34402827 hdfc annual report

8/8/2019 34402827 HDFC Annual Report

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o have four wallsThose contain our memories

As much as we containTimes spent with them

Within our hearts

A roof that has seen usThrough shine and storm

Windows that open our mindsTo the sky

Beds and sofas And chairs and resting placesWe are glad to be attached to

Favourite cornersSecrets shared

And other unforgettable times

with family and friends A simple place treasured

In the head and heart A haven called home

Is it too much to ask?

o have four wallsThose contain our memories

As much as we containTimes spent with them

Within our hearts

A roof that has seen usThrough shine and storm

Windows that open our mindsTo the sky

Beds and sofasAnd chairs and resting placesWe are glad to be attached to

Favourite cornersSecrets shared

And other unforgettable times

with family and friendsA simple place treasured

In the head and heartA haven called home

Is it too much to ask?

T


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Board of Directors 7

Brief Profile of the Directors of theCorporation 8

Chairmans Statement 11

Directors Report 15

Report of the Directors on Corporate

Governance 26

Auditors Certificate on CorporateGovernance 38

Review of the Chairman of the AuditCommittee of Directors 39

Review of the Chairman of the InvestorsGrievance Committee of Directors 39

Review of the Chairman of theCompensation Commit tee of Direc tors 39

Management Discussion andAnalysis Report 40

Accounts with Auditors Report 49

Consolidated Group Accounts withAuditors Report 91

Social Initiatives 128

Shareholders Information 134

Contents

T H I RT Y T H I R D A N N U A L R E P O RT 2 0 0 9 - 1 0 rightfully yours

Annual General Meeting (AGM)

Day/Date : Wednesday, July 14, 2010

Time : 3.00 p.m.

Venue : Birla Matushri Sabhagar,19, Marine Lines,Mumbai 400 020.

Cover Visuals :

Our commitment toshape your dreams


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Operational Highlights(Rs. in crore

Financial Highlights

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Cumula

Approvals 6,879.77 9,041.25 11,731.57 15,215.56 19,715.33 25,633.67 33,331.93 42,520.00 49,166.00 298,0

Disbursements 5,803.01 7,616.56 9,950.87 12,696.82 16,206.75 20,679.20 26,177.99 32,874.99 39,650.00 242,2

Cumulative Investmentmade possible inthe housing sector 64,502.11 82,584.61 103,734.78 134,165.90 173,595.90 224,863.24 291,527.10 376,568.00 474,900.00

1 Crore = 10 Million1 Lac = 100,000

2009-10

60,611.00

50,413.00

596,122.00

(Rs. in crore

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Gross Income 2,382.35 2,700.15 2,975.62 3 ,077.85 3,410.44 4,278.39 5,896.26 8,196.05 11,017.66

Profit After Tax 473.65 580.01 690.29 851.78 1,036.59 1,257.30 1 ,570.38 2,436.25 2,282.54

Shareholders Funds 2,371.94 2,702.84 3,043.86 3,393.79 3,883.10 4,468.33 5,551.40 11,947.34 13,137.39

Share Capital - Equity 120.08 121.71 244.41@ 246.61 249.12 249.56 253.01 284.03 284.45

Reserves and Surplus 2,251.86 2,581.13 2,799.45 3,147.18 3,633.98 4,218.77 5,298.39 11,663.31 12,852.94

Term Borrowings 8,219.95 10,264.67 14,130.73 19,346.39 28,807.31 37,979.93 46,808.61 57,854.97 64,481.41

Deposits 7,249.83 8,491.02 9,121.55 9,337.65 7,840.09 8,741.42 10,384.42 11,296.25 19,374.67

Loans Outstanding 13,224.66 17,207.68 21,749.91 27,974.27 36,011.50 44,990.12 56,512.36 73,327.78 85,198.11

Dividend (%) 125 250* 110 135 170 200 220 250 300

Book Value per Share (Rs.)# 99 111 125 138 156 179 219 421 462

Earnings per Share (Rs.)# 20 24 28 35 42 50 63 67 80

# Adjusted for bonus.* Includes one time special Silver Jubilee dividend of 100%.@ TheCorporationallottedbonussharesin theratio of1:1 inDecember, 2002.Dividendis forthefullyearon theenhancedcapitalpostthe issueof bonus shares Excluding exceptional income.

2009-10

11,360.83

2,826.49

15,197.66

287.11

14,910.55

73,484.17

23,081.14

97,966.99

360

529

99

@

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One of the earliest longings for a human being is a piece of land and a roof overhead. A

place that can be called 'home'. Go anywhere, and you will find this one need common

across all man-made boundaries. Only if one is sheltered physically, one can be at home

emotionally and spiritually.

Life seeks many necessities starting with the basic access to light, heat, water and air to

other everyday essentials of space, privacy, togetherness, comfort and security. Howeverthe price you pay for them is crucial, making 'affordability' the big question for most home

seekers.

While the right to basic shelter is not debated by anyone, an affordable home in the middle

of nowhere is not of much help. Connectivity, infrastructure, sanitation, green surroundings

and many other issues contribute fundamentally to a life of comfort.

At HDFC, we believe you have every right to enjoy life's basic necessities and dream of

making this space rightfully yours.

right to basics

rightfully yours

T H I RT Y T H I R D A N N U A L R E P O RT 2 0 0 9 - 1 0

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As a customer, it is your right to know what you are paying for. Here, the credibility of a

developer plays a crucial role. This is determined by the quality of construction resulting in

the longevity of the house, the ability to aesthetically manage space by providing children

ample room to play, timely project completion ensuring peace of mind for the family and

also, providing all the basic amenities that enrich lifethis is what makes home a

worthwhile investment.

Home buying is always a major financial decision. A little assistance from someone you can

trust can go a long way in making home purchase a memorable journey. An impartial

review of the developer, a fair take on the market scenario, sound technical advice,

appropriate legal guidance, assistance in managing the finances and a friendly cheer

helps brighten your joyous occasion.

Let there be a renewed hope that your home will soon be more attainable and all aspects

of being sheltered will be comfortable - as they should be .rightfully yours

right to comfort

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Integrity is essential to success. It is all about knowing yourself -

your desires, your needs, your talents, your aspirations, your

dreamsand then being true to them. It is within the four walls of

your home that you explore yourself, nurture a sound value system.

According to an ancient Chinese saying,

Homes signify family, loveand belonging. It defines who we are and what we stand for.

Indeed, happy homes make happy families, and happy families

make happy individuals. It is these individuals who bring a sense of

passion and purpose to work and life, and make significant

contributions to the society.

Thus to make a robust society and a stable nation, we have to

provide first, a strong foundation: a home

The strength of a nation

derives from the integrity of the home.

rightfully yours.

rightfully yours

T H I RT Y T H I R D A N N U A L R E P O RT 2 0 0 9 - 1 0

right to happiness

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Being 'with you, right through' has been HDFC's longstanding motto. Inviting reputed

developers with budget homes within our office premises, hosting exclusive fairs with

affordable homes, initiating discussion at industry forums, pressing your cause with the real

estate community and urging them to charge by carpet area or give guarantee of their

projects, are some of the activities we have pursued with passion.

While modern technology has helped reduce construction time and improved quality; theonly challenge for the developers and all of us from the industry is to innovate technology

in delivering the best.

A better quality of life is one of the check-points of a developed society and affordable

housing is certainly one of the ways to reach the goal. As emphasis on development

increases, HDFC thinks it is important to treat affordable housing as an issue that demands

immediate action, in the interest of homeowners.

It is our belief that affordable homes are rightfully yours.

right to home

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Board of Directors


Mr. Deepak S. Parekh

Mr. Keshub Mahindra

Mr. Shirish B. Patel

Mr. B. S. Mehta

Mr. D. M. Sukthankar

Mr. D. N. Ghosh

Dr. S. A. Dave

Dr. Ram S. Tarneja

Mr. N. M. Munjee

Dr. Bimal Jalan

Mr. D. M. Satwalekar

Dr. J. J. Irani

Mr. V. Srinivasa Rangan

Ms. Renu Sud Karnad

Mr. Keki M. Mistry

Chairman

Vice Chairman

Executive Director

(Appointed w.e.f. January 1, 2010)

Managing Director

(Appointed w.e.f. January 1, 2010)

Vice Chairman & Chief Executive Officer

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Brief Profile of the Directors of the CorporationMr. Deepak S. Parekh

Mr. Keshub Mahindra

Mr. Shirish B. Patel

Mr. B. S. Mehta

Mr. D. M. Sukthankar

Mr. D. N. Ghosh

Dr. S. A. Dave

Dr. Ram S. Tarneja

is the Chairman of theCorporation. He is a Fellow of the Institute of Chartered Accountants (England & Wales).Mr. Parekh joined the Corporation in a seniormanagement position in 1978.He wasinducted asa whole-time director of the Corporation in 1985,as the Managing Director of the Corporation(designated as Chairman) in 1993 and continued to be appointed as such from time to time. Heretired as the Managing Director (designated as

Chairman) with effect from the close of businesshours on December 31, 2009. Mr. Parekh hasbeen appointed as an Additional Director of theCorporation with effect from January 1, 2010 andshall hold office as such up to the date of the nextAnnual General Meeting of the Corporationpursuant to the provisions of Section 260 of theCompaniesAct, 1956. Mr. Parekhcontinues as theChairman of the Corporation.

