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You can view full text of the latest Director's Report for the company.

BSE: 500180ISIN: INE040A01026INDUSTRY: Finance - Banks - Private Sector

BSE   ` 2135.00   Open: 0.00   Today's Range 0.00
+3.80 (+ 0.18 %) Prev Close: 2131.20 52 Week Range 1830.00
Year End :2018-03 


(Rs, crore)


For the year ended / As on

March 31, 2018

March 31, 2017

Deposits and Other Borrowings






Total Income



Profit Before Depreciation and Tax



Profit After Tax



Profit Brought Forward



Total Profit Available for Appropriation




Transfer to Statutory Reserve



Transfer to General Reserve



Transfer to Capital Reserve



Transfer to / (from) Investment Reserve



Dividend (including tax / cess thereon) pertaining to previous year paid during the year, net of dividend tax credits *



Balance carried over to Balance Sheet



* In terms of revised Accounting Standard (AS) 4-Contingencies and Events Occurring after the Balance Sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank had not appropriated the proposed dividend from the Statement of Profit and Loss for the year ended March 31, 2017. Hence, the same has been appropriated basis actual payout.

The Bank’s Total Income rose to Rs, 95,461.7 crore for the year under review from Rs, 81,602.5 crore in the previous year. Net Profit increased by 20.2 per cent to Rs, 17,486.8 crore from Rs, 14,549.7 crore.

Appropriations from Net Profit have been effected as per the table given above.

Your Bank has a dividend policy that, inter alia, balances the objectives of appropriately rewarding shareholders and retaining capital in order to fund future growth. It has a consistent track record of steady increase in dividend distribution, with the Dividend Payout Ratio ranging between 20 per cent and 25 per cent - a range that the Board endeavours to maintain. The dividend policy of your Bank is available on the Bank's website at the following link: pdf/corporate/Dividend-Distribution-Policy.pdf

Consistent with this policy and in recognition of the overall performance during the year under review, your Directors are pleased to recommend a dividend of ' 13 per equity share of ' 2 as against Rs, 11 per equity share in the previous year. As you are aware, this dividend will be subject to tax to be paid by the Bank. In terms of revised Accounting Standard (AS) 4 ‘Contingencies and Events occurring after the Balance sheet date' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend from Statement of Profit and Loss for the year ended March 31, 2018. However, the effect of the proposed dividend, including tax on dividend aggregating to Rs, 4,067.07 crore, has been reckoned in determining capital funds in the computation of capital adequacy ratio as at March 31, 2018.



Rating Agency


Fixed Deposit Programme


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 Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.


India Ratings

Instruments with this rating are considered to have very strong degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Long Term Unsecured, Subordinated (Lower Tier 2) Bonds


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.


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.

Tier I Perpetual Bonds


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.



Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Upper Tier 2 Bonds


CARE 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.



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 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.



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 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.



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.


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 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.



Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry the lowest credit risk.

Issuance of Equity Shares and Employee Stock Options (ESOP)

As on March 31, 2018, the issued, subscribed and paid up capital of your Bank stood at Rs, 519,01,80,534 comprising 259,50,90,267 equity shares of Rs, 2 each. During the year under review, 3,25,44,550 equity shares were allotted to employees in respect of the equity stock options. The information pertaining to ESOPs is given in ANNEXURE 1 to this report.

Capital Adequacy Ratio (CAR)

As on March 31, 2018 your Bank's total CAR, calculated in line with Basel III capital regulations, stood at 14.8 per cent, well above the regulatory minimum of 10.875 per cent including the Capital Conservation Buffer of 1.875 per cent. Of this, Tier I CAR was 13.2 per cent. The effect of the proposed dividend has been taken into account in computing these ratios.


Macroeconomic and Industry Developments

Over the last two years, the Government has taken some key policy decisions including a recapitalization plan of Rs, 2,10,000 crore for public sector banks and introduction of the GST. As mentioned earlier, the growth pangs are only short-term and in the long run, GST is expected to give a fillip to the economy as a whole.

The slowdown in growth witnessed during 2016-17 (compared with 2015-16) intensified in the first quarter of 2017-18; GDP growth slowed to a 13-quarter low of 5.7 per cent, sharply lower than 7.9 per cent expansion in the same quarter of the preceding year. But, as the transitory impact of both GST and the demonetization shock is on the wane, the economy appears to be gradually regaining momentum. GDP growth rebounded to 6.5 per cent in the second quarter of 2017-18, and further to

7.2 per cent in the third quarter of 2017-18 after slowing down in the past five quarters. Going by the 2018 Union Budget, the focus of fiscal policy in the coming year will be on revival of the rural economy and infrastructure expenditure.

Notwithstanding some positive uptake in private investment growth in the second quarter, we believe incremental pick-up in private capital expenditure is likely to be sector and sub-sector specific and gradual. We expect a more formidable recovery in private capital expenditure cycle by the first half of the year ending March 31, 2019. Overall, on the back of the assumption of a pick-up in private consumption, gradual recovery in private capital expenditure and continued support from Government-led capital spending we expect the real GDP growth for 2018-19 to rise to 7.3 per cent from 6.6 per cent in 2017-18.

The moderation in inflation which was seen in 2016-17 continued in the early part of 2017-18 as well, with the CPI falling to a series low of 1.5 per cent in June 2017 driven by both lower food and core inflation. Having averaged 2.6 per cent in the first half of 2017-18, inflation inched up slightly in the second half (average close to 4.4 per cent in second half of 2017-18). Going ahead in FY19, CPI inflation could inch-up to 5.1 per cent on average in the first half of FY19 with much of the rise likely to be on account of an adverse base. Thereafter, in the second half of FY19, while the base effect could be favorable and lead to some moderation in inflation, a lot would depend on how other risks like rising oil prices, higher minimum support prices impact of housing rent allowance increase by several state governments pan out.

Given the recent softer inflation prints while the RBI can afford to wait longer and maintain status quo, eventually, we believe, that elevation of some of the upside risks along with the revival in rural demand could lead to a rate hike by the last quarter of 2018-19.

Going forward, a major risk to the economy could be a sharp increase in oil prices, which could adversely affect inflation, fiscal deficit and the current account deficit. Risks on the external front continue to loom on account of monetary policy uncertainty in the developed nations (particularly on rate hikes' side), Brexit related uncertainty in the UK and rising protectionist tendencies, especially in the US.

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. This year, the objective has been to continue building sound customer franchises across distinct businesses so as to be a preferred banking services provider to achieve healthy growth in profitability consistent with the Bank's risk appetite.

In line with the above, your Bank's business strategy was to take digitization to the next level to achieve the following:

- Deliver superior experience and greater convenience to customers

- Increase market share in India's expanding 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 is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. This is articulated through a well-documented Code of Conduct that every employee has to affirm annually that he / she will abide by.

The financial performance of your Bank during the year ended March 31, 2018, remained healthy with Total Net Revenue (Net Interest Income Plus Other Income) rising by 21.7 per cent to Rs, 55,315.2 crore from Rs, 45,435.7 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 21 per cent to Rs, 40,094.9 crore due to acceleration in loan growth coupled with Core Net Interest Margin (CNIM) of 4.3 per cent.

Other Income grew by 23.8 per cent to Rs, 15,220.3 crore. The largest component was Fees and Commissions, which increased by 29.3 per cent to Rs, 11,393.9 crore. Foreign Exchange and Derivatives revenue was Rs, 1,523.5 crore, gain on revaluation and sale of investments was Rs, 924.7 crore and recoveries from written-off accounts was Rs, 1,093.8 crore.

Operating (Non-Interest) Expenses rose to Rs, 22,690.4 crore from Rs, 19,703.3 crore. During the year, your Bank has set up 72 new banking outlets and 375 ATMs. This, along with strong growth in retail asset and card products, resulted in higher infrastructure and staffing expenses. Staff expenses also went up due to annual wage revisions. Despite higher infrastructure expenses, the Cost to Income Ratio improved to 41 per cent from 43.4 per cent.

Total Provisions and Contingencies were Rs, 5,927.5 crore as compared to Rs, 3,593.3 crore the preceding year. Your Bank's provisioning policies remain more stringent than regulatory requirements.

The Coverage Ratio based on specific provisions alone excluding Write-offs is 70 per cent; including General and Floating provisions, it is 121 per cent. Your Bank made General Provisions of Rs, 597.4 crore during the year.

Profit Before Tax grew by 20.6 per cent to Rs, 26,697.3 crore. After providing for Income Tax of Rs, 9,210.6 crore, Net Profit increased by 20.2 per cent to Rs, 17,486.8 crore from Rs, 14,549.7 crore. The Return on Average Net Worth was 18 per cent while the Basic Earnings Per Share was Rs, 67.8, up from Rs, 57.2.

As on March 31, 2018, your Bank's Total Balance Sheet stood at Rs, 1,063,934 crore, an increase of 23.2 per cent over Rs, 8,63,840 crore on March 31, 2017. Total Deposits rose by 22.5 per cent to Rs, 7,88,771 crore from Rs, 6,43,640 crore. The Current Account and Savings Account (CASA) Deposit growth also increased.

