Housing Development Finance Corporation Ltd


BSE: 500010 | NSE: HDFC | ISIN: INE001A01036 
Market Cap: [Rs.Cr.] 166,778 | Face Value: [Rs.] 2
Industry: Finance - Housing

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Director's Report

DIRECTORS

TO THE MEMBERS

Your Directors are pleased to present the Thirty-seventh annual report of yourCorporation with the audited accounts for the year ended March 31, 2014.

FINANCIAL RESULTS

For the year ended March 31, 2014 For the year ended March 31, 2013
(Rs. in crore) (Rs. in crore)
Profit before Tax 7,440.24 6,572.84
Tax Expense 2,000.00 1,724.50
Profit after Tax 5,440.24 4,848.34
Appropriations have been made as under:
Special Reserve No. II 890.00 775.00
General Reserve 1,037.98 956.62
Statutory Reserve (under Section 29C of the National Housing Bank Act, 1987) 900.00 825.00
Shelter Assistance Reserve 60.00 40.00
Proposed Dividend (at Rs. 14 per equity share of face value of Rs. 2 each) 2,184.75 1,932.93
Additional Tax on Proposed Dividend 371.30 328.50
Additional Tax on Dividend (15.18) (24.62)
Dividend pertaining to Previous Year paid during the year 11.39 14.91
5,440.24 4,848.34

Dividend

Your directors recommend payment of dividend for the financial year ended March 31,2014 of Rs. 14 per equity share of face value of Rs. 2 per share as against Rs. 12.50 perequity share of face value of Rs. 2 per share for the previous year.

The dividend payout ratio for the current year, inclusive of additional tax on dividendwill be 47% as compared to 46.6% for the previous year.

Corporate Office

In January 2014, the Corporation shifted its corporate office. The new address is HDFCLimited, HUL House, H. T. Parekh Marg, 165-166 Backbay Reclamation, Churchgate, Mumbai 400020. The registered office of the Corporation shall continue to be situated at RamonHouse, H. T. Parekh Marg, 169 Backbay Reclamation, Churchgate, Mumbai 400 020. All contactdetails of the Corporation remain unchanged.

Lending Operations

Despite the overall slowdown in the economy, the demand for individual home loanscontinued to remain strong. The demand for affordable housing remained robust withincreased growth coming from tier II and tier III cities. In an endeavour to furthersupport home loans, the Finance Act, 2013 provided a one-time benefitofadditional interestdeduction up to Rs. 1 lac for first-time home buyers, provided the loan amount andproperty cost did not exceed Rs. 25 lac and Rs. 40 lac respectively. This, coupled withthe other fiscal benefits available on home loans has helped reduce the effective rate ofinterest payable on a home loan.

Loan approvals during the year were Rs. 1,15,212 crore as compared to Rs. 1,03,260crore in the previous year and loan disbursements during the year were Rs. 92,455 crore asagainst Rs. 82,452 crore in the previous year.

Individual loan approvals and disbursements grew by 16% and 21% respectively duringtheyear. The average size of individual loans stood at Rs. 22.1 lac as against Rs. 21.6 lacin the previous year.

Cumulative loan approvals and disbursements as at March 31, 2014 were Rs. 6,81,872crore and Rs. 5,48,553 crore respectively. This is in respect of 4.7 million housingunits.

As at March 31, 2014, the loan book stood at Rs. 1,97,100 crore as against Rs. 1,70,046crore in the previous year. Loans sold during the preceding twelve months amounted to Rs.6,944 crore. The growth in the individual loan book, after adding back loans sold was 26%(20% net of loans sold). Due to the economic slowdown and increased risks innon-individual lending, this portfolio grew by 9%. The growth in the total loan book afteradding back loans sold was 20% (16% net of loans sold).

Of the total loan book, individual loans comprise 71%. Further, 85% of the incrementalgrowth in the loan book during the year came from individual loans.

Sale of Loans

During the year, the Corporation, under the loan assignment route sold individual loansamounting to Rs. 5,556 crore to HDFC Bank pursuant to the buyback option embedded in thehome loan arrangement between the Corporation and HDFC Bank. In addition, the Corporationsold individual loans to other banks through the assignment/securitisation route amountingto Rs. 1,388 crore. All the loans assigned or securitised during the year qualify aspriority sector loans for commercial banks.

As at March 31, 2014, total loans outstanding in respect of loans sold/ assigned stoodat Rs. 20,663 crore. HDFC continues to service loans and is entitled to the residualinterest on the loans sold. The residual interest on the individual loanssold/assigned is1.32% per annum. The residual income on the loans sold/assigned is being recognised overthe life of the underlying loans and not on an upfront basis.

Issues through which loans have been sold/assigned which were rated by external ratingagencies carry a rating indicating the highest degree of safety.

Repayments

During the year under review, Rs. 58,410 crore was received by way of scheduledrepayment of principal through monthly instalments as well as redemptions ahead ofschedule, as compared to Rs. 48,089 crore received last year.

Resource Mobilisation

External Commercial Borrowing

During the year, the Corporation raised an external commercial borrowing (ECB) of USD300 million in the form of a syndicated loan facility. The ECB raised was underthe lowcost affordable housing scheme of the Reserve Bank of India (RBI). The Corporation was thefirst housing finance company to draw an ECB under this window.

The proceeds have to be utilised for financing prospective owners of low costaffordable housing units. As per the RBI norms, low cost affordable housing units havebeen defined as units where the property cost is up to Rs. 30 lac, the loan amount iscapped at Rs. 25 lac and the carpet area does not exceed 60 square metres. The ECB is fora tenor of 5 years and the principal has been hedged in accordance with the guidelinesprescribed by the RBI.