is the vice chairman of theCorporation. He is a graduate of the WhartonSchool of the University of Pennsylvania, U.S.A. He

is a renowned industrialist and is the chairman of the Mahindra & Mahindra Group of companies. Heis a director on the boards of several prominentcompanies in India. He has been a director of theCorporation since its inception. He is also theChairman of the Compensation Committee of Directors.

holds a MA degree from theUniversity of Cambridge, where he studiedengineering. He founded and is now the chairman-emeritus of a firm of consulting civil engineers withexpertise in prefabrication, mass housing, tallbuildings, factories, bridges and marine works. Hewas one of the three original authors of the idea of Navi Mumbai and currently devotes his time tourban affairs. He has been a director of theCorporation since its inception and is also amember of the Compensation Committee of Directors.

is a graduate in commerce and aFellow of the Institute of Chartered Accountants of

India. Mr. Mehta is an accountant in practicedealing with taxation, accountancy and valuationof mergers and acquisitions.He is a director on theboards of several prominent companies in India.He has been a director of the Corporation since1988. He is also a member of the CompensationCommitteeand Audit Committeeof Directors.

was an officer of the IndianAdministrative Services and was Secretary,Ministry of Urban Development, Government of India and later Chief Secretary to the Governmentof Maharashtra. Mr. Sukthankar is recognised asan expert on issues related to urban developmentand management and has been associated with the housing sector for a number of years. He hasbeen a director of theCorporation since 1989.

holds a Masters degree ineconomics. He was the former chairman of theState Bank of India. He is currently thechairman of ICRA Limited and a director of many prominentcompanies in India. He has been a director of the

Corporation since 1989. He is also a member of theAudit Committeeof Directors.

is a Doctorate of economics andholds a Masters degree in economics from theUniversity of Rochester. Dr. Dave was the formerchairman of the Securities and Exchange Board of India and the Unit Trust of India. Dr. Dave is adirector on the boards of many prominentcompanies in India. He has been a director of theCorporation since 1990.He is also theChairman of theAudit Committeeof Directors.

holds a Doctorate in humanresources from Cornell University. He also has aM. A. both from the University of Delhi andUniversity of Virginia and a B. A. Honors fromUniversity of Delhi. He was the former managing director of Bennett, Coleman & Company Limited.He is a director on the boards of several prominentcompanies in India. He has been a director of theCorporation since 1994.He is also theChairman of the Investors GrievanceCommitteeof Directors.

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Mr. N. M. Munjee

Dr. Bimal Jalan

Mr. D. M. Satwalekar

Dr. J. J. Irani

Mr. V. Srinivasa Rangan,

Ms. Renu Sud Karnad

Mr. Keki M. Mistry,

holds a Masters degree ineconomics from the London School of Economics.He is currently thechairman ofDevelopment CreditBank Limited. He is also a director on the boards of many companies and is deeply interested indevelopment and infrastructure issues. He wasearlier the executive director of the Corporationand had been working with the Corporation from1978 to 1998.

was a former Governor of theReserve Bank and a nominated Member of Parliament (Rajya Sabha). He has previously heldseveral positions in the Government including those of Finance Secretary and Chairman of theEconomic Advisory Council to Prime Minister. Hehas also been associated with a number of publicinstitutions and is at present Chairman of thePublic Interest Foundation, Delhi. He has beenappointed as a director of the Corporation witheffectfromApril30,2008.

holds a Bachelors degree in technology from the Indian Institute of Technology,Bombay and a Masters degree in businessadministration from the American University,U.S.A. He was the former managing director andchief executive officer of HDFC Standard LifeInsurance Company Limited. He is a director on theboards of many prominent companies in India. Hewas earlier the managing director of theCorporation and had been working with theCorporation from 1979 to 2000. He is also amember of the Investors Grievance Committee of Directors.

holds a Doctorate from University of Sheffield, U.K. He also holds a Masters degree inscience from Nagpur University and M. Met fromUniversity of Sheffield, U.K. Queen Elizabeth IIconferred on him honorary Knighthood (KBE) forhis contribution to Indo-British Trade & Co-operation. The President of India conferred on him the award of Padma Bhushan in 2007 for hisservices to trade and industry in the country. He isa director on the boards of several prominentcompanies in India. He has been appointed as a

special director of the Corporation with effect fromJanuary 18, 2008.

Executive Director of theCorporation holds a Bachelors degree inCommerce and is an associate member of theInstitute of Chartered Accountants of India andInstitute of Cost and Works Accountants of India.Mr. Rangan joined the Corporation in 1986 andhas served in Delhi andwas heading theCorporate

Planning & Finance function at head office since2000. He has been appointed as the ExecutiveDirector of the Corporation for a period of 5 yearswith effect from January 1, 2010, subject to theapproval of the Members at the ensuing AnnualGeneral Meeting.

, Managing Director of theCorporation, is a graduate in law from theUniversity of Mumbai and holds a Masters degreein economics from the University of Delhi. She is aParvin Fellow Woodrow Wilson School of International Affairs, Princeton University, U.S.A.She has been employed with the Corporation since1978 and was appointed as the executive directorin 2000 and was re-designated as the JointManaging Director of the Corporation in October2007. She has been appointed as the Managing Director of the Corporation for a period of 5 yearswith effect from January 1, 2010, subject to theapproval of the Members at the ensuing AnnualGeneral Meeting.

Vice Chairman & Chief Executive Officer of the Corporation, is a Fellow of the Institute of Chartered Accountants of India. Hehas been employed with the Corporation since1981 and was appointed as the executive directorof the Corporation in 1993, as the deputymanaging director in 1999, as the managing director in 2000 and was re-designated as theVice Chairman & Managing Director of theCorporation in October 2007. He has beenre-designated as the Vice Chairman & Chief Executive Officer with effect from January 1, 2010.He is also a member of the Investors GrievanceCommitteeof Directors.

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Senior ExecutivesSENIOR GENERAL MANAGERS

AUDITORS

BRANCH AUDITORS - DUBAI

INVESTOR SERVICES DEPARTMENT

REGISTERED OFFICE

Mr R Anand

Mr R Arivazhagan

Mr Gautam Bhagat

Mr Conrad DSouza

Ms Madhumita Ganguli

Mr Mathew Joseph

Mr Suresh Menon

Mr S N Nagendra

Mr M Ramabhadran

Mr S Ramanath

Deloitte Haskins & Sells

Chartered Accountants

PKFChartered Accountants

Tel Rasayan Bhavan,

Ground Floor,

Tilak Road Extn.,

Opp. BEST Workshop Gate No. 4,

Dadar T.T., Mumbai 400 014.

Tel. Nos. : 22-2414 6267/68

Fax No. : 22-2414 7301

E-mail : [email protected]

Ramon House,

H. T. Parekh Marg,

169, Backbay Reclamation,

Churchgate, Mumbai 400 020.

Tel. Nos. : 22-2283 6255,2282 0282

Fax Nos. : 22-2204 6758,2204 6834

Website : www.hdfc.com

GENERAL MANAGERS

COMPANY SECRETARY

DEBENTURE TRUSTEES

TRUSTEES - FCCB

SOLICITORS AND ADVOCATES

PRINCIPAL BANKERS

Mr Dilip ApteMr P S Barman

Mr Praveen Kumar BhallaMr B M BhasinMr Girish BhatiaMr Thomas CherianMr Nikhil DwivediMr Dipta Bhanu GuptaMr Prosenjit GuptaMr C V IgnatiusMr Sudhir Kumar JhaMr Irfan KoreishiMr K Suresh KumarMs Sonal ModiMr P K MukherjeeMr Prabhat Rao

Mr Subodh SalunkeMr R SankaranarayananMr Rajeev SardanaMr Dilip ShettyMr S K Vasant

Mr Girish V Koliyote

IDBI Trusteeship Services Ltd.Asian Building, Ground Floor,17, R. Kamani Marg,Ballard Estate, Mumbai 400 001.

Central Bank of IndiaDebenture Trustee SectionCentral Bank MMO Bldg.,6th Floor, 55, M. G. Road,Fort, Mumbai 400 023.

Deutsche Trustee Company Ltd.Winchester House,1 Great Winchester Street,London EC2N 2DB.

Amarchand & Mangaldas & SureshA. Shroff & Company

Wadia Ghandy & CompanyAZB & Partners

Central Bank of IndiaHDFC Bank Ltd.State Bank of IndiaBank of IndiaCanara BankBank of Baroda

DEPUTY GENERAL MANAGERS

Mr K K AbrahamMr Vikas Bajpai

Mr Vinay P BhattMr Satrajit BhattacharyaMs Mala BhojwaniMr Sangram K BisenMr Udayan BoseMr S K ChaudhariMr Jagdish DaveMr Shalin J DesaiMr Sunil V DesaiMs Swati D DeshpandeMr Sushant S DhondMs Rosy DiasMr S ElangovanMr Varghese GeorgeMs Trupti Nilesh GoreMr Ankur GuptaMr Arjun GuptaMr Padmaraja HegdeMr C S IsraniMr T A JaishankerMr Sanjay JoshiMr Pradip V KakadMr Gajanan V KamatMr Deven KumarMr S Santha KumarMs Louiza MiddlecoteMr Manoj Nair

Ms Iravati N NarvekarMr L PadmanabhanMr Rajasekharan PanickarMr Dhirendra P ParikhMr Vinayak P ParkhiMr Vimal PrakashMr N RadhakrishnanMr T S RajagopalanMr S D RameshMr N RameshMr S Ramesh KumarMr T RavishankarMr Hemant J ShahMr Mahesh H ShahMr S V ShaligramMr H S ShamasundaraMr R ShankarakrishnanMr P C SrivastavaMs Tara SubramaniamMr M M SundaresanMr Sujir UdayanandMr Ashok VenkatramanMr K VijayakumaranMr K V VishwanathMr Aseem VivekMs Rekha B Vyas

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THIRTY THIRD ANNUAL REPORT 2009-10

Chairmans Statement

The global financial system is still in the throes of uncertainty, though

most countries are now driving efforts towards fortifying their financialsystems. Indias resilience has been admirable as it demonstrated that adomestic, consumption driven economy is more immune to the vagaries of global uncertainty. India has positioned itself to emerge stronger in the currentmilieu. For HDFC as well, the same holds true. The surge in individual homeloans, particularly in the last quarter of the financial year under review is

testimony of the renewed confidence of individuals. Armed with higherdisposable incomes, the desire to own a home has intensified.

