Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2019

Commission File Number 001-15216

 

 

HDFC BANK LIMITED

(Translation of registrant’s name into English)

 

 

HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai. 400 013, India

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1):    Yes  ☐     No  ☒

Note: Regulation S-T Rule 101(b) (1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7):    Yes  ☐     No  ☒

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.    Yes  ☐     No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- Not Applicable.

 

 

 


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  HDFC BANK LIMITED
            (Registrant)
Date: March 15, 2019   By  

/s/ Sashidhar Jagdishan

  Name:   Sashidhar Jagdishan
  Title:   Chief Financial Officer


Table of Contents

EXHIBIT INDEX

The following documents (bearing the exhibit number listed below) are furnished herewith and are made a part of this Report pursuant to the General Instructions for Form 6-K.

Exhibit I

Description

Financial Statements of HDFC Bank Limited prepared in accordance with US GAAP as of and for the six months periods ended September 30, 2017 and 2018.


Table of Contents

Exhibit 1

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Condensed Consolidated Financial Statements of HDFC Bank Limited and its Subsidiaries:

  

Condensed consolidated balance sheets as of March  31, 2018 and September 30, 2018

     F-2  

Condensed consolidated statements of income for the six months periods ended September 30, 2017 and 2018

     F-3  

Condensed consolidated statements of comprehensive income for the six months periods ended September 30, 2017 and 2018

     F-4  

Condensed consolidated statements of cash flows for the six months periods ended September 30, 2017 and 2018

     F-5  

Condensed consolidated statements of shareholders’ equity for the six months periods ended September 30, 2017 and 2018

     F-7  

Notes to condensed consolidated financial statements

     F-8  

 

 

F-1


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     As of  
     March 31, 2018     September 30, 2018
(unaudited)
    September 30, 2018
(unaudited)
 
     (In millions, except number of shares)  

ASSETS:

               

Cash and due from banks

     Rs.        574,151.0       Rs.        525,872.3       US$        7,249.4  

Deposits with banks

        6,303.4          12,619.3          174.0  

Investments held for trading, at fair value

        167,513.9          166,402.4          2,293.9  

Investments available for sale, at fair value [includes restricted investments of Rs. 1,354,027.6 and Rs. 1,340,941.1 (US$ 18,485.5), as of March 31, 2018 and September 30, 2018, respectively]

        2,221,443.3          2,753,865.1          37,963.4  

Securities purchased under agreements to resell

        650,018.6          110,673.9          1,525.7  

Loans [net of allowance of Rs. 112,507.2 and Rs. 130,885.8 (US$ 1,804.3), as of March 31, 2018 and September 30, 2018, respectively]

        7,263,671.8          8,138,781.4          112,197.2  

Accrued interest receivable

        77,894.7          92,666.7          1,277.5  

Property and equipment, net

        38,968.1          40,900.8          563.8  

Intangible assets, net

        1.0          0.5          —    

Goodwill

        74,937.9          74,937.9          1,033.1  

Other assets

        292,405.1          440,530.3          6,072.8  
  

 

 

   

 

 

   

 

 

 

Total assets

     Rs.        11,367,308.8       Rs.        12,357,250.6       US$        170,350.8  
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

               

Liabilities:

               

Interest-bearing deposits

     Rs.        6,693,649.3       Rs.        7,181,550.1       US$        99,001.2  

Non-interest-bearing deposits

        1,190,102.2          1,147,414.7          15,817.7  
  

 

 

   

 

 

   

 

 

 

Total deposits

        7,883,751.5          8,328,964.8          114,818.9  

Securities sold under repurchase agreements

        138,000.0          346,807.1          4,780.9  

Short-term borrowings

        779,201.7          601,797.5          8,296.1  

Accrued interest payable

        65,514.4          78,669.2          1,084.5  

Long-term debt

        932,906.3          1,051,968.5          14,501.9  

Accrued expenses and other liabilities

        391,441.6          487,103.5          6,715.0  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     Rs.        10,190,815.5       Rs.        10,895,310.6       US$        150,197.3  
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies (see note 16)

               

Shareholders’ equity:

               

Equity shares: par value—Rs. 2.0 each; authorized 3,250,000,000 shares and 3,250,000,000 shares; issued and outstanding 2,595,090,267 shares and 2,717,176,187 shares, as of March 31, 2018 and September 30, 2018, respectively

     Rs.        5,190.2       Rs.        5,434.4       US$        74.9  

Additional paid-in capital

        476,570.4          730,277.0          10,067.2  

Retained earnings

        462,876.2          521,939.2          7,195.2  

Statutory reserve

        233,323.5          234,334.2          3,230.4  

Accumulated other comprehensive income (loss)

        (3,796.7        (32,528.4        (448.4
  

 

 

   

 

 

   

 

 

 

Total HDFC Bank Limited shareholders’ equity

        1,174,163.6          1,459,456.4          20,119.3  

Noncontrolling interest in subsidiaries

        2,329.7          2,483.6          34.2  
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

        1,176,493.3          1,461,940.0          20,153.5  
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

     Rs.        11,367,308.8       Rs.        12,357,250.6       US$        170,350.8  
  

 

 

   

 

 

   

 

 

 

Effective April 1, 2018, the Bank adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and accordingly, prior period amounts were revised. For additional information, refer to Note 1.

See accompanying notes to condensed consolidated financial statements

 

F-2


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Six months ended September 30,  
     2017     2018     2018  
     (In millions, except share and per share amounts)  

Interest and dividend revenue:

               

Loans

     Rs.        318,175.4       Rs.        385,980.1       US$        5,320.9  

Trading securities

        2,096.6          4,428.4          61.0  

Available for sale securities

        76,137.5          92,277.1          1,272.1  

Other

        6,075.6          8,662.1          119.4  
  

 

 

   

 

 

   

 

 

 

Total interest and dividend revenue

        402,485.1          491,347.7          6,773.4  
  

 

 

   

 

 

   

 

 

 

Interest expense:

               

Deposits

        159,550.6          195,383.9          2,693.5  

Short-term borrowings

        9,989.1          15,280.4          210.6  

Long-term debt

        32,056.0          42,953.3          592.1  

Other

        92.1          28.5          0.4  
  

 

 

   

 

 

   

 

 

 

Total interest expense

        201,687.8          253,646.1          3,496.6  
  

 

 

   

 

 

   

 

 

 

Net interest revenue

        200,797.3          237,701.6          3,276.8  

Provision for credit losses

        32,217.8          36,854.3          508.1  
  

 

 

   

 

 

   

 

 

 

Net interest revenue after provision for credit losses

        168,579.5          200,847.3          2,768.7  
  

 

 

   

 

 

   

 

 

 

Non-interest revenue, net:

               

Fees and commissions

        53,371.3          61,886.8          853.1  

Trading securities gain/(loss), net

        64.8          61.8          0.9  

Realized gain/(loss) on sales of available for sale securities, net

        7,778.8          846.0          11.7  

Other than temporary impairment losses on available for sale securities

        (139.3        (1,074.0        (14.8

Foreign exchange transactions

        (2,852.6        (10,471.2        (144.4

Derivatives gain/(loss), net

        8,833.8          17,464.2          240.8  

Other, net

        255.1          3,656.5          50.4  
  

 

 

   

 

 

   

 

 

 

Total non-interest revenue, net

     67,311.9          72,370.1          997.7  
  

 

 

   

 

 

   

 

 

 

Total revenue, net

        235,891.4          273,217.4          3,766.4  
  

 

 

   

 

 

   

 

 

 

Non-interest expense:

               

Salaries and staff benefits

        49,219.4          49,860.3          687.3  

Premises and equipment

        14,533.6          14,766.2          203.6  

Depreciation and amortization

        4,802.8          5,477.6          75.5  

Administrative and other

        42,879.3          47,875.0          660.0  

Amortization of intangible assets

        0.5          0.5          0.0  
  

 

 

   

 

 

   

 

 

 

Total non-interest expense

        111,435.6          117,979.6          1,626.4  
  

 

 

   

 

 

   

 

 

 

Income before income tax expense

        124,455.8          155,237.8          2,140.0  

Income tax expense

        44,857.8          54,456.8          750.7  
  

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

     Rs.        79,598.0       Rs.        100,781.0       US$        1,389.3  

Less: Net income attributable to shareholders of noncontrolling interest

        131.2          153.9          2.1  
  

 

 

   

 

 

   

 

 

 

Net income attributable to HDFC Bank Limited

     Rs.        79,466.8       Rs.        100,627.1       US$        1,387.2  
  

 

 

   

 

 

   

 

 

 

Per share information:

               

Earnings per equity share—basic

     Rs.        30.90       Rs.        38.11       US$        0.53  

Earnings per equity share—diluted

     Rs.        30.51       Rs.        37.69       US$        0.52  

Per ADS information (where 1 ADS represents 3 shares):

               

Earnings per ADS—basic

     Rs.        92.70       Rs.        114.33       US$        1.59  

Earnings per ADS—diluted

     Rs.        91.53       Rs.        113.07       US$        1.56  

Effective April 1, 2018, the Bank adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and accordingly, prior period amounts were revised. For additional information, refer to Note 1.

See accompanying notes to condensed consolidated financial statements

 

F-3


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

     Six months ended September 30,  
     2017     2018     2018  
     (In millions)  

Net income before noncontrolling interest

     Rs.        79,598.0       Rs.        100,781.0       US$        1,389.3  

Other comprehensive income, net of tax:

               

Foreign currency translation adjustment:

               

Net unrealized gain (loss) arising during the period [net of tax Rs. (42.3) and Rs. (694.8), as of September 30, 2017 and September 30, 2018, respectively]

        80.1          1,293.6          17.8  

Reclassification adjustment for net (gain) loss included in net income

        —            —            —    

Available for sale securities:

               

Net unrealized gain (loss) arising during the period [net of tax Rs. (5,286.0) and Rs. 15,381.8, as of September 30, 2017 and September 30, 2018, respectively]

        9,987.3          (28,365.0        (391.0

Reclassification adjustment for net (gain) loss included in net income [net of tax Rs. 3,376.2 and Rs. 747.8, as of September 30, 2017 and September 30, 2018, respectively]

        (6,379.4        (1,392.3        (19.2
  

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

        3,688.0          (28,463.7        (392.4

Total comprehensive income

        83,286.0          72,317.3          996.9  

Less: Comprehensive income attributable to shareholders of noncontrolling interest

        131.2          153.9          2.1  
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to HDFC Bank Limited

     Rs.        83,154.8       Rs.        72,163.4       US$        994.8  
  

 

 

   

 

 

   

 

 

 

Effective April 1, 2018, the Bank adopted several new accounting standards. For additional information, refer to Note 1.

