P1083D P1Y false 2020 FY 0001144967--03-31 K7 IN IN us-gaap:OperatingLeaseLiability 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.Effective April 1, 2018, the Bank adopted ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10)(see note 19)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 amortized cost Rs. 855.6 million and carrying value Rs. 1,267.7 million effective April 1, 2018.Loans up to 30 days past due are considered current Includes crop related agricultural loans with days past due less than 366 as they are not considered as impaired Rs. 34.0 billion.Includes crop related agricultural loans with days past due less than 366 as they are not considered as impaired Rs. 39.0 billion.Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 12,590.8 million. Recoveries from retail loans is Rs. 12,254.3 million and from wholesale loans is Rs. 336.5 million.Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 16,777.1 million. Recoveries from retail loans is Rs. 16,590.9 million and from wholesale loans is Rs. 186.2 million.Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 25,658.9 million (US$ 340.3 million). Recoveries from retail loans is Rs.22,548.7 million and from wholesale loans is Rs. 3,110.2 million.TDRs involving changes in the amount of interest payments may involve a reduction in interest rate.Balances reflect charge-offs and/or allowance for credit losses and/or income not recognized/deferred.TDR modification during the year ended March 31, 2019 comprised of one case.TDRs involving changes in the amount of principal payment may include principal forgiveness or deferral of periodic and/or final principal payments.TDR modification during the year ended March 31, 2020 comprised of 13 cases.Effective April 1, 2018, the Bank adopted ASU 2016-01. The equity securities that were previously reported as AFS securities were reclassified to other assets with carrying value amounting to Rs. 1,267.7 million. Others include equity securities with carrying value amounting to Rs. 11,483.4 million and Rs. 11,611.2 million as at March 31, 2019 and March 31, 2020, respectively. Equity securities include non-marketable equity securities carried at cost Rs. 459.4 million and Rs. 696.9 million as at March 31, 2019 and March 31, 2020, respectively. Unrealized gain \ (loss) recognized in non-interest revenue–other, net Rs 6,717.5 million and Rs. (131.1) million for the fiscal year ended March 31, 2019 and March 31, 2020, respectively.Includes securities sold under repurchase agreements amounting to Rs. 17,260.0 million (USD 228.9 million) for the fiscal period ended March 31, 2020 with stated interest rate of 5.15% per annum, under RBI long-term repo operation with a three-year maturity period.Variable rate (1) represent foreign currency debt. Variable rate debt is typically indexed to LIBOR, T-bill rates, Marginal cost of funds based lending rates (MCLR), among others.The scheduled maturities of long-term debt do not include perpetual bonds of Rs. 84,972.7 million (net of debt issuance cost).Effective April 1, 2018, the Bank adopted ASU 2017-07 Compensation- Retirement Benefits (Topic 715) -Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Accordingly, service cost is reported in the Consolidated Statements of Income in line Non-interest expense-salaries and staff benefits and other components of net benefit cost is reported in the Consolidated Statements of Income in line Non-interest expense –Administrative and other. The amendments have been applied retrospectively. The data pertaining to plan investment assets measured at fair value by level and total at March 31, 2020 are provided separately. Effective April 1, 2018, the Bank adopted ASU 2017-07 Compensation- Retirement Benefits (Topic 715) -Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Accordingly, service cost is reported in the Consolidated Statements of Income in line Non-interest expense-salaries and staff benefits and other components of net benefit cost is reported in the Consolidated Statements of Income in line Non-interest expense –Administrative and other. The amendments have been applied retrospectively. Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged.Equity securities classified within other assets.Weighted average assumptions used to determine both benefit obligations and net periodic benefit cost. 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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
20-F

☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2020
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to
OR

☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report
Commission file number
001-15216
HDFC BANK LIMITED
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
India
(Jurisdiction of incorporation or organization)
HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400013, India
(Address of principal executive offices)
Name: Santosh Haldankar,
Senior
Vice President (Legal) and Company Secretary
Telephone:
91-22-3976-0711
Email: Santosh.Haldankar@hdfcbank.com
Office
Address: HDFC Bank Ltd; Legal & Secretarial Dept; 2nd floor, Zenith House,
Opp. Race Course Gate No. 5 & 6 , Keshavrao Khadye Marg,
Mahalaxmi(west), Mumbai 400 034, India.
(Name, telephone,
e-mail
and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
American Depositary Shares, each representing three Equity Shares, Par value Rs. 1.0 per share |  | HDB |  | The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: Not Applicable
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Not Applicable
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Equity Shares, as of March 31, 2020 5,483,286,460
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☒
No
☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
☐
No
☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated
filer
☐
Emerging growth company
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on the attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒ |  | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |  | Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17
☐
Item 18
☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒

Table of Contents

EXCHANGE RATES AND CERTAIN DEFINED TERMS |  | 1
FORWARD-LOOKING STATEMENTS |  | 2
BUSINESS |  | 3
RISK FACTORS |  | 30
CERTAIN INFORMATION ABOUT OUR AMERICAN DEPOSITARY SHARES AND EQUITY SHARES |  | 56
DESCRIPTION OF EQUITY SHARES |  | 57
DESCRIPTION OF AMERICAN DEPOSITARY SHARES |  | 62
DIVIDEND POLICY |  | 72
SELECTED FINANCIAL AND OTHER DATA |  | 73
SELECTED STATISTICAL INFORMATION |  | 76
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 94
MANAGEMENT |  | 119
PRINCIPAL SHAREHOLDERS |  | 141
RELATED PARTY TRANSACTIONS |  | 142
TAXATION |  | 145
SUPERVISION AND REGULATION |  | 152
EXCHANGE CONTROLS |  | 185
RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES |  | 187
ADDITIONAL INFORMATION |  | 191
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |  | 192
EXHIBIT INDEX |  |
SIGNATURES |  |

i

Table of Contents
CROSS REFERENCE SHEET
Form
20-F

|  | Item Caption |  | Location |  |
Part I |  |  |  |  |  |
Item 1 |  | Identity of Directors, Senior Management and Advisors |  | Not Applicable |  |
Item 2 |  | Offer Statistics and Expected Timetable |  | Not Applicable |  |
Item 3 |  | Key Information |  | Exchange Rates and Certain Defined Terms |  | 1
|  |  |  | Risk Factors |  | 30
|  |  |  | Selected Financial and Other Data |  | 73
Item 4 |  | Information on the Company |  | Business |  | 3
|  |  |  | Selected Statistical Information |  | 76
|  |  |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 94
|  |  |  | Principal Shareholders |  | 141
|  |  |  | Related Party Transactions |  | 142
|  |  |  | Supervision and Regulation |  | 152
Item 5 |  | Operating and Financial Review and Prospects |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 94
Item 6 |  | Directors, Senior Management and Employees |  | Business—Employees |  | 29
|  |  |  | Management |  | 119
|  |  |  | Principal Shareholders |  | 141
Item 7 |  | Major Shareholders and Related Party Transactions |  | Principal Shareholders |  | 141
|  |  |  | Management—Loans to Members of our Senior Management |  | 131
|  |  |  | Related Party Transactions |  | 142
Item 8 |  | Financial Information |  | Report of Independent Registered Public Accounting Firms |  | F-2
|  |  |  | Consolidated Financial Statements and the Notes thereto |  | F-11
|  |  |  | Business—Legal Proceedings |  | 29
Item 9 |  | The Offer and Listing |  | Certain Information About Our American Depositary Share and Equity Shares |  | 56
|  |  |  | Restrictions on Foreign Ownership of Indian Securities |  | 187
Item 10 |  | Additional Information |  | Management |  | 119
|  |  |  | Description of Equity Shares |  | 57
|  |  |  | Dividend Policy |  | 72
|  |  |  | Taxation |  | 145
|  |  |  | Supervision and Regulation |  | 152
|  |  |  | Exchange Controls |  | 185

ii

Table of Contents

|  | Item Caption |  | Location |  |
|  |  |  | Restrictions on Foreign Ownership of Indian Securities |  | 187
|  |  |  | Additional Information |  | 191
Item 11 |  | Quantitative and Qualitative Disclosures About Market Risk |  | Business—Risk Management |  | 21
|  |  |  | Selected Statistical Information |  | 76
Item 12 |  | Description of Securities Other than Equity Securities |  | Not Applicable |  |
Item 12D |  | ADSs fee disclosure |  | Description of American Depositary Shares—Fees and Charges for Holders of American Depositary Shares |  | 65
Part II |  |  |  |  |  |
Item 13 |  | Defaults, Dividend Arrearages and Delinquencies |  | Not Applicable |  |
Item 14 |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | Not Applicable |  |
Item 15 |  | Controls and Procedures |  | Management—Controls and Procedures |  | 132
|  |  |  | Management’s Report on Internal Control Over Financial Reporting |  | 192
|  |  |  | Report of Independent Registered Public Accounting Firm—Internal Controls Over Financial Reporting |  | 193
Item 16A |  | Audit Committee Financial Expert |  | Management—Audit Committee Financial Expert |  | 133
Item 16B |  | Code of Ethics |  | Management—Code of Ethics |  | 133
Item 16C |  | Principal Accountant Fees and Services |  | Management—Principal Accountant Fees and Services |  | 134
Item 16D |  | Exemption from the Listing Standards for Audit Committees |  | Not Applicable |  |
Item 16E |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |  | Not Applicable |  |
Item 16F |  | Changes in or disagreements with accountants |  | Not Applicable |  |
Item 16G |  | Significant Differences in Corporate Governance Practices |  | Management—Compliance with NYSE Listing Standards on Corporate Governance |  | 134
Item 16H |  | Mine Safety Disclosure |  | Not Applicable |  |

iii

Table of Contents
EXCHANGE RATES AND CERTAIN DEFINED TERMS
In this document, all references to “we”, “us”, “our”, “HDFC Bank” or “the Bank” shall mean HDFC Bank Limited or where the context requires also to its subsidiaries whose financials are consolidated for accounting purposes. References to the “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to the “Companies Act” in the document mean the Indian Companies Act, 2013 and all rules and regulations issued thereunder. References to “$” or “US$” or “dollars” or “United States dollars” are to the legal currency of the United States and references to “Rs.”, ”INR”, “rupees” or “Indian rupees” are to the legal currency of India.
Our financial statements are presented in Indian rupees and in some cases translated into United States dollars. The financial statements and all other financial data included in this report, except as otherwise noted, are prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. U.S. GAAP differs in certain material respects from accounting principles generally accepted in India, the requirements of India’s Banking Regulation Act and related regulations issued by the Reserve Bank of India (“RBI”) (collectively, “Indian GAAP”), which form the basis of our statutory general purpose financial statements in India. Principal differences applicable to our business include: determination of the allowance for credit losses, classification and valuation of investments, accounting for deferred income taxes, stock-based compensation, loan origination fees, derivative financial instruments, business combinations and the presentation format and disclosures of the financial statements and related notes. References to a particular “fiscal” are to our fiscal year ended March 31 of such year.
Fluctuations in the exchange rate between the Indian rupee and the United States dollar will affect the United States dollar equivalent of the Indian rupee price of the equity shares on the Indian stock exchanges and, as a result, will affect the market price of our American Depositary Shares (“ADSs”) in the United States. These fluctuations will also affect the conversion into United States dollars by the depositary of any cash dividends paid in Indian rupees on the equity shares represented by ADSs.
Investor expectations that reforms implemented by the Government of India (the “Government”) will lead to an improvement in the long-term growth outlook helped to improve the rupee’s performance, reducing the depreciation trend to 3.85 percent in fiscal 2015. During fiscal 2016, the rupee depreciated by 6.32 percent primarily reflecting global risk aversion and a strong United States dollar. However, in line with other emerging markets, which experienced currency appreciation in fiscal 2017, the Indian rupee also appreciated by 2.1 percent against the United States dollar. This was mainly attributed to repricing of the Indian assets by international investors (driven by domestic economic and political stability) alongside the disappointment relating to the United States reform agenda. In fiscal 2018, the rupee ranged between a high of Rs. 65.71 per US$ 1.00 and a low of Rs. 63.38 per US$ 1.00. Pressure developed in the last two quarters of fiscal 2018 as oil prices rose and trade war risks escalated globally. In fiscal 2019, while the rupee depreciated overall by 6.3 percent against the United States dollar, it ranged between a high of Rs. 74.4 per US$ 1.00 and a low of Rs. 64.85 per US$ 1.00. Rising oil prices and a slowdown in global trade volumes, as well as a risk aversion towards emerging market currencies (because of tariffs and trade war risks) have all affected the rupee negatively in fiscal 2019. The rupee further depreciated in fiscal 2020, amid weak global demand, low domestic economic growth and foreign portfolio investment outflows, as well as a result of foreign investors becoming more risk averse with respect to investments in India. In fiscal 2020, the rupee ranged between a high of Rs. 76.37 per US$ 1.00 and a low of Rs. 68.40 per US$ 1.00.
Although we have translated selected Indian rupee amounts in this document into United States dollars for convenience, this does not mean that the Indian rupee amounts referred to could have been, or could be, converted to United States dollars at any particular rate, the rates stated above, or at all. Unless otherwise stated, all translations from Indian rupees to United States dollars are based on the noon buying rate in the City of New York for cable transfers in Indian rupees at US$ 1.00 = Rs. 75.39 on March 31, 2020. The Federal Reserve Bank of New York certifies this rate for customs purposes on each date the rate is given. The noon buying rate on July 24, 2020 was Rs. 74.77 per US$ 1.00.
1

Table of Contents
FORWARD-LOOKING STATEMENTS
We have included statements in this report which contain words or phrases such as “will”, “aim”, “will likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue” and similar expressions or variations of these expressions, that are “forward-looking statements”. Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with our expectations with respect to, but not limited to, our ability to implement our strategy successfully, the market acceptance of and demand for various banking services, future levels of our
non-performing/impaired
assets, our growth and expansion, the adequacy of our provision/allowance for credit and investment losses, technological changes, volatility in investment income, our ability to market new products, cash flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions we are or become a party to, the future impact of new accounting standards, our ability to pay dividends, the impact of changes in banking regulations and other regulatory changes on us in India and other jurisdictions, our ability to roll over our short-term funding sources and our exposure to market and operational risks. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what may actually occur in the future. As a result, actual future gains, losses or impact on net income could materially differ from those that have been estimated.
In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: general economic and political conditions, instability or uncertainty in India and the other countries which have an impact on our business activities or investments caused by any factor, including terrorist attacks in India, the United States or elsewhere, anti-terrorist or other attacks by the United States, a United
States-led
coalition or any other country, tensions between India and Pakistan related to the Kashmir region or between India and China, military armament or social unrest in any part of India; the monetary and interest rate policies of the Government of India, natural calamities, pandemics, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices; the performance of the financial markets in India and globally, changes in Indian and foreign laws and regulations, including tax, accounting and banking regulations, changes in competition and the pricing environment in India, and regional or general changes in asset valuations. For further discussion on the factors that could cause actual results to differ, see “
Risk Factors
”.
2

Table of Contents
BUSINESS
Overview
We are a new generation private sector bank in India. Our goal is to be the preferred provider of financial services to our customers in India across metro, urban, semi-urban and rural markets. Our strategy is to provide a comprehensive range of financial products and services to our customers through multiple distribution channels, with what we believe are high-quality services, advanced technology platforms and superior execution.
We have three principal business activities: retail banking, wholesale banking and treasury operations. Our retail banking products include deposit products, loans, credit cards, debit cards, third-party mutual funds and insurance products, bill payment services, loans to small and medium enterprises and other products and services. With respect to wholesale banking, we offer customers a range of financing products, such as documentary credits and bank guarantees, foreign exchange and derivative products, investment banking services and corporate deposit products. We offer a range of deposit and transaction banking services, such as cash management, custodial and clearing bank services and correspondent banking. Our treasury operations manage our balance sheet, and include customer-driven services such as advisory services related to foreign exchange and derivative transactions for corporate and institutional customers, supplemented by proprietary trading, including Indian Government securities. Further, our
non-banking
finance company (“NBFC”) subsidiary HDB Financial Services Limited (“HDBFSL”) offers a wide range of loans and asset finance products including mortgage loans, commercial vehicle loans, consumer loans and gold loans, as well as a range of business process outsourcing solutions. We provide our customers with brokerage accounts through our subsidiary HDFC Securities Limited (“HSL”), which we believe is one of the leading stock brokerage companies in India and which offers a suite of products and services across various asset classes such as equity, gold and debt, among others.
Our financial conditions and results of operation are affected by the general economic conditions in India. The Indian economy is one of the largest economies in the world with a gross domestic product (“GDP”) at current market prices of an estimated Rs. 189.7 trillion for fiscal 2019 and an estimated Rs. 203.4 trillion for fiscal 2020. In recent years, India has become an attractive destination for foreign direct investment (“FDI”), owing to its well-developed private corporate sector, large consumer market potential, large pool of well-educated and English-speaking workers and well-established legal systems. Overall, India attracted FDI (including reinvested earnings) of approximately US$ 73.45 billion in fiscal 2020, US$ 62.0 billion in fiscal 2019 and US$ 60.9 billion in fiscal 2018. India attracted an average of US$ 49.42 billion FDI from fiscal 2011 through fiscal 2020 compared to an average of US$ 11.3 billion from fiscal 2001 through fiscal 2010. One measure of India’s progress has been the upward trend in the ease of doing business rankings, a measure published annually by the World Bank. In 2019, India improved 14 places to the 63rd place (out of a total of 190 countries) and was ranked as one of the top ten improvers
year-on-year.
The Indian economy faced multiple challenges during fiscal 2020, including the NBFC crisis, fiscal constraints, elevated
US-China
trade tensions, certain regional geopolitical uncertainties, the consistent slowdown in domestic consumption growth and the impact of the
COVID-19
pandemic. Due to the challenging international and domestic environment, real GDP growth in India slowed to 4.2 percent in fiscal 2020 from 6.1 percent in fiscal 2019. On the supply side, this
year-on-year
decline was primarily driven by reduced growth in the manufacturing sector, which grew at a rate of 0.1 percent in fiscal 2020 compared to 5.9 percent in fiscal 2019. On the demand side, investment growth (as measured by the “gross fixed capital formation” component of GDP) has been on a downward trajectory since the last quarter of fiscal 2019 and turned negative beginning in the second quarter of fiscal 2020. Private consumption has also experienced a slowdown, growing at 5.3 percent in fiscal 2020 compared to 7.2 percent in fiscal 2019. In addition, construction activity also slowed, growing at a rate of 1.4 percent in the fiscal 2020 compared to 6.1 percent during fiscal 2019. On a quarterly basis, India’s real GDP growth in fiscal 2020 showed a steady decline from 5.2 percent in the first quarter, to 4.4 percent in the second quarter, 4.1 percent in the third quarter and 3.1 percent in the fourth quarter.
Due to
COVID-19
related disruptions, real GDP growth is likely to slow down further and contract in fiscal 2021. However, India’s significant reliance on private consumption may work in its favor amidst slowing external demand and significant economic decline in other major economies. Globally, the IMF projects 2020 GDP growth to decline by 4.9 percent and the WTO expects trade to contract between 13.0 percent and 32.0 percent in 2020.
While headline inflation stayed below the central bank’s 4.0 percent target in the first half of fiscal 2021, inflation started rising in the second half of the fiscal year due to a sharp rise in vegetable prices. Headline inflation breached the central bank’s upper target limit of 6.0 percent for the first time in December 2019. Further, consumer price index (“CPI”) inflation averaged 6.2 percent in the second half of the year compared to an average of 3.3 percent in the first half of the fiscal 2020. Going forward, while
COVID-19
related supply disruptions may put some pressure on inflation in the near term, lower oil prices, normal monsoons and weak demand could push down inflation in the second half of fiscal 2021. On balance, we expect headline inflation to average below the RBI’s median 4.0 percent target in fiscal 2021.
The Indian Union Budget for fiscal 2021 tried to strike a balance between fiscal consolidation and supporting growth. The budget focuses on infrastructure and includes an investment of Rs. 103 trillion in infrastructure development over the next five years. The Government has more recently announced a “self-reliant India” package worth Rs. 20 trillion or 20 percent of GDP to mitigate the economic impact of
COVID-19.
With respect to the fiscal situation, the fiscal deficit is budgeted at 3.5 percent of GDP in fiscal 2021 compared to a provisional estimate of 4.6 percent in fiscal 2020 (compared to the budget estimate of 3.3 percent). However, the impact of
COVID-19
on both Government revenue and expenditure is likely to also result in a significant fiscal deviation from the Government’s target in fiscal 2021.
3