Subordinated Debt

As at March 31, 2014, the Corporation's outstanding subordinated debt stood at Rs.3,475 crore. The debt is subordinated to present and future senior indebtedness of theCorporation and has been assigned the highest rating of 'CRISIL AAA/ Stable' and 'ICRAAAA/Stable' by CRISIL and ICRA respectively. Based on the balance term to maturity, as atMarch 31, 2014, Rs. 2,790 crore of the book value of subordinated debt is considered asTier II under the guidelines issued by the National Housing Bank (NHB) for the purpose ofcapital adequacy computation. The Corporation did not issue any subordinated debt duringthe year.

Non-Convertible Debentures (NCD)

During the year, the Corporation issued NCD amounting to Rs. 24,269 crore on a privateplacement basis. The Corporation's NCD issues have been listed on the Wholesale DebtMarketsegment of the National Stock Exchange of India Limited and the BSE Limited. The NCDissues have been assigned the highest rating of 'CRISIL AAA/Stable' and 'ICRA AAA/Stable'. As at March 31, 2014, NCD outstanding stood at Rs. 81,661 crore. The Corporationhas been regular in making payments of principal and interest on the NCD.

Term Loans from Banks, Institutions and Refinance from the National Housing Bank (NHB)

As at March 31, 2014, the total loans outstanding from banks, institutions and NHBamounted to Rs. 32,952 crore as compared to Rs. 17,824 crore as at March 31, 2013.

HDFC's long-term and short-term bank loan facilities have been assigned the highestrating of 'CARE AAA' and 'CARE A1+' respectively by CARE Ratings, signifying highestsafety for timely servicing of debt obligations.

During the year, the Corporation has drawn NHB refinance amounting to Rs. 832 croreunder the Golden Jubilee Rural Housing Refinance Scheme, Rural Housing Fund and EnergyEfficient Housing Refinance Scheme.

Deposits

As at March 31, 2014, deposits stood at Rs. 56,578 crore as against Rs. 51,933 crore inthe previous year. The depositor base grew from 15.6 lac to 17.5 lac depositors.

CRISIL, a subsidiary of Standard & Poor's Rating Services and ICRA, an associate ofMoody's Investors Service have for the nineteenth consecutive year, reaffirmed a rating of'CRISIL FAAA/Stable' and 'ICRA MAAA/Stable' respectively for HDFC's deposits. Theseratings represent the highest degree of safety regarding timely servicing of financialobligations and carries the lowest credit risk.

The support of the agents and their commitment to the Corporation has been instrumentalin HDFC's deposit products continuing to be a preferred investment for households andtrusts.

Unclaimed Deposits

As of March 31, 2014, public deposits amounting to Rs. 422.27 crore had not beenclaimed by 38,455 depositors. Since then, 11,813 depositors have claimed or reneweddeposits of Rs. 200.35 crore. Depositors were intimated regarding the maturity of depositswith a request to either renew or claim their deposits. Where the deposit remainsunclaimed, reminder letters are sent to depositors periodically and follow up action isinitiated through the concerned agent or branch.

As per the provisions of Section 205C of the Companies Act, 1956, deposits remainingunclaimed for a period of seven years from the date they became due for payment have to betransferred to the Investor Education and Protection Fund (IEPF) established by thecentral government. Accordingly, during the year, despite repeated reminders being sent todepositors, an amount of Rs. 108.14 lac has been transferred to the IEPF. In terms of thesaid section, no claims would lie against the Corporation or the IEPF after the transfer.

Non-Performing Loans

Gross non-performing loans as at March 31, 2014 amounted to Rs. 1,357 crore. This isequivalent to 0.69% of the loan portfolio (as against 0.70% in the previous year). Thenon-performing loans of the individual portfolio stood at 0.53% while that of thenon-individual portfolio stood at 1.01%.

As per NHB norms, the Corporation is required to carry a total provision of Rs. 1,460crore.

The balance in the provision for contingencies account as at March 31, 2014 stood atRs. 1,907 crore of which Rs. 546 crore is on account of non-performing loans and thebalance Rs. 1,361 crore is in respect of general provisioning and other provisions. Thisbalance in the provision for contingencies is equivalent to 0.96% of the loan portfolio.The Corporation carries an additional provision of Rs. 447 crore over the regulatoryrequirements.

The Securitisation and Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (SARFAESI) has proved to be a useful recovery tool and the Corporationhas been able to successfully initiate recovery action under this Act.

Regulatory Guidelines/Amendments

The Corporation has complied with the Housing Finance Companies (NHB) Directions, 2010prescribed by NHB regarding accounting standards, prudential normsfor assetclassification, income recognition, provisioning, capital adequacy, credit rating,concentration of investments and capital market exposure norms.

During the year, NHB reduced the provisioning requirements in respect of standard loansfor Commercial Real Estate - Residential Housing (CRE-RH) from 1% to 0.75%. NHB also madeamendments to the risk weights on individual housing loans which have been recalibratedbased on the loan amount and the loan-to-value ratio. The risk weight on CRE-RH waslowered to 75% from 100% earlier, while other commercial real estate loans continue tocarry a risk weight of 100%. This has had a positive impact on the capital ratios of theCorporation.