See accompanying notes to condensed consolidated financial statements

 

F-4


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six months ended September 30,  
     2017     2018     2018  
                  (In millions)               

Cash flows from operating activities:

               

Net income before noncontrolling interest

     Rs.        79,598.0       Rs.        100,781.0       US$        1,389.3  

Adjustment to reconcile net income to net cash provided by operating activities

               

Provision for credit losses

        32,217.8          36,854.3          508.1  

Depreciation and amortization

        4,802.8          5,477.6          75.5  

Amortization of intangible assets

        0.5          0.5          —    

Amortization of deferred customer acquisition costs and fees

        3,984.9          5,176.6          71.4  

Amortization of premium (discount) on investments

        1,365.5          2,041.6          28.1  

Other than temporary impairment losses on available for sale securities

        139.3          1,074.0          14.8  

Deferred tax benefit

        (4,449.4        (4,943.6        (68.1

Share-based compensation expense

        3,894.7          2,026.5          27.9  

Net realized (gain) loss on sale of available for sale securities

        (7,778.8        (846.0        (11.7

(Gain) loss on disposal of property and equipment, net

        0.3          (44.7        (0.6

Exchange (gain) loss

        (453.8        (2,025.9        (27.9

Net change in:

               

Investments held for trading

        (86,084.1        (6,458.9        (89.0

Accrued interest receivable

        (13,609.3        (14,549.4        (200.6

Other assets

        44,848.8          (129,100.1        (1,779.7

Accrued interest payable

        23,276.8          12,937.1          178.3  

Accrued expense and other liabilities

        (125,709.4        98,806.7          1,362.1  
     

 

 

      

 

 

      

 

 

 

Net cash provided by operating activities

        (43,955.4        107,207.3          1,477.9  
     

 

 

      

 

 

      

 

 

 

Cash flows from investing activities:

               

Net change in placements with financial institutions

        (581.4        15,207.6          209.6  

Activity in available for sale securities:

               

Purchases

        (923,465.9        (1,226,940.4        (16,913.9

Proceeds from sales

        259,851.7          199,748.0          2,753.6  

Maturities, prepayments and calls

        496,329.2          449,933.4          6,202.6  

Net change in repurchase options and reverse repurchase agreements

        105,000.0          748,151.8          10,313.6  

Loans purchased

        (55,156.2        (153,134.0        (2,111.0

Repayments on loans purchased

        38,957.1          37,187.6          512.6  

Increase in loans originated, net of principal collections

        (703,478.7        (764,200.7        (10,534.8

Additions to property and equipment

        (4,268.0        (7,921.7        (109.2

Proceeds from sale or disposal of property and equipment

        33.9          104.8          1.4  
     

 

 

      

 

 

      

 

 

 

Net cash used in investing activities

        (786,778.3        (701,863.6        (9,675.5
     

 

 

      

 

 

      

 

 

 

See accompanying notes to condensed consolidated financial statements

 

F-5


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)

 

    Six months ended September 30,  
    2017     2018     2018  
                      (In millions)        

Cash flows from financing activities:

           

Net increase in deposits

      454,577.3         423,991.5         5,844.9  

Net increase (decrease) in short-term borrowings

      221,170.4         (179,528.8       (2,474.9

Proceeds from issue of shares by a subsidiary to noncontrolling interests

      41.4         —           —    

Proceeds from issuance of long-term debt

      244,497.4         173,987.9         2,398.5  

Repayment of long-term debt

      (54,265.0       (83,272.3       (1,148.0

Proceeds from issuance of equity shares for options exercised

      18,151.6         16,028.1         221.0  

Proceeds from issuance of equity shares

      —           235,896.2         3,251.9  

Payment of dividends and dividend tax

      (34,088.4       (40,821.4       (562.7
 

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

      850,084.7         546,281.2         7,530.7  
 

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and due from banks

      (409.9       6,412.3         88.4  

Net change in cash and due from banks and deposits with banks (1)

      18,941.1         (41,962.8       (578.5

Cash and due from banks and deposit with banks, beginning of
period (1)

      442,954.3         580,454.4         8,001.9  
 

 

 

   

 

 

   

 

 

 

Cash and due from banks and deposit with banks , end of
period (1)

    Rs.       461,895.4       Rs.       538,491.6       US$       7,423.4  
 

 

 

   

 

 

   

 

 

 

Supplementary cash flow information:

           

Interest paid

    Rs.       178,390.2       Rs.       240,491.3       US$       3,315.3  

Income taxes paid

    Rs.       49,738.3       Rs.       57,568.7       US$       793.6  

Non-cash investment activities

           

Payable for purchase of property and equipment

    Rs.       281.0       Rs.       611.6       US$       8.4  

 

(1)

Includes the impact of ASU 2016-18. See Notes 1 and 2.

(2)

Effective April 1, 2018, the Bank adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and accordingly, prior period amounts were revised. For additional information, refer to Note 1.

See accompanying notes to condensed consolidated financial statements

 

F-6


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

    Number of
Equity
Shares
    Equity
Share
Capital
    Additional
Paid In
Capital
    Retained
Earnings
    Statutory
Reserve*
    Accumulated
Other
Comprehensive
Income (loss)
    Total HDFC
Bank

Limited
Shareholders
Equity
    Noncontrolling
interest
    Total
Shareholders’
Equity
 
    (In millions, except for equity shares)  

Balance at March 31, 2017

    2,562,545,717       Rs.       5,125.1       Rs.       442,721.8       Rs.       364,471.9       Rs.       187,703.2       Rs.       26,031.6       Rs.       1,026,053.6       Rs.       1,847.5       Rs.       1,027,901.1  

Shares issued upon exercise of options

    21,450,900         42.9         18,108.7                     18,151.6             18,151.6  

Share-based compensation

            3,894.7                     3,894.7             3,894.7  

Dividends, including dividend tax

                (34,088.4               (34,088.4           (34,088.4

Change in ownership interest in subsidiary

            (28.6                   (28.6       28.6         —    

Shares issued to noncontrolling interest

                            —           41.4         41.4  

Transfer to statutory reserve

                (784.0       784.0             —               —    

Net income

                79,466.8                 79,466.8         131.2         79,598.0  

Net change in accumulated other comprehensive income

                        3,688.0         3,688.0             3,688.0  

Balance at September 30, 2017

    2,583,996,617       Rs.       5,168.0       Rs.       464,696.6       Rs.       409,066.3       Rs.       188,487.2       Rs.       29,719.6       Rs.       1,097,137.7       Rs.       2,048.7       Rs.       1,099,186.4  
    Number of
Equity
Shares
    Equity
Share
Capital
    Additional
Paid In
Capital
    Retained
Earnings
    Statutory
Reserve*
    Accumulated
Other
Comprehensive
Income (loss)
    Total HDFC
Bank
Limited
Shareholders
Equity
    Noncontrolling
interest
    Total
Shareholders’
Equity
 
    (In millions, except for equity shares)  

Balance at March 31, 2018

    2,595,090,267       Rs.       5,190.2       Rs.       476,570.4       Rs.       462,876.2       Rs.       233,323.5       Rs.       (3,796.7     Rs.       1,174,163.6       Rs.       2,329.7       Rs.       1,176,493.3  

Adjustment to Other Comprehensive Income (loss)

                268.0             (268.0       —               —    

Shares issued in public offering

    104,444,039         208.9         235,687.3                     235,896.2             235,896.2  

Shares issued upon exercise of options

    17,641,881         35.3         15,992.8                     16,028.1             16,028.1  

Share-based compensation

            2,026.5                     2,026.5             2,026.5  

Dividends, including dividend tax

                (40,821.4               (40,821.4           (40,821.4

Transfer to statutory reserve

                (1,010.7       1,010.7             —               —    

Net income

                100,627.1                 100,627.1         153.9         100,781.0  

Net change in accumulated other comprehensive income

                        (28,463.7       (28,463.7           (28,463.7

Balance at September 30, 2018

    2,717,176,187       Rs.       5,434.4       Rs.       730,277.0       Rs.       521,939.2       Rs.       234,334.2       Rs.       (32,528.4     Rs.       1,459,456.4       Rs.       2,483.6       Rs.       1,461,940.0  

Balance at September 30, 2018

    2,717,176,187       US$       74.9       US$       10,067.2       US$       7,195.2       US$       3,230.4       US$       (448.4     US$       20,119.3       US$       34.2       US$       20,153.5  

 

*

Under local regulations, the Bank is required to transfer 25% of its profit after tax (per Indian GAAP) to a non-distributable statutory reserve and to meet certain other conditions in order to pay dividends without prior RBI approval.

(1)

Effective April 1, 2018, the Bank adopted ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10”. For additional information, refer to Note 1(i).

See accompanying notes to condensed consolidated financial statements

 

F-7


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These condensed consolidated financial statements should be read in conjunction with the financial statements of the Bank included in its Form 20-F filed with the Securities and Exchange Commission on July 25, 2018.

On July 17, 2018, the Bank made a preferential allotment of 39,096,817 equity shares to Housing Development Finance Corporation Limited at an issue price of Rs. 2,174.09 per equity share. On August 2, 2018, the Bank issued 17,500,000 American Depositary Shares (ADSs) representing 52,500,000 equity shares at a price of US$ 104.00 per ADS. The Bank also allotted 12,847,222 equity shares pursuant to a qualified institutional placement (QIP) offering at a price of Rs. 2,160.0 per equity shares.