The aspirations of Indians will continue to rise. The projected growthopportunities in India are translating into mind-boggling numbers. India isexpected to quadruple its GDP to US$ 4 trillion by 2025. From a shorter termperspective, India should be just two years away from reverting to its formerGDP growth trajectory of over 9% per annum.

India will ride the wave of urban expansion. Currently, 28% of Indiaspopulation or 300 million people live in urban areas. It is estimated that by2030, 40% of the population or approximately 600 million people will beliving in Indias cities. A recent study by McKinsey Global Institute projects

that by 2030, 70% of new jobs and 85% of Indias total tax revenue willemanate from cities. This unprecedented pace of urbanisation bodes well forour business as the projected rise in urban households will be a potentialcustomer base for HDFC. The trend is already evident as younger people

increasingly aspire to become homeowners. For an institution that hasdedicated itself to providing housing finance for over three decades, there isnothing more gratifying than enabling more people to get on to the housing ladder.

Urbanisation: Indias Double Edged Sword

The urban exodus has led to a proliferation of slums, inadequate water andsanitation facilities, clogged up traffic and lack of education and healthcarefacilities. Most Indian cities score low on the liveability index.

While the opportunities that rapid urbanisation presents are enormous, thechallenges are equally daunting. One cannot rule out the possibility of along-brewing crisis that could implode given the lack of preparedness of ourcities to handle an urban influx. This gives rise to so many questions. Wherewill the additional people live and work? What kind of settlements can absorbthis influx of people? How many new mega cities will emerge and where?

Cities will be at the heart of all economic activity. The benefits of urbanisationare proven increased productivity, commercialisation and sustainablegrowth. Cities are centres of innovation, ideas, knowledge and wealthcreation. They also attract talent and provide life changing opportunities topeople. Yet all cities in India are strained by lack of physical infrastructure.


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What infrastructure will provide connectivity and mobility for the masses?

The choices made on urbanisation today will impact India for the next coupleof decades.

Need for Urban Cleansing

India has always under invested in its cities. The urban infrastructure deficitis apparent in every aspect, but more so in transport networks and affordablehousing, both of which need vast financial resources. Budgetary allocationsfor urban infrastructure are miniscule and hence private funds have to beattracted on a large scale.

Indian cities need to be empowered to mobilise their own resources. Thiswould enable them to reduce their reliance on the state and centre whosefinances are already constrained. Many cities around the world have thepower to levy their own taxes and raise money directly from the markets.With these powers comes accountability to its citizenry.

There are several countries that have made dramatic changes in managing urban growth. China is the most significant example of city transformation inrecent times. India can no longer manage urbanisation based on a gradualist,incremental approach. The country needs a thorough urban cleansing which starts with the need for a change in the mindset. Citizens have to bepassionate about the cities they live in. This can be inculcated only if there isa sense of ownership of public goods and civic pride.

Setting the Stage for Urban Transformation

Urban transformation requires bold initiatives. Urban growth can be driventhrough radical changes in land acquisition policies, improved governanceand inculcating skills and innovative capabilities in people.

The basis of increasing urban productivity lies in taking measures to useland more efficiently. We, however, tend to be trapped in a policy paralysis asfar as land reforms are concerned. While countries like Singapore, Malaysiaand Hong Kong have effectively reclaimed land where often the onus of reclamation rests with private developers, certainly a city like Mumbai hasno reason to get cold feet on reclaiming land as long as environmentalconsiderations are taken care of. Another example is that of the Urban Land(Ceiling & Regulation) Act which was repealed by the centre over a decadeago. In Maharashtra, ULCRA was repealed three years ago, but cases relatedto land disputes filed under this act are still pending in courts. These casesshould have been withdrawn immediately after the repeal of the act.

India needs to work quickly on creating at least two dozen satellite citiesaround Tier I and Tier II cities. Satellite cities have to be built as connectedcities which means having sophisticated transport networks like trans harbour


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inter-disciplinary skills ranging across urban design, planning, engineering,

architecture, ecology, economics and law is imperative for the sustainabilityand transformation of Indias cities.

Building Living Communities

The term affordable housing gets wielded so effortlessly, but it continues tobe a misnomer. For a short spell of time real estate prices had corrected torealistic levels, giving many the hope of becoming homeowners. However, assoon as economic conditions improved, residential prices in many pockets of the country increased sharply once again. How can one envisage building globally competitive cities when progressively a larger segment of societykeeps getting priced out of the housing market?

On a more positive note, certain recent initiatives by the government havebeen encouraging. The government, through the Rajiv Awas Yojana is allocating funds to encourage states to move towards slum free cities. This needs along-term commitment of at least twenty years, but is a laudable initiative.Plans to establish a dedicated debt fund to provide long-term resources forinfrastructure projects set up through public-private partnerships is anotherpositive step. This year, Delhi is expected to be the first to put in place a realestate regulator which will protect homebuyers from fly-by-night developersand instances of fraud. Hopefully this should set a precedent for other statesto follow suit.

Ultimately, the onus of building vibrant living communities rests not only withthe government, but with all stakeholders. The challenges of urbanisationare overwhelming, but I am optimistic enough to believe that Indias citieswill change perhaps not at the desired pace, but nonetheless a change forthe better. Though for this to happen, vision and will, in no small measure isrequired. The future will get here faster than we think.


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Directors Report

TO THE MEMBERS

Your directors are pleased to present the Thirty-third Annual Report of yourCorporation with the audited accounts for the year ended March 31, 2010.

FINANCIAL RESULTSFor the For the

year ended year endedMarch 31, 2010 March 31, 2009

(Rs. in crores) (Rs. in crores)

Profit before Tax 3,915.99 3,219.04

Provision for Tax 1,089.50 934.00

Provision for Fringe Benefit Tax 2.50

Profit after Tax 2,826.49 2,282.54

Appropriations have been made as under:

Special Reserve No. II 500.00 400.00

General Reserve 695.01 553.04

Additional Reserve (under Section 29Cof the National Housing Bank Act, 1987) 432.00 342.00

Shelter Assistance Reserve 9.00 7.00

Proposed Dividend (at Rs. 36 per share) 1,033.60 853.36

Additional Tax on Proposed Dividend 171.67 140.69

Additional Tax on Dividend - Credit taken (15.16) (14.05)

Dividend pertaining to Previous Year paidduring the year 0.37 0.50

2,826.49 2,282.54

Dividend

Your directors recommend paymentof dividend for the year ended March31, 2010 of Rs. 36 per equity shareas against Rs. 30 per equity share

for the previous year.The dividend payout ratio for thecurrent year, inclusive of additionaltax on dividend will be 42% ascompared to 43% for the previousyear.

Sub-division of Shares

With the objective of increasing retailparticipation in the equity shares of the Corporation and considering the

requests received from severalindividual shareholders, the Boardof Directors at its meeting heldon May 3, 2010, approved a

proposal to sub-divide the nominalface value of the equity shares of the Corporation from Rs. 10 perequity share to Rs. 2 per equityshare. The proposal is subject tothe approval of the membersand the requisite resolutions forapproval of the members havebeen set out in the notice convening the 33 rd Annual General Meeting (AGM).

Simultaneous Issue of Warrantsand Non-Convertible Debentures

Pursuant to the approval of theShareholders of the Corporation atthe 32 nd AGM held on July 22, 2009,the Corporation raised Rs. 4,301crores through the first ever issueof Warrants simultaneously withNon-Convertible Debentures (NCDs)to Qualified Institutional Buyers(QIBs) on a Qualified InstitutionsPlacement (QIP) basis, in accordance

with the provisions of Chapter XIII-Aof SEBI (Disclosure and InvestorProtection) Guidelines, 2000.

The Corporation issued and allotted1,09,53,706 Warrants at an issueprice of Rs. 275 per Warrant with aright exercisable by the Warrantholders to exchange each Warrantwith one equity share of face valueof Rs. 10 each of the Corporation,at any time on or before August 24,2012, at a Warrant Exercise Priceof Rs. 3,000 per equity share, to bepaid by the Warrant holder at thetime of exchange of the Warrants.

Simultaneously, the Corporation alsoissued and allotted 20,000 zerocoupon NCDs of the face value of Rs. 10,00,000 each due August 24,2011 aggregating to Rs. 2,000crores at an annualised yield tomaturity (YTM) of 7.15% and 20,000zero coupon NCDs of the face valueof Rs. 10,00,000 each due August24, 2012 aggregating to Rs. 2,000

crores at an annualised YTM of 7.85%.

