HDFC BANK LIMITED
ANNUAL REPORT 2011-2012
DIRECTOR`S REPORT
To
The Members,
Your Directors have great pleasure in presenting the Eighteenth Annual
Report on the business and operations of your Bank together with the
audited accounts for the year ended March 31, 2012.
FINANCIAL PERFORMANCE: (Rs. in crore)
For the year ended
March 31, 2012 March 31, 2011
Deposits and Other Borrowings 270,553.0 222,980.5
Advances 195,420.0 159,982.7
Total Income 32,530.0 24,263.4
Profit before Depreciation and Tax 8,055.7 6,316.1
Net Profit 5,167.1 3,926.4
Profit brought forward 6,174.2 4,532.8
Total Profit available for Appropriation 11,341.3 8,459.2
Appropriations:
Transfer to Statutory Reserve 1,291.8 981.6
Transfer to General Reserve 516.7 392.6
Transfer to Capital Reserve - 0.4
Transfer to / (from) Investment Reserve (41.7) 15.6
Proposed Dividend 1,009.1 767.6
Tax Including Surcharge and Education
Cess on Dividend 163.7 124.5
Dividend (including tax/cess thereon)
pertaining to previous year paid
during the year 2.1 2.6
Balance carried over to Balance Sheet 8,399.6 6,174.2
The Bank posted total income and net profit of Rs. 32,530.0 crore and
Rs.5,167.1 crore respectively for the financial year ended March 31, 2012
as against Rs. 24,263.4 crore and Rs. 3,926.4 crore respectively in the
previous year. Appropriations from net profit have been effected as per the
table given above.
DIVIDEND:
Your Bank has had a dividend policy that balances the dual objectives of
appropriately rewarding shareholders through dividends and retaining
capital in order to maintain a healthy capital adequacy ratio to support
future growth. It has had a consistent track record of moderate but steady
increase in dividend declarations over its history with the dividend payout
ratio ranging between 20% and 25%. Consistent with this policy and in
recognition of the overall performance during this financial year, your
directors are pleased to recommend a dividend of Rs. 4.30 per equity share
of Rs. 2 for the year ended March 31, 2012 as against Rs. 3.30 per equity
share of Rs. 2 (which was Rs. 16.50 per share of Rs. 10 before the share
split) for the previous year ended March 31, 2011. This dividend shall be
subject to tax on dividend to be paid by the Bank.
AWARDS:
As in the past years, awards and recognition were conferred on your Bank by
leading domestic and international organizations and publications during
the financial year ended March 31, 2012.
Some of them are:
The Asian Banker International Excellence in Retail Financial Services
Awards 2012
* Best Retail Bank in India
* Best Bancassurance Business in India
* Best Risk Management in India
Business World Best Bank Award 2011
* Best Bank
CNBC TV18 Best Bank and Financial Institution Awards 2011
* Best Bank
* Aditya Puri - Outstanding Finance Professional
CNBC TV18 Financial Advisor Award 2011
* Best Performing Bank (Private)
DSCI (Data Security Council of India) Excellence Awards 2011
* Security in Bank
Dun & Bradstreet Banking Awards 2011
* Best Private Sector Bank - SME Financing
Euromoney Awards for Excellence 2011
* Best Bank in India
Finance Asia Country Awards 2011
* Best Bank in India
* Best Cash Management Bank in India
* Best Trade Finance Bank in India
Financial Express Best Bank Survey 2010-11
* Best in Strength and Soundness
Institute of Chartered Accountants of India Awards 2011
* Excellence in Financial Reporting
International Data Corporation Financial Insights Innovation Awards 2011
* Excellence in Customer Experience
Skoch Foundation Financial Inclusion Awards 2012
* SHG/ JLG linkage program
RATINGS:
Instrument Rating Rating Agency Comments
Fixed Deposit AAA (FD) CARE Represents instruments
Program CARE considered to be `of the best
credit quality, offering
highest safety for timely
servicing of debt obligations,
and carry minimal credit risk`.
tAAA (ind) FITCH Instruments with this rating are
considered to have very strong
degree of safety regarding timely
payment of financial obligations.
Such instruments carry lowest
credit risk.
Certificate of CARE A1+ CARE Instruments with this rating are
Deposits Program considered to have very strong
degree of safety regarding timely
payment of financial obligations.
Such instruments carry lowest
credit risk.
A1+ (ind) FITCH Instruments with this rating are
considered to have very strong
degree of safety regarding timely
payment of financial obligations.
Such instruments carry lowest
credit risk.
Long term CARE AAA CARE Represents instruments considered
unsecured, to be `of the best credit quality,
subordinated offering highest safety for timely
(Lower Tier II) servicing Bonds of debt
obligations, and carry minimal
credit risk`.
AAA (ind) FITCH Instruments with this rating are
with a considered to have the highest
Stable degree of safety regarding timely
outlook servicing of financial
obligations. Such instruments
carry lowest credit risk.
Tier I Perpetual CARE AAA CARE Represents instruments considered
Bonds to be `of the best credit quality,
offering highest safety for timely
servicing of debt obligations, and
carry minimal credit risk`
AAA Stable CRISIL Instruments with this rating are
considered to have the Stable
outlook highest degree of safety
regarding timely servicing of
financial obligations. Such
instruments carry lowest credit
risk.
Upper Tier II CARE AAA CARE Represents instruments considered
Bonds to be `of the best credit quality,
offering highest safety for timely
servicing of debt obligations, and
carry minimal credit risk`
AAA stable CRISIL Instruments with this rating are
considered to have the highest
degree of safety regarding timely
servicing of financial
obligations. Such instruments
carry lowest credit risk.
CARE - Credit Analysis & Research Limited
FITCH - Fitch Ratings India Private Limited (100% subsidiary of Fitch Inc.
CRISIL - CRISIL Ltd. (A Standard & Poor`s company)
ISSUANCE OF EQUITY SHARES:
During the year under review, 205.6 lac shares (post subdivision, each
equity share of Rs. 2) were allotted to the employees of your Bank pursuant
to the exercise of options under the Employee Stock Option Schemes of the
Bank. These include the shares allotted under the Employee Stock Option
Schemes of the erstwhile Centurion Bank of Punjab.
EMPLOYEE STOCK OPTIONS:
The information pertaining to Employee Stock Options is given in an
annexure to this report.
CAPITAL ADEQUACY RATIO:
Your Bank`s total Capital Adequacy Ratio (CAR) calculated in line with
Basel II framework stood at 16.5%, well above the regulatory minimum of
9.0%. Of this, Tier I CAR was 11.6%.
SUBSIDIARY COMPANIES:
Your Bank has two subsidiaries, HDFC Securities Limited (`HSL) and HDB
Financial Services Limited (`HDBFS`).
HSL is primarily in the business of providing brokerage services through
the internet and other channels with a focus to emerge as a full-fledged
financial services provider through a distribution of a bouquet of
financial services products. The company continued to strengthen its
distribution franchise and as on March 31, 2012 had a network of 184
branches across the country. During the year under review, the company`s
total income amounted to Rs. 210.0 crore as against Rs. 260.5 crore in the
previous year. The operations resulted in a net profit after tax of Rs.54.1
crore.
HDBFS is a non-deposit taking non-bank finance company (`NBFC`), the
customer segments being addressed by HDBFS are typically underserviced by
the larger commercial banks, and thus create a profitable niche for the
company to operate. Apart from lending to individuals, the company grants
loans to small and medium business enterprises and micro small and medium
enterprises, the principle businesses of HDBFS are as follows:
* Loans - The company offers a range of loans in the secured and unsecured
loans space that fulfill the financial needs of its target segment
* Insurance Services - HDBFS is a corporate agent for HDFC Standard Life
Insurance Company and sells standalone insurance products as well as
products such as Loan Cover and Asset Cover.