The Corporation's capital adequacy ratio, without reducing the investment in HDFC Bankfrom Tier I capital, while treating it as a 100% risk weight stood at 17.9% of the riskweighted assets, of which Tier I capital was 15.4% and Tier II capital 2.5%. The capitaladequacy ratio after reducing the investment in HDFC Bank from Tier I capital stood at14.6%, of which Tier I capital was 12.1% and Tier II capital was 2.5%. As per theregulatory norms, the minimum requirement for the capital adequacy ratio and Tier Icapital is 12% and 6% respectively.

Codes and Standards

The Corporation has adopted various codes and standards set out by NHB including interalia Know Your Customer (KYC) Guidelines, Anti Money Laundering Standards, FairPractices Code, Model Code of Conduct for Direct Selling Agents and Guidelines forRecovery Agents engaged by HFCs.

During the year, NHB has stipulated that housing finance companies (HFCs) shall provide'Most Important Terms and Conditions' of housing loans. The Corporation has adhered tothis requirement with the objective of ensuring a better understanding of the major termsand conditions agreed upon between the Corporation and its loan customers.

The Corporation's Share Dealing Code is in accordance with the model code of conduct asprescribed under the SEBI (Prohibition of Insider Trading) Regulations, 1992, as amended.The code is applicable to all directors, employees and their dependents. The said personsare restricted from dealing in the securities of the Corporation during the restrictedtrading periods notified by the Corporation, from time to time.

The Corporation has mechanisms in place to review and monitor adherence to these codesand standards and ensure reporting and compliances as required.

Marketing and Distribution

During the year, efforts were concentrated on further strengthening the distributionnetwork. The Corporation's distribution network now spans 354 outlets, which includes 87offices of HDFC's wholly owned distribution company, HDFC Sales Private Limited (HSPL).

To further augment the network, HDFC covers additional locations through its outreachprogrammes. HDFC has overseas offices in London, Singapore and Dubai. The Dubai officereaches out to its customers across Middle East through its service associates based inKuwait, Qatar, Oman, Abu Dhabi and Saudi Arabia.

The Corporation's distribution channels which include HSPL, HDFC Bank and third partydirect selling associates (DSAs) play an important role in sourcing home loans. In valueterms, HSPL, HDFC Bank and third party DSAs sourced 46%, 24% and 18% of home loansdisbursed respectively during the year.

The Corporation has distribution tie-ups with banks such as Induslnd Bank, RBL Bank andLakshmi Vilas Bank as well as with Sundaram Finance Limited and Cholamandalam DistributionServices Limited. All distribution channels only source loans, while the control over thecredit, legal and technical appraisal continues to rest with HDFC, thereby ensuring thatthe quality of loans disbursed is not compromised in any way and is consistent across alldistribution channels.

The Corporation's marketing efforts were supplemented through an advertising campaign -'ApniJagah Banao''(make your own space) which was well received. Capitalising ontechnology and the growing social media, various innovative online services have beeninitiated for new and existing customers.

Property fairs across major cities in India were organised. To cater to the Indiandiaspora, 'India Homes Fairs' were held in London, Singapore and Dubai where developerswere invited by HDFC to show case their properties.

Value Added Services and Cross Selling

HDFC's subsidiary companies have strong synergies with HDFC. This enables theCorporation to provide property related value added services and cross sell products andservices under the 'HDFC brand.

HDFC Realty Limited, a property advisory company, has a presence in over 23 locationsacross India and helps individuals and corporate institutions to buy, sell or lease realestate. HDFCRED.com, an on-line real estate search engine assists potential home buyers inidentifying properties and provides leads for potential home loan customers.

HDFC and HSPL are Composite Corporate Agents for HDFC Standard Life Insurance CompanyLimited (HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC ERGO).

International Housing Finance Initiatives

HDFC's expertise in housing finance is well regarded and therefore a number of existingand new housing finance companies are keen to tap the Corporation for training, strategicinput and technical assistance in housing finance.

During the year, senior executives of the Corporation were invited to Indonesia toconduct training programmes on housing finance. The Frankfurt School of Finance &Management and HDFC jointly organised the sixth 'Housing Finance Summer Academy' inGermany, which is a course that aims to provide housing finance solutions for emergingmarkets through a combination of academic knowledge and practical experience.

The Corporation remains committed to sharing its expertise in countries which havenascent mortgage markets - in particular, in Africa. During the year, the Corporationcompleted a study on the mortgage market in Rwanda and is currently engaged in assessingthe feasibility of establishing a housing finance company in Tanzania.

Shelter Assistance Reserve (SAR)

HDFC continued to partner with and support worthwhile projects undertaken bynon-government organizations (NGOs), foundations and local bodies through the SAR. A totalamount of Rs. 13.02 crore was disbursed from the SAR during the year.

The Corporation supported sanitation schemes to construct toilet blocks in a slum areain Pune and in three municipal schools near Chennai. It partnered a foundation in runningthree orphanages for girls in Kashmir, helped an organisation refurbish its educationinstitution catering to girls from impoverished backgrounds in Lucknow and aided therunning of twenty-five 'balwadis' (pre-school centres) in Mumbai.

Support was extended to ADAPT (formerly the Spastic Society of India) towards thesetting up of a neurological, pediatric and orthopedic rehabilitation unit for those withmultiple disabilities. The Corporation also supported Tata Institute of Social Sciencestowards their field action projects on rights and entitlements of de-notified and nomadiccommunities, for custodial institutions and addressing issues of destitution andhomelessness and the Tara Trust for running holistic programmes on the development of lifeskills across eight municipal schools in Goa. Other corpus contributions made from the SARwas towards S.P.J. Sadhana School, Shraddha Charitable Trust, Om Creations Trust, TataMedical Centre and the Indian Institute for Human Settlements, among others.

