#MDStart#
MANAGEMENT DISCUSSION AND ANALYSIS
Dear Stakeholders,
Your Directors take great pleasure in presenting the 29th
Annual Report on the business and financial operations of your Bank, together with the
audited accounts for the year ended March 31, 2023.
The year gone by has been the first normal/near normal one in the last
three years as the world largely shook off the effects of the pandemic and spread cheer.
On the economic front, India's GDP grew by 7.2 per cent in Financial
Year 2022-23 compared to 9.1 per cent in the preceding year as per the Central Statistical
Organisation. The higher growth last year in Financial Year 2021-2022 was largely due to
the negative impact of the pandemic in Financial Year 2020-21.
Growth was supported by pent up consumption demand and easing of supply
- side constraints as the economy recovered from pandemic induced disruptions. Increased
Government spending improved investment momentum and in turn supported the recovery of
private sector capital expenditure
Overall systemic liquidity remained in surplus for much of the last
financial year. However, RBI started raising rates from May 2022 onwards, cumulatively
increasing by 250 basis points. Global headwinds resulted in slowing export momentum in
the second half of financial year 2022-23 and 2023-24 GDP growth forecast being revised by
200 basis points. Although, Indian banks remain relatively immune to the effects of US
regional banking turmoil, ripple effects of the global turmoil are likely to be felt on
domestic markets due to high inflation, geopolitical tensions and persistent but
continuing localised disruptions of the COVID-19 pandemic.
In the long run however, we see resilience in the domestic market
against future headwinds as India remains one of the fastest growing economies globally.
External stability indicators continue to remain healthy. Internal consumption demand is
being supported by the rationalisation of income tax slabs as well as 37.4 per cent
increase in capital expenditure to Rs 10 lakh crore in the Union Budget for 2023-24.
For more details, please refer to the Macroeconomic and Industry
section on page no. 173.
Your Bank continued to grow in this environment by conducting its
business responsibly and reinforcing its commitment to the environment and community at
large.
Financial Parameters
The Bank's key financial parameters showed an improvement, primarily
attributable to its robust credit evaluation of targeted customers and a well-diversified
loan book across customer segments, sectors and products. The Bank's performance is also
an outcome of its disciplined approach to managing risk and returns.
Based on Standalone Financial Statements
The income statement reflected a growth in revenue comprising net
interest income and non-interest income. While the former grew by 20.6 per cent, the
latter grew by 5.8 per cent year-on- year. On an overall basis, total net revenue for the
year ended March 31,2023, reached Rs 1,18,057 crore, reflecting increase by 16.3 per cent
over prior year.
¦ FY 2021-22
¦ FY 2022-23
Net Profit increased by 19.30 per cent to Rs 44,108.70 crore from Rs
36,961.30 crore. Return on Average Net Worth was 17.39 per cent while Basic Earnings Per
Share was Rs 79.25 up from Rs 66.80.
Total Advances grew by 16.93 per cent and Total Deposits grew by 20.80
per cent year-on-year. Net Interest Margin (NIM) remained stable at 4.10 per cent.
Update on the Merger with HDFC Limited
On April 4, 2022, HDFC Bank and HDFC Limited announced an intention to
merge. We are happy to state that this has come into effect from July 01,2023. Details are
shared in the relevant sections of the Annual Report.
Parivartan
Parivartan is HDFC Bank's CSR initiative that aims at mainstreaming
economically and socially disadvantaged groups by ushering growth, development and
empowerment. Committed to developing sustainable ecosystems, it identifies and supports
programmes that develop and advance communities
It focuses on five areas: Rural Development, Education, Skill
Development and Livelihood Enhancement, Healthcare and Hygiene, and Financial Literacy and
Inclusion.
In addition, it has been at the forefront of responding to natural
crises - successfully restoring infrastructure and rehabilitating communities. Since the
onset of the pandemic, the Bank has been consistently working towards containing its
impact on vulnerable communities through various initiatives.
Till date, through various interventions the Bank has benefitted over
9.93 crore people.
Your Directors are also pleased to report that the Bank met its CSR
obligation for the financial year 2022-23.
For further details on Parivartan please refer to page no 118.
Summary
Going forward we expect global headwinds to weigh on domestic economic
outlook. The International Monetary Fund (IMF) in its latest projections has pared India's
growth forecast for 2023-24 to 5.9 per cent from 6.1 per cent earlier citing upward
revision in base and tightening monetary conditions. However, India remains one of the
fastest growing economies in the world.
Despite the presence of inflationary pressures and geopolitical
uncertainties, the country has the capacity to absorb these challenges. The market
continues to be underpentrated providing growth avenues for banking services in the
country. Your Bank is well-positioned to capitalize on these opportunities, leveraging the
strength of its franchise. With its Future Ready Strategy consisting of 10 strategic
pillars supported by key enablers, the Bank is prepared for the future and aims to
catalyze, create, and capture the next wave of growth. For more details, please refer
to page 38.
Your Bank is committed to furthering rural prosperity through both its
business and social initiatives.
The future of your Bank, of course, will be driven by the efforts of
the ever growing family of 1.73 lakh employees across India. We are committed to hiring
and retaining the best talent and being among the industry's leading employers. For this,
we focus on promoting a collaborative, transparent and participative organization culture,
and rewarding merit and sustained high performance.
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)
Particulars |
For the year ended / As on
March 31, 2023 |
For the year ended / As on
March 31, 2022 |
Deposits and Borrowings |
2,090,160.2 |
1,744,034.6 |
Advances |
1,600,585.9 |
1,368,820.9 |
Total Income |
192,800.4 |
157,263.0 |
Profit Before Depreciation and
Tax |
60,727.8 |
50,615.3 |
Profit After Tax |
44,108.7 |
36,961.3 |
Profit Brought Forward |
93,185.7 |
73,652.8 |
Total Profit Available for
Appropriation |
137,294.4 |
110,614.1 |
Appropriations |
|
|
Transfer to Statutory Reserve |
11,027.2 |
9,240.3 |
Transfer to General Reserve |
4,410.9 |
3,696.1 |
Transfer to Capital Reserve |
4.6 |
666.5 |
Transfer to / (from)
Investment Reserve |
(294.8) |
233.1 |
Transfer to / (from)
Investment Fluctuation Reserve |
82.0 |
-- |
Transfer to Special Reserve |
500.0 |
-- |
Dividend pertaining to
previous year paid during the year |
8,604.5 |
3,592.4 |
Balance carried over to
Balance Sheet |
112,960.0 |
93,185.7 |
Dividend
The Board of Directors of the Bank, at its meeting held on April 15,
2023, has recommended a dividend of Rs 19.0 (Nineteen Rupees only) per equity share of Rs
1/- (Rupee One only) each, for the financial year ended March 31, 2023. This translates to
a Dividend Payout Ratio of 24.07 per cent of the profits for the financial year ended
March 31, 2023.
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 the Bank's website.
https://www.hdfcbank.com/content/bbp/repositories/723fb80a-2dde-42a3-9793-7ae1be57c87f/?path=/Footer/About%20Us/Corporate%20Governance/Codes%20and%20Policie/pdf/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 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. |
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. |
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. |
|
IND AAA |
India Ratings |
Instruments with this rating
are considered to have the highest degree of safety regarding timely servicing of
financial obligations. Such securities carry lowest credit risk. |
|
ICRA AAA |
ICRA |
Instruments with this rating
are considered to have the highest degree of safety regarding timely servicing of
financial obligations. Such securities carry 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. |
|
IND AAA |
India Ratings |
Instruments with this rating
are considered to have the highest degree of safety regarding timely servicing of
financial obligations. Such securities carry lowest credit risk. |
|
ICRA AAA |
ICRA |
Instruments with this rating
are considered to have the highest degree of safety regarding timely servicing of
financial obligations. Such securities carry lowest credit risk. |
Issuance of Equity Shares and Employee Stock Option Scheme (ESOP)
As on March 31, 2023, the issued, subscribed and paid-up capital of
your Bank stood at Rs 5,579,742,786/- comprising 5,579,742,786 equity shares of Rs 1/-
each. Further, 34,201,810 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, 2023, your Bank's total CAR, calculated as per Basel
III Regulations, stood at 19.3 per cent, well above the regulatory minimum requirement of
11.7 per cent, including a Capital Conservation Buffer of 2.5 per cent and an additional
requirement of 0.2 per cent on account of the Bank being identified as a Domestic
Systemically Important Bank. Tier I Capital was at 17.1 per cent as of March 31, 2023
TOTAL CAR
19.3 per cent
WELL ABOVE REGULATORY MINIMUM REQUIREMENT OF 11.70 PER CENT
Management Discussion and Analysis
Macroeconomic and Industry Developments
India's GDP registered a growth of 7.2 per cent in Financial Year
2022-23 as per latest estimates by the Central Statistical Organisation. This is a
moderation from 9.1 per cent growth in Financial Year 2021-22, largely due to the base
effect for Financial Year 2021-22 owing to the negative economic impact of pandemic in
Financial Year 2020-21. Growth was supported by pent up consumption demand and easing of
supply - side constraints as the economy looked to shake off pandemic induced disruptions.