1. Summary of significant accounting policies

a. Principles of consolidation

The consolidated financial statements include the accounts of HDFC Bank Limited and its subsidiaries. The Bank consolidates subsidiaries in which, directly or indirectly, it holds more than 50% of the voting rights and/or has control. Entities where the Bank holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence are accounted for under the equity method. These investments are included in other assets and the Bank’s proportionate share of income or loss is included in Non-interest revenue, other. The Bank consolidates Variable Interest Entities (VIEs) where the Bank is determined to be the primary beneficiary. All significant inter-company balances and transactions are eliminated on consolidation.

b. Basis of presentation

These financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). US GAAP differs in certain material respects from accounting principles generally accepted in India, the requirements of India’s Banking Regulation Act 1949 and related regulations issued by the Reserve Bank of India (“RBI”) (collectively “Indian GAAP”), which form the basis of the statutory general purpose financial statements of the Bank in India. Principal differences, insofar as they relate to the Bank, include: determination of the allowance for credit losses, classification and valuation of investments, accounting for deferred taxes, stock-based compensation, employee benefits, loan origination fees, derivative financial instruments, business combination and the presentation format and disclosures of the financial statements and related notes.

c. Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from these estimates. Material estimates included in these financial statements that are susceptible to change include the allowance for credit losses, the valuation of unquoted investments, other than temporary impairment, valuation of derivatives, stock-based compensation, unrecognized tax benefits and impairment assessment of goodwill.

d. Cash and due from banks

Cash and due from banks are comprised of cash and balances due from banks.

e. Deposits with banks

Deposit with banks includes interest bearing deposits with banks.

f. Allowance for credit losses

The Bank provides an allowance for credit losses based on management’s best estimate of losses inherent in the loan portfolio which includes troubled debt restructuring. The allowance for credit losses consists of allowances for retail loans and wholesale loans.

Retail

The Bank’s retail loan loss allowance consists of specific and unallocated allowances.

 

F-8


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The Bank establishes a specific allowance on the retail loan portfolio based on factors such as the nature of the product, delinquency levels or the number of days the loan is past due and the nature of the security available. Additionally the Bank monitors loan to value ratios for loan against securities. The loans are charged off against allowances typically when the account becomes 180 to 1,083 days past due depending on the type of loan. The defined delinquency levels at which major loan types are charged off are 180 days past due for personal loans, credit card receivables, auto loans, commercial vehicle and construction equipment finance, 720 days past due for housing loans and on a customer by customer basis in respect of retail business banking when management believes that any future cash flows from these loans are remote including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements are not feasible.

The Bank also records unallocated allowances for its retail loans by product type. The Bank’s retail loan portfolio is comprised of groups of large numbers of small value homogeneous loans. The Bank establishes an unallocated allowance for loans in each product group based on its estimate of the overall portfolio quality, asset growth, economic conditions and other risk factors. The Bank estimates its unallocated allowance for retail loans based on an internal credit slippage matrix, which measures the Bank’s historic losses for its standard loan portfolio. Subsequent recoveries, if any, against write-off cases, are adjusted to provision for credit losses in the consolidated statement of income.

Wholesale

The allowance for wholesale loans consists of specific and unallocated components. The allowance for such credit losses is evaluated on a regular basis by management and is based upon management’s view of the probability of recovery of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, factors affecting the industry which the loan exposure relates to and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Loans are charged off against the allowance when management believes that the loan balance may not be recovered. Subsequent recoveries, if any, against write-off cases, are adjusted to provision for credit losses in the consolidated statement of income.

The Bank grades its wholesale loan accounts considering both qualitative and quantitative criteria. Wholesale loans are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, the financial condition of the borrower, the value of collateral held, and the probability of collecting scheduled principal and interest payments when due.

The Bank establishes specific allowances for each impaired wholesale loan customer in the aggregate for all facilities, including term loans, cash credits, bills discounted and lease finance, based on either the present value of expected future cash flows discounted at the loan’s effective interest rate or the net realizable value of the collateral if the loan is collateral dependent.

Wholesale loans that experience insignificant payment delays and payment shortfalls are generally not classified as impaired but are placed on a surveillance watch list and closely monitored for deterioration. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, market information, and the amount of the shortfall in relation to the principal and interest owed.

The Bank has also established an unallocated allowance for wholesale standard loans based on the overall portfolio quality, asset growth, economic conditions and other risk factors. The Bank estimates its wholesale unallocated allowance based on an internal credit slippage matrix, which measures the Bank’s historic losses for its standard loan portfolio.

g. Income tax

The Bank estimates its income tax expense for the interim periods based on its best estimate of the expected effective income tax rate for a full year.

 

F-9


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

h. Revenue recognition

Interest income from loans and from investments is recognized on an accrual basis using effective interest method when earned except in respect of loans or investments placed on non-accrual status, where it is recognized when received.

Fees and commissions from guarantees issued are amortized over the contractual period of the commitment, provided the amounts are collectible.

Dividends from investments are recognized when declared.

Realized gains and losses on sale of securities are recorded on the trade date and are determined using the weighted average cost method.

Other fees and income are recognized when earned, which is when the service that results in the income has been provided. The Bank amortizes annual fees on credit cards over the contractual period of the fees.

i. Recently adopted accounting standards

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)”. This update modifies the principles for revenue recognition in transactions involving contracts with customers. On March 17, 2016, the FASB issued Accounting Standards Update No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, that clarifies how to apply revenue recognition guidance related to whether an entity is a principal or an agent. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies in regard to identifying performance obligations and licensing. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606)”. The updates require that revenue from contracts with customers is to be recognized upon transfer of goods and services in the amount of consideration expected to be recognized and transfer of nonfinancial assets, unless those contracts are within the scope of other guidance. The ASU also clarifies the guidance related to reporting gross revenue as a principal versus net as an agent. The ASU also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. The guidance replaces most existing revenue recognition guidance in GAAP, the update is not applicable to financial instruments and accordingly does not impact materially the Bank’s revenues including Net interest revenue, loan fees and mark-to-market accounting. This guidance was adopted retrospectively with effect from April 1, 2018. Adoption of the guidance did not result in any material changes in the timing of revenue recognition.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10)”. The update requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any. The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The amendments also require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. In February 2018, the FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10), to clarify certain provisions in ASU 2016-01.The Bank adopted ASU 2016-01 and ASU 2018-03 with effect from April 1, 2018. The available-for-sale category was eliminated for equity securities which were reclassified to other assets. The impact of adopting the change to AFS securities resulted in a cumulative catch-up reclassification from AOCI to retained earnings of an accumulated after-tax gain of Rs. 268.0 million as at April 1, 2018.

 

F-10


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In March 2016, the FASB issued ASU 2016-04 “Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products”. The update addresses the current and potential future diversity in practice related to de-recognition of a prepaid stored-value product liability that may be unused wholly or partially for an indefinite time period. The update modifies the accounting for certain prepaid card products to require the recognition of breakage. Breakage represents the estimated amount that will not be redeemed by the cardholder for goods or services. The amendments in this update are to be applied either using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective or retrospectively to each period presented. The Bank adopted the provisions of ASU 2016-04 effective April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230)”. This is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The Bank adopted the guidance from April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In October 2016, the FASB issued ASU 2016-16 “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”. In accordance with this guidance, an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Bank adopted the guidance from April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows (Topic 230)—Restricted Cash”. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. On adoption effective April 1, 2018, the Bank changed its definition of cash and cash equivalents to include all of Cash and due from banks and Deposit with banks. On adoption of the said update the Bank has classified the cash reserve required to be maintained with the RBI as restricted cash. To align the consolidated balance sheets with the consolidated statements of cash flows, the restricted cash have been reclassified into Cash and due from banks or Deposits with banks. Accordingly, the Bank’s retrospective adoption includes changes to presentation of cash and cash equivalents on the Consolidated Balance Sheets and Consolidated Statements of Cash Flows. In addition, the nature of any restrictions is disclosed in the footnotes to the financial statements. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations.

In January 2017, the FASB issued ASU No. 2017-01 “Business Combinations (Topic 805)—Clarifying the Definition of a Business”. The amendment in this update narrows the definition of a business by introducing a quantitative screen as the first step, such that if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is not a business. If the first step is not met, then an entity needs to evaluate whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The Bank adopted the guidance from April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In March 2017, the FASB issued ASU 2017-07 “Compensation—Retirement Benefits (Topic 715)—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. The amendment in this update changes the income statement presentation of net benefit expense and requires restating the Company’s financial statements for each of the earlier periods presented in annual and interim financial statements. The amendment requires that only the service cost component of net benefit expense be included in the Compensation and benefits line on the income statement. The other components of net benefit expense are required to be presented outside of the Compensation and benefits line. Since both of these income statement line items are part of Non-interest expense, total Non-interest expense and Net income will not change. This change in presentation did not have a material effect on Salaries and staff benefits expense and Administration and other expense and is applied prospectively. The other components of net benefit expense is included in Administration and other expense for the six months period ended September 30, 2018. The new standard also changes the components of net benefit expense that are eligible for capitalization when employee costs are capitalized in connection with various activities, such as internally developed software, construction-in-progress, and loan origination costs. Prospectively from April 1, 2018, only the service cost component of net benefit expense may be capitalized. This change does not have a material effect on the Bank’s Consolidated Financial Statements and related disclosures.

 

F-11


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In May 2017, the FASB issued ASU 2017-09 “Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting.” The amendment in this update clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award’s fair value, (ii) the award’s vesting conditions and (iii) the award’s classification as an equity or liability instrument. The Bank adopted the provisions of ASU 2016-09 effective April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In August 2017, the FASB issued ASU No. 2017-12 “Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities”. The amendment in the update better aligns the accounting and reporting of hedging relationships with the economics of risk management activities. ASU 2017-12 provides administrative reliefs to simplify the application of hedge accounting. The Bank adopted the guidance from April 1, 2018. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

j. Recently issued accounting pronouncements not yet effective

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”. The update generally requires recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. In particular, the guidance requires a lessee, of operating or finance leases, to recognize on the balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Previously, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Bank does not plan to early adopt the ASU. The Bank expects to adopt the guidance in fiscal 2020. In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842) - Targeted improvements” which permits the update to be adopted using a modified cumulative effect approach wherein the guidance is applied only to existing contracts as of the date of initial application, and to new contracts transacted after that date, or a cumulative-effect adjustment to retained earnings at the effective date without revising prior comparative periods. The Bank expects to recognize lease liabilities and corresponding assets at their present value predominantly related to all of the Rs. 79.5 billion of future minimum lease payments required under operating leases as disclosed in Note 16. However, these Leases which will be subject to consolidated balance sheet recognition and their initial measurement is under evaluation. The effect of the adoption will depend on the lease portfolio at the time of transition.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses, while also providing transparency about credit risk. The CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held to maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses is required to be adjusted each period for changes in expected lifetime credit losses. The update requires use of judgment in determining the relevant information and estimation methods that are appropriate for measurement of expected credit losses which is to be based on relevant information about past events, historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In regard to Available-for-Sale Debt Securities, the credit losses is required to be recorded through an allowance and the ASU limits the amount of the allowance for credit losses to the amount by which fair value is below amortized cost. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. While early adoption is permitted beginning fiscal 2020, the Bank does not expect to elect that option. The Bank expects to adopt the guidance in fiscal 2021. The amendments represent a significant departure from the existing GAAP. The Bank expects the update will result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments with an anticipated material impact from longer duration portfolios, as well as the addition of an allowance for debt securities. The Bank is evaluating the effect the ASU 2016-13 will have on its Consolidated Financial Statements and related disclosures which will also depend on the nature of the Bank’s portfolio’s at the date of adoption.