Savings Account Deposits grew by 15.6 per cent to Rs, 2,23,810 crore while Current Account Deposits rose by 3.2 per cent to Rs, 1,19,283 crore. Time Deposits stood at Rs, 4,45,678 crore, representing an increase of 33.2 per cent. CASA Deposits accounted for 43.5 per cent of Total Deposits. Advances stood at Rs, 6,58,333 crore, an increase of 18.7 per cent. The Bank's domestic loan portfolio of Rs, 6,43,794 crore grew by 19.5 per cent over March 31, 2017. The Bank had a share of approximately 6.7 per cent in Total Domestic Deposits and

7.4 per cent in Total Domestic Advances. Its Credit Deposit (CD) Ratio stood at 83 per cent on March 31, 2018.


Our Bank's operations are split into domestic and international, albeit small.


Our domestic business comprises the following:

A) Retail Banking

Your Bank's Retail Banking Business registered robust growth in the year under review. Total Retail Deposits grew by 14.4 per cent to Rs, 5,80,006 crore from Rs, 5,06,843 crore in the preceding year while Retail Advances rose by 27.4 per cent to Rs, 3,76,167 crore from Rs, 2,95,161 crore.

Growth in Retail Assets was led by Personal Loans, Auto Loans and, Credit Cards.

The Bank is a leader in the Auto Loans Segment with a strong presence in commercial vehicle and two-wheeler financing. Four-wheeler financing registered a strong

22.8 per cent growth.

In Two-Wheeler Financing, your Bank is the first in the country to cross the 10 lakh vehicles milestone. In the Commercial Vehicle Segment, your Bank was able to ward off intense competition and log robust profitable growth using its strong brand equity and service. It chose not to compete on price.

The Personal Loan Business also surged to Rs, 71,876 crore on the back of strong product offerings and speedy disbursals. The Bank is a pioneer in various digital loans. Your Bank's 10 second Personal Loan and Digital Loan Against Shares were industry firsts.

In the credit card business, your Bank achieved yet another milestone during the fiscal by becoming the first bank in the country to issue one crore cards. Existing customers accounted for 82 per cent of the new cards issued.

In addition to this, the Bank operates in the Home Loan business in conjunction with HDFC Limited. As per this arrangement, the Bank sells HDFC Home Loans while HDFC Ltd approves and disburses them. The Bank receives sourcing fee for these loans and has the option to purchase up to 70 per cent of the fully disbursed loans either through the issue of mortgage backed Pass Through Certificates (PTCs) or by a direct assignment of loans. The balance is retained by HDFC Limited. Your Bank originated, on an average, Rs, 2,000 crore of Home Loans every month in the year under review.

The Bank also distributes Life Insurance, General Insurance and Mutual Funds, often referred to as Third-Party Products.

Income from this business grew by 51 percent from Rs, 1,381 crore to Rs, 2,091 crore and accounted for

18 per cent of total fee income in the year ended March 31, 2018 , compared with 16 per cent in the preceding year. This was primarily on account of distribution of mutual funds of the top asset management companies in the country. Mutual Fund industry saw an unprecedented flow of household savings into the mutual funds. In the system the AUM of the individual investors grew by 36.8 per cent to about Rs, 11.7 lakh crore* as of March 31, 2018.

Your bank has adopted an open architecture model by entering into multiple corporate agency agreements in life, general and health insurance distribution. During the year under review your Bank tied up with two life insurance, two general insurance and three health insurance service providers in addition to the existing tie-ups.

*Source for Industry numbers (AMFI India)

As regards physical distribution network the Bank also added 72 banking outlets during the year taking the total to 4,787 spread across 2,691 cities / towns. The share of semi-urban and rural outlets in the total network is 53 per cent, reflecting our continued focus on them. The number of ATMs also increased, to 12,635 from 12,260. The number of customers your Bank catered to as on March 31, 2018 was over 4.36 crore from 4.05 crore in the previous year.

The Payments Business where your Bank has a dominant presence merits a special mention. With 2.43 crore debit cards, 1.07 crore credit cards and 4.04 lakh POS terminals and m-PoS installations, it is among the largest facilitators of cashless payments using plastic in the country.

The Bank has made rapid strides in adopting other aspects of digitization as well. The Bank's payments business has launched digital offerings such as Bharat QR Code, UPI, Aadhaar and SMS pay solutions. It has also pioneered path-breaking products such as the SmartHub app for small merchants and DigiPos, which enables traditional PoS machines to accept digital payments. Merchants and customers alike have found these solutions useful.

In the year under review, the Virtual Relationship Management (VRM) programmme gained substantial traction. Through this, relationship managers reach out to customers through remote and digital platforms, leading to deeper engagement in a cost-effective manner. These managers are a single point of contact for customers banking and financial needs. This programme which offers tailor-made solutions, using carefully drawn customer level plans has been well received in the 18 months since its launch. The number of customers has trebled during this period.

B) Wholesale Banking

This business focuses on institutional customers such as the Government, Large and Emerging Corporate, and SMEs. Your Bank's offerings in this segment 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 the year with a loan book size of approximately ' 2,88,000 crore constituting about 43 per cent of the Bank's total book.

This was an increase of about 9.5 per cent over approximately ' 2,63,000 crore recorded in the previous year. The performance in this segment must be seen in the wider context of an otherwise subdued credit environment and excess liquidity in the banking system, which exercised a downward pressure on interest rates for much of the year. The Bank was able to expand its share of the customer wallet, primarily using sharper customization and cross-selling.

Corporate Banking, which focuses on large, well-rated companies, continued to remain the biggest contributor to Wholesale Banking in terms of asset size. Despite a subdued credit environment, the Emerging Corporate 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 acquisition 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.

The year under review has been a challenging but defining one for Micro, Small and Medium Enterprises (MSMEs). The sector faced temporary challenges arising from clarity and compliance issues in the implementation of GST. Your Bank fine-tuned its strategy and capitalized on new opportunities to grow the business. The Bank's advances to MSMEs amounted to Rs, 89,042.1 crore as on March 31, 2018.

The Investment Banking business cemented its already prominent position in the Debt Capital Markets. For three consecutive years now, your Bank has been ranked 2nd in the Bloomberg rankings of Rupee Bond book runners.

In the Government business, the Bank sustained its focus on tax collections, collecting direct tax of Rs, 2.61 lakh crore and indirect tax of Rs, 0.85 lakh crore during the year. In addition to the taxes / duties collected on behalf of several state governments, the Bank also collected Rs, 1.01 lakh crore in the form of GST. We continue to enjoy a pre-eminent position among the country's major stock and commodity exchanges in both Cash Management Services and Cash Settlement Services.

The Bank has, as part of its digitization drive, ensured a larger conversion of cash payments into electronic ones. The ‘Trade-on-Net' offering, which gives clients access to a host of services such as Remittances, Letters of Credit and Guarantees, has gained acceptance. SM@Bank, our online solution for SME customers, also continued to gather momentum.

Your Bank's pre-eminent position in the Wholesale Business was recognized in a survey conducted by Greenwich Associates, a leading global provider of market and intelligence services. It rated your Bank as number one in India in the middle market segment in terms of market penetration and number two in the large corporate segment.

C) Treasury

The Treasury is the custodian of the 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 substantial part of its revenues through fee income generated from transactions customers undertake with the 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. The Bank recorded revenue of Rs, 1,523.5 crore from foreign exchange and derivative transactions in the year under review. While plain vanilla forex products were in demand across all customer segments, the demand for derivative products came mostly from large and emerging corporate.

As a part of prudent risk management, the Bank enters into foreign exchange and derivative 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 the Bank enters into foreign currency derivative 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, the 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. The Bank also deals in derivatives on its own account, including for the purpose of its own balance sheet risk management.

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

The Bank is in the process of implementing a new Treasury solution provided by Murex. The first phase of implementation went live this year and full implementation will be completed in the next 12-18 months. This will be an integrated solution for front-office, mid-office and back-office and will replace many existing software / systems.

D) Partnering with the Government

You will be happy to know that your Bank has been closely working with the Government both at the Central and State levels primarily in the following three areas:

1) Digitization and Digital India

a) Ministry of Electronics & Information Technology (MeitY) has ranked your Bank as the Number 1 Bank for supporting many of its initiatives. Your Bank is proud to be one of the few banks that was able to meet the targets in installing Point of Sale (PoS) units, Bharat QR and BHIM app following demonetization.

b) The Bank partnered with Thane city to launch the first one-city-one-card as part of the Smart City initiative. A similar solution has also been created for Panaji Smart City. In Kanpur, a customized mobile app has been created to further support the Smart City initiative. To further the government's objective to improve urban mobility, your Bank has partnered with various states including Rajasthan and Uttar Pradesh to provide transit cards and payment solutions.

c) Your Bank is working to ensure that funds under a host of schemes including Direct Benefit Transfer (DBT) and Mahatma Gandhi National Rural Employee Guarantee Act reach the intended beneficiaries. Towards this end, it has partnered with various Panchayats across the country for the Public Fund Management System (PFMS). Dedicated teams from the Bank work closely with government authorities and play a critical role by providing real-time, on-ground feedback for refining project architectures. The Bank also enables automation and digitization in various government departments to help improve both time and cost efficiencies. For example, the Bank is developing a technology solution in partnership with a software company to manage the National Health Mission (Madhya Pradesh scheme) more efficiently. It has also been working on various on e-Governance initiatives such as MahaOnline (Maharashtra) and Mee Seva (Andhra Pradesh).

2) Customized Banking Solution for Government Employees

Your Bank has designed a banking package to suit the needs of government employees, at the state and central levels. The offering includes an overdraft secured by their salary account, complimentary insurance covers and fine pricing on loans.