Table of Contents
Since commencing operations in January 1995 we have grown rapidly. As of March 31, 2020, we had 5,416 banking outlets and 14,901 ATMs / Cash Deposit and Withdrawal Machines (“CDMs”) in 2,803 cities and towns and 56.1 million customers. In addition, we had 5,379 banking outlets managed by common service centers (“CSCs”). On account of the expansion in our geographical reach and the resultant increase in market penetration, our assets have grown from Rs. 13,280.1 billion as of March 31, 2019 to Rs. 15,961.9 billion as of March 31, 2020. Our net income has increased from Rs. 220.1 billion for fiscal 2019 to Rs. 260.3 billion for fiscal 2020. Our loans and deposits as of March 31, 2020 were at Rs. 10,425.0 billion and Rs. 11,462.1 billion respectively. Across business cycles, we believe we have maintained a strong balance sheet and a low cost of funds. As of March 31, 2020, gross
non-performing
customer assets as a percentage of gross customer assets was 1.43 percent, while net
non-performing
customer assets constituted 0.52 percent of net customer assets. Our net customer assets represented 94.1 percent of our deposits and our deposits represented 71.8 percent of our total liabilities and shareholders’ equity. The average
non-interest
bearing current accounts and
low-interest
bearing savings accounts represented 38.0 percent of total deposits as of March 31, 2020. These
low-cost
deposits and the cash float associated with our transactional services led to an average cost of funds (including equity) of 4.5 percent for fiscal 2020. We had a return on equity (net income as a percentage of average total shareholders’ equity) of 15.5 percent for fiscal 2019 and 15.1 percent for fiscal 2020, and at March 31, 2020 had a total capital adequacy ratio (calculated pursuant to RBI guidelines) of 18.52 percent. Our Common Equity Tier I
(“CET-I”)
ratio was 16.43 percent as at March 31, 2020.
About Our Bank
HDFC Bank was incorporated in August 1994 and commenced operations as a scheduled commercial bank in January 1995. In 2000, we merged with Times Bank Limited and, in 2008, we acquired Centurion Bank of Punjab Limited (“CBoP”). We are part of the HDFC Group of companies established by our principal shareholder, Housing Development Finance Corporation Limited (“HDFC Limited”), a listed public limited company established under the laws of India. HDFC Limited is primarily engaged in financial services, including mortgages, property-related lending and deposit services. The subsidiaries and associated companies of HDFC Limited are also largely engaged in a range of financial services, including asset management, life insurance and general insurance. HDFC Limited and its subsidiaries (together, “HDFC Group”) owned 21.24 percent of our outstanding equity shares as of March 31, 2020 and our Chairperson and Managing Director are nominated by HDFC Limited and appointed with the approval of our shareholders and the RBI. See also “Principal Shareholders”. We have no agreements with HDFC Limited or any of its group companies that restrict us from competing with them or that restrict HDFC Limited or any of its group companies from competing with our business. We currently distribute products of HDFC Limited and its group companies, such as home loans of HDFC Limited, life and general insurance products of HDFC Life Insurance Company Limited and HDFC ERGO General Insurance Company Limited, respectively, and mutual funds of HDFC Asset Management Company Limited.
We have two subsidiaries: HDBFSL and HSL. HDBFSL is a
non-deposit
taking NBFC engaged primarily in the business of retail asset financing while HSL is primarily in the business of providing brokerage and other investment services. Effective April 1, 2018 the financial results of our subsidiary companies have been prepared in accordance with notified Indian Accounting Standards (April 1, 2017 being the transition date). HDBFSL’s total assets and shareholders’ equity as of March 31, 2020 were Rs. 607.1 billion and Rs. 80.2 billion, respectively. HDBFSL’s net income was Rs. 10.0 billion for fiscal 2020. As of March 31, 2020, HDBFSL had 1,468 branches across 1,070 cities in India. HSL’s total assets and shareholders’ equity as of March 31, 2020 were Rs. 27.7 billion and Rs. 12.5 billion, respectively. HSL’s net income was Rs. 3.8 billion for fiscal 2020. On December 1, 2016, Atlas Documentary Facilitators Company Private Ltd. which provided back office transaction processing services to us, and its subsidiary HBL Global Private Ltd. which provided direct sales support for certain products of the Bank, amalgamated with HDBFSL.
Our principal corporate and registered office is located at HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013, India. Our telephone number is
91-22-6652-1000.
Our agent in the United States for the 2001, 2005, 2007, 2015 and 2018 ADS offerings is Depositary Management Corporation, 570 Lexington Avenue, New York, NY 10022.
Our Competitive Strengths
We attribute our growth and continuing success to the following competitive strengths:
We have a strong brand and extensive reach through a large distribution network
At HDFC Bank, we are focused on understanding our customers’ financial needs and providing them with relevant banking solutions. We are driven by our core values: customer focus, operational excellence, product leadership, sustainability and people. This has helped us grow and achieve our status as one of the largest private sector banks in India, while delivering value to our customers, stakeholders, employees and the community. We believe HDFC Bank is one of the most trusted and preferred bank brands in India. We have been acknowledged as “India’s Most Valuable Brand” by BrandZ for the sixth consecutive year. We have capitalized on our strong brand by establishing an extensive branch network throughout India serving a broad range of customers in urban, semi-urban and rural regions. As of March 31, 2020, we had 5,416 banking outlets and 14,901 ATMs / CDMs in 2,803 cities and towns and over 56 million customers, and of our total banking outlets, 51.8 percent were in the semi-urban and rural areas. In addition, we had 5,379 banking outlets managed by CSCs. Our banking outlets network is further complemented by our digital platforms, including online and mobile banking solutions, to provide our customers with a lifestyle banking experience, which is categorized into eight categories: Pay, Save, Invest, Borrow, Shop, Trade, Insure and Advice. Our focus is on delivering a highly personalized multi-channel experience to our customers.
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We provide a wide range of products and high quality service to our clients in order to meet their banking needs
Whether in retail banking, wholesale banking or treasury operations, we consider ourselves a
“one-stop
shop” for our customers’ banking needs. We consider our high-quality service offerings to be a vital component of our business and believe in pursuing excellence in execution through multiple internal initiatives focused on continuous improvement. This pursuit of high-quality service and operational execution directly supports our ability to offer a wide range of banking products.
Our retail banking products include deposit products, retail loans (such as vehicle and personal loans), and other products and services, such as private banking, depositary accounts, brokerage services, foreign exchange services, distribution of third-party products (such as insurance and mutual funds), bill payments and sale of gold and silver bullion. In addition, we are the largest credit card issuer in India with 14.5 million cards outstanding as of March 31, 2020. With respect to wholesale banking, we offer customers working capital loans, term loans, bill collections, letters of credit, guarantees, foreign exchange and derivative products and investment banking services. We also offer a range of deposit and transaction banking services such as cash management, custodial and clearing bank services and correspondent banking. We believe our large scale and low cost of funding enable us to pursue high-quality wholesale financing opportunities competitively and at an advantage compared to our peers. We collect taxes for the Government and are bankers to companies in respect of issuances of equity shares and bonds to the public. Our NBFC subsidiary HDBFSL offers loan and asset finance products including tractor loans, consumer loans and gold loans, as well as business process outsourcing solutions such as form processing, document verification, contact center management and other front and back-office services.
We are able to provide this wide range of products across our physical and digital network, meaning we can provide our targeted rural customers with banking products and services similar to those provided to our urban customers, which we believe gives us a competitive advantage. Our wide range of products and focus on superior service and execution also create multiple cross-selling opportunities for us and, we believe, promote customer retention.
We have achieved robust and consistent financial performance while maintaining a healthy asset quality during our growth
On account of our superior operational execution, broad range of products, expansion in our geographical reach and the resulting increase in market penetration through our extensive branch network, our assets have grown from Rs. 13,280.1 billion as of March 31, 2019 to Rs. 15,961.9 billion as of March 31, 2020. Our net interest margin was 4.5 percent in fiscal 2019 and 4.6 percent in fiscal 2020. Our current and savings account deposits as a percentage of our total deposits were 42.2 percent as of March 31, 2020, and we believe this strong current and savings account profile has enabled us to tap into a
low-cost
funding base. In addition to the significant growth in our assets and net revenue, we remain focused on maintaining a healthy asset quality. We continue to have low levels of
non-performing
customer assets as compared to the average levels in the Indian banking industry. Our gross
non-performing
customer assets as a percentage of total customer assets was 1.43 percent as of March 31, 2020 and our net
non-performing
customer assets was 0.52 percent of net customer assets as of March 31, 2020. Our net income has increased from Rs. 220.1 billion for fiscal 2019 to Rs. 260.3 billion for fiscal 2020. Net income as a percentage of average total shareholders’ equity was 15.5 percent in fiscal 2019 and 15.1 percent in fiscal 2020 and net income as a percentage of average total assets was 1.9 percent in fiscal 2019 and fiscal 2020. We believe the combination of strong net income growth, robust deposit-taking, a low cost of funds and prudent risk management has enabled us to generate attractive returns on capital.
We have an advanced technology platform
We continue to make substantial investments in our advanced technology platform and systems and expand our electronically linked branch network. We have implemented mobile data based networking options in semi-urban and rural areas where telecom infrastructure and data connectivity are weak. These networks have enabled us to improve our core banking services in such areas and provide a link between our banking outlets and data centers.
Our aim has always been to improve customer experience through digital innovation as an “Experiential Leader” and we are constantly working to develop new technology and improve the digital aspects of our business.
We have invested in a digital banking platform, Backbase, to provide a single, unified multi-channel experience to our customers for mobile banking, online banking, the public website and payments.
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We have a dedicated digital innovation team responsible for researching and experimenting with technology We have built a varied enterprise ecosystem and are making progress in transitioning from the traditional product-oriented approach to a customer-oriented approach. We seek to enable differentiated experiences through applications such as SmartBuy, which we believe is India’s first bank-initiated marketplace offering deals across key categories, including travel, hotels, e-shopping, among others and PayZapp which is our comprehensive mobile payment solution. In addition we seek to improve our customers’ experience using APIs that allow for the seamless and secure exchange of information between the Bank’s systems and third parties, making our products and services available to all our merchants and on platforms that our customers prefer. Finally, we also utilize analytics that help us improve our customer acquisition and retention. We believe that our direct banking platforms are stable and robust, enabling new ways to connect with our customers to cross-sell various products and improve customer retention. Our product innovations include pre-approved personal loans for salaried accounts granted in as little as 10 seconds and “Digital Loan Against Securities (“LAS”), among others.
In 2017, we began virtual relationship banking to engage with customers through technology, which has since become a fully-fledged customer engagement channel, providing end-to-end services. We have over 5.6 million customers engaged through virtual relationship management (“VRM). In addition, we have also begun utilizing artificial intelligence (“AI”) technologies. Our virtual assistant EVA, which we believe is India’s first AI-enabled assistant, is capable of both acquiring and servicing customers, as well as processing banking transactions. EVA has also been extended to several other platforms, including Google Assistant, Amazon Alexa and WhatsApp. Furthermore we extensively use robotic process automation (“RPA”) to automate backend processes, resulting in higher productivity and reduced turnaround times. In what we believe in another industry-first, we launched myApps, a suite of applications, in fiscal 2020. myApps offers digital payment modes and other value-added services for four key segments: smart cities, housing societies, clubs and religious institutions to enable digitization of their ecosystem.
During fiscal 2020, we were recognized for our commitment to technology, including being awarded the Nasscom DSCI Excellence Awards 2019 for best security practices in the banking sector, the Business Today – Money Today Financial Award 2019 for best fintech engagement and the Dun & Bradstreet BankTech Award 2020 for best use of banking technology for data analytics/BI/Big data. We believe our “Experiential Leadership” strategy and culture of innovation and development will be a crucial strength in remaining competitive in the years to come.
We have an experienced management team
Many of the members of our management have had a long tenure with us, which gives us a deep bench of experienced managers. They have substantial experience in banking or other industries and share our common vision of excellence in execution. Having a management team with such breadth and depth of experience is well suited to leverage the competitive strengths we have already developed across our large, diverse and growing branch network as well as allowing our management team to focus on creating new opportunities for our business. See also “
Management
”.
Our Business Strategy
Our business strategy emphasizes the following elements:
Increase our market share of India’s expanding banking and financial services industry
In addition to benefiting from the overall growth in India’s economy and financial services industry, we believe we can increase our market share by continuing to focus on our competitive strengths, including our strong brand, our diverse product offering and our extensive banking outlet and ATM networks, to increase our market penetration. We believe we can expand our market share by focusing on developing our digital offerings to target mass markets across India. We believe digital offerings will position us well to capitalize on growth in India’s banking and financial services sector, arising from India’s emerging middle class and growing number of bankable households. We believe we can also capture an increased market share by expanding our branch footprint, particularly by focusing on rural and semi-urban areas. As of March 31, 2020, we had 5,416 banking outlets and 14,901 ATMs/CDMs in 2,803 cities and towns. In addition, we had 5,379 banking outlets managed by the CSCs. We believe these areas represent a significant opportunity for our continued growth as we expand banking services to those areas which have traditionally been underserved and which, by entering such markets, will enable us to establish new customer bases. We also believe that delivering banking services which are integrated with our existing business and product groups helps us to provide viable opportunities to the sections of the rural and semi-urban customer base that is consistent with our targeted customer profile throughout India.
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Continue our investments in technology to support our digital strategy
We believe the increased availability of internet access and broadband connectivity across India requires a comprehensive digital strategy to proactively develop new methods of reaching out to our customers. As a result, we are continuously investing in technology as a means of improving our customers’ banking experience, offering them a range of products tailored to their financial needs and making it easier for them to interact with their banking accounts with us. We believe our culture of innovation and development to be crucial to remaining competitive. As part of our dedication to digitization and technological development, we have expanded our digital innovation team to research, develop and experiment with new technologies. In recent years, we have hosted Digital Innovation Summits in order to tap into emerging technological trends and innovations in the FinTech space. We have also recently appointed a new User Interface (“UI”) and User Experience (“UX”) team which is responsible for maintaining a seamless UI/UX across all bank channels and products. Since 2018, we have also expanded into application programming interface (“API”) banking and have developed more than 150 APIs for our partners to use. These innovations and developments, which have saved costs and generated revenue for us, stood out as emerging banking trends and have won a number of awards and accolades from distinguished members and institutes of the banking industry.
While we currently provide a range of options for customers to access their accounts, including internet banking, telephone banking, artificial intelligence driven chat bots and banking applications on mobile devices, we believe additional investments in our technology infrastructure to further develop our digital strategy will allow us to cross-sell a wider range of products on our digital platform in response to our customers’ needs and thereby expand our relationship with our customers across a range of customer segments. We are utilizing new technologies, such as RPA, machine learning, AI and block-chain to further enhance our current digital portfolio. We believe a comprehensive digital strategy will provide benefits in developing long-term customer relationships by allowing customers to interact with us and access their accounts wherever and whenever they desire with a seamless financial experience.
Cross-sell our broad financial product portfolio across our customer base
We are able to offer our complete suite of financial products across our branch network, including in rural locations. By matching our broad customer base with our ability to offer our complete suite of products to both rural and urban customers across retail banking, wholesale banking and treasury product lines, we believe that we can continue to generate organic growth by cross-selling different products by proactively offering our customers complementary products as their relationships with us develop and their financial needs grow and evolve.
Maintain strong asset quality through disciplined credit risk management
We have maintained high quality loan and investment portfolios through careful targeting of our customer base, and by putting in place what we believe are comprehensive risk assessment processes and diligent risk monitoring and remediation procedures. Our gross
non-performing
customer assets as a percentage of gross customer assets was 1.43 percent as of March 31, 2020 and our net
non-performing
customer assets as a percentage of net customer assets was 0.52 percent as of March 31, 2020. We believe we can maintain strong asset quality appropriate to the loan portfolio composition while achieving growth.
Maintain a low cost of funds
We believe we can maintain a relatively
low-cost
funding base as compared to our competitors, by leveraging our strengths and expanding our base of retail savings and current deposits and increasing the free float generated by transaction services, such as cash management and stock exchange clearing. Our
non-interest
bearing current and
low-interest
bearing savings account deposits were 42.2 percent of our total deposits as of March 31, 2020. Our average cost of funds (including equity) was 4.5 percent for fiscal 2019 and remained unchanged in fiscal 2020.
COVID-19
Pandemic
On March 11, 2020, the
COVID-19
outbreak was declared a global pandemic by the World Health Organization (“WHO”). Governments and companies, ourselves included, have introduced a variety of measures to contain the spread of the virus. These include the implementation of remote working arrangements for the majority of our workforce, provision of appropriate masks and hand sanitizers for
at-risk
employees, use of physical distancing measures, periodic disinfection and fumigation of operational bank locations and the establishment of a specific
COVID-19
employee helpline. In addition, as a result of the increase in remote working, we have strengthened our cybersecurity measures, including implementing
two-factor
authentication, increasing employee awareness of unusual activity and ensuring IT support is available 24 hours per day. We also implemented additional measures to enable customers to complete their banking activity remotely where possible. We believe that due to the measures we have taken following the
COVID-19
outbreak, our capital and liquidity position remains strong and our employees continue to balance their personal and professional circumstances diligently, leading to robust processes, coordination and communication within our business units and a high level of customer service and care.
The pandemic and its aftermath are likely to result in both challenges and opportunities for the Indian banking system. For example, opportunities in the healthcare sector are likely to grow, as the management of the pandemic underscores the need to expand capacity in this area. While the stimulus package announced by the government between May 13, 2020 and May 17, 2020 committed more spending on healthcare (the specific allocation of funds will be determined by the path of the pandemic and the resulting financial costs), it is likely that going forward both the central and state governments will increase spending on health and associated sectors, such as sanitation. Growth in the healthcare sector is likely to also have a positive impact on the pharmaceuticals and medical equipment segments. As the Government increases its focus on these sectors, it is likely to draw in private sector participation. This creates significant potential for the Bank in terms of both credit and
non-fund
businesses.
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Agriculture is likely to see significant structural change, as proposed changes in farm produce marketing laws and the Essential Commodities Act 1955 are implemented. While we expect to see growing interest in the agricultural sector, obstacles to the procurement of produce and warehousing may continue to persist. This would directly benefit the food processing industry by inviting more corporate investment and expanding the demand for banks to fund this sector.
The government has also allocated considerable funding (Rs. 100 billion in the recent stimulus package) to formalize the micro-food processing segment through technical and infrastructure support and the implementation of safety and quality standards. The micro-segment is likely to grow in “clusters” and to offer increased credit opportunities for banks, particularly through the micro-finance and the self-help group (“SHG”) channels.
Loans to micro, small and medium enterprises (“MSMEs”) are likely to see immediate traction with the government providing a 100 percent guarantee on Rs. 3,000 billion collateral-free lending to this segment. While the sovereign back-stop makes lending to this segment viable in the near term, the effort to strengthen and scale up MSMEs may create high-quality borrowers in the process. The decision to infuse Rs. 500 billion as equity through fund of funds (20 percent investment from the central government and the remaining 80 percent from private investors) in MSMEs with growth potential is an example. The Government has also provided both a full and partial credit guarantee for NBFCs, housing finance companies and microfinance institutions. This reduces the risk of bank lending to these entities in the near term and over the medium term could assist such institutions in overcoming a cycle of elevated risk perception, shortage of liquidity and credit and balance sheet distress.
Furthermore, increased savings that are typical in the wake of a major economic shock are likely to provide the banking system with low-cost deposits. A lower risk appetite by the general public could drive investments away from alternatives, such as equities, and therefore further increase deposits. With respect to policy measures, the RBI is likely to continue its strategy of maintaining large surplus liquidity in the system and to cut the policy rate further. These measures will ensure
low-cost
funds for banks.
Finally, the possibility of a noticeable shift in global value chains away from China, in order to reduce concentration risk, as well as in response to a shifting geopolitical landscape, presents India with unique opportunities. India could gain global market share across sectors including more traditional sectors, such as textiles, furniture and basic chemicals, as well as more technologically complex sectors, such as mobile phone handsets, pharmaceuticals and auto components.
However, challenges still remain. We expect GDP to contract by approximately 7.5 percent in the fiscal year 2021, which is likely to reduce demand for credit and compromise credit quality. A global recession could dent export growth across sectors. Banks need to navigate the enhanced risk carefully, particularly in sectors such as hospitality and civil aviation where
COVID-19
is likely to have a prolonged impact. The rise in precautionary savings among households and the possibility of rising unemployment, which is often the corollary of a slowdown in economic growth, could reduce the demand for retail lending and in particular for larger borrowings.
Given the dynamic nature of the outbreak, the extent to which
COVID-19
will continue to impact our business, financial condition and results of operations will depend on future developments, which remain highly uncertain and cannot be accurately predicted at this time. For additional information related to the
COVID-19
pandemic see “
Risk Factors—The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors Affecting our Results of Operation
”.
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Our Principal Business Activities
Our principal business activities consist of retail banking, wholesale banking and treasury operations. The following table sets forth our net revenues attributable to each area for the last three fiscals:

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Retail banking |  |  | Rs.414,894.0 |  |  |  | 81.6 | % |  |  | Rs.473,748.2 |  |  |  | 79.6 | % |  |  | Rs.540,456.5 |  |  | US$ | 7,168.8 |  |  |  | 80.2 | %
Wholesale banking |  |  | 77,623.6 |  |  |  | 15.3 | % |  |  | 111,803.5 |  |  |  | 18.8 | % |  |  | 126,677.3 |  |  |  | 1,680.3 |  |  |  | 18.8 | %
Treasury operations |  |  | 15,842.2 |  |  |  | 3.1 | % |  |  | 9,796.8 |  |  |  | 1.6 | % |  |  | 6,990.7 |  |  |  | 92.7 |  |  |  | 1.0 | %
Net revenue |  |  | Rs.508,359.8 |  |  |  | 100.0 | % |  |  | Rs.595,348.5 |  |  |  | 100.0 | % |  |  | Rs.674,124.5 |  |  | US$ | 8,941.8 |  |  |  | 100.0 | %

Retail Banking
Overview
We consider ourselves a
one-stop
shop for the financial needs of our customers. We provide a comprehensive range of financial products including deposit products, loans, credit cards, debit cards, third-party mutual funds and insurance products, bill payment services and other services. Our retail banking loan products include loans to small and medium enterprises for commercial vehicles, construction equipment and other business purposes. We group these loans as part of our retail banking business considering, among other things, the customer profile, the nature of the product, the differing risks and returns, our organization structure and our internal business reporting mechanism. Such grouping ensures optimum utilization and deployment of specialized resources in our retail banking business. We also have specific products designed for lower income individuals through our Sustainable Livelihood Initiative. Through this initiative, we reach out to the
un-banked
and under-banked segments of the Indian population in rural areas. We actively market our services through our banking outlets and alternate sales channels, as well as through our relationships with automobile dealers and corporate clients. We follow a multi-channel strategy to reach out to our customers bringing to them choice, convenience and what we believe to be a superior experience. Innovation has been the springboard of growth in this segment and so has a strong focus on analytics and customer relationship management, which we believe has helped us to understand our customers better and offer tailor-made solutions. We further believe that these factors lead to better customer engagement.
As of March 31, 2020, we had 5,416 banking outlets and 14,901 ATMs/CDMs in 2,803 cities and towns. In addition, we had 5,379 banking outlets managed by the CSCs. We also provide telephone, internet and mobile banking to our customers. We plan to continue to expand our banking outlet and ATM network as well as our other distribution channels, subject to regulatory guidelines/approvals.
Retail Loans and Other Asset Products
We offer a wide range of retail loans, including loans for the purchase of automobiles, personal loans, retail business banking loans, loans for the purchase of commercial vehicles and construction equipment finance,
two-wheeler
loans, credit cards and loans against securities. Our retail loans, of which 32.9 percent were unsecured, made up 66.3 percent of our gross loans as of March 31, 2020. Apart from our banking outlets, we use our ATMs, telephone banking, internet banking and mobile banking to promote our loan products. We perform our own credit analysis of the borrowers and the value of the collateral if the loan is secured. See “—Risk Management—Credit Risk—Retail Credit Risk”. We also buy mortgage and other asset-backed securities and invest in retail loan portfolios through assignments. In addition to taking collateral, in most cases, we obtain debit instructions/post-dated checks covering repayments at the time a retail loan is made. It is a criminal offense in India to issue a bad check. Our unsecured personal loans, which are not supported by any collateral, are a greater credit risk for us than our secured loan portfolio. We may be unable to collect in part or at all on an unsecured personal loan in the event of
non-payment
by the borrower. Accordingly, personal loans are granted at a higher contracted interest rate since they carry a higher credit risk as compared to secured loans. Also see “Risk Factors—Our unsecured loan portfolio is not supported by any collateral that could help ensure repayment of the loan, and in the event of
non-payment
by a borrower of one of these loans, we may be unable to collect the unpaid balance”.
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The following table shows the gross book value and percentage share of our retail credit products:

|  | At March 31, 2020 Value |  |  | % of Total Value |
|  | (in millions) |  |  |  |
Retail Assets: |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 952,053.1 |  |  | US$ | 12,628.4 |  |  |  | 13.3 | %
Personal loans / Credit cards |  |  | 1,920,601.6 |  |  |  | 25,475.5 |  |  |  | 26.8 | %
Retail business banking |  |  | 1,658,770.3 |  |  |  | 22,002.5 |  |  |  | 23.1 | %
Commercial vehicle and construction equipment finance |  |  | 747,382.4 |  |  |  | 9,913.5 |  |  |  | 10.4 | %
Housing loans |  |  | 634,612.4 |  |  |  | 8,417.7 |  |  |  | 8.9 | %
Other retail loans |  |  | 1,127,380.6 |  |  |  | 14,954.0 |  |  |  | 15.7 | %
Total retail loans |  |  | 7,040,800.4 |  |  |  | 93,391.6 |  |  |  | 98.2 | %
Mortgage-backed securities |  |  | 38.1 |  |  |  | 0.5 |  |  |  | — | %
Asset-backed securities |  |  | 126,773.2 |  |  |  | 1,681.6 |  |  |  | 1.8 | %
Total retail assets |  | Rs. | 7,167,611.7 |  |  | US$ | 95,073.7 |  |  |  | 100.0 | %

Note: | The figures above exclude securitized-out receivables. Mortgage-backed securities and asset-backed securities are reflected at fair values.

