HDFC Bank Ltd
Directors Reports
Dear Stakeholders,
Your Directors take great pleasure in presenting the 28th Annual Report on
the business and financial operations of your Bank, together with the audited accounts for
the year ended March 31, 2022.
Like last year, let me start by wishing all of you health and happiness on behalf of
the HDFC Bank family. The entire world has learnt the importance of this all over again
during the pandemic.
The good news is that the pandemic more or less appears to be behind us, thanks to the
pick-up in the vaccination program rolled out by the Union Government and the virus
mutants being less and less dangerous. As the shadow over the health of individuals lifts,
the health of the economy has been improving too.
India's GDP grew by 8.7 per cent in FY 2021-22 compared to a contraction of 6.6 per
cent in FY 2020-21 as per the Central Statistical Organisation (CSO), surpassing
pre-pandemic levels of output. The biggest drivers of growth were pick up in investment
and exports. Capital expenditure was led by the Union Government, with the private sector
playing a supporting role. The Government and the RBI also announced a host of measures to
contain the impact of the second wave on domestic economic activity. This was followed by
stepping up allocation on capital expenditure in the Union Budget for FY 2022-23 by 24.5
per cent to Rs.7.5 lakh crore.
The economy now faces headwinds from rising inflationary pressures brought about by
supply chain disruptions and geopolitical tensions, particularly the Ukraine crisis. This
can affect private consumption, lead to reduced profit margins due to rising input costs
and slowdown the recovery in the private sector capital expenditure cycle.
In an effort to contain inflation, the RBI on May 4, 2022 in an off cycle announcement,
hiked the policy rate by 40 basis points to 4.4 per cent and increased the Cash Reserve
Ratio by 50 basis points to 4.5 per cent. It further hiked the Repo Rate by another 50
points to 4.90 per cent in the June 8, 2022 Monetary Policy announcement.
To sum up, despite the current headwinds, India is expected to be the fastest growing
economy in the world in FY 202223, clocking a 7.3 per cent growth rate, and is well poised
to withstand any external volatility and shocks.
(For more details, please refer to the Macroeconomic and Industry section on page no.
135)
In spite of the challenges, your Bank continued on its growth path by conducting its
business responsibly and reinforcing its commitment to the environment and community at
large.
Financial Parameters
Your Bank recorded an improvement in a majority of its key financial parameters,
largely due to its prudent credit evaluation of targeted customers and diversified loan
book across customer segments, products, and sectors. Managing risk- return decisions with
discipline was an important element in the Bank's performance. Net Profit at Rs.36,961.3
crore went up by 18.8 per cent. Net Interest Income at Rs.72,009.6 crore rose 11.0 per
cent. Net Interest Margin stood at 4.0 per cent. Gross Non-Performing Assets (NPAs) at
1.17 per cent was among the lowest in the industry.
Parivartan
Your Bank continued to transform lives through its umbrella CSR brand, Parivartan,
which denotes change.
The Bank believes that businesses can only prosper if the communities in which they
operate prosper as well. This belief has inspired its social initiatives, which have
potentially made a difference to the lives of over 9.6 crore people, predominantly in
rural India. Driving this change is the Sustainable Livelihood Initiative (SLI) team,
which works on improving livelihood opportunities.
The ‘Teaching-The-Teacher' initiative has impacted over 2 crore students since
inception. The Holistic Rural Development Programme has touched 9.88 lakh households
across more than 3,335 villages. Having an umbrella brand enables the Bank to lend a
sharper focus to these efforts. Your Directors are also happy to report that your Bank met
the mandatory CSR expenditure through a spend of 736.01 crore.
CSR SPEND
736.01 crore
in FY 2021-22
For further details on Parivartan please refer to page no. 94.
Summary
The economy recovered in FY 2021-22 and India is expected to be the fastest growing
economy in the world in FY 2022-23. There are of course inflationary pressures, but the
country has the ability to absorb these and the uncertainties brought about by
geopolitical issues. In the long run, the market presents tremendous opportunities given
the sheer level of under penetration of banking services in the country. Your Bank is well
positioned to capitalise on these opportunities given the strength of its franchise. It
has geared up for the years ahead through its Future Ready Strategy. This can be envisaged
as 10 strategic pillars backed by key enablers to catalyse, create and capture the next
wave of growth. (To know more about this please refer to page no. 32)
Your Bank is also poised to make a greater contribution to bridge the urban-rural
divide through both its business and social activities and help build a country where more
can prosper together.
This will, of course, not be possible without the contribution of the ever-growing
family of over two lakh employees (including those of the subsidiaries) across the
country, who remain at the forefront of taking your Bank forward every day. In the
previous two financial years, which were characterised by the pandemic, our colleagues
went beyond the call of duty to keep the bank functioning. Many of them soldiered on
despite the loss of loved ones. We also lost some colleagues during the pandemic.
While we structured and delivered a compassion package to the families of the deceased,
no word or action can adequately convey our sorrow.
Your Directors would also like to place on record that we did not reduce salaries
during this trying period. Your Bank paid bonuses and increments on time in the year under
review and followed the normal promotion cycle. It is doing the same this year as well.
Mission and Strategic Focus
Your Bank's mission is to be a ‘World-Class Indian Bank'. Its business philosophy
is based on five core values: Customer Focus, Operational Excellence, Product Leadership,
People and Sustainability. Sustainability should be viewed in unison with Environmental,
Social and Governance performance. As a part of this, your Bank, through its umbrella CSR
brand Parivartan, seeks to bring about change in the lives of communities mainly in rural
India.
During the year under review, the Bank did not lose its human touch but continued
building sound customer franchises across distinct businesses to achieve healthy growth in
profitability consistent with your Bank's risk appetite.
In line with the above objective, the Bank aims to take digitalisation to the next
level to:
• Deliver superior experience and greater convenience to customers
• Increase market share in India's growing banking and financial services industry
• Expand geographical reach
• Cross-sell the broad financial product portfolio
• Sustain strong asset quality through disciplined credit risk management
• Maintain low cost of funds
Your Bank remains committed to the highest levels of ethical standards, professional
integrity, corporate governance, and regulatory compliance, which is articulated in its
Code of Conduct. Every employee affirms to abide by the Code annually.
Summary of Financial Performance
|
|
(Rs. crore) |
|
For the year ended/As on |
|
March 31, 2022 |
March 31, 2021 |
| Deposits and Borrowings |
1,744,034.6 |
1,470,547.5 |
| Advances |
1,368,820.9 |
1,132,836.6 |
| Total Income |
157,263.0 |
146,063.1 |
| Profit Before Depreciation and Tax |
50,615.3 |
42,961.4 |
| Profit After Tax |
36,961.4 |
31,116.5 |
| Profit Brought Forward |
73,652.8 |
57,492.4 |
| Total Profit Available for Appropriation |
110,614.1 |
88,608.9 |
| Appropriations |
|
|
| Transfer to Statutory Reserve |
9,240.3 |
7,779.1 |
| Transfer to General Reserve |
3,696.1 |
3,111.6 |
| Transfer to Capital Reserve |
666.5 |
2,291.7 |
| Transfer to / (from) Investment Reserve |
233.1 |
61.7 |
| Transfer to / (from) Investment Fluctuation Reserve |
- |
1,712.0 |
| Dividend pertaining to previous year paid during the year |
3,592.4 |
- |
| Balance carried over to Balance Sheet |
93,185.7 |
73,652.8 |
Dividend
The Board of Directors of the Bank, at its meeting held on April 23, 2022, has
recommended a dividend of Rs.15.50 (Fifteen Rupees Fifty Paise only) per equity share of
Rs.1/- (Rupee 1 only) each, for the financial year ended March 31, 2022. This translates
to a Dividend Payout Ratio of 23.28 % of the profits for the financial year ended March
31,2022.
In general, your Bank's dividend policy, among other things, balances the objectives of
rewarding shareholders and retaining capital to fund future growth. It has a consistent
track record of dividend distribution, with the Dividend Payout Ratio ranging between 20
per cent and 25 per cent, which the Board endeavours to maintain.
The dividend policy of your Bank is available on your Bank's website: https:/
/v1.hdfcbank.com/htdocs/common/pdf/corporate/Dividend-Distribution-Policy.pdf
Ratings
| Instrument |
Rating |
Rating Agency |
Comments |
| Fixed Deposit Programme |
CARE AAA (FD) |
CARE Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
|
IND tAAA |
India Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
| Certificate of Deposits Programme |
CARE A1 + |
CARE Ratings |
Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry the lowest
credit risk. |
|
IND A1 + |
India Ratings |
Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry the lowest
credit risk. |
| Long Term Unsecured, Subordinated (Lower Tier 2) Bonds |
CARE AAA |
CARE Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
|
IND AAA |
India Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
| Infrastructure Bonds |
CARE AAA |
CARE Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
|
CRISIL AAA |
CRISIL |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
| Additional Tier I Bonds (Under Basel III) |
CARE AA+ |
CARE Ratings |
Instruments with this rating are considered to have high degree of safety regarding
timely servicing of financial obligations. Such instruments carry very low credit risk. |
|
CRISIL AA+ |
CRISIL |
Instruments with this rating are considered to have high degree of safety regarding
timely servicing of financial obligations. Such instruments carry very low credit risk. |
|
IND AA+ |
India Ratings |
Instruments with this rating are considered to have high degree of safety regarding
timely servicing of financial obligations. Such instruments carry very low credit risk. |
| Tier II Bonds (Under Basel III) |
CARE AAA |
CARE Ratings |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
|
CRISIL AAA |
CRISIL |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry the lowest
credit risk. |
Issuance of Equity Shares and Employee Stock Option Scheme (ESOP)
As on March 31, 2022, the issued, subscribed and paid up capital of your Bank stood at
Rs.5,545,540,976/- comprising 5,545,540,976 equity shares of Rs.1/- each. Further,
32,764,494 equity shares of face value of Rs.1/- each were issued by your Bank pursuant to
the exercise of Employee Stock Options (ESOPs). (For information pertaining to ESOPs,
please refer Annexure 1 of the Directors' Report).
Capital Adequacy Ratio (CAR)
As on March 31, 2022, your Bank's total CAR, calculated as per Basel III Regulations,
stood at 18.9 per cent, well above the regulatory minimum requirement of 11.70 per cent,
including a Capital Conservation Buffer of 2.50 per cent and an additional requirement of
0.20 per cent on account of the Bank being identified as a Domestic Sytemically Important
Bank. Tier I Capital was at 17.9 per cent as of March 31,2022.
TOTAL CAR
18.9 per cent
I well above regulatory minimum requirement of 11.70 per cent
Management Discussion and Analysis Macroeconomic and Industry developments
The Indian economy expanded in FY 2021-22, surpassing pre-pandemic levels of output. As
per the Central Statistical Organisation, GDP grew by 8.7 per cent compared with a
contraction of 6.6 per cent in FY 2020-21. Growth was supported by reopening of the
economy and a pick-up in the vaccination rate. Private consumption recovery picked up pace
(registered a growth of 7.9 per cent in FY 2021-22) and rose above prepandemic levels. The
biggest support came from a pick-up in investment (supported by Government capital
expenditure and some revival in private capital expenditure) and strong export growth.
In addition, both the Central Government and the RBI announced a host of measures to
contain the impact of the second wave on domestic economic activity. The Government
focused on providing relief and credit flow to small business, health, tourism sectors and
other service sectors that were affected by the pandemic. On the monetary policy side, the
RBI kept its stance accommodative and policy rates unchanged at 4.0 per cent in FY 2021-22
and announced measures to provide liquidity support. Some of the measures included
extension of Targeted Long Term Repo Operations (TLTRO), providing on-tap liquidity window
for contact intensive sectors, and extension of priority sector lending.
Economic activity is poised to gain further momentum in FY 202223 supported by a
recovery in consumption, continued rise in exports and a push through Government capital
expenditure. In the Union Budget for FY 2022-23, the Government increased its allocation
on capital expenditure by 24.5 per cent (from FY 2021- 22 Revised Estimates) to Rs.7.5
lakh crore. In addition, it announced measures in the Union Budget for FY 2022-23 such as
extension of credit guarantee scheme by a year and an increase in guaranteed amount
earmarked for the hospitality sector. This was to address the sectors worst affected by
the pandemic.
However, recent geopolitical tensions do present some headwinds for the growth outlook.
Higher crude oil prices and resulting higher fuel and transportation costs are likely to
weigh on private consumption. In addition, higher input costs are likely to put stress on
profit margins and could slow down the recovery in the private capex cycle. Moreover,
lower global growth (due to a slowdown in China and geopolitical tensions) could have a
bearing on India's export demand. The International Monetary Fund expects the world
economy to grow at a slower pace of 3.6 per cent in 2022 from 6.1 per cent in 2021. On
balance, India's GDP growth is expected to rise by 7.3 per cent in FY 2022-23, making it
the fastest growing economy in the world. External stability related indicators
(short-term debt, Forex reserves, FDI flows) show that India is better positioned than the
2013 taper tantrum episode to withstand shocks.
Besides growth, geopolitical tensions and lingering supply side disruptions are likely
to weigh on domestic retail inflation as well. CPI headline inflation rose to an 8-year
high of 7.8 per cent in April-22 (vs. 6.95 per cent in March-22) led by a broad-based
increase in food prices, which rose to a 17-month high, fuel and core inflation (CPI
excluding food and fuel). Core inflation rose to around 8-year high of 7.0 per cent in
Apr-22. Going forward, CPI inflation is expected to average at 7.3 per cent in H1 FY23 and
ease to 6.2 per cent in H2 FY23 assuming crude oil prices average at USD 105 pbl in FY23.