3) Start-Up Fund and Smart Up Banking

Through its Smart Up Programme for Start-ups and Start-Up Fund, your Bank is working with various state governments and incubators / accelerators to promote entrepreneurship. Memoranda of Understanding have already been signed with three state governments to enable execution of varied aspects of their respective start-up policies. Your Bank also works with seven incubators certified by the Department of Science and Technology, including various Indian Institutes of Technology and Indian Institutes of Management, to identify Social Start-ups that require financial and advisory support.

E) Rural

1) Agriculture and Allied Activities

Your Bank's credit to Agriculture and Allied activities stood at Rs, 1,13,160.6 crore on March 31, 2018, representing an increase of 45.2 per cent over Rs, 77,921.0 crore in the previous year.

Over half of India's population depends on agriculture for livelihood. The key to the Bank's success here has been its ability to tap the opportunities herein through the following:

- Wide product range

- Faster turnaround time

- Digital solutions

Our product range includes Pre and Post-Harvest Crop Loans, Two-Wheeler and Auto Loans and Loans against Gold Jewellery, Personal Loans and other mortgage loans. Consequently, the Bank has established a strong footprint in the rural hinterland with Crop Loans. Apart from advising the farmers on their financial needs, your Bank is increasingly focusing on facilitating them on benefits of various government / regulatory schemes such as crop insurance and interest subvention.

The Bank has also designed a range of crop and geography-specific products keeping in mind the harvest cycles and the local needs of farmers spread across diverse agro climatic zones.

Using technology, we are able to disburse some loans within three working days (in select geographies) and loan enhancements in a few seconds through ATMs and mobile phones. Our products such as Post-Harvest Cash Credit and Warehouse Receipt Financing enable faster cash flows to the farmer. Credit is also disbursed to allied agricultural activities such as Dairy, Pisciculture, and Sericulture.

Twelve farmer centres or Kisan Dhan Vikas Kendras have been rolled out in Punjab, Maharashtra, Uttar Pradesh and Madhya Pradesh. At these centres, farmers secure information on soil health, mandi prices, various government initiatives and expert advice. These services are also available on the Bank's website in vernacular languages. The Bank also provides advisory on weather, cropping, and harvesting through SMS.

Digitizing Payments, Easing Cash Flow: This is our effort to facilitate transparency in the milk procurement and payment process. Under this initiative, Multi-function Terminals (MFTs), popularly known as Milk-to-Money ATMs, are deployed in dairy societies. The MFTs link the milk procurement system of the dairy society to the farmers' account to enable faster payments. MFTs have cash dispensers that function as standard ATMs. The transparency in the milk collection process, including the quality of milk, benefits both farmers and society. Payments are credited without the difficulties associated with the cash distribution process. What is more, this creates a credit history that can then be used as the basis for accessing bank credit. Apart from Dairy and Cattle Loans, customers gain access to all bank products including digital offerings such as 10 Second Personal Loans, Kisan Credit Card, Bill Pay, and Missed Call Mobile Recharge.

Replacing the Moneylender: Loans against Gold Jewellery grew to over Rs, 5,500 crore from over Rs, 4,800 crore the preceding year. Your Bank is slowly making inroads into a market traditionally dominated by the unorganized sector and pawn brokers. The entry of organized players into the sector has increased both awareness and transparency. The Bank has been able to serve the section of people who would traditionally rely on the moneylender through faster turnaround times.

Helping Farmers: Farm yield and income are subject to the vagaries of the weather. Factors like soil health, input quality (seeds and fertilizers), availability of water and government policy also impact this. So do price realization and storage facilities. Your Bank has launched a variety of products 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, and floods. Within regulatory guidelines, the Bank has been providing relief to impacted farmers. It also has systems designed to enable Direct Benefit Transfers in a time-bound manner.

Lending to the agriculture sector, including to the small and marginal farmers is a regulatory mandate as part of priority sector lending requirements. This has inherent credit risks. Your Bank has built policies and product programmes and engages closely with farmers to mitigate risks and protect portfolio quality. The Bank is also exploring the use of remote sensing technologies and analytics to strengthen crop and farm level assessment.

2) Micro, Small and Medium Enterprises (MSME)

Advances to the MSME segment as on March 31, 2018 stood at Rs, 89,042.1 crore as against Rs, 85,166.6 crore a year ago. Its advances to the Micro Enterprises alone stood at Rs, 40,644.7 crore. The Emerging Enterprises and Business Banking Groups cater to the Micro Enterprises and SME segments respectively.

The MSME sector serves as an important engine for economic growth. It contributes 33 per cent to IndiaRs,s manufacturing output and 45 per cent to exports. With 12 crore people employed across five crore MSME units, it is the second largest employer after agriculture accounting for 40 per cent of the workforce. This is the fastest growing segment in the commercial lending space and constituted

23 per cent of credit outstanding in the year under review. Credit to Micro Enterprises grew at a faster clip of 20 per cent as against nine per cent for SMEs.

The year ended March 31, 2018 was a challenging one for the MSME business due to the introduction of GST in terms of clarity and compliance. It also led to temporary increase in working capital requirement for customers. GST implementation is seen as a positive in the long run as it is expected to lead to further formalization of the informal sector and thus open up new and safer opportunities for bank financing. Needless to say, in the case of existing firms too, greater transparency will lead to better credit quality.

Implementation of GST, demonetization, the Government push and the advent of the next-generation of entrepreneurs have all driven a steady shift towards digital transactions. In what could be a potential game changer for the business, Your Bank's complete online solution the SM@Bank for SME customers, is seeing greater customer adoption across geographies. Through this, customers can access credit facility information, request temporary overdraft facilities, ask for new facilities and submit documents to the Bank for straight through processing on a 24*7 basis. This is now poised to gain further momentum. Like in every other business unit, increasing use of analytics is giving your Bank an edge.

3) Taking Banking to the Unbanked

Your Bank is fully committed to taking banking to the remotest parts of the country through the combination of an extensive physical network and a robust digital suite of products and services. Today, over 53 per cent of the Bank's outlets are located in rural and semi-urban areas. The Bank also offers last mile access through mobile applications such as BHIM, UPI, USSD, Scan and Pay, Aadhaar, and RuPay enabled Micro-ATMs.

To bring more under-banked sections of the population into formal financial channels, your Bank has opened over 17.72 lakh accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) and enrolled over 29.37 lakh customers in social security schemes since their inception. We now rank among the leading private sector banks in this regard. In the year under review, loans to the tune of Rs, 6,621.41 crore were extended under the Pradhan Mantri Mudra Yojana (PMMY) and nearly Rs, 134.24 crore under the ‘Stand Up India' scheme to Scheduled Caste / Scheduled Tribe and women borrowers.

4) Sustainable Livelihood Initiative

This is primarily a social initiative with elements of business. It entails skill training, livelihood financing, and creating market linkages. Further details are provided in the section below on Parivartan.


As on March 31, 2018, the balance sheet size of this business was US $ 4.13 billion. Advances constituted close to 3.1 per cent of the Bank's gross advances. The total income of the overseas branches constituted 0.86 per cent of the Bank's total income for the year. Though the number is small, what is significant is that your Bank is able to cater to a large and growing Indian diaspora.

As you would know, your Bank has overseas branches in Bahrain, Hong Kong, and the Dubai International Finance Centre (DIFC). These branches cater to the needs of our overseas clients both corporate, and individual. They offer Banking, Trade Finance and Wealth Management (primarily for non-resident individual customers). In addition, the Bank has Representative Offices in Abu Dhabi, Dubai and Nairobi.

You will be happy to know that your Bank now has a presence in International Financial Service Centre (IFSC) at GIFT City in Gandhinagar, Gujarat. This unit, which opened in June 2017, is akin to a foreign branch. Customers can avail of products such as Trade Credits, Foreign Currency Term Loans including External Commercial Borrowings (ECB), and derivatives to hedge loans.


Parivartan - A Step Towards Progress

Parivartan is your Bank's umbrella brand for all its social initiatives. Parivartan or ‘Change' as it means in English seeks to bring about change in the lives of people making them self-reliant and part of the national mainstream. Working largely through communities, Parivartan focuses on the following fundamental areas:

- Rural Development

- Skill Training and Livelihood Enhancement

- Promotion of Education

- Healthcare and Hygiene

- Financial Literacy and Inclusion

As noted before, Sustainability is one of your Bank's core values. Your Bank's belief is that businesses should support the communities in which they operate. We are happy to report that your Bank, through its several social initiatives (including SLI) has made a difference to the lives of over 3.5 crore Indians.

Rural Development

The Holistic Rural Development Programme (HRDP) is born out of the conviction that the nation will progress only when rural India grows. Over half the country's population lives in rural areas and is primarily dependent on agriculture for their livelihood. Our efforts here are focused on areas of soil, water and natural resource management and sanitation, issues that rural India is often plagued by. These are often multi-pronged interventions. Soil conservation for instance will typically cover educating people about use of organic fertilizers. Water management will entail construction, renovation and maintenance of water harvesting structures for improving surface and ground water availability. Likewise educating people on renewable energy often forms part of our natural resource management efforts.

Spread over 16 states, the programme covers over 2.9 lakh households across 870 villages. Over 18,000 acres of arable land have been treated to enhance productivity. Umpathaw in Meghalaya, became the 750th village to be covered under the programme in the year under review.