The Warrants and NCDs are listedon the respective segments of theBombay Stock Exchange Limited andNational Stock Exchange of IndiaLimited.

The maximum dilution that couldtake place in future, if all theWarrants are exchanged for equity


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shares of the Corporation at the

Warrant Exercise Price would be upto 3.5% of the expanded equityshare capital of the Corporation.

Lending Operations

Loan approvals during the year wereRs. 60,611 crores as compared toRs. 49,166 crores in the previousyear, representing a growth of 23%.Loan disbursements during the yearwere Rs. 50,413 crores as againstRs. 39,650 crores in the previousyear, representing a growth of 27%.

Cumulative loan approvals anddisbursements as at March 31,2010 were Rs. 2,98,061 crores andRs. 2,42,219 crores respectively.This is in respect of approximately3.5 million housing units.

The demand for individual homeloans picked up significantly in thesecond half of the financial year,reflecting rising consumerconfidence and overall improvementof economic conditions. Otherenabling factors included the strong

demand for residential housing,lower interest rates, rising disposable incomes and continuedfiscal incentives on housing loans.The average size of individual loansstood at Rs. 16.90 lacs.

Sale of Loans

During the year, the Corporation,under the loan assignment routesold individual loans of Rs. 4,870crores to HDFC Bank pursuant to thebuyback option embedded in the

home loan arrangement betweenthe Corporation and HDFC Bank. Outof the total loans assigned,Rs. 3,258 crores qualify as prioritysector advances for the bank.

As at March 31, 2010, loansoutstanding in respect of loans soldunder the mortgage backedsecurities and loan assignmentroute to HDFC Bank and otherparties stood at Rs. 9,216 crores.

HDFC continues to service the loans

sold under these transactions andis entitled to the residual intereston the loans sold.

During the year, the Corporation alsosold Rs. 885 crores of its non-

individual loan portfolio. Theoutstanding amount of the non-individual loans sold by theCorporation as at March 31, 2010stood at Rs. 1,085 crores. TheCorporation, however, continues tohold the security of these loans ona pari passu basis with thepurchaser.

The residual income on the loanssold is being recognised at the timeof actual collections, (i.e. over thelife of the underlying loans), and noton an upfront basis. Whereindividual loans have been sold, theissues carry a rating indicating thehighest degree of safety.

Repayments

During the year under review,Rs. 31,872 crores were received byway of scheduled repayment of principal through monthlyinstalments as well as redemptions

ahead of schedule, as compared to

Rs. 23,525 crores received last year.Loan Book

As at March 31, 2010, the loan bookstood at Rs. 97,967 crores asagainst Rs. 85,198 crores in theprevious year an increase of 15%.The growth in the loan book wouldhave been higher at 22% if the loanssold were included in the loan book.

Foreign Currency Convertible Bonds(FCCB)

In September 2005, the Corporationconcluded the issue of USD 500million zero coupon FCCB. Thebonds are convertible into equityshares of the Corporation of the facevalue of Rs. 10 each up to the closeof business hours on July 29, 2010at the option of the holders, atRs. 1,399 per equity share,representing a conversion premiumof 50% over the initial referenceshare price. The premium payableon redemption of the bonds ischarged to the Securities PremiumAccount over the life of the bonds.

Up to March 31, 2010, theCorporation had allotted1,27,92,711 equity shares of Rs. 10each pursuant to the conversion of the FCCB, representing 81.9% of thebonds.

If the balance bonds are notconverted within the above-mentioned conversion period, theremaining bondholders would havethe right to redeem the outstanding bonds on September 27, 2010 at a

YTM of 4.62% per annum.

Conversion of Warrants Issued byHDFC Bank Limited (HDFC Bank)into Equity Shares

In order for HDFC as a promoter toretain its current shareholding inHDFC Bank pursuant to the mergerof Centurion Bank of Punjab withHDFC Bank and having obtained the

1 8 8

, 2 8 4

1 5 2

, 1 5 6

2 3 7

, 4 5 0

2 9 8

, 0 6 1

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, 2 1 9

1 9 1

, 8 0 6

1 4 5

, 7 6 4

1 1 9

, 2 8 1

1 1 2

, 4 3 2

9 3

, 1 0 3

0

50000

100000

150000

200000

250000

300000

20102009200820072006

DisbursementsApprovals

Approvals & Disbursements (Cumulative)(Rs. in crores)


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requisite approvals, HDFC Bank had

made a preferential offer to theCorporation to subscribe to2,62,00,220 Warrants convertibleinto 2,62,00,220 equity shares of Rs. 10 each of HDFC Bank, at aprice of Rs. 1,530.13 per equityshare, in accordance with theprovisions of Chapter XIII of the SEBI(Disclosure and Investor Protection)Guidelines, 2000.

In June 2008, under the terms andconditions of the said Warrants, theCorporation had paid a sum of 10%of the price of the equity shares tobe issued upon exercise of suchWarrants at the time of allotment.

In November 2009, the Corporationexercised its right to convert2,62,00,220 Warrants into anequivalent number of equity sharesof Rs. 10 each of HDFC Bank for anamount of Rs. 3,608.06 crores,being the balance 90% of thesubscription amount.

Resource Mobilisation

Subordinated Debt

During the year, the Corporationraised Rs. 500 crores through theissue of long-term UnsecuredRedeemable Non-ConvertibleSubordinated Debentures. Thesubordinated debt was assigned aAAA rating from both CRISIL Limited(CRISIL) and ICRA Limited (ICRA).

As at March 31, 2010, theCorporations outstanding subordinated debt stood at

Rs. 1,875 crores. The debt issubordinated to present and futuresenior indebtedness of theCorporation and has been assignedthe highest rating by CRISIL andICRA. Based on the balance term tomaturity, as at March 31, 2010,Rs. 1,555 crores of the book valueof subordinated debt is consideredas Tier II under the guidelines issuedby the National Housing Bank (NHB)

for the purpose of capital adequacy

computation.

Non-Convertible Debentures (NCD)

During the year, the Corporationissued NCDs amounting toRs. 7,400 crores on a private

placement basis (excluding Rs. 4,000 crores of NCDs raised underthe Simultaneous Issue of Warrantsand Non-Convertible Debentures). TheCorporations NCD issues have beenlisted on the Wholesale Debt Marketsegment of the NSE. The CorporationsNCDs have been assigned the highestrating of AAA by both CRISIL andICRA. As at March 31, 2010, NCDsoutstanding stood at Rs. 33,093crores.

Short-Term Foreign CurrencyBorrowings by Housing FinanceCompanies

As a temporary measure, theReserve Bank of India (RBI) hadpermitted Housing FinanceCompanies to raise short-termforeign currency borrowings for amaximum period of three years,under the approval route forrefinancing short-term liabilities.

Under this borrowing route, the RBI

stipulated that the all-in-cost ceiling should not exceed 6 months LIBOR+ 200 bps and the borrowing needsto be fully swapped into IndianRupees.

During the year, HDFC availed loansamounting to USD 175 million underthe said scheme for a period of threeyears.

Loans from Banks

During the year, the Corporationraised loans amounting to

Rs. 25,037 crores from commercialbanks, of which Rs. 9,319 croreswere under the priority sectorcategory of commercial banks. TheCorporation further raised Rs. 2,357crores from the banking sector asFCNR (B) loans.

HDFCs long-term and short-termbank loan facilities have beenassigned the highest rating of AAAand PR1+ respectively by CARE,signifying highest safety for timelyservicing of debt obligations.

Refinance from National HousingBank (NHB)

NHB has an internal rating mechanism for Housing FinanceCompanies (HFCs) and theCorporation has been assigned thehighest rating for its refinanceschemes by NHB. During the year,the Corporation has drawn refinanceamounting to Rs. 239 crores underNHBs Refinance Scheme to Housing Finance Companies, 2003.

Deposits

Deposits continued to grow during the financial year under reviewdespite strong competition frombanks. During the year, depositsaccounted for 29% of theincremental borrowing of theCorporation. As at March 31, 2010,outstanding deposits stood atRs. 23,081 crores as against

Funds Employed(Rs. in crores)

1 1

, 2 9 6

1 3

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1 5

, 1 9 8

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32000

48000

64000

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20102009200820072006

DepositsTerm BorrowingsNet Worth


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Rs. 19,375 crores in the previous

year an increase of 19%. Thedepositor base stood atapproximately 9 lac depositors.

CRISIL and ICRA have for thefifteenth consecutive year,reaffirmed their AAA rating forHDFCs deposits. This rating represents highest safety, attractivereturns and impeccable servicestandards as regards timelyrepayment of principal andinterest.

During the year, the Corporationintroduced HDFC SystematicSavings Plan, which is a monthlysavings plan offering a variable rateof interest.

The support of the agents and theircommitment to the Corporation hasbeen instrumental in HDFCs depositproducts continuing to be apreferred investment for householdsand trusts.

Unclaimed Deposits

As of March 31, 2010, publicdeposits amounting to Rs. 251.78crores had not been claimed by38,846 depositors. Since then,9,277 depositors have claimed orrenewed deposits of Rs. 83.88crores. Depositors were intimatedregarding the maturity of depositswith a request to either renew orclaim their deposits.