For the full FY23, CPI infation is expected to average at 6.7 per cent, assuming a normal
monsoon, some moderation in global commodity prices in H2, and elevated services
inflation. Support from recently announced excise duty cuts on petrol and diesel is likely
to be offset by some pass through of high crude oil prices to pump prices by Oil Marketing
Companies to cover up their under recoveries.
To rein in elevated inflation amid Russia-Ukraine crisis, the RBI raised rate by 40 bps
in an off-cycle meeting on 4th May 2022 and delivered another rate hike of 50
bps in its June 2022 policy, taking the repo rate to 4.9%. The central bank justified its
rate action as a step to control the second-round impact of inflationary pressures and an
effort to anchor inflation expectations. The RBI raised its inflation forecast by 100 bps
to 6.7% for FY23. On the liquidity front, the central bank reiterated that it would
provide enough liquidity in the system --- balancing any change due to its FX operations,
Government spending or seasonality - in a manner that the normalization is non-disruptive
for growth. The average liquidity in the system as of May 2022 stood at INR 5.2 lakh
crore. The MPC voted to remain focused on withdrawal of accommodation in a calibrated
fashion to ensure inflation remains within the RBI's upper band while supporting growth.
The RBI dropped the phrase "remain accommodative" from its stance. RBI's concern
about the broad-based nature of the increase in inflation and the risk of the second-round
impact on inflation expectations makes a case for an aggressive path by the central bank
going forward. The policy rate is likely to be raised well beyond the pre-pandemic level,
close to 5.75-6% by fiscal year-end. (HDFC Bank expectations).
Overall, the Indian economy recovered from the impact of the pandemic in FY 2021-22 and
is estimated to be the fastest growing economy in the world in FY 2022-23. Though there
are new headwinds that could cloud the economic outlook, India is better positioned (as
gauged by external indicators) to withstand extreme volatile episodes/shocks.
Financial Performance
The financial performance of your Bank during the year ended March 31, 2022, remained
healthy with Total Net Revenue (Net Interest Income plus Other Income) rising 12.7 per
cent to Rs.101,519.5 crore from Rs.90,084.5 crore in the previous year. Revenue growth was
driven by an increase in both Net Interest Income and Other Income. Net Interest Income
grew by 11.0 per cent to Rs.72,009.6 crore coupled with a Net Interest Margin (NIM) of 4.0
per cent.
Other Income grew by 17.1 per cent to Rs.29,509.9 crore. The largest component was Fees
and Commissions at Rs.19,536.6 crore. Gain on Revaluation and Sale of Investments was
Rs.2,282.6 crore. Foreign Exchange and Derivatives Revenue was Rs.3,907.9 crore, and
recoveries from written-off accounts were Rs.2,765.1 crore.
The outbreak of the COVID-19 pandemic had led to a nationwide lockdown in April-May
2020. This was followed by localised lockdowns in areas with a significant number of
COVID-19 cases. Following the easing of lockdown measures, there was an improvement in
economic activity in the second half of fiscal 2021. Since then, India experienced two
waves of the COVID-19 pandemic following the discovery of mutant coronavirus variants,
leading to the reimposition of regional lockdowns which were subsequently lifted. The
impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as
restrictions on business and individual activities, led to significant volatility in
global and Indian financial markets and a significant decrease in global and local
economic activities. The disruptions following the outbreak impacted loan originations,
the sale of third-party products, the use of credit and debit cards by customers and the
efficiency in collection efforts resulting in increase in customer defaults and consequent
increase in provisions there against. India is emerging from the COVID-19 pandemic. The
extent to which any new wave of COVID-19 will impact the Bank's results will depend on
ongoing as well as future developments, including, among other things, any new information
concerning the severity of the COVID-19 pandemic, and any action to contain its spread or
mitigate its impact whether Government-mandated or elected by us.
Operating (Non-Interest) Expenses rose to Rs.37,442.2 crore from Rs.32,722.6 crore.
During the year, your Bank set up 734 new branches and 2,043 ATMs / Cash Deposit and
Withdrawal Machines (CDMs). This, along with higher spend on IT, resulted in higher
infrastructure and staffing expenses. Staff expenses also went up due to employee
additions and annual wage revisions. Further, Deposit Insurance and Credit Guarantee
Corporation (DICGC) premium cost increased due to deposit growth and rate increase.
Despite higher staff and infrastructure expenses, the Cost to Income Ratio was 36.9 per
cent as compared to 36.3 per cent during the previous year.
Total Provisions and Contingencies were Rs.15,061.8 crore as compared to Rs.15,702.8
crore in the preceding year. Your Bank's provisioning policies remain more stringent than
regulatory requirements. Total provisions for the fourth quarter of the financial year
included credit reserves in the form of contingent provisions of approximately Rs.1,000.0
crore.
The Coverage Ratio based on specific provisions alone excluding write-offs was 72.7 per
cent and including general, floating and contingent provisions was 182.3 per cent. Your
Bank made General Provisions of Rs.1,257.9 crore during the year. Gross Non-Performing
Assets (GNPAs) were at 1.17 per cent of Gross Advances, as against 1.32 per cent in the
previous year. Net NPA ratio stood at 0.32 per cent as against 0.40 per cent in the
previous year.
Profit Before Tax grew by 17.1 per cent to Rs.49,015.4 crore. After providing for
Income Tax of Rs.12,054.1 crore, Net Profit increased by 18.8 per cent to Rs.36,961.3
crore from Rs.31,116.5 crore. Return on Average Net Worth was 16.90 per cent while Basic
Earnings Per Share was Rs.66.80 up from Rs.56.58.
As on March 31,2022, your Bank's Total Balance Sheet stood at Rs.2,068,535 crore, an
increase of 18.4 per cent over Rs.1,746,871 crore on March 31, 2021. Total Deposits rose
by 16.8 per cent to Rs.1,559,217 crore from Rs.1,335,060 crore. Savings Account Deposits
grew by 26.8 per cent to Rs.511,739 crore while Current Account Deposits rose by 12.8 per
cent to Rs.239,311 crore. Time Deposits stood at Rs.808,168 crore, representing an
increase of 12.3 per cent. CASA Deposits accounted for 48.2 per cent of Total Deposits.
Advances stood at Rs.1,368,821 crore, representing an increase of 20.8 per cent. Domestic
Loan Portfolio of Rs.1,337,504 crore grew by 20.3 per cent over March 31, 2021.
Business Review
Your Bank's operations are split into Domestic and International.
A) Domestic Business comprises the following: Retail Banking
The Retail Business operated under challenging circumstances in the year under review
but these were less pronounced compared with the previous year. This business is directly
linked to consumption, which slowed down in general during the lockdown. The lockdown was
less severe in the year under review and as the unlock gathered momentum, the business too
gained momentum with Domestic Retail Advances rising by 13.7 per cent.
Domestic Retail Deposits grew by 18.5 per cent to Rs.1,262,093 crore from Rs.1,064,684
crore in the preceding year, while Retail Advances rose 13.7 per cent to Rs.599,608 crore
from Rs.527,586 crore.
Personal Loans continue to exhibit strong growth with overall portfolio reaching
Rs.1,40,000 crore at the end of the year. A greater focus on the Government segment as
well as top corporates resulted in improved portfolio quality.
This year, your Bank maintained leadership position in Auto Loan segment, which
underwent supply chain constraints, by outpacing industry growth, thus increasing
marketshare and crossing Rs.100,000 crore.
There is continued focus on digitalising processes and customer touchpoints to better
your Bank's reach. After the great success of Personal Loan in 10 Seconds, Digital Loan
Against Shares and Digital Loan against Mutual Funds, the Bank has recently launched an
end-to-end digital car loan process (Application to Disbursement). This is an industry
first car loan process with a completely digital, contactless and paperless experience,
wherein New to the Bank customers can avail disbursement within 30 Minutes (which includes
Video KYC Process) and existing pre-approved customers can get loan disbursement in 10
seconds.
The Payments Business, where your Bank has a strong presence not only acts as a
catalyst for cashless transactions but also spurs consumption. With 4.30 crore debit
cards, 1.65 crore credit cards and about 28.94 lakh acceptance points, it is among the
largest facilitators of cashless payments in the country. Your Bank's payments business
has launched digital offerings such as Bharat QR Code, UPI, and SMS pay solutions. It has
also pioneered products such as the SmartHub app for small merchants and DigiPos, which
enables traditional PoS machines to accept digital payments.
RBI, through its order dated December 2, 2020, advised your Bank to immediately (i)
stop sourcing of new credit card customers and (ii) stop all launches of digital business
generating activities planned under program Digital 2.0.
RBI lifted the restrictions on new credit card acquisitions in August 2021 followed by
the removal of the embargo on the Digital 2.0 program in March 2022.
The Bank has since been working on the following four pillars: making credit cards more
powerful and customer focused, entering into strategic alliances and forging partnerships,
enhancing focus on customers' experience and complaints and digitalising the user journeys
The Virtual Relationship Management practice is an integrated customer centric approach
covering three pillars - Virtual Relationships, Virtual Sales and Virtual Care. A banking
experience with digital ease and personalised conversations is at the core of our VRM
strategy. As digital or contactless banking became a necessity during the pandemic, this
programme gained further traction in the year under review. Under VRM, relationship
managers reach out to customers through remote and digital platforms resulting in deeper
and cost effective engagement. As digital literacy and exposure increases exponentially,
VRMs are gaining wider acceptance through deeper engagement and relationships backed by a
strong product offering.
Meanwhile, your Bank also added 734 branches during the year, taking the total to
6,342. As of March 31, 2022, the Bank's distribution network was at 6,342 branches and
18,130 ATMs / Cash Deposit & Withdrawal Machines (CDMs) across 3,188 cities / towns as
against 5,608 branches and 16,087 ATMs / CDMs across 2,902 cities / towns as of March
31,2021. Fifty per cent of our branches are in semi-urban and rural areas. In addition,
the Bank has 15,341 business correspondents, which are primarily manned by Common Service
Centres (CSCs). The total number of customers your Bank catered to as on March 31, 2022
was over 7.10 crore, up from over 6.18 crore in the previous year.
As you are aware, your Bank operates in the Home Loan Business in conjunction with HDFC
Limited. As per this arrangement, your Bank sells HDFC home loans while HDFC Limited
approves and disburses them. Your Bank receives sourcing fee for these loans and as per
the arrangement, has the option to purchase up to 70 per cent of fully disbursed loans
either through the issuance of mortgage-backed Pass Through Certificates (PTCs) or a
direct assignment of loans. The balance is retained by HDFC Limited. Your Bank originated,
on an average Rs.3,550 crore of home loans every month in the year under review and
purchased Rs.28,205 crore as direct assignment of loans.
Third Party Products
Your Bank distributes Life, General and Health Insurance, and Mutual Funds (third party
products). Income from this business grew by 24 per cent to Rs.4,422 crore from Rs.3,573
crore and accounted for 23 per cent of Total Fee Income in the year ended March 31,2022,
compared with 22 per cent in the preceding year.
Life Insurance
The open architecture adopted by your Bank for insurance distribution with eight
insurers was made more robust through enhancements in digital journeys and product
innovation with all the partners. End- to-end solicitation journey for all the products
offered is now seamlessly integrated between the Bank and insurance partners. More than 50
products are available for solicitation on HDFC Bank NetBanking platform - which now
contributes almost 50 per cent of the total policies. Premium mobilisation in Life
Insurance for the year ended March 31,2022 was Rs.6,819 crore.
Non-Life Insurance
In the Non-Life insurance space, your Bank along with its insurance partners,
introduced new and innovative products and increased customer offerings with an objective
of providing wider health insurance coverage during the pandemic. All the products offered
are enabled through NetBanking and telesales platforms. Employees across channels have
been trained on the new products and processes. Manpower has been strengthened across
Non-Life insurers to increase our business in the health insurance space keeping the
customer requirement in mind. Premium mobilisation in General and Health Insurance stood
at Rs.2,270 crore as of March 31, 2022.
Mutual Funds
Your Bank adopts an open architecture in Mutual Funds distribution as well and
distributes funds of 35 Asset Management Companies (AMCs) with continued focus on digital
journeys which enables customers to register for an online Investment Services Account
(ISA); 85 per cent of ISAs are now opened through digital mediums. AUM of the Bank grew by
22.7 per cent to Rs.92,479 crore for the year ended March 31, 2022.
Wealth
The Private Banking Group was rebranded as HDFC Bank Wealth with a focussed strategy to
reach out to Super Affluent and Mass Affluent Customers in B30 cities in addition to the
current setup in metros. In the year under review, the business has expanded to 67 new
locations and is now catering to 216 cities with 46 per cent increase in total families
managed and total Assets under management of Rs. 4.11 lakh crores. Your bank is on track
to reach 800+ locations by the end of this financial year through a hub and spoke model.
Your bank is currently ranked 2nd amongst distributors in terms of distributor
managed Mutual Fund Assets under management with market share of 4 per cent. The business
has been ranked No. 1 in Mass Affluent (US$100K to US$5m) Category by Euromoney Private
Banking & Wealth Management Survey 2022 in addition to receiving prestigious awards
like Best Private Bank in India by Global Private Banking Awards 2021 and Best Bank for
Succession Planning by Asiamoney Asia Private Banking Awards 2021.
Our dedicated service team for Wealth Clients ensures that we deliver on our Service
First philosophy. Further, to ensure transition from transactional approach of wealth
management to client centric portfolio management approach, your bank tracks the Annual
Recurring Revenue (ARR) of its Wealth business as a key metric of client retention. Your
bank has an open architecture framework across investment products to ensure that the
recommended investment options are based on robust quantitative and qualitative evaluation
model re-accentuating our customer centricity. Your bank is developing a mobile first
Wealth application that will leverage on advanced analytics and intuitive client
experience/ journeys to provide differentiated wealth solutions across customer segments.
