriate feedback was conveyed to the Board members and other concerned stakeholders, for suitable action.

Policy on Appointment and Remuneration of directors and Key Managerial Personnel

Your Bank has in place a Policy for appointment and fit and proper criteria for Directors of the Bank. The Policy lays down the criteria for identification of persons who are qualified and ‘fit and proper' to become Directors on the Board- such as academic qualifications, competence, track record, integrity, etc. which shall be considered by the NRC while recommending appointment of Directors. The Policy is available on the website of the Bank at the link https://www.hdfcbank.com/personal/ about-us/corporate-governance/codes-and-policies.

The remuneration of all employees of the Bank, including Whole Time Directors, Material Risk Takers, Key Managerial Personnel and Senior Management, is governed by the Compensation Policy of the Bank. The same is available at the web-link https:// www.hdfcbank.com/personal/about-us/corporate-governance/ codes-and-policies. The Compensation Policy of the Bank, duly reviewed and recommended by the NRC has been articulated in line with the relevant 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. The 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 such as 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 Note No. 25 of Schedule 18 forming part of the Accounts.

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.

Further, expenses incurred by them for attending meetings of the Board and Committees in person are reimbursed at actuals. Pursuant to the relevant RBI guidelines and approval of the shareholders, the Non-Executive Directors, other than the Chairperson, are paid fixed remuneration of Rs.20,00,000 (Rupees Twenty Lakh Only) per annum for each Non-Executive Director on proportionate basis.

Mr. Malay Patel, Independent Director of the Bank, is also an Independent Director on the Board of HDFC Securities Limited, subsidiary of the Bank. Mr. Patel receives sitting fees and reimbursement of expenses at actuals incurred for attending Board/ Committee meetings from the said subsidiary. None of the Directors of your Bank other than Mr. Patel is a director of the Bank's subsidiaries as on March 31, 2022.

Succession Planning

The Nomination and Remuneration Committee ('NRC') and the Board of Directors ("the Board"), review succession planning and transitions at the Board and Senior Management levels. The Board composition and the desired skill sets/ areas of expertise at the Board level are continuously reviewed and vacancies, if any, are reviewed in advance through a systematic due diligence process. The recent appointment on the Board of Mrs. Lily Vadera as an Independent Director was done taking into account her skill sets/areas of expertise in the banking industry.

Succession planning at Senior Management levels, including business and assurance functions, is continuously reviewed to ensure continuity and depth of leadership at two levels below the Managing Director. Successors are identified prior to the Senior Management positions falling vacant, to ensure a smooth and seamless transition.

Succession planning is a continuous process which is periodically reviewed by the NRC and the Board.

Significant and Material Orders Passed by Regulators

1) Reserve Bank of India (RBI) by an order dated May 27, 2021, levied a penalty of '10 cores (Rupees ten crores only) for marketing and sale of third-party non-financial products to the Bank's auto loan customers, arising from a whistle blower complaint, which revealed, inter alia, contravention of Section 6(2) and Section 8 of the Banking Regulation Act, 1949. The Bank has discontinued the sale of said third-party non-financial product since October 2019. The penalty was paid by the Bank.

2) SEBI issued final order on January 21, 2021, levying a penalty of '1 crore on the Bank, in the matter of invocation of securities pledged by BMA Wealth Creators (BRH Wealth Kreators) for availing credit facilities. SEBI has also directed the Bank to transfer sale proceeds of Rs.158.68 crores on invocation of securities, along with interest to escrow account with a nationalised bank by marking lien in favour of SEBI. The Bank had challenged SEBI's order before SAT and SAT, vide its interim order, have stayed operation of SEBI's order. SAT, vide its final order dated February 18, 2022, allowed the Bank's appeal and quashed SEBI's Order.

3) RBI has issued an Order dated December 02, 2020 ("Order") to HDFC Bank Limited (the "Bank") with regard to certain incidents of outages in the internet banking/mobile banking/ payment utilities of the Bank over the past 2 years, including the outages in the Bank's internet banking and payment system on November 21, 2020 due to a power failure in the primary data centre. RBI, vide above order, advised the Bank (a) to stop all digital business generating activities planned under its ‘Digital 2.0' and proposed Business generating applications digital also imposed restrictions and (b) to stop sourcing of new credit card customers. The Bank has initiated remedial activities including fixing of staff accountability and the same were communicated to the RBI. Basis the Bank's submission, RBI vide its letter dated August 17, 2021, has relaxed the restriction placed on sourcing of new credit cards customers and further vide its letter dated March 11,2022 has lifted the restrictions on the business generating activities planned under the Bank's Digital 2.0 program.