The SAR was also utilised towards providing relief assistance to victims in theflood-affected areas of Uttarakhand. HDFC employees voluntarily contributed a one-daysalary or more, towards providing relief and respite to the victims of this disaster. HDFCemployees participated in marathons held in Bengaluru, Delhi and Mumbai in support oflocal charities.

Corporate Social Responsibility

In accordance with the provisions of Section 135 of the Companies Act, 2013, theCorporation is required to constitute a Corporate Social Responsibility (CSR) Committee ofDirectors comprising at least three directors including an independent director.

The board at its meeting held on May 6, 2014, constituted the CSR Committee comprisingMr. Deepak S. Parekh (Chairman), Mr. D. N. Ghosh (Independent Director) and Mr. V.Srinivasa Rangan (Executive Director).

The Companies Act, 2013 and the rules made thereunder has defined various activitiesthat can be undertaken towards CSR initiatives which inter alia include povertyeradication, health, education, promoting gender equality, environment sustainability,protection of national heritage, benefits for armed forces veterans and their dependents,sports, contributions to approved central government funds and rural development projects.

The terms of reference of the committee inter alia include formulation ofa CSRpolicy indicating the activities that will be undertaken, recommending the CSR policy tothe board for adoption, recommending the amount of expenditure to be incurred and ensuringa transparent monitoring mechanism for undertaking such activities. The CSR committee willmonitor the implementation of the CSR policy and apprise the board accordingly.

H T Parekh Foundation

The H T Parekh Foundation was set up to commemorate the late Shri H. T. Parekh'senormous contribution to the development of housing finance and other financial servicesin India. During his lifetime, Shri H. T. Parekh was associated with several philanthropiccauses and welfare organisations.

The H T Parekh Foundation was incorporated as a not for profit company licensed underSection 25 of the Companies Act, 1956. The objective of the foundation is to support andpartner socially relevant projects through NGOs, community bodies and organisations in thedevelopment space. The foundation will look into the areas of education, child welfare,health and medical, community development, senior citizens and various programmes in thedevelopmental space.

In terms of the CSR rules as applicable under the Companies Act, 2013, the Corporationcan undertake its CSR activities directly or indirectly through the H T Parekh Foundationas may be decided by the board.

Training and Development

During the year, training efforts were focused on induction programmes for new recruitsand in-house training in operations, accounting, credit risk management, project approvalsand policy implementation and process monitoring. An e-learning platform has been launchedon a pilot basis to enable staff members to hone their skills online. Other trainingrequirements were supplemented by nominating staff members for external programmes andconferences.

In order to raise the bar on customer service, the Corporation embarked on a projectcalled 'Customer Relationship Enhancement through System Transformation' (CREST). Theobjective of CREST is to enhance the service delivery process and bring in a greaterdegree of efficiency between the Corporation's channel partners and customers. During theyear, the first phase of CREST, encompassing the loan approval process has been rolled outacross all branches. The streamlined loan approval system has resulted in faster loanapprovals with higher productivity.

Rural Housing

The Corporation has entered its fifth year of focused efforts in rural housing finance.The increase in agricultural and non-agricultural income in rural areas has led tosustained demand for home loans in rural areas. Further, improved infrastructure such asbetter road networks and communication facilities and an increase in remittances to ruralareas by those working in cities are factors stimulating demand for rural housing.

The Corporation has developed skills to assess agricultural income and has put in placerobust legal and technical appraisal mechanisms to cater to the growing rural housingfinance market. Efforts will continue to be made to reach out to progressive farmers andemployed and self-employed individuals in rural India.

Awards and Recognitions

During the year, the Corporation was selected as the 'Best Home Loan Provider' by CNBCAwaaz Real Estate Awards, was adjudged the 'Best Home Loan Provider' by Outlook MoneyAwards for the third consecutive year and was awarded the top Indian company under theFIs/NBFCs/ Financial Services category at the Dun & Bradstreet Corporate Awards.

The Corporation was ranked among the 'Five Best Boards' in a study conducted byEconomic Times and Hay Group on India's best boards. In recognition of HDFC's leadershipin governance, the Corporation received the Qimpro-Best Prax Benchmark award.

Subsidiary Companies

The Government of India, Ministry of Corporate Affairs vide General Circular No. 2/2011dated February 8, 2011, had granted general exemption to companies from the requirement ofattaching to their annual report, balance sheet, statement of profit and loss and thereport of the directors and auditors in respect of their subsidiary companies as requiredunder Section 212(8) of the Companies Act, 1956, subject to fulfilling certain conditions.

The Board of Directors has passed the necessary resolutions granting the requisiteapprovals for not attaching to the annual report of the Corporation, a copy of the balancesheet, statement of profit and loss, reports of the directors and auditors of thefollowing 21 subsidiary companies of the Corporation: HDFC Developers Limited, HDFCInvestments Limited, HDFC Holdings Limited, HDFC Asset Management Company Limited, HDFCTrustee Company Limited, HDFC Realty Limited, HDFC Standard Life Insurance CompanyLimited, HDFC ERGO General Insurance Company Limited, GRUH Finance Limited, HDFC SalesPrivate Limited, HDFC Ventures Trustee Company Limited, HDFC Venture Capital Limited, HDFCProperty Ventures Limited, Credila Financial Services Private Limited, HDFC Education andDevelopment Services Private Limited, H T Parekh Foundation, Grandeur Properties PrivateLimited, Winchester Properties Private Limited, Windermere Properties Private Limited,Haddock Properties Private Limited and Pentagram Properties Private Limited and thefollowing step-down subsidiary companies: HDFC Pension Management Company Limited, GrihaInvestments, Mauritiusand Griha Pte. Limited, Singapore have not been attached to thebalance sheet of the Corporation for the financial year ended March 31, 2014.