Auto Loans
We offer loans at fixed interest rates for financing of new and used automobile purchases. In addition to our general promotional efforts for retail loans, we market our offerings at various customer touch points such as authorized original equipment manufacturer dealers, direct sales agents, banking outlets, cross sales through other lending businesses of the Bank, phone banking channels, and digital touch points, both internal and external. We believe that we are the leader in the auto loan segment, having established our presence throughout the country over two decades.
Personal Loans and Credit Cards
We offer unsecured loans at fixed rates to salaried individuals, self-employed professionals, small businesses and individual businessmen.
We offer credit cards from VISA, MasterCard, Diners and Rupay platforms, including gold, silver, corporate, business, platinum, titanium, signature, world, black and infinite credit cards under the classification of corporate cards, business cards,
co-brand
cards, premium retail cards and super premium retail cards. We had approximately 12.5 million and 14.5 million cards outstanding (
i.e.,
total credit cards in circulation) as of March 31, 2019 and March 31, 2020, respectively.
We offer Easy EMI (equated monthly installments) through credit cards, debit cards and consumer loans. Easy EMI is available instantly at no extra cost across multiple product categories, including offline and online channels.
Our efforts in the payments business are continuously focused on meeting customers’ specific requirements in the most accessible and relevant manner, while simplifying transactions.
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Retail Business Banking
We address the borrowing needs of the community of small businessmen primarily located within servicing range of our banking outlets by offering facilities such as credit lines, term loans for expansion or addition of facilities and discounting of receivables. We classify these business banking loans as a retail product. Such lending is typically secured with current assets as well as immovable property and fixed assets in some cases. We also offer letters of credit, guarantees and other basic trade finance products, foreign exchange and cash management services to such businesses.
Commercial Vehicles and Construction Equipment Finance
We provide secured financing for commercial vehicles and construction equipment along with working capital, trade advances, bank guarantees, and transaction banking services, among others, both traditional and digital, to entities engaged in the infrastructure and transportation businesses. In addition to funding domestic assets, we also extend financing for imported assets for which we open foreign letters of credit and offer treasury services, such as forward exchange covers. We coordinate and collaborate with original equipment manufacturers including their authorized dealers to jointly promote our financing options to their clients. We have a strong market presence in the commercial vehicle and construction equipment financing business.
Housing Loans
We provide home loans through an arrangement with our principal shareholder HDFC Limited. Under this arrangement, we source loans for HDFC Limited through our banking outlets. HDFC Limited approves and disburses the loans, which are kept on their books, and we receive a sourcing fee for these loans. We have a right, but not an obligation, to purchase up to 70 percent of the fully disbursed home loans sourced under this arrangement through either the issue of mortgage-backed pass through certificates (“PTCs”) or a direct assignment of the loans. The balance is retained by HDFC Limited.
Other Retail Loans
Two-Wheeler
Loans
We offer loans for financing the purchase of mopeds, scooters and motorcycles. We market this product in ways similar to our marketing of automobile loans.
Loans Against Securities
We offer loans against equity shares, mutual fund units, bonds and other securities that are on our approved list. We limit our loans against equity shares to Rs. 2.0 million per retail customer in line with regulatory guidelines and limit the amount of our total exposure secured by particular securities. We lend only against shares in book-entry (dematerialized) form, which ensures that we obtain perfected and first-priority security interests. The minimum margin for lending against shares is prescribed by the RBI.
Loan Assignments
We purchase loan portfolios, generally in India, from other banks, financial institutions and financial companies, which are similar to asset-backed securities, except that such loans are not represented by PTCs. Some of these loans also qualify toward our directed lending obligations.
Kisan Gold Card (Agri Loans)
Under the Kisan Gold Card (“KGC”) scheme, funds are extended to farmers in accordance with the RBI’s Kisan Credit Card scheme, which is aimed at financing agricultural and related credit requirements. The KGC is a credit facility of a specified amount, which is offered to farmers to finance certain requirements, including the production of crops, post-harvest repair and maintenance expenses and miscellaneous consumption needs. In addition to loans for recurring needs, long-term loans are granted for purposes including the purchase of farm machinery and land development activities, such as the digging of tube wells, installation of irrigation sprinklers, construction of storage facilities, and sheds for animals.
Depending on the requirements, various types of facilities are extended under KGC. These include cash credit, overdrafts, term loans, farm development loans and drop line overdraft limits. The amount of cash credit funding is based on the farmer’s cropping pattern, the amount of land used and scale of finance, while for term loans it is based on the unit cost of assets. These facilities are extended under a range of crop and geography specific products, which are designed on the basis of the harvest cycles and the local needs of farmers spread across diverse agro-climatic zones.
Through this product, we have established a strong footprint in rural areas and we are able to impact the lives of thousands of rural people making banking accessible to areas which lack formal sources of financial services, including credit. In addition to advising farmers on their financial needs, we are increasingly focusing on educating them on the benefits of various governmental and regulatory schemes, such as crop insurance and interest subvention.
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We also aim to cater to other financial needs of rural customers through appropriate banking products.
Loans Against Gold Jewelry
We offer loans against gold jewelry to all customer segments, including women and small and marginal farmers. Such loans are typically offered with different repayment modes, with repayment either at monthly intervals or at maturity. Collateral value is dependent on the market price of the gold and therefore these loans also have margin requirements in the event of a decrease in the value of the gold. Loans against gold jewelry are also extended to existing customers of the bank in order to cater to their additional funding needs.
We also offer loans which primarily include loans/overdrafts against time deposits, health care equipment financing loans, tractor loans and loans to self-help groups.
Retail Deposit Products
Retail deposits provide us with a
low-cost,
stable funding base and have been a key focus area for us since commencing operations. Retail deposits represented approximately 77.2 percent of our total deposits as of March 31, 2020. The following chart shows the book value of our retail deposits by our various deposit products:

|  | At March 31, 2020 |
|  | Value (in millions) |  |  | % of total |
Savings |  |  | Rs.3,013,542.2 |  |  | US$ | 39,972.7 |  |  |  | 34.1 | %
Current |  |  | 949,640.3 |  |  |  | 12,596.4 |  |  |  | 10.7 | %
Time |  |  | 4,883,365.2 |  |  |  | 64,774.7 |  |  |  | 55.2 | %
Total |  |  | Rs.8,846,547.7 |  |  | US$ | 117,343.8 |  |  |  | 100.0 | %

Our individual retail account holders have access to the benefits of a wide range of direct banking services, including debit and ATM cards, access to internet, phone banking and mobile banking services, access to our growing branch and ATM network, access to our other distribution channels and eligibility for utility bill payments and other services. Our retail deposit products include the following:

| • |  | Savings accounts, which are demand deposits, primarily for individuals and trusts.

| • |  | Current accounts, which are non-interest bearing checking accounts designed primarily for business customers. Customers have a choice of regular and premium product offerings with different minimum average quarterly account balance requirements.

| • |  | Time deposits, which pay a fixed return over a predetermined time period.

We also offer special value-added accounts, which offer our customers added value and convenience. These include a time deposit account that allows for automatic transfers from a time deposit account to a savings account, as well as a time deposit account with an automatic overdraft facility.
Other Retail Services and Products
Debit Cards
We had approximately 26.9 million and 32.1 million debit cards outstanding as of March 31, 2019 and March 31, 2020, respectively. The cards can be used at ATMs and
point-of-sales
terminals in India and in other countries across the world.
Individual Depositary Accounts
We provide depositary accounts to individual retail customers for holding debt and equity instruments. Securities traded on the Indian exchanges are generally not held through a broker’s account or in a street name. Instead, an individual has his or her own account with a depositary participant. Depositary participants, including us, provide services through the major depositaries established by the two major stock exchanges. Depositary participants record ownership details and effect transfers in book-entry form on behalf of the buyers and sellers of securities. We provide a complete package of services, including account opening, registration of transfers and other transactions and information reporting.
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Mutual Fund Sales
We are a registered distributor with the Association of Mutual Funds in India (“AMFI”). We engage in distributing mutual fund products to our customers through our staff, who are AMFI certified. We offer units of most large and reputable mutual fund houses in India to our customers. We distribute mutual fund products primarily through our banking outlets and our private banking relationship managers. We receive trail income on the new business as well as on the existing assets under management.
Insurance
We have arrangements with HDFC Life Insurance Company Limited, HDFC ERGO General Insurance Company Limited and Aditya Birla Health Insurance Company Limited to distribute their life insurance, general insurance and health insurance products, respectively, to our customers. We also have two similar distribution arrangements in each of these segments. We earn commission on new premiums collected as well as trail income in subsequent years in certain cases while the policy is still in force. Our commission income for fiscal 2020 included fees of Rs. 21,827.6 million in respect of life insurance business and Rs. 2,722.5 million in respect of
non-life
insurance business, of which Rs. 10,126.4 million was for displaying publicity materials at the Bank’s banking outlets/ATMs.
Bill Payment Services
We offer our customers bill payment services for all utility companies, including water, electricity, gas, telephone,
direct-to-home,
and internet service providers, as well as financial products such as insurance and mutual funds. Customers can also set up autopay for these bills. We believe this is a valuable convenience that we offer our customers. We offer these services to customers through multiple distribution channels: internet banking, our mobile application and telephone banking.
Corporate Salary Accounts
We offer Corporate Salary Accounts, which allow employers to make salary payments to a group of employees with a single transfer. We then transfer the funds into the employees’ individual accounts and offer them preferred services, such as lower minimum balance requirements. As of March 31, 2020, these accounts constituted 29.0 percent of our savings deposits by value.
Non-Resident
Indian Services
Non-resident
Indians are an important target market segment for us given their relative affluence and strong ties with family members in India. Our
non-resident
deposits amounted to Rs. 1,023.3 billion as of March 31, 2019 and Rs. 1,119.4 billion as of March 31, 2020.
Retail Foreign Exchange
We purchase foreign currency from and sell foreign currency to retail customers in the form of cash, traveler’s checks, demand drafts, foreign exchange cards and other remittances. We also carry out foreign currency check collections.
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Customers and Marketing
We identify and target distinct market customer segments for our retail services. We market our products through our banking outlets, through our digital channels such as our website, e-mails, SMS, WhatsApp and mobile app, through telemarketing and through our dedicated sales team for niche market segments. We also use third-party agents and direct sales associates to market certain products and to identify prospective customers.
Additionally, we obtain new customers through joint marketing efforts with our wholesale banking department, such as our Corporate Salary Account package and we cross-sell several retail products to our customers. We also market our auto loan and
two-wheeler
loan products through joint efforts with relevant manufacturers and distributors.
We have programs that target other specific segments of the retail market. Under our private and premium banking programs, the relationship managers distribute mutual funds and insurance products, provide incidental advice related to these products and refer fixed income products, alternate funds and structured products offered by third parties. The program also offers succession planning services, including efficient tax planning, trust formation and will-writing through referrals. Clients seeking investment advice are referred to HDFC Securities (a registered investment adviser regulated by SEBI IA Regulations, 2013) where a team of certified investment advisers provide unbiased and independent advice to clients of the private banking programs. As of March 31, 2020, 34.0 percent of our retail deposit customers contributed 70.0 percent of our retail deposits.
We also have a strong commitment to financial inclusion programs to extend banking services to underserved populations. Our Sustainable Livelihood Initiative targets lower income individuals to finance their economic activity, and also provides skill training, credit counseling and market linkages for better price discovery. Through this initiative we reach out to the
un-banked
and under-banked segments of the Indian population.
Wholesale Banking
Overview
We provide our corporate and institutional clients with a wide range of commercial banking products and transactional services.
Our principal commercial banking products include a range of financing products, documentary credits (primarily letters of credit) and bank guarantees, foreign exchange and derivative products, investment banking services and corporate deposit products. Our financing products include loans, overdrafts, bill discounting and credit substitutes, such as commercial paper, debentures, preference shares and other funded products. Our foreign exchange and derivatives products assist corporations in managing their currency and interest rate exposures.
In terms of commercial banking products, our customers include companies that are part of private sector business houses, public sector enterprises and multinational corporations, as well as small and
mid-sized
businesses. Our customers also include suppliers and distributors of corporations to whom we provide credit facilities and with whom we thereby establish relationships as part of a supply chain initiative for both our commercial banking products and transactional services. We aim to provide our corporate customers with high-quality customized service. We have relationship managers who focus on particular clients and who work with teams that specialize in providing specific products and services, such as cash management and treasury advisory services.
Loans to small and medium enterprises, which are generally loans for commercial vehicles, construction equipment and business purposes, are included as part of our retail banking business. We group these loans as part of our retail banking business considering, among other things, the customer profile, the nature of the product, the differing risks and returns, our organization structure and our internal business reporting mechanism. Such grouping ensures optimum utilization and deployment of specialized resources in our retail banking business.
Our principal transactional services include cash management services, capital markets transactional services and correspondent banking services. We provide physical and electronic payment and collection mechanisms to a range of corporations, financial institutions and Government entities. Our capital markets transactional services include custodial services for mutual funds and clearing bank services for the major Indian stock exchanges and commodity exchanges. In addition, we provide correspondent banking services, including cash management services and funds transfers, to foreign banks and
co-operative
banks.
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Commercial Banking Products
Commercial Loan Products and Credit Substitutes
Our principal financing products are working capital facilities and term loans. Working capital facilities primarily consist of cash credit facilities and bill discounting. Cash credit facilities are revolving credits provided to our customers that are secured by working capital such as inventory and accounts receivable. Bill discounting consists of short-term loans which are secured by bills of exchange that have been accepted by our customers or drawn on another bank. In many cases, we provide a package of working capital financing that may consist of loans and a cash credit facility as well as documentary credits or bank guarantees. Term loans consist of short-term loans and medium-term loans which are typically loans of up to five years in duration. Over 90.0 percent of our loans are denominated in rupees with the balance being denominated in various foreign currencies, principally the US dollar.
We also purchase credit substitutes, which typically comprise commercial paper and debentures issued by the same customers with whom we have a lending relationship in our wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as loans, and we bear the same customer risk as we do for loans extended to these customers. Additionally, the yield and maturity terms are generally directly negotiated by us with the issuer.
The following table sets forth the asset allocation of our commercial loans and financing products by asset type. For accounting purposes, we classify commercial paper and debentures as credit substitutes (which in turn are classified as investments).

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in millions) |
Gross commercial loans |  | Rs. | 2,162,814.4 |  |  | Rs. | 2,873,561.0 |  |  | Rs. | 3,583,055.2 |  |  | US$ | 47,527.0 |
Credit substitutes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial paper |  | Rs. | 34,248.6 |  |  | Rs. | 25,734.3 |  |  | Rs. | 124,393.4 |  |  | US$ | 1,650.0 |
Non-convertible debentures |  |  | 289,782.9 |  |  |  | 247,152.5 |  |  |  | 237,980.3 |  |  |  | 3,156.7 |
Total credit substitutes |  | Rs. | 324,031.5 |  |  | Rs. | 272,886.8 |  |  | Rs. | 362,373.7 |  |  | US$ | 4,806.7 |
Gross commercial loans plus credit substitutes |  | Rs. | 2,486,845.9 |  |  | Rs. | 3,146,447.8 |  |  | Rs. | 3,945,428.9 |  |  | US$ | 52,333.7 |

Whilst we generally lend on a cash-flow basis, we also require collateral from a large number of our borrowers. As of March 31, 2020, approximately 64.4 percent of the aggregate principal amount of our gross wholesale loans was secured by collateral (Rs. 1,274.1 billion in aggregate principal amount of loans were unsecured). However, collateral securing each individual loan may not be adequate in relation to the value of the loan. All borrowers must meet our internal credit assessment procedures, regardless of whether the loan is secured. See “
—
Risk Management—Credit Risk—Wholesale Credit Risk”.
We price our loans based on a combination of our own cost of funds, market rates, tenor of the loan, our rating of the customer and the overall revenues from the customer. An individual loan is priced on a fixed or floating rate and the pricing is based on a margin that depends on, among other factors, the credit assessment of the borrower. We are required to follow the system requirements related to the interest rate on advances, issued by the RBI from time to time, while pricing our loans. For a detailed discussion of these requirements, see “Supervision and Regulation—Regulations Relating to Making Loans”.
The RBI requires banks to lend to specific sectors of the economy. For a detailed discussion of these requirements, see “Supervision and Regulation—Directed Lending”.
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Bill Collection, Documentary Credits and Bank Guarantees
We provide bill collection, documentary credit facilities and bank guarantees for our corporate customers. Documentary credits and bank guarantees are typically provided on an ongoing basis. The following table sets forth, for the periods indicated, the value of transactions processed with respect to our bill collection, documentary credits and bank guarantees:

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in millions) |
Bill collection |  |  | Rs.4,345,163.8 |  |  |  | Rs.5,197,456.2 |  |  |  | Rs.6,039,408.6 |  |  | US$ | 80,108.9 |
Documentary credits |  |  | 1,262,413.0 |  |  |  | 1,787,206.9 |  |  |  | 1,753,159.7 |  |  |  | 23,254.5 |
Bank guarantees |  |  | 289,821.8 |  |  |  | 313,578.3 |  |  |  | 303,348.0 |  |  |  | 4,023.7 |
Total |  |  | Rs.5,897,398.6 |  |  |  | Rs.7,298,241.4 |  |  |  | Rs.8,095,916.3 |  |  | US$ | 107,387.1 |

Bill collection
: We provide bill collection services for our corporate clients in which we collect bills on behalf of a corporate client from the bank of our client’s customer (
i.e.
, import bill collection). Under the import bill collection system, we receive instructions from overseas banks, deal with necessary documents and effect remittances on behalf of our clients. We also provide export collection, where we receive documents from our corporate clients and send such documents to the overseas bank for collection. Once the export collection is realized, we credit our corporate clients’ accounts with the relevant amount.
Documentary credits
: We issue documentary credit facilities on behalf of our customers for trade financing, sourcing of raw materials and capital equipment purchases.
Bank guarantees:
We provide bank guarantees on behalf of our customers to guarantee their payment or performance obligations. A part of our guarantee portfolio consists of margin guarantees to brokers issued in favor of stock exchanges.
Foreign Exchange and Derivatives
Our foreign exchange and derivative product offering to our customers covers a range of products, including foreign exchange and interest rate transactions and hedging solutions, such as spot and forward foreign exchange contracts, forward rate agreements, currency swaps, currency options and interest rate derivatives. These transactions enable our customers to transfer, modify or reduce their foreign exchange and interest rate risks. A specified group of relationship managers from our treasury front office works on such product offerings in line with the customers’ risk and other requirements and within the framework of the Suitability and Appropriateness policy of the Bank.
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 and exchange of principal amounts at maturity based on predetermined rates. Rupee interest rate swaps are commitments to exchange fixed and floating rate cash flows in rupees. A forward rate agreement gives the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date) when the settlement amount is determined being the difference between the contracted rate and the market rate on the settlement date. Currency options give the buyer the right, but not an obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
We enter into forward exchange contracts, currency options, forward rate agreements, currency swaps and rupee interest rate swaps in the inter-bank market, broadly to support our customer requirements and to a limited extent, for our own account. The following table presents the aggregate notional principal amounts of our outstanding foreign exchange and derivative contracts with our customers as of March 31, 2018, 2019 and 2020, together with the fair values on each reporting date.

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | Notional |  |  | Fair Value |  |  | Notional |  |  | Fair Value |  |  | Notional |  |  | Fair Value |  |  | Notional |  |  | Fair Value |
|  | (In millions) |
Interest rate swaps and forward rate agreements |  | Rs. | 1,106,546.0 |  |  | Rs. | 1,847.5 |  |  | Rs. | 1,073,100.9 |  |  | Rs. | 698.2 |  |  |  | Rs.1,545,303.1 |  |  | Rs. | 1,404.5 |  |  | US$ | 20,497.5 |  |  | US$ | 18.6 |
Forward exchange contracts, currency swaps, currency options |  | Rs. | 864,449.8 |  |  | Rs. | (5,261.4) |  |  | Rs. | 884,608.8 |  |  | Rs. | 2,416.0 |  |  |  | Rs.1,309,254.8 |  |  | Rs. | 7,532.1 |  |  | US$ | 17,366.4 |  |  | US$ | 100.0 |

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Investment Banking
Our Investment Banking Group offers services in the debt and equity capital markets. The group has arranged project financing for clients across various sectors including telecoms, roads, healthcare, energy, real estate and cement. The group advised on aggregate issuances of over Rs. 500 billion worth of rupee denominated corporate bonds across public sector undertakings, financial institutions and our corporate clients during fiscal 2020, becoming the third largest corporate bond arranger in the market for fiscal 2020. In the equity capital markets business, the group concluded various transactions, including an initial public offering, a qualified institutional placement, a rights issue and share buybacks. In the advisory business, we advise clients in the infrastructure, new economy and digital, financial services, industrials and healthcare sectors.
Wholesale Deposit Products
As of March 31, 2020, we had wholesale deposits aggregating to Rs. 2,615.5 billion, which represented 22.8 percent of our total deposits. We offer both
non-interest
bearing current accounts and time deposits. We are permitted to vary the interest rates on our wholesale deposits based on the size of the deposit (for deposits greater than Rs. 20.0 million), provided the rates booked on a day are the same for all customers of that deposit size for that maturity. See “Selected Statistical Information” for further information about our total deposits.
Transactional Services
Cash Management Services
We believe that the Indian market is one of the most promising Cash Management Services (“CMS”) markets. However, it is also marked by some distinctive characteristics and challenges such as a vast geography, a large number of small business-intensive towns, a large unorganized sector in various business supply chains, and infrastructural limitations for accessibility to many parts of the country. Over the years, such challenges have made it a daunting task for CMS providers in the country to uncover the business potential and extend suitable services and product solutions to the business community.
We have been providing CMS to our customers from diverse industry segments. We believe that we have been consistently aligning our product and services strategy to meet our customers’ needs. This, we believe, has helped us to keep ahead of competitors and retain a satisfied customer base that is growing by the year.
We offer traditional and new age electronic banking products and experience an increasing demand for electronic banking services. While we believe that we have been one of the leading banks in the traditional CMS market, we believe that we have also been able to forge a similar position in the new age CMS market,
i.e.,
electronic cash management, and we also believe that we have aligned our product offering with changing and dynamic customer needs. Currently, approximately 80 percent of our transactions are done on the electronic platform.
Today, we believe that we are a leading service provider of electronic banking products with a large share of business across customer segments. We have, thus, been able to reduce our transaction costs while maintaining our fees and float levels.
Clearing Bank Services for Stock and Commodity Exchanges
We serve as a clearing bank for the equity cash and derivatives segment, currency derivatives, commodity derivatives and other segments for major stock and commodity exchanges in India, including the National Stock Exchange of India Limited, the BSE Limited, Multi Commodity Exchange and National Commodity and Derivatives Exchange Limited. As a clearing bank, we provide the exchanges or their clearing corporations with a means for collecting payments due to them from their members or custodians and a means of making payments to these institutions. In addition to benefiting from the cash float, which reduces our overall cost of funds, we also earn interest, and generate transaction fees, and commissions by offering various fund based and
non-fund
based facilities and transactional services to the exchanges and their members.
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Custodial Services
We provide custodial services to domestic and foreign investors that include domestic mutual funds, portfolio managers, insurance companies, alternative investment funds and foreign portfolio investors (“FPIs”). These services include safekeeping of securities, trade settlement, collection of dividends and interest payments on securities, fund accounting services and derivatives clearing services (including currency derivatives and interest rate futures). We are registered as a designated depository participant with the local securities regulator,
i.e.,
the Securities and Exchange Board of India, and are permitted to grant registration to FPIs.
Correspondent Banking Services
We act as a correspondent bank for
co-operative
banks, foreign banks and certain private banks. We provide cash management services, funds transfer services, such as letters of credit, foreign exchange transactions and foreign check collection. We earn revenue on a
fee-for-service
basis and benefit from the cash float, which reduces our overall cost of funds.
We are well-positioned to offer this service to
co-operative
banks, foreign banks and select private banks in light of the structure of the Indian banking industry and our position within it.
Co-operative
banks are generally restricted to a particular state and foreign banks/some private banks have limited branch networks. The customers of these banks frequently need services in other areas of the country where their own banks do not operate. Because of our technology platforms, our geographical reach and the electronic connectivity of our branch network, we can provide these banks with the ability to provide such services to their customers.
Tax Collections
We have been appointed by the Government of India to collect direct taxes. In fiscal 2019 and 2020 we collected Rs. 3,156 billion and Rs. 3,005 billion, respectively, of direct taxes for the Government of India. We are also appointed to collect Goods and Services Tax (“GST”) and excise duties in India. In fiscals 2019 and 2020 we collected Rs. 2,076 billion and Rs. 1,867 billion, respectively, of such indirect taxes for the Government of India and relevant state Governments. We earn a fee from the Government of India for each tax collection and benefit from the cash float. We hope to expand our range of transactional services by providing more services to Government entities.
Treasury
Overview
Our treasury group manages our balance sheet, including our maintenance of reserve requirements and the management of market and liquidity risk. Our treasury group also provides advice and execution services to our corporate and institutional customers with respect to their foreign exchange and derivatives transactions. In addition, our treasury group seeks to optimize profits from our proprietary trading, which is principally concentrated on Indian Government securities.
Our client-based activities consist primarily of advising corporate and institutional customers and transacting spot and forward foreign exchange contracts and derivatives. Our primary customers are multinational corporations, large and
medium-sized
domestic corporations, financial institutions, banks and public sector undertakings. We also advise and enter into foreign exchange contracts with some small companies and NRIs.
The following describes our activities in the foreign exchange and derivatives markets, domestic money markets and debt securities desk and equities market. See also “—Risk Management” for a discussion of our management of market risk.
Foreign Exchange and Derivatives
We enter into forward exchange contracts, currency options, forward rate agreements, currency swaps and rupee interest rate swaps with inter-bank participants. To support our clients’ activities, we are an active participant in the Indian inter-bank foreign exchange market. We also trade, to a more limited extent, for our own account. We also engage in proprietary trades of rupee-based interest rate swaps and use them as part of our asset liability management. 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 principal amounts at maturity based on predetermined rates. Rupee interest rate swaps are commitments to exchange fixed and floating rate cash flows in rupees. A forward rate agreement gives the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date) when the settlement amount is determined being the difference between the contracted rate and the market rate on the settlement date. Currency options give the buyer the right, but not an obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
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The following table sets out the aggregate notional principal amounts of our outstanding foreign exchange and derivative inter-bank contracts as of March 31, 2018, 2019 and 2020, together with the fair values on each reporting date:

|  | As of March 31, |
|  | 2018 |  | 2019 |  | 2020 |  |  | 2020 |
|  | Notional |  |  | Fair Value |  | Notional |  |  | Fair Value |  | Notional |  |  | Fair Value |  |  | Notional |  |  | Fair Value |
|  | (In millions) |
Interest rate swaps and forward rate agreements |  |  | Rs.1,980,227.2 |  |  | Rs.(750.2) |  |  | Rs.2,086,766.2 |  |  | Rs.131.0 |  |  | Rs.2,099,192.7 |  |  |  | Rs.(3,504.6) |  |  | US$ | 27,844.4 |  |  | US$ | (46.5 | )
Forward exchange contracts, currency swaps, currency options |  |  | Rs.3,876,140.5 |  |  | Rs.(1,124.3) |  |  | Rs.5,156,391.8 |  |  | Rs.829.9 |  |  | Rs.5,276,918.2 |  |  |  | Rs.322.6 |  |  | US$ | 69,994.9 |  |  | US$ | 4.3 |