The digital platform will focus on agile digital journeys and personalisation to cater to
customers across the country. The goal is to deliver a highly personalised experience that
democratises wealth management and makes it accessible for all our customers.
wholesale Banking
The Wholesale Banking business was a key growth engine for your Bank in the year under
review. This business focuses on institutional customers such as the Government, PSUs,
large and emerging corporates, and SMEs. Your Bank's strong offerings include working
capital and term loans, as well as trade credit, cash management, supply chain financing,
foreign exchange, and investment banking services.
The Wholesale Banking business recorded healthy growth, ending FY 2021 -22 with a
domestic loan book size of Rs.737,896 crore, recording a growth of 26.4 per cent over the
year earlier. This constituted about 55 per cent of your Bank's domestic loans as per
Basel II classification. Your Bank was able to expand its share of the customer wallet,
primarily using sharper customisation, cross-selling and expanding into greater
geographies. And continuing to lend during the pandemic while being prudent.
Corporate Banking, which focuses on large, well-rated companies, continued to be the
biggest contributor to Wholesale Banking in terms of asset size. It was able to do so as
it was armed with sufficient cash due to its strong capital base and balance sheet.
In Corporate banking, your Bank refocused on its engagement with MNCs. This business
also continued to capitalise on the trend of large companies preferring to deal with fewer
banks. Your Bank deepened its existing relationships as well as gained market share by
leveraging its wide product offering. This business supported customer requirements under
the Production Linked Incentive Scheme. The Emerging Corporates Group, which focuses on
the mid- market segment, too witnessed significant growth. Your Bank leveraged its vast
geographical reach, technology backbone, automated processes, suite of financial products
and quick turnaround times to offer a differentiated service, which has resulted in new
customer acquisitions as well as a higher share of the wallet from existing customers. The
business continues to have a diversified portfolio in terms of both industry and
geography.
In the year under review, the Bank continued its focus on the MSME sector. There has
already been increased formalistion/ digitalisation of the MSME sector due to the adoption
of the Goods and Service Tax (GST). The COVID-19 pandemic led to the sector experiencing
substantial stress, prompting the Union Government to identify it for special support
through various schemes like Moratorium, ECLGS, ECLGS Extension and COVID support loans.
Your Bank supported its customers during this period by participating in the Government
schemes.
The Investment Banking business further cemented its prominent position in the Debt
Capital Markets, Equity Capital Markets and INR Loan Syndication. Your Bank maintained its
position amongst the top 3 in the Bloomberg rankings of Rupee Bond Book Runners for FY
2021-22, with a market share of 14.42 per cent. Your Bank is actively assisting clients in
equity fund raising and was ranked 5th in the PRIME Database League Tables for
IPOs and Rights Issues for FY 2021-22 for private sector issues against 9th for
FY 2020-21. Your Bank is ranked 2nd in the Bloomberg rankings of Syndicated INR
term loans for FY 2021-22, with a market share of 11.32 per cent against ranking of 3rd
for FY 2020-21.
In the Government business, your Bank sustained its focus on tax collections,
collecting direct tax (CBDT) of Rs 4,08,869.61 crore and Indirect tax (CBIC+ GST) of over
Rs 2,24,712.76 crore during FY 2021-22. It continues to enjoy a pre-eminent position among
the country's major stock and commodity exchanges in both Cash Management Services and
Cash Settlement Services.
Your Bank has been a pioneer in providing Digital Banking Services to its wholesale
banking customers. It was an early adopter of digital technology through the Corporate Net
Banking Platform, ENet. It has now launched an upgraded Corporate Internet Banking
Platform CBX which offers a better UI/UX and richer dashboard. New customers will be
onboarded on this and existing customers will be migrated to this platform.
The bank has introduced a unique Supply Chain digital platform that allows its
corporate clients and their supply chain network consisting of dealers, vendors, and
corporate customers to connect seamlessly with the bank's system. The platform is designed
to provide a convenient, easy to use and efficient interface across all supply chain
products for all members of the supply chain thus enhancing customer experience.
Your Bank offers the entire gamut of financial services, such as payments, collection,
tax solutions, Government business, trade finance services, cash management solutions and
corporate cards through its flagship platform, besides seamlessly connecting its customers
through API, S2S (Server to Server) and Host-to-Host services.
Treasury
The Treasury is the custodian of your Bank's cash/liquid assets and handles its
investments in securities, foreign exchange and cash instruments. It manages the liquidity
and interest rate risks on the balance sheet and is also responsible for meeting reserve
requirements. The vertical also helps manage the treasury needs of customers and earns a
fee income generated from transactions customers undertake with your Bank while managing
their foreign exchange and interest rate risks.
Revenue accrues from spreads on customer transactions based on trade and remittance
flows and demonstrated hedging needs. Your Bank recorded revenue of Rs.3,907.9 crore from
foreign exchange and derivative transactions in the year under review. While plain vanilla
forex products were in demand across all customer segments, demand for derivatives
products increased with the RBI liberalizing regulations and allowing Indian banks to
participate in Non-Deliverable Offshore markets.
As part of its prudent risk management, your Bank enters into foreign exchange and
derivatives deals with counterparties after it has set up appropriate credit limits based
on its evaluation of the ability of the counterparty to meet its obligations. Where your
Bank enters into foreign currency derivatives contracts not involving the Indian Rupee
with its customers, it typically lays them off in the inter-bank market on a matched
basis. For such foreign currency derivatives, your Bank primarily carries the counterparty
credit risk (where the customer has crystallised payables or mark-to-market losses) and
may carry only residual market risk, if any. Your Bank also deals in derivatives on its
own account, including for the purpose of its own Balance Sheet risk management.
Your Bank maintains a portfolio of Government Securities in line with the regulatory
norms governing the Statutory Liquidity Ratio (SLR). A significant portion of these SLR
securities are in ‘Held-to- Maturity' (HTM) category, while some are ‘Available
for Sale' (AFS). Your Bank is also a primary dealer for Government Securities. As a part
of this business, your Bank holds fixed income securities as ‘Held for Trading'
(HFT).
In the year under review, your Bank continued to be a significant participant in the
domestic exchange and interest rate markets. It also capitalised on falling bond yields to
book profits and is now looking at tapping opportunities arising out of the liberalisation
in the foreign exchange and interest rate markets.
B) intematlona! Business
During the year, your Bank stayed on course to cater to NRI clients and deepen its
product and service proposition. Your Bank has global footprints by way of representative
offices and branches in countries like Bahrain, Hong Kong, the UAE and Kenya. It also has
a presence in International Financial Service Centre (IFSC) at GIFT City in Gandhinagar,
Gujarat.
The Bank's product strategy in International Markets is customer centric and it has
products to cater to client needs across asset classes. Your Bank now has plans to extend
the product offering from GIFT City Branch under Liberalized Remittance Scheme to Resident
and Non Resident clients.
As on March 31, 2022, the Balance Sheet size of International Business was US$ 7.66
billion. Advances constituted 3.12% of the Bank's gross advances. The Total Income
contributed by Overseas Branches constituted 0.55% of Bank's Total Income for the year.
C) Partnering with the Government
Government and Institutions Business
The past year has been momentous for the Government and Institutions Business vertical
in your Bank. Some key Highlights for your Bank include:
1. Declared the single largest collector of direct taxes by the Controller General of
Accounts, Government of India in FY 2020-21
2. Received mandates and began collecting customs duty
3. Received mandates from the Railways Board for e-freight collections, and pension
business
4. Integrated with Government of India's e-National Agricultural Marketplace
5. Enabled more than 90,000 MSMEs to be eligible to transact on the Government
e-marketplace
6. Processed more than 130 million transactions using Government of India's Public
Financial Management System to transfer funds to beneficiaries
7. Processed about 26% of the funds flowing from the Central Government to the states
for development programs under the aegis of the Centrally sponsored schemes, Central
sector schemes, and 15th Finance Commission
8. Received collection mandates from the following two state Governments - Rajasthan
and Himachal Pradesh
D) Semi-Urban and Rural
The Semi-urban and Rural markets have always been a focus of your Bank's strategy. In
the last few years, your Bank has made a renewed push into the Semi-urban and rural
markets as rising income levels and aspirations of rural customers are leading to demand
for better quality financial products and services. The rural groups in every department
of your Bank work together to tap these opportunities.
Apart from meeting its statutory obligations under PSL (Agri & Allied activities,
Small and Marginal Farmers and weaker sections etc), your Bank has been offering a wide
range of products on the asset side, such as auto, two-wheeler, personal, gold, Light
Commercial Vehicle (LCV), small shopkeeper loans in these markets. Now it plans to
increase its coverage of villages and deepen relationships in existing ones. The
semi-urban and rural push has been backed by the Bank's digital strategy.
Your Bank's operations in Semi-urban and Rural locations are explained below:
Agriculture and Allied Activities
Your Bank's assets in Agriculture & Allied activities stood at '134,487.50 crore as
on March 31,2022.
In general, the key to your Bank's success in the existing market is its ability to tap
the opportunities through:
- Wide product range
- Faster turnaround time
- Digital solutions
The Bank's product range includes pre-and post-harvest crop loans, farm
development/investment loans, two- wheeler loans, auto loans, tractor loans, small agri
business loans, loan against gold, among others. This has helped the Bank establish a
strong footprint in the rural hinterland with its asset products.
Apart from advising farmers on their financial needs, your Bank is increasingly
focusing on facilitating various Government/ Regulatory schemes and non-crop segment
covering agri allied and small agri business enterprises including rural MSMEs.
Your Bank has designed a range of crop and geography- specific products in line with
the harvest cycles and the local needs of farmers across diverse Agro-climatic zones. It
has transformed rural banking services from being product centric to customer centric.
Products such as post-harvest cash credit and warehouse receipt financing enable faster
cash flows to farmers. Credit is also offered for allied agricultural activities such as
dairy, pisciculture, and sericulture.
Participation in Government Schemes
As a part of Atmanirbhar Bharat Abhiyan, to give a fillip to the Indian economy and to
make every Indian citizen self-reliant, the Government of India has announced several
schemes/enablers across several sectors, more particularly in the agriculture sector.
Your Bank is implementing almost all such initiatives/schemes targeting multiple
stakeholders of the agri ecosystem.
Agricultural Infrastructure Fund (AIF) Scheme: Through this scheme the Bank is
offering medium to long-term debt facility for investment in viable projects pertaining to
post harvest management, infrastructure development such as construction of
warehouses/silos.
Your Bank has actively participated in agri infrastructure campaigns conducted by PMU,
AIF (Ministry of Agriculture) and stood #1 amongst private sector Banks. As on March 31,
your Bank has sanctioned Rs.427 crore covering 298 projects.
Farmer Produce Organisations (FPOs): Leveraging the Government scheme for formation
and promotion of 10k new FPOs (Credit guarantee is available from SFAC/NABARD), your Bank
is funding eligible FPOs for working capital and term loan requirements. Through this
initiative, your Bank will be able to reach a larger number of small and marginal farmers.
Pradhan Mantri Formalisation of Food and Micro Enterprises (PMFME): Your Bank is
actively implementing the scheme and passing the benefits to all eligible borrowers in the
food processing sector.
Other Agri schemes include Agri Marketing Infrastructure Fund, Animal Husbandry
Infrastructure Fund, Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan (PMKUSUM),
Mission for Integrated Development of Horticulture (MIDH) as well as state specific
Government schemes.
Your Bank's focus in the rural markets has not just been on increasing credit offtake,
but also on cementing relationships with customers by empowering them. As part of these
efforts, farmer centres or Kisan Dhan Vikas Kendras have been rolled out in Punjab,
Maharashtra, Uttar Pradesh and Madhya Pradesh. At these centres, farmers access
information on soil health, mandi prices, and various Government initiatives and also
receive expert advice. Moreover, these services are also available on the Bank's website
in vernacular languages. Kisan Dhan Vikas e-Kendra is one of its kind in the Banking
Industry to reach out to farmers as a one-stop solution for all their requirements viz.
loan eligibility, online application facility, training though kiosks, call an expert
facility, soil testing and much more. Your Bank also provides advisory on weather,
cropping and harvesting through SMS.
In line with this, the Bank also launched the e-KISAN Dhan app, a unique digital app
for the rural/farming community. This is an exclusive mobile app for all rural banking and
agriculture information needs from HDFC Bank.
This app aggregates crucial information required by the farmers. There have been about
100,000 downloads of the app.
Multiple needs of the farmers can be serviced such as purchase of agri inputs, agro
products, information on best practices, weather alerts, mandi rates, expert advice, agri
news, information on Government schemes like debt waiver, interest subvention, crop
insurance and livestock centre amongst others.
Digital Interventions
Digitising Milk Procurement: This initiative brings transparency in the milk
procurement and payment process, which benefits both farmers and dairy societies.
Multi-function Terminals (MFTs), popularly known as Milk-to- Money ATMs, are deployed in
dairy societies. The MFTs link the milk procurement system of the dairy society to the
farmer's account to enable faster payments. MFTs have cash dispensers that function as
standard ATMs. Payments are credited without the hassles of cash distribution. Further,
this process creates a credit history which can then be used for accessing bank credit.
Apart from dairy and cattle loans, customers gain access to all the Bank's products
including digital offerings such as 10 Second Personal Loans, Kisan Credit Card, Bill Pay,
and Missed Call Mobile Recharge. So far, your Bank has digitised payments at over 1,700
milk cooperatives across 21 states, benefiting more than 5.2 lakh dairy farmers. The Dairy
business witnessed 73% per cent year-on-year growth in disbursements and 61% in the book.
Substituting Moneylenders:
The bank is making inroads into a market dominated by the unorganised sector,
moneylenders and pawn brokers. The bank is keen on making the gold loan facility available
across the length and breadth of the country. In FY 2021-22 your bank made gold loans
available in 351 more branches taking the total number of branches where it can be availed
of to 1,362. The bank has ended the year with a porfolio of Rs.8,367 crore.