As per the provisions of Section205C of the Companies Act, 1956,

deposits remaining unclaimed for aperiod of seven years from the datethey became due for payment haveto be transferred to the InvestorEducation and Protection Fund(IEPF) established by the CentralGovernment. Accordingly, during the year, despite repeatedreminders being sent to depositors,an amount of Rs. 31.14 lacs hasbeen transferred to the IEPF. In

terms of the said section, no claims

would lie against the Corporation orthe IEPF after the transfer.

KfW Lines/Grant

During the year, the Corporationdisbursed Rs. 9.14 crores under theKfW Entwicklungsbank (KfW) lines inthe area of low-income housing and micro-finance by way of bulkloans to partner non-governmentorganisations (NGOs) and micro-finance institutions (MFIs). Theseschemes have been approved out of

the third line from KfW of Euro 15.3million. The projects are administeredas group or individual loans designedfor the economically weaker sections(EWS) of society for improving theiraccess to institutional credit. Againstthe cumulative loan approvals of Rs. 94.02 crores, the Corporation hasdisbursed Rs. 86.02 crores as atMarch 31, 2010.

The surplus funds of Euro 1.12million available under the fourthline of grant (Euro 10.22 million)were reprogrammed by KfW towardsEWS housing projects with objectivesand criteria similar to the third line.During the year, HDFC hasconcluded the utilisation of thesesurplus funds.

Non-Performing Loans

Despite the financial turbulenceduring part of the year under review,the recovery performance of theCorporation continued to be verygood. Gross non-performing loans as

at March 31, 2010 amounted toRs. 782.85 crores. This is equivalentto 0.79% of the portfolio (as against0.81% in the previous year)comprising loans as well asdebentures issued by corporatesand corporate deposits placed forfinancing their real estate projects.This is the twenty-first consecutivequarter end at which the non-performing loans have been lower

than the corresponding quarter in

the previous year.Based on a six months overduebasis, the non-performing loans asat March 31, 2010 stood at 0.53%of the loan portfolio as against0.56% in the previous year.

In terms of the prudential norms asstipulated by NHB, the Corporationis required to carry a provision of Rs. 325.29 crores in respect of non-performing assets and generalprovision on outstanding standardnon-housing loans.

The balance in the provision forcontingencies account as at March31, 2010 stood at Rs. 655.57crores, which is equivalent to 0.66%of the portfolio. As at March 31,2010, the Corporations net non-performing loans stood at 0.13%.

The Securitisation andReconstruction of Financial Assetsand Enforcement of Security InterestAct, 2002 (SARFAESI) has proved tobe a useful recovery tool and the

Corporation has been able tosuccessfully initiate recovery actionunder this Act in the case of wilfulindividual and corporate defaulters.

Loan Quality &Provision for Contingencies

(%)

Six Month Gross NPLs as a % of Portfolio

Provision for Contingencies as a % of Portfolio

Gross NPLs as a % of Portfolio

0 . 7

9 0

. 8 2

0 . 9

6

0 . 7

1 0 . 7

7

0 . 6

3 0 . 6

8

0 . 8

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0.8

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20102009200820072006

0 . 9

2

Portfolio includes loans and investments in debenturesand corporate deposits for financing real estate projects.


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Regulatory Guidelines/

AmendmentsHDFC has complied with the Housing Finance Companies (NHB)Directions, 2001 prescribed by NHBregarding accounting standards,prudential norms for assetclassification, income recognition,provisioning, capital adequacy andcredit rating. The Corporation is alsoin compliance with the concentrationof investments and capital marketexposure norms other than on itsinvestment in HDFC Bank, whereinNHB has granted the Corporationtime for such compliance as theCorporation is a promoter of HDFCBank.

HDFCs capital adequacy ratio stoodat 14.6% of the risk weightedassets, as against the minimumrequirement of 12%. Tier I capitalwas 12.8% against a minimumrequirement of 6%.

Codes and Standards

NHB has issued comprehensiveKnow Your Customer (KYC)Guidelines and Anti MoneyLaundering Standards in the contextof recommendations made by theFinancial Action Task Force on AntiMoney Laundering Standards andon Combating Financing of TerrorismStandards. During the year, theboard reviewed and approved theamendments to the CorporationsKYC and Prevention of MoneyLaundering Policy as stipulated byNHB. The Corporation has adheredto the compliance requirements interms of the said policy formonitoring and reporting cash/suspicious transactions.

The Fair Practices Code framed byNHB seeks to promote good and fairpractices by setting minimumstandards in dealing with customers,increase transparency so customershave a better understanding of what

they can reasonably expect of the

services being offered, encouragemarket forces through competitionto achieve higher operating standards, promote fair and cordialrelationships between customersand the housing finance companyand foster confidence in the housing finance system. During the year, theCorporation has adhered to the FairPractices Code as approved by theBoard of Directors.

The Corporation has adopted theModel Code of Conduct for DirectSelling Agents and Guidelines forRecovery Agents engaged by HFCsas approved by the Board of Directors.

Risk Management Framework

The Corporation has a RiskManagement Framework, whichprovides the mechanism for riskassessment and mitigation. The RiskManagement Committee (RMC)comprises the Managing Director asthe chairperson, the Executive

Director and some members of senior management.

During the year, the RMC reviewedthe risks associated with thebusiness of the Corporation, its rootcauses and the efficacy of themeasures taken to mitigate thesame. Thereafter, the Board of Directors also reviewed the key risksassociated with the business of theCorporation, the procedures adoptedto assess the risks and theirmitigation mechanisms.

Marketing and Distribution

To reach out effectively tocustomers, the Corporationsdistribution network now spans 279outlets, which include 65 offices of the HDFCs wholly owneddistribution company, HDFC SalesPrivate Limited (HSPL). To furtheraugment this network, HDFC coversover 90 additional locations through

its outreach programmes. HDFC has

offices in London, Singapore andDubai. The Dubai office reaches outto its customers across West Asiathrough its service associates basedin Kuwait, Qatar, Oman, Sharjah, AbuDhabi and Saudi Arabia Al Khobar,Jeddah and Riyadh.

HDFCs reach and presence is alsoenhanced by its distributionchannels, which include HSPL, HDFCBank and a few third party directselling associates (DSAs). Thesechannels only source loans, whileHDFC continues to retain controlover the credit, legal and technicalappraisal, thereby ensuring that thequality of loans disbursed is notcompromised in any way and isconsistent across all distributionchannels.

During the year, HDFC ran a keybrand campaign HDFC - becauseevery family needs a home. Theobjective of the campaign was toconnect with HDFCs existing

customers as well as prospectivecustomers, making the HDFC brandsynonymous with a home.

HDFC organises property fairs acrossmajor cities in the country. The aimof these fairs is to provide a widespectrum of approved projects undera single roof. These fairs in turn helpcustomers in making their decisionto buy a home. Under Indian HomesFair, HDFC brings together eminentbuilders who show case theirproperties for the Indian Diaspora.During the year, HDFC organisedIndian Homes Fair in London,Singapore and Kuwait.

Cross Selling and Distribution ofFinancial Products and Ser vices

HDFCs subsidiary companies havestrong synergies with HDFC andhence efforts are channelled intocross selling so as to offercustomers a wide range of financial


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products and services under theHDFC brand.

HDFC is a Composite Corporate Agentfor HDFC Standard Life InsuranceCompany Limited (HDFC-SL) andHDFC ERGO General InsuranceCompany Limited (HDFC-ERGO).

International Housing FinanceInitiatives

HDFCs expertise in housing financeis well regarded and therefore anumber of existing and new housing finance companies in various partsof the world are keen to tap HDFCfor training, strategic input andtechnical assistance in housing finance.

During the year, the Corporation

under its Technical ServicesAgreement with Housing Development Finance Corporation,Plc., Maldives, provided technicaland consultancy services in keymortgage functions.

Senior executives of the Corporationwere invited to Indonesia, Maldives,Philippines and Oman for seminars,consultancy or training assignmentsin housing finance.

In July 2009, the Frankfurt School

of Finance & Management andHDFC jointly organised the secondHousing Finance Summer Academyin Germany, which is a course thataims to provide housing financesolutions for emerging marketsthrough a combination of academicknowledge and practical experience.

In November 2009, HDFC conductedits own international training programme Housing FinanceManagement at its training centre,Centre for Housing Finance, locatedat Lonavla, India. Participants fromdifferent countries across Asia andAfrica attended a weeklong residential training programme.

Delegates from Bangladesh,Indonesia and Romania visited theCorporation to understand keymortgage finance operations.

Shelter Assistance Reserve (SAR)

HDFC continued to partner andsupport worthwhile projectsundertaken by NGOs, foundationsand local bodies through the SAR.During the year, HDFC has made acommitment of Rs. 10.48 crores anddisbursed Rs. 8.48 crores from theSAR towards a wide spectrum of development programmes andactivities.

HDFC supported the mid-day mealscheme for children reaching 285schools in Gandhinagar andAhmedabad, partnered a society inraising awareness on multiple

sclerosis and helped an organisationrefurbish a rehabilitation centre forthe physically challenged inBhubaneshwar. Support andfinancial assistance was alsoextended towards realisation of Adivasi (tribal) childrens right toeducation through ashram shalas(residential schools) in Raigad,construction of a dormitory in ashelter home for boys in Ajmer and

towards treatment and medical aid

for patients suffering fromhaemophilia in New Delhi. HDFCmade corpus contributions from theSAR to the Indian Cancer Society New Delhi, Vision ResearchFoundation Chennai, Society forthe Rehabilitation of CrippledChildren Mumbai and the DeepGriha Society Pune, amongstothers.