Domestic Money Market and Debt Securities Desk
Our principal activity in the domestic money market and debt securities market is to ensure that we comply with our reserve requirements including Liquidity Coverage Ratio (“LCR”). These consist of a cash reserve ratio, which we meet by maintaining balances with the RBI, and a statutory liquidity ratio, which we meet by purchasing Indian Government securities. See also “Supervision and Regulation—Legal Reserve Requirements”. Our local currency desk primarily trades Indian Government securities for our own account. We also participate in the inter-bank call deposit market and engage in limited trading of other debt instruments. The LCR requirement stands at 100.00 percent as of March 31, 2020. The Bank meets the LCR requirement by maintaining an adequate level of high quality liquid assets mainly government securities above its mandated statutory requirements. See also “Supervision and Regulation—Regulations on Asset Liability Management”.
Equities Market
We trade a limited amount of equities of Indian companies for our own account, which are specified in the approved list of equity universe that is reviewed at least on a quarterly basis. As of March 31, 2020, we had an internal aggregate approved limit of Rs. 300 million for proprietary equity trading, which included Rs. 100 million (defined as a
sub-limit
of the aggregate approved limit) for primary purchases of equity investments for proprietary trading and Rs. 100 million (defined as a
sub-limit
of the aggregate approved limit) for investment in index funds or equity mutual funds for proprietary trading. We set limits on the amount invested in any individual company as well as a stop-loss trigger level and a value at risk (“VaR”) limit for the proprietary equity trading portfolio. Our exposure as of March 31, 2020 was within these limits.
In addition, we had long-term and strategic investments in equities and equity-linked instruments within the board-approved quantum for such investments. All such investments are carried out after review and approval of the proposal by the investment committee and the board, if applicable.
Distribution Channels
We deliver our products and services through a variety of distribution channels, including banking outlets, direct sales agents, ATMs, telephone, mobile and internet banking.
Banking Outlets
As of March 31, 2020, we had a total of 5,416 banking outlets covering 2,803 cities and towns, which include 162 banking outlets that were manned by our business correspondents. In addition, we had 5,379 banking outlets managed by the CSCs. All of our banking outlets are electronically linked so that our customers can access their accounts from any banking outlet regardless of where they have their accounts.
Almost all of our banking outlets focus exclusively on providing retail services and products, though a few also provide wholesale banking services. The range of products and services available at each banking outlet depends in part on the size and location of the banking outlet. We offer various banking services to our customers through our arrangements with correspondent banks and exchange houses in overseas locations.
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As part of its banking outlet licensing conditions, the RBI requires that at least 25.00 percent of all incremental banking outlets added during the year be located in unbanked rural areas that do not have a brick and mortar structure of any scheduled commercial bank for customer-based banking transactions. As per the guidelines of the RBI, a rural area is defined as a center with a population up to 9,999. As of March 31, 2020, 2,385 of our banking outlets (including banking outlets managed by the CSCs) are in unbanked areas. With the objective of liberalizing and rationalizing the branch licensing process, the RBI granted general permission, effective from October 2013, to banks like us to open banking outlets in Tier 1 to Tier 6 centers, subject to a requirement to report to the RBI and other prescribed conditions. In May 2017, the RBI further liberalized the branch authorization policy. See “Supervision and Regulation—Regulations Relating to the Opening of Banking Outlets”.
We have overseas banking outlets in Bahrain, Hong Kong and the Dubai International Finance Centre (“DIFC”). These banking outlets cater to the needs of our overseas clients, both corporate and individual. They offer banking, trade finance and wealth management (primarily for
non-resident
individual customers). In addition, we have representative offices in Abu Dhabi, Dubai and Nairobi. We also have a presence in the International Financial Service Centre Banking Unit at the Gujarat International Finance
Tec-City
(“GIFT City”) in Gandhinagar, Gujarat. This unit operates in a similar fashion to our foreign banking outlets and customers are able to purchase products such as trade credits and foreign currency term loans, including external commercial borrowings and derivatives to hedge loans. Our unit in GIFT City is regulated and supervised by the RBI.
Automated Teller Machines
As of March 31, 2020, we had 14,901 ATMs/CDMs, of which 7,088 were located at our banking outlets or extension counters and 7,813 were located
off-site
with access to the general public.
Customers can use our ATMs for a variety of functions, including withdrawing cash, monitoring bank balances, mobile
recharge/top-up,
and cardless cash withdrawals. Customers can access their accounts from any of the HDFC Bank ATMs or
non-HDFC
Bank ATMs. ATM cards issued by American Express or other banks in the Rupay, Visa, MasterCard, Maestro, JCB, UPI, Cirrus, Citrus or Discover Financial Services networks can be used in our ATMs and we receive a fee for each transaction. Our debit cards issued with respective networks (Rupay/VISA/MasterCard) can be used at ATMs of other banks for which we pay the acquiring bank a fee. Our customers can use our CDMs for a variety of functions, including cash deposits, cash withdrawals and monitoring bank balances.
Telephone Banking
We provide telephone banking services to our customers in 2,803 cities and towns as at March 31, 2020. Customers can access their accounts over the phone through our
24-hour
automated voice response system and can conduct balance and transaction inquiries, order check books and order stop payments of checks. In certain cities, we also have staff available during select hours to assist customers who want to speak directly to one of our telephone bankers. In select cities, customers can also engage in financial transactions such as opening deposits.
Mobile Banking
Our mobile banking application is specially designed to help our customers manage their banking needs more efficiently. With secure access and an intuitive, multi-feature design, the application provides our customers with an improved banking experience. Our mobile banking application is designed for an era where everything gets done on mobile phone, from sending money (via the national electronic funds transfer (“NEFT”), immediate payment service (“IMPS”) and unified payment interface (“UPI”) to managing accounts, bills and investments. Our mobile banking application is easy, convenient and secure.
Internet Banking
Our internet banking platform is convenient, comprehensive and safe, enabling our customers to bank 24/7 from the comfort of their home or office. Users can perform the majority of banking transactions online and the platform is safeguarded by the highest levels of security standards. The platform provides several different services, including viewing balances and statements, fund transfers, payment of bills, opening term and recurring deposit accounts, mobile and
direct-to-home
recharges, ordering check books and online shopping.
Payment Wallets
PayZapp aims to make digital payments safe. PayZapp provides a comprehensive solution for all payment, banking and financial requirements for our internal and external customers. It offers a platform for making different types of payments, including grocery, food delivery, shopping, mobile and
direct-to-home
recharges, rent payments, FASTag recharge and utility bills. Using PayZapp, customers can also apply for a credit card or a personal loan, send money to others and transfer money to a bank account.
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Risk Management
Risk is inherent in our business and sound risk management is critical to our success. The major types of risk we face are credit risk, market risk, liquidity risk, interest rate risk and operational risk. We have developed and implemented comprehensive policies and procedures to identify, assess, monitor and manage our risk.
Credit Risk
Credit risk is the possibility of loss due to the failure of any counterparty to abide by the terms and conditions of any financial contract with us. We identify and manage this risk through (a) our target defined markets, (b) our credit approval process, (c) our post-disbursement monitoring and (d) our remedial management procedures. We have a comprehensive centralized risk management function, independent of our operations and business units.
The organizational structure of the credit risk team ensures complete independence from any business activity or responsibility. There is a deliberate separation of the risk function from the business functions in order to ensure that there is no conflict of interest which may compromise our functioning or portfolio. Thus, the credit risk function is not embedded within the business and does not have any business responsibility or association, or any reporting relationship to any business function. To ensure last mile credit delivery and effective credit monitoring, our credit risk officers are placed across all of the Bank’s operating regions, so as to ensure that ground level and location-specific factors are included in the risk assessment and management process.
Retail Credit Risk
We offer a range of retail products, such as auto loans, personal loans, credit cards, business banking,
two-wheeler
loans, loans against securities and commercial vehicle loans. Our retail credit policy and approval process are designed to accommodate the 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.
For individual customers to be eligible for a loan, minimum credit parameters, so defined, are to be met for each product. Any deviations need to be approved at the designated levels. The product parameters have been selected based on the perceived risk characteristics specific to the product. The quantitative parameters considered include income, residence stability and the nature of the employment/business, while the qualitative parameters include accessibility and profile. Our credit policies and product programs are based on a statistical analysis of our own experience and industry data, in combination with the judgment of our senior officers.
The retail credit risk team manages credit risk in retail assets and has the following constituents:
(a)
Central Risk Unit
: The central risk unit drives credit risk management centrally for retail assets. It is responsible for formulating policies and evaluates proposals for the launch of new products and new geographies. The central risk unit also conducts periodic reviews that cover our portfolio management information system, credit management information system and post-approval reviews. The product risk teams conduct detailed studies on portfolio performance in each customer segment.
(b)
Retail Underwriting
: This unit is primarily responsible for approving individual credit exposures and ensuring portfolio composition and quality. The unit ensures implementation of all policies and procedures, as applicable.
(c)
Risk Intelligence and Control
: This unit is responsible for the sampling of documents to ensure prospective borrowers with fraudulent intent are prevented from availing themselves of loans. The unit initiates market reference checks to avoid a recurrence of fraud and financial losses.
(d)
Retail Collections Unit
: This unit is responsible for the remedial management of problem exposures in retail assets. The collections unit uses specific strategies for various segments and products for remedial management.
We mine data on our borrower account behavior as well as static data regularly to monitor the portfolio performance of each product segment regularly, and use these as inputs in revising our product programs, target market definitions and credit assessment criteria to meet our twin objectives of combining volume growth and maintenance of asset quality.
Our vehicle loans, loan against gold and loan against securities are generally secured on the asset financed. Retail business banking loans are secured with current assets as well as immovable property and fixed assets in some cases. However, collateral securing each individual loan may not be adequate in relation to the value of the loan. If the customer fails to pay, we would, as applicable, liquidate collateral and/or set off accounts. In most cases, we obtain direct debit instructions or post-dated checks from the customer. It is a criminal offense in India to issue a bad check.
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Wholesale Credit Risk
The wholesale credit risk team, within the Risk Management Group, is primarily responsible for implementing the credit risk strategy approved by the Board, developing procedures and systems for managing credit risk, carrying out an independent assessment of credit risk, approving individual credit exposures, periodically monitoring the overall portfolio quality, concentrations and risk mitigating actions and ensuring portfolio composition and quality are within the Bank’s risk appetite.
For our wholesale banking products, we target leading private businesses and public sector enterprises in the country, subsidiaries of multinational corporations and leaders in the small and medium enterprises (“SME”) segment. We also have product-specific offerings for entities engaged in the capital markets and commodities businesses.
We consider the credit risk of our counterparties comprehensively. Accordingly, our credit policies and procedures apply not only to credit exposures but also to credit substitutes and contingent exposures. Our Credit Policies & Procedure Manual and Credit Program (“Credit Policies”) are central in controlling credit risk in various activities and products. These articulate our 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. Each credit proposal is evaluated by the business units against the credit standards prescribed in our Credit Policies. They are then subjected to a greater degree of risk analysis based on product type and customer profile by credit risk specialists in the Risk Management Group.
Independent of the credit approval process, there is a framework for review and approval of credit ratings by specifically designated rating approvers. We have in place a process of risk-grading each borrower according to its financial health and the performance of its business and each borrower is graded on a model scale of 1 to 10, which is further mapped to a master scale of HDB 1 to HDB 10 (HDB 1 indicating the highest and HDB 10 the lowest rating; we further classify HDB 1 to HDB 7 as “investment grade” ratings, while HDB 8 or lower are classified as
“non-investment
grade” ratings). We have specific models applicable to each significant segment of wholesale credit (
e.g.,
large corporate,
SME-manufacturing,
SME-services
and NBFCs). For a standalone borrower rating, the model encapsulates risks associated with the industry, business, management and financials into quantitative and qualitative factors. The risk rating assigned to the borrower is a function of aggregated weighted scores after an assessment under each of the above four risk categories.
Based on what we believe is an adequately comprehensive risk assessment, credit exposure limits are set on individual counterparties. These limits take into account the overall potential exposure on the counterparty, be it on balance sheet or off balance sheet, across the banking book and the trading book, including foreign exchange and derivatives exposures. These limits are reviewed in detail at annual or more frequent intervals.
We do not extend credit on the judgment of one officer alone. Our credit approval process is based on a three-tier approval system that combines credit approval authorities and discretionary powers. The required three approvals are provided by credit approvers who derive their authority from their credit skills and experience. The level for approval of a credit varies depending upon the grading of the borrower, the quantum of facilities required and whether we have been dealing with the customer by providing credit facilities in the past. As such, initial approvals would typically require a higher level of approval for a borrower with the same grading and for sanctioning the same facility.
To ensure adequate diversification of risk, concentration limits have been set up in terms of:
a)
Borrower/business group
: Exposure to a borrower or business group is subject to the general ceilings established by the RBI from time to time, or specific approval by the RBI. In June 2019, the RBI issued the revised Large Exposure Framework (“LEF”), which aims to align the exposure norms for Indian banks with the Basel Committee on Banking Supervision (“BCBS”) standards. These guidelines have come into effect from April 1, 2019 and certain provisions have become effective from April 1, 2020. Based on the LEF, the exposure-ceiling limit for a single borrower is 20.00 percent of a bank’s available, eligible capital base amounting to Tier 1 capital as defined in the guideline. The Bank may, as permitted in the LEF and in exceptional circumstances, with the approval of the Board, consider enhancement of the exposure to a single counterparty up to a further 5.00 percent of eligible capital base. The exposure-ceiling limit in the case of a borrower group is 25.00 percent of a bank’s eligible capital base as referenced above. Further, the ceiling on a bank’s exposure to a single NBFC or housing finance company (“HFC”) is 15.00 percent of a bank’s eligible capital base (RBI guidelines on LEF stipulate at 20.00 percent of a bank’s eligible capital base). The ceiling on a bank’s exposure to a group of connected NBFCs or a group of connected counterparties, which include an NBFC in the group, is subject to a LEF ceiling of 25.00 percent of a bank’s eligible capital base. The interbank exposures, except
intra-day
interbank exposures, are subject to the LEF limit of 25.00 percent of the bank’s eligible capital base. See also “
Supervision and Regulation—Large Exposures Framework
”.
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b)
Industry
: While exposure to any one industry cannot exceed 12.00 percent of aggregate exposures, exposure to NBFCs or HFCs is restricted to 7.5 percent of the bank’s aggregate exposure. For this purpose, advances and investments as well as
non-fund
based exposures are aggregated. Retail advances are exempt from this exposure limit. Further, exposure to banks and state-sponsored financial institutions is capped at a level of 25.00 percent.
c)
Risk grading
: In addition to the exposure ceilings described above, we have set quantitative ceilings on aggregate funded and
non-funded
exposure (excluding retail assets) specific to each risk rating category at the portfolio level.
While we primarily make our credit decisions on a cash-flow basis, we also obtain security for a significant portion of credit facilities extended by us as a second potential remedy. This can take the form of a floating charge on the movable assets of the borrower or a (first or residual) charge on the fixed assets and properties owned by the borrower. We may also require guarantees and letters of support from the flagship companies of the group in cases where facilities are granted based on our comfort level or relationship with the parent company.
We have a process for regular monitoring of all accounts at several levels. These include periodic calls on the customer, plant visits, credit reviews and monitoring of secondary data. These are designed to detect any early warning signals of deterioration in credit quality so that we can take timely corrective action.
The RBI restricts us from lending to companies with which we have any directors in common. In addition, the RBI requires that we direct a portion of our lending to certain specified sectors (“Priority Sector Lending” or “PSL”). See also “
Supervision and Regulation—Directed Lending
”.
Market Risk
Market risk refers to the potential loss on account of adverse changes in market variables or other risk factors which affect the value of financial instruments that we hold. The financial instruments may include investment in money market instruments, debt securities (such as gilts, bonds and PTCs), equities, foreign exchange products and derivative instruments (both linear and
non-linear
products).
The market variables which affect the valuation of these instruments typically include interest rates, credit spreads, equity prices, foreign exchange rates, implied volatilities (including the foreign exchange volatility surface, cap/floor volatility and volatility smiles) and commodity prices. Any change in the relevant market risk variable has an adverse or favorable impact on the valuation depending on the direction of the change and the type of position held (long or short). While the positions are taken with a view to earn from the upside potential, there is always a possibility of downside risk. Thus, the Bank must constantly review the positions to ensure that the risk on account of such positions is within our overall risk appetite. The Bank’s overall risk appetite for various risks is defined by the Internal Capital Adequacy Assessment Process (“ICAAP”) review committee, by stipulating specific risk appetite for key risk types. The risk appetite for trading risk is set through a
pre-approved
treasury limits package as well as through specific trading limits and trigger levels for a few product programs. In addition, the Bank’s risk limits with respect to interbank counterparties are guided by the interbank counterparty exposure limit while the Bank’s Asset Liability Management (“ALM”) limits prescribe the appetite for liquidity risk and interest rate risk in the banking book (“IRRBB”). The process for monitoring and reviewing risk exposure is outlined in the various risk policies.
The market risk department formulates procedures for portfolio risk valuation, assesses market risk factors impacting the trading portfolio and recommends various market risk controls relating to limits and trigger levels for the treasury (including investment banking portfolios for primary undertaking and distribution) and
non-treasury
positions. The treasury
mid-office
is responsible for monitoring and reporting market risks arising from the trading desks and also carries out rate scan of the deals. The market data cell in the
mid-office
maintains market data, performs market data scan to check market data sanctity and verifies the rates submitted by the treasury front office for polling various benchmarks.
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Our Board of Directors (the “Board”) has delegated the responsibility for market risk management of the balance sheet on an ongoing basis to the Asset Liability Committee (“ALCO”). This committee, which is chaired by the Managing Director and includes the heads of the business groups, generally meets fortnightly. The ALCO reviews the product pricing for deposits and assets as well as the maturity profile and mix of our assets and liabilities. It articulates the interest rate view and decides on future business strategy with respect to interest rates. It reviews and sets funding policy, also reviews developments in the markets and the economy and their impact on the balance sheet and business along with review of the trading levels. Moreover, it reviews the utilization of liquidity and interest rate risk limits set by the Board and decides on the inter-segment transfer pricing policy.
The financial control department is responsible for collecting data, preparing regulatory and analytical reports and monitoring whether the interest rate and other policies and limits established by the ALCO are being observed. The Balance Sheet Management desk, which is part of the treasury group, also assists in implementing our asset liability strategy and in providing information to the ALCO.
Policies and Procedures—Trading and Asset Liability Management Risks
The following sections briefly describe our policies and procedures with respect to trading risk (price risk) and ALM risk (interest rate risk in the banking book and liquidity risk).
I. Trading Risk
Trading risk is the risk arising from price fluctuations due to market factors, such as changes in interest rates, equity prices, commodity prices, exchange rates and the variations in their implied volatilities in respect of the trading portfolio held by the Bank. The trading portfolio includes holdings in the
held-for-trading
and
available-for-sale
portfolios, as per RBI guidelines and consists of positions in bonds, securities, currencies, interest rate swaps and options, cross-currency interest rate swaps and currency options.
The trading risk is managed by establishing a sound process for price validation and by setting various limits or trigger levels, such as value at risk limits, stop-loss trigger levels, price value per basis point (PV01) limits, option Greek limits, position limits, namely, intraday and net overnight forex open position. Additional controls such as order size and outstanding exposure limits are prescribed, wherever applicable, based on
case-by-case
review. Moreover, measures such as investment limits and deal size thresholds are prescribed as part of the investment policy for managing outstanding investment or trading positions.
The treasury limits are reviewed by the market risk department and presented to the Risk Policy and Monitoring Committee (“RPMC”) for its recommendation to the Board for approval. The limits are reviewed annually or more frequently (depending on market conditions) or upon introduction of new products.
The market risk policy sets the framework for market risk monitoring. The risk on account of semi-liquid or illiquid positions in trading is recognized in the
non-standard
product policy as part of the market risk policy. The
non-standard
product policy stipulates requirements for case-specific evaluation of risk exposure in respect of
non-standard
products (that is, products which are not part of the standard product list decided by treasury and the market risk department). Additionally, limits have been assigned to restrict the aggregate exposure in
non-standard
positions. Further, the stress testing policy prescribes the stress scenarios that are applied on the outstanding trading positions to recognize and analyze the impact of the stress conditions on the trading portfolio. Stress tests are based on historical scenarios as well as on sensitivity factors, such as an assessment based on hypothetical/judgmental scenarios.
Validation of valuation models applied for validation of trading products are conducted by the treasury analytics team, which are then reviewed by the market risk department and governed by the Board approved independent model validation policy. The Valuation Committee is apprised of the model validation results in its quarterly meetings. Moreover, the market data of major interest rate curves, captured in the valuation systems, are compared against an independent market data source on a
month-end
basis for accurate valuation in accordance with the independent model validation policy of the Bank.
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II. Asset Liability Management
The ALM risk management process consists of management of liquidity risk and IRRBB. Liquidity risk is the risk that the Bank may not be able to fund increases in assets or meet obligations as they fall due without incurring unacceptable losses. IRRBB refers to the potential adverse financial impact on the Bank’s banking book from changes in interest rates. The banking book is comprised of assets and liabilities that are incurred to create a steady income flow or to fulfill statutory obligations. Such assets and liabilities are generally held to maturity. The Bank carries various assets, liabilities and
off-balance
sheet items across markets, maturities and benchmarks, exposing itself to risks from changing interest rates. The Bank’s objective is to maintain liquidity risk and IRRBB within certain tolerance limits. The ALM limits are reviewed by the market risk department and presented to the RPMC for its recommendation to the Board for approval. The limits are reviewed at least annually.
Structure and Organization
The ALM risk management process of the Bank operates in the following hierarchical manner:
Board of Directors
The Board has the overall responsibility for management of liquidity and interest rate risk. The Board decides the strategy, policies and procedures of the Bank to manage liquidity and interest rate risk, including setting the Bank’s risk tolerance and limits.
Risk Policy and Monitoring Committee of the Board
The RPMC is a Board-level committee, which supports the Board by supervising the implementation of risk strategy. It guides the development of policies, procedures and systems for managing risk. It ensures that these are adequate and appropriate to changing business conditions, the structure and needs of the Bank and the risk appetite of the Bank. It ensures that frameworks are established for assessing and managing liquidity and interest rate risks faced by the Bank. The RPMC meets at least once every quarter. The RPMC’s role includes, inter alia:

| 1. | to review and recommend for Board approval the liquidity and interest rate risk policies or any other amendment thereto; and

| 2. | to ratify excess utilization of Board-approved limits except where delegated to ALCO.

Asset Liability Committee (“ALCO”)
The ALCO is the decision-making unit responsible for ensuring adherence to the risk tolerance and limits set by the Board, as well as implementing the Bank’s liquidity and interest rate risk management strategy in line with the Bank’s risk management objectives and risk tolerance. The ALCO is also responsible for balance sheet planning from a risk-return perspective, including strategic management of interest rate and liquidity risks. The role of the ALCO includes the following:

| • |  | product pricing for deposits and customer advances;

| • |  | deciding the desired maturity profile and mix of incremental assets and liabilities;

| • |  | articulating the Bank’s interest rate view and deciding on its future business strategy;

| • |  | reviewing and articulating funding strategy;

| • |  | ensuring adherence to the liquidity and interest rate risk limits set by the Board;

| • |  | determining the structure, responsibilities and controls for managing liquidity and interest rate risk;

| • |  | ensuring adequate representation of risk management function on the ALCO;

| • |  | reviewing stress test results and ensuring that a well-documented contingency funding plan is in place; and

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| • |  | deciding on the transfer pricing policy of the Bank.