The bank is implementing its blueprint for gold loans being made available in every
branch of the country. The Bank is also planning strategically to partner with channels
who have the solutions available to increase the reach.
Social initiatives in Farm Sector
Farm yield and income are subject to the vagaries of the weather. In addition, factors
like soil health, input quality (seeds and fertilizers), water availability, and
Government policy have significant impact, along with price realisations and storage
facilities. Your Bank has launched a variety of initiatives to ease the stress on farm
income and rural households.
Over the last few years, several parts of the country have been severely impacted by
natural calamities such as drought, unseasonal rains, hailstorms, floods and the pandemic.
Within regulatory guidelines, your Bank has been providing relief to the impacted farmers.
It also has put in place systems designed to enable direct benefit transfers in a
time-bound manner.
Lending to the agriculture sector, including to small and marginal farmers, is a
regulatory mandate as part of priority sector lending requirements. The Bank has leveraged
its extensive knowledge of rural customers to create as well as deliver products and
services at affordable price points and with quick turnaround time. This has enabled the
Bank to establish a strong footprint in the rural geographies, which it has now leveraged
to increase its penetration of liability products. Further, your Bank is building a
segment-specific approach like funding to horticulture clusters, supply chain finance,
agri business, MSMEs and dairy farmers. It also continues to engage closely with farmers
to mitigate risks and protect portfolio quality.
Micro, Small and Medium Enterprises (MSME)
The MSME sector serves as an important engine for economic growth and is one of the
largest employers in the economy. Your Bank's assets in the MSME segment stood at
Rs.313,919.49 crore as on March 31,2022. Its Micro Enterprises assets alone stood at
Rs.112,564.77 crore as on March 31,2022.
The MSME sector was one of the sectors identified for special support by the Government
and the RBI during the pandemic through various schemes like Interest Moratorium, ECLGS.
ECLGS extension, COVID support loans etc.
Your Bank has ensured support for its customers through ECLGS and ECLGS extension
schemes during the year and has also supported the customers through ad hoc enhancements
as needed by them. Your Bank emerged as a star performer under the ECLGS 1.0, 2.0, 3.0 and
ECLGS extension schemes. It disbursed loans amounting to Rs.17,100.89 crore to over 0.78
lakh customers in all ELGS schemes. This swift support enabled existing customers to meet
their operational liabilities and helped in the smooth functioning of their businesses.
The silver lining has been that the pace of digitalisation among MSMEs has gained
further momentum. This will not only help the pace of disbursement but also increase
transparency in the sector. The process started with the Government's digitalisation push
and the adoption of GST, which resulted in easy availability of data for banks regarding
cash flows of these companies. It has been further expanded to enable customers to apply
online by submitting requisite documents online and post sanction disbursement execution
in digital way.
The SME portal continues to offer ad hoc approvals, preapproved TODs on an STP basis to
existing customers. They can request top-up of loans and submit the required documents
online. The SME portal also helps customers access your Bank's services related to
sanctioned credit facilities 24/7 from anywhere.
On the trade side, your Bank's focus has been on customer engagement for increasing the
penetration of Trade on Net applications. This is a complete enterprise trade solution for
customers engaged in domestic as well as foreign trade, enabling them to initiate online
requests and track them seamlessly, resulting in reduced time and costs.
Taking Banking to the Unbanked
Your Bank is fully committed to taking banking to the remotest parts of the country
through a combination of an extensive physical network and a robust digital suite of
products and services. Today, about half of your Bank's outlets are located in rural and
semi-urban areas. Your Bank also offers last mile access through mobile applications such
as BHIM, UPI, USSD, Scan and Pay, and RuPay enabled Micro-ATMs.
To bring more under-banked sections of the population into formal financial channels,
your Bank has opened over 26.02 lakh accounts under the Pradhan Mantri Jan Dhan Yojana
(PMJDY) and enrolled 38.58 lakh customers in social security schemes since inception. We
now rank among the leading private sector banks in this regard. In the year under review,
loans to the tune of Rs.7,028 crore to 12.76 lakh beneficiaries were extended under the
Pradhan Mantri Mudra Yojana (PMMY) and nearly Rs.216 crore to 1,014 beneficiaries under
the ‘Stand up India' scheme to Scheduled Caste, Scheduled Tribe and women borrowers.
Your Bank also has actively supported PM Street Vendor's AtmaNirbhar Nidhi (PMSVANIDHI) a
special scheme under microcredit facility for street vendors with a collateral free
affordable term loan of Rs.10,000 for 1 year. Your Bank has disbursed Rs.10,000 each to
16,286 street vendors to support them during the pandemic and has also educated the street
vendors in using the digital mode for making financial transactions.
Sustainable Livelihood initiative
This is primarily a social initiative with elements of business. It entails skill
training, livelihood financing, and creating market linkages. (Please refer to page no. 95
for details)
E) Environmental Sustainability
Sustainability is one of the core values of the Bank. Please refer to page no. 56 where
it is covered in detail.
F) Business Enablers
1) People Transformation
People is one of the core values of the Bank. For details please refer to page no. 80.
2) Information Technology
Summary
The Bank has accelerated the Technology and Digital Transformation with a continued
focus on creating a seamless digital experience for customers. RBI, through its order
dated December 2, 2020, advised your Bank to immediately (i) stop sourcing of new credit
card customers and (ii) stop all launches of digital business generating activities
planned under program Digital 2.0. RBI lifted the restrictions on new credit card
acquisitions in August 2021 followed by the removal of the embargo on the Digital 2.0
program in March 2022. The Bank is fully geared to launch the next wave of strategic
technology & digital programs which will pave the way for new customer journeys and
best-in-class products and services through innovation and transformation.
Your Bank has taken significant strides to ensure further fortification of its IT
infrastructure and architecture as a robust, scalable and secure ecosystem. Strategic
technology initiatives such as hybrid cloud approach, DR Resiliency, capacity
enhancements, data centre migration to state-of-the-art facilities, comprehensive
obsolescence management and monitoring, next-gen security operations centre and more are
pivotal to the Bank to move from strength to strength and usher in the next age of digital
banking.
(A) Technology Absorption
The Bank is accelerating the technology and digital transformation agenda. It continues
to stay invested in creating a seamless digital and customer experience across digital
touchpoints. Your Bank's focused factory approach is enabling the building of its own
capabilities to co-create Tech IP. Additionally, the imbibing of agile and DevSecOps
principles and practices and cloudification of the Bank's tech stack are pivotal enablers
in the next leg of its technology and digital transformation journey.
Initiatives such as DR Resiliency and the Bank's Hybrid Cloud Strategy continue to
fortify its IT infrastructure and architecture backbone.
Focus on its digital programs will pave the way for the Bank to create next level
neo-banking experiences for its customers. From shaping new customer journeys to
introducing best-inclass products and services, transformation and innovation shall be at
the forefront.
Key initiatives in this space are:
• Vyapar: Digital onboarding of merchants for payment acceptance and servicing of
banking transactions for the merchant community
• API based digital journeys for the auto industry:
Launched a digital API platform for auto financing
• PayZapp 2.0: Enhanced experience of app customers to onboard, auto-link HDFC
Bank cards, wallet and limit management, transaction display via rich statement
• Wealth management system: A new wealth management app with client
self-profiling, goal setting, mutual fund order execution and portfolio re-balancing
• SME customer experience transformation: New technology to support business
volume at larger scale, revamp the entire SME customer experience across commercial and
retail business lines
• Biz Express: A new web portal for SME segments covering digital on-boarding,
managing their multiple accounts, making payments with hierarchy, raising GST compliant
invoices for payment, multiple collection modes, raise service requests online etc.
Your Bank has taken multiple steps to ensure that its robust, scalable and secure
technology set-up is strengthened even further. The Bank continues to rigorously monitor
the progress against commitments to the regulator.
To this effect, significant strides were taken in the following technology areas:
1. Implementation of a landing zone for Hyperscalers
Your Bank has invested in a hybrid-cloud approach with the leading cloud service
partners i.e, AWS, Azure and GCP. A common landing zone has been implemented across these
partners to create a secure and streamlined environment for all cloud deployments in the
future. The landing zone also enables the Bank's agenda of imbibing agility and DevSecOps
in the technology and digital transformation journey.
2. Capacity Upgrades
The capacity management program has made significant inroads to ensure capacity
planning and management are commensurate with the rapid business growth witnessed by the
Bank. Strengthening of capacity management practices has culminated into a threshold of 70
per cent across key parameters such as user concurrency, utilisation of database, server,
storage, network and security devices. This has resulted in planned capacity upgrades of
critical applications such as:
• 90,000 concurrent users capacity for using NetBanking and MobileBanking.
• The foundations of the banking platform being upgraded along with modernisation
of 300+ services. This enhances the Bank's scalability and capacity to cater to triple the
load of UPI transactions. Successfully managing over 45 crore bank customer transactions
per month which had doubled in the last 12 months. Your Bank has already been ranked among
the top players as published in NPCI's UPI performance metrics dashboard. Overall, the
Bank's average customer uptime was 99.94 per cent.
The senior management and the Board continue to keep strong focus on capacity,
performance, scalability and availability of the Bank's critical applications.
3. DR and Resiliency
The Bank has notably intensified the rigour in its DR drills for critical applications
and will continue to further work on strengthening its DR processes and capabilities as
outlined and communicated in its periodic submissions. The pivotal enablers in this
journey are:
• A rigorous focus on reducing RTO for key applications to 40-60 minutes, which
has been completed for 56 key applications
• Deep automation to improve configuration drift management between primary and DR
sites
• Enrichment of existing automation tools for DR to cover all DR scenarios and
reduce the RTO time further
• Refactoring key applications into an ‘Hot DR' / ‘Active- Active'
design
4. Migration of the Primary Data Centre
Your Bank embarked on a journey to fully migrate and consolidate its primary data
centre to state-of-the-art facilities in Mumbai and Bengaluru partnering with Sify and
NTT. A systematic plan helped achieve 100 per cent migration of production applications in
November 2021 followed by 100 per cent migration of UAT applications in March 2022.
Further, a phase-wise plan is in place to migrate the Bank's Chandivali, Mumbai data
centre to the NTT facility over the next 6 months.
The new facilities help ensure the Board's continued focus on ensuring a robust IT
infrastructure for the Bank's applications and operations with higher customer uptimes
across digital touchpoints.
5. Technology Obsolescence Management
A technology obsolescence program management office was established in June 2021 for
comprehensive obsolescence tracking and management. Processes and procedures have been
introduced to identify and remediate obsolete components 6 months before the end of
support. The scope covers more than 19,000 components across the Bank's IT environment as
of today. A detailed plan is in place to remediate components pertaining to high-risk
applications by June 2022. The Bank continues to maintain rigorous monitoring on
obsolescence through periodic reviews and reporting along with the senior management.
6. Cyber Security
Cyber security is at the heart of the technology transformation journey with
substantial advancements being made to further fortify the Bank's infrastructure and
applications. A few initiatives in this regard are:
• Foundation of a next-gen Security Operations Centre (SOC) with advanced
technologies for predictive security and incident management - To this effect, the Bank
has provisioned the Securonix platform on AWS and configured more than 10,000 logging
sources and devices for monitoring
• Introduction of Security Orchestration, Automation & Response (SOAR) to
reduce the incident response time by connecting security solutions with each other and
automating the incident life cycle
• Micro-segmentation is being enabled in the data centre network to allow higher
visibility across network flows as well as stronger preparedness and management against
ransomware related events/incidents
• 24x7 defacement monitoring and vulnerability management of the Bank's internet
properties minimise the surface area for cyber security attacks.
Technology related challenges over the past few years have only made the Bank's resolve
stronger to consolidate and fortify its technology environment. Focused technology and
digital investments and programs in technology are pivotal to the Bank to usher in the new
age of digital banking and experiences for its customers.
Service Quality Initiatives and Grievance Redressal
Customer Focus is one of the five core values of your Bank. Driven by this core value,
your Bank has always endeavoured to improve customer experience and has adopted a holistic
approach for the same across multiple channels. This is critical in a highly competitive
business environment, especially since it has various lines of businesses. Ensuring
product quality and service delivery becomes vital for business growth. Your Bank desires
to achieve this by seeking customer feedback as well as benchmarking with best-in-class
business entities. Your bank has adopted a three-step strategy with regards to Customer
Service - Define, Measure, and Improve.
Your Bank has adopted a multi-pronged approach to provide an omnichannel experience to
its customers. On one side, your Bank has traditional touch points like Branch, Email
Management team and Phone banking, and on the other side, it has state- of- the-art
platforms like NetBankinbg, MobileBanking, the chatbot Eva and the bank's exclusive social
care handles which offer a wide range of channel choice to its customers. Your Bank has
also improvised on the relationship-based banking programmes. In addition to the
branch-based relationship managers, it also has a Virtual Relationship Manager (VRM)
programme to cater to various financial needs in a personalized manner. Your Bank invites
and reviews the performance on customer service as well as grievance redressal at
different levels which are Branch Level Customer Service Committees (BLCSCs), Standing
Committee on Customer Service (SCCS) and Customer Service Committee of the Board (CSCB).
Your Bank has put robust processes in place to regularly monitor and measure quality of
service levels not only at various touch points but also at a product and process level by
Quality Initiatives Group.
As part of its continuous efforts to enhance quality of service, the Service Quality
team carries out regular reviews across various products/processes/channels. The
effectiveness of the quality of service provided is also reviewed at different levels,
including the Customer Service Committee of the Board.