Private consumption continued to improve, registering a healthy growth
of 7.5 per cent on strong discretionary spending. Urban demand showed resilience while
rural demand began to show early signs of recovery. Investment momentum remained strong as
private capex recovery began supported by rising Government capital expenditure. Exports
expanded at a healthy rate of 13.6 per cent in Financial Year 2022-23 crossing the $400
billion mark for the second year in a row. However, exports seemed to have lost some
momentum towards the latter half of 2022-23 as global growth headwinds rose.
On the supply side, services growth strengthened further with
improvement in contact-based services, led by trade, transport and hospitality.
Construction too experienced healthy growth as it continued the strong momentum from the
previous year. Financial services and agriculture remained steady while manufacturing
growth remained low, growing by 1.3 per cent in 2022-23. However, capacity utilisation in
manufacturing has improved, signalling that built up inventories have cleared, and we
might see an improvement in manufacturing activity going forward.
Strong and continued support by the Government including extension of
the credit guarantee scheme and Garib Kalyan Anna Yojana (Free food programme, till
December 2022) and the rural job guarantee programme helped in sustaining the recovery.
The near universal administering of COVID-19 vaccine (over 220 crore doses with more than
102 crore individuals administered at least one dose) has provided cover from the
continuous threat of new virus variants.
Overall systemic liquidity remained in surplus for much of 202223.
However, RBI started raising rates from May 2022 onwards, cumulatively increasing the
rates by 250 basis points through the year. This was necessitated mostly due to external
factors. Geopolitical tensions and sanctions, elevated prices of crude oil and other
commodities and lingering COVID-19 related supply chain bottlenecks exacerbated global
uncertainties. However, supply disruptions have now normalised, and domestic inflationary
pressures are showing signs of moderation as well.
Going forward we expect global headwinds to weigh on domestic economic
outlook. The International Monetary Fund (IMF) in its latest projections has pared India's
growth forecast for 2023-24 to 5.9 per cent from 6.1 per cent earlier citing upward
revision in base and tightening monetary conditions. However, India remains one of the
fastest growing economies in the world.
Global economic activity continues to experience a slowdown due to a
combination of factors. These include high inflation, geopolitical tensions in Europe and
elsewhere, and persistent but localised disruptions due to COVID-19 pandemic. Further, the
US regional banking turmoil has led to volatility in the financial markets, accentuating
downside risks to global economic prospects. This was cited as a major reason for downward
revision of global growth forecasts by the IMF in its economic outlook. Though India and
Indian banks remain relatively insulated from the banking turmoil, materialisation of
adverse outcomes in the global markets is likely to have ripple effects on domestic
markets as well. Moreover, India is relatively better positioned to respond to any adverse
global shocks with external stability related indicators (Short-term debt, Forex reserves,
FDI flows) remaining healthy.
On the positive side, there are supports for domestic growth as well.
The Union Budget 2023-24 increased Government's allocation on capital expenditure by 37.4
per cent to over 10 lakh crore. Further, the rationalisation of income tax slabs announced
in the Budget is likely to aid consumption demand by putting more money in the hands of
people in the lower income brackets. Manufacturing and private capital expenditure may see
improvement as inflation moderates supported by the pause in RBI's rate hike cycle.
Finally, the normal monsoon forecast by IMD augurs well for the agriculture sector.
However, risk of El-Nino negatively affecting temporal and spatial rainfall distribution
remains.
On balance, we expect India's GDP growth at 6.0 per cent in 2023-24.
Headline inflation has moderated from its peak of 7.8 per cent year-on-year in April 2022,
with a cool off in commodity prices and food inflation as well as an improvement in supply
chains. Headline inflation stood at 4.8 per cent year-on-year in June 2023. However, there
are several risks on horizon. Uneven nature of monsoons, El-Nino risk and weak progress in
Kharif sowing are some of major risks to inflation outlook. In 2023-2024, we estimate
headline inflation to average at 5.1 per cent year-on- year. We expect the RBI to keep the
policy rate unchanged at 6.5 per cent throughout 2023-2024 and see possibility of rate
cuts only in early 2024-2025.
Overall, the Indian economy remained a bright spot even as geopolitical
tensions, banking and financial sector volatility, historic inflationary highs and
COVID-19 related disturbances affected much of the large economies. The global headwinds
could cloud the economic outlook, but India's domestic resilience as reflected over
2022-23 is likely to withstand future headwinds.
Financial Performance
The financial performance of your Bank during the year ended March 31,
2023, remained healthy with Total Net Revenue (Net Interest Income plus Other Income)
rising 16.3 per cent to Rs 118,057.1 crore from Rs 101,519.5 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 20.6 per cent to Rs 86,842.2 crore. Net Interest Margin (NIM)
stood at 4.1 per cent. Gross Advances grew by 16.9 per cent and Deposits grew by 20.8 per
cent.
TOTAL NET REVENUE
16.3 per cent growth
Other Income grew by 5.8 per cent to Rs 31,214.8 crore. The largest
component was Fees and Commissions at Rs 23,844.1 crore. Within fees approximately 94 per
cent pertains to Retail. The increase in fees is largely explained by increase in the
Retail exposures. Loss on Revaluation and Sale of Investments was Rs 1,131.2 crore.
Foreign Exchange and Derivatives Revenue was Rs 4,081.9 crore, and recoveries from
written-off accounts were Rs 3,382.4 crore.
Operating (Non-Interest) Expenses rose to Rs 47,652.1 crore from Rs
37,442.2 crore. This is explained by setting up of 1,479 new branches and 1,597 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. The Cost to Income Ratio was 40.4 per cent as compared to 36.9 per cent during
the previous year owing to higher staff and infrastructure expenses
NEW BRANCHES
1,479
IN FY 2022-23
Total Provisions and Contingencies were Rs 11,919.7 crore as compared
to Rs 15,061.8 crore in the preceding year. Your Bank's provisioning policies remain more
stringent than regulatory requirements.
The Coverage Ratio based on specific provisions alone excluding
write-offs was 75.8 per cent and including general, floating and contingent provisions was
176.3 per cent. Your Bank made General Provisions of Rs 422.7 crore during the year. Gross
Non-Performing Assets (GNPAs) were at 1.12 per cent of Gross Advances, as against 1.17 per
cent in the previous year. Net NPA ratio stood at 0.27 per cent as against 0.32 per cent
in the previous year.
GROSS NPA
1.12 per cent
AS ON MARCH 31, 2023
Profit Before Tax grew by 19.3 per cent to Rs 58,485.3 crore. After
providing for Income Tax of Rs 14,376.6 crore, Net Profit increased by 19.3 per cent to Rs
44,108.7 crore from Rs 36,961.3 crore. Return on Average Net Worth was 17.39 per cent
while Basic Earnings Per Share was Rs 79.25 up from Rs 66.80.
NET PROFIT
19.3 per cent increase
IN FY 2022-23
As on March 31,2023, your Bank's Total Balance Sheet stood at Rs
2,466,081 crore, an increase of 19.2 per cent over Rs 2,068,535 crore on March 31, 2022.
Total Deposits rose by 20.8 per cent to Rs 1,883,395 crore from Rs
1,559,217 crore. Savings Account Deposits grew by 9.9 per cent to Rs 562,493 crore while
Current Account Deposits rose by 14.3 per cent to Rs 273,496 crore. Time Deposits stood at
Rs 1,047,406 crore, representing an increase of 29.6 percent. CASA Deposits accounted for
44.4 per cent of Total Deposits. Advances stood at Rs 1,600,586 crore, representing an
increase of 16.9 per cent. Domestic Loan Portfolio of Rs 1,572,454 crore grew by 17.6 per
cent over March 31,2022.
Business Review
Your Bank's operations are split into Domestic and International.
A) Domestic Business comprises the following:
Retail Banking
Your Bank's Retail Assets are built on three key principles: Industry
First Digital Offering, Optimal Pricing for Risk, and Pristine Portfolio Quality. By
adhering to these principles, your Bank has achieved an impressive 22 per cent
year-on-year growth in Domestic Retail Advances.
The Personal Loans segment has experienced strong growth, with the
overall portfolio touching Rs 171,676 crore by the end of the year. The Bank's increased
focus on the Government segment and top corporates has contributed to improved portfolio
quality.
The launch of Xpress car loans, offering seamless end-to-end digital
disbursement, has driven a 17 per cent year-on-year growth in the Auto Loan portfolio.
Your Bank has exhibited significant growth in gold loans, surpassing
other gold financiers, thanks to an expanded branch network.
Home Loan portfolio has exhibited significant growth, surpassing
industry growth rates and capturing a larger market share.
Continued emphasis is placed on digitising processes and enhancing
customer touchpoints to expand the Bank's reach. Building on the success of initiatives
like Personal Loan in 10 Seconds, Digital Loan Against Shares, and Digital Loan Against
Mutual Funds, your Bank introduced in the year under review an industry-first, completely
digital, contactless, and paperless car loan process. New customers can receive
disbursement within 30 minutes, including the Video KYC process, while existing
pre-approved customers can obtain loan disbursement in just 10 seconds. These loans are
credited to the account of the dealer.
The payments business continues to play a pivotal role in driving
balance sheet growth and is one of the stated strategic growth pillars for the Bank.
With over 85 million cards issued (credit, debit and pre-paid) and a
widely spread acceptance network across online and offline merchant ecosystem, the Bank
continues to maintain a leadership position across multiple product offerings in the
payments landscape.