The annual report of the Corporation, the annual accounts and the related documents ofthe Corporation's subsidiary companies are posted on the website of the Corporation, www.hdfc.com.Shareholders who wish to have a copy of the annual accounts and detailed informationon any subsidiary company can download the same from the website or may write to theCorporation for the same. Further, the said documents shall be available for inspection bythe shareholders at the registered office of the Corporation.

The Corporation has not made any loans or advances in the nature of loans to any of itssubsidiary or associate company or companies in which its directors are deemed to beinterested, other than in the ordinary course of business.

Review of Key Subsidiary and Associate Companies

HDFC Bank Limited (HDFC Bank)

HDFC and HDFC Bank continue to maintain an arm's length relationship in accordance withthe regulatory framework. Both organisations, however, capitalise on the strong synergiesthrough a system of referrals, special arrangements and cross selling in order toeffectively provide a wide range of products and services under the 'HDFC brand name.

As at March 31, 2014, advances of HDFC Bank stood at Rs. 3,03,000 crore - an increaseof 26% over the previous year. Total deposits stood at Rs. 3,67,337 crore - an increase of24%. As at March 31, 2014, HDFC Bank's distribution network includes 3,403 branches and11,256 ATMs in 2,171 locations as against 3,062 branches and 10,743 ATMs in 1,845locations as of March 31, 2013.

For the year ended March 31, 2014, HDFC Bank reported a profit after tax of Rs.8,478.40 crore as against Rs. 6,726.28 crore in the previous year, representingan increaseof26%. HDFC Bank has recommended a dividend of Rs. 6.85 per share of face value of Rs. 2each as against Rs. 5.5 per share for the previous year. During the year, the Corporationreceived a dividend of Rs. 216 crore from HDFC Bank.

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFCHoldings Limited holds 22.6% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC Life)

Gross premium income of HDFC Life for the year ended March 31, 2014 stood at Rs. 12,063crore as compared to Rs. 11,323 crore in the previous year. The sum assured in force atthe end of FY 2014 was Rs. 2,72,697 crore as compared to Rs. 2,01,858 crore in theprevious year, representing a growth of 35%.

The Company has a portfolio of 22 retail products and 8 group products covering saving,investment, protection and retirement needs of its customers, along with 9 optional riderbenefits.

HDFC Life's distribution network includes 429 branches, covering 985 cities. Inaddition, the company has 75,000 financial consultants, 4 bancassurance partners and 7pan-India brokers and corporate agency tie-ups. In FY 2014, HDFC

Life ranked third among private sector life insurers in terms of market share based onthe weighted received premium of individual business.

HDFC Life has reported a profit after tax of Rs. 725.28 crore for the year ended March31, 2014 as against Rs. 451.48 crore in the previous year. The back book is generatingsufficient profits to offset the new business strain incurred in writing of new policies.

As at March 31, 2014, the Market Consistent Embedded Value stood at Rs. 6,992 crore (PYRs. 5,872 crore). The new business margin on individual business stood at 26% (based onloaded acquisition expenses).

During the year, HDFC Life declared a maiden dividend of 5%. The solvency ratio of thecompany was 194% as at March 31, 2014 as against the minimum regulatory requirement of150%.

HDFC holds 72.4% of the equity share capital in HDFC Life.

HDFC Asset Management Company Limited (HDFC-AMC)

As at March 31, 2014, HDFC-AMC managed 50 debt, equity, exchange traded fund and fundof fund schemes of HDFC Mutual Fund. The average assets under management during the monthof March 2014 stood at Rs. 1,16,753 crore (which is inclusive of average assets underdiscretionary portfolio management/ advisory services). HDFC Mutual Fund has been rankedfirst in the industry on the basis of quarterly average assets under management for theyear ended March 31, 2014. The number of investor accounts was in excess of 45 lac as atMarch 31, 2014. HDFC-AMC has 141 investor service centres across the country.

For the year ended March 31, 2014, HDFC-AMC reported a profit after tax of Rs. 357.77crore as against Rs. 318.75 crore in the previous year.

HDFC holds 59.8% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC ERGO)

During the year, HDFC ERGO continued to retain its market ranking as the fourth largestprivate sector player in the general insurance industry. Further, the company continued tobe the largest player in the personal accident line of business.

The Company offers a complete range of insurance products like motor, health, travel,home and personal accident in the retail segment and customised products like property,marine, aviation and liability insurance in the corporate segment. The company continuesto leverage on the HDFC group's distribution capability to drive its growth and on thetechnical capability of ERGO in the field of general insurance. The company has a balancedportfolio mix with the retail segment accounting for 55% of the business.

The gross direct premium (excluding Motor and Declined risk pool) of the Companyincreased by 20% to Rs. 2,978 crore as against Rs. 2,491 crore in the previous year.During the year, the company achieved a profit before tax of Rs. 261.1 crore as againstRs. 235.3 crore in the previous year before considering the losses from the Indian MotorThird Party Insurance Pool (IMTPIP) and the Indian Motor Third Party Declined RiskInsurance Pool (IMTDRIP). The losses from IMTPIP and IMTDRIP were Rs. 36.8 crore (previousyear Rs. 53.4 crore). Thus the profit before tax including the pool losses amounted to Rs.224.3 crore (previous year loss of Rs. 181.9 crore). The overall profit after tax for theyear stood at Rs. 195.4 crore as against a profit of Rs. 154.5 crore in the previous year.During the year, HDFC ERGO declared a maiden dividend of 5%.