One of the basic building blocks of providing acceptable level of customer service is
to have an effective internal Grievance Redressal mechanism / framework. In this regard,
the bank has outlined a framework for redressal of customer grievances and documented it
in the form of a Grievance Redressal Policy - duly approved by its Board. Bank has also
made this policy available in public domain (on the website as well as in the branches).
Your Bank has provided multiple channels to its customers to share feedback on its
services as well as register their grievances. Your Bank is at the forefront of developing
innovative financial solutions and digital platforms. This, coupled with concerted efforts
at creating awareness among customers, has led to an increase in the use of its digital
channels as well as customer loyalty. Keeping customer interest in focus, your Bank has
formulated a Board approved Protection Policy, which limits the liability of customers in
case of unauthorized electronic banking transactions
Your Bank is on a journey to measure customer loyalty through a high velocity, closed
loop customer feedback system. This customer experience transformation programme will help
employees empathize better with customers and improve turnaround times. Branded as
‘Infinite Smiles', the programme would help establish behaviours and practices that
result in customer-centric actions through continuous improvements in product, services,
process, and policies.
Thanks to these initiatives, your Bank's customer complaints for FY 21-22 decreased by
21 percent from 4,67,453 Rs. to 3,68,291.
*Restated complaints number based on reclassification of queries into complaints from
3,25,786.
Risk Management and Portfolio Quality
1) Risk Management and Portfolio Quality
Traditionally, the key risks that your Bank is exposed to in the course of its business
have been the Pillar 1 risks - Credit Risk, Market Risk and Operational Risk. Given the
evolving banking environment, Liquidity Risk, Information Technology Risk and Information
Security Risk have also become vital. These risks not only have a bearing on your Bank's
financial strength and operations but also on its reputation. Keeping this in mind, the
Bank has put in place Board-approved risk strategy and policies, whose implementation is
supervised by the Risk Policy and Monitoring Committee (RPMC). The Committee ensures that
frameworks are established for assessing and managing various risks faced by your Bank,
systems are developed to relate risk to the Bank's capital level and methods are in place
for monitoring compliance with internal risk management policies and processes. The
Committee guides the development of policies, procedures and systems for managing risks.
It ensures that these are adequate and appropriate to changing business conditions, the
structure and needs of your Bank and its risk appetite.
The hallmark of your Bank's risk management function is that it is independent of the
business sourcing unit with convergence only at the CEO level.
The gamut of key risks faced by the Bank which are dimensioned and managed include:
• Credit Risk, including Residual Risks
• Market Risk
• Operational Risk
• Interest Rate Risk in the Banking Book
• Liquidity Risk
• Intraday Liquidity Risk
• Intra Day Credit Risk
• Credit Concentration Risk
• Counterparty Credit Risk
• Model Risk
• Outsourcing Risk
• People Risk
• Business Risk
• Strategic Risk
• Compliance Risk
• Reputation Risk
• Technology Risk
• Group Risk
Credit Risk
Credit Risk is defined as the possibility of losses associated with diminution in the
credit quality of borrowers or counterparties. Losses stem from outright default or
reduction in portfolio value. Your Bank has a distinct credit risk architecture, policies,
procedures and systems for managing credit risk in both its retail and wholesale
businesses. Wholesale lending is managed on an individual as well as portfolio basis. In
contrast, retail lending, given the granularity of individual exposures, is managed
largely on a portfolio basis across various products and customer segments. For both
categories, there are robust front-end and back-end systems in place to ensure credit
quality and to minimise loss from default. The factors considered while sanctioning retail
loans include income, demographics, credit history, loan tenor and banking behaviour. In
addition, there are multiple credit risk models developed and used to appraise and score
different segments of customers on the basis of portfolio behaviour. In wholesale loans,
credit risk is managed by capping exposures on the basis of borrower group, industry,
credit rating grades and country, among others. This is backed by portfolio
diversification, stringent credit approval processes and periodic post-disbursement
monitoring and remedial measures. Your Bank has been able to ensure strong asset quality
through volatile times in the lending environment by stringently adhering to prudent norms
and institutionalised processes. Your Bank also has a robust framework for assessing
Counterparty Banks, which are reviewed periodically to ensure interbank exposures are
within approved appetite.
As on March 31,2022, your Bank's ratio of Gross Non Performing Assets (GNPAs) to Gross
Advances was 1.17 per cent. Net Nonperforming Assets (Gross Non-Performing Assets Less
Specific Loan Loss provisions) was 0.32 per cent of Net Advances.
Your Bank has a conservative and prudent policy for specific provisions on NPAs. Its
provision for NPAs is higher than the minimum regulatory requirements and adheres to the
regulatory norms for Standard Assets.
Digital and Credit Risk
Driven by rapid advancements in technology, digitalisation is increasingly becoming a
key differentiator for customer retention and service delivery in the banking sector.
Digital lending enables customers to secure loans at the click of a button in a matter of
minutes, if not seconds. However, there are also attendant risks associated with it and
your Bank has put in place appropriate checks and balances to manage these risks. Such
loans are sanctioned primarily to your Bank's existing customers. Often, they are
customers across multiple products, thus enabling the Bank ready access to their credit
history and risk profile. This facilitates evaluation on their loan eligibility. Besides,
most of the credit checks and scores used by your Bank in process- based underwriting are
replicated for digital loans. The Bank has an independent model validation unit that
minutely assesses the models used to generate the credit scores for such loans. These
models are monitored, reviewed periodically, back tested and corrective action is taken
whenever needed.
Market Risk
Market Risk arises largely from your Bank's statutory reserve management and trading
activity in interest rates, equity and currency market. These risks are managed through a
well- defined Board approved Market Risk Policy, Investment Policy, Foreign Exchange
Trading Policy and Derivatives Policy that caps risk in different trading desks or various
securities through trading risk limits/triggers. The risk measures include position
limits, tenor restrictions, sensitivity limits, namely, PV01, Modified Duration of Hold to
Maturity Portfolio and Option Greeks, Value- at-Risk (VaR) Limit, Stop Loss Trigger Level
(SLTL), Scenario based P&L Triggers, Potential Loss Trigger Level (PLTL), and are
monitored on an end-of-day basis. In addition, forex open positions, currency option delta
and interest rate sensitivity limits are computed and monitored on an intraday basis. This
is supplemented by a Board-approved stress testing policy and framework that simulates
various market risk scenarios to measure losses and initiate remedial measures. The Market
Risk capital charge of your Bank is computed on a daily basis using the Standardised
Measurement Method applying the regulatory factors.
Liquidity Risk
Liquidity risk is the risk that the Bank may not be able to meet its financial
obligations as they fall due without incurring unacceptable losses. Your Bank's framework
for liquidity and interest rate risk management is spelt out through a well-defined Board
approved Asset Liability Management Policy. As part of this process, your Bank has
established various Board-approved limits, both for liquidity risk and interest rate risk
in banking book. Implementation of the policy, monitoring of limits is reviewed by the
Asset Liability Committee (ALCO). While the maturity gap, Basel III ratios and stock ratio
limits help manage liquidity risk, Net Interest Income and market value impacts help
mitigate interest rate risk. This is reinforced by a comprehensive Board- approved stress
testing programme covering both liquidity and interest rate risk.
Your Bank conducts various studies to assess the behavioural pattern of non-contractual
assets and liabilities and embedded options available to customers, which are used while
managing maturity gaps and repricing risk. Further, your Bank also has the necessary
framework in place to manage intraday liquidity risk.
The Liquidity Coverage Ratio (LCR), a global standard, is also used to measure your
Bank's liquidity position. LCR seeks to ensure that the Bank has an adequate stock of
unencumbered High-Quality Liquid Assets (HQLA) that can be converted into cash easily and
immediately to meet its liquidity needs under a 30-day calendar liquidity stress scenario.
Based on Basel III norms, your Bank's average LCR stood at 121.16 per cent on a
consolidated basis for FY 2021-22 as against the regulatory threshold at 100 per cent.
The Net Stable Funding Ratio (NSFR), a key liquidity risk measure under BCBS liquidity
standards, is also used to measure your Bank's liquidity position. The NSFR seeks to
ensure that your Bank maintains a stable funding profile in relation to the composition of
its assets and off-balance sheet activities. The RBI guidelines stipulated a minimum NSFR
requirement of 100 per cent at a consolidated level with effect from October 1,2021. Your
Bank has maintained the NSFR well above 100 per cent since its implementation. Based on
guidelines issued by RBI, your Bank's NSFR stood at 124.00 per cent on a consolidated
basis at March 31, 2022.
Operational Risk
This is the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events. It also includes risk of loss due to legal risk.
Given below is a detailed explanation under four different heads: Framework and
Process, Internal Control, Information Technology and Security Practices and Fraud
Monitoring and Control.
a. Framework and Process
To manage Operational Risks, your Bank has in place a comprehensive Operational Risk
Management Framework, whose implementation is supervised by the Operational Risk
Management Committee (ORMC) and reviewed by the RPMC of the Board. An independent
Operational Risk Management Department (ORMD) implements the framework. Under the
framework, the Bank has three lines of defence. The first line of defence is the business
line (including support and operations).
The first line is primarily responsible for developing risk mitigation strategies in
managing operational risk for their respective units.
The second line of defence is the ORMD, which is responsible for implementing the
operational risk management framework across the Bank. It designs and develops tools
required for implementing the framework including policies and processes, guidelines
towards implementation and maintenance of the framework. In order to achieve the aforesaid
objective pertaining to operational risk management framework, the ORMC guides and
oversees the functioning, implementation and maintenance of operational risk management
activities of Bank, with special focus on:
• Identification and assessment of risks across the Bank through the Risk and
Control Self-Assessment (RCSA) and Scenario analysis
• Measurement of Operational Risk based on the actual loss data
• Monitoring of risk through Key Risk Indicators (KRI)
• Management and reporting through KRI, RCSA and loss data of the Bank
Internal Audit is the third line of defence. The team reviews the effectiveness of
governance, risk management and internal controls within your Bank.
b. Internal Control
Your Bank has implemented sound internal control practices across all processes, units
and functions. It has well laid down policies and processes for the management of its
day-today activities. Your Bank follows established, well-designed controls, which include
traditional four eye principles, effective segregation of business and support functions,
segregation of duties, call back processes, reconciliation, exception reporting and
periodic MIS. Specialised risk control units function in risk-prone products/ functions to
minimise operational risk. Controls are tested as part of the SOX control testing
framework.
c. Information Technology and Information Security Practices
Your Bank operates in a highly automated environment and makes use of the latest
technologies available on cloud or on Premises Data centres to support various business
segments. This results in various risks such as those associated with the use, ownership,
operation, involvement, influence, and adoption of IT within an enterprise, as well as
business disruption due to technological failures. Additionally, it can lead to risks
related to information assets, data security, integrity, reliability and availability,
among others. Your Bank has put in place a governance framework, information security
practices and business continuity plan to mitigate Information Technology &
Information Security-related risks.
The three lines of defence approach is adopted for enterprisewide Technology Risk
management. The first line of defence holds primary responsibility of managing the risk
and ensuring proper controls are in place.
The second line of defence defines policies, frameworks and controls. Information
Technology Risk and Information Security Group addresses technology and information
security related risks. A well-documented Board-approved information security policy and
cyber security policy are in place. Your Bank has a robust Business Continuity and
Disaster Recovery plan that is periodically tested to ensure that it can meet any
operational contingencies. Further, there is a well-documented crisis management plan in
place to address the strategic issues of a crisis impacting the Bank and to direct and
communicate the corporate response to the crisis including cyber crisis. In addition,
employees mandatorily and periodically undergo information security training and
sensitisation exercises.
For details on robust cyber security measures please refer page no. 51.
An independent assurance team within Internal Audit acts as a third line of defence
that provides assurance on the management of IT-related risks.
d. Fraud Monitoring and Control
Your Bank has put in place a Whistle Blower and Vigilance Policy and a central
vigilance team that oversees the implementation of fraud prevention measures. Frauds are
investigated to identify the root cause and relevant corrective steps are taken to prevent
recurrence.
Fraud Monitoring committees at the senior management and Board level also deliberate on
material fraud events and advise preventive actions. Periodic reports are submitted to the
Board and senior management committees.
Compliance Risk
Compliance Risk is defined as the risk of impairment of your Bank's integrity, leading
to damage to its reputation, legal or regulatory sanctions, or financial loss, as a result
of a failure (or perceived failure) to comply with applicable laws, regulations and
standards. Your Bank has a Compliance Policy to ensure the highest standards of
compliance. A dedicated team of subject matter experts in the Compliance Department works
with business, support and operations teams to ensure active Compliance Risk management
and monitoring. The team also provides advisory services on regulatory matters. The focus
is on identifying and reducing risk by rigorously testing products and also putting in
place robust internal policies. Products that adhere to regulatory norms are tested after
rollout and shortcomings, if any, are fully addressed till the product stabilises on its
own. Internal policies are reviewed and updated periodically as per agreed frequency or
based on market actions or regulatory guidelines/actions. The compliance team also seeks
regular feedback on regulatory compliance from product, business and operation teams
through self-certifications and monitoring.
ICAAP
Your Bank has a structured management framework in the Internal Capital Adequacy
Assessment Process (ICAAP) to identify, assess and manage all risks that may have a
material adverse impact on its business/financial position/capital adequacy. The ICAAP
framework is guided by the Board approved ICAAP Policy.
Stress Testing Framework
Your Bank has implemented a Board approved Stress Testing Policy and Framework which
forms an integral part of the Bank's ICAAP. Stress testing involves the use of various
techniques to assess your Bank's potential vulnerability to extreme but plausible stressed
business conditions. The changes in the levels of Pillar I risks and select Pillar II
risks, along with the changes in the on and off Balance Sheet positions of your Bank are
assessed under assumed ‘stress' scenarios and sensitivity factors. The suite of
stress scenarios include topical themes as well as prevailing geopolitical / macroeconomic
/ sectoral and other trends. The stress testing outcome may be analysed through capital
impact and/or identification of vulnerable borrowers depending on the scenario.