In Financial Year 2022-23, HDFC Bank introduced many new products
across the payments business.
Smart Hub Vyapar, an integrated holistic banking and business solution
that caters to daily needs of merchants and helps drive business growth, was formally
launched in October 2022. The platform has witnessed widespread adoption and has onboarded
one million users across the country as of March 31, 2023.
The Credit Cards business continued to enhance its product offerings
and launched a slew of co-branded credit cards covering Retail and Wholesale business
segments. Overall, the cards business (credit, debit and pre-paid) continued to see robust
volume growth, with customer spends crossing Rs 5 lakh crore in Financial Year 2022-23.
Further, the Bank launched PayZapp 2.0, a comprehensive mobile payment
commerce app in March 2023. The app already has more than one million registrations.
Lastly, in tune with the evolving payments landscape, the business
continues to transform itself with significant investments across cloud computing,
analytics, Artificial Intelligence and Machine Learning, open APIs and cyber security. The
objective is to manage large scale and continuously grow volumes while processing
transactions in a safe and secure manner.
Virtual Relationship Banking is an integrated customer centric approach
covering three pillars - Virtual Relationship, Virtual Sales and Virtual Care. This
channel is a crucial component of its sales and customer engagement strategy. It involves
the use of technology to reach out to customers, build relationships, and promote banking
products and services. This is an effective way for the Bank to expand the managed
customer base, generate leads, and drive revenue growth.
Employees and customers are the capital for this business, and the Bank
has invested heavily in training and development of its relationship managers. Training
covers product knowledge, sales techniques, communication skills, compliance and
regulatory requirements, and customer relationship management skills.
A banking experience with digital ease and personalised conversations
is at the core of our VRM strategy. 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 and are an important component of the
Bank's customer engagement strategy.
With proper training, technology support, and compliance adherence,
this channel is a highly effective tool for the Bank to drive revenue growth, expand its
customer base, and provide excellent customer service.
Meanwhile, your Bank also added 1,479 branches during the year, taking
the total to 7,821. As of March 31, 2023, the Bank's distribution network was at 7,821
branches and 19,727 ATMs / Cash Deposit and Withdrawal Machines (CDMs) across 3,811
cities/ towns as against 6,342 branches and 18,130 ATMs / CDMs across 3,188 cities / towns
as of March 31,2022. Fifty-two per cent of our branches are in semi-urban and rural areas.
In addition, the Bank has 15,921 business correspondents, which are primarily manned by
Common Service Centres (CSCs). The total number of customers your Bank catered to as on
March 31, 2023 was over 8.28 crore, up from over 7.10 crore in the previous year.
Retail Banking - Home Loan Business
As you are aware, your Bank operates in the Home Loan Business in
conjunction with HDFC Limited. As per this arrangement, your Bank sources 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 loans for a value up to 70
per cent of the loans sourced by the Bank either through the issuance of mortgage-backed
PassThrough Certificates (PTCs) or a direct assignment of loans. The balance is retained
by HDFC Limited. Your Bank originated, on an average Rs 4,501 crore of home loans every
month in the year under review and purchased Rs 36,910 crore as direct assignment of
loans.
Third Party Products
Your Bank distributes Life, General and Health Insurance, as well as
Mutual Funds (Third Party Products) to its customers. In Financial Year 2022-23, the
income from this business increased by 23 per cent to Rs 5,455 crore from Rs 4,422 crore
and accounted for 23 per cent of Bank's total fee income.
Life Insurance
Your Bank has adopted an open architecture model for distribution of
insurance products, aimed at providing customers with a wide choice by leveraging the
product bouquet of the three insurance partners. For the year ended March 31, 2023,
the Bank mobilised premium of Rs 8,689 crore representing a
year-on-year growth of 28 per cent. The extensive distribution network, includes branches,
virtual channels, NRI services, and wealth management. The key focus would continue to be
on staff training, robust quality and control processes uniformly implemented across all
partners as well as offering integrated and seamless digital on-boarding journeys.
Currently, the Bank's NetBanking platform offers more than 60 insurance products across
all partners, accounting for over 53 per cent of the total policies.
Non-Life Insurance
Your Bank, in collaboration with its three General Insurance and two
Standalone Health and Insurance partners, has introduced innovative non-life insurance
products to expand the range of offerings and provide a comprehensive coverage to
customers. These products are accessible through both digital and physical platforms.
Employees across channels have been trained in the new products and processes. To meet
customer demands, additional manpower has been deployed across non-life insurers. As on
March 31,2023, premium mobilisation in General and Health Insurance reached a total of Rs
2,405 crore.
Mutual Funds
Your Bank follows an open architecture approach in distribution of
Mutual Funds and is currently associated with 34 Asset Management Companies (AMCs). The
Bank's Assets under Management (AUM) increased by 10 per cent to reach Rs 1,01,655 crore
for the year ended March 31, 2023. During the same period, the Bank witnessed a
significant growth of 40 per cent in Systematic Investment Plans (SIPs) mobilisation.
Through its unique Investment Services Account (ISA) offering, the Bank offers a digital
on-boarding platform to the customers for Mutual Funds' investments - 74 per cent of ISAs
were opened through digital mediums in Financial Year 2022-23.
Wealth Management
In financial year 2022-23, your Bank has focused on expansion and has
reached 923 locations through the hub and spoke model. We now cater to over 62,000
households with a 51 per cent growth in customer base. Market share in mutual fund
distribution now stands at 5 per cent. Your Bank's endeavour is to continue this expansion
into new geographies through a more granular approach.
Your Bank places a strong emphasis on a customer-centric approach. Our
commitment to an open architecture and non-proprietary framework remains unwavering. The
team of relationship managers, service relationship managers, and investment analysts work
together to provide best-in-class service. They conduct in-depth research, follow asset
allocation principles, and regularly review portfolios to add value to client investments.
The objective is to be the go-to resource for all the financial needs of customers.
Our advanced WealthFy system aims to provide highly personalised
analytics, portfolio assessment reports, sectoral / industry exposure analysis and
performance monitoring against benchmarks to our HNI customers. This new system will
enhance the experience extended by the Wealth Relationship Managers to this valued
customer segment and will also help us expand our wealth consumer base.
We are also excited to introduce our advanced unassisted digital
investment platform. This state-of-the-art mobile application brings in a new level of
convenience and accessibility to our customers. It offers milestone-based investment
recommendations, consolidated portfolio views, investment aggregation, and portfolio
analytics on the go. The aim is to democratise wealth management across all retail
customer segments and provide a highly personalised experience to everyone.
Our focus on growing recurring revenue has yielded positive results. In
Financial Year 2022-23, the wealth teams' trail income increased by 15 per cent. This
growth reflects a commitment to provide sustainable value to clients while ensuring the
long-term profitability of your Bank.
We remain focused on providing wealth management services by expanding
our presence, and leveraging technology to enhance customer experience.
Wholesale Banking
The Wholesale Banking business was an important 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
Financial Year 2022-23 with a domestic loan book size of Rs 823,254 crore, recording a
growth of 11.6 per cent over the earlier year. This constituted about 52 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 customization, cross-selling and
expanding into more geographies.
Corporate Banking, which focuses on large, well-rated companies,
continued to be the biggest contributor to Wholesale Banking in terms of asset size.
This business 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. 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 and emerged as a star performer under the ECLGS scheme.
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 Financial Year 2022-23, with a market share of 16.54 per cent. Your Bank
maintained its 2nd position in the Bloomberg rankings of Syndicated INR term
loans for Financial Year 2022-23, with a market share of 6.38 per cent. Your Bank is
actively assisting clients in equity fund raising and advisory services
In the Government business, your Bank sustained its focus on tax
collections, collecting direct tax (CBDT) of Rs 4,99,099.29 crore and Indirect tax (CBIC+
GST) of over Rs 3,45,008.23 crore during Financial Year 2022-23. 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.
The Bank has embarked on strategic digital transformation to enhance
Customer Engagement and Employee Experience and create an ecosystem for seamless banking.
The Bank is leveraging analytics for deeper insights on Corporate
ecosystems leading to better product structuring, cross sell opportunities, improved
yields, thus improving Bank's share of Revenue Pools from Corporates.
In addition to the Corporate Net Banking platform (e-Net and the new
upgraded platform CBX) and Trade Platform - Trade on Net (TON), the Bank has also launched
the new SCF transaction platform which allows digital contract bookings and disbursements
automating the SCF transactions end to end for the Corporates. Multiple Corporates have
already migrated to the platform. The Bank is also integrated with all the three TReDS
platforms. We are also partnering with Fintechs to integrate with Corporate ERP and offer
Embedded Banking in Corporate Ecosystems journeys.
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 4,081.9
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 is also a nominated agent for the bullion imports and has a
significant market share in that business.
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) International 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, 2023, the Balance Sheet size of International Business
was US$ 7.68 billion. Advances constituted 2.6 per cent of the Bank's Gross Advances. The
Total Income contributed by Overseas Branches constituted 1.2 per cent of Bank's Total
Income for the year.