In addition, the SAR was utilisedtowards providing relief assistanceto victims in the flood-affected areasof Karnataka and Andhra Pradeshduring October 2009.

Training and Human ResourceManagement

The Corporation believes that theHDFC brand comes alive at varioustouch points where the customerinteracts with HDFC. Hence, strong emphasis is placed on appraisal of competencies and upgradation of skills of employees to achievecurrent and emerging business

needs.During the year, besides theinduction training for managementtrainees, specific orientationprogrammes were designed for staff members in operations, accounts,recoveries and deposits.

The Corporation also nominatedstaff members for a variety of external programmes on affordablehousing, rural housing, treasuryand risk management, taxation,

information security, businessmanagement and InternationalFinancial Reporting Standards.

Other Initiatives

Education

The Corporation is keen to developsustainable business models in theeducation space. As an initial step,during the year, the Corporationacquired a 41% stake in the fully

Composition of Loans Outstanding (%)(Inclusive of loans sold)(As at March 31, 2010)

65

33

2

Individuals - 65%

Corporates - 33%

Others - 2%


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diluted share capital of Credila

Financial Services Private Limited,which is a company that exclusivelyfocuses on providing educationloans.

Indian Institute for Human Settlements (IIHS)

The urban environment is embeddedin increasing density of traffic,insufficient infrastructure and lackof quality amenities all of whichimpact the value and joy of housing.In order to improve the urbanenvironment, there is a need fortrained professionals.

During the year, the Corporationdisbursed Rs. 2 crores out of acommitment of Rs. 4 crores to IIHS.IIHS will establish a privately fundedNational University focused onurban practice a newmultidisciplinary profession, drawing on transportation and infrastructureplanning, architecture, sociology,economics, law and management.IIHS will provide in-service training

as well as educate graduates andpost graduates to work on planning,implementation and governance fortowns and cities. Various reputedinternational universities and anumber of Indias leading academicians and practitioners areparticipating in this venture. The firstIIHS campus will be set up inBengaluru.

Awards and Recognitions

During the year, some of the awardsand recognitions received by theCorporation include:

Top Ind ian Company in theFinancial Institutions/Non-Banking Financial Companies/FinancialServices category at the Dun &Bradstreet Rolta Corporate Awards2009. The Corporation has won thisaward for four consecutive years.

Motilal Oswal Financial Servicesfor the second time ranked HDFC

as the Most Consistent Wealth

Creator in its 14th

Annual WealthCreation Study that analyses the top100 wealth creating companies inIndia.

HDFC featured amongst the Top50 Best Companies to Work For 2009 in a study by the Great Placeto Work Institute - India inassociation with The EconomicTimes. In addition, HDFC wasadjudged as the Best Company forManagement Credibility.

Subsidiary Companies

In terms of Section 212(8) of theCompanies Act, 1956, the CentralGovernment has granted itsapproval, exempting the Corporationfrom the requirement of attaching to its annual report, the balancesheet, profit and loss account andthe report of the directors andauditors thereon, in respect of allits fifteen subsidiary companies.Accordingly, a copy of the balancesheet, profit and loss account, report

of the Board of Directors and Reportof the Auditors of the following subsidiary companies of theCorporation HDFC DevelopersLimited, HDFC Investments Limited,HDFC Holdings Limited, HDFC AssetManagement Company Limited,HDFC Trustee Company Limited,HDFC Realty Limited, HDFCStandard Life Insurance CompanyLimited, HDFC ERGO GeneralInsurance Company Limited, GRUHFinance Limited, HDFC Sales Private

Limited, HDFC Ventures TrusteeCompany Limited, HDFC VentureCapital Limited and HDFC PropertyVentures Limited, and the following step-down subsidiary companies -HDFC Asset Management Company(Singapore) Pte. Limited and GrihaInvestments have not been attachedto the balance sheet of theCorporation for the financial yearended March 31, 2010.

The Annual Report of the

Corporation, the annual accountsand the related documents of theCorporations subsidiary companiesare posted on the website of theCorporation, www.hdfc.com .Shareholders who wish to have acopy of the annual accounts anddetailed information on anysubsidiary company can downloadthe same from the website or maywrite to the Corporation for thesame. Further, the said documentsshall be available for inspection by

the shareholders at the registeredoffice of the Corporation and at theoffice of the respective subsidiarycompany.

The Corporation has not made anyloans or advances in the nature of loans to any of its subsidiary orassociate company or companies inwhich its directors are interested,other than in the ordinary course of business.

Review of Key Subsidiary andAssociate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue tomaintain an arms length

Profits

(Rs. in crores)

0

500

1000

1500

2000

2500

3000

3500

4000

201020092008*20072006

Profit before taxProfit after tax

1 , 2

5 7 1

, 5 7 0

2 , 7

3 7

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1 9

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relationship in accordance with the

regulatory framework. Bothorganisations, however, capitalise onthe strong synergies through asystem of referrals, specialarrangements and cross selling inorder to effectively provide a widerange of products and servicesunder the HDFC brand name.

As at March 31, 2010, grossadvances of HDFC Bank stood atRs. 1,27,262 crores - an increaseof 27% over the previous year. As atMarch 31, 2010, HDFC Banksdistribution network included 1,725branches and 4,232 ATMs in 779cities as against 1,412 branchesand 3,295 ATMs in 528 cities as of March 31, 2009.

For the year ended March 31, 2010,HDFC Bank reported a profit aftertax of Rs. 2,949 crores as againstRs. 2,245 crores in the previousyear, representing an increase of 31%. HDFC Bank recommended adividend of Rs. 12 per share as

against Rs. 10 per share in theprevious year.

HDFC together with its wholly ownedsubsidiaries, HDFC InvestmentsLimited and HDFC Holdings Limitedholds 23.73% of the equity sharecapital of HDFC Bank.

HDFC Standard Life InsuranceCompany Limited (HDFC-SL)

Gross premium income of HDFC-SLfor the year ended March 31, 2010stood at Rs. 7,005 crores as

compared to Rs. 5,565 crores in theprevious year. The sum assuredinforce for the current year wasRs. 72,610 crores as compared toRs. 57,158 crores in the previous year.

The company has a portfolio of 32retail products and 4 group productscovering saving, investment,protection and retirement needs of the customers, along with fiveoptional rider benefits.

HDFC-SL covers approximately 700

cities and towns in India through its568 distribution points in thecountry with approximately 2,00,000financial consultants appointed bythe company. HDFC-SL also has astrong association with itsbancassurance partners, which hascontributed significantly to the growthof the company during the year.

HDFC-SL has reported a loss of Rs. 275 crores for the year endedMarch 31, 2010. Like most lifeinsurance companies in the initialphase, HDFC-SL has reportedlosses. This is essentially due to theaccounting norms applicable toinsurance companies wherein thecommission expenses are chargedupfront in the year in which they areincurred while the corresponding income is recognised over the entirelife of the policies issued. Themismatch between expenses andincome has the effect of magnifying the initial losses of HDFC-SL.

HDFC holds 72.56% of the equityshare capital in HDFC-SL.

HDFC Asset Management CompanyLimited (HDFC-AMC)

HDFC and Standard Life InvestmentLimited are the co-sponsors of HDFCMutual Fund.

As at March 31, 2010, HDFC-AMCmanaged 33 debt and equityoriented schemes of HDFC MutualFund. During the year, the averageassets under management was

Rs. 1,00,898 crores (which isinclusive of average assets underdiscretionary portfolio management/advisory services). The number of investor accounts increased to over39 lacs as at March 31, 2010 ascompared to 34 lacs in the previousyear.

As at March 31, 2010, HDFC-AMChas points of acceptances in 206locations across the country.

For the year ended March 31, 2010,

HDFC-AMC reported a profit after taxof Rs. 208.37 crores as againstRs. 129.11 crores in the previousyear. HDFC-AMC paid an interimdividend of Rs. 22 per share for thefinancial year ended March 31, 2010.

HDFC holds 60% of the equity sharecapital of HDFC-AMC.

HDFC ERGO General InsuranceCompany Limited (HDFC-ERGO)

For the year ended March 31, 2010,HDFC-ERGO emerged as the fifth

largest private sector player in thegeneral insurance industry. Following a multi-product and multi-channelstrategy, HDFC-ERGO has expandedits branch network to 78 ascompared to 50 last year.

The company offers a completerange of insurance products likemotor, health, travel, home andpersonal accident in retail segmentand customised products likeproperty, marine, aviation andliability insurance in the corporatesegment. In addition, HDFC-ERGOcontinues to leverage on HDFCgroups distribution capability todrive its growth. The company has abalanced portfolio mix withcorporate business accounting for52% for the business and retailaccounting for the balance.

The general insurance industryregistered a growth of 13% in FY 2009-10 as compared to 9% in theprevious year. In comparison, during

the year, HDFC-ERGO recorded agrowth of 168% as compared to 56%in the previous year with a GrossWritten Premium (including cessionsfrom the motor pool) of Rs. 1,004crores as against Rs. 374 crores inthe previous year.

During the year, the company madea loss of Rs. 94 cr ores. The loss forthe year was primarily on accountof significant investments in the


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scale-up of business, continued

pricing pressure as a result of detariffing and higher share of losses from Indian Motor Third PartyPool.