Promoting Education

There is no better gift to humanity than education. Improving the quality of education is a focus area under Parivartan. Your Bank's efforts in this area include teacher training, scholarships and career guidance. It also includes providing infrastructure support, such as building toilets in schools and improving classrooms. At the community level, this entails educating people on the importance of Water, Sanitation and Hygiene (WaSH) and creating awareness on issues related to road safety and healthy financial practices.

The flagship programme here is Zero Investment Innovations for Education Initiatives (ZIIEI). This ‘Teaching The Teacher' programme (3T) seeks to transform education in government schools across India. This is a unique programme which is committed to improving the skills of teachers, which in turn benefits the pupils.

This3T programme was launched nationally at Jaipur in Rajasthan during the year under review, after the successful completion of a pilot project in Uttar Pradesh. The Bank is committed to train 15 lakh teachers in 6.2 lakh government schools across 12 states and 1 Union Territory. The project is being executed jointly with a leading non-governmental organization.

Skills Training and Livelihood Enhancement

Formal education remains a dream for lakhs of Indians. Your Bank under Skills Training and Livelihood Enhancement targets people in this section of society in rural India and imparts income generating skills, primarily in agriculture and allied areas such as dairy and poultry. The objective is to help these people And jobs locally, enhance their household income, and prevent migration.

The nationwide programme has benefitted over 51,000 individuals.

The programme also has another leg where placement-linked training is provided to youth and career counseling is provided to young school students. So far over 3,000 have received skill development training.

The flagship programme under Skills Training and Livelihood Enhancement is the Sustainable Livelihood Initiative (SLI).

Sustainable Livelihood Initiative

This initiative aims at ‘Creating Sustainable Communities'. It does so by empowering women and helping them break the vicious circle of poverty. Empowering women, we believe, means empowering families. Women form Self Help Groups (SHGs) or Joint Liability Groups (JLGs). The women under the programme are given occupational skills training, financial literacy, credit counselling and livelihood finance and market linkage. The Bank is mandated by its Board to cover 1 crore households and so far 81.8 lakh have been covered.

It's a unique programme with perhaps no parallel globally. What makes it so are the following:

1) It's an all-women programme

2) It covers womenfolk across the length and breadth of a country as vast as India. It is present in 27 states and over 400 districts

3) With 81 lakh women or households (81.8 X 4 = 3.27 crore individuals) impacted, this is one of the world's largest such programmes

4) Over 9,000 dedicated, passionate Bank employees are running the programme

Healthcare and Hygiene

Your Bank's initiatives in the area of Healthcare and Hygiene, focusing on both schools as well as the community, have made a substantial difference to the lives of students in rural India.

At the heart of these programmes are community-led sanitation campaigns that promote hygienic conditions in rural areas through appropriate wastewater disposal. These initiatives are supplemented by construction of toilets and provision of clean drinking water. Over 16,521 households and 924 schools in rural India have been covered under the toilet programme so far.

Your Bank also organizes health camps, nutrition programmes, and vaccination drives. The flagship programme under this pillar is the Annual Blood Donation Drive.

In the 11th edition in 2017, your Bank collected 2.2 lakh units of blood in a single day. This was almost 30 per cent higher than the previous year.

What started off as a small initiative in 2007 with the participation of just 4,000 volunteers has now grown into a movement where

2.5 lakh people from all walks of life participated. This included those from schools, colleges, employees of private and public sector, both State and Central Governments and the defence establishment.

While bank employees are central to this effort, of the 3,045 camps held across the country, a majority were held offsite. Almost 1,100 camps in colleges and 475 in companies.

Financial Literacy

Financial literacy is the first step towards real financial inclusion. Lakhs of people have learnt about the fundamentals of savings, investment and organised finance from financial literacy camps conducted by the Bank at its banking outlets as well as financial literacy centres across the country.

This is a multi-pronged programme where literacy is imparted at branches, through business units as well as through its NGO partners. Over 19 lakh participants have benefitted in the year under review.

The flagship scheme under this pillar is Digidhan.

Modelled on the Bank's financial literacy-on-wheels programme

- Dhanchayat, Digidhan, criss-crosses the length and breadth of the country's hinterland explaining the benefits of digital banking. The medium is through film and the location is often high-footfall pockets such as bazaars, mandis and bus-stands.

The Bank is fully compliant with the requirements of the Companies Act 2013, having spent ' 374 crore on CSR and emerging as one of the highest spenders in this space in India.

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

Environmental Sustainability

Maintaining a balance between natural capital and communities is now integral to our functioning.

Towards this end, our ATMs have gone paperless, enabling a reduction of the carbon footprint. The Bank has given this effort a further fillip by ensuring multi-channel delivery through Net

Banking, Phone Banking, and Mobile Banking. This results in lower carbon emission not just from operations but also from reduced customer travel. Another source for reducing the environmental footprint is solar ATMs, which use rechargeable lithium ion batteries that reduce power consumption.


1) People, Culture, Integrity and Ethics

‘People' is one of your Bank's Core Values. It is extremely proud of them, the integrity and ethics that they demonstrate and, indeed, the culture that promotes these values. This culture ensures that the people with the right values are hired, groomed and encouraged. The Bank has an institutionalized, well-documented code of conduct, which every employee has to affirm annually.

The five pillars of our People strategy are as follows:

Recruitment: Recruiting the right talent isn't enough anymore in an industry like banking. What is critical is recruiting and deploying them fast. Your Bank has an agile hiring mechanism that ensures this. This often entails leveraging online portals and new age channels like social media. Campus hiring and internship programs enable us to expand the hiring base further.

The Bank has also started scaling up on a digital job-ready model to attain scale and quality. The Bank also has a battery of assessment tools, like AMCAT, Assesshub and Talview to strengthen its selection process.

Career Management: Core to your Bank's career philosophy is to create opportunities for employees to develop and grow. The systematic investment of time in career discussion with employees, competency assessment and intensive functional and behavioral training, through Gurukul our in-house programme, are also aimed at achieving that result. The Bank also facilitates inter-departmental job switches to employees to help them stay motivated, productive and happy.

Employee Engagement: Employee engagement has two planks, namely events and fun learning. The events are conducted at both local and national levels. While most of these events are open to employees, some are meant for families as well.

These are some of the popular events:

1. Josh Unlimited: Pan-India sports event conducted in 29 cities, covering a population of more than 60,000 employees

2. Stepathlon: An Employee wellness initiative which witnessed participation of more than 550 employees

3. Hunar: Pan-India in-house talent competition

4. HDFC Bank Voice Hunt Contest: Talent search in association with Shankar Mahadevan Academy

5. Corporate Photography Contest: An inter-corporate event.

6. Xpressions: Pan-India in-house drawing competition for the employees and their children

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

On the learning side, ‘Kwiz Kat', is a Banking quiz competition open to all employees. ‘There is also the Learning Fest’, which focuses on sharpening employee skills on subjects such as Happy Parenting, Magical Marriages, Health and Fitness, Financial Planning and Team Building. Each of these work on the tenet that “If you manage your team at home, you can manage your team at the office.” This is, of course, backed up by formal training.

Training and Development: Training plans for businesses are developed based on needs identified in consultation with the business leaders. An extensive bouquet of training programmes are delivered, covering on-boarding, product and process training, advanced programmes and behavioral training. The on-boarding training ensures that new employees are trained comprehensively and equipped with necessary know-how, as well as functional and behavioral skills required for the role.

The product training and advanced programmes enable skill development, regular updates and build expertise. The training methodology has evolved to application based training including simulations, case studies, and games. Leveraging technology, many of the class room programmes are now being delivered online. The role-specific learning plan ensures effective use of blended learning method. The accent has now shifted to online training supplemented by offline support. In addition to this, to ensure that employees are assisted on the job, there is a help-line ‘Ask the Trainers' which responds to any clarification on a banking query within

24 hours of its initiation.

Rewards and Recognition: The Rewards and Recognition programs of the Bank is based on a sound performance management system. Your Bank has a pay-for-performance culture based on meritocracy. There is equal emphasis on recognition as well. Extraordinary commitment towards work is rewarded. So is at times going beyond the call of duty. ICON Awards was launched this year to recognize employees for demonstrating individual, leadership and collaborative excellence in driving customer focus and operational excellence.

2) Digital Innovation

Innovation is the common thread that runs through the multiple businesses and functions in the Bank. Besides products, it manifests itself at levels of concepts and ideas. A testament to this is the fact that more than 85 per cent of the transactions in the year under review occurred over the Internet and Mobile. The Bank's engagement with start-ups and fin techs moved to the next level through the ‘Industry Academia Initiative', which helps in mentoring them. The annual Digital Innovation Summit, continues to generate interest among the start-up community and benefits the Bank through useful solutions.

The Bank's focus on leveraging Artificial Intelligence (AI) and Machine Learning (ML) has started yielding results. Eva, the virtual assistant on the Bank's website; and Bank on Chat, the bank's Face book Messenger chat bot, have elicited encouraging response from customers. For instance, Eva handled over 30 lakh queries on the website with an accuracy ratio of over 85 per cent. In just 12 months, the Face book app garnered over three lakh users, who used it for making bill payments, movie / travel bookings and mobile recharges.

To encourage digital payments, your Bank has launched all-in-one DigiPoS machines that enable UPI, Bharat QR, SMS, and PayZapp transactions on a single machine.