* Collections - BPO Services - The Company runs 6 call centres with a
capacity of over 1700 seats. These centres cover collection requirements at
over 200 towns through its calling and field teams. Currently the company
has a contract with your Bank for collection services.
As on March 31, 2012, HDBFS had 180 branches in 135 cities in order to
distribute its products and services. During the financial year ended March
31, 2012, the company`s total
income increased by over 141% to Rs. 431.8 crore as compared to Rs. 178.9
crore in the previous year. During the same period the company`s net profit
was Rs. 51.1 crore as compared to Rs. 15.8 crore in the previous year.
In terms of the approval granted by the Government of India, the provisions
contained under Section 212 (1) of the Companies Act, 1956 shall not apply
in respect of the Bank`s subsidiaries. Accordingly, a copy of the balance
sheet, profit and loss account, report of the Board of Directors and the
report of the auditors of HSL and HDBFS have not been attached to the
accounts of the Bank for the year ended March 31, 2012.
Shareholders who wish to have a copy of the annual accounts and detailed
information on HSL and HDBFS may write to the Bank for the same. Further,
the said documents shall also be available for inspection by shareholders
at the registered offices of the Bank, HSL and HDBFS.
MANAGEMENT DISCUSSION AND ANALYSIS
Macro-economic and Industry Developments:
It was a challenging year for the Indian economy with lingering concerns
over global growth prospects and financial stability weighing on external
demand and international funding. Further, local headwinds such as
inflation, rising interest rates and policy impediments have only
exacerbated the impact of a shaky global environment on domestic growth.
Aggressive monetary tightening curtailed leveraged spending pulling private
consumption growth lower from 8.1% for the financial year ended March 31,
2011 to 6.5% for the financial year ended March 31, 2012, while policy
hurdles such as land acquisition problems and environmental clearances
dampened investment momentum dragging investment growth lower to 5.8% from
11.1% a year ago. The intensification of the debt crisis in Europe as well
as a moderation in emerging markets across the globe pulled down export
growth sharply in the second half of the financial year to 6% from close to
25% in first half of the financial year 2012, weakening a vital support to
the GDP growth in the financial year 2012.
The drag from local and global dampeners was largely concentrated on the
industrial sector with growth for the year at 3.9%, sharply lower than the
7.2% recorded a year ago. Agricultural growth too slowed down over the past
year but this was largely because of an unfavorable base. While the monsoon
season was more than adequate in the financial year 2012 and food grain
production was strong, an adverse base pulled down agricultural growth in
financial year 2012 to a lower but robust rate of 3.0% against a remarkably
strong reading of 7.0% in financial year 2011. Meanwhile, service sector
growth remained strong supported by structural drivers such as firm rural
demand and low penetration and registered a growth of 9.4% against 9.3% in
financial year 2011. On balance however, sturdy service sector growth was
not enough to offset the drag from industry growth which pulled headline
GDP growth in financial year 2012 lower to 6.9% against 8.4% a year ago.
While growth slowed down over the past year, inflation was slower to
respond to this deceleration, remaining elevated through most of the
financial year 2012. Exchange rate depreciation pressures driven by periods
of extreme risk aversion exacerbated the impact of firm global commodity
prices on domestic manufactured goods prices. Further, large fiscal
imbalances and a relatively loose fiscal policy kept demand pressures on
inflation intact. These led to the generalization of input price increases
and have kept core inflation in the 7.5-8.0% range. Additionally,
structural demand-supply mismatches in specific food items kept food
inflation sticky. As a result, headline inflation averaged 8.8% in
financial year 2012 only marginally lower than the average inflation rate
of 9.5% a year ago.
The RBI therefore kept its vigil on inflation, hiking key policy rates by
an aggressive 175 basis points between April, 2011-November, 2011. There
are signs however that inflation is slowly moderating in response to
subdued domestic demand and the lagged impact of past monetary tightening
measures. While a favorable base helped, sequential price pressures also
stabilized in recent months pulling headline inflation lower to 7.0% in
February, 2012 from 9.5% a year ago. Further, core inflation came down from
close to 8.0% a year ago to 5.7% in February, 2012. Given the attendant
risks to growth and some signs of moderating inflation, the RBI diluted its
hawkish stance in recent months, pausing its tightening cycle in December,
2011 and following this up with CRR cuts of 125 basis points since January,
2012 to address tight liquidity conditions.
As a result, while lending rates were hiked by a sharp 150 basis points on
average, most of this increase has been concentrated in first half of the
financial year 2012. Rising interest rates, inflation and weak domestic
demand impacted credit growth taking it lower from 23% in April, 2011 to
16% in February, 2012. Interest rate sensitive segments such as retail
housing, vehicle and personal loans came under pressure with credit growth
in this category slowing to 11.0% in February, 2012 from 16.5% a year ago.
Further, tardy infrastructure project execution and subdued capex
especially in areas such as power took infrastructure loan growth lower to
18.8% in February, 2012 from 40.0% a year ago. Some segments such as roads
and highways benefited from a turnaround in awarding activity which kept
loan growth to the sector strong at 26-30% but this did little to arrest
the slowdown in broader loan disbursements.
Firm interest rates and deposit rate hikes of nearly 150 basis points over
September, 2010-July, 2011 boosted deposit growth in first half of the
financial year 2012. However, subdued base money growth reflecting muted
forex asset accretion and thin foreign inflows started impacting deposit
mobilization which pulled deposit growth lower to 14-15%, thus creating a
structural drag on domestic liquidity.
While liberalization in non-resident deposit rates helped growth in private
remittances and transfers pushing it higher from 14% in financial year 2011
to over 25% in financial year 2012, firm commodity prices meant that import
growth was much stronger. Further, growing global risk aversion boosted
domestic demand for gold pushing the annual growth rate in gold imports to
75% from 25% a year ago. While subdued global demand drove export growth
lower from 25% in first half of financial year 2012 to single digits in
second half of financial year 2012, import growth remained strong at 25-30%
thus widening the current account deficit close to 4% of GDP in financial
year 2012 from 2.7% a year ago. On the other hand, muted global risk
sentiment and periods of intense financial instability meant thin net
capital inflows totaling USD 66 billion against USD 62 billion a year ago.
As a result, the country saw net foreign outflows of USD 8-9 billion over
the past year against net inflows of USD 13 billion a year ago. This kept
the exchange rate under pressure leading to periods of extreme depreciation
amidst a sharp fall in global risk sentiment and forcing the RBI to
intervene and stabilize the domestic currency unit.
While thin foreign inflows and efforts by the RBI to stem the pace of
currency depreciation kept domestic liquidity under pressure, the
government`s large market borrowing target only exacerbated the liquidity
shortage. A combination of lower than budgeted revenue mobilization and an
overshoot in subsidies drove the government to surpass its fiscal deficit
target by more than 1% of GDP. This translated to extra borrowings of close
to Rs. 1,00,000 crore through dated securities and a similar amount through
treasury bills in second half of financial year 2012 on top of an already
hefty dated securities draft of Rs. 4,17,000 crore budgeted for the year.
As a result, the average banking system borrowing against surplus SLR
(Statutory Liquidity Ratio) Securities from the RBI widened from Rs. 45,000
crore in first half of financial year 2012 to Rs. 1,20,000 crore in the
second half of the year which kept government bond yields elevated taking
the benchmark 10-yr yield to 8.55-8.60%, higher by 80 basis points over the
previous year. Tight liquidity and aggressive monetary tightening over the
year meant that the short-end of the curve came under pressure with the
yield curve inverted and the 3-month T-bill yield largely ruled above the
10-yr benchmark yield. The overnight MIBOR shot up by 200 basis points to
close the year at 8.80-9.0%
Since the intensification of the global financial crisis 2008, risks to
domestic growth largely stemmed from the external environment. Over the
last year however, domestic factors played a key role in pushing growth
below potential. It follows then that policy initiatives to reverse this
drag both in the form of monetary easing and addressing policy impediments
and supply shortages will determine the trajectory of growth in financial
year 2013. Some efforts have been made in resolving policy hurdles in
recent months. For instance, efforts have been made to ease coal supply
shortages in the power sector by securing coal supply agreements from state
suppliers for power projects that have already been commissioned or would
get commissioned on or before March, 2015. A draft bill has been formulated
to smooth land acquisition bottlenecks. However most of these policy
changes are yet to be fully implemented and were these delays to persist,
could continue to impede domestic investment and ultimately impact growth.