The combined ratio before declined risk pool losses stood at 97.9%. The solvency ratioof the company was 160% as at March 31, 2014 as against the minimum regulatory requirementof 150%.

HDFC holds 73.8% of the equity share capital of HDFC ERGO.

HDFC Property Funds

HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC Property Fund, aregistered venture capital fund with the Securities and Exchange Board of India (SEBI).

HDFC Property Fund currently has two schemes. The first scheme is HDFC India RealEstate Fund (HI-REF), with an initial corpus of Rs. 1,000 crore. The scheme has madeseveral profitable exits. The term of the scheme was to have ended on June 17, 2013,however, based on the recommendation of HVCL, the term of the scheme was extended to June17, 2014. The balance corpus as at March 31, 2014 stood at Rs. 274 crore. Exits are beingmade for the balance investments of the scheme.

The second scheme, HDFC IT Corridor Fund had a corpus of Rs. 464 crore. The scheme hasmade an in-specie distribution of all its balance investments to its unit holders and thusthe balance corpus as at March 31, 2014 was nil. HDFC IT Corridor Fund has redeemed allthe units held by the investors.

HDFC holds 80.5% of the equity share capital of HVCL.

HDFC Property Ventures Limited (HPVL) provides investment advisory services to Indianand overseas asset management companies (AMCs). Such AMCs in turn manage and advise Indianand offshore private equity funds.

HDFC holds 100% of the equity share capital of HPVL.

GRUH Finance Limited (GRUH)

GRUH is a housing finance company with a retail network of 142 offices spread across 7states. During the year, GRUH disbursed loans amounting to Rs. 2,577 crore as compared toRs. 2,174 crore in the previous year - an increase of 19%. As at March 31, 2014, the loanportfolio stood at Rs. 7,009 crore, recording a growth of 29% over the previous year. Thegross non-performing loans stood at 0.27% of the total loans outstanding and the net nonperforming loans is nil. The average size of loans disbursed during the year was Rs. 7.6lac.

As at March 31, 2014, the capital adequacy ratio stood at 16.4%, of which Tier Icapital was 14.7% and Tier II capital was 1.7%.

For the year ended March 31, 2014, GRUH reported a profit after tax of Rs. 176.96 croreas compared to Rs. 145.88 crore in the previous year -an increase of 21%.

The board recommended a dividend for the year ended March 31, 2014 of Rs. 3 per equityshare of face value of Rs. 2 per share of as against Rs. 2.50 in the previous year. Theboard has also recommended the issue of bonus shares in the ratio of 1 equity share forevery 1 equity share held.

HDFC's holding in GRUH currently stands at 59.2%.

HDFC Sales Private Limited (HSPL)

HDFC Sales Private Limited (HSPL) continues to strengthen the Corporation's marketingand sales efforts by providing a dedicated sales force to sell home loans and otherfinancial products.

HSPL has a presence in 93 locations. During the year under review, HSPL sourced loansaccounting for 46% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Credila Financial Services Private Limited (Credila)

Credila is India's first dedicated education loan company, providing loans to studentspursuing higher education in India and abroad. As on March 31, 2014, Credila hadcumulatively disbursed Rs. 1,458 crore to 15,471 customers. The outstanding loan bookstood at Rs. 1,181 crore, registering a growth of 53% over the previous year. The averageloan amount disbursed is Rs. 9.4 lac. For the year ended March 31, 2014, Credila reporteda profit after tax of Rs. 19.18 crore as against Rs. 9.05 crore in the previous year.

In addition to having its own offices and sourcing applications through the web,Credila capitalises on HDFC's distribution network to source and market education loans.Credila's borrowers are entitled to income tax exemption under Section 80E of the IncomeTax Act, 1961.

HDFC holds 89.5% of the share holding in Credila on a fully diluted basis.

Particulars of Employees

HDFC had 1,956 employees as of March 31, 2014. During the year, 5 employees employedthroughout the year were in receipt of remuneration of Rs. 60 lac or more per annum.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and therules framed there under, the names and other particulars of employees are set out in theannex to the Directors' Report. In terms of the provisions of Section 219(l)(b)(iv) of theCompanies Act, 1956, the Directors' Report is being sent to all the shareholders of theCorporation excluding the annex.

Any shareholder interested in obtaining a copy of the said annex may write to theCorporation.

Employees Stock Option Scheme (ESOS)

The Corporation had not granted any stock options during the year. Options were lastgranted on May 23, 2012 under ES0S-2011. Options outstanding as at April 1, 2013 relatesto ES0S-07, ES0S-08 and ESOS-ll. There has been no variation in the terms of the optionsgranted under any of these schemes.

During the year, options vested aggregated to 58,26,953 and options exercisedaggregated to 28,37,070. Pursuant to the said exercise, the Corporation received from theemployees, Rs. 629.26 crore as exercise consideration (excluding tax), of which Rs. 2.84crore was towards share capital and Rs. 626.42 crore towards securities premium. Duringthe year, pursuant to the exercise of options, 1,41,85,350 equity shares of Rs. 2 eachwere allotted to the concerned employees.

During the year, 57,675 options lapsed, while options in force (including unvested) ason March 31, 2014 stood at 66,03,920.