ALM Support Group
The ALM support group is responsible for analyzing, monitoring, and reporting the relevant risk profiles to senior management and relevant committees. The ALM support group comprises the balance sheet management desk (Treasury), market risk department, treasury
mid-office
and financial control.
Risk Measurement Systems and Reporting
Liquidity Risk
Liquidity risk is measured using the flow approach and the stock approach. The flow approach involves comprehensive tracking of cash flow mismatches, whereas the stock approach involves the measurement of critical ratios in respect of liquidity risk.
For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates has been adopted as a standard tool. The time buckets for classification of assets and liabilities for the purposes of this statement is as per the RBI’s prescribed guidelines.
Stock approach involves measurement of certain critical ratios in respect of liquidity risk. Based on the RBI guidelines, a set of liquidity ratios under stock approach is monitored on a periodic basis.
In addition, the Bank is required to maintain Liquidity Coverage Ratio. The regulatory minimum requirement for the ratio as on March 31, 2020 was 100 percent. Analysis of liquidity risk also involves examining how funding requirements are likely to be affected under crisis scenarios. The Bank has a Board-approved liquidity stress framework guided by regulatory instructions. The Bank has an extensive intraday liquidity risk management framework for monitoring intraday positions during the day.
Interest Rate Risk in Banking Book
Interest rate risk is the risk where changes in market interest rates affect a bank’s financial position. Changes in interest rates impact a bank’s earnings through changes in its net interest income (“NII”). Changes in interest rates also impact a bank’s market value of equity (“MVE”) or net worth through changes in the economic value of its rate-sensitive assets, liabilities and
off-balance
sheet positions. The interest rate risk, when viewed from these two perspectives, is known as “earnings perspective” and “economic value perspective”, respectively.
The Bank measures and controls IRRBB using both the earnings perspective (measured using the traditional gap analysis method) and the economic value perspective (measured using the duration gap analysis method) as detailed below. These methods involve grouping of rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), including
off-balance
sheet items, based on the maturity or repricing dates. The Bank classifies an asset or liability as rate sensitive or
non-rate
sensitive in line with the RBI guidelines, as amended, from time to time.
A significant portion of
non-maturing
deposits are grouped in the “over 1 year to 3 year” category.
Non-rate
sensitive liabilities and assets primarily comprise capital, reserves and surplus, other liabilities, cash and balances with the RBI, current account balances with banks, fixed assets and other assets.
The banking book is represented by excluding from the total book the trading book (
i.e.,
on and
off-balance
sheet items) and the commensurate liabilities, as applicable, in the form of short-term borrowings and deposits.

| • |  | Earnings Perspective (impact on net interest income)

The traditional gap analysis (“TGA”) method measures the level of a bank’s exposure to interest rate risk in terms of sensitivity of its NII to interest rate movements over a
one-year
horizon. It involves bucketing of all RSA, RSL and
off-balance
sheet items maturing or getting repriced in the next year and computing changes of income under 200 basis points upward and downward parallel rate shocks over a year’s horizon.
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| • |  | Economic Value Perspective (impact on market value of equity)

While the earnings perspective calculates the short-term impact of the rate changes, the Economic Value Perspective calculates the long-term impact on the MVE of the Bank through changes in the economic value of its rate-sensitive assets, liabilities and
off-balance
sheet positions. Economic value perspective is measured using the duration gap analysis method (“DGA”). DGA involves computing the modified duration gap between RSA and RSL and thereby the Duration of Equity (“DoE”). The DoE is a measure of sensitivity of MVE to changes in interest rates. Using the DoE, the Bank estimates the change in MVE under 200 basis points upward and downward parallel rate shocks.
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events and includes risk of loss as a result of legal risk. The way operational risk is managed has the potential to positively or negatively impact the Bank’s customers, financial performance and reputation. The Bank has put in place Board-approved governance and organizational structure with clearly defined roles and responsibilities to mitigate operational risk arising from the Bank’s business and operations.
Organizational Structure for Managing Operational Risk
The Board is primarily responsible for ensuring effective management of the operational risks of the Bank. The Board sets the overall strategy and direction for operational risk management (“ORM”) within the Bank. This strategy is developed further and subsequently implemented by the RPMC of the Bank. The RPMC is responsible for overseeing the effective implementation of the ORM framework approved by the Board, as well as developing a strong ORM culture and sense of responsibility at every level in the organization. The ORM committee, which is headed by the Chief Risk Officer and consists of senior management functionaries (including the Group Head—Audit, Group Head—Operations and senior representatives from all the relevant business verticals), oversees the implementation of the operational risk management framework approved by the Board. An independent operational risk management department (“ORMD”) is responsible for implementation of the framework across the Bank. The operational risk management policy stipulates the roles and responsibilities of employees, business units, operations and support functions in managing operational risk.
Risk Measurement and Monitoring
While the business lines, operations and support functions are primarily responsible for implementation of risk management practices (including cost-benefit analyses) in their
day-to-day
operations, the ORMD is responsible for designing and developing tools for monitoring of operational risk across the Bank consistent with the framework approved by the Board. Identification and implementation of mitigating measures is carried out by the respective units within the Bank and reviewed by the ORMD. The internal audit department evaluates the adequacy and effectiveness of the internal control systems and procedures, in the risk management functions as well as across the various business and support units of the Bank.
The Bank applies a number of risk management techniques to effectively manage operational risks. These techniques include:

| • |  | risk control self-assessment (the “RCSA”), to identify high-risk areas so that the Bank can initiate timely remedial measures. This assessment is conducted annually to update senior management of the risk level across the Bank;

| • |  | key risk indicators (the “KRI”) are metrics that are derived from various factors to provide an early warning of, or to monitor, the increasing risk or control failures in an activity. As these indicators are quantifiable, they can be measured continuously to identify trends in values;

| • |  | the loss data maintenance (the “LDM”) establishes the Bank’s process of recognizing, recording and mitigating operational losses. Units or functions accounting loss data are required to report every operational risk loss data in a timely manner to ORMD. Operational losses experienced by the units are followed up by the respective control functions for initiation of mitigative measures as applicable;

| • |  | conducting a scenario analysis annually to derive information on hypothetical severe loss situations. The Bank uses this information for risk management purposes, as well as for analyzing the possible financial impact; and

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| • |  | periodic reporting of risk assessments and monitoring to senior management to ensure timely actions are initiated at all levels. Operational risk reports specifically reflect key risk areas and risk sensitive units so as to motivate units to take timely corrective action.

Capital Requirement
The Bank currently follows the basic indicator approach for computing operational risk capital charge. BCBS published a document titled ‘Basel III: Finalizing post-crisis reforms’ in December 2017, containing details of the standardized approach for estimating a minimum operational risk capital charge, which would replace all the existing methods for computation of operational risk capital. The Bank will implement the revised approach once the RBI guidelines are notified.
Competition
We face intense competition in all our principal lines of business. Our primary competitors are large public sector banks, other private sector banks, foreign banks and in some product areas, NBFCs. In addition, new entrants into the financial services industry, including companies in the financial technology sector, may further intensify competition in the business environments, especially in the digital business environment, in which we operate. In February 2013, the RBI issued guidelines for the entry of new banks in the private sector, including eligibility criteria, capital requirements, shareholding structure, business plan and corporate governance practices. Pursuant to these guidelines, in fiscal 2016 IDFC Bank and Bandhan Bank commenced banking operations.
In November 2014, the RBI released guidelines for the licensing of payments banks and small finance banks in the private sector. Since promulgation, such banks have been established and operational pursuant to these guidelines, which have increased competition in the markets in which we operate.
In August 2016, the RBI released final guidelines for
“on-tap”
Licensing of Universal Banks in the private sector. The guidelines aim at moving from the current “stop and go” licensing approach (wherein the RBI notifies the licensing window during which a private entity may apply for a banking license) to a continuous or
“on-tap”
licensing regime. Among other things, the new guidelines specify conditions for the eligibility of promoters, corporate structure and foreign shareholdings. One of the key features of the new guidelines is that, unlike the February 2013 guidelines (mentioned above), the new guidelines make the
“Non-Operative
Financial Holding Company” structure
non-mandatory
in the case of promoters being individuals or standalone promoting/converting entities which do not have other group entities. See “Supervision and Regulation—Entry of new banks in the private sector”.
Within the public sector banking space, in August 2019, the Government implemented consolidated measures, announcing the merger of ten public sector banks into four bigger banks. This led to a reduction in the number of public sector banks in the country. The consolidation became effective in April 2020.
Retail Banking
In retail banking, our principal competitors are large public sector banks, which have much larger deposit bases and branch networks than ours, other new generation private sector banks, old generation private sector banks, foreign banks and NBFCs in the case of retail loan products. The retail deposit share of foreign banks is small in comparison to the public sector banks. However, some foreign banks have a significant presence among NRIs and also compete for
non-branch-based
products.
In mutual fund sales and other investment-related products, our principal competitors are brokers, foreign banks and other new private sector banks.
Wholesale Banking
Our principal competitors in wholesale banking are public and new private sector banks as well as foreign banks. The large public sector banks have traditionally been market leaders in commercial lending. Foreign banks have focused primarily on serving the needs of multinational companies and Indian corporations with cross-border financing requirements, including trade and transactional services and foreign exchange products and derivatives, while the large public sector banks have extensive branch networks and large local currency funding capabilities.
Treasury
In our treasury advisory services for corporate clients, we compete principally with foreign banks in foreign exchange and derivatives, as well as public sector banks and new generation private sector banks in the foreign exchange and money markets business.
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Employees
We had 116,971 employees as of March 31, 2020. Most of our employees are located in India. We consider our relationship with our employees to be positive. Further to our acquisition of CBoP in 2008, several employees of CBoP continue to be part of a labor union. These employees represent less than 1 percent of our total employee strength.
Our compensation structure has fixed as well as variable pay components. Our variable pay plans are comprised of periodic performance linked pay (PLP), annual performance linked bonus and employee stock option plans.
In addition to basic compensation, employees are eligible to participate in our provident fund and other employee benefit plans. The provident fund, to which both we and our employees contribute, is a savings scheme required by Government regulation under which the fund is required to pay to employees a minimum annual return, which is proposed to be notified at 8.5 percent for fiscal 2020. If such return is not generated internally by the fund, we are liable for the difference. Our provident fund has generated sufficient funds internally to meet the annual return requirement since inception of the fund. We have also set up a superannuation fund to which we contribute defined amounts. Employees above certain seniority levels are given a choice to contribute to the national pension scheme. We also contribute specified amounts to a pension fund in respect of certain of our former-CBoP employees. In addition, we contribute specified amounts to a gratuity fund set up pursuant to Indian statutory requirements.
We focus on training our employees on a continuous basis. We have training centers, where we conduct regular training programs for our employees. Management and executive trainees generally undergo up to eight-week training modules covering most aspects of banking. We offer courses conducted by both internal and external faculty. In addition to ongoing
on-the-job
training, we provide employees courses in specific areas or specialized operations on an
as-needed
basis.
Properties
Our registered office and corporate headquarters is located at HDFC Bank House, Senapati Bapat Marg, Lower Parel, Mumbai 400 013. In addition to the corporate office, we have administrative offices in most of the metros and some other major cities in India.
As of March 31, 2020, we had a network consisting of 5,416 banking outlets and 14,901 ATMs/CDMs, including 7,813 at
non-branch
locations. In addition, we had 5,379 banking outlets managed by the CSCs. These facilities are located throughout India with the exception of three banking outlets which are located in Bahrain, Hong Kong and Dubai. We also have representative offices in the United Arab Emirates and Kenya. We set up and commenced business in an International Financial Service Centre Banking Unit at the Gujarat International Finance
Tec-City
in June 2017. This branch is treated as an overseas branch.
Intellectual Property
We utilize a number of different forms of intellectual property in our business including our HDFC Bank brand and the names of the various products we provide to our customers. We believe that we currently own, have licensed or otherwise possess the rights to use all intellectual property and other proprietary rights, including all trademarks, domain names, copyrights, patents and trade secrets used in our business.
Legal Proceedings
We are involved in a number of legal proceedings in the ordinary course of our business, including certain spurious or vexatious proceedings with significant financial claims present on the face of the complaint, but we believe that they lack any merit, based on the historical dismissal of similar claims. Accordingly, we believe there are currently no legal proceedings, which, if adversely determined, might materially affect our financial condition or the results of our operations.
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RISK FACTORS
You should carefully consider the following risk factors in evaluating us and our business.
Risks Relating to Our Business
A slowdown in economic growth in India would cause us to experience slower growth in our asset portfolio and deterioration in the quality of our assets.
Our performance and the quality and growth of our assets are dependent on the health of the overall Indian economy, which is, in turn, linked to global economic conditions. While economic growth in India is generally affected by inflation, interest rates, external trade, capital flows and, given India’s dependence on imported oil for its energy needs, oil prices, the fiscal year 2021 faces a new challenge due to the spread of the
COVID-19
pandemic. A decline in global growth and volatility in global financial markets is likely to weaken the Indian financial and economic environment.
Outside India, global output is expected to contract in 2020. The IMF predicts global growth to contract by 4.9 percent in 2020 from growth of 2.9 percent in 2019, with developed economies such as the United States contracting by 8.0 percent in 2020 from positive growth of 2.3 percent in 2019. Developing economies are also expected to contract compared to a positive growth of 3.7 percent in 2019, which could have huge negative implications for emerging markets, including India, through trade channels and adverse impact on investors’ sentiment.
While negative risk sentiment has been dominant so far, some improvement in risk sentiments are starting to emerge as the pandemic reaches a peak in most economies and economic activity begins to resume. While foreign portfolio investors were a net seller in both debt and equity instruments during March to April 2020, this trend was reversed in the equity segment in May 2020. From a medium-term perspective, foreign portfolio flows in India are likely to improve from the current lows, as investors are likely to seek higher yields given the surplus global liquidity.
With respect to the spread of the pandemic, India has a relatively low number of cases per million, which may be a favorable factor in determining the speed of recovery from the current crisis. As on July 13, 2020, India had 637 cases per million compared to approximately 10,000 cases per million in the U.S. and approximately 4,265 in the U.K. In part as a result of strict government measures, the spread of the pandemic has now been slowed but there can be no assurances that the number of cases in India will remain at current levels, in particular in the event of a recurrence or “multiple waves” of the outbreak.
Moreover, the credit guarantees announced by the government in its recent stimulus package for the MSME and NBFC sectors, along with surplus liquidity in India’s economy, are likely to push credit growth.
However, the sharp deceleration in GDP is likely to rein in the demand for credit and compromise credit quality. A global recession is likely to negatively impact export growth across sectors. Banks need to navigate the terrain of enhanced risk carefully, particularly in sectors such as hospitality and civil aviation where the impact of
COVID-19
is likely to be prolonged. The rise in precautionary savings among households and the possibility of rising unemployment, which is often the corollary of a slowdown in economic growth, could reduce the demand for retail lending, particularly for larger purchases. Any prolonged slowdown may adversely impact credit growth and the level of
non-performing
and restructured loans. If the Indian economy deteriorates, our asset base may erode, which would result in a material decrease in our net profits and total assets which could materially adversely affect our business, results of operations and financial position. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
If we are unable to manage our rapid growth, our operations may suffer and our performance may decline.
We have grown rapidly over the last three fiscals. Our loan growth rate has been significantly higher than that of the Indian banking industry. Our loans in the three-year period ended March 31, 2019 grew at a compounded annual growth rate of 22.2 percent. The compounded annual growth for the Indian Banking Industry for the same period was approximately 7.1 percent. The growth in our business is partly attributable to the expansion of our branch network. As at March 31, 2015, we had a branch network comprised of 4,014 banking outlets, which increased to 5,416 banking outlets as at March 31, 2020. Section 23 of the Banking Regulation Act, 1949 (the “Banking Regulation Act”) provides that banks must obtain the prior approval of the RBI to open new banking outlets. Further, the RBI may cancel a license for violations of the conditions under which it was granted. The RBI issues instructions and guidelines to banks on branch authorization from time to time. With the objective of liberalizing the branch licensing process, the RBI, effective October 2013, granted general permission to banks, including us, to open banking outlets in Tier 1 to Tier 6 centers, subject to a requirement to report to the RBI and certain other conditions. In May 2017, the RBI has further liberalized the branch authorization policy. See “
Supervision and Regulation—Regulations Relating to the Opening of Banking Outlets
”. If we are unable to perform in a manner satisfactory to the RBI in any of these centers or comply with the specified conditions, it may have an impact on the number of banking outlets we will be able to open, which would, in turn, have an impact on our future growth.
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In addition, our rapid growth has placed, and if it continues, will place, significant demands on our operational, credit, financial and other internal risk controls including:

| • |  | recruiting, training and retaining sufficient skilled personnel;

| • |  | upgrading, expanding and securing our technology platform;

| • |  | developing and improving our products and delivery channels;

| • |  | preserving our asset quality as our geographical presence increases and customer profile changes;

| • |  | complying with regulatory requirements such as the Know Your Customer (“KYC”) norms; and

| • |  | maintaining high levels of customer satisfaction.