While adequate capital provisioning and stringent prudential regulations
largely shielded the domestic banking system from the global crisis,
cyclical deterioration in asset quality remains a concern. Loans to the
power sector where financial closure of projects has been delayed by policy
hurdles, coal supply shortages and end-product pricing problems have come
under stress. Further, there is some concern that a portion of the loans
that banks were allowed to restructure may become impaired and will add to
the stock of non-performing loans. As a result, the gross NPA ratio of the
system is likely to move higher from 2.3% in financial year 2011 to 3.0% in
financial year 2012. Recent stress tests have however revealed that the
banking system as a whole remains robust enough to withstand a sharp
increase in asset quality slippages and capitalization levels of stressed
banks are likely to be maintained either through government assistance or
further equity infusion.
While monetary easing in response to slowing domestic demand is likely to
be modest it is likely to be enough to offset at least a part of the
tightening over the last year. Leveraged consumer spending could thus gain
some impetus. Further, while greenfield capex could remain restricted,
brownfield capacity expansion involving minimal interface with regulatory
hurdles could benefit from easing domestic funding conditions and firm
private consumption. Besides, some sectors such as roads and highways that
have seen considerable traction in activity over the last year are likely
to remain an important support to investment momentum going ahead.
Despite a slowdown in growth over financial year 2012, India has continued
to outperform the global economy. With world output growth likely to remain
relatively feeble at 3.3% in 2012 against 3.8% in 2011, structural supports
from a rapidly expanding rural and semi-urban economy, favorable
demographics and low product penetration are likely to continue to keep
domestic growth higher than world growth.
(Sources: Ministry of Finance, RBI, CSO, Ministry of Commerce)
Mission and Business Strategy:
Your Bank`s mission is to be a `World Class Indian Bank`, benchmarking
itself against international standards and best practices in terms of
product offerings, technology, service levels, risk management and audit &
compliance. The objective is to continue building sound customer franchises
across distinct businesses so as to be a preferred provider of banking
services for its target retail and wholesale customer segments, and to
achieve a healthy growth in profitability, consistent with the Bank`s risk
appetite. Your Bank is committed to do this while ensuring the highest
levels of ethical standards, professional integrity, corporate governance
and regulatory compliance.
The Bank`s business strategy emphasizes the following:
* Develop innovative products and services that attract its targeted
customers and address inefficiencies in the Indian financial sector;
* Increase its market share in India`s expanding banking and financial
services industry by following a disciplined growth strategy focusing on
balancing quality and volume growth while delivering high quality customer
service;
* Leverage its technology platform and open scaleable systems to deliver
more products to more customers and to control operating costs;
* Maintain high risk standards for asset quality through disciplined credit
risk management;
* Continue to develop products and services that reduce its cost of funds;
and
* Focus on healthy earnings growth and low volatility.
Financial Performance:
The financial performance of your Bank during the financial year ended
March 31, 2012 remained healthy with total net revenues (net interest
income plus other income) increasing by 17.9% to Rs. 17,540.5 crore from
Rs. 14,878.3 crore in the previous financial year. Revenue growth was
driven by an increase in both, net interest income and other income. Net
interest income grew by 16.6% due to acceleration in loan growth to 22.2%
coupled with a net interest margin (NIM) of 4.2% for the year ending March
31, 2012.
From May 2011, the RBI mandated that interest payable on savings deposits
be increased to 4% from 3.5%, which resulted in an impact of approximately
10-11 basis points on the bank`s Net Interest Margins (NIM). Further, in
November 2011, the same was de-regulated by RBI. Some of the small private
sector banks increased the savings bank interest rate in the range of 6-7%,
while most other banks maintained their savings deposit rate at 4%. In
spite of price based competition, your Bank witnessed a strong growth of
16.6% in its savings deposits. Further, due to tight liquidity conditions
that were prevalent in the monetary system during the financial year ended
March 31, 2012, your Bank witnessed an increase of about 100 basis points
in its retail term deposit rates during this period. Your Bank has however
maintained steady NIMs by managing the yields across its various customer
and product segments in line with its cost of funds.
Other income grew 21.0% over that in the previous year to Rs. 5,243.7 crore
during the financial year ended March 31, 2012. This growth was driven
primarily by an increase in fees and commissions earned and income from
foreign exchange and derivatives, offset in part by a loss on sale /
revaluation of investments of Rs. 195.9 crore as compared to a loss of Rs.
52.6 crore in the previous financial year. In the financial year ended
March 31, 2012, commission income increased by 18.9% to Rs. 4,275.5 crore
with the primary drivers being commissions from the distribution of fees on
debit and credit cards, transactional charges and fees on deposit accounts
and processing fees on retail assets. Regulatory changes resulted in the
capping of earnings from the distribution of insurance products; however
the increase in your Bank`s sales volumes partly made up for the reduction
in unit commissions. Foreign exchange and derivatives revenues grew by
44.8% from Rs. 786.3 crore in the previous financial year to Rs. 1,138.9
crore in the financial year ended March 31, 2012, primarily due to higher
customer flows and also higher earnings from trading arising out of large
volatility in foreign exchange markets through the year.
Operating (non-interest) expenses increased from Rs. 7,152.9 crore in the
previous financial year to Rs. 8,590.1 crore in the year under
consideration. During the year your Bank opened 558 new branches and over
3,400 ATMs which resulted in higher infrastructure and staffing expenses.
As a result, the ratio of operating cost to core net revenues (excluding
bonds gains / losses) for your Bank increased to 48.4% during the financial
year ended March 31, 2012, from 47.9% in the previous year.
Total loan loss provisions consisting of specific provisions for non-
performing assets and floating provisions decreased from Rs. 1,433.0 crore
to Rs. 1,351.6 crore for the financial year ended March 31, 2012, on
account of healthy asset quality across both retail and wholesale customer
segments. Your Bank`s provisioning policies for specific loan loss
provisions remain higher than regulatory requirements, the coverage ratio
based on specific provisions alone without including write-offs was 82.4%
and that including general and floating provisions was 199.7% as on March
31, 2012. Your Bank made general provisions of Rs. 150.5 crore during the
financial year ended March 31, 2012.
Your Bank`s profit after tax increased by 31.6% from Rs. 3,926.4 crore in
the previous financial year to Rs. 5,167.1 crore in the year ended March
31, 2012. Return on average net worth was 18.4% while the basic earnings
per share increased from Rs. 17.00 to Rs. 22.11 per equity share.
As at March 31, 2012, your Bank`s total balance sheet size was Rs. 337,909
crore an increase of 21.8% over Rs. 277,353 crore as at March 31, 2011.
Total Deposits increased 18.3% from Rs. 208,586 crore as on March 31, 2011
to Rs. 246,706 crore as on March 31, 2012. Savings account deposits grew by
16.6% to Rs. 73,998 crore while current account deposits were at Rs. 45,408
crore as on March 31, 2012. Adjusting current account deposits for one
offs, as at March 31, 2011, amounting to Rs. 4,000 crore, the growth was
6.9%. The proportion of core current and savings deposits (CASA) to total
deposits was at 48.4% as on March 31, 2012. During the financial year under
review, gross advances grew by 22.0% to Rs. 196,890 crore, while system
loan growth was approximately 19%. Your Bank`s loan growth was driven by an
increase of 33.7% in retail advances to Rs. 107,126 crore, and an increase
of 10.5% in wholesale advances to Rs. 89,764 crore. The Bank had a market
share of 3.9% in total system deposits and 4.3% in total system advances.