INTERNATIONAL BUSINESS
US $ 7.68 billion
BALANCE SHEET
C) Partnering with the Government
Government and Institutional Business
It has been another year of steady growth for the Government and
Institutional business in your Bank. Some of the key highlights this year were:
1. Being awarded the highest number of mandates amongst the private
sector banks for SNA (Single Nodal Agency) accounts as well as Centrally Sponsored Schemes
including Jal Jeevan Mission, Atal Mission for Rejuvenation and Urban Transformation
(AMRUT), Prime Minister Awas Yojana (PMAY), Swachh Bharat Mission, National Water Mission
and Waste to Wealth Mission, among others.
2. Processing about 36 per cent of the funds i.e. Rs 6.5 lakh crore
which flowed from the Central Government to the states for development programs under the
aegis of the Centrally Sponsored Schemes, Central Sector Schemes, and the 15th
Finance Commission.
3. Being the leading agency bank with 34 per cent market share in
direct tax collections, 14 per cent in GST and 13 per cent in customs duty.
4. Enabling the extension of bank offerings to Defence and Railways
pensioners:
a. Integrating with the Railway CRIS system to enable digital
onboarding of retiring Railway officials for disbursement of their pension.
b. Signing a Memorandum of Understanding (MoU) with the Ministry of
Defence for enabling its branch network as a Pension Service Network for Defence
Pensioners through SPARSH (System for Pension Administration) portal implemented by the
Ministry for Pensioner Services.
5. Having signed an MOU with the Indian Army and Indian Navy in October
2022 for opening salary accounts for Agniveers which are benefits similar to the Defence
Salary Package.
6. Empanelled with Government of India, e-National Agriculture
Marketplace Platform of Platforms (PoP) to offer banking services to entities on e-NAM
Portal other than traders and farmers.
7. The Virtual Institutional Relationship Manager (VIRM) grew
exponentially as a sourcing channel for the Institutional business. Around 50 VIRMs
contributed ' ~757 crore worth of liability growth to the business.
8. Business continues to flow in from premium institutions. This year
we added institutions like IIM Bangalore, IIT Bhubaneshwar, IIT Kanpur. Our institutional
tie-ups also help us serve religious entities - Tirupati, Akshardham, Guruvayoor, as well
as Golden Temple and Kashi Vishwanath temple.
9. Launched two new digital products, CollectNow, an omnichannel
collections solution, the first of its kind in the industry bringing offline and online
payment modes together, and FarSight a digital dashboard to slice and dice transaction
data and monitor account limits.
D) Semi-Urban and Rural
The Semi-Urban and Rural (SURU) markets have always been a focus of
your Bank's strategy. In the last few years, your Bank has made a renewed push into these
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 and 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), and 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 and Allied activities stood at Rs
2,55,300.17 crore as on March 31, 2023.
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
HDFC Bank's product range includes pre and post harvest Crop Loans,
Farm Development/Investment Loans, TwoWheeler 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.
Your Bank has also been a leading participant in the Agri
Infrastructure Fund scheme and has been achieving the allocated targets of the last few
campaigns run by the Government.
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, the Government of India has
announced several schemes/enablers across several sectors, particularly in the agriculture
sector. Your Bank is implementing almost all such initiatives/schemes targeting multiple
stakeholders in the agri ecosystem.
Agriculture Infrastructure Fund (AIF) Scheme: Through this scheme the
Bank is offering medium to long-term debt for investment in viable projects pertaining to
post harvest management and infrastructure development like construction of
warehouses/silos. As on March 31, 2023, your Bank has sanctioned Rs 1,881 crore covering
2,205 projects and disbursed Rs 1,136 crore covering 1,445 projects.
Your Bank has managed to secure the second position among scheduled
commercial banks under the AIF scheme by actively participating in campaigns conducted by
Project Monitoring Unit (PMU). Your Bank achieved 172 per cent of the assigned target
under the NOBOL campaign (15th July to 18th September 2022) with Rs
431 crore worth of sanctions against a target of Rs 250 crore. Your Bank secured the first
position in terms of percentage achievement.
Under the Bankers Enabling Sustainable Transformation (BEST) campaign
(1st January to 15th March 2023), HDFC Bank secured the second
position (among all participating banks) in terms of value i.e., Rs 649 crore worth of
sanctions against a target of Rs 700 crore. Your Bank has been honoured by the Ministry of
Agriculture for this.
Pradhan Mantri Formalization 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. In the current financial year
loans worth Rs 205 crore have been sanctioned for 1,091 projects and Rs 161 crore has been
disbursed to 765 projects.
Other Agri schemes include Agri Marketing Infrastructure Fund, Animal
Husbandry Infrastructure Fund, Agri Clinic and Agribusiness Centres, Mission for
Integrated Development of Horticulture (MIDH), Stand up India, Credit Guarantee Fund for
Micro Units as well as state specific Government schemes.
To address high volume and low value ticket loans in AgriBusiness with
a digital optimization strategy, your Bank plans to onboard AgriTech-BCs with
differentiated business models.
These AgriTechs will help source and service small and marginal
farmers.
Funding Small and Marginal Farmers (SMFs)
Your Bank views lending to the agriculture sector, including to small
and marginal farmers as a huge opportunity and not just a regulatory mandate to meet
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 HDFC Bank to establish a strong
footprint in the rural geographies, which it has now leveraged to increase its penetration
of liability products.
In the last financial year, your Bank serviced customers in
165.000 villages. The rural banking teams have reached out to these
villages with various suite of agriculture products. Your Bank is looking at growing the
numbers in the coming year to 200.000 plus villages with a plethora of interventions.
Further, your Bank has put in place a strategy to engage closely with
small and marginal farmers through customised agriculture loans. It has launched various
secured/unsecured loan products, including loan against gold as security targeting small
and marginal farmers in agri and allied segment while leveraging the Government schemes.
Farmer Producer Organisations (FPOs): For agriculture productivity
and incomes to grow, aggregation of farm holdings in the form of FPOs is the key strategy
in doubling farmers' income. Leveraging the Government scheme for formation and promotion
of 10,000 new FPOs (Credit guarantee is available from NABARD/CGTMSE), your Bank is
funding eligible FPOs for working capital and term loan requirements. As on March 31,
2023, your Bank was able to reach 118 FPOs covering 74,000 small and marginal farmers.
Dairy
Dairy is the largest segment in the agriculture economy and keeping
this in mind, your Bank has created a separate team of agriculture specialists to cater to
this segment. In Financial Year 2022-23 the Bank has disbursed an amount of Rs 895.89
crore to 66,000 small and marginal farmers for Cattle finance.
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 5.9 lakh dairy farmers. The Dairy
business witnessed 86 per cent year-on-year growth in disbursements and 78 per cent in the
book.
Substituting Moneylenders:
The Bank is strategically expanding its presence in a market that was
previously dominated by unorganized sectors such as moneylenders and pawn brokers. A major
goal of the Bank is to make the gold loan facility accessible across the entire country.
In Financial Year 2022-23, the Bank successfully expanded its gold loan services to 2,827
additional branches, bringing the total number of branches offering this service to 4,189.
At the end of the year, the Bank's gold loan portfolio amounted to Rs 11,026 crore.
The bank is implementing its blueprint for making gold loans available
in most of its branches and thereby taking gold loan product to otherwise untapped
customer segments.
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. As on March 31, 2023, your Bank's assets
in the MSME segment stood at Rs 363,618 crore. The Micro Enterprises assets alone stood at
Rs 139,115 crore.
The Union Government and the Reserve Bank of India (RBI) provided
special support to the MSME sector during the pandemic through various schemes, such as
Interest Moratorium, ECLGS, ECLGS extension, and COVID support loans. The Government has
also launched a revamped CGTMSE scheme with increased limit threshold for guarantee cover
and reduction of guarantee fee.
Your bank emerged as the largest contributor to CGTMSE this year,
supporting the MSME sector with guarantee-covered credit facilities. This has further
supported the growth of MSME loans, which have shown a year-on-year growth of 22.5 per
cent. The Bank also supported its customers through the ECLGS and ECLGS extension schemes
this year and provided ad hoc enhancements as needed. HDFC Bank continued to be a star
performer under the ECLGS 1.0, 2.0, 3.0, and ECLGS extension schemes. It disbursed loans
amounting to Rs 44,823 crore to over 1.25 lakh customers under these schemes. The Bank
continued to provide swift support to existing customers after the Government announced
the extension of the ECLGS scheme.
The pace of digitalisation among MSMEs has accelerated, which has
helped to speed up the pace of disbursement and increase transparency in the sector.
Customers can now apply online and submit required documents digitally, and they can also
execute post-sanction agreements digitally to avail of facilities quickly with
straight-through disbursement. The Government's digitalisation push, the adoption of GST,
and reforms in return filings, such as income tax, have made it easier to access customer
cash flow and financial data, which can be used to support decisionmaking and portfolio
monitoring.
The SME portal continues to offer ad hoc approvals and preapproved
Temporary Overdrafts (TODs) on a Straight Through Processing (STP) basis to existing
customers. They can request a top-up of loans and submit the required documents online.
The SME portal also allows customers to access your Bank's services related to sanctioned
credit facilities 24/7 from anywhere. We have also enabled customers to download various
certificates and statements as needed on an ongoing basis.
On the trade side, your Bank focuses on customer engagement to increase
the penetration of Trade on Net applications. Trade on Net is a complete enterprise trade
solution for customers engaged in domestic and foreign trade. It enables them to initiate
and track requests online seamlessly, reducing time and costs.