Group Risk
Your Bank has two subsidiaries, HDB Financial Services Limited and HDFC Securities
Limited. The Board of each subsidiary is responsible for managing their respective
material risks (Credit Risk, Concentration Risk, Market Risk, Operational Risk,
Liquidity Risk, Interest Rate Risk on Banking Book, Technology Risk, Reputation Risk,
Compliance Risk, Business Risk and others). The Group Risk Management Committee (GRMC) was
instituted in your Bank under the ICAAP framework to establish a formal and dedicated
structure to periodically assess the nature/ quantum of material risks of the subsidiaries
and adequacy of its risk management processes. Stress testing for the group as a whole is
carried out by integrating the stress tests of the subsidiaries. Similarly, capital
adequacy projections are formulated for the group after incorporating the business/capital
plans of the subsidiaries.
Business Continuity Planning (BCP)
Your Bank has an ISO22301:2019 certified Business Continuity Program in place to
minimise service disruptions and potential impact on its employees, customers and business
during any unforeseen adverse events or circumstances. This program is designed in
accordance with the guidelines issued by regulatory bodies and is subject to regular
internal, external and regulatory reviews. The central Business Continuity Office works
towards strengthening the bank's continuity preparedness. The implementation is overseen
by the Business Continuity Steering Committee which is chaired by the Chief Risk Officer.
The Business Continuity Procedure has well defined roles and responsibilities for Crisis
Management, Business Recovery, Emergency Response and IT Disaster Recovery Teams. Please
refer to page no. 52 for more details.
Some of the key aspects of thisprogram include thefollowing:
• Presence of a Steering Committee for centralised monitoring of your Bank's
Business Continuity program implementation
• Presence of Crisis Management teams for effective management of recovery
operations during disruptive events
• Presence of a dedicated DR site for recovery of critical core and customer
facing applications
• Decentralised recovery plans at functional and regional levels for structured
and speedy recovery of operations
• Periodic drills are exercises for testing the effectiveness of these recovery
plans.
These robust practices have enabled your bank to continue delivering banking services
seamlessly to customers throughout the COVID-19 pandemic phases coupled with other major
disruptive events. Your Bank has successfully emerged from all these difficult situations
with a hybrid approach comprising of well-adopted continuity and recovery strategies like
remote working (work from home), split operations, work transfer and/ or staff transfer to
available sites, in accordance with prevailing protocols and norms.
7) Internal Controls, Audit and Compliance
Your Bank has put in place extensive internal controls and processes to mitigate
Operational Risks, including centralised operations and ‘segregation of duty' between
the front office and back office. The front-office units usually act as customer
touch-points and sales and service outlets while the back-office carries out the entire
processing, accounting and settlement of transactions in the Bank's core banking system.
The policy framework, definition and monitoring of limits is carried out by various
mid-office and risk management functions. The credit sanctioning and debt management units
are also segregated and do not have any sales and operations responsibilities.
Your Bank has set up various executive-level committees, with participation from
various business and control functions, that are designed to review and oversee matters
pertaining to capital, assets and liabilities, business practices and customer service,
Operational Risk, information security, business continuity planning and internal
risk-based supervision among others. The second line of defense functions set standards
and lay down policies and procedures by which the business functions manage risks,
including compliance with applicable laws, compliance with regulatory guidelines,
adherence to operational controls and relevant standards of conduct. At the ground level,
your Bank has a mix of preventive and detective controls implemented through systems and
processes, ensuring a robust framework in your Bank to enable correct and complete
accounting, identification of outliers (if any) by the Management on a timely basis for
corrective action and mitigating Operational Risks.
Your Bank has put in place various preventive controls:
(a) Limited and need-based access to systems by users
(b) Dual custody over cash and near-cash items
(c) Segregation of duty in processing of transactions vis-a-vis creation of user IDs
(d) Segregation of duty in processing of transactions vis-a-vis monitoring and review
of transactions/reconciliation
(e) Four eye principle (maker-checker control) for processing of transactions
(f) Stringent password policy
(g) Booking of transactions in core banking system mandates the earmarking of
line/limit (fund as well as non-fund based) assigned to the customer
(h) STP processes between core banking system and payment interface systems for
transmission of messages
(i) Additional authorisation leg in payment interface systems in applicable cases
(j) Audit logs directly extracted from systems
(k) Empowerment grid
Your Bank also has detective controls in place:
(a) Periodic review of user IDs
(b) Post-transaction monitoring at the back-end by way of call back process (through
daily log reports) by an independent person, i.e., to ascertain that entries in the core
banking system/messages in payment interface systems are based on valid/authorised
transactions and customer requests
(i) Daily tally of cash and near-cash items at end of day
(ii) Reconciliation of Nostro accounts (by an independent team) to ascertain and
match-off the Nostro credits and debits (External or Internal) regularly to avoid /
identify any unreconciled/unmatched entries passing through the system
(c) Reconciliation of all Suspense Accounts and establishment of responsibility in case
of outstanding
(d) Independent and surprise checks periodically by supervisors
Your Bank has an Internal Audit Department which is responsible for independently
evaluating the adequacy and effectiveness of all internal controls, risk management,
governance systems and processes and is manned by appropriately qualified personnel.
This department adopts a risk-based audit approach and carries out audits across
various businesses i.e. Retail, Wholesale and Treasury (for India and Overseas books),
audit of Operations units, Management and Thematic audits, Information Security audit,
Revenue audit and Concurrent audit in order to independently evaluate the adequacy and
effectiveness of internal controls on an ongoing basis and pro-actively recommending
enhancements thereof. The Internal Audit Department, during the course of audit, also
ascertains the extent of adherence to regulatory guidelines, legal requirements and
operational processes and provides timely feedback to the Management for corrective
actions. A strong oversight on the operations is also kept through off-site monitoring by
use of data analytics to study trends/patterns to detect outliers (if any) and alert the
Management.
The Internal Audit Department also independently reviews your Bank's implementation of
Internal Rating Based (IRB)- approach for calculation of capital charge for Credit Risk,
the appropriateness of your Bank's ICAAP, as well as evaluates the quality and
comprehensiveness of your Bank's disaster recovery and business continuity plans and also
carries out management self-assessment of adequacy of the Bank's internal financial
controls and operating effectiveness of such controls in terms of Sarbanes Oxley (SOX) Act
and Companies Act, 2013. The Internal Audit Department plays an important role in
strengthening of the Control functions by periodically reviewing their practices and
processes as well as recommending enhancements thereof. Additionally, oversight is also
kept on the functioning of the subsidiaries, related party transactions and extent of
adherence to the licensing conditions of the RBI.
Any new product/process introduced in your Bank is reviewed by Compliance function in
order to ensure adherence to regulatory guidelines and also by Internal Audit from the
perspective of existence of internal controls. The Audit function also proactively
recommends improvements in operational processes and service quality, wherever deemed fit.
To ensure independence, the Internal Audit Function has a reporting line to the Audit
Committee of the Board and a dotted line reporting to the Managing Director for
administrative purposes.
The Compliance function independently tracks, reviews and ensures compliance with
regulatory guidelines and promotes a compliance culture in the Bank.
Your Bank has a comprehensive Know Your Customer, Anti Money Laundering (AML) and
Combating Financing of Terrorism (CFT) policy (based on the RBI guidelines/provisions of
the Prevention of Money Laundering Act, 2002) incorporating the key elements of Customer
Acceptance Policy, Customer Identification Procedures, Risk Management and Monitoring of
Transactions. The policy is subjected to an annual review and is duly approved by the
Board.
Your Bank besides having robust controls in place to ensure adherence to the KYC
guidelines at the time of account opening also has monitoring process at various stages of
the customer lifecycle including a continuous review process in the form of transaction
monitoring carried out by a dedicated AML CFT monitoring team, which carries out
transaction reviews for identification of suspicious patterns/trends that enables your
Bank to further carry out enhanced due diligence (wherever required) and appropriate
actions thereafter. The status of adherence to the KYC, AML and CFT guidelines is also
placed before the Audit Committee of the Board for their review at quarterly intervals.
The Audit team and the Compliance team undergo regular training both in-house and
external to equip them with the necessary knowhow and expertise to carry out the function.
The Audit Committee of the Board reviews the effectiveness of controls, compliance with
regulatory guidelines as also the performance of the Audit and Compliance functions in
your Bank and provides direction, wherever deemed fit. Your Bank has always adhered to the
highest standards of compliance and has put in place appropriate controls and risk
measurement and risk management tools to ensure a robust compliance and governance
structure.
G) Performance of Subsidiary Companies
Your Bank has two subsidiaries, HDB Financial Services Limited (HDBFSL) and HDFC
Securities Limited (HSL). HDBFSL is a leading NBFC that caters primarily to segments not
covered by the Bank while HSL is among India's leading retail broking firms. The financial
results of the subsidiaries are prepared in accordance with notified Indian Accounting
Standards (‘Ind-AS').
The detailed financial performance of the companies is given below.
HDFC Securities Limited (HSL)
HSL's Total Income under Indian Accounting Standards was Rs.1,990.30 crore as against
Rs.1,399.43 crore in the previous year and Net Profit was Rs.984.34 crore as against
Rs.703.22 crore in the previous year. The company has a customer base of 38.30 lakh to
whom it offers an exhaustive range of investment and protection products. In the year
under review, HSL had 12.73 lakh transacting customers. The focus on digitalisation
continued. Notably, 91 per cent of its customers accessed its services digitally, against
92 per cent in the previous year.
In a conscious effort to rationalise the distribution network with greater emphasis on
digital offerings, HSL consolidated its existing branches to end with 216 branches across
147 cities / towns at the end of the year. It created digital Boarding Journeys which led
to more than 50 per cent customers being onboarded digitally.
In the case of Margin Trade Funding (MTF), the average book size during the year was
Rs.2,992 crore, which is more than three times the average book size of Rs.930 crore in
the last financial year. The book size at the year end stands at Rs.3,288 crore.
Nifty rose right from the beginning of FY 2021-22 to touch a peak in mid-October 2021.
It corrected later to a low in early March 2022. An upward bounce later led to Nifty
closing the fiscal not very far from the all-time high of October 2021. The Indian equity
market gave solid returns in FY 2021-22, despite geopolitical turmoil playing spoilsport
in the last quarter of the financial year. Nifty50 recorded an impressive 19 per cent
year-on-year gain and ended the financial year with the second-best returns in seven
years. Broader markets also put up an impressive performance. The Nifty Midcap 100, up
more than 25 per cent y-o-y, and the Nifty Smallcap 100, up more than 29 per cent y-o-y,
out performed the benchmark in FY 2021-22. Sectoral indices also posted decent performance
during this period.
As on March 31, 2022, your Bank held 95.96 per cent stake in HSL.
HDB Financial Services Limited
Incorporated in 2007, HDB is a leading NBFC that caters to the evolving needs of its
customers by re-imagining opportunities and fulfilling their aspirations. It has a strong
network of over 1,374 branches spread across 989 cities/towns. HDB's net interest income
grew 9.4 per cent to Rs.5,037.5 crore for the year ended March 31, 2022, from Rs.4,605.0
crore in the year ended March 31, 2021. Profit for the year under review was Rs.1,011.4
crore against Rs.391.5 crore in the previous year. Its Assets Under Management for the
year ended March 31, 2022 stood at Rs.61,444.3 crore compared to Rs.61,560.7 crore in the
previous year.
HDB offers a comprehensive suite of products and service offerings that are tailor-made
to suit its customers' requirements, including first-time borrowers and the under- served
segments.
Products and Services
HDB is engaged in the business of Financing, fee-based products and BPO services.
Financing: HDB offers a diverse range of product offerings (secured and unsecured)
to various customer segments. These include Consumer Loans, Enterprise Loans, Asset
Finance and Micro-Lending.
Consumer Loans
Consumer loans are offered to customers to buy consumer durables, lifestyle products
and digital products. HDB also provides personal and Gold loans to individuals for
personal, family or household purposes to meet their short or medium term requirements.
The Company also provides auto loans and two-wheeler loans.
Enterprise Loans
HDB offers secured and unsecured loans designed for SMEs, including working capital and
term loans.
Asset Finance
HDB offers loans for the purchase of new and used commercial vehicles and construction
equipment that generate income for the borrowers. The customer base includes fleet owners,
first time users, first time borrowers and captive use buyers.
Micro Lending
HDB offers micro-loans to borrowers through the Joint Liability Groups (JLGs)
framework. With Micro-Lending, HDB endeavours to empower and promote financial inclusion
within these sections, thus resulting in sustainable development of the nation.
Fee-based products/Insurance Services
HDB is a registered Corporate Insurance Agent having licence from Insurance Regulatory
& Development Authority of India (IRDAI). The company is engaged in the sale of both
Life and General (Non-Life) Insurance products.
BPO Services
HDB runs a Collections BPO business, offering end-to end, specialised collection
services with domain expertise in collections tele-calling, recovery management,
collections analytics and cash reconciliation management. The division also delivers
back-office services such as forms processing, documents verification, finance and
accounting services and correspondence management and front office services such as
contact centre management and outbound marketing.
The Enablers
HDB's presence across diverse digital channels has enabled the company to offer a wide
variety of financial solutions to its customers. HDB's customers can access and manage
their loan account 24/7 through its Mobile Banking Application - ‘HDB On The Go',
Customer Service Portal to manage the loan account, Missed Call Service, WhatsApp Account
Management Service and the Chatbot #AskPriya.
As on March 31, 2022, your Bank held 94.96 per cent stake in HDB.