 

F-12


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles-Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment”. The amendment in this update simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. The impairment test is simply the comparison of the fair value of a reporting unit with its carrying amount (the current Step 1), with the impairment charge being the deficit in fair value but not exceeding the total amount of goodwill allocated to that reporting unit. The simplified one-step impairment test applies to all reporting units (including those with zero or negative carrying amounts). The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Bank expects to adopt the guidance in fiscal 2021. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on the Bank’s consolidated financial position or results of operations or disclosures.

In March 2017, the FASB issued ASU 2017-08 “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)—Premium Amortization on Purchased Callable Debt Securities”. This update amends the amortization period for certain purchased callable debt securities held at a premium. The update requires entities to amortize premiums on debt securities by the first call date when the securities have fixed and determinable call dates and prices. ASU 2017-08 does not change the accounting for discounts, which continue to be recognized over the contractual life of a security. The amendments in the ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period but such adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of the ASU is on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. The bank expects to adopt the guidance in fiscal 2020. The impact of this ASU will depend upon the position of purchased callable debt securities held at a premium on date of adoption.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments modify certain disclosure requirements for fair value measurements. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The bank expects to adopt the guidance in fiscal 2021. The adoption of this guidance is not expected to have a material impact on the Bank’s consolidated financial position or results of operations.

k. Convenience translation

The accompanying financial statements have been expressed in Indian Rupees (“Rs.”), the Bank’s functional currency. For the convenience of the reader, the financial statements as of and for the six months period ended September 30, 2018 have been translated into U.S. dollars at U.S.$1.00 = Rs. 72.54 as published by the Federal Reserve Board of New York on September 28, 2018. Such translation should not be construed as a representation that the rupee amounts have been or could be converted into United States dollars at that or any other rate, or at all.

 

F-13


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

2. Restricted Cash

Effective April 1, 2018, the Bank adopted ASU 2016-18 “Statement of Cash Flows (Topic 230)—Restricted Cash” The amendments require that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The Bank is required to maintain a specific percentage of its demand and time liabilities by way of a balance in a current account with the RBI. This is to maintain the solvency of the banking system. The cash reserve ratio has to be maintained on an average basis for a two-week period and should not fall below 95% of the required cash reserve ratio on any particular day. Non-maintenance of the requisite balance is subject to levy of penalty. On adoption of the said update the Bank has classified the cash reserve required to be maintained with the RBI as restricted cash. Accordingly, on retrospective adoption, the Bank has aligned the Consolidated balance sheets with the Consolidated statements of cash flows, the restricted cash has been reclassified into Cash and due from banks or Deposits with banks. In addition, for the Bank’s consolidated statements of cash flows, cash is defined as those amounts included in Cash and due from banks and Deposits with banks. As a result of the adoption of the restricted cash accounting, restricted cash is included with unrestricted cash when reconciling the beginning and ending cash balances on the Consolidated statements of cash flows.

The restricted cash balance as at March 31, 2018 and September 30, 2018 is Rs. 314,463.4 million and Rs. 332,644.3 million (US$ 4,585.7 million), respectively.

Placement with Banks having maturities over 90 days and earlier classified under Term placements, have been reclassified to Deposits with banks. The outstanding balance of Deposit with banks as at March 31, 2018 and September 30, 2018 is Rs. 6,303.4 million and Rs. 12,614.9, respectively. Placements with financial institutions and earlier classified under Term placements have been reclassified to other assets. These placements are in the ordinary course of business and have original maturities of periods between 3 months and 15 years. The outstanding balance of Term placements as at March 31, 2018 and September 30, 2018 is Rs. 133,572.5 million and Rs. 118,364.9 million, respectively.

3. Investments, held for trading

The portfolio of trading securities as of March 31, 2018 and September 30, 2018 was as follows:

 

    As of March 31, 2018  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs.     25,962.2     Rs.     19.0     Rs.     8.0     Rs.     25,973.2  

Other corporate/financial institution securities

      49,982.3         62.8         0.4         50,044.7  
 

 

   

 

   

 

   

 

 

Total debt securities

  Rs.     75,944.5     Rs.     81.8     Rs.     8.4     Rs.     76,017.9  

Other securities (including mutual fund units)

      91,488.6         7.4         —           91,496.0  
 

 

   

 

   

 

   

 

 

Total

  Rs.     167,433.1     Rs.     89.2     Rs.     8.4     Rs.     167,513.9  
 

 

   

 

   

 

   

 

 
    As of September 30, 2018  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs.     55,976.8     Rs.     4.3     Rs.     20.3     Rs.     55,960.8  

Other corporate/financial institution securities

      22,165.0         2.8         25.0         22,142.8  
 

 

   

 

   

 

   

 

 

Total debt securities

  Rs.     78,141.8     Rs.     7.1     Rs.     45.3     Rs.     78,103.6  

Other securities (including mutual fund units)

      87,972.8         328.8         2.8         88,298.8  
 

 

   

 

   

 

   

 

 

Total

  Rs.     166,114.6     Rs.     335.9     Rs.     48.1     Rs.     166,402.4  
 

 

   

 

   

 

   

 

 

Total

  US$     2,290.0     US$     4.6     US$     0.7     US$     2,293.9  
 

 

   

 

   

 

   

 

 

 

 

F-14


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

4. Investments, available for sale

The portfolio of available for sale securities as of March 31, 2018 and September 30, 2018 was as follows:

 

    As of March 31, 2018  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

    Rs.       1,748,761.0       Rs.       9,169.5       Rs.       16,843.9       Rs.       1,741,086.6  

State government securities

      123,426.9         2,349.7         729.0         125,047.6  

Government securities outside India

      4,223.8         —           6.8         4,217.0  

Credit substitutes

      325,159.3         495.3         1,623.1         324,031.5  

Other corporate/financial institution bonds

      8,226.0         0.1         59.0         8,167.1  
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

      2,209,797.0         12,014.6         19,261.8         2,202,549.8  

Mortgage-backed securities

      82.2         2.8         0.1         84.9  

Asset-backed securities

      18,966.5         62.9         358.7         18,670.7  

Other securities (including mutual fund units) (1)

      137.6         0.3         —           137.9  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       2,228,983.3       Rs.       12,080.6       Rs.       19,620.6       Rs.       2,221,443.3  
 

 

 

   

 

 

   

 

 

   

 

 

 

Securities with gross unrealized losses

                Rs.       1,174,742.9  

Securities with gross unrealized gains

                  1,046,700.4  
             

 

 

 
                Rs.       2,221,443.3  
             

 

 

 
    As of September 30, 2018  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

    Rs.       2,283,071.8       Rs.       153.4       Rs.       45,696.6       Rs.       2,237,528.6  

State government securities

      126,193.5         475.0         2,498.7         124,169.8  

Government securities outside India

      9,008.0         —           7.0         9,001.0  

Credit substitutes

      359,079.8         56.1         5,481.7         353,654.2  

Other corporate/financial institution bonds

      5,089.7         19.2         28.0         5,080.9  
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

      2,782,442.8         703.7         53,712.0         2,729,434.5  

Mortgage-backed securities

      68.4         1.7         1.6         68.5  

Asset-backed securities

      23,171.4         50.4         327.2         22,894.6  

Other securities (including mutual fund units) (1)

      1,461.8         5.7         —           1,467.5  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       2,807,144.4       Rs.       761.5       Rs.       54,040.8       Rs.       2,753,865.1  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    US$       38,697.9       US$       10.5       US$       745.0       US$       37,963.4  
 

 

 

   

 

 

   

 

 

   

 

 

 

Securities with gross unrealized losses

                Rs.       2,450,776.0  

Securities with gross unrealized gains

                  303,089.1  
             

 

 

 
                Rs.       2,753,865.1  
             

 

 

 
                US$       37,963.4  
             

 

 

 

 

(1)

The Bank adopted ASU 2016-01 and ASU 2018-03 as of April  1, 2018, resulting in a cumulative effect adjustment from AOCI to retained earnings for net unrealized gains on marketable equity securities AFS. The available-for sale category was eliminated for equity securities amounting to Rs. 1,267.7  million effective April  1, 2018. See Note 1 to the Consolidated Financial Statements for additional details.

F-15

 


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

AFS investments of Rs. 1,866,134.2 million and Rs. 2,361,698.4 million (US$ 32,557.2 million) as of March 31, 2018 and September 30, 2018, respectively, are eligible towards the Bank’s statutory liquidity reserve requirements. These balances are subject to withdrawal and usage restrictions towards the reserve requirements, but may be freely traded by the Bank. Of these investments, Rs. 1,354,027.6 million as of March 31, 2018 and Rs. 1,340,941.1 million (US$ 18,485.5 million) as of September 30, 2018, were kept as margins for clearing, collateral borrowing and lending obligation (CBLO), real time gross settlement (RTGS), with the Reserve Bank of India and other financial institutions.

The Bank evaluated the impaired investments and has fully recognized an expense of Rs. 139.3 million and Rs. 1,074.0 million (USD 14.8 million) as other than temporary impairment for six months periods ended September 30, 2017 and September 30, 2018, respectively, because the Bank intends to sell the securities before recovery of their amortized cost. The Bank is of the opinion that the other unrealized losses on its investments in equity and debt securities as of September 30, 2018 are temporary in nature. As of March 31, 2018 and September 30, 2018, the Bank did not hold any debt securities with credit losses for which a portion of other-than-temporary impairment was recognized in other comprehensive income.