HDFC holds 74% of the equity sharecapital of HDFC-ERGO.

HDFC Property Funds

HDFC Venture Capital Limited (HVCL)is the investment manager toHDFC Property Fund, a registeredventure capital fund with theSecurities and Exchange Board of India (SEBI).

HDFC Property Fund currently hastwo schemes. The first scheme isHDFC India Real Estate Fund (HI-REF), with a corpus of Rs. 1,000crores, which has been fullyinvested. Exits are being explored forsome of the investments of thescheme.

The second scheme, HDFC ITCorridor Fund has a corpus of Rs. 446.40 crores. This scheme hasdisbursed the entire corpus in rentalincome yielding commercialproperties in major cities in Indiaand exits are being explored forsome investments of the scheme.

During the year, HVCL made a profitafter tax of Rs. 12.73 crores. Thedirectors of HVCL approved thepayment of two interim dividendsaggregating Rs. 205 per equityshare.

HDFC holds 80.5% of the equityshare capital of HVCL.

HDFC Property Ventures Limited(HPVL) provides investment advisoryservices to Indian and overseasasset management companies(AMCs). Such AMCs in turn manageand advise Indian and offshoreprivate equity funds.

HDFC holds 100% of the equityshare capital of HPVL.

GRUH Finance Limited (GRUH)

GRUH is a housing finance companywith operations primarily in thestates of Gujarat and Maharashtraand has now expanded its networkto other states like Karnataka,Madhya Pradesh, Rajasthan,Chhatisgarh and Tamil Nadu. During the year, GRUH disbursed loansamounting to Rs. 780 crores.

For the year ended March 31, 2010,GRUH reported a profit after tax of Rs. 68.96 crores as compared toRs. 50.28 crores in the previousyear - an increase of 37%. Thecompany recommended a dividendof Rs. 6.50 per share as comparedto Rs. 4.80 per share in the previousyear.

HDFCs holding in GRUH currentlystands at 61.36%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL)continues to strengthen theCorporations marketing and salesefforts by providing a dedicatedsales force to sell home loans andother financial products.

HSPL has a presence in 65locations. During the period underreview, HSPL sourced loansaccounting for 46% of individualloans disbursed by HDFC.

HSPL is a wholly owned subsidiaryof HDFC.

Particulars of Employees

HDFC had 1,505 employees as of

March 31, 2010. During the year,44 employees employed throughoutthe year and 1 employee employedfor part of the year were in receiptof remuneration of Rs. 24 lacs ormore per annum.

In accordance with the provisions of Section 217(2A) of the CompaniesAct, 1956 and the rules framedthereunder, the names and otherparticulars of employees are set out

in the annex to the Directors Report.

In terms of the provisions of Section219(1)(b)(iv) of the Companies Act,1956, the Directors Report is being sent to all the shareholders of theCorporation excluding the annex. Anyshareholder interested in obtaining a copy of the said annex may writeto the Corporation.

Employees Stock Option Scheme(ESOS)

Presently, stock options granted bythe Corporation to the employeesoperate under the following schemes: ESOS-05, ESOS-07 andESOS-08. Further, ESOS-02 was inforce up to October 16, 2009 andin accordance with its provisions wasinoperative from October 17, 2009.During the year, no new options weregranted by the Corporation.

ESOS-05, ESOS-07 and ESOS-08(Schemes)

During the year, under theseSchemes, options vested aggregatedto 56,47,778 and options exercised

aggregated to 20,31,366. Themoney realised due to exercise of the said options was Rs. 233.93crores and consequently, 20,31,366equity shares of Rs. 10 each havebeen allotted to the concernedemployees.

During the year, under theseSchemes, 1,69,458 options lapsed.Options in force as on March 31,2010 under these Schemes stoodat 1,16,09,033. During the financialyear under review, there has beenno variation in the terms of theoptions granted earlier.

Listed below are disclosures inaccordance with the SEBI (EmployeeStock Option Scheme and EmployeeStock Purchase Scheme) Guidelines,1999, as amended:

Since options were granted at themarket price, the intrinsic value of the option is nil. Consequently, the


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Necessary resolutions for the

appointment/re-appointment of theaforesaid directors have beenincluded in the notice convening theensuing AGM.

All the directors of the Corporationhave confirmed that they are notdisqualified from being appointed asdirectors in terms of Section274(1)(g) of the Companies Act,1956.

Auditors

Messrs Deloitte Haskins & Sells,Chartered Accountants, having registration number 117366W,statutory auditors of the Corporationand branch auditors to audit theaccounts at the Corporationsbranches in India and officesin London and Singapore holdoffice until the conclusion of theensuing AGM and are eligible forre-appointment.

The Corporation has received aconfirmation from Messrs Deloitte

Haskins & Sells to the effect thattheir appointment, if made, wouldbe within the limits prescribed underSection 224(1B) of the CompaniesAct, 1956.

Messrs PKF, Chartered Accountants,having registration number 10 wasappointed as the branch auditors toaudit the accounts of theCorporations branch office in Dubai.Their term expires at the end of theensuing AGM and they are eligiblefor re-appointment.

Directors Responsibility Statement

In accordance with the provisions of Section 217(2AA) of the CompaniesAct, 1956 and based on the

information provided by the

management, your directors statethat:

i. In the preparation of annualaccounts, the applicable accounting standards have been followed;

ii . Accounting policies selectedwere applied consistently.Reasonable and prudent

judgements and estimates weremade so as to give a true and fairview of the state of affairs of theCorporation as at the end of March

31, 2010 and of the profit of theCorporation for the year ended onthat date;

iii. Proper and sufficient care hasbeen taken for the maintenance of adequate accounting records inaccordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of theCorporation and for preventing anddetecting frauds and otherirregularities;

iv. The annual accounts of theCorporation have been prepared ona going concern basis.

Management Discussion andAnalysis Report and Report of theDirectors on Corporate Governance

In accordance with Clause 49 of thelisting agreements, the ManagementDiscussion and Analysis Report andthe Report of the Directors onCorporate Governance form part of this report.

Corporate Governance VoluntaryGuidelines

The Board of Directors have takencognisance of the CorporateGovernance Voluntary Guidelines

2009 issued by the Ministry of

Corporate Affairs (MCA) in December2009. While the guidelines arerecommendatory in nature, theboard recognises the importanceand need to constantly assessgovernance practices therebyensuring a sustainable businessenvironment that generates long-term value to all key stakeholders.The board would consider adopting the relevant provisions of the saidguidelines as and when deemedappropriate.

Acknowledgements

The Corporation would like toacknowledge the role of all itsstakeholders - shareholders,borrowers, depositors, key partnersand lenders for their continuing support to the Corporation.

The directors appreciate theguidance received from variousregulatory authorities including NHB, RBI, SEBI, MCA, Registrarof Companies, FinancialIntelligence Unit (India), ForeignInvestment Promotion Board, theStock Exchanges and theDepositories.

Your directors value theprofessionalism of all the employeesof the Corporation who haverelentlessly worked in a challenging environment and whose efforts havestood the Corporation in goodstead.

On behalf of the Board of Directors

MUMBAI DEEPAK S. PAREKHMay 3, 2010 Chairman


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Report of the Directors on Corporate Governance

As global economies are slowly recovering from the worst financial crisis in recent times, greater focus has now

shifted to boardroom discussions on whether the crisis was an outcome of a failure to address an array of issuespertaining to corporate governance. In many countries, new corporate governance norms are being announced toaddress the key issues pertaining to remuneration, risk management, board practices and the exercise of shareholders rights. Boards are now constantly assessing and reflecting upon their performance and keeping abreast with the rapidly changing environment.

In India, corporate governance has gained considerable momentum and it is not just on account of regulatorycompliance. The market regulator, Securities and Exchange Board of India (SEBI) has been proactive and effectivein keeping Indias corporate governance rules and regulations in line with best practices across the world. To thecredit of the regulators, they recognise that box ticking, stricter compliances and stronger legislation are not thesolutions. In December 2009, the Ministry of Corporate Affairs took the initiative of promoting better governancepractices by issuing voluntary guidelines on corporate governance. Voluntary adoption of better standards is the

way forward as corporate governance is more about abiding by the spirit than mere compliance.

Indias strength stems from the fact that many companies have recognised the benefits of voluntary adoption of higher governance standards. With Indias dominant presence in the global arena, most boards feel the need touphold the highest standards of corporate governance. As a result, Indian companies have seen merit in adopting greater transparent board practices and recognise the crucial role that independent directors play.

Corporate Governance at HDFC

At HDFC, governance standards are initiated by senior management who ensure that it is percolated throughoutthe organisation. HDFC has always understood the importance of ethics amongst its employees and strives todevelop a culture that fosters accountability, fairness, integrity and transparency.

HDFC recognises that sustainability of a corporate entity is directly related to its performance and the level of satisfaction or comfort of all its stakeholders. HDFC has always believed in building and nurturing relationshipswith its several stakeholders, including shareholders, lenders, customers and society at large.

The Board of Directors fully supports and endorses corporate governance practices in accordance with theprovisions of Clause 49 of the listing agreements, as amended. The Corporation has complied with all themandatory requirements of the said Clause and listed below is the status with regard to the same.