The Bank`s Credit Deposit (CD) Ratio was 79.2% as on March 31, 2012.
Business Segments` Update:
Consistent with its performance in the past, in the last financial year,
your Bank has achieved healthy growth across various operating and
financial parameters. This performance reflected the strength and diversity
of the Bank`s three primary business franchises - retail banking, wholesale
banking and treasury and of its disciplined approach to risk - reward
management.
Retail Banking:
Your Bank caters to various customer segments with a wide range of products
and services. The Bank is a `one stop shop` financial services provider of
various deposit products, of retail loans (auto loans, personal loans,
commercial vehicle loans, mortgages, business banking, loan against gold
jewellery etc.), credit cards, debit cards, depository (custody services),
investment advisory, bill payments and several transactional services.
Apart from its own products, the Bank distributes third party financial
products such as mutual funds and life and general insurance.
The growth in your Bank`s retail banking business was robust during the
financial year ended March 31, 2012. The Bank`s total retail deposits grew
by over 27.6% to Rs. 178,657 crore in the financial year ended March 31,
2012, driven by retail term deposits which grew much faster at 45.4% during
the same period. The Bank`s retail assets grew by 33.7% to Rs. 107,126
crore during the financial year ended March 31, 2012 driven primarily by a
growth in commercial vehicle loans, mortgages, business banking, and auto
loans.
During this year your Bank expanded its distribution network from 1,986
branches in 996 cities as on March 31, 2011 to 2,544 branches in 1,399
Indian cities on March 31, 2012. The Bank`s ATMs increased from 5,471 to
8,913 during the same period. Your Bank`s branch network is deeply
entrenched across the country with significant density in areas conducive
to the growth of its businesses. The Bank`s focus on semi-urban and under-
banked markets continued, with over 75% of the Bank`s branches now outside
the top nine Indian cities. The Bank`s customer base grew in line with the
growth in its network and increased product penetration initiatives. This
currently stands at 26 million customers. The Bank continues to provide
unique products and services with customer centricity as a key objective.
In order to provide its customers increased choices, flexibility and
convenience the Bank continued to make significant headway in its multi
channel servicing strategy. Your Bank offered its customers the use of
ATMs, internet, phone and mobile banking in addition to its expanded branch
network to serve their banking needs.
The increase in the Bank`s debit card base this year coupled with a growth
in its ATM network translated to an increase in ATM transactions by 20%.
The Bank also made strong inroads in its internet banking channel with
around 60% of its registered customers now using net banking facilities for
their banking requirements. Your bank now offers phone banking in 1397
locations in addition to giving its customers the convenience of accessing
their bank accounts over their mobile phones. The success of the Bank`s
multi-channel strategy is evidenced in the fact that over 80% of customer
initiated transactions are serviced through the non-branch channels.
Your Bank continued to grow at a healthy pace in almost all the retail loan
products that it offers and further consolidated its position amongst the
top retail lenders in India. The Bank grew its retail asset portfolio in a
well balanced manner focusing on both returns as well as risk. While the
Bank`s auto finance business remained a key business driver for its retail
asset portfolio, other retail loan products exhibited robust growth rates
and good asset quality.
The Bank continued its focus on internal customers for its credit cards
portfolio. Credit cards remained a profitable business for your Bank with
5.6 million cards in force as at March 31, 2012. As part of its strategy to
drive usage of its credit cards the Bank also has a significant presence in
the `merchant acquiring` business with the total number of point-of-sale
(POS) terminals installed at over 180,000.
In addition to the above products the Bank does home loans in conjunction
with HDFC Limited. Under this arrangement the Bank sells loans provided by
HDFC Limited through its branches. HDFC Limited approves and disburses the
loans, which are booked in their books, with the Bank receiving a sourcing
fee for these loans. HDFC Limited offers the Bank an option to purchase up
to 70% of the fully disbursed home loans sourced under this arrangement
through either the issue of mortgage backed pass through certificates
(PTCs) or by a direct assignment of loans; the balance is retained by HDFC
Limited. Both the PTCs and the loans thus assigned are credit enhanced by
HDFC Limited up to a AAA level. The Bank purchases these loans at the
underlying home loan yields less a fee paid to HDFC Limited for the
administration and servicing of the loans. Your Bank originated
approximately an average Rs. 800 crore of mortgages every month in the
financial year ended March 31, 2012, an increase from the Rs. 700 crore per
month that it originated in the previous year. During the year the Bank
also purchased from HDFC Ltd. under the "loan assignment" route
approximately Rs. 4,900 crore of AAA credit enhanced home loans most of
which qualified as priority sector advances.
Your Bank also distributes life, general insurance and mutual fund products
through its tie-ups with insurance companies and mutual fund houses. The
new regulations and product mix has adversely impacted fees from these
sources, though increase in volumes of distribution has offset to some
extent the drop in commission rates. Third party distribution income
contributes approximately 17% of total fee income.
The Bank`s data warehouse, Customer Relationship Management (CRM) and
analytics solutions have helped it target existing and potential customers
in a cost effective manner and offer them products appropriate to their
profile and needs. Apart from reducing costs of acquisition, this has also
led to deepening of customer relationships and greater efficiency in fraud
control and collections resulting in lower credit losses. The Bank is
committed to investing in advanced technology in this area which will
provide a cutting edge in the Bank`s product and service offerings.
Wholesale Banking
The Bank provides its corporate and institutional clients a wide range of
commercial and transactional banking products, backed by high quality
service and relationship management. The Bank`s commercial banking business
covers not only the top end of the corporate sector but also the emerging
corporate segments and some small and medium enterprises (SMEs). The Bank
has a number of business groups catering to various segments of its
wholesale banking customers with a wide range of banking services covering
their working capital, term finance, trade services, cash management,
foreign exchange and electronic banking requirements.
The Bank`s financial institutions and government business group (FIG)
offers commercial and transaction banking products to financial
institutions, mutual funds, public sector undertakings, central and state
government departments. The main focus for this segment remained offering
various deposit and transaction banking products to this segment besides
deepening these relationships by offering funded, non-funded treasury and
foreign exchange products.
The Bank`s wholesale deposits grew by around 5.3%, adjusted for one off
current account deposits of Rs. 4,000 crore at March 31, 2011, while
wholesale advances showed a growth of over 10.5%. Your Bank provides its
customers both working capital and term financing. The Bank witnessed an
increase in the proportion of its medium tenor term lending, however
working capital loans and short tenor term loans retained a large share of
its wholesale advances. While the duration of the Bank`s term loans largely
remained small to medium term, the Bank did witness an increase in its
longer duration term loans and project lending including loans to the
infrastructure segment.
During the financial year ended March 31, 2012, growth in the wholesale
banking business continued to be driven by new customer acquisition and
higher cross-sell with a focus on optimizing yields and increasing product
penetration. Your Bank`s cash management and vendor & distributor (supply
chain) finance products continued to be an important contributor to growth
in the corporate banking business. Your Bank further consolidated its
position as a leading player in the cash management business (covering all
outstation collection, disbursement and electronic fund transfer products
across the Bank`s various customer segments) with volumes of over Rs. 25
trillion. The Bank also strengthened its market leadership in cash
settlement services for major stock exchanges and commodity exchanges in
the country. The Bank met the overall priority sector lending requirement
of 40% of net bank credit and also strived for healthy growth in the sub-
targets such as weaker sections, direct agriculture, and the micro and SME
segments.
International Operations
The Bank has a wholesale banking branch in Bahrain, a branch in Hong Kong
and two representative offices in UAE and Kenya. The branches offer the
Bank`s suite of banking services including treasury and trade finance
products to its corporate clients. Your Bank has built up an asset book
over USD 1.7 billion through its overseas branches. The Bank offers wealth
management products, remittance facilities and markets deposits to the non-
resident Indian community from its representative offices.