The gross unrealized losses and fair value of available for sale securities at March 31, 2018 was as follows:

 

    As of March 31, 2018              
    Less Than 12 Months     12 Months or Greater     Total  
    Fair Value     Unrealized
Losses
    Fair Value     Unrealized
Losses
    Fair Value     Unrealized
Losses
 
                (In millions)              

Government of India securities

    Rs.       540,941.5       Rs.       8,852.9       Rs.       342,621.5       Rs.       7,991.0       Rs.       883,563.0       Rs.       16,843.9  

State government securities

      31,940.1         729.0         —           —           31,940.1         729.0  

Government securities outside India

      4,217.0         6.8         —           —           4,217.0         6.8  

Credit substitutes

      159,026.1         1,002.8         73,734.9         620.3         232,761.0         1,623.1  

Other corporate/financial institution bonds

      4,057.2         51.8         4,109.6         7.2         8,166.8         59.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

      740,181.9         10,643.3         420,466.0         8,618.5         1,160,647.9         19,261.8  

Mortgage-backed securities

      57.0         0.1         —           —           57.0         0.1  

Asset-backed securities

      8,331.9         213.1         5,706.1         145.6         14,038.0         358.7  

Other securities (including mutual fund units) (1)

      —           —           —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       748,570.8       Rs.       10,856.5       Rs.       426,172.1       Rs.       8,764.1       Rs.       1,174,742.9       Rs.       19,620.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

F-16


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The gross unrealized losses and fair value of available for sale securities at September 30, 2018 was as follows:

 

    As of September 30, 2018              
    Less Than 12 Months     12 Months or Greater     Total  
    Fair Value     Unrealized
Losses
    Fair Value     Unrealized
Losses
    Fair Value     Unrealized
Losses
 
                (In millions)              

Government of India securities

    Rs.       1,607,175.6       Rs.       26,798.4       Rs.       403,729.2       Rs.       18,898.2       Rs.       2,010,904.8       Rs.       45,696.6  

State government securities

      94,006.8         2,418.4         1,391.7         80.3         95,398.5         2,498.7  

Government securities outside India

      9,001.0         7.0         —           —           9,001.0         7.0  

Credit substitutes

      297,685.2         5,068.7         13,133.0         413.0         310,818.2         5,481.7  

Other corporate/financial institution bonds

      345.2         1.0         3,908.3         27.0         4,253.5         28.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

      2,008,213.8         34,293.5         422,162.2         19,418.5         2,430,376.0         53,712.0  

Mortgage-backed securities

      49.3         1.6         —           —           49.3         1.6  

Asset-backed securities

      15,507.4         128.7         4,843.3         198.5         20,350.7         327.2  

Other securities (including mutual fund units) (1)

      —           —           —           —           —           —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       2,023,770.5       Rs.       34,423.8       Rs.       427,005.5       Rs.       19,617.0       Rs.       2,450,776.0       Rs.       54,040.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    US$       27,898.7       US$       474.6       US$       5,886.5       US$       270.4       US$       33,785.2       US$       745.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The Bank adopted ASU 2016-01 and ASU 2018-03 as of April 1, 2018, resulting in a cumulative effect adjustment from AOCI to retained earnings for net unrealized gains on marketable equity securities AFS. The available-for sale category was eliminated for equity securities effective April 1, 2018. See Note 1 to the Consolidated Financial Statements for additional details.

The contractual residual maturity of available for sale debt securities other than asset and mortgage-backed securities as of September 30, 2018 is set out below:

 

     As of September 30, 2018  
     Amortized Cost      Fair Value      Fair Value  
     (In millions)  

Within one year

     Rs.        994,039.3        Rs.        991,982.8        US$        13,675.0  

Over one year through five years

        496,658.0           488,542.4           6,734.8  

Over five years through ten years

        873,880.1           847,927.6           11,689.1  

Over ten years

        417,865.4           400,981.7           5,527.7  
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        2,782,442.8        Rs.        2,729,434.5        US$        37,626.6  
  

 

 

    

 

 

    

 

 

 

The contractual residual maturity of available for sale mortgage-backed and asset-backed securities as of September 30, 2018 is set out below:

 

     As of September 30, 2018  
     Amortized Cost      Fair Value      Fair Value  
     (In millions)  

Within one year

     Rs.        14,093.8        Rs.        13,914.5        US$        191.8  

Over one year through five years

        9,043.4           8,897.6           122.7  

Over five years through ten years

        14.8           14.4           0.2  

Over ten years

        87.8           136.6           1.9  
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        23,239.8        Rs.        22,963.1        US$        316.6  
  

 

 

    

 

 

    

 

 

 

 

F-17


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Gross realized gains and gross realized losses from sale of available for sale securities and dividends and interest on such securities are set out below:

 

     Six months ended September 30,  
     2017     2018     2018  
           (In millions)        

Gross realized gains on sale

     Rs.        7,919.4       Rs.        1,361.4       US$        18.7  

Gross realized losses on sale

        (140.6        (515.4        (7.0
  

 

 

   

 

 

   

 

 

 

Realized gains (losses), net

        7,778.8          846.0          11.7  

Dividends and interest

        76,137.5          92,277.1          1,272.1  
  

 

 

   

 

 

   

 

 

 

Total

     Rs.        83,916.3       Rs.        93,123.1       US$        1,283.8  
  

 

 

   

 

 

   

 

 

 

5. Investments, held to maturity

There were no HTM securities as of March 31, 2018 and September 30, 2018.

 

F-18


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

6. Loans

Loan balances include Rs. 665,906.2 million and Rs. 559,921.7 million (US$ 7,718.8 million) as of March 31, 2018 and September 30, 2018, respectively, which have been pledged as collateral for borrowings and are therefore restricted.

Loans by facility as of March 31, 2018 and September 30, 2018 were as follows:

 

     As of ,  
     March 31, 2018      September 30, 2018      September 30, 2018  
     (In millions)  

Retail loans:

                 

Auto loans

     Rs.        885,234.7        Rs.        943,343.6      US$          13,004.5  

Personal loans/Credit cards

        1,187,127.1           1,360,461.8           18,754.6  

Retail business banking

        1,305,219.8           1,364,445.1           18,809.6  

Commercial vehicle and construction equipment finance

        595,813.6           658,399.1           9,076.4  

Housing loans

        362,718.1           478,811.5           6,600.7  

Other retail loans

        877,251.3           959,670.3           13,229.5  
  

 

 

    

 

 

    

 

 

 

Subtotal

     Rs.        5,213,364.6        Rs.        5,765,131.4      US$          79,475.3  

Wholesale loans

     Rs.        2,162,814.4        Rs.        2,504,535.8      US$          34,526.2  
  

 

 

    

 

 

    

 

 

 

Gross loans

        7,376,179.0           8,269,667.2           114,001.5  

Less: Allowance for credit losses

        112,507.2           130,885.8           1,804.3  
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        7,263,671.8        Rs.        8,138,781.4      US$          112,197.2  
  

 

 

    

 

 

    

 

 

 

Gross loans analyzed by performance are as follows:

 

     As of,  
     March 31, 2018      September 30, 2018      September 30, 2018  
     (In millions)  

Performing

   Rs.      7,267,461.7      Rs.      8,145,111.8      US$      112,284.4  

Impaired

        108,717.3           124,555.4           1,717.1  
  

 

    

 

    

 

 

Total gross loans

   Rs.      7,376,179.0      Rs.      8,269,667.2      US$      114,001.5  
  

 

    

 

    

 

 

 

F-19


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table provides details of age analysis of loans as of March 31, 2018 and September 30, 2018.

 

    As of March 31, 2018  
    31-90 days
past due
    Impaired/91 days or
more past due
    Total current 1,2     Total  
    (In millions)  

Retail Loans

               

Auto loans

    Rs.       4,384.5       Rs.       8,634.5       Rs.       872,215.7       Rs.       885,234.7  

Personal loans/Credit card

      8,179.1         10,150.9         1,168,797.1         1,187,127.1  

Retail business banking

      10,522.0         25,547.2         1,269,150.6         1,305,219.8  

Commercial vehicle and construction equipment finance

      7,324.9         6,968.1         581,520.6         595,813.6  

Housing loans

      25.9         1,899.5         360,792.7         362,718.1  

Other retail

      8,716.0         22,704.3         845,831.0         877,251.3  

Wholesale loans

      308.6         32,812.8         2,129,693.0         2,162,814.4  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       39,461.0       Rs.       108,717.3       Rs.       7,228,000.7       Rs.       7,376,179.0  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

1)

Loans up to 30 days past due are considered current

2)

Includes crop related agricultural loans with days past due less than 366 as they are not considered as impaired Rs. 31.5 billion.

 

    As of September 30, 2018  
    31-90 days
past due
    Impaired /91 days or
more past due
    Total current 1,2     Total  
    (In millions)  

Retail Loans

               

Auto loans

    Rs.       7,569.8       Rs.       10,874.9       Rs.       924,898.9       Rs.       943,343.6  

Personal loans/Credit card

      11,325.5         13,304.4         1,335,831.9         1,360,461.8  

Retail business banking

      9,106.3         26,940.0         1,328,398.8         1,364,445.1  

Commercial vehicle and construction equipment finance

      12,318.7         9,130.9         636,949.5         658,399.1  

Housing loans

      45.9         1,960.8         476,804.8         478,811.5  

Other retail

      8,276.3         29,540.1         921,853.9         959,670.3  

Wholesale loans

      1,218.0         32,804.3         2,470,513.5         2,504,535.8  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       49,860.5       Rs.       124,555.4       Rs.       8,095,251.3       Rs.       8,269,667.2  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    US$       687.4       US$       1,717.1       US$       111,597.0       US$       114,001.5  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

1)

Loans up to 30 days past due are considered current

2)

Includes crop related agricultural loans with days past due less than 366 as they are not considered as impaired Rs. 32.3 billion.

The Bank has a credit risk mitigating/monitoring mechanism which is comprised of target market definitions, credit approval process, post-disbursement monitoring and remedial management procedures.

For wholesale credit risk in addition to the credit approval process the Bank has an approved framework for the review and approval of credit ratings. Credit Policies and Procedures articulate credit risk strategy and thereby the approach for credit origination, approval and maintenance. The Credit Policies generally address such areas as target markets, portfolio mix, prudential exposure ceilings, concentration limits, price and non-price terms, structure of limits, approval authorities, exception reporting system, prudential accounting and provisioning norms. These are reviewed in detail at annual or more frequent intervals. To ensure adequate diversification of risk, concentration limits have been set up in terms of borrower/business group, industry and risk grading.