Taking Banking to the Unbanked
As a responsible banker, one of our commitments is to take banking
solutions to the farthest and remote areas of the country and enable under-banked sections
of the population to access formal financial channels. Our extensive physical network and
robust digital suite of products and services enables our vast reach across India. About
half our branches are in in rural and semi-urban areas. Our banking solutions provide last
mile access through mobile applications such as BHIM, UPI, USSD, Scan and Pay, and Aadhaar
and RuPay enabled Micro-ATMs.
To bring more under-banked sections of the population into formal
financial channels, your Bank has opened over 29.18 lakh accounts under the Pradhan Mantri
Jan Dhan Yojana (PMJDY) and enrolled 41.73 lakh customers in social security schemes since
inception Your Bank has also conducted Financial Literacy camps through Rural Branches and
designated Financial Literacy Centres.
In the year under review, loans to the tune of Rs 14,551 crore to 18.82
lakh beneficiaries were extended under the Pradhan Mantri Mudra Yojana (PMMY) and nearly
Rs 344 crore to 1,502 beneficiaries under the ‘Stand up India' scheme to Scheduled
Caste, Scheduled Tribe and women borrowers.
Your Bank has also actively supported PM Street Vendors 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 29,984 street vendors to support them and has also educated the street
vendors in using the digital mode for making financial transactions. In compliance with
regulatory guidelines, your Bank offers Aadhaar enrolment and updation services in
branches that are designated as Aadhaar Seva Kendras. To date, these Kendras have
successfully processed more than 5.3 million enrolments and updations.
Sustainable livelihood initiative
This is primarily a social initiative with elements of business. It
entails skill training, livelihood financing, and creating market linkages.
E) Environmental Sustainability
Sustainability is one of the core values of the Bank.
F) Business Enablers
1) People
People is one of the core values of the Bank.
2) Information Technology Summary
HDFC Bank has embarked on a transformative path. Adoption of
state-of-the-art information technology and communication systems along with the use of
new-age tech and automation in key areas has been empowering our transformation.
With our Digital 2.0 Program, HDFC Bank is fully geared to usher in the
new era of banking with various tech and digital launches paving the way for us to further
consolidate our market position and domain led expertise.
Efforts in fortifying our IT infrastructure and architecture by
building a robust and secure ecosystem at scale along with our marquee tech initiatives
such as Hybrid Cloud Landing Zone, DC Migration, TradeFlow and CBX have been pivotal to
the Bank in moving from strength to strength in its transformation journey.
Technology Absorption
The Bank is accelerating the Technology and Digital Transformation
agenda. We continue to stay invested in creating a seamless digital and customer
experience across digital touchpoints. Our focused Factory approach proves as a catalyst
in building our own capabilities to co-create Tech IP. Additionally, imbibing of Agile and
DevSecOps principles and practices and Cloudification of our tech stack are pivotal
enablers in the next leg of our Tech and Digital transformation journey.
Marching along our Tech and Digital Transformation agenda, we have
taken significant strides in building robust IT capabilities. Our Factory approach has
facilitated the co-creation of Tech IP while imbibing the Agile and DevSecOps principles
and practices supported by cloudification.
With progressive modernisation of our Core Banking Applications and
Technology Infrastructure, HDFC Bank has reinforced its technology and innovative prowess
by undertaking key initiatives such as:
• PayZapp 2.0: We have launched the modernised PayZapp
2.0, a payments app with a seamless and intuitive user interface and
enhanced security to provide a superior customer experience. PayZapp 2.0 also brings about
several quality-of-life improvements over the previous app and provides new-age
functionalities such as Limit management, Auto-linkage of HDFC Bank cards, enhanced
onboarding experience and rich statements. PayZapp 2.0 was re-built from grounds up and
launched in March, 2023.
The app has been well received by the customers growing to a user base
of over 1.1 million in just 45 days of its launch. It is the first app enabled with Rupay
credit card for UPI payments. Till date PayZapp has facilitated over 65 lakh transactions
and has seen 1.5X increase in the average spend.
• SmartHub Vyapar: The one-stop business and banking solution
designed and developed to serve the business needs of Micro and Small Enterprises (MSMEs)
is being continuously enhanced with new use cases bundled as part of various rollouts. The
latest rollout included on-boarding for select segments of Savings Account customers, a
General Purpose Reloadable (GPR) prepaid card wherein, the merchant as a customer can
apply and load money and other app linked enhancements. The continuous enhancements over
time have aided in scaling up to reach 1.5 million merchants. The app handles over 18 lakh
transactions daily and has earned a 4.9 average rating on Play Store and 4.6 on App Store.
Besides, SmartHub has facilitated the disbursement of over Rs 10,000 crore worth of loans.
• Onboarding and Servicing Journeys: We have accelerated our
digitisation agenda after carrying ahead the momentum from the previous years in truly
digitising our customer journeys. The Onboarding Journeys enable smoother and
consistent customer experience by expanding the offerings on the Bank's platforms. A few
of the onboarding journeys added are New to Bank Credit Cards, Existing to Bank Credit
Cards without offer, Gold Loan and SmartHub lead form and Sovereign Gold Bond. In addition
to the above our Servicing Journeys such as Debit Card hot listing and re-issue,
Nomination/Email updation, etc have also been rolled out. Journeys such as Individual
Current Account, Business Loan for Existing and New to Bank customers without offer are in
their final stages before launch.
• HDFC Bank One (Customer Experience Hub), the
AI/ML driven conversational bot which transformed our on-premises
contact centre into a singular centralised platform is further being expanded. It has been
rolled out pan-India covering contact centres including Inbound Phone Banking, Interactive
Voice Response (IVR) selfservice, virtual relationship management teams and telesales.
Over the past quarter we have made telesales available in five more locations, Inbound
Phone Banking (IPBK) live in one more location, IVR live in two more locations. With the
launch of HDFC Bank One, we have witnessed significant improvements in our customer
engagements owing to the omni-channel experience being provided across WhatsApp chat
banking, SMS banking, IVR and Agent assisted. HDFC Bank One has contributed to a 44 per
cent reduction in case resolution time, 64 per cent reduction in turnaround time both for
email as well as an average reduction of 324 seconds in handling time for voice care.
• Xpress Car Loans: XCL, the first of its kind end-to-end
digital lending journey platform facilitating instant and hassle-free car loan disbursals
to existing as well as new- to-bank customers has been witnessing a tremendous response.
The average monthly disbursement has exceeded Rs 550 crore over the past 3 months. The
platform will be further enhanced by engaging with leading car dealerships and
manufacturers to offer seamless loan disbursals and purchase experiences across the
country.
Some key highlights of this initiative:
1. Over 50,000 car loans disbursed digitally on the platform since its
launch.
2. Total value of loans disbursed over Rs 3,900 crore.
3. 20 per cent of our total car loans are now being facilitated through
XCL.
4. Disbursal takes less than 30 minutes.
• Our Digital Distribution Platform was launched in April,
2023. With this platform, we have digitally enabled our network of Corporate Business
Correspondents and Business Facilitators by providing them an omnichannel experience for
the digital journeys of products such as Gold Loan, Home Loans, Kisan Gold Card, Sales
Accounts, Recurring Deposits, Fixed Deposits, etc. which are focusing specifically on
rural locations. This portal has been made available for agents as well as partners.
• Cattle Finance: Dairy Cattle Finance app, our one- touch
solution is developed to facilitate dairy farmers by providing them with a single platform
for an end-to-end digital processing of their applications. Beginning with onboarding, the
platform encompasses everything till disbursement leading to a significant reduction in
the turnaround-time thus enhancing customer experience. Since its public launch in
December, 2022, Cattle Finance has processed over 2,700 applications. This journey was
conceptualised, documented, designed, developed, and launched all within a mere 30 days
showcasing our Bank's agility in new product development. The app was initially launched
in eight districts of Gujarat with plans to rollout in Uttar Pradesh, Rajasthan and Punjab
in place.
We have taken multiple steps to ensure that our robust, scalable, and
secure technology setup is strengthened even further. We continue to rigorously monitor
the progress against the commitments made to the regulator.
To this effect, significant strides were taken in the following
Technology areas:
• Data Centre Migration: We have successfully migrated our
primary data centre to state-of- the-art facilities in Mumbai and Bengaluru. Our
comprehensive planning program spanning over 12 months helped achieve a seamless migration
of all production and User Acceptance Testing (UAT) applications.
• Cloud Strategy: We have progressed on our Hybrid- Cloud
strategy with the successful implementation of a common landing zone with leading cloud
service providers. This enables the creation of a secure and streamlined environment for
all cloud deployments in the future and furthers the bank's agenda of imbibing agility and
modern software development practices in our transformation journey.
• TradeFlow: TradeFlow has entirely transformed our Trade
Finance solution by building a centralised state-of-the-art platform, providing
improvement in reliability and usability for end-users. This application is entirely built
on the cloud and employs various automations that abet its' integration with over 15
applications. With revolutionary features such as a dynamic MIS, informative dashboard,
single view of all dependencies as well as its ability to integrate with various trade
finance peripheral applications, TradeFlow proves to be the one-stop application for all
our Trade users. Currently the platform is live across all Trade processing branches,
processing an average of over 6,000 transactions per day.