Treasury
The treasury group is responsible for compliance with reserve requirements
and management of liquidity and interest rate risk on the Bank`s balance
sheet. On the foreign exchange and derivatives front, revenues are driven
primarily by spreads on customer transactions based on trade flows and
customers` demonstrated hedging needs. During the financial year ended
March 31, 2012, revenues from foreign exchange and derivative transactions
grew by 44.8% to Rs. 1,138.8 crore. These revenues were distributed across
large corporate, emerging corporate, business banking and retail customer
segments for plain vanilla foreign exchange products and across primarily
large corporate and emerging corporate segments for derivatives. The Bank
offers Indian rupee and foreign exchange derivative products to its
customers, who use them to hedge their market risks. The Bank enters into
foreign exchange and derivative deals with counterparties after it has set
up appropriate counterparty credit limits based on its evaluation of the
ability of the counterparty to meet its obligations in the event of
crystallization of the exposure. Appropriate credit covenants may be
stipulated where required as trigger events to call for collaterals or
terminate a transaction and contain the risk. Where the Bank enters into
foreign currency derivative contracts with its customers it lays them off
in the inter-bank market on a matched basis. For such foreign currency
derivatives, the Bank does not have any open positions or assume any market
risks but carries only the counterparty credit risk (where the customer has
crystallized payables or mark-to-market losses). The Bank also deals in
Indian rupee derivatives on its own account including for the purpose of
its own balance sheet risk management. The Bank recognizes changes in the
market value of all derivative instruments (other than those designated as
hedges) in the profit and loss account in the period of change. Derivative
contracts classified as hedge are recorded on an accrual basis.
Given the regulatory requirement of holding government securities to meet
the statutory liquidity ratio (SLR) requirement, your Bank maintains a
portfolio of government securities. While a significant portion of these
SLR securities are held in the `Held-to-Maturity` (HTM) category, some of
these are held in the `Available for Sale` (AFS) category.
Information Technology
Since its inception, your Bank has made and continues to make substantial
investments in its technology platform and systems, built multiple
distribution channels, including an electronically linked branch network,
automated telephone banking, internet banking and banking through mobile
phones, to offer its customers convenient access to various products.
During this financial year, the bank has made further strides in adding
more capability to the internet banking platform, launched mobile banking
for 2G customers and launched applications for various mobile platforms.
Your Bank has templatized credit underwriting through automated customer
data de-duplication and real-time scoring in its loan origination process.
Having enhanced its cross selling and up-selling capabilities through data
mining and analytical customer relationship management solutions, the
Bank`s technology enables it to have a 3600 view of its customers. Your
Bank employs event detection technology based customer messaging and has
deployed an enterprise wide data warehousing solution as a back bone to its
business intelligence system.
Implementation of risk management engine for internet transactions coupled
with various multi factor authentication has reduced the phishing attacks
significantly. The bank has also implemented a digital certificate based
security engine for corporate internet banking customers. Credit and debit
cards usage of the Bank`s customers is secured by powerful proactive risk
manager technology solutions which does rules based SMS alerts as well as
prompts customer service representatives to call the customer on detecting
abnormal usage behavior. This prevents frauds and minimizes losses to
customers, if the card has been stolen and yet to be hot listed.
Sophisticated automated switch-over and switch-back solutions power the
Bank`s Business Continuity and Disaster Recovery management strategy for
core banking and other key applications. The bank conducts drills
periodically to upgrade this capability and to improve the availability of
your Bank`s services to its customers.
With the various initiatives that your Bank has taken using technology, it
has been successful in driving the development of innovative product
features, reducing operating costs, enhancing customer service delivery and
minimizing inherent risks.
In April 2011, RBI issued Guidelines on Information Security, Electronic
Banking, Technology Risk Management and Cyber Frauds and provided
recommendations for implementation. The Bank remains committed towards
complying with the requirements outlined in the guidelines and instituted a
senior level internal team to oversee the implementation program for
complying with the guidelines. The team supervised the various domains,
performed gap analysis, and prepared remediation plan for each area where
gaps were observed. Significant progress has been made towards remediation
over the year and this has been reported to the board on a quarterly basis.
Service Quality Initiatives
Your Bank was one of the few banks in the country to have put in place a
team dedicated to improve service quality through the Lean and Six Sigma
methodologies with a focus on right origination, cost effective and error
free operations and effective complaint resolution. The Bank continued
driving improvements in Service Quality (SQ) initiatives encompassing all
customer touch points namely branches, ATMs, phone banking, net-banking, e-
mail service as well as back office support functions impacting customer
service through a dedicated Quality Initiatives Group (QIG) team. Some of
the key elements covered by the QIG team are workplace management,
etiquette and courtesy, lobby management, complaints management, management
of turnaround times, overall customer service and compliance with the
Bank`s internal processes as well as regulatory compliance. The group also
runs programs such as `voice of the customer` and `voice of the employee`
for effective complaint resolution and process improvement. Various
departments of the Bank are empowered to deliver superior customer
experience through improvements in products, processes and people skills.
In addition to above, your Bank continued with the ongoing service quality
initiatives which include the audit of services as well as mystery shopping
at various customer touch points to capture and improve customer
experiences extending them to all new branches / centers. Your Bank has
also set up a robust training mechanism; both on the online platform as
well as using conventional class room sessions, to enable its employees
improve the quality of customer service.
Under the institutional drive called "Transformation of Customer Service"
your Bank is benchmarking with the best in class service providers in the
banking space and launch newer and better products and services to delight
the customers.
To this effect, your Bank has designed and implemented customized Lean
Sigma Project Management (LSPM) methodology that incorporates the Lean
philosophy into the Six Sigma framework to deliver faster and sustainable
results clubbed with customer delight and improved profitability. Your Bank
also takes advantage of various information technology platforms to improve
products, processes and services. Your Bank does not believe in designing a
product and fitting it into the customers` needs rather it designs products
to meet customer needs. The Bank has always ensured that its products and
services are delivered through processes which are in line with the
prevalent regulatory framework and has adequate controls to safe-guard
against possible misuse. Your Bank has taken various steps to improve the
effectiveness of its Grievance re-dressal mechanism across its delivery
channels. Some key measures taken up by the Bank include a three layered
Grievance re-dressal mechanism, bank-wide online complaint resolution
system, root cause remediation, customer service committees at the branch
level and at the corporate headquarters level with representation from
customers. The levels of customer service are periodically reviewed by the
board of directors of the Bank. All these have helped in consistent
reduction in the total number of customer complaints and the same is
reflected in written appreciations received from the various offices of
honorable Banking Ombudsman (BO) appointed by the Reserve Bank of India.
In order to ensure continued focus on customer service through standardized
and controlled processes, your Bank has achieved coveted the ISO 9001:2008
Certification of the grievance handling processes of the bank.
Risk Management and Portfolio Quality
Taking on various types of risk is integral to the banking business. Of the
various types of risks your Bank is exposed to, the most important are
credit risk, market risk and operational risk. The identification,
measurement, monitoring and management of risks remain a key focus area for
the Bank. Sound risk management and balancing risk-reward trade-offs are
critical to a bank`s success. Business and revenue growth have therefore to
be weighed in the context of the risks implicit in the Bank`s business
strategy. The Risk Policy and Monitoring Committee of the Board monitors
the Bank`s risk management policies and procedures, vets treasury risk
limits before they are considered by the Board, and reviews portfolio
composition and impaired credits.