If our internal risk controls are insufficient to sustain our rapid rate of growth, if we fail to properly manage our rapid growth, or if we fail to perform adequately in any of the above areas, our operations would suffer and our business, results of operations and financial position would be materially adversely affected.
Our business is particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our treasury income and our financial performance.
Our results of operations depend to a great extent on our net interest revenue. During fiscal 2020, net interest revenue after allowances for credit losses represented 70.6 percent of our net revenue. Changes in market interest rates affect the interest rates charged on our interest-earning assets differently from the interest rates paid on our interest-bearing liabilities and also affect the value of our investments. An increase in interest rates could result in an increase in interest expense relative to interest revenue if we are not able to increase the rates charged on our loans, which would lead to a reduction in our net interest revenue and net interest margin. Further, an increase in interest rates could negatively affect demand for our loans and credit substitutes and we may not be able to achieve our volume growth, which could adversely affect our net income. A decrease in interest rates could result in a decrease in interest revenue relative to interest expense due to the repricing of our loans at a pace faster than the rates we pay on our interest-bearing liabilities. The quantum of the changes in interest rates for our assets and liabilities may also be different.
The combination of global disinflationary pressures, better supply management of food items, including prudent food stock management, appropriate monetary policy action, fiscal consolidation and subdued global commodity prices have helped to keep domestic inflation in check in recent years, thereby causing consumer price index inflation to decrease from levels of 8.25 percent in March 2014 to 5.25 percent in March 2015 to 4.83 percent in March 2016 to 3.89 percent in March 2017. Furthermore, headline inflation remained within the RBI’s target zone during March 2018 and 2019. However, headline inflation rose to 5.8 percent in March 2020 due to food inflation caused by supply shortages.
The softening in inflation led the RBI to cut the policy repo rate by 75 basis points in fiscal 2016, by another 50 basis points in fiscal 2017 and by 25 basis points in fiscal 2018. While the repo rate was raised by 50 basis points during the first half of fiscal 2019, the policy rate was again reduced by 25 basis points in the fourth quarter, as inflation started easing. In fiscal 2020, the RBI continued to reduce the policy rate in the first half of the fiscal year to support growth. As headline inflation started picking up, the central bank paused the easing cycle after slashing the repo rate by 25 basis points in October 2019. However, due to pandemic related disruptions the repo rate was reduced by 75 basis points in March 2020 and by an additional 40 basis points in May 2020.
To make the liquidity situation more comfortable, the RBI conducted net open market operations (“OMOs”) with purchases of Rs. 1.1 trillion in fiscal 2017 and sales of Rs. 0.9 trillion in fiscal 2018. In fiscal 2019, the RBI again conducted OMO purchases of Rs.3.0 trillion. In fiscal 2020, in addition to open market operations, the RBI injected liquidity using new instruments, such as FX swap operations, long-term repo auctions (“LTROs”) and targeted long-term repo auctions (“TLROs”). To manage liquidity conditions, the RBI also simultaneously sold and purchased government securities.
In response to the declining policy rates, easing liquidity conditions, the benchmark bond yield eased during most of fiscals 2016, 2017 and 2018. However, yields in fiscal 2019 remained elevated on concerns of risks to inflation and fiscal concerns at both the center and state level. As a result of monetary easing, benchmark yield started decreasing in fiscal 2020. The RBI reduced the policy rate by 185 basis points in fiscal 2020, including an emergency rate cut of 75 basis points in February 2020. As of March 31, 2020, the repo rate stood at 4.4 percent. To address the
COVID-19
related economic disruption the RBI reduced the policy rate further by 40 basis points to 4.0 percent in May 2020. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
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Furthermore, elevated precautionary savings that are typical in the wake of a major economic shock are likely to provide the banking system with low-cost deposits. An increase in risk aversion that could potentially drive investments away from alternatives such as equities could also boost deposits. In addition, the RBI is likely to continue its strategy of maintaining significant surplus liquidity in the system and is likely to cut the policy rate further. These measures will ensure
low-cost
funds for banks.
Domestically, if the fiscal deficit both federally and for states rises sharply, bond yields are likely to remain volatile and see some upward pressure. Any volatility in interest rates could thereby adversely affect our net interest margin, the value of our fixed income portfolio, our treasury income and our financial performance.
On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer compel or persuade banks to contribute to LIBOR rate setting after 2021. Accordingly, it appears likely that LIBOR will be discontinued as early as January 1, 2022. It has become clear that various jurisdictions are working on a rate or rates as accepted alternatives to LIBOR. For example, in the United States the Alternative Reference Rates Committee, a group convened by the Federal Reserve Board and the Federal Reserve Bank of New York has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for U.S. Dollar LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. These changes will have effect on the markets for LIBOR-based financial instruments. The nature of potential changes, alternative reference rates or other reforms may adversely affect market liquidity, the pricing of LIBOR-based instruments and the availability and cost of associated hedging instruments and borrowings. Payments under contracts referencing new reference rates may differ from those referencing LIBOR. The transition may change our risk profile and require changes to risk and pricing models, valuation tools, product design and hedging strategies. Although we are unable to quantify the ultimate impact of the transition from LIBOR given the nature of the potential changes, we continue to monitor the developments related to the future of LIBOR in line with any regulatory or quasi-regulatory guidance. Moreover, the failure to manage any potential transition from LIBOR to a different reference rate, or rates, may adversely affect our reputation, business and financial condition, and results of operations. See “
Selected Statistical Information—Analysis of Changes in Interest Revenue and Interest Expense ” and “ Selected Statistical Information—Yields, Spreads and Margins
”.
Financial instability in other countries may cause increased volatility in the Indian financial market.
The Indian market and the Indian economy are influenced by the economic and market conditions in other countries, particularly the emerging market countries in Asia. Financial turmoil in Asia, Russia and elsewhere in the world in recent years has affected the Indian economy. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other markets may cause increased volatility in the Indian financial market and, more generally, in the Indian economy. Any financial instability or disruptions could also have a negative impact on the Indian economy and could harm the Bank’s business, its future financial performance and the prices of its equity shares and ADSs.
The global credit and equity markets have experienced substantial dislocations, liquidity disruptions and market corrections in recent years. In particular,
sub-prime
mortgage loans in the United States have experienced increased rates of delinquency, foreclosure and loss. The recent history of financial crises, which have affected both emerging and developed economies, has given rise to heightened liquidity and credit concerns and caused an increase in volatility in the global credit and financial markets. Developments in the Eurozone have further exacerbated concerns relating to liquidity and volatility in global capital markets.
Developments in the Eurozone during the past couple of years have exacerbated concerns in the financial markets. Large budget deficits and rising public debts have triggered sovereign debt crisis in multiple European countries that resulted in the bailout of certain economies and increased the risk of government debt defaults, forcing governments to undertake aggressive budget cuts and austerity measures. On the back of this crises, the U.K. voted to leave the European Union in 2016 under the withdrawal agreement between the U.K. and the EU (“Brexit”), , prompting a plunge in the pound sterling and a credit rating downgrade. The outcome of the U.K. referendum created fear of potential further exits from the European Economic and Monetary Union. While some of these apprehensions were alleviated by favorable outcomes of subsequent Dutch and French elections, election results in Germany, Italy (where
anti-EU
parties gained support), the rise of separatists in Spain remain and the recently concluded European Union elections show that these fears still persist.
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On January 31, 2020, the U.K. withdrew from the EU under the leadership of a new Prime Minister. The withdrawal agreement provides for a transition period during which the rules and regulations of the EU continue to apply to the U.K. until December 31, 2020. If the transition period ends without the U.K. and the EU agreeing upon the terms of their relationship, such as a free trade arrangement, tariffs and other trade restrictions may come into force immediately. Even if the United Kingdom agreed the terms of its departure from the EU, negotiations on the terms and conditions are expected to continue during the transition period, which ends on December 31, 2020. Nevertheless, the uncertainty regarding the terms and conditions of, among others, a new trade agreement, law enforcement and access to fishing waters, the perception of the economic impact and the possibility of a departure without a deal could adversely affect the commercial activity and the economic conditions of the United Kingdom and the EU, challenging finance and foreign exchange global markets.
In addition, the sovereign ratings of various European Union countries have been downgraded since 2012. Financial markets and the supply of credit could continue to be negatively impacted by ongoing concerns surrounding the sovereign debts and fiscal deficits of European countries, the possibility of further downgrades of, or defaults on, sovereign debt, concerns regarding a sharper slowdown in Eurozone than was earlier anticipated, as well as uncertainties regarding the stability and overall standing of the European Monetary Union. These and other related events have had a significant impact on the global credit and financial markets as a whole, including reduced liquidity, greater volatility, the widening of credit spreads and a lack of price transparency.
In response to such developments, legislators and financial regulators in the United States, Europe and other jurisdictions, including India, have implemented several policy measures designed to add stability to the financial markets. However, the overall impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilizing effects. In the event that the current adverse conditions in the global credit markets continue or if there is any significant financial disruption, this could cause increased volatility in the Indian financial market and have an adverse effect on our business, future financial performance and the trading price of our equity shares and ADSs.
Furthermore, the
COVID-19
pandemic has caused significant disruption in the global financial markets. See also “The
COVID-19
pandemic may have a material adverse effect on our business, financial condition and results of operation”.
If the level of
non-performing
loans in our portfolio increases, we will be required to increase our provisions, which would negatively impact our income.
Our gross
non-performing
loans and
non-performing
credit substitutes represented 1.43 percent of our gross customer assets as of March 31, 2020. Our
non-performing
loans and
non-performing
credit substitutes net of specific provisions represented 0.52 percent of our net customer assets portfolio as of March 31, 2020. Our management of credit risk involves having appropriate credit policies, underwriting standards, approval processes, loan portfolio monitoring, remedial management and the overall architecture for managing credit risk. In the case of our secured loan portfolio, the frequency of the valuation of collateral may vary based on the nature of the loan and the type of collateral. A decline in the value of collateral or an inappropriate collateral valuation increases the risk in the secured loan portfolio because of inadequate coverage of collateral. As of March 31, 2020, 66.2 percent of our loan book was partially or fully secured by collateral. Our risk mitigation and risk monitoring techniques may not be accurate or appropriately implemented and we may not be able to anticipate future economic and financial events, leading to an increase in our
non-performing
loans. See “
Note 9—Loans”
in our consolidated financial statements.
Provisions are created by a charge to expense, and represent our estimate for loan losses and risks inherent in the credit portfolio. See “
Selected Statistical
Information—Non-performing
Loans
”. The determination of an appropriate level of loan losses and provisions required inherently involves a degree of subjectivity and requires that we make estimates of current credit risks and future trends, all of which may undergo material changes. Our provisions may not be adequate to cover any further increase in the amount of
non-performing
loans or any further deterioration in our
non-performing
loan portfolio. Further, as part of its supervision process, the RBI assesses our asset classification and provisioning requirements. In the event that additional provisioning is required by the RBI, our net income, balance sheet and capital adequacy could be affected, which could have a material adverse impact on our business, future financial performance, shareholders’ equity and the price of our equity shares. If we are not able to continue to reduce our existing
non-performing
loans, or if there is a significant increase in the amount of new loans classified as
non-performing
loans as a result of a change in the methodology of
non-performing
loans classification mandated by the RBI or otherwise, our asset quality may deteriorate, our provisioning for probable losses may increase and our business, future financial performance and the trading price of our equity shares and ADSs could be adversely affected. In addition, we are a relatively young bank operating in a growing economy and we have yet not experienced a significant and prolonged downturn in the economy.
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A number of factors outside of our control affect our ability to control and reduce
non-performing
loans. These factors include developments in the Indian economy, domestic or global turmoil, global competition, changes in interest rates and exchange rates and changes in regulations, including with respect to regulations requiring us to lend to certain sectors identified by the RBI or the Government of India. For example, recently, certain state governments have announced waiver of amounts due under agricultural loans provided by the banks. Demands for similar waivers have been raised by farmers in other states as well. Also, in the past, the central and state governments have waived farm loans from time to time to provide some respite to the debt-ridden agricultural sector. It is unclear when the governments will compensate the banks for the waivers so announced. Further, such frequent farm waivers may create expectations of future waivers among the farmers and lead to a delay in or cessation of loan repayments, which may lead to a rise in our
non-performing
loans. These factors, coupled with other factors such as volatility in commodity markets, declining business and consumer confidence and decreases in business and consumer spending, could impact the operations of our customers and in turn impact their ability to fulfill their obligations under the loans granted to them by us. In addition, the expansion of our business may cause our
non-performing
loans to increase and the overall quality of our loan portfolio to deteriorate. If our
non-performing
loans increase, we will be required to increase our provisions, which would result in our net income being less than it otherwise would have been and would adversely affect our financial condition.
We have high concentrations of exposures to certain customers and sectors and if any of these exposures were to become
non-performing,
the quality of our portfolio could be adversely affected and our ability to meet capital requirements could be jeopardized.
As of March 31, 2020, our largest single customer exposure, based on the higher of the outstanding balances of, or limit on, funded and non-funded exposures, calculated based on our Indian GAAP financial statements, was Rs. 244.6 billion, representing 13.3 percent of our capital funds which comprised of Tier I and Tier II capital. Similarly our 10 largest customer exposures totaled Rs. 1,264.8 billion, representing 68.6 percent of our capital funds. None of our 10 largest customer exposures was classified as
non-performing
as of March 31, 2020. However, if any of our 10 largest customer exposures were to become
non-performing,
our net income would decline and, due to the magnitude of the exposures, our ability to meet capital requirements could be jeopardized. See “
Management
’
s Discussion and Analysis of Financial Condition and Results of Operations
” for a detailed discussion on customer exposures. The RBI released guidelines on the LEF in December 2016 and April 2019, and further revised these guidelines by its circulars dated June 2019 and September 2019. The guidelines govern exposure of banks to a single counterparty and a group of connected counterparties. Under this framework, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20 percent of the bank’s available eligible capital base at all times and the sum of all the exposure values of a bank to a group of connected counterparties (as defined in the guidelines) must not be higher than 25 percent of the bank’s available eligible capital base at all times. The eligible capital base for this purpose is the effective amount of Tier I capital fulfilling the criteria mentioned in the Basel III guidelines issued by RBI as per the last audited balance sheet. Most of the guidelines under this framework have been implemented with effect from April 1, 2019 and the extant exposure norms applicable for credit exposure to individual borrowers or to groups of companies under the same management control will no longer be applicable from that date. As of March 31, 2020, there were no exposures which exceeded the ceiling permitted under the LEF guidelines.
As a result of the
COVID-19
pandemic, the RBI in its circular dated May 23, 2020, increased the permitted exposure of a bank to a group of connected counterparties from 25 percent to 30 percent of the eligible capital base of a bank. The increased limit will apply to June 30, 2021. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
Further, in June 2019, the RBI issued the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019. These directions replace the framework for resolution of stressed assets (including the framework for revitalizing distressed assets, joint lenders forum mechanism, strategic debt restructuring, and the scheme of sustainable structuring of stressed assets). In accordance with the circular, lenders must recognize developing stress in loan accounts, immediately on default. Lenders must put in place policies approved by their board of directors for the resolution of stressed assets, including the timelines for such resolution and they are expected to initiate implementation of the resolution plan even before default occurs. If a default occurs, however, lenders have a review period of 30 days within which their resolution strategy is to be decided. The directions provide the timelines within which the banks are required to implement the resolution plan, depending on the aggregate exposure of the borrower to the lender. For large accounts with the aggregate exposure of the lenders being Rs. 20 billion or more, the RBI has specified that the resolution plan must be implemented within 180 days from the end of the review period. If there is a delayed implementation of the resolution plan, lenders are required to make an additional provision of 20 percent of the total amount outstanding in addition to the provisions already held and provisions required to be made as per asset classification status of the borrower’s account, subject to a total provisioning of 100 percent of the total amount outstanding. Lenders are required to make appropriate disclosures of resolution plans implemented in their financial statements under “Notes on Accounts”.
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As a result of the
COVID-19
pandemic, the RBI in its circulars dated April 17, 2020 and May 23, 2020 temporarily relaxed the review period, as well as the timeline for the resolution of distressed assets for lenders. With respect to accounts which fell within the review period as of March 1, 2020, the period from March 1, 2020 to August 31, 2020 will be excluded from the calculation of the
30-day
review period. With respect to all such accounts, the residual review period will resume from September 1, 2020, upon expiry of which the lenders will have the usual 180 days for resolution. Further, with respect to the accounts where the review period was complete, but the
180-day
resolution period had not expired by March 1, 2020, the timeline for resolution will be extended by 180 days from the date on which the
180-day
period was originally set to expire. Consequently, the requirement to make an additional provision of 20 percent for delays in implementing the resolution plan will only be triggered once the extended resolution period expires. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
As of March 31, 2020, our largest industry concentrations, based on RBI guidelines, were as follows: retail trade (4.4 percent), power (4.3 percent), consumer services (3.3 percent) and NBFC (3.3 percent). In addition, as of March 31, 2020, 24.7 percent of our exposures were consumer loans. Industry-specific difficulties in these or other sectors may increase our level of
non-performing
customer assets. If we experience a downturn in an industry in which we have concentrated exposure, our net income will likely decline significantly and our financial condition may be materially adversely affected. As of March 31, 2020, our
non-performing
loans and credit substitutes as a percentage of total
non-performing
customer assets in accordance with U.S.GAAP were concentrated in the following industries: agriculture production-food (14.3 percent), road transportation (8.3 percent), retail trade (5.6 percent) and food and beverage (5.2 percent). In addition, 13.8 percent of our
non-performing
customer assets were consumer loans.
We are required to undertake directed lending under RBI guidelines. Consequently, we may experience a higher level of
non-performing
loans in our directed lending portfolio, which could adversely impact the quality of our loan portfolio, our business and the price of our equity shares and ADSs. Further, in the case of any shortfall in complying with these requirements, we may be required to invest in deposits of Indian development banks as directed by the RBI. These deposits yield low returns, thereby impacting our profitability.
The RBI prescribes guidelines on PSL in India. Under these guidelines, banks in India are required to lend 40.0 percent of their adjusted net bank credit (“ANBC”) or the credit equivalent amount of
off-balance
sheet exposures (“CEOBE”), whichever is higher, as defined by the RBI and computed in accordance with Indian GAAP figures, to certain eligible sectors categorized as priority sectors. The RBI has issued revised priority sector lending norms applicable from fiscal 2016 onwards. The priority sector requirements must be met as of March 31 of each year with reference to the higher of the ANBC and the CEOBE as of the corresponding date of the preceding year. From fiscal 2017, PSL achievement is required to be evaluated at the end of the fiscal based on the average of priority sector
target/sub-target
achievement as at the end of each quarter of that fiscal. See “
Supervision and Regulation—Directed Lending
”. Under the guidelines, scheduled commercial banks having any shortfall in lending to the priority sector shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (“RIDF”) established with the National Bank for Agriculture and Rural Development (“NABARD”) and other Funds with NABARD, National Housing Bank (“NHB”), Small Industries Development Bank of India (“SIDBI”) or Micro Units Development and Refinance Agency Limited (“MUDRA”), as decided by the RBI from time to time. The interest rates on such deposits may be lower than the interest rates which the Bank would have obtained by investing these funds at its discretion.
Further, the RBI has directed banks to maintain direct lending to
non-corporate
farmers at the banking system’s average level for the last three years, which would be notified by the RBI at the beginning of each year. The target for fiscal 2020 was 12.11 percent. Failure to maintain these lending levels to
non-corporate
farmers will attract penalties. The RBI has also directed banks to continue to pursue the target of 13.5 percent of ANBC towards lending to borrowers who constituted the direct agriculture lending category under the earlier guidelines. If we fail to adhere to the RBI’s policies and directions, we may be subject to penalties, which may adversely affect our results of operations. Furthermore, the RBI can make changes to the types of loans that qualify under the PSL scheme. Changes that reduce the types of loans that can qualify toward meeting our PSL targets could increase shortfalls under the overall target or under certain
sub-targets.
Our total PSL achievement for fiscal 2020 stood at 40.27 percent and our achievement of direct lending to
non-corporate
farmers stood at 13.56 percent for fiscal 2020 as against a requirement of 40 percent and 12.11 percent, respectively. In fiscal 2020 agricultural loans made to small and marginal farmers were at 7.84 percent of ANBC, against the requirement of 8.0 percent with a shortfall of Rs. 12.20 billion. Advances to sections termed “weaker” by the RBI were 10.44 percent against the requirement of 10.0 percent. Our achievement stood at 13.87 percent compared to a target of 13.5 percent of ANBC towards lending to borrowers, who constituted the direct agriculture lending category under the earlier guidelines.
We may experience a higher level of
non-performing
assets in our directed lending portfolio, particularly in loans to the agricultural sector, small enterprises and weaker sections, where we are less able to control the portfolio quality and where economic difficulties are likely to affect our borrowers more severely. Our gross
non-performing
assets in the directed lending sector as a percentage to gross loans were 0.5 percent as of March 31, 2020 (0.6 percent as of March 31, 2019). Further expansion of the PSL scheme could result in an increase of
non-performing
assets due to our limited ability to control the portfolio quality under the directed lending requirements.
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In addition to the PSL requirements, the RBI has encouraged banks in India to have a financial inclusion plan for expanding banking services to rural and unbanked centers and to customers who currently do not have access to banking services. The expansion into these markets involves significant investments and recurring costs. The profitability of these operations depends on our ability to generate business volumes in these centers and from these customers. Future changes by the RBI in the directed lending norms may result in our inability to meet the PSL requirements as well as require us to increase our lending to relatively more risky segments and may result in an increase in
non-performing
loans.
We may be unable to foreclose on collateral in a timely fashion or at all when borrowers default on their obligations to us, or the value of collateral may decrease, any of which may result in failure to recover the expected value of collateral security, increased losses and a decline in net income.
Although we typically lend on a cash-flow basis, many of our loans are secured by collateral, which consists of liens on inventory, receivables and other current assets, and in some cases, charges on fixed assets, such as property, movable assets (such as vehicles) and financial assets (such as marketable securities). As of March 31, 2020, 66.2 percent of our loans were partially or fully secured by collateral. We may not be able to realize the full value of the collateral, due to, among other things, stock market volatility, changes in economic policies of the Indian government, obstacles and delays in legal proceedings, borrowers and guarantors not being traceable, our records of borrowers’ and guarantors, addresses being ambiguous or outdated and defects in the perfection of collateral and fraudulent transfers by borrowers. In the event that a specialized regulatory agency gains jurisdiction over the borrower, creditor actions can be further delayed. In addition, the value of collateral may be less than we expect or may decline. For example, the global economic slowdown and other domestic factors had led to a downturn in real estate prices in India, which negatively impacted the value of our collateral.
The RBI has introduced various mechanisms, from time to time, to enable the lenders to timely resolve and initiate recovery with regards to stressed assets. In June 2019, the RBI issued the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019, which replaced the framework for the resolution of stressed assets (including the framework for revitalizing distressed assets, joint lenders forum mechanism, strategic debt restructuring, and the scheme of sustainable structuring of stressed assets). See “Supervision and Regulations – Resolution of Stressed Assets ”.
The Insolvency and Bankruptcy Code was introduced in December 1, 2016, with the aim to provide for the efficient and timely resolution of insolvency of all persons, including companies, partnership firms, limited liability partnerships and individuals. For further details, see
“
Supervision and Regulation—The Insolvency and Bankruptcy Code, 2016
”
.
However, given the limited experience of this framework, there can be no assurance that we will be able to successfully implement the above-mentioned mechanisms and recover the amounts due to us in full. Furthermore, as a part of the relief measures introduced as a result of the of
COVID-19
pandemic, the Government has proposed suspending the initiation of new insolvency proceedings for a period of six months from March 25, 2020. The inability to foreclose on such loans due or otherwise liquidate our collateral may result in failure to recover the expected value of such collateral security, which may, in turn, give rise to increased losses and a decline in net income. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
Our unsecured loan portfolio is not supported by any collateral that could help ensure repayment of the loan, and in the event of
non-payment
by a borrower of one of these loans, we may be unable to collect the unpaid balance.
We offer unsecured personal loans and credit cards to the retail customer segment, including salaried individuals and self-employed professionals. In addition, we offer unsecured loans to small businesses and individual businessmen. Unsecured loans are a greater credit risk for us than our secured loan portfolio because they may not be supported by realizable collateral that could help ensure an adequate source of repayment for the loan. Although we normally obtain direct debit instructions or postdated checks from our customers for our unsecured loan products, we may be unable to collect in part or at all in the event of
non-payment
by a borrower. Further, any expansion in our unsecured loan portfolio could require us to increase our provision for credit losses, which would decrease our earnings. Also see “
Business—Retail Banking—Retail Loans and Other Asset Products
”.
Our and our customers’ exposure to fluctuations in foreign currency exchange rates could adversely affect our operating results.
Foreign currency exchange rates depend on various factors and can be volatile and difficult to predict. We enter into derivative contracts with our borrowers to manage their foreign currency exchange risk exposure. Volatility in these exchange rates may lead to losses in derivative transactions for our borrowers. On maturity or on premature termination of the derivative contracts and under certain circumstances, we may have to bear these losses. The use of derivative financial instruments may also generate obligations for us to make additional cash payments, which would negatively affect our liquidity. Any losses suffered by our customers as a result of fluctuations in foreign currency exchange rates may have a materially adverse effect on our business, financial position or results of operations.
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We may not adequately assess, monitor and manage risks inherent in our business, and any failure to manage risks could adversely affect our business, financial position or results of operations.
We are exposed to a variety of risks, including liquidity risk, interest rate risk, credit risk, operational risk (including fraud) and legal risk (including actions taken by our own employees). The effectiveness of our risk management is limited by the quality and timeliness of available data and other factors outside of our control.
For example, our hedging strategies and other risk management techniques may not be fully effective in mitigating risks in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some methods of managing risks are based upon observed historical market behavior. As a result, these methods may not predict future risk exposures, which could be greater than the historical measures indicated. Other risk management methods depend upon an evaluation of information regarding markets, customers or other matters. This information may not in all cases be accurate, complete,
up-to-date
or properly evaluated. As part of our ordinary decision-making process, we rely on various models for risk and data analysis. These models are based on historical data and supplemented with managerial input and comments. There are no assurances that these models and the data they analyze are accurate or adequate to guide our strategic and operational decisions and protect us from risks. Any deficiencies or inaccuracies in the models or the data might have a material adverse effect on our business, financial condition or results of operation.
Additionally, management of operational, legal or regulatory risk requires, among other things, policies and procedures to ensure certain prohibited actions are not taken and to properly record and verify a number of transactions and events. Although we believe we have established such policies and procedures, they may not be fully effective and we cannot guarantee that our employees will follow these policies and procedures in all circumstances. Unexpected shortcomings in these policies and procedures or a failure to follow them may have a materially adverse effect on our business, financial position or results of operations.
Our future success will depend, in part, on our ability to respond to new technological advances and emerging banking and finance industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that we will successfully implement new technologies or adapt its transaction-processing systems to customer requirements or emerging market standards. Failure to properly monitor, assess and manage risks, could lead to losses which may have an adverse effect on our future business, financial position or results of operations.
In order to support and grow our business, we must maintain a minimum capital adequacy ratio, and a lack of access to the capital markets may prevent us from maintaining an adequate ratio.
As of March 31, 2020, the RBI requires a minimum capital adequacy ratio of 11.075 percent (including capital conservation buffer) of our total risk-weighted assets. We adopted the Basel III capital regulations effective April 1, 2013. Our capital adequacy ratio, calculated in accordance with Indian GAAP, was 18.52 percent as of March 31, 2020. Our
CET-I
ratio was 16.43 percent as of March 31, 2020. Our ability to support and grow our business would be limited by a declining capital adequacy ratio. While we anticipate accessing the capital markets to offset declines in our capital adequacy ratio, we may be unable to access the markets at the appropriate time or the terms of any such financing may be unattractive due to various reasons attributable to changes in the general environment, including political, legal and economic conditions.
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The Basel Committee on Banking Supervision issued a comprehensive reform package entitled “Basel III: A global regulatory framework for more resilient banks and banking systems” in December 2010. In May 2012, the RBI released guidelines on implementation of the Basel III capital regulations in India and in July 2015, the RBI issued a master circular consolidating all relevant guidelines on Basel III, and time to time amendments. The key items covered under these guidelines include: (i) improving the quality, consistency and transparency of the capital base; (ii) enhancing risk coverage; (iii) grading the enhancement of the total capital requirement; (iv) introducing a capital conservation buffer and countercyclical buffer; and (v) supplementing the risk-based capital requirement with a leverage ratio. One of the major changes in the Basel III capital regulations is that the Tier I capital will predominantly consist of common equity of the banks, which includes common shares, reserves and stock surplus. Innovative instruments and perpetual
non-cumulative
preference shares will not be considered a part of
CET-I
capital. Basel III also defines criteria for instruments to be included in Tier II capital to improve their loss absorbency. The guidelines also set out criteria for loss absorption through the conversion or
write-off
of all
non-common
equity regulatory capital instruments at the point of
non-viability.
The point of
non-viability
is defined as a trigger event upon the occurrence of which
non-common
equity Tier I and Tier II instruments issued by banks in India may be required to be, at the option of the RBI, written off or converted into common equity. Additionally, the guidelines have set out criteria for loss absorption through the conversion or
write-off
of Additional Tier I capital instruments at a
pre-specified
trigger level. The RBI by way of its circular dated March 27, 2020 has deferred the implementation of the last tranche of the capital conservation buffer from March 31, 2020 to September 30, 2020. Consequently, for Additional Tier I instruments issued before September 30, 2020, i.e., before the full implementation of Basel III there would be two
pre-specified
triggers. A lower
pre-specified
trigger at
CET-I
of 5.5 percent of risk weighted assets (“RWAs”) will apply and remain effective before September 30, 2020; from this date the trigger will be raised at
CET-I
of 6.125 percent of RWAs for all such instruments. Additional Tier I instruments issued on or after September 30, 2020 will have only one
pre-specified
trigger at
CET-I
of 6.125 percent of RWAs. The capital requirement, including the capital conservation buffer, will be 11.5 percent (excluding additional
CET-I
capital required to be maintained by
D-SIB),
and 11.7 percent (if calculated including additional
CET-I
capital requirement of 0.2 percent required to be maintained by
D-SIB)
once these guidelines are fully phased in. Domestic systemically important banks
(“D-SIB”)
are required to maintain additional
CET-I
capital requirement ranging from 0.2 percent to 0.8 percent of risk weighted assets. We were classified as a
D-SIB
from April 1, 2018 onwards and were required to maintain additional
CET-I
of 0.2 percent with effect from April 1, 2019. See “Supervision and Regulation—Domestic Systemically Important Banks”. Banks will also be required to have an additional capital requirement towards countercyclical capital buffer varying between 0 percent and 2.5 percent of the risk weighted assets as and when announced by the RBI. In its first
bi-monthly
monetary policy statement for fiscal 2017, the RBI stated that, following the review and empirical testing of countercyclical capital buffer indicators, it was not necessary to activate the countercyclical capital buffer regime at that point in time. The RBI has reiterated this by its notification dated April 1, 2020 and stated that it is not necessary to activate countercyclical capital buffer for a period of one year or earlier, as may be necessary. Additionally, the Basel III LCR, which is a measure of the Bank’s high-quality liquid assets compared to its anticipated cash outflows over a
30-day
stressed period, began applying in a phased manner that started with a minimum requirement of 60 percent from January 1, 2015 and reached a minimum of 100 percent on January 1, 2019. However, in view of the
COVID-19
pandemic, the RBI pursuant to its circular dated April 17, 2020 has reduced the LCR requirement from 100 percent to 80 percent for the period from April 17, 2020 to September 30, 2020. The reduced LCR requirement is to be increased in two phases; first to 90 percent on October 1, 2020 and second to 100 percent from April 1, 2021 onwards. See “The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation.” These various requirements including requirements to increase capital to meet increasing capital adequacy ratios could require us to forego certain business opportunities. Since, we have been classified as a
D-SIB,
pursuant to a circular issued by the RBI dated June 2019, under Basel III, , we are required to maintain a minimum leverage ratio of 4 percent as compared to 3.5 percent required to be maintained by other scheduled commercial banks, with effect from October 1, 2019.
We believe that the demand for Basel
III-compliant
debt instruments, such as Tier II capital eligible securities, may be limited in India. In the past, the RBI has reviewed and made amendments in its guidelines on Basel III capital regulations with a view to facilitating the issuance of
non-equity
regulatory capital instruments by banks under the Basel III framework. It is unclear what effect, if any, these amendments may have on the issuance of Basel
III-compliant
securities or if there will be sufficient demand for such securities. It is also possible that the RBI could further amend the eligibility criteria of such instruments in the future if the objectives identified by the RBI are not met, which would create additional uncertainty regarding the market for Basel
III-compliant
securities in India.
If we are unable to meet the new and revised requirements, including both requirements applicable to banks generally and requirements imposed on us as a
D-SIB,
our business, future financial performance and the price of our ADSs and equity shares could be adversely affected.
We rely on third parties, including service providers, overseas correspondent banks and other Indian banks, who may not perform their obligations satisfactorily or in compliance with law.
Our business leads us to rely on different types of third parties, which exposes us to risks. For example, we enter into outsourcing arrangements with third party vendors, in compliance with the RBI guidelines on outsourcing. These vendors provide services which include, among others, cash management services, software services, client sourcing, debt recovery services and call center services. However, we cannot guarantee that there will be no disruptions in the provision of such services or that these third parties will adhere to their contractual obligations. Additionally, we also rely on our overseas correspondent banks to facilitate international transactions, and the Indian banking industry as a whole is interdependent in facilitating domestic transactions. There is no assurance that our overseas correspondent banks or our domestic banking partners will not fail or face financial problems (such as financial problems arising out of or in relation to frauds uncovered in early 2018 at one of India’s public sector banks). If there is a disruption in the third-party services, or if the third-party service providers discontinue their service agreement with us, our business, financial condition and results of operations will be adversely affected. In case of any dispute with any of the foregoing parties, we cannot assure you that the terms of our arrangements with such parties will not be breached, which may result in costs such as litigation costs or the costs of entering into agreements with third parties in the same industry, and such costs may materially and adversely affect our business, financial condition and results of operations. We may also suffer from reputational and legal risks if one of these third parties acts unethically or unlawfully, and if any Bank in India, especially a private Bank, or any of our key overseas correspondent banks were to fail, this could materially and adversely affect our business, financial condition, growth prospects or the price of our equity shares.
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HDFC Limited holds a significant percentage of our share capital and can exercise influence over board decisions that could directly or indirectly favor the interests of HDFC Limited over our interests.
HDFC Group owned 21.24 percent of our equity as of March 31, 2020. So long as HDFC Group holds at least a 20 percent equity stake in us, HDFC Limited is entitled to nominate two directors, our Chairperson and Managing Director, to our Board of Directors. These two directors are not required to retire by rotation and their appointments are subject to RBI approval. Shyamala Gopinath has been reappointed as part-time
Non-Executive
Chairperson for three years with effect from January 2, 2018. Renu Karnard, the Managing Director of HDFC Limited is a member of our Board of Directors. While we are professionally managed and overseen by an independent board of directors, HDFC Limited can exercise influence over our board and over matters subject to a shareholder vote, which could result in decisions that favor HDFC Limited or result in us foregoing opportunities to the benefit of HDFC Limited. Such decisions may restrict our growth or harm our financial condition.
In the past, there have been reports in the Indian media suggesting that we may merge with financial institutions, including HDFC Limited. We consider business combination opportunities as they arise. At present, we are not actively considering a business combination with any financial institution. Any significant business combination would involve compliance with regulatory requirements and shareholder and regulatory approvals.
Additionally, on July 15, 2014, the RBI issued guidelines in relation to the issuance of long-term bonds with a view to encouraging financing of infrastructure and affordable housing. Regulatory incentives in the form of an exemption from the reserve requirements and a relaxation in PSL norms are stipulated as being restricted to bonds that are used to incrementally finance long-term infrastructure projects and loans for affordable housing. Any incremental infrastructure or affordable housing loans acquired from other financial institutions, such as those that could be involved in a business combination with HDFC Limited, to be reckoned for regulatory incentives will require the prior approval of the RBI. We cannot predict the impact any potential business combination would have on our business, financial condition, growth prospects or the prices of our equity shares.
We may face conflicts of interest relating to our promoter and principal shareholder, HDFC Limited, which could cause us to forego business opportunities and consequently have an adverse effect on our financial performance.
HDFC Limited is primarily engaged in financial services, including home loans, property-related lending and deposit products. The subsidiaries and associated companies of HDFC Limited are also largely engaged in a range of financial services, including asset management, life and other insurance and mutual funds. Although we have no agreements with HDFC Limited or any other HDFC Group companies that restrict us from offering products and services that are offered by them, our relationship with these companies may cause us not to offer products and services that are already offered by other HDFC Group companies and may effectively prevent us from taking advantage of business opportunities. See Note 28 “
Related Party Transactions
” in our consolidated financial statements for a summary of transactions we have engaged in with HDFC Limited during fiscal 2020. We currently distribute products of HDFC Limited and its group companies. If we stop distributing these products or forego other opportunities because of our relationship with HDFC Limited, it could have a material adverse effect on our financial performance.
HDFC Limited may prevent us from using the HDFC Bank brand if they reduce their shareholding in us to below 5 percent.
As part of a shareholder agreement executed when HDFC Bank was formed, HDFC Limited has the right to prevent us from using “HDFC” as part of our name or brand if HDFC Limited reduces its shareholding in HDFC Bank to an amount below 5 percent of our outstanding share capital. If HDFC Limited were to exercise this right, we would be required to change our name and brand, which could require us to expend significant resources to establish new branding and name recognition in the market as well as undertake efforts to rebrand our banking outlets and our digital presence. This could have a material adverse effect on our financial performance.
RBI guidelines relating to ownership in private banks could discourage or prevent a change of control or other business combination involving us, such as with HDFC Limited, which could restrict the growth of our business and operations.
RBI guidelines prescribe a policy framework for the ownership and governance of private sector banks. Under Section 12 of the Banking Regulation Act, 1949, as amended, effective from January 18, 2013 through the Banking Laws Amendment Act, 2012, no person holding shares in a financial institution shall, in respect of any shares held by such person, exercise voting rights in excess of 10 percent of the total voting rights of all the shareholders of such financial institution, provided that the RBI may increase, in a phased manner, such ceiling on voting rights from 10 to 26 percent. The notification dated July 21, 2016 issued by RBI and published in the Gazette of India dated September 17, 2016 states that the current ceiling voting rights is at 26 percent. These guidelines prescribe requirements regarding shareholding and voting rights in relation to all private sector banks licensed by the RBI to operate in India. The guidelines specify the following ownership limits for shareholders based on their categorization:

(i) | In the case of individuals and non-financial entities (other than promoters/a promoter group), 10 percent of the paid-up capital. However, in the case of promoters being individuals and non-financial entities in existing banks, the permitted promoter/promoter group shareholding shall be as prescribed under the February 2013 guidelines, i.e., 15 percent.

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(ii) | In the case of entities from the financial sector, other than regulated or diversified or listed, 15 percent of the paid-up capital.

(iii) | In the case of “regulated, well diversified, listed entities from the financial sector” shareholding by supranational institutions, public sector undertaking or governments, up to 40 percent of the paid-up capital is permitted for both promoters/a promoter group and non-promoters.

The RBI may permit an increase of its stake beyond the limits mentioned above on a
case-to-case
basis under circumstances such as relinquishment by existing promoters, rehabilitation, restructuring of problems, weak banks, entrenchment of existing promoters or in the interest of the bank or in the interest of consolidation in the banking sector.
Such restrictions could discourage or prevent a change in control, merger, consolidation, takeover or other business combination involving us, which might be beneficial to our shareholders. The RBI’s approval is required for the acquisition or transfer of a bank’s shares, which will increase the aggregate holding (direct and indirect, beneficial or otherwise) of an individual or a group to the equivalent of 5 percent or more of its total
paid-up
capital. The RBI, when considering whether to grant an approval, may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet fitness and propriety tests, as prescribed by the RBI. The RBI has accorded its approval for HDFC Limited to hold more than 10 percent of our stock. HDFC Limited’s substantial stake in us could discourage or prevent another entity from exploring the possibility of a combination with us. These obstacles to potentially synergistic business combinations could negatively impact our share price and have a material adverse effect on our ability to compete effectively with other large banks and consequently our ability to maintain and improve our financial condition.
Additionally, under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “SEBI Listing Regulations”), all related party transactions will require approval from the audit committee. Further, all material related party transactions (based on the threshold provided under the SEBI Listing Regulations) will require shareholders’ approval. Further, pursuant to the SEBI Listing Regulations, no related party shall vote to approve such transactions. For transactions with HDFC Limited, shareholder approvals have been obtained for fiscal 2020. However, if we are unable to obtain the necessary shareholder approvals for transactions with HDFC Limited in the future, we would be required to forego certain opportunities, which could have a material adverse effect on our financial performance.
Foreign investment in our shares may be restricted due to regulations governing aggregate foreign investment in the Bank’s
paid-up
equity share capital.
Aggregate foreign investment from all sources in a private sector bank is permitted up to 49 percent of the
paid-up
capital under the automatic route. This limit can be increased to 74 percent of the
paid-up
capital with prior approval from the Government of India. Pursuant to a letter dated February 4, 2015, the Foreign Investment Promotion Board has approved foreign investment in the Bank up to 74 percent of its
paid-up
capital. The approval is subject to examination by the RBI for compounding on the change of foreign shareholding since April 2010. If the Bank is subject to any penalties or an unfavorable ruling by the RBI, this could have an adverse effect on the Bank’s results of operation and financial condition. The RBI had previously imposed a restriction on the purchase of equity shares of the Bank by foreign investors, under its circular dated March 19, 2012. On February 16, 2017, the RBI lifted such restriction since the foreign shareholding in the Bank was below the maximum prescribed percentage of 74 percent. Thereafter the RBI notified by press release on February 17, 2017, and by separate letter to us dated February 28, 2017, that the foreign shareholding in all forms in the Bank crossed the said limit of 74 percent again. This was due to secondary market purchases of the Bank’s equity shares during this period. Consequently, the RBI
re-imposed
the restrictions on the purchase of the Bank’s equity shares by foreign investors. Further, SEBI also enquired regarding the measures that the Bank has taken and will take in respect of breaches of the maximum prescribed percentage of foreign shareholding in the Bank, by its letter dated March 9, 2018. As of March 31, 2020, foreign investment in the Bank, including the shareholdings of HDFC Limited and its subsidiaries, constituted 69.90 percent, respectively of the
paid-up
capital of the Bank. The restrictions on the purchases of the Bank’s equity shares could negatively, affect the price of the Bank’s shares and could limit the ability of investors to trade the Bank’s shares in the market. These limitations and any consequent regulatory actions may also negatively affect the Bank’s ability to raise additional capital to meet its capital adequacy requirements or to fund future growth through future issuances of additional equity shares, which could have a material adverse effect on our business and financial results. See “
Supervision and Regulation—Foreign Ownership Restriction
”.
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Our success depends in large part upon our management team and skilled personnel and our ability to attract and retain such persons.
We are highly dependent on our management team, including the efforts of our Managing Director and other members of our senior management. Our future performance is dependent on the continued service of these persons or similarly skilled and qualified successors. The term of the Bank’s current Managing Director, Mr. Aditya Puri, will end on October 26, 2020. On April 30, 2020, the Bank submitted to the RBI for approval, in order of preference, the names of three candidates to succeed Mr. Puri. As of the date of this report, the RBI has not communicated a decision with respect to its preference for the Bank’s new Managing Director. We also face a continuing challenge to recruit and retain a sufficient number of skilled personnel, particularly if we continue to grow. Competition for management and other skilled personnel in our industry is intense, and we may not be able to attract and retain the personnel we need in the future. The loss of key personnel may restrict our ability to grow and consequently have a material adverse impact on our results of operations and financial position.
We have previously been subject to penalties imposed by the RBI. Any regulatory investigations, fines, sanctions, and requirements relating to conduct of business and financial crime could negatively affect our business and financial results, or cause serious reputational harm.
The RBI is empowered under the Banking Regulation Act to impose penalties on banks and their employees to enforce applicable regulatory requirements. The Financial Intelligence Unit (India) (the
“FIU-IND”),
in January 2015, levied a fine on us of Rs. 2.6 million relating to our failure to detect and report attempted suspicious transactions which appeared in media during financial year 2013. We filed an appeal against the order before the appellate tribunal stating that there were only enquiries made by the reporters of the media and there were no instances of any attempted suspicious transactions. In June 2017, the appellate tribunal dismissed the penalty levied by the FIU and observed that the prescribed matter fell within the provisions of section 13(2)(a) of the Prevention of Money Laundering Act, 2002 (“PMLA”), 2002 (pursuant to which a warning was required to be given to the Bank), and that the matter did not fall within section 13(2)(d) of the PMLA (pursuant to which monetary penalties can be imposed on failure to comply with certain obligations under the PMLA) as mentioned by the FIU. However,
FIU-IND
challenged the appellate tribunal’s order in the Delhi High Court. Subsequently, through its order dated September 4, 2019, the Delhi High Court held that the violation of the reporting obligations on the part of the respondent banks warranted issuance of a warning in writing under Section 13(2)(a) of the Act, instead of a monetary penalty as imposed under Section 13(2)(d) of the Act, and disposed of the case filed by
FIU-IND.
In October 2015, there were media reports about irregularities in advance import remittances in various banks, further to which the RBI had conducted a scrutiny of the transactions carried out by us. In April 2016, the RBI issued a show cause notice to us to which we submitted our detailed response. After considering our submissions, the RBI imposed a penalty of Rs. 20.0 million on us in July 2016, which we paid, on account of pendency in receipt of bills of entry relating to advance import remittances made and lapses in adhering to KYC and Anti-Money Laundering (“AML”) guidelines in this respect. During 2019 we received two separate fines for
non-compliance
with certain RBI directives. In its order dated February 4, 2019, the RBI imposed a monetary penalty of Rs. 2.0 million on us for failing to comply with the RBI’s KYC and AML standards, as set out in their circulars dated November 29, 2004 and May 22, 2008. In its order dated June 13, 2019, the RBI imposed a monetary penalty of Rs. 10 million on us for failing to comply with its KYC, AML and fraud reporting standards, following an investigation into bills of entry submitted by certain importers. The penalties were imposed under Section 47A(1)(c) and Section 46(4)(i) of the Banking Regulation Act, 1949. We have since implemented corrective action to strengthen our internal control mechanisms so as to ensure that such incidents do not repeat themselves. See “
Supervision and Regulation—Penalties
”. In 2020, the Bank received one fine for
non-compliance
with RBI regulations. In its order dated January 29, 2020, the RBI imposed a monetary penalty of Rs. 10 million on the Bank for failure to undertake ongoing due diligence with respect to 39 current accounts which had been opened by customers of the Bank to participate in an initial public offering, but where the transactions effected were disproportionate to the declared income and profile of the customers. This penalty was imposed by the RBI using the powers conferred under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act 1949. The Bank has since strengthened its internal control mechanisms so as to ensure that such incidents are not repeated.
In May 2020, following an internal inquiry we determined that certain employees received unauthorized commissions from a third-party vendor of GPS products, with whom we have an agreement to offer GPS devices to our auto loan customers. The personal misconduct of these employees is in violation of our code of conduct and governance standards and we have taken disciplinary action with respect to the employees involved, including separation of services of certain employees.
We cannot predict the initiation or outcome of any further investigations by other authorities or different investigations by the RBI. The penalties imposed by the RBI have generated adverse publicity for our business. Such adverse publicity, or any future scrutiny, investigation, inspection or audit which could result in fines, public reprimands, damage to our reputation, significant time and attention from our management, costs for investigations and remediation of affected customers, may materially adversely affect our business and financial results.
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Transactions with counterparties in countries designated as state sponsors of terrorism by the United States State Department, the Government of India or other countries, or with persons targeted by United States, Indian, EU or other economic sanctions may cause potential customers and investors to avoid doing business with us or investing in our securities, harm our reputation or result in regulatory action which could materially and adversely affect our business.
We engage in business with customers and counterparties from diverse backgrounds. In light of United States, Indian, EU and other sanctions, it cannot be ruled out that some of our customers or counterparties may become the subject of sanctions. Such sanctions may result in our inability to gain or retain such customers or counterparties or receive payments from them. In addition, the association with such individuals or countries may damage our reputation or result in significant fines. This could have a material adverse effect on our business, financial results and the prices of our securities.
These laws, regulations and sanctions or similar legislative or regulatory developments may further limit our business operations. If we were determined to have engaged in activities targeted by certain United States, Indian, EU or other statutes, regulations or executive orders, we could lose our ability to open or maintain correspondent or payable-through accounts with United States financial institutions, among other potential sanctions. In addition, depending on socio-political developments, even though we take measures designed to ensure compliance with applicable laws and regulations, our reputation may suffer due to our association with certain restricted targets. The above circumstances could have a material adverse effect on our business, financial results and the prices of our securities.
Material changes in Indian banking regulations may adversely affect our business and our future financial performance.
We operate in a highly regulated environment in which the RBI extensively supervises and regulates all banks. Our business could be directly affected by any changes in policies for banks in respect of directed lending, reserve requirements and other areas. For example, the RBI could change its methods of enforcing directed lending standards so as to require more lending to certain sectors, which could require us to change certain aspects of our business. In addition, we could be subject to other changes in laws and regulations, such as those affecting the extent to which we can engage in specific business, those that reduce our income through a cap on either fees or interest rates chargeable to our customers, or those affecting foreign investment in the banking industry, as well as changes in other government policies and enforcement decisions, income tax laws, foreign investment laws and accounting principles. Laws and regulations governing the banking sector may change in the future and any changes may adversely affect our business, our future financial performance and the price of our equity shares and ADSs.
Our funding is primarily short- and medium-term and if depositors do not roll over deposited funds upon maturity our net income may decrease.
Most of our funding requirements are met through short-term and medium-term funding sources, primarily in the form of retail deposits. Short-term deposits are those with a maturity not exceeding one year. Medium-term deposits are those with a maturity of greater than one year but not exceeding three years. See “
Selected Statistical Information—Funding
”. However, a portion of our assets have long-term maturities, which sometimes causes funding mismatches. As of March 31, 2020, 37.0 percent of our loans are expected to mature within the next one year and 41.6 percent of our loans are expected to mature between the next one to three years. As of March 31, 2020, 35.3 percent of our deposits are expected to mature within the next year and 37.5 percent of our deposits are expected to mature between the next one to three years. In our experience, a substantial portion of our customer deposits has been rolled over upon maturity and has been, over time, a stable source of funding. However, if a substantial number of our depositors do not roll over deposited funds upon maturity, our liquidity position will be adversely affected and we may be required to seek more expensive sources of funding to finance our operations, which would result in a decline in our net income and have a material adverse effect on our financial condition. We may also face a concentration of deposits by our larger depositors. Any sudden or large withdrawals by such large depositors may impact our liquidity position.
Any increase in interest rates would have an adverse effect on the value of our fixed income securities portfolio and could have a material adverse effect on our net income.
Any increase in interest rates would have an adverse effect on the value of our fixed income securities portfolio and could have a material adverse effect on our net revenue. Policy rates were successively increased from February 2010 to March 2012 during which period the bout of interest rate tightening in India was faster than in many other economies. The RBI raised key policy rates from 5.25 percent (repo rate) in April 2010 to 8.5 percent in October 2011. However, key policy rates were eased from 8.0 percent (repo rate) in April 2012 to 7.25 percent in May 2013. In July 2013, the RBI increased the rate for borrowings under its marginal standing facility (which was introduced by the RBI in fiscal 2012) from 100 basis points to 300 basis points above the repo rate. This rate was eased from 200 basis points above the repo rate in September 2013 to 100 basis points above repo rate in October 2013. In contrast, the policy rates were tightened from 7.5 percent (repo rate) in September 2013 to 8.0 percent in January 2014. The RBI reduced the policy repo rate again to 7.75 percent in January 2015, further reducing it to 7.5 percent in March 2015, 7.25 percent in June 2015, 6.75 percent in September 2015, 6.5 percent in April 2016, 6.25 percent in October 2016, and 6.0 percent in August 2017, before increasing it to 6.25 percent in June 2018 and 6.5 percent in August 2018. The RBI began decreasing the policy rate again in February 2019 and reduced the policy rate further in April 2019, June 2019, August 2019, October 2019 and February 2020. The central bank reduced the policy rate by 40 basis points in May 2020 to address
COVID-19
related disruptions.
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We are, however, more structurally exposed to interest rate risk than banks in many other countries because of certain mandated reserve requirements of the RBI. See
“Supervision and Regulation—Legal Reserve Requirements”.
These requirements result in Indian banks, such as ourselves, maintaining (as per RBI guidelines currently in force) a portion of our liabilities in bonds issued by the Government (18.0 percent as of May 2020 computed as per guidelines issued by the RBI). We are also required to maintain 3 percent of our liabilities (computed as per guidelines issued by the RBI) by way of a balance with the RBI. This, in turn, means that we could be adversely impacted by a rise in interest rates, especially if the rise were sudden or sharp. A rise in yields on fixed income securities, including government securities, will likely adversely impact our profitability. The aforementioned requirements would also have a negative impact on our net interest income and net interest margins since interest earned on our investments in government issued securities is generally lower than that earned on our other interest earning assets.
Further competition and the development of advanced payment systems by our competitors would adversely impact our cash float and decrease fees we receive in connection with cash management services.
The Indian market for CMS is marked by some distinctive characteristics and challenges such as a vast geography, a large number of small business-intensive towns, a large unorganized sector in various business supply chains and infrastructural limitations for accessibility to many parts of the country. Over the years, such challenges have made it a daunting task for CMS providers in the country to uncover the business potential and extend suitable services and product solutions to the business community.
We have been able to retain and increase our share of business in cash management services through traditional product offerings as well as by offering new age electronic banking services. With new entrants in the payment space such as new payment banks now being granted licenses to conduct business and certain financial technology companies, the competition in the payments landscape is likely to increase. Any increased competition within the payment space, any introduction of a more advanced payment system in India or an inability for us to sustain our technology investments, may have a material adverse effect on our financial condition.
We could experience a decline in our revenue generated from activities on the equity markets if there is a prolonged or significant downturn on the Indian stock exchanges, and we may face difficulties in getting regulatory approvals necessary to conduct our business if we fail to meet regulatory limits on capital market exposures.
We provide a variety of services and products to participants involved with the Indian stock exchanges. These include working capital funding and margin guarantees to share brokers, personal loans secured by shares, initial public offering finance for retail customers, stock exchange clearing services, collecting bankers to various public offerings and depositary accounts. If there is a prolonged or significant downturn on the Indian stock exchanges, our revenue generated by offering these products and services may decrease, which would have a material adverse effect on our financial condition.
We are required to maintain our capital market exposures within the limits as prescribed by the RBI. Our capital market exposures are comprised primarily of investments in equity shares, loans to share brokers and financial guarantees issued to stock exchanges on behalf of share brokers.
As per RBI norms, a bank’s capital market exposure is limited to 40 percent of its net worth under Indian GAAP as of March 31 of the previous year, both on a consolidated and
non-consolidated
basis. Our capital market exposure as of March 31, 2020 was 13.7 percent of our net worth on a
non-consolidated
basis and 14.3 percent on a consolidated basis, in each case, under Indian GAAP. See “
Supervision and Regulation—Large Exposures Framework
”. If we fail to meet these regulatory limits in the future, we may face difficulties in obtaining other regulatory approvals necessary to conduct our normal course of business, which would have a material adverse effect on our business and operations.
Any failure or material weakness of our internal control system could cause significant errors, which may have a materially adverse effect on our reputation, business, financial position or results of operations.
We are responsible for establishing and maintaining adequate internal measures commensurate with our size and complexity of operations. Our internal or concurrent audit functions are equipped to make an independent and objective evaluation of the adequacy and effectiveness of internal controls on an ongoing basis to ensure that business units adhere to our policies, compliance requirements and internal circular guidelines. While we periodically test and update, as necessary, our internal control systems, we are exposed to operational risks arising from the potential inadequacy or failure of internal processes or systems, and our actions may not be sufficient to guarantee effective internal controls in all circumstances. Given our high volume of transactions, it is possible that errors may repeat or compound before they are discovered and rectified. Our systems and internal control procedures that are designed to monitor our operations and overall compliance may not identify every instance of
non-compliance
or every suspicious transaction. If internal control weaknesses are identified, our actions may not be sufficient to fully correct such internal control weakness. We face operational risks in our various businesses and there may be losses due to deal errors, settlement problems, pricing errors, inaccurate reporting, breaches of confidentiality, fraud and failure of mission critical systems or infrastructure. Any error tampering or manipulation could result in losses that may be difficult to detect. As a result, we may come under additional regulatory scrutiny or be the target of enforcement actions, or suffer monetary losses or adverse reputation effects which, in each case, could be material, and could have a material adverse effect on our business, financial position or results of operation.
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For example, pursuant to the media reports during fiscal 2018, certain unpublished price sensitive information (“UPSI”) relating to our financial results for the quarter ended December 31, 2015 and June 30, 2017 was leaked in a private “group” on the WhatsApp mobile app ahead of the official publication of such results. Following this leak, we received an order from SEBI on February 23, 2018 directing us to (i) strengthen our processes, systems, and controls relating to information security to prevent future leaks, (ii) submit a report on (a) the systems and controls, how they have been strengthened, and at what regular intervals they are monitored, and (b) the details of persons who are responsible for monitoring such systems, and (iii) conduct an internal inquiry into the leakage of UPSI relating to our financial results and submit a report in relation thereto. In accordance with the SEBI order, we filed both reports with SEBI on May 30, 2018. Any additional action by SEBI in connection with its investigation and our respective reports may subject us to further scrutiny or enforcement actions and have a material adverse effect on our reputation, business, financial position or results of operation.
Significant fraud, system failure or calamities would disrupt our revenue-generating activities in the short-term and could harm our reputation and adversely impact our revenue-generating capabilities.
Our business is highly dependent on our ability to efficiently and reliably process a high volume of transactions across numerous locations and delivery channels. We place heavy reliance on our technology infrastructure for processing this data and therefore ensuring the security of this system and its availability is of paramount importance. Our systemic and operational controls may not be adequate to prevent any adverse impact from frauds, errors, hacking and system failures. A significant system breakdown or system failure caused by intentional or unintentional acts would have an adverse impact on our revenue-generating activities and lead to financial loss. Our reputation could be adversely affected by fraud committed by employees, customers or outsiders, or by our perceived inability to properly manage fraud-related risks. Our inability or perceived inability to manage these risks could lead to enhanced regulatory oversight and scrutiny. Fraud or system failures by other Indian banking institutions (such as frauds uncovered in early 2018 at one of India’s public sector banks) could also adversely affect our reputation and revenue-generating activity by reflecting negatively on our industry more generally, and in certain circumstances we could be required to absorb losses arising from intentional or unintentional acts by third-party institutions. We have established a geographically remote disaster recovery site to support critical applications, and we believe that we would be able to restore data and resume processing in the event of a significant system breakdown or failure. However, it is possible the disaster recovery site may also fail or it may take considerable time to make the system fully operational and achieve complete business resumption using the alternate site. Therefore, in such a scenario where the primary site is also completely unavailable, there may be significant disruption to our operations, which would materially adversely affect our reputation and financial condition.
Our business and financial results could be impacted materially by adverse results in legal proceedings.
Legal proceedings, including lawsuits, investigations by regulatory authorities and other inspections or audits, could result in judgments, fines, public reprimands, damage to our reputation, significant time and attention from our management, costs for investigations and remediation of affected customers, or other adverse effects on our business and financial results. We establish reserves for legal claims when payments associated with claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if we have not established a reserve. In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of any pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition. See “
Business—Legal Proceedings
”.
We may breach third party intellectual property rights.
We may be subject to claims by third parties, both inside and outside India, if we breach their intellectual property rights by using slogans, names, designs, software or other such rights, which are of a similar nature to the intellectual property these third parties may have registered. Any legal proceedings which result in a finding that we have breached third parties’ intellectual property rights, or any settlements concerning such claims, may require us to provide financial compensation to such third parties or make changes to our marketing strategies or to the brand names of our products, which may have a materially adverse effect on our business prospects, reputation, results of operations and financial condition.
Negative publicity could damage our reputation and adversely impact our business and financial results.