Another innovative product the Bank has launched is the SmartHub, an umbrella digital platform for online payments to government departments, educational institutions and small merchants.

Your Bank also introduced an Instant credit card, which is issued electronically within an hour and can be used by the customer to make purchases online. Over three lakh Instant credit cards were issued during the year.

In the unsecured loan segment, the Bank's digital acquisition solution, 10 seconds loans, continued to delight customers. To further enhance the customer experience and improve cost management, the Bank is now developing a platform for end-to-end digital acquisition of business.

Your Bank has the distinction of being the first bank in the country to introduce Digital Loan Against Shares (LAS). In the automobile segment customers continued to buy cars and two-wheelers through online services such as Zip Drive and Quick Money.

To sum up, the year under review has seen ample demonstration of ‘Go Digital, Bank Aapki Muththi Mein’ strategy. Innovation is now embedded in the DNA of your Bank with digital innovation emerging as the prime driver across businesses.

3) Information Technology

In the technology space, your Bank is considered a leader. Both in terms of being able to identify the right technology solutions for the business and deploying them in a timely manner to create customer experience. The 10-second Personal Loan is a case in point. Missed call banking is another. These products were not only industry firsts but have also gone on to become extremely popular with customers.

In the year under review, your Bank has gone further with the implementation of an Open API based Service Oriented Architecture Middleware platform. This enables different systems to talk to each other and thus ensures a seamless flow of information. In the Bank's context it facilitates over 2.5 crore digital banking transactions from its mobility and online platforms such as PayZapp Wallet, Smart Buy market place, enhanced Mobile Banking App and a dedicated Retail Lending App named Loan Assist.

Another important development in the year under review has been the Digital Application (DAP) Platform which brings together process, digital technologies and lifecycle management efficiencies to deliver a better customer experience. This has seen a huge shift to digital channels be it applying for loans, credit cards or overdraft facilities. Over 95 per cent of the branch retail origination is now powered by DAP. Linkages for this have been established with search engines and fin techs.

This has been further supplemented with an assisted Savings Bank account opening App in the branch which relationship managers use to open digital savings accounts. The volumes have been doubling every month since the launch in the third quarter of the year under review.

The other important innovations in the year under review have been:

1) A four click process for ‘Do Your Own Loan Against Shares'

2) Creating a real time overdraft with Digital Loan Against Mutual Funds on a 24*7 basis through the bank's website

3) Offering digital consumer loans

4) Tying up with social media platforms, e-commerce portals, and traditional retail stores to facilitate ordering products online.

5) Reducing turnaround time for first time borrowers

6) Lowering transaction costs in Trade On Net / Trade Finance through an API based application form filling process

7) Using Artificial Intelligence and Neural Networks based deep learning ability to give stronger teeth to its Card Payment Fraud Detection ability

8) Implementing a state-of-the-art Core Banking System for both Retail and Wholesale Banking to process 4.5 crore transactions daily in an accurate, speedy and secure manner.

4) Cyber Security

Your Bank has an effective framework in place to manage cyber security. This encompasses requisite manpower, machine and training. The Chief Information Security Officer (CISO) is the person who is overall responsible for this. There is also a committee of the Board which dedicatedly looks into cyber security issues and preparedness.

In the year under review, the Bank has enhanced its cyber security protocol by constituting a RED Team. The RED team is a designated group of individuals that test the security posture of the organization. The Bank also widened coverage of Security Incident and Event Management (SIEM), which provides a comprehensive and centralized view of the security scenario of IT infrastructure. Deception Technology Solution was deployed to detect, analyse and defend against advanced attacks often in real-time. In the case of your Bank, it also covers emails and endpoints, besides the network.

Firewalls have been upgraded to Next Generation with deep packet inspection (DPI) ability. DPI analyses ‘packets' which are nothing but parcels of digital information transmitted across the web in a formatted piece of structured data. Protection against malware, ransom ware and denial of service attacks have been strengthened further.

Regular tests to assess the vulnerability of the IT infrastructure and applications and remedy where necessary are routine. As are anti-phishing services that help in shutting down phishing sites and protecting the customers from fraud. Risk engine and transaction monitoring systems monitor suspicious transactions on Internet Banking, ATM and e-commerce channels.

The Bank has PCI DSS 3.0 and ISO 27001 certifications. PCI DSS is a proprietary information security standard for organizations that handle credit card information and transactions. It is meant to increase controls around cardholder data to reduce fraud. In layman's terms the certification is an assurance that your Bank's card customers enjoy a very high level of safety while transacting with it. The ISO 27001 certification pertains to best practices with respect to information security.

On building awareness your bank has a regular programme for both employees and customers.

5) Service Quality Initiatives and Grievance Redressal

Your Bank has various lines of businesses. In a highly competitive environment, ensuring product quality, and service delivery is vital for business growth. The Bank seeks to achieve this by regularly reviewing service levels and capturing feedback from customers.

Moreover, in line with regulatory norms, the Bank has constituted three committees at different levels to monitor customer service - Branch Level Customer Service Committees, Standing Committee on Customer Service and Customer Service Committee of the Board.

Against the backdrop of increasing digital frauds, RBI issued a circular during the year on ‘Customer Protection

- Limiting Liability of Customers in Unauthorised Electronic Banking Transactions.' In it, RBI defined customer liability clearly so that customers feel secure while conducting digital transactions. The regulator also mandated banks to formulate a Board Approved Customer Protection Policy. Accordingly, your Bank has fortified its existing processes. It is also augmenting its training and skill development mechanism to empower employees to boost service quality.

As a part of its efforts to enhance service quality, the Bank undertakes mystery shopping across branches and retail asset centres to continuously evaluate regulatory compliance, process adherence and quality of service delivery. The effectiveness is reviewed periodically at different levels including the Customer Service Committee of the Board. Lean and Six Sigma methodologies are used to improve processes.

In addition to the aforementioned measures, in compliance with regulatory guidelines, your Bank has appointed a senior retired banker as Internal Ombudsman. Our sustained efforts to improve service delivery have been noted and the Bank has received written appreciation from many Banking Ombudsmen appointed by RBI across locations such as Andhra Pradesh, Gujarat, Kerala and Lakshadweep, Punjab, Rajasthan, Tamil Nadu, Puducherry, West Bengal and Sikkim.

CHECKS, BALANCES AND REPORTING I. Risk Management and Portfolio Quality

The Bank is exposed to risk by the very nature of its business. The key risks are Credit Risk, Market Risk, Liquidity Risk and Operational Risk. These risks not only have a bearing on the Bank's financial strength and operations but also its reputation. Keeping this in mind, your Bank has put in place a Board approved risk strategy and policy whose implementation is supervised by the Board's Risk Policy and Monitoring Committee (RPMC). The committee periodically reviews risk levels and direction, portfolio composition, status of impaired credits and limits for treasury operations.

The hallmark of the Bank's risk management process function is its independence, with credit decisions being made by a credit underwriting vertical.

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

- Credit Risk including Residual Risks

- Credit Concentration Risk

- Market Risk

- Business Risk

- Operational Risk

- Strategic Risk

- Interest Rate Risk in the Banking Book

- Compliance Risk

- Liquidity Risk

- Reputation Risk

- Intraday Risk

- Model Risk

- Technology Risk

- Counterparty Credit Risk

- Outsourcing Risk Credit Risk

This is the risk of loss arising from a default and is, therefore, also known as default risk. Your Bank has distinct policies and processes for managing credit risk in both its retail and wholesale businesses. Wholesale lending is managed on an individual as well as portfolio basis. By 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 minimize loss from default.

The factors considered while sanctioning retail loans include income, demographics, previous credit history of the borrower and the tenor of the loan. In wholesale loans, credit risk is managed by capping exposures on the basis of borrower group / industry / credit rating grades and country. This is backed by portfolio diversification, stringent credit approval processes and periodic post-disbursement monitoring / remedial measures.

Your Bank has been able to ensure strong asset quality even in an otherwise challenging business environment by stringently adhering to the aforementioned norms and institutionalizing processes.

As on March 31, 2018, your Bank's ratio of Gross Non-Performing Assets (GNPAs) to gross advances was 1.30 per cent. Net Non-Performing Assets (Gross Non-Performing Assets Less Specific Loan Loss provisions) was 0.4 per cent of Net Advances. Total restructured assets (including applications under process for restructuring) was 0.24 per cent of gross advances.

The Bank has a conservative and prudent policy for specific provisions on NPAs. It provides more towards NPAs than the minimum regulatory requirements even while adhering to regulatory norms for the provision of Standard Assets.

Digital Lending and Credit Risk

Driven by rapid advances in technology, digitization is increasingly becoming a key differentiator of 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 the Bank's pre-existing customers. Often, these clients are customers across multiple products so their credit history and risk profile is already known. This makes it possible to evaluate and decide on their fresh requirements almost instantly. Besides, most of the credit checks and scores used by the Bank in traditional process underwriting are replicated in digital loans. Finally, 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 and back-tested; and corrective action is taken whenever needed.

Market Risk

Market risk arises largely from the Bank's statutory reserve management and trading activity and is managed through a well-defined Board-approved Investment Policy and Market Risk Policy that caps risk in different trading desks or various securities through trading risk limits / triggers. These include position limits, gap 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) and Potential Loss Trigger Level (PLTL). 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.

Liquidity Risk

Liquidity Risk is the risk that a bank may not be able to meet its short term financial obligations due to an asset—liability mismatch or interest rate fluctuations.