The Corporation had granted the stock options at the market price and hence theintrinsic value of the option was nil. Consequently, the compensation cost was nil.However, if the fair value of the options using the Black-Scholes model was used,considering the assumptions as of the date of grant, the compensation cost (net) wouldhave been Rs. 34.97 crore, the profit after tax would have been lesser by Rs. 34.97 croreand the basic and diluted Earnings Per Share (EPS) would have been Rs. 34.67 and Rs. 34.40respectively.

The diluted EPS is Rs. 34.62 as against a basic EPS of Rs. 34.89.

Unclaimed Dividend

As at March 31, 2014, dividend amounting to Rs. 14.36 crore had not been claimed byshareholders of the Corporation. The Corporation has been periodically intimating theconcerned shareholders requesting them to encash their dividend before it becomes due fortransfer to the IEPF. The Corporation continues to take various initiatives to reduce thequantum of unclaimed dividend.

As per the provisions of Section 205C of the Companies Act, 1956, unclaimed dividendamounting to Rs. 56.84 lac for FY 2005-06 was transferred to the IEPF on September 7,2013. Further, the unclaimed dividend in respect of FY 2006-07 must be claimed byshareholders by August 4, 2014, failing which it will be transferred to the IEPF within aperiod of 30 days from the said date. In terms of the said section, no claim would lieagainst the Corporation or the IEPF after the transfer.

In terms of the IEPF (Uploading of information regarding unpaid and unclaimed amountslying with companies) Rules, 2012, the Corporation has made the relevant disclosures tothe Ministry of Corporate Affairs (MCA) regarding unclaimed dividends and unclaimedmatured deposits along with interest accrued thereon. The Corporation has uploaded theprescribed information on www.iepf.gov.in and www.hdfc. com.

Unclaimed Shares

Details on unclaimed shares is provided in the section on 'Shareholders' Information'in the annual report.

Particulars Regarding Conservation of Energy, Technology Absorption and ForeignExchange Earnings and Outgo

The particulars regarding foreign exchange earnings and expenditure appear as Item Nos.25.1 and 26.3 in the Notes to the Accounts. Since HDFC does not own any manufacturingfacility, the other particulars relating to conservation of energy and technologyabsorption as stipulated in the Companies (Disclosure of Particulars in the Report of theBoard of Directors) Rules, 1988, are not applicable.

Directors

Mr. Keshub Mahindra and Mr. Shirish B. Patel resigned as directors of the Corporationon October 21, 2013. Both, Mr. Mahindra and Mr. Patel were the directors of theCorporation since its inception. They also resigned as members of the Nomination andCompensation Committee of Directors of the Corporation.

The Board of Directors has placed on record its appreciation of the valuablecontribution, commitment and guidance rendered by Mr. Mahindra and Mr. Patel.

Mr. B. S. Mehta, Mr. D. N. Ghosh, Dr. S. A. Dave, Dr. Ram S. Tarneja, Dr. J. J. Irani,Mr. Nasser Munjee and Dr. Bimal Jalan, non-executive directors of the Corporation havesubmitted declarations underSection 149(7) of the Companies Act, 2013, confirming thatthey meet the criteria prescribed for independent directors as stipulated under Section149(6) of the said Act. Notices have been received from some members recommending theirappointment as independent directors under Section 160 of the Companies Act, 2013. Theindependent directors are proposed to be appointed for a period of 5 years from the dateof the ensuing AGM and they shall not be liable to retire by rotation.

The Board of Directors, at its meeting held on May 6, 2014 re-appointed Ms. Renu SudKarnad as the Managing Director of the Corporation and Mr. V. Srinivasa Rangan as thewhole-time director of the Corporation (designated as 'Executive Director'), each for aperiod of 5 years, with effect from January 1, 2015, subject to the approval of themembers at the ensuing AGM. The office of both, the Managing Director and ExecutiveDirector of the Corporation will be liable to retire by rotation.

In accordance with the provisions of the Companies Act, 2013 and the Articles ofAssociation of the Corporation, Mr. D. M. Sukthankar is liable to retire by rotation atthe ensuing AGM. He is eligible for re-appointment.

Necessary resolutions and explanatory statement for the appointment/re-appointment ofthe aforesaid directors have been included in the notice convening the ensuing AGM.

All the directors of the Corporation have confirmed that they are not disqualified frombeing appointed as directors in terms ofSection 274(l)(g) of the Companies Act, 1956.

Dr. S. A. Dave is the Corporation's nominee director on the board of HDFC Life. This isin accordance with Clause 49 of the listing agreements, which requires the Corporation tonominate at least one of its independent directors on the board of HDFC Life, which is amaterial unlisted Indian subsidiary company of the Corporation.

Auditors

Messrs Deloitte Haskins & Sells LLP, Chartered Accountants, having registrationnumber 117366W/ W-10018, statutory auditors of the Corporation and branch auditors toaudit the accounts at the Corporation's branches in India and offices in London andSingapore, hold office until the conclusion of the ensuing AGM and are eligible forappointment.

The Corporation has received a confirmation from Messrs Deloitte Haskins & SellsLLP to the effect that their appointment, if made, at the ensuing AGM would be in terms ofSections 139 and 141 of the Companies Act, 2013 and rules made there under. The boardproposes to appoint Messrs Deloitte Haskins & Sells LLP for a period of 3 years fromthe conclusion of the ensuing AGM, subject to ratification by the members of theCorporation at each AGM.