• Revamping Corporate Net Banking: Corporate Banking eXchange
(CBX) is our unified corporate banking portal specifically designed to cater to the
net-banking needs of corporates. Having the capability to transact and process via both
mobile and the internet portal, this system now handles over 87,000 active domains. We
have already migrated about 99 per cent of our customers to CBX and the remaining are
planned to be inducted in the quarter starting Financial Year 2023-24. Further, this new
portal offers superior customer convenience and experience with its' added modern features
such as customised narration, enhanced authorisation level and, a contextual Help
dashboard.
• Loan Origination and Management
Transformation: Our next generation loan origination and management
system designed for Commercial and Rural Banking is built on the cloud. Equipped with a
future ready technology architecture and design, the platform consolidates a multitude of
internal applications incorporating the robustness of our processes and workflows within
it. With features such as proposal initiation, credit evaluation, operational checks,
disbursement and post disbursement monitoring, the proposed solution will eventually span
across the digital frontend, backend and surround systems.
• Branches: The IT team worked extensively in onboarding and
making IT ready over 1500 branches reaching this record number within the span of a year.
• UPI: HDFC Bank's UPI has continued to move from strength to
strength with a substantial year-on-year growth both in value as well as volumes. Now,
with the successful implementation of the Active-Active architecture of UPI we can process
records from National Payments Corporation of India (NPCI) DR and its' PR site
simultaneously. This will play a significant role in laying the foundation for our HDFC
Bank UPI Active-Active design. Efforts on UPI mandates at the launch time of the LIC IPO
proved fruitful as HDFC Bank was selected for the main IPO among the top 5 banks. UPI will
be enhanced further with the introduction of UPI Lite with its first issuer scheduled to
go-live across the country.
• FynDNA Governor Solution: Governor Solution is our recently
developed adaptive rate limiter deployed between the source and destination system
(whether Cloud or On-premises), which plays the key role of intelligently managing and
controlling the exchange of transactions basis the health of the destination system. This
monitoring mechanism allows for detailed analysis of the performance of the destination
system, enabling detection of any irregularities and avoiding performance deterioration.
• ATM Hard Disk Encryption: With the implementation of Full
Hard Disk Encryption, the Bank has further fortified the security structures at our ATMs,
mitigating the risk of an attack on the machine posed by system booting through a USB/ CD
or DVD. Currently, over 12,000 ATMs' have been encrypted with additional encryption plans
for the remaining already in place.
• SDWAN: Software-Defined Wide Area Network has been rolled
out across over 2,000 locations enabling the management of network devices through
software as opposed to the traditional usage of hardware switches, routers, etc. It
assists in creation of a centralised control centre thereby improving performance and
reliability for users.
• Bank Tokenization: We are the only bank to implement
"Bank Tokenization" in addition to "Network Tokenization" facilitating
enablement of On-us transactions resulting in huge savings.
• ATM hard disk encryption - Our ATMs are being further
secured by Hard Disk Encryption. It has already been carried out in over 9,000 ATMs with
the remaining still in progress.
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. 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. The Bank has upgraded its monitoring and detection by
deploying next generation security incident event management solution (SIEM) fueled by
artificial intelligence (AI) and machine learning (ML) capabilities along with its strong
UEBA (User Entity Behavioural Analysis) functionalities and inbuilt threat modelling. This
initiative and approach to leverage AI and ML as an entire suite to proactively detect and
respond to threats is seen as the first in the industry.
• Introduction of Security Orchestration, Automation and 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 deeply ingrained in the
ethos of your Bank. With a holistic approach, your
Bank continuously strives to enhance customer experience, recognising
the significance of this in a highly competitive business environment, especially with
diverse lines of businesses. Ensuring exceptional product quality and service delivery
becomes paramount for sustained growth. Your Bank desires to achieve this by seeking
customer feedback as well as benchmarking with best-in-class business entities and
facilitating the implementation of customer-centric improvements. 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 PhoneBanking, and on the other side, it has
state- of- the-art platforms like NetBanking, 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 by
introducing a Virtual Relationship Manager (VRM) programme to cater to various financial
needs in a personalised manner. Customer service performance and grievance redressal are
regularly assessed at different levels, including Branch Level Customer Service Committees
(BLCSCs), Standing Committee on Customer Service (SCCS) and Customer Service Committee of
the Board (CSCB). Your Bank has implemented robust processes to monitor and measure
service quality levels across touchpoints, including at product and process level, through
diligent work of the Quality Initiatives Group.
The Service Quality team conducts regular reviews across various
products, processes and channels, focusing on improving the customer experience. A unique
Service Quality Index (SQI) has been developed to measure the performance of key customer
facing channels based on critical customer service parameters. This SQI enables continuous
improvement initiatives to raise service standards. The effectiveness of the quality of
service provided is also extensively reviewed, including at 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. Your Bank has developed a comprehensive Grievance Redressal Policy, duly
approved by the Board, which outlines a framework for resolving customer grievances. This
policy is accessible to customers through the Bank's website and branch network.
Your Bank actively participated in RBI's Nationwide Intensive Customer
Awareness campaign, aiming to enhance customer awareness on their rights and
responsibilities in context of the customer service standards and the Internal Grievance
Redress (IGR) provided by the Regulated Entities and Alternate Grievance Redress (AGR)
mechanism of RBI. The initiative emphasised to customers about the self-protection
measures for safeguarding against the growing incidents of digital and electronic
financial frauds, reaching even the farthest and remotest areas of the country.
Your Bank has created multiple channels for customers to provide
feedback and register grievances, facilitating a transparent and accessible system. As a
pioneer in innovative financial solutions and digital platforms, your Bank has witnessed
an increased utilisation of its digital channels, resulting in improved 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 unauthorised 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 empathise 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.
Your Bank remains committed to placing the customer at the centre of
its operations. By consistently improving customer experience, adopting an omnichannel
approach, and implementing robust service quality and grievance redressal mechanisms, your
Bank aims to exceed customer expectations and build lasting relationships.
Risk Management and Portfolio Quality
Your Bank's historical focus on Pillar 1 risks, including Credit Risk,
Market Risk, and Operational Risk, has been expanded in response to the evolving banking
landscape. Liquidity Risk, Information Technology Risk, and Information Security Risk have
also emerged as critical considerations. These risks not only impact your Bank's financial
strength and operations but also its reputation. To address these concerns, your Bank has
established Board-approved risk strategy and policies overseen 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
• Intraday 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 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 comprehensive credit risk architecture,
policies, procedures, and systems for managing credit risk in its retail and wholesale
businesses. Wholesale lending is managed on an individual as well as portfolio basis. In
contrast, given the granularity of individual exposures, retail lending is managed largely
on a portfolio basis across various products and customer segments. Robust front-end and
back-end systems are in place to ensure credit quality and minimise default losses. The
factors considered while sanctioning retail loans include income, demographics, credit
history, loan tenure, and banking behavior. In addition, multiple credit risk models are
developed and used to assess different segments of customers based on portfolio behavior.
In wholesale loans, credit risk is managed by capping exposures based on borrower group,
industry, credit rating grades, and country, among others. This is backed by portfolio
diversification, stringent credit approval processes, periodic post-disbursement
monitoring, and remedial measures. Your Bank has ensured 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 31,2023, your Bank's ratio of Gross Non-Performing Assets
(GNPAs) to Gross Advances was 1.12 per cent. Net NonPerforming Assets (Gross
Non-Performing Assets Less Specific Loan Loss provisions) was 0.27 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 technological advancements, the banking sector is
witnessing the increasing importance of digitalisation as a critical differentiator for
customer retention and service delivery. Digital lending has emerged as a convenient and
quick method for customers to secure loans with just a few clicks, often in minutes, if
not seconds. However, addressing the risks associated with digital lending is crucial, and
your Bank has implemented appropriate measures to manage these risks effectively. Digital
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 accessibility facilitates the evaluation of their loan
eligibility. Moreover, the credit checks and scores used by your Bank in process based
underwriting are replicated for digital loans. This ensures consistency in the evaluation
process. To further enhance risk management, your Bank has established an independent
model validation unit responsible for assessing the credit scoring models utilised in
generating credit scores for digital loans. These models are subject to ongoing
monitoring, periodic reviews, back-testing, and corrective actions are implemented
whenever necessary.
By implementing these measures, your Bank aims to balance the
convenience and speed of digital lending with associated risks.
Market Risk
Market Risk arises primarily 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. Your Bank's Market Risk capital charge is computed
daily 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
liquidity and interest rate risk management framework is spelled out through a
well-defined Board approved Asset Liability Management Policy. As part of this process,
your Bank has established various Board-approved limits for liquidity and interest rate
risks in the banking book. The Asset Liability Committee (ALCO) is a decision-making unit
responsible for implementing the liquidity and interest rate risk management strategy of
the Bank in line with its risk management objectives and ensures adherence to the risk
tolerance/limits set by the Board. ALCO reviews the policy's implementation and monitoring
of limits. 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 in the banking book. 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 has the
necessary framework to manage intraday liquidity risk.
The Liquidity Coverage Ratio (LCR) is one of the Basel Committee's key
reforms to develop a more resilient banking sector. The 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. The LCR helps in improving the banking sector's ability to
absorb shocks arising from financial and economic stress, whatever the source, thus
reducing the risk of spill over from the financial sector to the real economy. Based on
Basel III norms, your Bank's average LCR stood at 115.51 per cent on a consolidated basis
for financial year 2022-23 as against the regulatory threshold at 100 per cent.