For retail credit the policy and approval processes are designed for the fact that the Bank has high volumes of relatively homogeneous, small value transactions in retail loans. There are product programs for each of these products, which define the target markets, credit philosophy and process, detailed underwriting criteria for evaluating individual credits, exception reporting systems and individual loan exposure caps. The quantitative parameters considered include income, residence stability, the nature of the employment/business, while the qualitative parameters include accessibility, contractibility and profile. The credit policies/product programs are based on a statistical analysis of the Bank’s experience and industry data, in combination with the judgment of the Bank’s senior officers. The Bank mines data on its borrower account behavior as well as static data regularly to monitor the portfolio performance of each product segment and use these as inputs in revising the Bank’s product programs, target market definitions and credit assessment criteria to meet the Bank’s twin objectives of combining volume growth and maintenance of asset quality.

 

F-20


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As an integral part of the credit process, the Bank has a credit rating model appropriate to its wholesale and retail credit segments ( see note1(f) ). The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal grading is updated at least annually.

Retail Loans

Credit quality indicator based on payment activity as of March 31, 2018 and as of September 30, 2018 is given below.

 

    As of March 31, 2018  
    Auto loans     Personal loans/
Credit card
    Retail business
banking
    Commercial
vehicle and
Construction
equipment
finance
    Housing loans     Other retail     Total  
    (In millions)  

Performing

  Rs.     876,600.2     Rs.     1,176,976.2     Rs.     1,279,672.6     Rs.     588,845.5     Rs.     360,818.6     Rs.     854,547.0     Rs.     5,137,460.1  

Impaired

      8,634.5         10,150.9         25,547.2         6,968.1         1,899.5         22,704.3         75,904.5  
 

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  Rs.     885,234.7     Rs.     1,187,127.1     Rs.     1,305,219.8     Rs.     595,813.6     Rs.     362,718.1     Rs.     877,251.3     Rs.     5,213,364.6  
 

 

   

 

   

 

   

 

   

 

   

 

   

 

 
    As of September 30, 2018  
    Auto loans     Personal loans/
Credit card
    Retail business
banking
    Commercial
vehicle and
Construction
equipment
finance
    Housing loans     Other retail     Total  
    (In millions)  

Performing

  Rs.     932,468.7     Rs.     1,347,157.4     Rs.     1,337,505.1     Rs.     649,268.2     Rs.     476,850.7     Rs.     930,130.2     Rs.     5,673,380.3  

Impaired

      10,874.9         13,304.4         26,940.0         9,130.9         1,960.8         29,540.1         91,751.1  
 

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  Rs.     943,343.6     Rs.     1,360,461.8     Rs.     1,364,445.1     Rs.     658,399.1     Rs.     478,811.5     Rs.     959,670.3     Rs.     5,765,131.4  
 

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  US$     13,004.5     US$     18,754.6     US$     18,809.6     US$     9,076.4     US$     6,600.7     US$     13,229.5     US$     79,475.3  
 

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Wholesale Loans

The Bank has in place a process of grading each borrower according to its financial health and the performance of its business and each borrower is graded as pass/labeled/impaired. Wholesale loans that are not impaired are disclosed as pass or labeled and considered to be performing. Labeled loans are those with evidence of weakness where such exposures indicate deteriorating trends which if not corrected could adversely impact repayment of the obligations. The Bank’s model assesses the overall risk over four major categories – industry risk, business risk, management risk and financial risk. The inputs in each of the categories are combined to provide an aggregate numerical rating, which is a function of the aggregate weighted scores based on the assessment under each of these four risk categories.

 

     As of ,  
     March 31, 2018      September 30, 2018      September 30, 2018  
     (In millions)  

Credit quality indicators-Internally assigned grade and payment activity

                 

Pass

     Rs.        2,116,499.3        Rs.        2,456,509.5        US$        33,864.2  

Labeled

        13,502.3           15,222.0           209.8  

Impaired

        32,812.8           32,804.3           452.2  
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        2,162,814.4        Rs.        2,504,535.8        US$        34,526.2  
  

 

 

    

 

 

    

 

 

 

 

F-21


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Impaired loans are those for which the Bank believes that it is probable that it will not collect all amounts due according to the original contractual terms of the loans and includes troubled debt restructuring. The following table provides details of impaired loans as of March 31, 2018 and September 30, 2018.

 

     As of March 31, 2018  
     Recorded
investments
     Unpaid
principal
balance
     Related
specific
allowance
     Average recorded
investments
     Finance receivable
on non-accrual status
 
     (In millions)  

Retail Loans

                             

Auto loans

     Rs.        8,634.5        Rs.        8,634.5        Rs.        3,682.2        Rs.        7,370.1        Rs.        8,634.5  

Personal loans/Credit card

        10,150.9           10,150.9           6,182.6           8,309.2           10,150.9  

Retail business banking

        25,547.2           25,547.2           18,709.4           23,303.7           25,547.2  

Commercial vehicle and construction equipment finance

        6,968.1           6,968.1           4,806.1           6,527.4           6,968.1  

Housing loans

        1,899.5           1,899.5           974.4           1,788.9           1,899.5  

Other retail

        22,704.3           22,704.3           12,922.8           17,005.2           22,704.3  

Wholesale loans

        32,812.8           32,812.8           15,323.0           31,544.3           32,812.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     Rs.        108,717.3        Rs.        108,717.3        Rs.        62,600.5        Rs.        95,848.8        Rs.        108,717.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

    As of September 30, 2018  
    Recorded
investments
    Unpaid
principal
balance
    Related
specific
allowance
    Average recorded
investments
    Finance receivable
on non-accrual status
 
    (In millions)  

Retail Loans

                   

Auto loans

    Rs.       10,874.9       Rs.       10,874.9       Rs.       4,915.2       Rs.       9,754.7       Rs.       10,874.9  

Personal loans/Credit card

      13,304.4         13,304.4         8,058.6         11,727.7         13,304.4  

Retail business banking

      26,940.0         26,940.0         19,251.3         26,243.6         26,940.0  

Commercial vehicle and construction equipment finance

      9,130.9         9,130.9         5,998.3         8,049.5         9,130.9  

Housing loans

      1,960.8         1,960.8         989.9         1,930.2         1,960.8  

Other retail

      29,540.1         29,540.1         18,498.2         26,122.2         29,540.1  

Wholesale loans

      32,804.3         32,804.3         15,317.0         32,808.6         32,804.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    Rs.       124,555.4       Rs.       124,555.4       Rs.       73,028.5       Rs.       116,636.5       Rs.       124,555.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    US$       1,717.1       US$       1,717.1       US$       1,006.7       US$       1,607.9       US$       1,717.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Impaired loans by industry as of March 31, 2018 and September 30, 2018 are as follows:

 

     As of March 31, 2018  
     (In millions)  

Gross impaired loans by industry:

     

—Wholesale Trade- Non Industrial

     Rs.        15,239.0  

—Consumer Loans

        15,236.4  

—Agriculture Production—Food

        12,227.0  

—Food and Beverage

        7,007.4  

—Retail Trade

        6,279.0  

—Agri-Allied

        6,184.0  

—Others (none greater than 5% of impaired loans)

        46,544.5  
  

 

 

 

Total

     Rs.        108,717.3  
  

 

 

 

 

F-22


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

     As of September 30, 2018  
     (In millions)  

Gross impaired loans by industry:

           

— Consumer Loans

     Rs.        19,278.4        US$        265.8  

— Agriculture Production—Food

        17,298.2           238.5  

— Wholesale Trade- Non Industrial

        15,198.3           209.5  

— Food and Beverage

        7,553.5           104.1  

— Retail Trade

        6,832.2           94.2  

— Agri-Allied

        6,257.7           86.3  

— Others (none greater than 5% of impaired loans)

        52,137.1           718.7  
  

 

 

    

 

 

 

Total

     Rs.        124,555.4        US$      1,717.1  
  

 

 

    

 

 

 

Summary information relating to impaired loans during the year ended March 31, 2018 and September 30, 2018 is as follows:

 

     As of,  
     March 31, 2018      September 30, 2018      September 30, 2018  
            (In millions)         

Average impaired loans, net of allowance

   Rs.      41,683.2      Rs.      48,821.9      US$      673.0  

Interest income recognized on impaired loans

   Rs.      7,433.7      Rs.      2,975.6      US$      41.0  

Allowance for credit losses as of March 31, 2018 are as follows:

 

    As of March 31, 2018  
    Specific     Unallocated        
    Retail                          
    Auto loans     Personal
Loans/
Credit card
    Retail
business
banking
    Commercial
vehicle and
Construction
equipment
finance
    Housing
loans
    Other
retail
    Wholesale     Retail     Wholesale     Total  
    (In millions)  

Allowance for credit losses, beginning of the period

    Rs.       2,792.9       Rs.       4,040.0       Rs.       15,278.4       Rs.       4,398.5       Rs.       739.3       Rs.       6,767.5       Rs.       11,713.5       Rs.       28,110.6       Rs.       4,656.2       Rs.       78,496.9  

Write-offs

      (6,826.4       (16,714.3       (5,730.0       (3,644.0       (61.5       (4,557.4       (444.7       —           —           (37,978.3

Net allowance for credit losses*

      7,715.7         18,856.9         9,161.0         4,051.6         296.6         10,712.7         4,054.2         14,036.8         3,103.1         71,988.6  

Allowance for credit losses, end of the period

    Rs.       3,682.2       Rs.       6,182.6       Rs.       18,709.4       Rs.       4,806.1       Rs.       974.4       Rs.       12,922.8       Rs.       15,323.0       Rs.       42,147.4       Rs.       7,759.3       Rs.       112,507.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses:

                                       

Allowance individually evaluated for impairment

    Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       15,323.0       Rs.       —         Rs.       —         Rs.       15,323.0  

Allowance collectively evaluated for impairment

      3,682.2         6,182.6         18,709.4         4,806.1         974.4         12,922.8         —           42,147.4         7,759.3         97,184.2  

Loans:

                                       

Loans individually evaluated for impairment

      —           —           —           —           —           —           32,812.8         —           —           32,812.8  

Loans collectively evaluated for impairment

      8,634.5         10,150.9         25,547.2         6,968.1         1,899.5         22,704.3         —           5,137,460.1         2,130,001.6         7,343,366.2  

 

*

Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 12,590.8 million.