Directors and Key Managerial Personnel

In compliance with Section 152 of the Companies Act, 2013, Mrs. Renu Karnad will retire by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. A resolution seeking shareholders' approval for her re-appointment forms a part of the Notice of this AGM. A brief resume is furnished in the report on Corporate Governance for the information of shareholders.

During the year, Mr. Atanu Chakraborty was appointed as the Part-time Chairman and Independent Director on the Board of the Bank with effect from May 5, 2021 and Mrs. Lily Vadera was appointed as an Independent Director on the Board of the Bank with effect from November 26, 2021.

Further, Mr. Srikanth Nadhamuni tendered his resignation as Non- Executive (Non-Independent) Director of the Bank, effective from February 18, 2022, citing potential future transactions/ arrangements which may materialize between the Bank and a company in which Mr. Nadhamuni may be interested. Your Board places on record its sincere appreciation for the contribution made by Mr. Nadhamuni during his tenure with the Bank and wishes him well in future endeavours.

Further, at the meeting of the Board of Directors held on April 16, 2022, Mrs. Renu Karnad has been re-appointed as the Non-Executive Director (Nominee of Housing Development Finance Corporation Limited, promoter of the Bank) on the Board of the Bank, for a period of five (5) years with effect from September 3, 2022, subject to the approval of the shareholders at the ensuing AGM.

During the financial year 2021-22, there have been no changes in the Directors and Key Managerial Personnel of the Bank other than the above.

Particulars of Employees

The information in terms of Section 197(12) of the Act read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in Annexure 5. Further, the statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in an Annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the annual report and the financial statements are being sent to the Members excluding the aforesaid Annexure. The Annexure is available for inspection and any Member interested in obtaining a copy of the Annexure may write to the Company Secretary of the Bank.

Conservation of Energy and Technology Absorption

Please refer to page no. 58 for information on Conservation of Energy and page no. 143 for information on Technology Absorption.

Foreign exchange earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs.3,907.9 crore (on account of net gains arising on all exchange / derivative transactions) and the total foreign exchange outgo was Rs.2,248.3 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. Alwyn Jay & Co., Company Secretaries were appointed as Secretarial Auditors of the Bank for the financial year 2021-22. The report of the Secretarial Auditors is enclosed as Annexure 6 to this Report. There are no observations/ qualifications/ comments in the Report of the Secretarial Auditor.

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 and Sustainability Report

The Bank's Business Responsibility and Sustainability 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 forms an integral part of this report.

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

The relevant information is included in the Corporate Governance Report.

Acknowledgement

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.'

Conclusion

The year started in the shadow of the pandemic. The good news is that it more or less appears to be behind us. In no small measure due to the roll out of the vaccination programme.

The recovery in health has been followed by clear signs of economic recovery with the country's GDP growing by 8.7 per cent in 2021-22 against a contraction of 6.6 per cent in the previous year.

Headwinds have now appeared in the form of inflationary pressures due to a combination of supply chain disruptions and geopolitical tensions particularly the Ukraine crisis. In an effort to contain inflation the RBI has hiked the Repo Rate by 90 basis points in two announcements - an off cycle one on May 4 and the June Policy- to 4.90 per cent. Notwithstanding these challenges the Indian economy is expected to be the fastest growing one in the world. That is clearly good news.

Going forward, the Bank has a huge opportunity as India is still under penetrated when it comes to banking services. Your Bank clearly has certain factors in its favour : A strong balance sheet with among the lowest NPA levels in the industry and a trusted franchise. The regulators too have been kind. Our progress against our regulatory commitments over the past year has resulted in the lifting of the restrictions placed on new card acquisitions in August 2021, followed by the removal of the embargo on the Digital 2.0 program in March 2022. The Bank has also rolled out the Future Ready Strategy. All this will help the Bank move forward in the next level of its growth journey. It will do this by focusing on its five core values: Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. And adhere to the highest standards of corporate governance as we continue to ‘Lead Responsibly'.

On behalf of the Board of Directors
Sashidhar Jagdishan Atanu Chakraborty
Managing Director and CEO Part-time Chairman and Independent Director