Your Bank's framework for liquidity and interest rate risk management is spelt out in its Asset Liquidity-Management policy that is implemented, monitored and periodically reviewed by the Asset Liability Committee (ALCO). As a part of this process, the

Bank has established various Board approved limits to mitigate both liquidity and interest risks. While the maturity gap and stock ratio limits help manage liquidity risk, the 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.

The Liquidity Coverage Ratio (LCR) is a global minimum standard used to measure a 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, RBI has mandated a minimum LCR of 80 per cent on January 1, 2017; that limit progressively increases by 10 percentage points each year to 100 per cent on January 1, 2019. Your Bank's LCR stood at 104.5 per cent on a consolidated basis for the year ended March 31, 2018.

Operational Risk

This is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. 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.

1) Framework and Process

To manage operational risks, the Bank has in place a comprehensive and 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 layer of protection is provided by the Business line (including support and operations) management. These managers are primarily responsible for not only managing operational risk on a daily basis, but also for maintaining strict internal controls, designing and implementing internal control-related policies and procedures.

The second line of defence is the ORMD, which develops and implements policies, procedures, tools and techniques to assess and monitor the adequacy and effectiveness of the Bank's internal controls.

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

2) Internal Control

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

3) Information Technology and Security Practices

The Bank operates in a highly automated environment and makes use of the latest technologies to support various operations. This throws up operational risks such as business disruption, risks related to information assets, data security, integrity, reliability and availability amongst others. The Bank has put in a governance framework, information security practices and business continuity plan to mitigate information technology related risks. An independent assurance team within Internal Audit provides assurance on the management of information technology related risks.

The Bank has a robust Business Continuity and Disaster Recovery plan that is periodically tested to ensure that it can meet any operational contingencies. There is an independent Information Security Group that addresses information security related risks. A well-documented Board approved information security policy is put in place. In addition, employees mandatorily periodically undergo information security training and sensitization exercises.

4) Fraud Monitoring and Control

The Bank has put in a whistle blower policy, and a central vigilance team oversees implementation of fraud prevention measures. Frauds are investigated to identify the root cause and relevant corrective steps are taken to prevent recurrence. Fraud prevention committees at the senior management and board level also deliberate on material fraud events and initiate preventive action. 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. The Bank has a Compliance Policy to ensure highest standards of compliance. A dedicated team of subject matter experts in the Compliance department work with Business and Operations Teams to ensure active compliance risk management and monitoring. They also provide 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 stabilizes on its own. Internal policies are reviewed regularly and updated as and when regulators issue fresh instructions. The Compliance team also seeks regular feedback on regulatory compliance from Product, Business and Operation teams through self-certifications and monitoring.


The Bank has a structured management framework in the Internal Capital Adequacy Assessment Process (ICAAP) to identify, access 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 Bank's Board approved ICAAP Policy. Additionally, the Board approved Stress Testing Policy and Framework entails the use of various techniques to assess potential vulnerability to extreme but plausible stressed business conditions. Changes in the Bank's risk levels and in the on / off balance sheet positions are assessed under such assumed scenarios using sensitivity factors that generally relate to their impact on profitability and capital adequacy.

Group Risk

Your Bank has two subsidiaries, HDB Financial Services Ltd and HDFC Securities Ltd. The Boards of each subsidiary is responsible for managing their respective risks (credit risk, market risk, operational risk, liquidity risk, reputation risk etc.) within the ICAAP framework. 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.

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

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

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

The Bank has undertaken a diagnostic analysis of the differences between the current accounting framework and IND-AS, including the disclosure requirements. Your Bank has reviewed the accounting policy options provided under IND-AS including the preparation of draft accounting policies under IND-AS subject to any RBI guidelines in this regard. The Bank has evaluated the systems requiring significant changes and identified additional system and process requirements for implementation of IND-AS. The Bank is engaging with vendors for technology solutions for implementation of IND-AS. The Bank has also undertaken training programs for its personnel in business and support functions.

The implementation of IND-AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant accounting impact on the application of IND-AS are summarized below:

1) Financial assets (which include advances and investments) shall be classified under amortized cost, fair value through other comprehensive income (a component of Reserves and Surplus) or fair value through profit / loss categories on the basis of the nature of the cash flows and the intention of holding the financial assets.

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

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

4) The impairment requirements of IND-AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the extant framework. The Bank will be generally required to recognize either a 12-Month or

Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. IND-AS 109 will change the Bank's current methodology for calculating the provision for standard assets and non-performing assets (NPAs). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accounted for at amortized cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition:

Stage 1: 12 Months ECL

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

Stage 2: Lifetime ECL - Not Credit Impaired

For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL will need to be recognized.

Stage 3: Lifetime ECL - Credit Impaired

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

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

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

The implementation of IND-AS by banks requires certain legislative changes in the format of financial statements to comply with disclosures required by IND-AS. The change in format requires an amendment to the third schedule of the Banking Regulation Act, 1949 to make it compatible with the presentation of financial statements under IND-AS. The RBI would issue necessary instructions / guidelines and clarifications to facilitate the implementation of the new accounting standards. Considering the amendments needed to the Banking Regulation Act, 1949, as well as the level of preparedness of several banks, the RBI vide its Statement on Developmental and Regulatory

Policies dated April 5, 2018 deferred the implementation of IND-AS by one year by when the necessary legislative amendments are expected. Scheduled commercial banks in India will now be required to prepare IND-AS based financial statements for the accounting periods beginning from April 1, 2019 onwards with comparatives for the periods beginning April 1, 2018.

III. Internal Controls, Audit and Compliance

The Bank has put in place extensive internal controls and processes to mitigate operational risks, including centralized operations and ‘segregation of duty' between the front office, mid-office and back office. The front-office units usually act as customer touch-points and sales and service outlets. The entire processing, accounting and settlement of transactions is carried out by the back-office 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.

The Bank has set up various executive-level committees, having 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 amongst others. The control 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, the Bank has a mix of preventive and detective controls implemented through systems and processes ensuring a robust framework in the Bank to enable correct and complete accounting, identification of outliers (if any) by the Management on a timely basis for corrective action and mitigate operational risks.

The Bank has various Preventive controls viz, (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 (h) Additional authorization leg in payment interface systems in applicable cases (i) Audit logs directly extracted from systems (j) Empowerment grid.

The Bank also has detective controls in place viz,

(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 ascertain that entries in the core-banking system / messages in payment interface systems are based on valid / authorized transactions and customer requests. (c) Daily tally of cash and near-cash items at End of day. (d) Reconciliation of Nostro accounts (by an independent team) to ascertain and match-off the Nostro credits and debits (External or Internal) regularly to avoid / identify any unreconciled / unmatched entries passing through the system (e) Reconciliation of all Suspense accounts and establishment of responsibility in case of out standings (f) 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 that is Retail, Wholesale and Treasury (for India and Overseas books), audit of Operations units, Management 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 action. A strong oversight on the operations is also kept through off-site monitoring.

The Internal Audit department also independently reviews the Bank's implementation of Internal Rating Based (IRB) approach for calculation of capital charge for Credit Risk, the appropriateness of Bank's Internal Capital Adequacy Assessment Process (ICAAP), as well as evaluates the quality and comprehensiveness of the 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.

Any new product / process introduced in the 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 pro-actively recommends improvements in operational processes and service quality wherever deemed fit.

To ensure independence, the Internal Audit function has a reporting line to the Chairman of the Audit Committee of the Board and a dotted line reporting to the Managing Director.

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

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

The Bank has taken significant measures in developing and enhancing an effective and sustainable KYC AML and CFT Compliance Programme. The adherence to the guidelines prescribed in the policy is monitored by the Bank at various stages of the customer life-cycle. Bank has robust controls in place to ensure adherence to the KYC guidelines at the time of account opening. The Bank also has a continuous review process in the form of transaction monitoring including a dedicated AML CFT monitoring team, which carries out extensive transaction reviews for identification of suspicious patterns / trends which acts as an early warning signal for the Bank to carry out enhanced due diligence and appropriate action 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 AML team undergoes regular training both in-house and external on a continuous basis in order to equip the team with the necessary know-how and expertise to carry out the function.

The Audit Committee of the Board reviews the effectiveness of controls, compliance to regulatory guidelines as also the performance of the Audit and Compliance functions in the 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 in order to ensure a robust compliance and governance structure.

IV. Responsible Financing

Your Bank is committed to Responsible Financing and refrains from funding projects that have an adverse impact on Environment, Health and Safety (EHS). EHS is an integral part of the bank's overall credit risk assessment and monitorin

process. Every project funded has to pass the Bank's muster in terms of the EHS risk it entails, potential impact and mitigation measures in place or proposed.

The key aspects of the assessment process are:

- For all loans exceeding Rs, 10 crore in amount and five years in tenure, borrowers have to submit a declaration of compliance with EHS norms.

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

- The LIE regularly monitors such projects during the construction period through site visits and reports progress which includes status of approvals and relief and rehabilitation measures undertaken. Your Bank officials also conduct independent site inspections from time to time to ensure that the project is progressing to the Bank's satisfaction.

- After the project becomes operational, the borrower has to submit an annual declaration of compliance with various national laws including those related to EHS. This is also followed up by onsite visits of bank executives.