 

F-23


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Allowance for credit losses as of September 30, 2018 are as follows:

 

    As of September 30, 2018  
    Specific     Unallocated              
    Retail                                
    Auto loans     Personal
Loans/
Credit card
    Retail
business
banking
    Commercial
vehicle and
Construction
equipment
finance
    Housing
loans
    Other
retail
    Wholesale     Retail     Wholesale     Total     Total  
    (In millions)  

Allowance for credit losses, beginning of the period

    Rs.       3,682.2       Rs.       6,182.6       Rs.       18,709.4       Rs.       4,806.1       Rs.       974.4       Rs.       12,922.8       Rs.       15,323.0       Rs.       42,147.4       Rs.       7,759.3       Rs.       112,507.2     US$         1,551.0  

Write-offs

      (4,183.5       (11,190.0       (5,257.0       (2,004.2       (65.2       (2,409.9       (570.0       —           —           (25,679.8       (354.1

Net allowance for credit losses*

      5,416.5         13,066.0         5,798.9         3,196.4         80.7         7,985.3         564.0         8,113.3         (162.7       44,058.4         607.4  

Allowance for credit losses, end of the period

    Rs.       4,915.2       Rs.       8,058.6       Rs.       19,251.3       Rs.       5,998.3       Rs.       989.9       Rs.       18,498.2       Rs.       15,317.0       Rs.       50,260.7       Rs.       7,596.6       Rs.       130,885.8     US$         1,804.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                                           

Allowance for credit losses:

                                           

Allowance individually evaluated for impairment

    Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       —         Rs.       15,317.0       Rs.       —         Rs.       —         Rs.       15,317.0     US$         211.2  

Allowance collectively evaluated for impairment

      4,915.2         8,058.6         19,251.3         5,998.3         989.9         18,498.2         —           50,260.7         7,596.6         115,568.8         1,593.1  

Loans:

                                           

Loans individually evaluated for impairment

      —           —           —           —           —           —           32,804.3         —           —           32,804.3         452.2  

Loans collectively evaluated for impairment

      10,874.9         13,304.4         26,940.0         9,130.9         1,960.8         29,540.1         —           5,673,380.3         2,471,731.5         8,236,862.9         113,549.3  

 

*

Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 7,204.1 million (US$ 99.3 million)

The unallocated allowance is assessed at each period end and the increase/(decrease) as the case may be is recorded in the income statement under allowances for credit losses. There is no transfer of amounts to or from the unallocated category to the specific category.

 

F-24


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Troubled debt restructuring (TDR)

When the Bank grants concession, for economic or legal reasons related to a borrower’s financial difficulties, for other than an insignificant period of time, the related loan is classified as a TDR. Concessions could include a reduction in the interest rate below current market rates, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered TDRs. On restructuring, the loans are re-measured to reflect the impact, if any, on projected cash flows resulting from the modified terms. Modification may have little or no impact on the allowance established for the loan if there was no forgiveness of the principal and the interest was not decreased. A charge off may be recorded at the time of restructuring if a portion of the loan is deemed to be uncollectible.

There were nil TDR modifications during the year ended March 31, 2018 and the six months period ended September 30, 2018. Further, there were nil TDRs that have defaulted in the current period within 12 months of their modification date. The defaulted TDRs are based on a payment default definition of 90 days past due.

 

 

F-25


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

7. Goodwill and other intangible assets

Goodwill arising from a business combination is tested at least on an annual basis for impairment. There were no changes in the carrying amount of goodwill of Rs. 74,937.9 million (US$ 1,033.1 million) for the year ended March 31, 2018 and six months period ended September 30, 2018. The entire amount of goodwill was allocated to the retail business. The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by class of intangible assets as of March 31, 2018 and September 30, 2018:

 

     As of March 31, 2018      As of September 30, 2018  
     Gross
carrying
amount
     Accumulated
amortization
     Net
carrying
amount
     Gross
carrying
amount
     Accumulated
amortization
     Net
carrying
amount
     Net
carrying
amount
 
                          (In millions)                       

Branch network

     Rs.        8,335.0        Rs.        8,335.0        Rs.        —          Rs.        8,335.0      Rs.      8,335.0      Rs.      —        US$      —    

Customer list

        2,710.0           2,710.0           —             2,710.0           2,710.0           —             —    

Core deposit

        4,414.0           4,414.0           —             4,414.0           4,414.0           —             —    

Favorable leases

        543.0           542.0           1.0           543.0           542.5           0.5           —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

    

 

    

 

 

Total

     Rs.        16,002.0        Rs.        16,001.0        Rs.        1.0        Rs.        16,002.0      Rs.      16,001.5      Rs.      0.5      US$      —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

    

 

    

 

 

Branch network intangible represents the benefit that the Bank received through the acquisition of a ready branch network from Centurion Bank of Punjab Limited (“CBoP”) as opposed to having to build a new one. The fair value attributable to the branch network intangible is the difference in the present values of the earnings (net of costs) that the Bank would have generated if the Bank had set up its own branches/ATMs (the “Hypothetical New Branch Network Earnings”) and the earnings (net of costs) that were generated because of the acquisition of CBoP (the “CBoP Branch Network Earnings”). Similar streams of revenues and operating costs (and therefore profits) from CBoP’s existing customer base and loan portfolio (includes net interest income, fees and commission) have been considered in determining the values of the Hypothetical New Branch Network Earnings and the CBoP Branch Network Earnings. Other assets including intangibles such as customer list, core deposits, loans, premises and equipment have been considered as assets of Hypothetical New Branch Network Earnings and the CBoP Branch Network Earnings and the value of these assets have been included in both of the networks. The aforesaid present values to compute the said intangible assets was intended to capture the advantages that the Bank received through the acquisition of a ready branch network from CBoP (as opposed to having to build a new one) in terms of time and of avoiding the administrative process required to obtaining branch licenses from the Reserve Bank of India (RBI). The Bank calculated the value of the customer list intangible through the cost approach by considering the estimated direct unit costs to source these customers multiplied by the number of customers. The Bank used the cost savings approach, i.e. the difference between the estimated cost of funds on deposit (interest cost and net maintenance costs) and the estimated cost of an equal amount of funds from an alternative source to calculate the core deposit intangible. The valuation of favorable leases intangibles was based on the cost saving to the Bank and future economic benefit until the lease expiry.

The aggregate amortization charged for the six months periods ended September 30, 2017 and September 30, 2018 was Rs. 0.5 million and Rs. 0.5 million, respectively.

The estimated amortization expense for intangible assets for each of the five succeeding twelve months period is given in the table below:

 

     As of September 30,  
     2018      2018  
     (In millions)  

To be amortized during the twelve months ending September 30:

           

2019

     Rs.        0.5        US$        —    

2020

        —             —    

2021

        —             —    

2022

        —             —    

2023

        —             —    

 

 

F-26


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

8. Short-term borrowings

Short-term borrowings are mainly comprised of money market borrowings which are unsecured and are utilized by the Bank for its treasury operations. Short-term borrowings as of March 31, 2018 and September 30, 2018 comprised of the following:

 

     As of,  
     March 31, 2018      September 30, 2018      September 30, 2018  
     (In millions)  

Borrowed in the call market

     Rs.        28,585.7        Rs.        10,437.2        US$        143.9  

Term borrowings from institutions/banks

        391,950.0           304,020.2           4,191.1  

Foreign currency borrowings

        307,066.6           287,340.1           3,961.1  

Bills rediscounted

        51,599.4           —             —    
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        779,201.7        Rs.        601,797.5        US$        8,296.1  
  

 

 

    

 

 

    

 

 

 

9. Long-term debt

Long-term debt as of March 31, 2018 and September 30, 2018 comprised of the following:

 

     As of ,  
     March 31, 2018      September 30, 2018      September 30, 2018  
     (In millions)  

Subordinated debt

     Rs.        231,070.0        Rs.        236,570.0        US$        3,261.2  

Others

        701,885.6           815,440.0           11,241.2  

Less: Debt issuance cost

        (49.3         (41.5         (0.5
  

 

 

    

 

 

    

 

 

 

Total

     Rs.        932,906.3        Rs.        1,051,968.5        US$        14,501.9  
  

 

 

    

 

 

    

 

 

 

The below table presents the balance of long-term debt as of March 31, 2018 and September 30, 2018 and the related contractual rates and maturity dates:

 

    As of,  
    March 31, 2018     September 30, 2018  
    Maturity /
Call dates
    Stated interest rates     Total     Maturity /
Call dates
    Stated interest rates     Total     Total  
    (In millions)  

Subordinated debt

                   

Subordinated debt (other than perpetual debt)

    2019-2028       7.56% to 10.85%       Rs.       151,063.5       2019-2029       7.56% to10.85%       Rs.       153,564.6       US$       2,117.0  

Perpetual debt

    2023       8.85%         79,997.3       2023-2029       8.85% to 9.40%         82,997.6         1,144.2  

Others*

                   

Variable rate—(1)

    2020-2022       2.68% to 3.25%         32,227.2       2020-2022       3.01% to 3.56%         38,026.3         524.2  

Variable rate—(2)

    2019-2023       7.64% to 10.05%         108,196.7       2019-2024       7.95% to 10.05%         131,174.4         1,808.3  

Fixed rate—(1)

    2019-2027       6.90% to 10.35%         561,421.6       2019-2027       4.60% to 10.35%         646,205.6         8,908.2  

Fixed rate—(2)

    —         —           —         —         —           —           —    
     

 

 

       

 

 

   

 

 

 

Total

        Rs.       932,906.3           Rs.       1,051,968.5       US$       14,501.9  
     

 

 

       

 

 

   

 

 

 

 

*    Variable rate (1) and fixed rate (2) represent foreign currency debt

 

 

F-27


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The scheduled maturities of long-term debt are set out below:

 

     As of September 30, 2018  
     (In millions)  

Due in the twelve months ending September 30:

           

2019

     Rs.        321,402.0        US$        4,430.7  

2020

        131,141.7           1,807.9  

2021

        154,258.4           2,126.5  

2022

        23,360.0           322.0  

2023

        54,500.0           751.3  

Thereafter

        284,308.8           3,919.3  
  

 

 

    

 

 

 

Total (1)

     Rs.        968,970.9        US$        13,357.7  
  

 

 

    

 

 

 

 

(1)

The scheduled maturities of long-term debt do not include perpetual bonds of Rs. 82,997.6 million (net of debt issuance cost).

During the six months period ended September 30, 2018 the Bank issued subordinated debt amounting to Rs. 2,500.0 million (previous period Rs. 20,000.0 million) and perpetual debt amounting to Rs. 3,000 million (previous period Rs. 80,000.0 million). During the six months period ended September 30, 2018 the Bank also raised other long-term debt amounting to Rs. 168,487.9 million (previous period Rs. 144,497.4 million).