For credit risk, distinct policies, processes and systems are in place for
the retail and wholesale businesses. In the retail loan businesses, the
credit cycle is managed through appropriate front-end credit, operational
and collection processes. For each product, programs defining customer
segments, underwriting standards, security structure etc., are specified to
ensure consistency of credit buying patterns. Given the granularity of
individual exposures, retail credit risk is monitored largely on a
portfolio basis, across various products and customer segments. During the
year the Bank obtained the ISO 9001:2008 re-certification of its retail
credit underwriting unit, which was confirmed for 35 sites. For wholesale
credit exposures, management of credit risk is done through target market
definition, appropriate credit approval processes, ongoing post-
disbursement monitoring and remedial management procedures. Overall
portfolio diversification and periodic as well as proactive reviews
facilitate risk mitigation and management. The credit quality in the
wholesale segment continued to be robust. The Bank was largely insulated
from the problems witnessed in the power, telecom, aviation, and other
sectors due to its low exposure to project finance and the existence of
superior credit filters which facilitate a high quality loan book. Some
stress was observed in the micro finance portfolio of the Bank due to
environmental factors, however, this portfolio is less than 0.2 percent of
the Bank`s advances, and all problem accounts are adequately provided for.
As of March 31, 2012, your Bank`s ratio of gross non-performing assets
(NPAs) to gross advances was 1.02%. Net non-performing assets (gross non-
performing assets less specific loan loss provisions) were 0.2% of customer
assets as of March 31, 2012. The specific loan loss provisions that the
Bank has made for its non-performing assets continue to be more
conservative than the regulatory requirement. In addition, the bank has
made general provisions for standard assets which are as per regulatory
prescription and dynamic counter cyclical provisions or floating provisions
which are made as per board approved policy. The coverage ratio taking into
account specific, general and floating provisions was 199.7% as of March
31, 2012.
In accordance with RBI`s guidelines on Basel II, the Bank is currently on
the Standardized Approach for Credit Risk, the Basic Indicator Approach for
Operational Risk and the Standardized Approach for Market Risk. Parallely,
the Bank is progressing with its initiatives on meeting the requirements
for adoption of the advanced approaches for these risks under Basel II,
brought out by RBI in this regard. The framework of the advanced approaches
is in harmony with the Bank`s objective of adopting best practices in risk
management.
INTERNAL AUDIT AND COMPLIANCE
Your Bank has Internal Audit and Compliance functions which are responsible
for independently evaluating the adequacy of all internal controls and
ensuring operating and business units adhere to internal processes and
procedures as well as to regulatory and legal requirements. The audit
function also pro-actively recommends improvements in operational processes
and service quality. To ensure independence, the audit department has a
reporting line to the Chairman of the Board of Directors and the Audit and
Compliance Committee of the Board and only a dotted line to the Managing
Director. To mitigate operational risks, the Bank has put in place
extensive internal controls including restricted access to the Bank`s
computer systems, appropriate segregation of front and back office
operations and strong audit trails. The Audit and Compliance Committee of
the Board also reviews the performance of the audit and compliance
functions and reviews the effectiveness of controls and compliance with
regulatory guidelines.
CORPORATE SOCIAL RESPONSIBILITY
Your Bank has a defined guiding principle for all its social initiatives:
`Changing Lives by empowering individuals through Finance, Education and
Training`.
An essential element of the Bank`s Corporate Responsibility is its
community initiatives which aim at empowering individuals at the bottom of
the pyramid through developmental initiatives such as education and
livelihood support. In the field of education its interventions are aimed
at mainstreaming of school children and ensuring the quality of education
they receive. Your Bank has undertaken a multitude of initiatives for
retaining children in school and arrest the rate of dropouts. As part of
this initiatives, pre-primary schools are run in communities with the
objective of preparing and enrolling these children into mainstream
education. Apart from providing basic nutritional and health needs, regular
parent and community meetings are an integral part of this program which is
currently running in Kolkata, Hyderabad and Delhi.
Your Bank in partnership with NGOs and the government has adopted state-run
schools by providing educational support to the children and to train staff
to ensure better levels of learning and lower rate of drop-out in state-run
schools in Pune and Mumbai. Also needy and deserving children are
identified based on set criteria and provided with educational support to
cover the cost of their education in state-run schools. In a unique
initiative supported by the Bank, 30 children from government schools have
been integrated to DPS School in Ahmedabad. Your Bank launched its
Educational Crisis Scholarship Support (ECSS) in 2011 to reach out to
students, studying in private / government-aided schools, who due to
personal / family constraints, are unable to continue bearing the cost of
education and are at risk of dropping out of school.
Your Bank also undertakes programs that cover around 500 children through
`afterschool class` and out-of school children through `bridge class` in
Pune, Delhi and Kolkata, a rehabilitation program in Kashmir, Kolkata and
Mumbai, where development, training and placement assistance is provided to
differently abled individuals, so that they can lead a life of dignity, and
financial literacy programs for children which are run in 458 schools in
rural areas of Maharashtra, Tamil Nadu and Orissa to inculcate values of
money and concept of savings.
Your Bank has also created a financial literacy module which is run by its
employee volunteers. `Power of Banking` is a two-hour-long interactive
module designed for school children studying in Vth to VIIIth standards and
covers simple concepts about money such as budgeting, saving and banking.
Power of banking has also been redesigned to introduce financial concepts
and values associated with money to street children.
Your Bank`s livelihood initiatives are aimed at training and capacity
development of youth and women in the age group of 18-30 years from
economically weaker sections of society and to empower them to gain access
to opportunities for sustainable livelihoods and growth. Your Bank`s
livelihood support programs are aimed at empowering competency-based,
skill-oriented technical and vocational training. Such training programs
have been carried out in Andhra Pradesh, Maharashtra and Gujarat. In
Kolkata, your Bank has supported the setting up of a physiotherapy training
unit where visually challenged candidates undergo a diploma in
physiotherapy. In a pilot project undertaken in the same city, interest-
free loans were given to school drop-outs who underwent training as
laboratory technicians and were successfully placed in hospitals through
industry interface. In addition to projects implemented through NGO
partners, your Bank also drives direct community initiatives through its
employees.
Changing Lives through Employee Engagement
Employees are an integral part of all volunteering programs. With an
organization of over sixty thousand people, your Bank believes that it is
in a unique position to leverage theknowledge base, skills and resources of
its employees to `Change Lives`. While employees are part of all the
community-based interventions, the Bank also provides opportunities for
employees to contribute through special programs that are centrally driven.
Payroll Giving: Under this program, employees are provided with an easy and
convenient system to donate small amounts on monthly basis and accumulate
it to reach a corpus thatallows them individually to donate to a charity of
their choice. Your Bank matches their contribution, thereby endorsing the
charity they choose to support. Currently, we have employees who have
cumulatively supported over 50,000 individuals.
Make A Difference Day: Your Bank celebrates `Make A Difference Day`
annually as a community volunteering day where employees identify NGOs in
their region and interact with beneficiaries. Employees conduct activities,
competitions and workshops for the underprivileged community. `Make A
Difference Day` is celebrated as an opportunity for the employees to leave
their laptops, conferences calls and emails and direct their passion,
determination and skills for the benefit of communities.
HDFC Bank Fellowship: Your Bank supports the `Teach for India` movement
which is a nationwide campaign aiming to bridge the educational gap in
India by placing young professionals in low-income schools to teach full-
time for two years, advocating educational equity. Each year, two employees
are selected for the fellowship and are given a two-year sabbatical, during
which they continue to receive their basic salary.
Blood Donation: Employees of your Bank have been actively organizing blood
camps at all India level since 2007. The journey started with a collection
of 4,385 units of blood and today has increased to 25,758 units.
Identifying a need for preserving the blood especially in rural areas,
employees initiated a drive to identify and support the setup of blood
banks. This year too, your bank supported this initiative and set up four
blood banks.
Environmental Sustainability
Your Bank believes in taking responsibility for the effects of its
operations on society and on the environment. It regards climate change
mitigation and environmental improvements as essential elements of a
sustainable business philosophy and this belief embodies the Bank`s
approach to reduction of carbon emissions.