The Bank deals with the client primarily through its Relationship Manager (RM). The RM has to report compliance with EHS norms in the Credit Assessment Memorandum (CAM) both at the time of initial sanction and during the monitoring process. Such certification is based on information / disclosures provided by the borrower at the time of initial appraisal and during periodic review of the facilities.

The RM records outstanding EHS issues if any and follows them up with the client for prompt resolution. The Bank levies penal interest in case of deviations and, thus, ensures compliance with the agreed EHS norms. If there are significant deviations that could affect the viability of the project, the Bank reserves the right to either reduce its exposure or recall the loan. Most significantly, your Bank, as part of its credit policy, requires all projects perceived as carrying high or unusual EHS risk to be approved by an authority no less than the Head - Wholesale Credit Risk or Chief Risk Officer or the Deputy Managing Director or the Managing Director as the case may be.

V. Integrated Reporting (IR)

Your Bank has been releasing Sustainability Reports in line with Global Reporting Initiative (GRI) framework. From the current year, your Bank has started work on Integrated Reporting (IR).

IR aims at providing investors a compact communication about how strategy, governance, performance and prospect create value over time. IR today is a growing trend globally providing investors and interested stakeholders relevant information that an investor will find useful in making his investment decision.

As a leading responsible Indian corporation, it was only appropriate that we took the lead in this regard. Towards this end, the Bank has identified its value created for its stakeholders. Aspects identified as relevant for the Bank, under the capital heads are discussed below.

Financial Capital: This capital refers to the pool of funds used by the Bank for providing its services. This also covers funds received through financing or generated through operations. Financial Capital covers Revenue, Profit After Tax, Earnings Per Share, Lending Portfolio and CSR Spend amongst others.

Manufactured Capital: This capital is an aggregation of all physical assets used by the Bank for delivering its products and services or are created by it. This includes Branch Network, IT Infrastructure, IT Security, Infrastructure Development through Portfolio and Infrastructure Development through CSR Projects.

Intellectual Capital: This capital covers the knowledge-based intangibles of the Bank, which help it gain competitive advantage. This capital also includes the initiatives of the Bank for improving financial inclusion. This capital can be substantiated by products for every section of the society, service orientation, risk management, innovation and digitization approach, skilling communities through CSR, financial inclusion initiatives, etc.

Human Capital: This capital refers to the motivation, commitment and competency of the Bank's employees. This reflects in employee retention rates, employee diversity, training, appraisals and career guidance, compensation and benefits, grievance redressal, community skilling through CSR Projects. Also for the Bank, this capital covers the empowerment of communities.

Social and Relationship Capital: This capital covers the approach adopted by the Bank for developing and maintaining its relationship with multiple institutions and stakeholders. The Bank's performance on this capital can be understood through the processes of stakeholder engagement, employee satisfaction, customer satisfaction, compliance, CSR engagements, etc.

Natural Capital: This capital refers to the environmental resources used by the Bank for delivering its products and services. The impact of this capital can be understood through energy consumption (fuel / electricity), energy efficiency / conservation, CO2 emissions, paper consumption, waste management, environmental impact of project portfolio.

The elaborate discussion on the process and outcomes of Integrated Reporting will be discussed in the upcoming Sustainability Report. In the coming years, the Bank will Endeavour to augment its integrated approach towards delivering value to stakeholders.

Subsidiary Companies

Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC Securities Limited (HSL). HDBFSL is a major NBFC that caters primarily to segments not covered by the Bank while HSL is among India's largest retail broking firms. The detailed financial performance of the companies is given below.

1) HDB Financial Services Limited - Reimagining Opportunities

HDBFSLs Net Interest Income grew by 36.9 per cent to Rs, 2,788.9 crore for the year ended March 31, 2018 from Rs, 2,037.2 crore in the previous year. Net Profit rose 39.1 per cent to Rs, 951.7 crore from Rs, 684.2 crore. Net NPA levels stood at about one per cent.

The company caters to the growing needs of an inspirational India, serving both retail and commercial clients through a network of 1,165 branches across 831 cities / towns. Using a convergence of physical and digital channels enabled by a digital backbone, it offers financial solutions to individuals, micro enterprises and emerging businesses across manufacturing, trading and services sectors.

With a robust risk management framework backed by technology, distribution and human capital, HDBFSL brings in simplicity and efficiency in delivering financial solutions to its customers.

The underwriting process at HDB is customized to the needs of the customer segment, ranging from instant workflow-based loan approvals for consumer loans to personalized credit appraisal for large business loans.

Additionally, the company provides Business Process Outsourcing (BPO) solutions to HDFC Bank. Its BPO services division delivers back office services such as forms processing, documents verification, finance and accounting services and correspondence management. HDB also delivers front office services such as contact centre management, outbound marketing and collection services.

HDBFSLs long-term debt is rated AAA by CARE and its short-term debt is rated A1 by CRISIL, indicating the highest degree of safety regarding timely servicing of financial obligations. As on March 31, 2018, your Bank held

95.9 per cent stake in the company.

2) HDFC Securities Limited

HSLs Total Income rose by 42.5 per cent to Rs, 788.3 crore from Rs, 553.2 crore in the previous year. Net Profit grew by 59.5 per cent to Rs, 344.4 crore from Rs, 215.9 crore.

The surge in capital markets (led by higher foreign institutional investor inflows and improved corporate performance) and focus on quality acquisition and activation boosted HSLs performance.

The company has a customer base of 19.35 lakh to whom it offers a large bouquet of financial services. In the year under review, HSL had 6.87 lakh transacting customers, the second highest number of active (transacting) customers among all broking houses.

In line with the thrust on digital channels within the bank, the percentage of customers accessing HSLs services digitally increased to 70 per cent from 63 per cent in the previous year. In particular the percentage accessing it through the mobile app jumped to 33 per cent from 20 per cent.

In a conscious effort to rationalize the distribution network with greater emphasis on digital offerings, HSL consolidated its existing branches to end with 259 branches at the end of the year.

It also secured many awards. It was adjudged Best Broker in the Assocham Capital Market Intermediaries Excellence Awards 2017 and was also a winner in the Best Retail Broker category, at the Outlook Money Awards 2017. Other notable awards include PFRDA Awards for National Pension Scheme (NPS) namely, Best Point of Presence (POP) All Citizen, Best POP NPS Corporate and Best POP NPS Private Sector. HSL has been consistently improving its IT infrastructure and platforms. This has resulted it in being, recognized in the Enterprise Mobility and Enterprise Applications categories at the BFSI Digital Innovation Awards, Express Computers 2017.

As on March 31, 2018, your Bank held 97.7 per cent stake in HSL.

During the year, pursuant to approval received from the Reserve Bank of India, the Bank made an offer to acquire the residual equity shares of HDBFSL and HSL held by their respective shareholders (“Offer”), at a price per share of Rs, 261/- and Rs, 4,818/- respectively, determined on the basis of the valuation report submitted by two independent valuers engaged for this purpose. Pursuant to the Offer, the Bank acquired 29,749 equity shares of HSL from the eligible shareholders who had tendered equity shares in the Offer. No equity shares were offered and acquired in HDBFSL pursuant to the Offer.

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

Other Statutory Disclosures Number of Meetings of the Board

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

Extract of Annual Return

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

Directors’ Responsibility Statement

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

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

- We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2018 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 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 ensure 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


The Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants, have been the Statutory Auditors of the Bank since the year ended March 31, 2015. As per regulations of the Reserve Bank of India (RBI), the same auditors cannot be re-appointed for a period beyond four years. It is proposed to appoint M/s. S. R. Batliboi & Co, LLP, Chartered Accountants (Firm Registration No.301003E/E300005) as the new Statutory Auditors of the Bank. Fee payable for the statutory audit is proposed at Rs, 1.9 crore plus applicable taxes and outlays, subject to the approval of the members and the RBI. Members are requested to consider the appointment of M/s. S. R. Batliboi & Co, LLP as the Statutory Auditors of the Bank for financial year 2018-19.

Your Directors place on record their sincere appreciation of the professional services rendered by M/s. Deloitte Haskins & Sells, Chartered Accountants, as Statutory Auditors of the Bank.

During the year under review, fees paid to the auditors viz. M/s. Deloitte Haskins & Sells were as follows:

Fees (including taxes)

(Rs,in crore)

Statutory audit


Certification & other attest services


Non-audit services


Outlays and Taxes




Disclosure under Foreign Exchange Management Act, 1999

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

Related Party Transactions

Particulars of transactions with related parties referred to in Section 188 (1), as prescribed in Form AOC-2 under Rule 8

(2) of the Companies (Accounts) Rules, 2014 is enclosed as ANNEXURE 4.

Particulars of Loans, Guarantees or Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided 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 Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Financial Statements of Subsidiaries and Associates

In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the Companies (Accounts) Rules, 2014 the performance and financial position of the Bank's subsidiaries and associates are enclosed as ANNEXURE 5 to this report.

During the year, International Asset Reconstruction Company Private Limited (“IARC”) ceased to be an associate of the Bank since the percentage of paid-up equity capital held by the Bank in IARC has been diluted to less than 20 per cent due to further issue of equity shares made by IARC during the financial year, in which the Bank did not participate. As of March 31, 2018, the Bank held 19.22 per cent of the share capital of IARC.