Other Statutory Disclosures
Number of Meetings of the Board, attendance, meetings and constitution of various
Committees
Fourteen (14) meetings of the Board were held during the year under review. The details
of Board meetings held during the year, attendance of Directors at the meetings and
constitution of various Committees of the Board are included separately in the Corporate
Governance Report.
Annual Return
In accordance with the provisions of Companies Act, 2013, the Annual Return of the Bank
in the prescribed Form MGT-7 is available on the website of the Bank at the link
https://www. hdfcbank.com/personal/about-us/investor-relations/annual- reports.
Requirement for maintenance of cost records
The cost records as specified by the Central Government under section 148(1) of the
Companies Act, 2013, are not required to be maintained by the Bank.
Details in respect of frauds reported by auditors under section 143 (12)
During the year under review, no instances of fraud committed against the Bank by its
officers or employees were reported by the Statutory Auditors and Secretarial Auditors
under Section 143(12) of the Companies Act, 2013 to the Audit Committee or the Board of
Directors of the Bank.
Directors' Responsibility Statement
Pursuant to Section 134 (3) (c) read with Section 134 (5) of the Companies Act, 2013,
the Board of Directors hereby confirm that:
• In the preparation of the annual accounts, the applicable accounting standards
have been followed along with proper explanation relating to material departures.
• We have selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view
of the state of affairs of the Bank as on March 31,2022 and of the profit of the Bank for
the year ended on that date.
• We have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act, 2013, for
safeguarding the assets of the Bank and for preventing and detecting fraud and other
irregularities.
• We have prepared the annual accounts on a going concern basis.
• We have laid down internal financial controls to be followed by the Bank and
have ensured that such internal financial controls were adequate and operating
effectively.
• We have devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and were operating effectively.
Compliance with Secretarial Standards
The Bank is in compliance with all applicable Secretarial Standards as notified from
time to time.
Statutory Auditors
M. M. Nissim & Co. LLP, Chartered Accountants and MSKA & Associates, Chartered
Accountants, have conducted the joint statutory audit of the Bank for FY 2021-22, pursuant
to the approval of the RBI and the shareholders of the Bank.
The Board of Directors, on the recommendation of the Audit Committee, has finalized for
recommendation to RBI for approval, the name of M/s. Price Waterhouse LLP, Chartered
Accountants as the first preferred firm to act as Joint Statutory Auditors of the Bank in
relation to the Financial Years 2022-23, 2023-24 and 2024-25, subject to approval of the
shareholders at the ensuing Annual General Meeting (AGM). This firm shall act as the Joint
Statutory Auditors along with M.M. Nissim & Co. LLP, Chartered Accountants for the
remainder of the latter's tenure.
Appropriate resolutions in this regard are also being proposed at the ensuing AGM.
During the year ended March 31, 2022, fees paid to MSKA & Associates and M.M.
Nissim & Co. LLP and their respective network firms on consolidated basis are as
follows:
| Fees (excluding taxes) |
HDFC Bank to Statutory Auditors |
HDFC Bank to network firms of Statutory Auditors |
Subsidiaries of HDFC Bank to Statutory Auditors and its network firms |
| Statutory Audit* |
3.85 |
- |
- |
| Certification & other attestation services |
1.88 |
- |
- |
| Non-audit services |
- |
- |
- |
| Outlays |
0.02 |
- |
- |
| Total |
5.75 |
- |
- |
*Out of the total statutory audit fees, Rs.3.30 crore were approved at the AGM held on
July 17, 2021 and the balance Rs.0.55 crore is proposed to the shareholders for approval
at the ensuing AGM
Disclosure under Foreign Exchange Management Act, 1999
As far as FEMA compliances in relation to strategic downstream investments in the
Bank's subsidiaries is concerned, during the year under review, there have been no
strategic downstream investments made by Bank in its subsidiaries. Accordingly, the Bank
has obtained a certificate from MSKA & Associates, Chartered Accountants, to this
effect.
Corporate Social Responsibility
The brief outline of the CSR policy of the Bank and the initiatives undertaken by the
Bank on CSR activities during the year are set out in Annexure 2 of this report in
the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules,
2014. This Policy is available on the Bank's website at https://v1.hdfcbank.com/csr/index.aspx.
Related Party Transactions
Particulars of contracts or arrangements with related parties referred to in Section
188 (1), as prescribed in Form AOC-2 under Rule 8 (2) of the Companies (Accounts) Rules,
2014 is enclosed as Annexure 3.
Particulars of Loans, Guarantees or Investments
Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186
of the Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee
given or security provided or any investment made by a banking company in the ordinary
course of business. The particulars of investments made by the Bank are disclosed in note
number 10 of Schedule 18 of the Financial Statements as per the applicable provisions of
the Banking Regulation Act, 1949.
Financial Statements of Subsidiaries and Associates
In terms of Section 134 of the Companies Act, 2013 and read with Rule 8 (1) of the
Companies (Accounts) Rules, 2014 the performance and financial position of the Bank's
subsidiaries and associates are enclosed as Annexure 4 to this report. There were
no entities which became or ceased to be the Bank's subsidiaries, associates or joint
ventures during the year.
Whistle Blower Policy / vigil Mechanism
The Bank encourages an open and transparent system of working and dealing amongst its
stakeholders. While the Bank's "Code of Conduct & Ethics Policy" directs
employees to uphold Bank values and conduct business worldwide with integrity and highest
ethical standards, the Bank has also adopted a "Whistle Blower Policy" to
encourage and empower the Employees/ Stakeholders to make or report any Protected
Disclosures under the Policy, without any fear of reprisal, retaliation, discrimination or
harassment of any kind.
This Policy has also been put in place to provide a mechanism through which adequate
safeguards can be provided against victimization of employees who avail of this mechanism.
The policy would cover and will be applicable to the Protected Disclosures related to
violation/ suspected violation of the Code of Conduct including (a) breach of applicable
law; (b) fraud or corruption; (c) leakage/suspected leakage of unpublished price sensitive
information which are in violation to SEBI (Prohibition of Insider Trading) Regulations,
2015 and related internal policy of the Bank, i.e. Share Dealing Code of the Bank, (d)
wilful data breach and/ or unauthorized disclosure of Bank's proprietary data including
customer data.
All Protected Disclosures made under the policy shall be made to the Whistle Blower
Committee through the following modes; (a) By letter in a closed / sealed envelope
addressed to Whistle Blower committee, (b) by submission of the same on the information
portal of the Bank, (c) by way of an email addressed to whistleblower@hdfcbank.com.
In exceptional circumstances, the Whistle Blower may make such Protected Disclosures
directly to the Chairperson of the Audit Committee of the Bank.
All Protected Disclosures received under this Policy would be examined by the Whistle
Blower Committee and further assign the investigation to an appropriate Investigation
Officer(s) depending on the nature of the subject matter of the Protected Disclosure. The
Investigation Authority shall place the investigation report in respect of any Protected
Disclosure before the Whistle Blower Committee together with any other supporting
documents which may be required by the Whistle Blower Committee and shall discuss the
findings of the investigation with the Whistle Blower Committee. After review of the
investigation report and the requisite supporting documents, the Whistle Blower Committee
shall take the necessary actions in relation to the Protected Disclosure.
Details of Whistle blower complaints received and subsequent action taken and the
functioning of the Whistle Blower mechanism are reviewed periodically by the Audit
Committee of the Board. During the financial year 2021-22, a total of 147 such complaints
were received and taken up for investigation which has resulted in certain staff actions
in 47 cases post investigation. The broad categories of whistle blower complaints were in
the areas of improper business practices, behavioural related issues and corruption.
The Policy is available on the website of the Bank at the link- https://www.hdfcbank.com/personal/about-us/corporate-
governance/codes-and-policies
Securities Class Action Suit
On September 3, 2020, a securities class action lawsuit was filed against the Bank and
certain of its current and former officers in the United States District Court for the
Eastern District of New York. The complaint was amended on February 8, 2021. The amended
complaint alleges that the Bank, its former Managing Director, Mr. Aditya Puri, and the
present Managing Director & CEO, Mr. Sashidhar Jagdishan made materially false and
misleading statements regarding certain aspects of the Bank's business and compliance
policies, which resulted in the Bank's American Depository Share price declining on July
13, 2020 thereby allegedly causing damage to the Bank's investors. On April 9, 2021, the
Bank, Mr. Puri, and Mr. Jagdishan served their motion to dismiss the amended complaint,
and on July 23, 2021, they served their reply brief in support of the motion and filed all
of the motion papers. The Court held oral argument on the motion to dismiss on January 14,
2022, and the motion remains pending before the Court. The Bank believes that the asserted
claims are baseless and without merit and intends to vigorously defend against the
allegations.
Material Developments: Proposed Scheme of Amalgamation
The Board of Directors of HDFC Bank Limited (‘HDFC Bank') at its meeting held on
April 4, 2022, approved a composite scheme of amalgamation (‘Scheme') for the
amalgamation of: (i) HDFC Investments Limited and HDFC Holdings Limited, wholly-owned
subsidiaries of the Housing Development Finance Corporation Limited (‘HDFC Limited'),
with and into HDFC Limited and (ii) HDFC Limited with and into HDFC Bank and matters
related thereto.
With effect from the appointed date and upon the amalgamation of HDFC Limited with and
into HDFC Bank becoming effective, HDFC Limited along with all its assets, liabilities,
contracts, employees, licenses, records and approvals being their respective integral
parts shall stand transferred to and vest in or shall be deemed to have been transferred
to and vested in HDFC Bank, as a going concern.
Upon the Scheme becoming effective and in consideration of the proposed amalgamation of
HDFC Limited with and into HDFC Bank, HDFC Limited will stand dissolved without being
wound up and the shareholders of HDFC Limited as on the record date will receive 42 shares
of HDFC Bank (each of face value of Rs.1), for 25 shares held in HDFC Limited (each of
face value of Rs.2). This share exchange ratio has been arrived at based on a joint
valuation report submitted by two Registered Valuers and independent Chartered Accountancy
firms appointed by HDFC Bank and HDFC Limited, which was supported by a Fairness Opinion
provided by two SEBI registered merchant bankers.
During the period between the approval of the Scheme by the respective boards of HDFC
Bank and HDFC Limited and up to the effectiveness of the Scheme, the business of HDFC Bank
and HDFC Limited shall be carried out with reasonable diligence and business prudence in
the ordinary course, consistent with past practice, in accordance with the applicable laws
and as mutually agreed.
The Board of Directors of HDFC Bank and HDFC Limited have opined that the proposed
amalgamation would be in the best interest of the respective companies, their
shareholders, employees, creditors and other stakeholders, since the proposed amalgamation
will yield advantages as set out, inter alia, below:
(a) the amalgamation, through the Scheme, shall enable HDFC Bank to build its housing
loan portfolio and enhance its existing customer base;
(b) The amalgamation is based on leveraging the significant complementarities that
exist amongst the parties to the Scheme. It would create meaningful value for various
stakeholders including respective shareholders, customers, employees, as the combined
business would benefit from increased scale, comprehensive product offering, balance sheet
resiliency and the ability to drive synergies across revenue opportunities, operating
efficiencies and underwriting efficiencies, amongst others;
(c) HDFC Bank is a private sector bank and has a large base of over 6.8 Crore
customers. The Bank platform will provide a well-diversified low cost funding base for
growing the long tenor loan book acquired by the HDFC Bank pursuant to the amalgamation;
(d) HDFC Bank is a banking company with a large distribution network that offers
product offerings in the retail and wholesale segments. HDFC Limited is a premier housing
finance company in India and provides housing loans to individuals as well as loans to
corporates, undertakes lease rental discounting and construction finance apart from being
a financial conglomerate. A combination of HDFC Limited and HDFC Bank is entirely
complementary to, and enhances the value proposition of, HDFC Bank;
(e) HDFC Bank would benefit from a larger balance sheet and networth which would allow
underwriting of larger ticket loans and also enable a greater flow of credit into the
Indian economy;
HDFC Limited has invested capital and developed skills and has set up approximately 464
(Four Hundred and Sixty Four) offices across the country. These offices can be used to
sell the entire product suite of both HDFC Bank and HDFC Limited;
(f) The loan book of HDFC Limited is diversified having cumulatively financed over 9
million dwelling units. With HDFC Limited's leadership in the home loan arena, developed
over the past 45 years, HDFC Bank would be able to provide to customers flexible mortgage
offerings in a cost-effective and efficient manner;
(g) HDFC Bank has access to funds at lower costs due to its high level of current and
savings accounts deposits (CASA). With the amalgamation of HDFC Limited with and into HDFC
Bank, HDFC Bank will be able to offer more competitive housing products;
(h) HDFC Limited's rural housing network and affordable housing lending is likely to
qualify for HDFC Bank as priority sector lending and will also enable a higher flow of
credit into priority sector lending, including agriculture;
(i) the amalgamation will result in reducing HDFC Bank's proportion of exposure to
unsecured loans;
(j) HDFC Limited has built technological capabilities to evaluate the credit worthiness
of customers using analytical models, and has developed unique skills in financing various
customer segments. The models have been tested and refined over the years at scale and
HDFC Bank will benefit from such expertise in underwriting and financing of mortgage
offerings;
(k) HDFC Bank can leverage on the loan management system, comprising rule engines, IT
tools and rules, agents connected through a central system;
(l) The amalgamation is expected to result in bolstering the capital base and bringing
in resiliency in the balance sheet of HDFC Bank.
(m) HDFC Investments Limited and HDFC Holdings Limited are Systemically Important Non -
Deposit Taking Non - Banking Financial Companies and are also wholly owned subsidiaries of
HDFC Limited. The proposed amalgamation shall result in simplified corporate structure.
The Scheme is subject to receipt of requisite approvals, including from statutory and
regulatory authorities, as required under applicable laws. The scheme has been filed with
BSE Limited, National Stock Exchange of India Limited and Reserve Bank of India.