It has conducted an inventory of energy-related emissions from its office
buildings and retail branches and is taking steps to manage Green House Gas
(GHG) emissions. Your Bank is also a signatory to the Carbon Disclosure
Project (CDP).
An important aspect of your Bank`s GHG management strategy is behavioral
modifications and employees are constantly being made aware of the
importance of conservation. Through all these measures, the Bank has
embarked on a mission to make tangible and meaningful difference to
people`s lives. It will continue to walk the path and not rest till this
goal is achieved.
FINANCIAL INCLUSION
Over the last few years, your Bank has been working on a number of
initiatives to promote Financial Inclusion across identified sections of
rural and urban, under-banked and un-banked consumers. These initiatives
target segments of the population that have limited or no access to the
formal banking system for their basic banking and credit requirements, by
building a robust and sustainable model that provides relevant services and
viable and timely credit that ultimately results in economically uplifting
its customers and substituting the borrowings at usurious rates.
The Bank`s initiatives in the rural or deeper geography dovetails in to the
bank`s financial inclusion plans and also compliments the bank`s Corporate
Social Responsibility initiative where the endeavor has been to provide
banking services which are viable both for the customer and the bank.
The Banks financial inclusion initiatives have been integrated across its
various businesses, across product groups. By March 31, 2012 your Bank has
brought over 5 million households who were hitherto excluded from basic
banking services under the fold of this program.
Rural Initiative
The Bank offers products and services such as savings, current, fixed &
recurring deposits, loans, ATM facilities, investment products such as
mutual funds and insurance, electronic funds transfers, drafts and
remittances etc in its branches located in rural and under banked
locations. The Bank also leverages some of these branches as hubs for other
inclusion initiatives such as direct linkages to self-help groups and to
promote Joint liability Group Loans, POS terminals and information
technology enabled kiosks, as well as other ICT initiatives such as mobile
banking in these locations. The Bank covers over 6,000 villages in the
country through various distribution set ups, these include branches and
business correspondents. Around half of the above villages are those having
a population of less than 2,000 that have typically been financially
excluded from the formal banking sector.
A number of retail credit products such as two-wheeler loans, car loans,
mortgages etc. that are consumption products in urban centers happen to be
means of income generation for rural consumers. Apart from loans directly
linked to agriculture such as pre and post harvest credit, there are many
other credit products that the Bank uses to aid financial betterment in
rural locations. Your Bank has extended provision of its retail loans to
large segments of the rural population where the end use of the products
acquired (by availing Bank`s loans) is used for income generating
activities. For example, loans for tractors, commercial vehicles, two
wheelers etc. supplement the farmer`s income by improving productivity and
reducing expenses.
No Frills Savings Accounts
A savings account is the primary requirement for the provision of other
banking services, the account promotes the habit of savings, provides
security, and inculcates confidence among the target segment in the banking
sector.
This product was launched by the Bank with a specific objective to provide
customers a platform that enables them to inculcate the habit of savings.
By not insisting on a requirement of a minimum balance, the entry barrier
into the banking system has been removed, thereby giving the hitherto
unbanked person to start experiencing benefits of banking.
These accounts are offered only to customers who do not have any other bank
account (are un-banked) or who are either beneficiaries of a government
welfare scheme or have annual incomes less than a defined threshold
(constitute the bottom of the economic pyramid). Apart from the basic no
frills savings account your Bank also offers these segments other accounts
such as no frills salary accounts and limited KYC accounts.
Given the specific segment that is being targeted, being a customer who
does not have any other Bank account, this product truly addresses the
cause of Financial Inclusion. Additionally the Bank also periodically
tracks the behavior in these accounts to ensure that the accounts opened
maintain a balance and are active.
The total number of No Frills Savings Accounts opened as on March 2012 was
at 7.60 lac accounts as against 5.53 lac accounts as on March 2011.
Sustainable Livelihood Financing
Over the last one year, your Bank has accelerated its direct linkage
program to self-help groups, where the Bank itself works at the grass root
level with women in villages, conducts financial literacy programs, forms
groups and then funds these groups for income generation activities. This
enables the delivery of viable credit to the rural poor in a sustainable
manner & at the same time also inculcates the saving and banking habits.
Till date the Bank has lent to over 73,000 Self Help Groups and over
1,10,000 Joint Liability groups covering approximately 11.7 Lac households.
Your Bank also disburses loans to its rural customers under the mutual
guarantee micro loan product which is now termed as Joint liability group
product. This product works on the principle of group guarantees and
provides clean (not backed by any collateral) loans to the borrowers based
on a guarantee by other borrowers.
Agriculture and Allied Activities
A large portion of India`s un-banked population relies on agriculture as
the main source of livelihood. We believe provision of credit to farmers
through various methods that your Bank has employed replaces the
traditional money lending channel, while at the same time providing income
generating activities. The Bank provides various loans to farmers through
its suite of specifically designed products such as the Kisan Gold Card,
tractor and cattle loans etc. In addition, the Bank offers post-harvest
cash credit, warehouse receipt financing and bill discounting facilities to
mandi (markets for grain and other agricultural produce) participants and
farmers. These facilities enable the mandi participants to make timely
payments to farmers. The Bank carries out this business through over 400
branches that are located in close proximity to mandis.
The Bank targets specific sectors to capture supply chain of certain crops
from the production stage to the sales stage. On the basis of these
cashflows, your Bank is able to finance specific needs of the farmers. This
is further supported by using Business Correspondents closer to their
respective locations and helping them to create a savings and banking
habit. This model has currently been implemented with dairy and sugarcane
farmers.
The initiative currently underway includes the appointment of dairy
societies and sugarcane co-operatives as business correspondents, through
whom the Bank opens accounts of individual farmers attached to these
societies. The societies route all payments to the farmers through this
account.
Gold Loans
The Gold loan product is an offering which allows customers a reliable
source of credit at the time of need. In the absence of this, either,
credit would not have been available to these customers or would have been
available at higher rates in form of unsecured loans. Gold loans provide a
source of monetizing the household gold and at the same time provides an
alternate source of funds. It provides financial independence to small
traders, small entrepreneurs and house wives. It also substitutes borrowing
at usurious rates, particularly by small borrowers and weaker sections.
Small and Micro Enterprises
The Bank offers complete banking solutions to micro, small and medium scale
enterprises across industry segments including manufacturers, retailers,
wholesalers / traders and services. The entire suite of financial products
including cash credit, overdrafts, term loans, bills discounting, export
packing credit, letter of credit, bank guarantees, cash management services
and other structured products are made available to these customers. One of
the means to financial inclusion is by supporting small and micro
enterprises which in turn provide employment opportunities to the
financially excluded. Though indirect, we believe this model may in many
instances be more effective than providing subsidies that are often
unsustainable, or never reach the intended beneficiary.
Promoting Financial Awareness
In addition to providing various products and services to the financially
excluded, the Bank believes that imparting education and training to these
target segments is equally essential to ensure transparency and create
awareness. To this effect the Bank has put in place various training
programs, these are conducted by Bank staff in local languages and cover
not only the customers but also various intermediaries such as the Bank`s
business correspondents. Through these programs the Bank provides credit
counseling and information on parameters like savings habit, better
utilization of savings, features of savings products, credit utilization,
asset creation, insurance, income generation program etc. During the
financial year ended March 31, 2012, over 5,400 financial awareness
programs covering over 1,40,000 households were conducted. The bank also
facilitates need based capacity building and market place for the customers
with the objective of sustaining their livelihood in holistic manner.
HUMAN RESOURCES
The total number of employees of your Bank was 66,076 as of March 31, 2012.
The Bank continued to focus on training its employees both - on the job as
well as through training programs conducted by internal and external
faculty. The Bank
has consistently believed that broader employee ownership of its equity
shares has a positive impact on its performance and employee motivation.