AVERAGE LIQUIDITY COVERAGE RATIO
115.51 per cent
ON A CONSOLIDATED BASIS FOR FY 2022-23
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 NSFR promotes resilience
over a longer-term time horizon by requiring banks to fund their activities with more
stable sources of funding on an ongoing basis. The RBI guidelines stipulated a minimum
NSFR requirement of 100 per cent at a consolidated level and 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 119.13 per cent on a consolidated basis at March 31, 2023.
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 Information 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. With advent of new technology tools and increased sophistication, Bank
has improved its efficiency, reduced operational complexities, aided decision making and
enhanced the accessibility of products and services. This results in various risks such as
those associated with the use, ownership, operation, redundancy, 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, business continuity plan,
Disaster Recovery (DR) resiliency, Security Enhancements, Public Cloud and Cloud native
services adoption and Enhanced Automated Monitoring mechanisms to mitigate Information
Technology and 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 function 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
periodically undergo mandatory business continuity awareness training and sensitisation
exercises on a periodic basis.
For details on business continuity and crisis management measures,
please refer page no. 64.
For details on robust cyber security measures, please refer page no.
62.
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
recommended to prevent recurrence.
Fraud Monitoring committees at the senior management and Board level
also deliberate on high value 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. 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 historically observed
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 a robust BCP program in place that enabled it to continue
to operate and deliver quality services during COVID and beyond. Our ISO22301:2019
certified Business Continuity Program enables us to minimize service disruptions and
potential impact on our 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 of the program 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 teams involved in Crisis
Management, Business Recovery, Emergency Response, and IT Disaster Recovery.
Some of the key roles in this program are as follows:
• Steering Committee for centralized monitoring of your Bank's
Business Continuity program implementation
• Crisis Management teams for effective management of recovery
operations during disruptive events
• Dedicated DR site for recovery of critical core and customer
facing applications
• Functional recovery plans for structured and speedy recovery of
operations
• Periodic drills are done for testing the effectiveness of these
recovery plans.
As a responsible Bank, these robust practices have enabled us to
continue delivering services seamlessly to customers through the disruptive events and
beyond.
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 touchpoints 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 defence 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 proactively
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 (I RB)- 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 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.
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 firm.
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.
TRANSACTING CUSTOMERS OF HSL
11.93 lakh
HDFC Securities Limited (HSL)
HSL's Total Income under Indian Accounting Standards was Rs 1,891.6
crore as against Rs 1,990.3 crore in the previous year and Net Profit was Rs 777.2 crore
as against Rs 984.3 crore in the previous year. The company has a customer base of 44.87
lakh to whom it offers an exhaustive range of investment and protection products. In the
year under review, HSL had 11.93 lakh transacting customers. The focus on digitalisation
continued. Notably, 92 per cent of its customers accessed its services digitally, against
91 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
209 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 3,190 crore, against the average book size of Rs 2,992 crore in the last
financial year. The book size at the year-end stands at Rs 2,752 crore.
Nifty started Financial Year 2023 on a weak note and touched a low in
June 2022 as the US Fed stepped up monetary tightening following a surprise inflation
number in the US. Nifty rose later as crude prices began to fall and softer economic data
from the US raised hopes that the US Fed may not opt for aggressive rate hikes. Nifty
touched a new high in December 2022. This was driven by improving economic numbers in
India and persistent buying by FPIs and locals. A bout of correction followed and the
fiscal year ended with Nifty closing marginally in the negative. In Financial Year 2023,
Nifty outperformed the US markets but ended being behind the European and Japanese
markets. Nifty Midcap 100 index ended 1.1 per cent higher while the Nifty Smallcap 100
index ended 13.8 per cent lower. Within sectors, Capital Goods, Banks, FMCG and Auto
indices rose smartly, while IT, Metals, Realty and Healthcare indices ended in the
negative. As on March 31, 2023, your Bank held 95.6 per cent stake in HSL.
HDB Financial Services Limited (HDBFSL)
HDB Financial Services Limited (HDBFSL) is a subsidiary of the Bank and
is a Non-Banking Finance Company (NBFC). It specialises in providing credit solutions to
fulfil the varied needs of its customers which include first-time borrowers and the
underserved segments.
HDBFSL has continued to focus on diversifying its products and
expanding its distribution while augmenting its digital infrastructure and offerings to
effectively deliver credit solutions. It has a strong network of over 1,492 branches
spread across 1,054 cities. As on March 31, 2023, your Bank held 94.8 per cent stake in
HDBFSL.
Synopsis of its performance across key parameters is as below:
Key Parameters |
FY 23
(Rs crore) |
FY 22
(Rs crore) |
% Increase |
Net Interest Income |
5,416 |
5,037 |
7.9 |
Profit afer Tax |
1,959 |
1,011 |
93.7 |
Loan Disbursements |
44,802 |
29,033 |
64.8 |
Assets under |
70,084 |
61,444 |
14 |
Management (AUM) as at year
end |
|
|
|
A deeper insight into its business and products and services is as
below:
LOANS
HDBFSL offers a diverse range of product offerings (secured and
unsecured) to various customer segments. These include Consumer Loans, Enterprise Loans,
Asset Finance and MicroLending.
Consumer Loans
Consumer loans are provided to individuals for personal or household
purposes to meet their short to medium term requirements. It comprises loans for consumer
durables, lifestyle products and digital products, Personal Loans, Auto Loans for new and
used cars, Two-Wheeler Loan and Gold Loan.
Enterprise Loans
HDBFSL offers secured and unsecured loans designed to meet the needs of
Small and Micro Enterprises including working capital and term loans. Various types of
loans are offered to meet the diverse financial needs of the enterprises. The loans
offered include Unsecured Business Loan, Enterprise Business Loan, Loan Against Property,
Loan Against Securities and autorefinance. These loans cater to the financial requirements
of enterprises for the purchase of new machinery, inventory, or revamping the business,
among others.
Loan Against Property is offered for the purpose of business
expansion or as working capital. HDBFSL also provides loan against rental income
receivable on leased property, and accepts securities like insurance policy, debt
instruments, depending on the customer's financial profile and ability. Loan Against
Securities ensures that customers can meet their immediate cash requirements by pledging
their investments or securities like insurance policy, debt instruments and bonds with
HDBFSL without having to liquidate them. Auto Refinance is working capital loans offered
to customers, which can be availed on hypothecation of vehicles.
Asset Finance
HDBFSL provides loans for the purchase of new and used commercial
vehicles and construction equipment that generate income for borrowers. It also offers
working capital loans through refinancing of existing vehicles. The customer base includes
fleet owners, first-time users, first-time borrowers, and captive use buyers. HDBFSL also
facilitates loans for procurement, refinancing, or repurchase of construction equipment,
as well as customised tractor loans to meet agricultural or commercial needs.
Micro Lending
HDBFSL offers micro-loans to borrowers through the Joint Liability
Groups (JLG) framework to empower and promote financial inclusion for sustainable
development.
These loans were initiated in 2019 and are currently available in seven
states including Maharashtra, Bihar, Rajasthan, Gujarat, Madhya Pradesh and Odisha,
covering 67 districts.
Fee-Based Products/Insurance Services
HDBFSL has a licence from the Insurance Regulatory and Development
Authority of India (IRDAI) and is a registered Corporate Insurance Agent certified to sell
both Life and General (Non-Life) insurance products. HDBFSL has tie-ups with HDFC Life
Insurance Co. Ltd. and Aditya Birla Sun Life Insurance for life insurance products. HDBFSL
has partnered with HDFC Ergo General Insurance Co. Ltd. and Tata AIG General Insurance Co.
Ltd. for general insurance products.
BPO Services
HDBFSL 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. HDBFSL also delivers
back-office services such as forms processing, document verification, finance and
accounting services, correspondence management and front office services such as contact
centre management / outbound marketing.
The Enablers
HDBFSL's presence across digital channels enables it to offer a
wide variety of financial solutions to its customers. They can access and manage their
loan account 24/7 through its new, upgraded version of Mobile Banking Application with
enhanced features - ‘HDB-On-the-Go', Customer Service Portal to manage the loan
account, Missed Call Service, WhatsApp Account Management and the Chatbot #AskPriya.
Other Statutory disclosures
Number of Meetings of the Board, attendance, meetings and constitution
of various Committees
Fifteen (15) 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 draft of
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 31,2023 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 Price Waterhouse
LLP, Chartered Accountants, have conducted the joint statutory audit of the Bank for FY.
2022-23, pursuant to the approval of the RBI and the shareholders of the Bank.
The Audit Committee at its meeting held in June 30, 2023 has approved
the audit fees to be paid to M.M. Nissim & Co. LLP, Chartered Accountants (MMN) and
M/s. Price Waterhouse LLP, Chartered Accountants (PW) subject to approval of the
shareholders at the ensuing Annual General Meeting (AGM).
Appropriate resolution in this regard is also being proposed at the
ensuing AGM. During the year ended March 31,2023, fees paid to the statutory auditors and
their respective network firms on aggregated basis are as follows:
(Rs crore)
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
audit/ attestation services |
3.25 |
|
|
Non-audit services |
- |
- |
- |
Outlays |
0.19 |
- |
- |
Total |
7.29 |
- |
- |
* Includes fees to MSKA & Associates, Chartered Accountants, who
completed their tenure as joint statutory auditors during the year.