Board of Directors

Composition

The Board of Directors comprises fifteen members. There are twelve non-executive directors including the Chairmanof the Corporation. The three executive directors include the Vice Chairman & Chief Executive Officer (CEO), theManaging Director and the Executive Director. Of the twelve non-executive directors, ten are independent directors.The independent directors have confirmed that they satisfy the criteria prescribed for an independent director asstipulated in Clause 49 I (A) (iii) of the listing agreements. None of the directors of the Corporation are related toeach other.

The directors bring to the board a wide range of experience and skills. Brief profiles of the directors are set outelsewhere in the annual report. The composition of the board is in conformity with Clause 49 I of the listing


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agreements. Details of the Board of Directors in terms of their directorships / memberships in committees of

public companies (excluding HDFC) are as under:Sr. No. Directors Number of Number of Committees

Directorships Member Chairperson

1 Mr. Deepak S. Parekh (Chairman)^ 11 7 5

2 Mr. Keshub Mahindra (Vice Chairman) 5 1 1

3 Mr. Shirish B. Patel 1

4 Mr. B. S. Mehta 14 9 5

5 Mr. D. M. Sukthankar 3 1 1

6 Mr. D. N. Ghosh 4 1 1

7 Dr. S. A. Dave 9 8 8 Dr. Ram S. Tarneja 11 6 1

9 Mr. N. M. Munjee 14 8 4

10 Dr. Bimal Jalan

11 Mr. D. M. Satwalekar 7 3 2

12 Dr. J. J. Irani+

9 2

13 Mr. V. Srinivasa Rangan (Executive Director)^ 9 6

14 Ms. Renu Sud Karnad (Managing Director)^ 12 5 2

15 Mr. Keki M. Mistry (Vice Chairman & CEO)^ 13 9 2

Sr. Nos. 2 to 11 are independent directors.

Sr. Nos. 13 to 15 are whole-time directors. In the case of whole-time directors, the number of directorshipsinclude directorships in HDFC group companies.

^Mr. Deepak S. Parekh retired as the Managing Director of the Corporation (designated as Chairman) with effectfrom the close of business hours on December 31, 2009. The Board of Directors of the Corporation at its meeting held on December 4, 2009, appointed Mr. Deepak S. Parekh as an Additional Director with effect from January 1,2010 and to hold office as such till the date of the ensuing Annual General Meeting (AGM). At the same meeting,the board appointed Ms. Renu Sud Karnad as the Managing Director and Mr. V. Srinivasa Rangan as theExecutive Director for a period of 5 years with effect from January 1, 2010, subject to the approval of the

shareholders at the ensuing AGM. Mr. Keki M. Mistry was re-designated as the Vice-Chairman & CEO with effect

from January 1, 2010.+Dr. J. J. Irani is a special director under Articles 125 and 126 of the Articles of Association of the Corporation.

Excluding the directorships mentioned above, Mr. Deepak S. Parekh is an alternate director in 4 companies.

Tenure

The non-executive directors of the Corporation, as eligible, are liable to retire by rotation. One-third of the saiddirectors are liable to retire every year and if eligible, offer themselves for re-appointment.

Responsibilities

The Board of Directors represent the interests of the Corporations stakeholders in optimising long-term value by


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providing the management with guidance and strategic direction on their behalf. The boards mandate is to

oversee the Corporations strategic direction, review corporate performance, authorise and monitor strategicinvestments, ensure regulatory compliance and safeguard interests of all stakeholders.

Role of Independent Directors

Independent directors play a key role in the decision-making process of the board as they approve the overallstrategy of the Corporation and oversee the performance of management. The independent directors are committedto acting in what they believe is in the best interest of the Corporation and its stakeholders.

The independent directors bring to the Corporation a wide range of experience, knowledge and judgement as theydraw on their varied proficiencies in economics, finance, housing, management, accountancy, law, public policy,engineering and corporate strategy. This wide knowledge of both, their field of expertise and boardroom practices

helps foster varied, unbiased, independent and experienced perspectives. The Corporation benefits immenselyfrom their inputs in achieving its strategic direction.

The Audit Committee and Compensation Committee consist entirely of independent directors. The InvestorsGrievance Committee has a majority of independent directors. These committees function within their definedterms of reference in accordance with the Companies Act, 1956, the listing agreements and as approved by theBoard of Directors.

Board members ensure that their work in other capacities do not impinge on their responsibilities as directors of HDFC.

Board Meetings

The meetings of the Board of Directors are normally held at the Corporations registered office in Mumbai.Meetings are generally scheduled well in advance and the notice of each board meeting is given in writing to eachdirector. The board meets at least once a quarter to review the quarterly performance and financial results of theCorporation.

The company secretary in consultation with the Chairman and the whole-time directors prepares a detailedagenda for the meetings. The board is provided with the relevant information as stipulated in Clause 49 of thelisting agreements. The members of the board have access to all information of the Corporation. The boardpapers, agenda and other explanatory notes are circulated to the directors in advance. The members of the boardare also free to recommend inclusion of any matter in the agenda for discussion. Senior management is invited toattend the board meetings so as to provide additional inputs to the items being discussed by the board. Theminutes of each board/committee meeting are recorded in the Minutes Book. The minutes of the board meetingsof unlisted Indian subsidiary companies of the Corporation are tabled at the board meetings. A summary of thekey decisions taken by the Board of Directors of the unlisted Indian subsidiary companies of the Corporation istabled at the board meetings on a periodic basis. The unlisted subsidiary companies of the Corporation haveconfirmed that they have not entered into any significant transactions or arrangements during the year underreview.

During the year under review, the board has met six times on May 4, 2009, July 22, 2009, October 12, 2009,December 4, 2009, January 20, 2010 and March 22, 2010. The attendance of directors at the last Annual


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General Meeting and the above-mentioned board meetings, along with the sitting fees paid to them are listed

below:Board Meetings Attendance at the

Directors 32nd AnnualNo. of Sitting Fees General Meeting

M ee ti ng s At te nd ed P ai d (R s. )+ h el d on Ju ly 22 , 2 00 9

Mr. Deepak S. Parekh (Chairman)^ 6 30,000 Yes

Mr. Keshub Mahindra (Vice Chairman) 5 65,000 Yes

Mr. Shirish B. Patel 5 65,000 Yes

Mr. B. S. Mehta 6 75,000 Yes

Mr. D. M. Sukthankar 6 75,000 Yes

Mr. D. N. Ghosh 5 60,000 YesDr. S. A. Dave 6 75,000 Yes

Dr. Ram S. Tarneja 6 75,000 Yes

Mr. N. M. Munjee 4 50,000 Yes

Dr. Bimal Jalan 4 50,000 Yes

Mr. D. M. Satwalekar 5 65,000 Yes

Dr. J. J. Irani 6 75,000 Yes

Mr. V. Srinivasa Rangan (Executive Director) 2 - N.A.

Ms. Renu Sud Karnad (Managing Director) 5 - Yes

Mr. Keki M. Mistry (Vice Chairman & CEO) 6 - Yes

Leave of absence was granted to directors who could not attend the respective board meetings.

+The sitting fees paid to the non-executive directors for attending the meetings of the board and committeesthereof was increased to Rs. 15,000 from Rs. 10,000 with effect from November 1, 2009.

^Sitting fees paid for attending two meetings of the board in his capacity as non-executive Chairman.

The Board met on May 3, 2010 to approve the audited financial results of the Corporation for the year endedMarch 31, 2010.

Board Committees

To enable better and more focused attention on the affairs of the Corporation, the board delegates particularmatters to committees of the board set up for the purpose. These committees prepare the groundwork fordecision-making and report at the subsequent board meeting.

Audit Committee

The Audit Committee solely comprises independent directors. The members of the committee are Dr. S. A. Dave(Chairman), Mr. B. S. Mehta and Mr. D. N. Ghosh. All the members of the committee have accounting and financialmanagement expertise. The quorum for the meeting of the committee is two members. The company secretary isthe secretary to the committee.


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The terms of reference of the Audit Committee inter alia include overseeing the Corporations financial reporting

process and disclosures of financial information. The prime responsibility of the Audit Committee is to review withthe management, the quarterly/annual financial statements prior to recommending the same to the board forapproval.

The committee recommends to the board, the appointment or re-appointment of the statutory auditors including branch auditors and their remuneration. The Audit Committee and statutory auditors discuss the nature and scopeof audit prior to the commencement of the audit and areas of concern if any, arising post audit. In addition, thecommittee approves payment of fees for other services rendered by the statutory auditors. The committee approvesthe appointment or re-appointment of internal auditors of the Corporation and their remuneration.

The Audit Committees functions include reviewing the adequacy of the internal audit function, its structure,reporting process, audit coverage and frequency of internal audits. The responsibility of the committee is to alsoreview the findings of any internal investigation by the internal auditors in matters relating to suspected fraud or

irregularity or failure of internal control systems of material nature and report the same to the board.

The committee reviews the reports of the internal and statutory auditors and ensures that adequate follow-upaction is taken by the management on observations and recommendations made by the respective auditors. Inaddition, the committee annually reviews the performance of the internal and statutory auditors to ensure that anobjective, professional and cost effective relationship is being maintained.

During the year, the committee inter alia reviewed the Corporations asset liability management profile including itsforeign currency and derivative positions, the performance of the loan portfolio, the statement of significantrelated party transactions, the management discussion and analysis report and the management letter issued bythe statutory auditors. The committee periodically reviews investments made by the unlisted Indian subsidiarycompanies of the Co

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