Your Bank lists `people` as one of its stated core values. The Bank
believes in empowering its employees and constantly takes various measures
to achieve this objective.
STATUTORY DISCLOSURES
The information required under Section 217(2A) of the Companies Act, 1956
and the rules made thereunder as amended, are given in an annexure and
forms part of this report. In terms of section 219(1)(iv) of the Act, the
Report and Accounts are being sent to the shareholders excluding the
aforesaid annexure. Any shareholder interested in obtaining a copy of the
said annexure may write to the Company Secretary at the Registered Office
of the Bank. The Bank had 66076 employees as on March 31, 2012. 120
employees employed throughout the year were in receipt of remuneration of
more than Rs. 60 lac per annum and 12 employees employed for part of the
year were in receipt of remuneration of more than Rs. 5 lac per month.
The provisions of Section 217(1)(e) of the Act relating to conservation of
energy and technology absorption do not apply to your Bank. The Bank has,
however, used information technology extensively in its operations.
The report on the Corporate Governance is annexed herewith and forms part
of this report.
The Ministry of Corporate Affairs has issued "Corporate Governance
Voluntary Guidelines" in December 2009. While these guidelines are
recommendatory in nature, the Bank has adopted most of these guidelines as
detailed in the Corporate Governance Report. The Bank will examine the
possibilities of adopting the remaining guidelines in an appropriate
manner.
RESPONSIBILITY STATEMENT
The Board of Directors hereby state that
i) In the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures;
ii) 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, 2012 and of the profit of the Bank for the year ended on that date;
iii) We have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Bank and for
preventing and detecting the fraud and other irregularities;
iv) We have prepared the annual accounts on a going concern basis.
DIRECTORS
Dr. Pandit Palande and Mr.Partho Datta will retire by rotation at the
ensuing Annual General Meeting and are eligible for re-appointment.
Mr. Keki Mistry, who had ceased to be a director from the closing hours of
business on March 26, 2011 on completing the permitted tenure of eight
years under the Banking Regulation Act, 1949, was re-appointed as an
additional director by the Board during the year in accordance with the
relevant applicable guidelines of the Reserve Bank of India and holds
office up to the conclusion of the ensuing Annual General Meeting. The Bank
has received a notice pursuant to Section 257 of the Companies Act, 1956
from a shareholder proposing the candidature of Mr. Keki Mistry as Director
of the Bank at the ensuing Annual General Meeting.
The brief resume/details relating to Directors who are to be re-appointed
are furnished in the report on Corporate Governance.
AUDITORS
The Auditors, M/s. BSR & Co., Chartered Accountants will retire at the
conclusion of the forthcoming Annual General Meeting and are eligible for
re-appointment. Members are requested to consider their re-appointment on
an annual remuneration (statutory audit fees) of Rs. 1,05,60,000 (Previous
year: Rs. 96,00,000) plus service tax as applicable, which is approved by
the Audit and Compliance Committee of the Board.
ACKNOWLEDGEMENT
Your Directors would like to place on record their gratitude for all the
guidance and co-operation received from the Reserve Bank of India and other
government and regulatory agencies. Your Directors would also like to take
this opportunity to express their appreciation for the hard work and
dedicated efforts put in by the Bank`s employees and look forward to their
continued contribution in building a World Class Indian Bank.
On behalf of the Board of Directors
Mr. C.M. Vasudev
Chairman
Place: Mumbai
Date : April 18, 2012
Annexure to Directors` Report for the year ended March 31, 2012
EMPLOYEES` STOCK OPTIONS
Details of the stock options granted, vested, exercised, forfeited and
lapsed during the year under review are as under:
Scheme(s) A1 B1 C1 D1 E1 F1
A - 2000 - - 14,500 - 35,000 -
B - 2003 - - 1,634,200 2,500 99,000 1,950,300
C - 2005 - - 3,276,000 1,500 16,500 3,421,500
D - 2007 - - 13,476,250 - 47,750 26,489,250
E - 2010 35,603,250 24,063,100 1,250,500 875,000 - 66,270,250
eCBOP
Key ESOP - - 44,000 - - 33,595
eCBOP -
General
ESOP - - 864,400 - 18,025 1,707,845
Total 35,603,250 24,063,100 20,559,850 879,000 216,275 99,872,740
A1 = Options Granted
B1 = Options Vested
C1 = Options Exercised & Shares Allotted*
D1 = Options Forfeited
E1 = Options Lapsed
F1 = Total Options in Force as on March 31, 2012
All numbers as above represent shares of face value of Rs. 2 each post sub-
division of 1 equity share of face value of Rs. 10 each into 5 equity
shares of face value of Rs. 2 each which was approved by the shareholders
at the last Annual General Meeting held on 6th July, 2011.
Other details are as under:
Money realized by exercise of options:
The Bank received Rs. 4.11 crore towards share capital and Rs. 526.15 crore
towards share premium on account of 2,05,59,850 stock options exercised and
allotted during the year.
Pricing Formula for options granted under Plan E-2010:
Closing market price on the stock exchange where there is highest trading
volume on the immediately preceding working day of the date of grant.
Options were granted at a price of Rs. 2,541.15 (post sub-division
Rs.508.23) on 6th July, 2011 and at a price of Rs. 468.40 on 18th January,
2012.
Details of options granted to: Name Options Granted
i. Directors & Senior
managerial personnel Aditya Puri 900000
Paresh Sukthankar 450000
Harish Engineer 450000
Anil Jaggia 184000
Abhay Aima 184000
Ashish Parthasarthy 184000
Bhavesh Zaveri 184000
Jimmy Tata 184000
Kaizad Bharucha 184000
Navin Puri 184000
Pralay Mondal 184000
Rajender Sehgal 184000
Rahul Bhagat 184000
Sashi Jagdishan 184000
ii. Other employee who receives a grant in any one year of option amounting
to 5% or more of option granted during that year:
None
iii. Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the company at the time of the grant:
None
Diluted Earnings Per Share (EPS) pursuant to the issue of shares on
exercise of option calculated in accordance with Accounting Standard (AS) -
20 (Earnings Per Share):
The Diluted EPS of the Bank calculated after considering the effect of
potential equity shares arising on account of exercise of options is
Rs.21.9
Where the company has calculated the employee compensation cost using the
intrinsic value of the stock options, the difference between the employee
compensation cost so computed and the employee compensation cost that shall
have been recognized if it had used the fair value of the options, shall be
disclosed. The impact of this difference on profits and on EPS of the
company shall also be disclosed:
Had the Bank followed fair value method for accounting the stock option
compensation expense would have been higher by Rs. 377.8 crore.
Consequently profit after tax would have been lower by Rs. 377.8 crore and
the basic EPS of the Bank would have been Rs. 20.5 per share (lower by
Rs.1.6 per share) and the diluted EPS would have been Rs. 20.3 per share
(lower by Rs. 1.6 per share)
Weighted-average exercise prices and weighted average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock
options:
The weighted average price of the stock options exercised is Rs. 257.9 and
the weighted average fair value is Rs. 91.5.
A description of the method and significant assumptions used during the
year to estimate the fair value of options, at the time of the grant
including the following weighted average information:
The Securities Exchange Board of India (SEBI) has prescribed two methods to
account for stock grants; (i) the intrinsic value method; (ii) the fair
value method. The Bank adopts the intrinsic value method to account for the
stock options it grants to the employees. The Bank also calculates the fair
value of options at the time of grant, using internally developed and
tested model with the following assumptions.
i. Risk-free interest rate, 8.04% to 8.22%
ii. Expected life, 1-6 years
iii. Expected volatility, 29.35%
iv. Expected dividends, and 0.65% to 0.70%
v. The price of the underlying The per share market price was
share in market at the time of Rs. 2,541.15 (post sub-division
option grant Rs. 508.2) and Rs. 468.4 at
the time of grant of options under
ESOS XVII and ESOS XVIII
respectively. |