As of March 31, 2018 and September 30, 2018, other long-term debt includes foreign currency borrowings from other banks aggregating to Rs. 32,260.9 million and Rs. 38,054.0 million, respectively, and functional currency borrowings aggregating to Rs. 669,624.7 million and Rs. 777,386.0 million, respectively.

 

 

F-28


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

10. Accumulated other comprehensive income

The below table presents the changes in accumulated other comprehensive income (OCI) after tax for the years ended March 31, 2018 and six months period ended September 30, 2018.

 

    Available for
sale securities
    Foreign currency
translation reserve
    Total  
    (In millions)  

Balance, March 31, 2017

    Rs.       25,433.1       Rs.       598.5       Rs.       26,031.6  

Net unrealized gain/(loss) arising during the period

      (21,445.3       72.1         (21,373.2

Amounts reclassified to income

      (8,455.1       —           (8,455.1
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2018

    Rs.       (4,467.3     Rs.       670.6       Rs.       (3,796.7
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2018

    Rs.       (4,467.3     Rs.       670.6       Rs.       (3,796.7

Adjustment to Other Comprehensive Income (loss)

      (268.0       —           (268.0

Net unrealized gain/(loss) arising during the period

      (28,365.0       1,293.6         (27,071.4

Amounts reclassified to income

      (1,392.3       —           (1,392.3
 

 

 

   

 

 

   

 

 

 

Balance, September 30, 2018

    Rs.       (34,492.6     Rs.       1,964.2       Rs.       (32,528.4
 

 

 

   

 

 

   

 

 

 

Balance, September 30, 2018

    US$       (475.5     US$       27.1       US$       (448.4
 

 

 

   

 

 

   

 

 

 

The below table presents the reclassification out of accumulated other comprehensive income (OCI) by income line item and the related tax effect for six months periods ended September 30, 2017 and September 30, 2018.

 

    As of September 30,  
    2017     2018     2018  
    (In millions)  

Available for sale securities:

           

Realized (gain)/loss on sales of available for sale securities, net

    Rs.       (9,894.9     Rs.       (3,214.1     US$       (44.3

Other than temporary impairment losses on available for sale securities

      139.3         1,074.0         14.8  
 

 

 

   

 

 

   

 

 

 

Total before tax

    Rs.       (9,755.6     Rs.       (2,140.1     US$       (29.5

Income tax

      3,376.2         747.8         10.3  
 

 

 

   

 

 

   

 

 

 

Net of tax

    Rs.       (6,379.4     Rs.       (1,392.3     US$       (19.2
 

 

 

   

 

 

   

 

 

 

 

F-29


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

11. Non-interest revenue

Revenue Recognition

Deposit related fees

Deposit-related fees consist of fees earned on consumer deposit activities and are generally recognized when the transaction occurs or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing, standing instruction processing, cash management services, etc.

Lending related fees

Lending-related fees generally represent transactional fees earned from certain loan related services, guarantees and letters of credit (LCs).

Third party products related fees

Third party products related fees consist of fees earned from distribution of third party products such as insurance and mutual funds.

Payments and cards business fees

Payments and cards business fees includes fees earned from merchant acquiring business and on Credit/Debit/Prepaid/Forex cards etc. Cards business income includes annual and renewal fees, late and over-limit fees, currency conversion fees, as well as fees earned from interchange, cash advances and other miscellaneous transactions fees. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit and debit cards based on the corresponding payment network’s rates. Substantially all cards business related fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over twelve months. Fees charged to cardholders that are estimated to be uncollectible are reversed. Payments business fees includes fees earned from merchants net of interchange expenses paid to issuing banks, rentals from point of sale machines, merchant service charges, etc.

The table below presents the non-interest revenue disaggregated by revenue source for the six months period ended September 30, 2017 and September 30, 2018.

 

     Six months ended September 30,  
     2017      2018      2018  
          (In millions)  

Deposit related fees

   Rs.      10,480.2      Rs.      12,098.4      USD      166.8  

Lending related fees

        15,936.3           15,631.3           215.5  

Third party products related fees

        8,651.5           9,411.0           129.7  

Payments and cards business fees

        14,681.8           21,093.1           290.8  

Others

        3,621.5           3,653.0           50.3  
  

 

    

 

    

 

 

Fees and commissions

   Rs.      53,371.3      Rs.      61,886.8      USD      853.1  

Trading securities gain/(loss), net

        64.8           61.8           0.9  

Realized gain/(loss) on sales of available for sale securities, net

        7,778.8           846.0           11.7  

Other than temporary impairment losses on available for sale securities

        (139.3         (1,074.0         (14.8

Foreign exchange transactions

        (2,852.6         (10,471.2         (144.4

Derivatives gain/(loss), net

        8,833.8           17,464.2           240.8  

Other, net

        255.1           3,656.5           50.4  
  

 

    

 

    

 

 

Total non-interest revenue, net

   Rs.      67,311.9      Rs.      72,370.1      USD      997.7  
  

 

    

 

    

 

 

 

F-30


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

12. Stock-based compensation

For details of the Bank’s employee stock option scheme refer to the Bank’s Form 20-F filed with the Securities and Exchange Commission on July 25, 2018.

On September 1, 2018 and September 29, 2018, the Nomination and Remuneration Committee of the Board approved, under plan G, the grant of 19,119,000 options (Scheme XXIX) and the grant of 440,000 options (Scheme XXX), respectively, to the employees of the Bank.

Assumptions used

The fair value of options has been estimated on the dates of each grant using a binomial option pricing model with the following assumptions:

 

     Six months period ended September 30,
     2017    2018

Dividend yield

   0.65%-0.66%    0.63%-0.65%

Expected volatility

   19.94%-21.65%    14.53%-18.68%

Risk-free interest rate

   6.73%-7.20%    7.98%-8.31%

Expected term (in years)

   4.66-6.06    2.78-5.11

The Bank recognizes compensation expense related to stock and option awards over the requisite service period, generally based on the instruments’ grant-date fair value, reduced by expected forfeitures. Ultimately, the compensation cost for all awards that vest is recognized.

Activity and other details

Activity in the options available to be granted under the Employee Stock Option Scheme is as follows:

 

     Number of options available to be granted
six months period ended September 30,
 
     2017      2018  

Options available to be granted, beginning of period*

     133,673,650        117,841,600  

Equity shares allocated for grant under the plan

     —          —    

Options granted

     (16,882,050      (19,559,000

Forfeited/lapsed*

     662,200        2,112,885  
  

 

 

    

 

 

 

Options available to be granted, end of period

     117,453,800        100,395,485  

 

*

Does not include options exchanged on acquisition of CBoP since these options on forfeiture/ lapse are not available for re-issue.

 

F-31


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Activity in the options outstanding under the Employee Stock Option Scheme is as follows:

 

    Six months period ended September 30,  
    2017     2018  
    Options     Weighted
average
exercise
price
    Options     Weighted
average
exercise
price
 

Options outstanding, beginning of period

    92,156,300     Rs.     904.97       75,443,800     Rs.     1,050.22  

Granted

    16,882,050         1,433.23       19,559,000         2,059.96  

Exercised

    (21,450,900       846.20       (17,641,881       908.50  

Forfeited

    (628,800       1,037.81       (2,059,885       1,405.41  

Lapsed

    (33,400       1,027.21       (53,000       828.90  

Options outstanding, end of period

    86,925,250     Rs.     1,021.06       75,248,034     Rs.     1,336.34  

Options exercisable, end of period

    57,929,800     Rs.     885.97       46,378,584     Rs.     1,011.72  

Weighted average fair value of options granted during the year

    Rs.     464.27       Rs.     524.83  

The following summarizes information about stock options outstanding as of September 30, 2018:

 

          As of September 30, 2018  
Plan   

Range of exercise price

   Number of
shares arising
out of options
     Weighted
average
remaining life
(years)
     Weighted
average
exercise price
 

Plan C

  

Rs.680.00 to Rs.835.50 (or US$ 9.37to US$ 11.52)

     1,597,500        1.35        686.88  

Plan D

  

Rs. 680.00 (or US$ 9.37)

     844,400        1.40        680.00  

Plan E

  

Rs.680.00 (or US$ 9.37)

     3,055,900        1.42        680.00  

Plan F

  

Rs.835.50 to Rs.1462.15 (or US$ 11.52 to US$ 20.16)

     50,191,234        3.16        1,126.02  

Plan G

  

Rs.2006.05 to Rs. 2061.20 (or US$ 27.65 to US$ 28.41)

     19,559,000        4.07        2,059.96  

The intrinsic value, of options exercised during the six months ended September 30, 2017 and September 30, 2018 at grant date was Rs. 12.2 million and nil, respectively, and at exercise date was Rs. 20,582.2 million and Rs. 19,362.9 million, respectively. The aggregate intrinsic value as of grant date and as at September 30, 2018 attributable to options which are outstanding as on September 30, 2018 was Rs. 0.6 million (previous period Rs. 17.2 million) and Rs. 51,448.9 million (previous period Rs. 68,205.2 million), respectively. The aggregate intrinsic value as at grant date and as at September 30, 2018 attributable to options exercisable as on September 30, 2018 was Rs. 0.2 million (previous period Rs. 16.7 million) and was Rs. 46,115.4 million (previous period Rs. 53,279.7 million), respectively. Total stock compensation cost (including on modification) recognized under these plans was Rs. 3,894.7 million and Rs. 2,026.5 million during the six months periods ended September 30, 2017 and September 30, 2018, respectively. There is no tax benefit recognized associated with share-based compensation expense. As of September 30, 2018, there were 28,869,450 (previous period 28,995,450) unvested options with weighted average exercise price of Rs. 1,857.8 (previous period Rs. 1,290.9) and aggregate intrinsic value at grant date and as at September 30, 2018, was Rs. 0.3 million (previous period 0.6 million) and was Rs. 5,333.5 million (previous period Rs. 14,925.5 million), respectively. As at September 30, 2018, the total estimated compensation cost to be recognized in future periods was Rs. 10,045.4 million (previous period Rs. 6,683.1 million). This is expected to be recognized over a weighted average period of 1.23 year.

 

F-32


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

13. Financial instruments

Foreign exchange and derivative contracts

The Bank enters into forward exchange contracts, currency options, forward rate agreements, currency swaps and rupee interest rate swaps with inter-bank participants on its own account and for customers. These transactions enable customers to transfer, modify or reduce their foreign exchange and interest rate risks.

Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest in one currency against another currency and exchange of principa