Statement on Declaration by Independent Directors
Mr. Atanu Chakraborty, Mrs. Lily Vadera, Mr. Malay Patel, Mr. M.D. Ranganath, Mr.
Sanjiv Sachar, Mr. Sandeep Parekh, Dr. (Mrs.) Sunita Maheshwari and Mr. Umesh Chandra
Sarangi are the Independent Directors on the Board of the Bank as on March 31, 2022.
Pursuant to the provisions of Section 149 of the Act, the Independent Directors have
submitted declarations that each of them meets the criteria of independence as provided in
Section 149(6) of the Act along with Rules framed thereunder and Regulation 16(1)(b) of
the Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015. There has been no change in the circumstances affecting
their status as Independent Directors of the Bank. In the opinion of the Board, the
Independent Directors possess the requisite integrity, experience, expertise and
proficiency required under all applicable laws and the policies of the Bank.
Board Performance Evaluation
The performance evaluation of the Board, Committees of the Board and the individual
members of the Board (including the Chairman) for FY 2021-22, was carried out internally
pursuant to the framework laid down by the Nomination and Remuneration Committee (NRC). A
questionnaire for the evaluation of the Board, its Committees and the individual members
of the Board (including the Chairman), designed in accordance with the said framework and
covering various aspects of the performance of the Board and its Committees, including
composition, roles and responsibilities, Board processes, Boardroom culture, adherence to
Code of Conduct and Ethics, quality and flow of information, as well as measurement of
performance in the areas of strength and areas of focus, as identified in the previous
year's evaluation, was sent out to the Directors. The Committees were evaluated inter alia
on parameters such as composition, terms of reference, quality of discussions,
contribution to Board decisions and balance of agenda between the Committee and the Board.
The responses received to the questionnaires on evaluation of the Board and its Committees
were placed before the meeting of the Independent Directors for consideration. The
assessment of performance of Non-Independent Directors on key personal and professional
attributes was also carried out at the meeting of Independent Directors. The assessment of
performance of the Independent Directors on the Board (including Chairman) was
subsequently discussed by the Board. In addition to the above parameters, the Board also
evaluated fulfillment of the independence criteria as specified in SEBI (Listing
Obligations and Disclosure Requirement) Regulations, 2015 by the Independent Directors of
the Bank and their independence from the management.
The evaluation brought out the cohesiveness of the Board, a Boardroom culture of trust
and cooperation, and Boardroom discussions which are open, transparent and encourage
diverse viewpoints. Other areas of strength included effective discharge of Board's roles
and responsibilities. Some of the areas of focus for the Board going forward included
increasing time dedicated to strategy- competitive positioning and benchmark, long term
succession planning and talent management, improvement in Board processes and quality of
information. The Board also noted that while there has been positive development in the
areas of focus identified in the previous year's evaluation, efforts need to continue in
that direction. The appropriate feedback was conveyed to the Board members and other
concerned stakeholders, for suitable action.
Policy on Appointment and Remuneration of directors and Key Managerial Personnel
Your Bank has in place a Policy for appointment and fit and proper criteria for
Directors of the Bank. The Policy lays down the criteria for identification of persons who
are qualified and ‘fit and proper' to become Directors on the Board- such as academic
qualifications, competence, track record, integrity, etc. which shall be considered by the
NRC while recommending appointment of Directors. The Policy is available on the website of
the Bank at the link https://www.hdfcbank.com/personal/
about-us/corporate-governance/codes-and-policies.
The remuneration of all employees of the Bank, including Whole Time Directors, Material
Risk Takers, Key Managerial Personnel and Senior Management, is governed by the
Compensation Policy of the Bank. The same is available at the web-link https://
www.hdfcbank.com/personal/about-us/corporate-governance/ codes-and-policies. The
Compensation Policy of the Bank, duly reviewed and recommended by the NRC has been
articulated in line with the relevant Reserve Bank of India guidelines.
Your Bank's Compensation Policy is aimed to attract, retain, reward and motivate
talented individuals critical for achieving strategic goals and long term success. The
Compensation Policy is aligned to business strategy, market dynamics, internal
characteristics and complexities within the Bank. The ultimate objective is to provide a
fair and transparent structure that helps the Bank to retain and acquire the talent pool
critical to building competitive advantage and brand equity.
Your Bank's approach is to have a "pay for performance" culture based on the
belief that the Performance Management System provides a sound basis for assessing
performance holistically. The compensation system should also take into account factors
such as roles, skills / competencies, experience and grade / seniority to differentiate
pay appropriately on the basis of contribution, skill and availability of talent on
account of competitive market forces. The details of the Compensation Policy are also
included in Note No. 25 of Schedule 18 forming part of the Accounts.
Non-Executive Directors are paid remuneration by way of sitting fees for attending
meetings of the Board and its Committees, which are determined by the Board based on
applicable regulatory prescriptions.
Further, expenses incurred by them for attending meetings of the Board and Committees
in person are reimbursed at actuals. Pursuant to the relevant RBI guidelines and approval
of the shareholders, the Non-Executive Directors, other than the Chairperson, are paid
fixed remuneration of Rs.20,00,000 (Rupees Twenty Lakh Only) per annum for each
Non-Executive Director on proportionate basis.
Mr. Malay Patel, Independent Director of the Bank, is also an Independent Director on
the Board of HDFC Securities Limited, subsidiary of the Bank. Mr. Patel receives sitting
fees and reimbursement of expenses at actuals incurred for attending Board/ Committee
meetings from the said subsidiary. None of the Directors of your Bank other than Mr. Patel
is a director of the Bank's subsidiaries as on March 31, 2022.
Succession Planning
The Nomination and Remuneration Committee ('NRC') and the Board of Directors ("the
Board"), review succession planning and transitions at the Board and Senior
Management levels. The Board composition and the desired skill sets/ areas of expertise at
the Board level are continuously reviewed and vacancies, if any, are reviewed in advance
through a systematic due diligence process. The recent appointment on the Board of Mrs.
Lily Vadera as an Independent Director was done taking into account her skill sets/areas
of expertise in the banking industry.
Succession planning at Senior Management levels, including business and assurance
functions, is continuously reviewed to ensure continuity and depth of leadership at two
levels below the Managing Director. Successors are identified prior to the Senior
Management positions falling vacant, to ensure a smooth and seamless transition.
Succession planning is a continuous process which is periodically reviewed by the NRC
and the Board.
Significant and Material Orders Passed by Regulators
1) Reserve Bank of India (RBI) by an order dated May 27, 2021, levied a penalty of '10
cores (Rupees ten crores only) for marketing and sale of third-party non-financial
products to the Bank's auto loan customers, arising from a whistle blower complaint, which
revealed, inter alia, contravention of Section 6(2) and Section 8 of the Banking
Regulation Act, 1949. The Bank has discontinued the sale of said third-party non-financial
product since October 2019. The penalty was paid by the Bank.
2) SEBI issued final order on January 21, 2021, levying a penalty of '1 crore on the
Bank, in the matter of invocation of securities pledged by BMA Wealth Creators (BRH Wealth
Kreators) for availing credit facilities. SEBI has also directed the Bank to transfer sale
proceeds of Rs.158.68 crores on invocation of securities, along with interest to escrow
account with a nationalised bank by marking lien in favour of SEBI. The Bank had
challenged SEBI's order before SAT and SAT, vide its interim order, have stayed operation
of SEBI's order. SAT, vide its final order dated February 18, 2022, allowed the Bank's
appeal and quashed SEBI's Order.
3) RBI has issued an Order dated December 02, 2020 ("Order") to HDFC Bank
Limited (the "Bank") with regard to certain incidents of outages in the internet
banking/mobile banking/ payment utilities of the Bank over the past 2 years, including the
outages in the Bank's internet banking and payment system on November 21, 2020 due to a
power failure in the primary data centre. RBI, vide above order, advised the Bank (a) to
stop all digital business generating activities planned under its ‘Digital 2.0' and
proposed Business generating applications digital also imposed restrictions and (b) to
stop sourcing of new credit card customers. The Bank has initiated remedial activities
including fixing of staff accountability and the same were communicated to the RBI. Basis
the Bank's submission, RBI vide its letter dated August 17, 2021, has relaxed the
restriction placed on sourcing of new credit cards customers and further vide its letter
dated March 11,2022 has lifted the restrictions on the business generating activities
planned under the Bank's Digital 2.0 program.
Directors and Key Managerial Personnel
In compliance with Section 152 of the Companies Act, 2013, Mrs. Renu Karnad will retire
by rotation at the ensuing Annual General Meeting and is eligible for re-appointment. A
resolution seeking shareholders' approval for her re-appointment forms a part of the
Notice of this AGM. A brief resume is furnished in the report on Corporate Governance for
the information of shareholders.
During the year, Mr. Atanu Chakraborty was appointed as the Part-time Chairman and
Independent Director on the Board of the Bank with effect from May 5, 2021 and Mrs. Lily
Vadera was appointed as an Independent Director on the Board of the Bank with effect from
November 26, 2021.
Further, Mr. Srikanth Nadhamuni tendered his resignation as Non- Executive
(Non-Independent) Director of the Bank, effective from February 18, 2022, citing potential
future transactions/ arrangements which may materialize between the Bank and a company in
which Mr. Nadhamuni may be interested. Your Board places on record its sincere
appreciation for the contribution made by Mr. Nadhamuni during his tenure with the Bank
and wishes him well in future endeavours.
Further, at the meeting of the Board of Directors held on April 16, 2022, Mrs. Renu
Karnad has been re-appointed as the Non-Executive Director (Nominee of Housing Development
Finance Corporation Limited, promoter of the Bank) on the Board of the Bank, for a period
of five (5) years with effect from September 3, 2022, subject to the approval of the
shareholders at the ensuing AGM.
During the financial year 2021-22, there have been no changes in the Directors and Key
Managerial Personnel of the Bank other than the above.
Particulars of Employees
The information in terms of Section 197(12) of the Act read with Rule 5 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in
Annexure 5. Further, the statement containing particulars of employees as required under
Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and 5(3) of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in an Annexure
and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the
annual report and the financial statements are being sent to the Members excluding the
aforesaid Annexure. The Annexure is available for inspection and any Member interested in
obtaining a copy of the Annexure may write to the Company Secretary of the Bank.
Conservation of Energy and Technology Absorption
Please refer to page no. 58 for information on Conservation of Energy and page no. 143
for information on Technology Absorption.
Foreign exchange earnings and Outgo
During the year, the total foreign exchange earned by the Bank was Rs.3,907.9 crore (on
account of net gains arising on all exchange / derivative transactions) and the total
foreign exchange outgo was Rs.2,248.3 crore towards the operating and capital expenditure
requirements.
Secretarial Audit
In terms of Section 204 of the Companies Act, 2013 and the Rules made thereunder, M/s.
Alwyn Jay & Co., Company Secretaries were appointed as Secretarial Auditors of the
Bank for the financial year 2021-22. The report of the Secretarial Auditors is enclosed as
Annexure 6 to this Report. There are no observations/ qualifications/ comments in the
Report of the Secretarial Auditor.
Corporate Governance
In compliance with Regulation 34 and other applicable provisions of the Securities and
Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015, a separate report on Corporate Governance along with a certificate of compliance
from the Secretarial Auditors, forms an integral part of this Report.
Business Responsibility and Sustainability Report
The Bank's Business Responsibility and Sustainability Report containing a report on its
Corporate Social Responsibility Activities and Initiatives in the format adopted by
companies in India as per the guidelines of the Securities and Exchange Board of India in
this regard forms an integral part of this report.
Information under the Sexual Harassment of Women at workplace (Prevention, Prohibition
and Redressal) Act, 2013
The relevant information is included in the Corporate Governance Report.
Acknowledgement
Your Directors would like to place on record their gratitude for all the guidance and
co-operation received from the Reserve Bank of India and other government and regulatory
agencies. Your Directors would also like to take this opportunity to express their
appreciation for the hard work and dedicated efforts put in by the Bank's employees and
look forward to their continued contribution in building a ‘World Class Indian Bank.'
Conclusion
The year started in the shadow of the pandemic. The good news is that it more or less
appears to be behind us. In no small measure due to the roll out of the vaccination
programme.
The recovery in health has been followed by clear signs of economic recovery with the
country's GDP growing by 8.7 per cent in 2021-22 against a contraction of 6.6 per cent in
the previous year.
Headwinds have now appeared in the form of inflationary pressures due to a combination
of supply chain disruptions and geopolitical tensions particularly the Ukraine crisis. In
an effort to contain inflation the RBI has hiked the Repo Rate by 90 basis points in two
announcements - an off cycle one on May 4 and the June Policy- to 4.90 per cent.
Notwithstanding these challenges the Indian economy is expected to be the fastest growing
one in the world. That is clearly good news.
Going forward, the Bank has a huge opportunity as India is still under penetrated when
it comes to banking services. Your Bank clearly has certain factors in its favour : A
strong balance sheet with among the lowest NPA levels in the industry and a trusted
franchise. The regulators too have been kind. Our progress against our regulatory
commitments over the past year has resulted in the lifting of the restrictions placed on
new card acquisitions in August 2021, followed by the removal of the embargo on the
Digital 2.0 program in March 2022. The Bank has also rolled out the Future Ready Strategy.
All this will help the Bank move forward in the next level of its growth journey. It will
do this by focusing on its five core values: Customer Focus, Operational Excellence,
Product Leadership, People and Sustainability. And adhere to the highest standards of
corporate governance as we continue to ‘Lead Responsibly'.
| On behalf of the Board of Directors |
|
| Sashidhar Jagdishan |
Atanu Chakraborty |
| Managing Director and CEO |
Part-time Chairman and Independent Director |
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