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 M. M. Nissim & Co. LLP.,
Chartered Accountants, to this effect.
Corporate Social Responsibility
The composition of Corporate Social Responsibility & ESG Committee,
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://v.hdfcbank.com/csr/our-commitment.html.
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 9 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 the investigation is furthered assigned to an
appropriate Investigation Officer(s) depending on the nature of the subject matter of 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 2022-23, a total of 177 such
complaints were received and taken up for investigation which has resulted in certain
staff actions in 57 cases post investigation. The broad categories of whistle blower
complaints were in the areas of misappropriation of bank / customer funds, forgery related
cases, improper business practices, behavioural 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.
The Court vide its Order dated May 1, 2023 granted the Bank's motion to
dismiss the securities class action complaint filed against HDFC Bank, Mr. Aditya Puri and
Mr. Sashidhar Jagdishan. The Court had provided 30 days time to the Plaintiff to seek
leave to file further amended complaint. The Plaintiff has not filed amended complaint
within the stipulated time frame and thus the Court vide its further order dated 8th
June has dismissed the Plaintiff's claim and closed the case.
Material Developments: Scheme of Amalgamation
The Board of Directors (the "Board") of the Bank in its
meeting held on April 04, 2022, had approved a composite scheme of amalgamation (the
"Scheme") for the amalgamation of: (i) HDFC Investments Limited and HDFC
Holdings Limited, each a subsidiary of HDFC Limited, with and into HDFC Limited, and (ii)
HDFC Limited with and into HDFC Bank (the "Amalgamation"). Based on the
valuation provided by the Independent Registered valuers the share exchange ratio arrived
and approved by the Board was 42 equity shares of HDFC Bank (each having a face value of
Rs 1) credited as fully paid for every 25 equity shares of HDFC Limited (each having a
face value of Rs 2).
The parties to the Scheme inter alia filed a Joint Company Scheme
Application with the National Company Law Tribunal, Mumbai Bench ("NCLT").
Pursuant to the order dated October 14, 2022 passed by NCLT, shareholders' meetings of
HDFC Bank and HDFC Limited, respectively, were convened and held to approve the Scheme.
The Scheme was approved by the requisite majority of shareholders on November 25, 2022.
Post receipt of the said shareholders' approval, the parties to the Scheme filed a Joint
Company Scheme Petition before the NCLT seeking sanction of the Scheme. The NCLT, after
hearing the parties to the Scheme, sanctioned the Scheme vide its order dated March 17,
2023.
The relevant parties to the Scheme also obtained no-objection/ approval
letters from the Reserve Bank of India, the Securities and Exchange Board of India, the
stock exchanges, the Competition Commission of India, the Insurance Regulatory and
Development Authority of India, the Pension Fund Regulatory and Development Authority and
other statutory / regulatory authorities.
Considering the aforesaid, the Board of Directors of the Bank, at its
meeting held on June 30, 2023, approved July 01, 2023 to be Effective Date of the Scheme
and the Appointed Date (relevant appointed date being the Appointed Date-2 for Part D of
the Scheme being the amalgamation of HDFC Limited into HDFC Bank), and fixed record dates
for allotment / transfer / continuation of equity shares, warrants, non-convertible
debentures and commercial papers issued by HDFC Limited to HDFC Bank Limited.
Statement on Declaration by Independent Directors
Mr. Atanu Chakraborty, Mr. Umesh Chandra Sarangi, Mr. M. D. Ranganath,
Mr. Sanjiv Sachar, Mr. Sandeep Parekh, Dr. (Mrs.) Sunita Maheshwari and Mrs. Lily Vadera
are the Independent Directors on the Board of the Bank as on March 31,2023.
Mr. Malay Patel ceased to be Independent Director on the Board of the
Bank with effect from the close of business hours on March 30, 2023, upon completion of a
continuous period of eight years from the date of his initial appointment as Director of
the Bank.
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 Financial Year 2022-23,
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 continue to adhere to the best governance practices, 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 an ‘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, Senior Management and other
employees 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. 24 of Schedule 18 forming part of the Accounts.
Non-Executive Directors including Independent 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, if any, 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. Atanu Chakraborty, Part-time Chairman & Independent Director
was paid remuneration of Rs 35,00,000 per annum during FY 2022-23 as approved by the RBI,
in addition to sitting fees and provision of car for official and personal use.
Mr. Malay Patel ceased to be Independent Director on the Board of the
Bank with effect from the close of business hours on March 30, 2023, upon completion of a
continuous period of eight years from the date of his initial appointment as Director of
the Bank. Mr. Malay Patel 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 is a director of the Bank's
subsidiaries as on March 31, 2023.
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.
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 Rs 10 crore (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 Rs
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 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 challenged SEBI's order before SAT and SAT, vide its interim order, 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 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 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, relaxed the restriction placed on sourcing of new credit cards customers and further
vide its letter dated March 11,2022 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, Mr. Kaizad
Bharucha will retire by rotation at the ensuing Annual General Meeting and is eligible for
re-appointment. A resolution seeking shareholders' approval for his 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.
Mr. Malay Patel ceased to be Independent Director on the Board of the
Bank with effect from the close of business hours on March 30, 2023, upon completion of a
continuous period of eight years from the date of his initial appointment as Director of
the Bank. Your Board places on record its sincere appreciation for the contribution made
by Mr. Malay Patel during his tenure with the Bank and wishes him well in future
endeavours.
Further, at the meeting of the Board of Directors held on March 04,
2023, the Board has recommended the re-appointment of Mr. Sashidhar Jagdishan as the
Managing Director and Chief Executive Officer of the Bank for a period of three (3) years
with effect from October 27, 2023, subject to the approval of the Reserve Bank of India
and shareholders of the Bank.
During the financial year 2022-23, there have been no change in the
Directors and Key Managerial Personnel of the Bank other than the above.
The Reserve Bank of India (RBI) has granted its approval for the
appointment of Mr. Kaizad Bharucha and Mr. Bhavesh Zaveri as Deputy Managing Director and
Executive Director respectively, for a period of 3 (three) years commencing from April 19,
2023 upto April 18, 2026 (both days inclusive). The same was approved by the the
Nomination and Remuneration Committee ("NRC") and Board at its respective
meetings held on April 27, 2023. The above appointments were subsequently approved by the
shareholders through Postal Ballot via remote e-voting on June 11, 2023.
Basis the recommendation of NRC, the Board of Directors of the Bank at
its meeting dated June 30, 2023:
• Appointed Mr. Keki M. Mistry (DIN: 00008886) as an Additional
and Non-Executive (Non-Independent) Director of the Bank, with effect from June 30, 2023,
liable to retire by rotation. His appointment shall be subject to the approval of the
shareholders of the Bank in the ensuing Annual General Meeting.
• Appointed Mrs. Renu Karnad (DIN: 00008064) as an Additional and
Non-Executive (Non-Independent) Director of the Bank, liable to retire by rotation, with
effect from July 1, 2023 i.e. the effective date of the composite scheme of amalgamation
inter alia of Housing Development Finance Corporation Limited into and with the Bank. Her
appointment shall be subject to the approval of the shareholders of the Bank in the
ensuing Annual General Meeting.
• Recommended to the Reserve Bank of India ("RBI"), the
candidature of Mr. V. Srinivasa Rangan (DIN: 00030248) for appointment as an Executive
Director (i.e., Whole-time Director) of the Bank for a period of three (3) years from such
date or such other period as may be approved by RBI and subsequently by the shareholders
of the Bank.
Resolutions seeking shareholders' approval for appointment of Mr. Keki
M. Mistry and Mrs. Renu Karnad 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.
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 nos. 75 to 78 for information on Conservation of
Energy and page no. 182 for information on Technology Absorption.
Foreign Exchange Earnings and Outgo
During the year, the total foreign exchange earned by the Bank was Rs
4,081.9 crore (on account of net gains arising on all exchange / derivative transactions)
and the total foreign exchange outgo was Rs 3,243.53 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 2022-23. 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 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.
Customer complaints and grievance redressal
Details of customer complaints and grievance redressal is enclosed as Annexure
7 to this 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, Securities Exchange
Board of India, Competition Commission of India, National Company Law Tribunal, Stock
Exchanges, Insurance Regulatory Development Authority, Pension Fund Regulatory and
Development Authority 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 last financial year was when the world began living again as it
largely came out of the COVID 19 induced disruptions. The Indian economy demonstrated
considerable resilience and is expected to be the fastest growing major economy in the
world despite global headwinds and geopolitical tensions.
Your Bank has a huge opportunity thanks to the under penetration of
banking services in India. It has a strong balance sheet in terms of both size and asset
quality. Its consistent performance and customer focus has helped it build a franchise
that can capitalise on the opportunity. The merger with HDFC Limited is a positive for its
long term growth story with the addition of the home loan product to its portfolio opening
up a significant runway. It will continue focusing on its five core values: Customer
Focus, Operational Excellence, Product Leadership, People and Sustainability and adhering
to high levels of corporate governance.
On behalf of the Board of
Directors |
Atanu Chakraborty |
Sashidhar Jagdishan |
Part-time Chairman and
Independent Director |
Managing Director and Chief
Executive Officer |
Mumbai, June 30, 2023 |
|