Messrs PKF, Chartered Accountants, having registration number 10 issued by the Ministryof Economy, United Arab Emirates (UAE) was appointed as the branch auditors to audit theaccounts of the Corporation's branch office in Dubai. Their term expires at the end of theensuing AGM and they are eligible for appointment. The board proposes to appoint MessrsPKF for a period of 3 years from the conclusion of the ensuing AGM, subject toratification by the members of the Corporation at each AGM.

Directors' Responsibility Statement

In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956 andbased on the information provided by the management, your directors state that:

i. In the preparation of annual accounts, the applicable accounting standards have beenfollowed;

ii. Accounting policies selected were applied consistently. Reasonable and prudentjudgements and estimates were made so as to give a true and fair view of the state ofaffairs of the Corporation as at the end of March 31, 2014 and of the profit of theCorporation for the year ended on that date;

iii. Proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act, 1956 forsafeguarding the assets of the Corporation and for preventing and detecting frauds andother irregularities;

iv. The annual accounts of the Corporation have been prepared on a going concern basis.

Management Discussion and Analysis Report, Report of the Directors on CorporateGovernance and Business Responsibility Report

In accordance with Clause 49 of the listing agreements, the Management Discussion andAnalysis Report and the Report of the Directors on Corporate Governance form part of thisreport.

In accordance with the provisions of Clause 55 of the listing agreements, the BusinessResponsibility Report (BRR) has been prepared and uploaded on www.hdfc.com.

Members who wish to receive a physical copy of the BRR are requested to write to theCorporation.

Companies Act, 2013

The Companies Act, 2013 was notified in the Official Gazette of the Government of Indiaon August 29, 2013. On September 12, 2013, the Ministry of Corporate Affairs (MCA)notified 98 sections and on March 27, 2014, the MCA notified another 198 sections, whichwere deemed to come into force with effect from April 1, 2014.

The MCA vide Circular No. 08/2014 dated April 4, 2014 clarified that the financialstatements and the documents required to be attached thereto, the auditors' and directors'report in respect of the financial year under reference shall continue to be governed bythe relevant provisions of the Companies Act, 1956, schedules and rules made there under.

The Corporation has accordingly prepared this balance sheet, statement of profit &loss, the schedules and notes thereto and the Directors' Report in accordance with therelevant provisions of the Companies Act, 1956, schedules and rules made there under.

The Corporation has taken cognisance of the new legislation and shall comply with theprovisions of the Companies Act, 2013, as applicable.

Acknowledgements

The Corporation would like to acknowledge the role of all its stakeholders -shareholders, borrowers, channel partners, depositors, key partners and lenders for theircontinued support to the Corporation.

The directors appreciate the guidance received from various regulatory authoritiesincluding NHB, RBI, SEBI, MCA, Registrar of Companies, Financial Intelligence Unit(India), Foreign Investment Promotion Board, the Stock Exchanges and the Depositories.

Your directors place on record their appreciation of the hard work and dedication ofall the employees of the Corporation.

On behalf of the Board of Directors
MUMBAI DEEPAK S. PAREKH
May 6, 2014 Chairman
   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
H D F C 166,778.27 29.72 5.97 13.38 20.6 11.7 6.50
LIC Housing Fin. 14,955.30 11.69 1.99 10.09 18.8 10.8 10.76
GRUH Finance 7,617.56 41.12 12.54 13.77 32.2 12.5 10.34
Dewan Housing 4,641.42 8.35 1.30 8.81 15.5 11.5 10.50
Repco Home Fin 2,711.11 24.63 3.66 0.00 17.1 11.4 5.92
GIC Housing Fin 891.22 9.04 1.46 9.06 16.2 10.9 7.22
Can Fin Homes 840.29 10.73 1.86 10.63 17.9 10.9 10.43
India Home 52.89 87.91 4.69 65.92 3.6 5.0 0.00
Sahara Housing 45.15 17.11 1.41 9.77 7.1 9.4 4.85
Coral India Fin. 35.73 5.34 0.57 0.65 30.4 36.6 0.00
SRG Housing 30.37 25.33 2.22 15.72 7.4 10.6 0.62
SBI Home Finance 23.03 0.00 -0.07 0.00 0.0 0.0 0.00
Intl. Housg.Fin. 11.08 0.00 0.65 0.00 0.0 0.0 0.00
Manraj Hsg.Fin. 7.60 11.09 0.78 7.84 8.0 13.6 0.63
Ind Bank Housing 7.15 0.00 0.45 0.00 0.0 0.0 0.00

Futures & Options Quote

 
Expiry Date
1066.90 27.95  (2.7%)
Instrument: FUTSTK
Expiry Date: 31 Jul 2014
Open Price: 1,035.30
Average Price: 1,057.85
No. of Contracts Traded: 4,378,500
Open Interest: 5,352,000
Underlying: HDFC
Market Lot: 250
Previous Close: 1,066.90
Day’s High | Low: 1,077.80 | 1,033.20
Turnover (Cr.): 463.18
Open Int. Change: -445,500.00 ( [7.7]% )
View detailed F& O quotes >>

Key Information

Key Executives:

Deepak S Parekh , Chairman  

B S Mehta , Director  

D M Sukthankar , Director  

D N Ghosh , Director  


Company Head Office / Quarters:
Ramon House H T Parekh Marg,
169 Backbay Reclamation,
Mumbai,
Maharashtra-400020
Phone : 91-22-22836255/22820282
Fax : 91-22-22046758/22046834
E-mail : investorcare@hdfc.com
Web : http://www.hdfc.com
Registrars:
H D F C Ltd
Tel Rasayan Bhavan
Tilak Road Extention
Khodadad Circ. Dadar
Mumbai - 400 014

Fund Holding


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