Whistle Blower Policy / Vigil Mechanism

The Bank encourages an open and transparent system of working and dealing amongst its stake holders. While the Bank's “Code of Conduct & Ethics Policy” directs employees to uphold company values and conduct business with integrity and highest ethical standards, the Bank has also adopted a “Whistle Blower Policy” which encourages its employees and various stake holders to bring to the notice of the Bank any issue involving compromise / violation of ethical norms, legal or regulatory provisions, actual or suspected fraud etc., without any fear of reprisal, discrimination, harassment or victimization of any kind. All such concerns / complaints are received by the Chief of Internal Vigilance of the Bank and / or by the Whistle Blower Committee through a dedicated email ID or by way of letters etc. All such complaints are enquired into by the appropriate authority within the Bank while ensuring confidentiality of the identity of such complainants. On the basis of their investigation, if the allegations are proved be correct, then the Competent Authority shall recommend to the appropriate Disciplinary Authority to take suitable action against the responsible official. The decision of the Whistle Blower Committee is final and binding on all. Preventive measures or any other action considered necessary is also taken by the Competent Authority.

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 2017-18, a total of 46 such complaints were received and taken up for investigation.

Declaration by Independent Directors

Mrs. Shyamala Gopinath, Mr. Partho Datta, Mr. Bobby Parikh, Mr. Malay Patel and Mr. Umesh Chandra Sarangi are Independent Directors on the Board of the Bank as on March 31, 2018. All the Independent Directors have given their respective declarations under Section 149 (6) and (7) of the Companies Act, 2013 and the Rules made there under. In the opinion of the Board, the Independent Directors fulfill the conditions relating to their status as Independent Directors as specified in Section 149 of the Companies Act, 2013 and the Rules made there under.

Board Performance Evaluation

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

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

Policy on Appointment and Remuneration of Directors and Key Managerial Personnel

The NRC recommends the appointment of Directors to the Board.

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

The remuneration of whole time Directors is governed by the compensation policy of the Bank. The same is available at the we blink 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. 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 Schedule 18 Notes forming part of the Accounts - Note no. 24. 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 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 profit-related commission of Rs, 10,00,000 (Rupees Ten Lakh Only) per annum for each Non-Executive Director.

Mr. Aditya Puri is the Non-Executive Chairman of HDB Financial Services Limited, subsidiary of the Bank. Mr. Puri does not receive any remuneration from the subsidiary. None of the Directors of your Bank other than Mr. Puri is a director of the Bank's subsidiaries as on March 31, 2018.

Succession Planning

The Bank's Nomination and Remuneration Committee (NRC) also oversees matters of succession planning of its Directors, Senior Management and Key executives of the Bank. With respect to the tenure of the current Managing Director ending in October 2020, the Board will identify a successor and work to ensure that this is done in a manner that will allow appropriate time for an effective transition of responsibilities.

Significant and Material Orders Passed By Regulators

During the current financial year 2017-18, pursuant to the media reports, SEBI has issued directions to the Bank (“SEBI Directions”) in relation to leakage of unpublished price sensitive information (“UPSI”) pertaining to the financial results of the Bank for the quarter ended December 31, 2015 and the quarter ended June 30, 2017 in various private WhatsApp groups ahead of Bank's official announcement to the relevant stock exchanges. SEBI has directed the Bank to observe the following: (i) to strengthen its processes / systems / controls forthwith to ensure that such instances of leakage of unpublished price sensitive information do not recur in future, (ii) to submit a report on: (a) the present systems and controls and how the present systems and controls have been strengthened,

(b) details of persons who are responsible for monitoring such systems and (c) the periodicity of monitoring. Further, SEBI has directed the Bank to conduct an internal inquiry into the leakage of UPSI relating to its financial figures including Non-Performing Assets (NPAs) results and take appropriate action against those responsible for the same, in accordance with the applicable law. The scope of such inquiry will need to include determination of the possible role of following persons in relation to the aforesaid leakage of UPSI: (i) persons / members of committees involved in generation of the original data for the purpose of determination of key figures pertaining to financial figures including gross NPAs, (ii) persons involved in the consolidation of the figures for the financial results, (iii) persons involved in the preparation of board notes and presentations, (iv) persons involved in dissemination of information relating to financial results in the public domain and (v) any other persons who had access to the information.

SEBI has directed the Bank to complete the inquiry within a period of three months from the date of the SEBI Directions and thereafter, file a report with SEBI in this regard within a further period of seven days.

Directors and Key Managerial Personnel

In compliance with Section 152 of the Companies Act, 2013, Mr. Keki Mistry will retire by rotation at the ensuing Annual General Meeting and is eligible for re-appointment.

During the year, after serving as Board members for close to seven years each, Mrs. Renu Karnad and Mr. A. N. Roy resigned from the Board of the Bank with effect from January 20, 2018 and January 31, 2018 respectively. Mrs. Karnad and Mr. Roy resigned due to other commitments and personal considerations respectively. The Board places on record its sincere appreciation of the contribution made by Mrs. Karnad and Mr. Roy during their tenure with the Bank and wishes them well in future endeavours.

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

Particulars of Employees

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

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

(A) Conservation of Energy

Your Bank has undertaken several initiatives in this area such as:

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

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

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

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

- Reduction of contract demand at Kanjurmarg Hub, resulting in energy savings

- Replacement of CFL Lamps with LED fixtures at Kanjurmarg Hub

- Provision of LED lamps at branches and offices

- Provision of solar panels for captive power generation at our offices in Pune and Bhubaneswar

Monitoring and energy saving initiative for 100 branches resulting in power saving of over 10 per cent. The Bank won an award in National Energy Efficiency Circle Competition2017 - Winner Best Energy Efficient Case study held by CII in May 2017. Considering the benefits accrued, we have further extended the monitoring programme to an additional 500 branches

(B) Technology Absorption

Your Bank has been at the forefront of using technology absorption and evaluates innovative technology with multiple fintech partners. It has launched a formal Consumer Durable Loans portfolio and product with on-line real-time Digital API based collaboration with third party and fintech application sourcing platforms. Your Bank is leveraging API based Service Oriented Architecture and Middleware for enabling digital initiatives and empowering relationship managers at branches with digital products and services platforms. Your Bank has also begun using robotics and artificial intelligence in digital commerce, corporate supply chain and payment settlement systems to reduce time to market and turnaround time.

(C) Foreign Exchange Earnings and Outgo

During the year, the total foreign exchange earned by the Bank was Rs, 1,523.5 crore (on account of net gains arising on all exchange /derivative transactions) and the total foreign exchange outgo was Rs, 192.9 crore towards the operating and capital expenditure requirements.

Secretarial Audit

In terms of Section 204 of the Companies Act, 2013 and the Rules made there under, M/s. BNP & Associates, Practicing Company Secretaries have been appointed as Secretarial Auditors of the Bank for the financial year 2017-18. The report of the Secretarial Auditors is enclosed as ANNEXURE 8 to this Report. With regard to the observation made by the Secretarial Auditors in the Secretarial Audit Report in connection with the directions issued by SEBI to the Bank on February 23, 2018 to inter alia,

(a) strengthen the Bank's processes / systems / controls forthwith to ensure that instances of leakage of unpublished price sensitive information (“UPSI”) does not recur in future, and submit a report to SEBI on inter alia, the present systems and controls and how they have been strengthened (“Report”); and (b) conduct an internal inquiry into the leakage of UPSI relating to its financial figures including non-performing assets during the quarter ended December 2015 and June 2017, and submit a report to SEBI (“Internal Inquiry Report”), the Bank has appointed:

1. Cyril Amarchand Mangaldas to assist the Bank in inter alia reviewing and conducting an assessment of the policies, systems and processes of the Bank in relation to storing, handling and communication of UPSI in terms of the SEBI (Prohibition of Insider Trading) Regulations, 2015, specifically, the information flow and process steps involved in preparation and finalization of financial results by the Bank, and in preparation of the Report; and

2. Haribhakti & Co., LLP for the purposes of preparing the Internal Inquiry Report.

The preparation of the aforementioned reports is underway and the same will be submitted to SEBI within the timelines specified in its directions.

Corporate Governance

In compliance with Regulation 34 and other applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a separate report on Corporate Governance along with a certificate of compliance from the Secretarial Auditors, forms an integral part of this Report.

Business Responsibility Report

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

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

The relevant information is included in Section E-Principle 3 of the Business Responsibility Report for 2017-18.


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.'


It has been a challenging year for the global as well as Indian economy. The global economy is facing risks from the increasing tide of protectionism, uncertainty regarding Brexit and the forthcoming elections in Italy. The US-North Korea relationship, notwithstanding recent signs of a rapprochement, will continue to cast a shadow on the geopolitical situation till it settles down one way or the other.

On the positive side, India continues to remain among the two fastest growing economies in the world. The transitory impact of the GST too appears to be over. Private capital expenditure is expected to pick up in the first half of the current financial year.

Your Bank has continued to grow faster than the system. It now plans to raise capital of ' 24,000 crore to fund growth for the next few years.

As always, your Bank will continue to be judicious. It will continue to leverage its distribution strength and digital platforms to offer a similar experience to customers across urban, semi-urban and rural India.

Needless to say, the Bank will continue to focus on its five core values, namely, Customer Focus, Operational Excellence, Product Leadership, People and Sustainability. Its commitment to the highest possible standards of corporate governance remains unwavering even as it embarks on the next stage of its evolution, increasingly leveraging artificial intelligence and analytics, to continue delivering sustainable growth to all stakeholders.

On behalf of the Board of Directors

Mrs. Shyamala Gopinath


Mumbai, May 22, 2018