Reputational risk, or the risk to our business, earnings and capital from negative publicity, is inherent in our business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or us specifically could adversely affect our ability to attract and retain customers, and may expose us to litigation and regulatory action. Negative publicity can result from our actual or alleged conduct in any number of activities, including lending practices, mortgage servicing and foreclosure practices, corporate governance, regulatory compliance, mergers and acquisitions and related disclosure, sharing or inadequate protection of customer information, and actions taken by government regulators and community organizations in response to that conduct. Although we take steps to minimize reputational risk in dealing with customers and other constituencies, we, as a large financial services organization with a high industry profile, are inherently exposed to this risk.
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We face cyber threats, such as hacking, phishing and trojans, attempting to exploit our network to disrupt services to customers and/or theft or leaking of sensitive internal Bank data or customer information. This may cause damage to our reputation and adversely impact our business and financial results.
We offer internet banking services to our customers. Our internet banking channel includes multiple services such as electronic funds transfer, bill payment services, usage of credit cards
on-line,
requesting account statements, and requesting check books. We are therefore exposed to various cyber threats related to these services or to other sensitive Bank information, with such threats including: (a) phishing and trojans targeting our customers, whereby fraudsters send unsolicited mails to our customers seeking account-sensitive information or infecting customer computers in an attempt to search and export account-sensitive information; (b) hacking, whereby attackers seek to hack into our website with the primary intention of causing reputational damage to us by disrupting services; (c) data theft whereby cyber criminals attempt to intrude into our network with the intention of stealing our data or information or to extort money; and (d) leaking, whereby sensitive internal Bank data or customer information is inappropriately disclosed by parties entitled to access it. Attempted cyber threats fluctuate in frequency but are generally increasing in frequency, and while certain of the foregoing events have occurred in the past, we cannot guarantee they will not reoccur in the future. As the sophistication of cyber-incidents continues to evolve, we will likely be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber incidents. In addition, cyber incidents may remain undetected for an extended period.
There is also the risk of our customers incorrectly blaming us and terminating their accounts with us for a cyber-incident which might have occurred on their own system or with that of an unrelated third party. Any cyber security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and related financial liability.
A failure, inadequacy or security breach in our information technology and telecommunication systems may adversely affect our business, results of operation or financial condition.
Our ability to operate and remain competitive depends in part on our ability to maintain and upgrade our information technology systems and infrastructure on a timely and cost-effective basis, including our ability to process a large number of transactions on a daily basis. Our operations also rely on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. Our financial, accounting or other data processing systems and management information systems or our corporate website may fail to operate adequately or become disabled as a result of events that may be beyond our control or may be vulnerable to unauthorized access, computer viruses or other attacks. See “
—We face cyber threats, such as hacking, phishing and trojans, attempting to exploit our network to disrupt services to customers and/or theft of sensitive internal Bank data or customer information. This may cause damage to our reputation and adversely impact our business and financial results
”. Further, the information available to and received by our management through its existing systems may not be timely and sufficient to manage risks or to plan for and respond to changes in market conditions and other developments in our operations. If any of these systems are disabled or if there are other shortcomings or failures in our internal processes or systems, it may disrupt our business or impact our operational efficiencies, and render us liable to regulatory intervention or damage to its reputation. The occurrence of any such events may adversely affect our business, results of operation and financial condition.
Our business is highly competitive, which makes it challenging for us to offer competitive prices to retain existing customers and solicit new business, and our strategy depends on our ability to compete effectively.
We face strong competition in all areas of our business, and some of our competitors are larger than we are. We compete directly with large public and private sector banks, some of which are larger than we are based on certain metrics such as customer assets and deposits, branch network and capital. These banks are becoming more competitive as they improve their customer services and technology. In addition, we compete directly with foreign banks, which include some of the largest multinational financial companies in the world. See “
—We may face increased competition as a result of revised guidelines that relax restrictions on foreign ownership and participation in the Indian banking industry, and the entry of new banks in the private sector which could cause us to lose existing business or be unable to compete effectively for new business.
”. In addition, new entrants into the financial services industry, including companies in the financial technology sector, may further intensify competition in the business environments, especially in the digital business environment, in which we operate, and as a result, we may be forced to adapt our business to compete more effectively. There can be no assurance that we will be able to respond effectively to current or future competition or that the technological investments we make in response to such competition will be successful. Due to competitive pressures, we may be unable to successfully execute our growth strategy and offer products and services (whether current or new offerings) at reasonable returns and this may adversely impact our business. If we are unable to retain and attract new customers, our revenue and net income will decline, which could materially adversely affect our financial condition. See “
Business—Competition
”.
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We may face increased competition as a result of revised guidelines that relax restrictions on foreign ownership and participation in the Indian banking industry, and the entry of new banks in the private sector which could cause us to lose existing business or be unable to compete effectively for new business.
The Government of India regulates foreign ownership in private sector banks. Foreign ownership up to 49 percent of the
paid-up
capital is permitted in Indian private sector banks under the automatic route and this limit can be increased up to 74 percent with prior approval of the Government of India. However, under the Banking Regulation Act, read together with the Reserve Bank of India (Ownership in Private Sector Banks) Directions, 2016, a shareholder cannot exercise voting rights in excess of 10 percent of the total voting rights of all the shareholders of a financial institution. The RBI may increase the ceiling on voting rights in a phased manner up to 26 percent. The notification dated July 21, 2016 issued by RBI and published in the Gazette of India on September 17, 2016 states that the current ceiling on voting rights is at 26 percent. The RBI has also from time to time issued various circulars and regulations regarding ownership of private banks and licensing of new private sector banks in India. See “Supervision and Regulation—Entry of new banks in the private sector”. Reduced restrictions on foreign ownership of Indian banks could increase the presence of foreign banks in India, increased competition in the industry in which we operate.
In February 2013, the RBI released guidelines for the licensing of new banks in the private sector. The RBI permitted private sector entities owned and controlled by Indian residents and entities in the public sector in India to apply to the RBI for a license to operate a bank through a wholly owned
non-operative
financial holding company (“NOFHC”) route, subject to compliance with certain specified criteria. Such a NOFHC was permitted to be the holding company of a bank as well as any other financial services entity, with the objective that the holding company ring-fences the regulated financial services entities in the group, including the bank, from other activities of the group. Pursuant to these guidelines, in fiscal 2016 IDFC Bank and Bandhan Bank commenced banking operations.
In November 2014, the RBI released guidelines for the licensing of payments banks and small finance banks (the “November 2014 Guidelines”) in the private sector. Since promulgation, such banks have been established and operational pursuant to these guidelines, which have increased competition in the markets in which we operate. In December 2019, the RBI released guidelines for
“on-tap”
licensing of small finance banks (the “December 2019 Guidelines”). The RBI in its circular dated March 28, 2020 issued modifications to existing regulations under the November 2014 Guidelines to harmonize such regulations with the December 2019 Guidelines.
In August 2016, the RBI released final guidelines for
“on-tap”
Licensing of Universal Banks in the Private Sector. The guidelines aim at moving from the current “stop and go” licensing approach (wherein the RBI notifies the licensing window during which a private entity may apply for a banking license) to a continuous or
“on-tap”
licensing regime. Among other things, the new guidelines specify conditions for the eligibility of promoters, corporate structure and foreign shareholdings. One of the key features of the new guidelines is that, unlike the February 2013 guidelines (mentioned above), the new guidelines make the NOFHC structure
non-mandatory
in the case of promoters being individuals or standalone promoting/converting entities which do not have other group entities.
In May 2016, the RBI issued the Reserve Bank of India (Ownership in Private Sector Banks) Directions, 2016. These guidelines prescribe requirements regarding shareholding and voting rights in relation to all private sector banks licensed by the RBI to operate in India. See “Supervision and Regulation—Entry of new banks in the private sector”.
Any growth in the presence of foreign banks or new banks in the private sector may increase the competition that we face and, as a result, have a material adverse effect on our business and financial results.
If the goodwill recorded in connection with our acquisitions becomes impaired, we may be required to record impairment charges, which would decrease our net income and total assets.
In accordance with U.S. GAAP, we have accounted for our acquisitions using the purchase method of accounting. We recorded the excess of the purchase price over the fair value of the assets and liabilities of the acquired companies as goodwill. U.S. GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill is tested by initially estimating fair value of the reporting unit and then comparing it against the carrying amount including goodwill. If the carrying amount of a reporting unit exceeds its estimated fair value, we are required to record an impairment loss. The amount of impairment and the remaining amount of goodwill, if any, is determined by comparing the implied fair value of the reporting unit as of the test date against the carrying value of the assets and liabilities of that reporting unit as of the same date. See Notes 2v and 2w, “Summary of significant accounting policies—Business combination” and “Summary of significant accounting policies—Goodwill and other intangibles”, in our consolidated financial statements.
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Many of our banking outlets have been recently added to our branch network and are not operating with the same efficiency as compared to the rest of our existing banking outlets, which adversely affects our profitability.
As at March 31, 2015, we had 4,014 banking outlets and as at March 31, 2020, we had 5,416 banking outlets, a significant increase in the number of banking outlets. Some of the newly added banking outlets are currently operating at a lower efficiency level as compared with our established banking outlets. While we believe that the newly added banking outlets will achieve the productivity benchmark set for our entire network over time, the success in achieving our benchmark level of efficiency and productivity will depend on various internal and external factors, some of which are not under our control. The
sub-optimal
performance of the newly added banking outlets, if continued over an extended period of time, would have a material adverse effect on our profitability.
Deficiencies in accuracy and completeness of information about customers and counterparties may adversely impact us.
We rely on accuracy and completeness of information about customers and counterparties while carrying out transactions with them or on their behalf. We may also rely on representations as to the accuracy and completeness of such information. For example, we may rely on reports of independent auditors with respect to financial statements, and decide to extend credit based on the assumption that the customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively impacted by reliance on information that is inaccurate or materially misleading. This may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. As a result, our ability to effectively manage our credit risk may be adversely affected.
We present our financial information differently in other markets or in certain reporting contexts.
In India, our equity shares are traded on the BSE Limited (the “BSE”) and National Stock Exchange of India Limited (the “NSE”). BSE and NSE rules, in connection with other applicable Indian laws, require us to report our financial results in India in Indian GAAP. Because of the difference in accounting principles and presentation, certain financial information available in our required filings in the United States may be presented differently than in the financial information we provide under Indian GAAP.
Additionally, we make available information on our website and in our presentations in order to provide investors a view of our business through metrics similar to what our management uses to measure our performance. Some of the information we make available from time to time may be in relation to our unconsolidated or our consolidated results under Indian GAAP or under U.S. GAAP. Potential investors should read any notes or disclaimers to such financial information when evaluating our performance to confirm how the information is being presented, since the information that may have been prepared with a different presentation may not be directly comparable.
The Ministry of Corporate Affairs, in its press release dated January 18, 2016, had issued a roadmap for implementation of Indian Accounting Standards
(“IND-AS”)
converged with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) with certain carve-outs for scheduled commercial banks, insurance companies and
non-banking
financial companies (the “Roadmap”). This Roadmap required such institutions to prepare
IND-AS-based
financial statements for the accounting periods commencing on or after April 1, 2018 and to prepare comparative financial information for accounting periods beginning April 1, 2017 and thereafter. The RBI, in its circular dated February 11, 2016, required all scheduled commercial banks to comply with
IND-AS
for financial statements for the same periods stated above. The RBI did not permit banks to adopt
IND-AS
earlier than the above timelines. The RBI circular also required the RBI to issue guidance and clarifications, as and when required, on the relevant aspects of
IND-AS
implementation. In April 2018, the RBI deferred the effective date for implementation of
IND-AS
by one year, by which point the necessary legislative amendments were expected to have been completed. The legislative amendments recommended by the RBI are under consideration by the Government of India. Accordingly, the RBI, in its circular dated March 22, 2019 deferred the implementation of
IND-AS
until further notice.
In conjunction with the implementation of
IND-AS
for our local Indian results, we may adopt IFRS for the purposes of our filings pursuant to Section 13 or 15(d) of, and our reports pursuant to Rule
13a-16
or
15d-16
under, the Exchange Act. Should we choose to do so, our first year of reporting in accordance with IFRS would be same as the accounting period for
IND-AS
which is dependent on instructions to be issued by the RBI for the implementation of
IND-AS.
For our first year of reporting in accordance with IFRS, we would be permitted to file two years, rather than three years, of statements of income, changes in shareholders’ equity and cash flows prepared in accordance with IFRS.
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The new accounting standards are expected to change, among other things, our methodologies for estimating allowances for probable loan losses and classifying and valuing our investment portfolio, as well as our revenue recognition policy. It is possible that our financial condition, results of operations and changes in shareholders’ equity may appear materially different under
IND-AS
or IFRS than under Indian GAAP or U.S. GAAP, respectively. Further, during the transition to reporting under the new standards, we may encounter difficulties in the implementation of the new standards and development of our management information systems. Given the increased competition for the small number of IFRS-experienced accounting personnel in India, it may be difficult for us to employ the appropriate accounting personnel to assist us in preparing
IND-AS
or IFRS financial statements. Moreover, there is no significant body of established practice from which we may draw when forming judgments regarding the application of the new accounting standards. There can be no assurance that the Bank’s controls and procedures will be effective in these circumstances or that a material weakness in internal control over financial reporting will not occur. Further, failure to successfully adopt
IND-AS
or IFRS could adversely affect the Bank’s business, financial condition and results of operations
Statistical, industry and financial data obtained from industry publications and other third-party sources may be incomplete or unreliable.
We have not independently verified certain data obtained from industry publications and other third-party sources referred to in this document and therefore, while we believe them to be true, we cannot assure you that they are complete or reliable. Such data may also be produced on different bases from those used in the industry publications we have referenced. Therefore, discussions of matters relating to India, its economy and the industries in which we currently operate are subject to the caveat that the statistical and other data upon which such discussions are based may be incomplete or unreliable.
Risks Relating to India
Any adverse change in India’s credit rating, or the credit rating of any country in which our foreign banking outlets are located, by an international rating agency could adversely affect our business and profitability.
While the Bank is rated
BBB-
by Standard & Poor’s (“S&P”), Moody’s has recently downgraded the Bank’s rating to Baa3 from Baa2, in line with the downgrade in India’s sovereign rating. International rating agencies have pegged the ratings of all Indian banks at the sovereign rating (that is,
BBB-
by S&P and Baa3 by Moody’s). However, domestically the Bank is rated AAA by CRISIL, CARE and India Ratings (the Indian arm of Fitch Ratings), which are the highest credit ratings assigned on the domestic scale.
A significant deterioration in the Bank’s existing financial strength and business position may also pose a rating downgrade risk. The Bank’s rating may also be revised when the rating agencies undertake changes to their rating methodologies. For instance, in April 2015, Moody’s revised its Bank rating methodology and the assessment of government support to banks, following which the ratings of several banks globally, including Indian banks, were revised. Following this methodology change, the Bank’s rating was revised to Baa3 from Baa2 so as to cap it at the Indian sovereign rating.
In addition, the rating of our foreign banking outlets may be impacted by the sovereign rating of the country in which those banking outlets are located, particularly if the sovereign rating is below India’s rating. Pursuant to applicable ratings criteria published by S&P, the rating of any bond issued in a jurisdiction is capped by the host country rating. Accordingly, any revision to the sovereign rating of the countries in which our banking outlets are located to below India’s rating could impact the rating of our foreign banking outlets and any securities issued from those banking outlets. For example, in fiscal 2016, declining oil prices caused the credit ratings of many oil exporting countries to be downgraded and we had outstanding bonds issued from a branch in such a country which were negatively affected by such downgrade.
Going forward, the risk of a sovereign rating downgrade remains low at present, but it is likely that the sovereign ratings outlook may be revised down, given the slowdown in economic growth. No assurance can be given that a further sovereign rating downgrade will not occur. However, any further downgrade in India’s credit rating, or the credit rating of any country in which our foreign banking outlets are located by international rating agencies may adversely impact our business financial position and liquidity, limit our access to capital markets, and increase our cost of borrowing.
If there is any change in tax laws or regulations, or their interpretation, such changes may significantly affect our financial statements for the current and future years, which may have a material adverse effect on our financial position, business and results of operations.
Any change in Indian tax laws, including the upward revision to the currently applicable normal corporate tax rate of 25.17 percent along with applicable surcharge and cess, could affect our tax burden. Other benefits such as exemption for interest received in respect of
tax-free
bonds, if withdrawn in the future, may no longer be available to us. Any adverse order passed by the appellate authorities/tribunals/courts would have an impact on our profitability.
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As of July 1, 2017, GST replaced most indirect taxes levied by the central government and state governments, providing a unified tax regime in respect of goods and services for all of India.
There continue to be several challenges to the successful implementation of GST, making compliance with the tax difficult. These include variations in the tax rate, legal challenges, complex return filings, certain reconciliation issues, input tax credit issues, and IT infrastructure issues. The GST law continues to evolve and the authorities have been trying to address public concerns by issuing a series of notifications, clarifications, press releases and FAQs to resolve a wide range of issues. We expect challenges to certain aspects of the GST law to continue until the remaining issues, particularly those related to technical aspects of the law, are settled. Any such changes and the related uncertainties with respect to GST may have a material adverse effect on our business, financial condition and results of operations.
The General Anti-Avoidance Rules (“GAAR”) have come into effect from April 1, 2017. The tax consequences of the GAAR provisions being applied to an arrangement could result in denial of tax benefit amongst other consequences. In the absence of any precedents on the subject, the application of these provisions is uncertain. If the GAAR provisions are made applicable to us, it may have an adverse tax impact on us.
The Finance Act 2018, has withdrawn exemption previously granted in respect of payment of long term capital gains tax and such tax became payable by the investors from April 1, 2018. We cannot predict whether any tax laws or regulations impacting our products will be enacted, what the nature and impact of the specific terms of any such laws or regulations will be or whether, if at all, any laws or regulations would have a material adverse effect on our business, financial condition and results of operations.
Any volatility in the exchange rate may lead to a decline in India’s foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact us.
Capital flows picked up substantially over the past couple of years, reflecting a reassessment of investor expectations about future domestic growth prospects following the election of a
pro-reform
government in 2014 and 2019. While the CAD remained a main area of concern over fiscal 2012 and fiscal 2013, it shrunk sharply in fiscal 2014 to 1.7 percent of GDP, and fell further in fiscal 2017 to 0.7 percent of GDP. A sharp contraction in the oil imports bill on the back of a near 50 percent decline in global crude prices was the main reason behind the improvement in the current account position. However, with the subsequent rise in oil prices, CAD as a percentage of GDP stood higher at 1.8 percent in fiscal 2018 and 2.1 percent in fiscal 2019. CAD narrowed to 0.9 percent in fiscal 2020 on the back of a pickup in remittances and an improvement in the trade balance. Going ahead, we expect CAD to narrow to 0.3 percent in fiscal year 2021, on account of weak internal and external demand.
The possibility of a noticeable shift in global value chains away from China, in order to reduce concentration risk, as well as in response to a shifting geopolitical landscape, presents India with unique opportunities. India could gain global market share across sectors including more traditional sectors, such as textiles, furniture and basic chemicals, as well as more technologically complex sectors, such as mobile phone handsets, pharmaceuticals and auto components.
During fiscal 2014, the rupee came under significant and sustained selling pressure driven by growing anxiety about domestic growth prospects and global risk aversion. The rupee depreciated in fiscal 2014 by 10.1 percent compared to the United States dollar. Investor expectations that reforms implemented by the Government will lead to an improvement in the long-term growth outlook helped to improve the rupee’s performance, reducing the depreciation trend to 3.85 percent in fiscal 2015. During fiscal 2016, the rupee depreciated by 6.32 percent primarily reflecting global risk aversion and a strong United States dollar. However, in line with other emerging markets, which experienced currency appreciation in fiscal 2017, the Indian rupee also appreciated by 2.1 percent against the United States dollar. This was mainly attributed to repricing of the Indian assets by international investors (driven by domestic economic and political stability) alongside the disappointment relating to the United States reform agenda. In fiscal 2018, the rupee ranged between a high of Rs. 65.71 per US$ 1.00 and a low of Rs. 63.38 per US$ 1.00. Pressure developed in the last two quarters of fiscal 2018 as oil prices rose and trade war risks escalated globally. In fiscal 2019, the rupee depreciated by 6.3 percent against the United States dollar as a result of rising oil prices, a slowdown in global trade volumes and a general risk aversion towards emerging market currencies (because of tariffs and trade war risks). The rupee further depreciated by 8.0 percent in fiscal 2020 due to risk aversion amid weak global demand, dismal domestic growth and foreign investment outflows. In fiscal 2020, the rupee ranged between a high of Rs. 76.37 per US$1.00 and a low of Rs. 68.40 per US$1.00. Going forward, the Indian rupee may be impacted by factors such as: (a) favorable current account position; (b) an increase in foreign flows as investment sentiment improves; (c) low oil prices; and (d) a downward trend in the strength of the U.S. dollar in the second half of 2020.
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Further, global risk aversion, in particular in the event the
COVID-19
pandemic continues or escalates, could mean a continuation of the rotation of global fund flows from emerging markets to developed markets over the medium term. Nevertheless, it remains a possibility that the RBI will intervene in the foreign exchange markets to stamp out excess volatility in the exchange rate in the event of potential shocks, such as rise in protectionist tendencies creating panic in EM economies or excess financial market volatility in the event of a second wave. Any such intervention by the RBI may result in a decline in India’s foreign exchange reserves and, subsequently, reduce the amount of liquidity in the domestic financial system, which would, in turn, cause domestic interest rates to rise.
Further, any increased volatility in capital flows may also affect monetary policy decision-making. For instance, a period of net capital outflows might force the RBI to keep monetary policy tighter than optimal to guard against currency depreciation.
Political instability or changes in the central and state governments in India could delay the liberalization of the Indian economy and adversely affect economic conditions in India generally, which would impact our financial results and prospects.
Since 1991, successive Indian governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the roles of the Indian central and state governments in the Indian economy as producers, consumers and regulators remain significant as independent factors in the Indian economy. The
re-election
of the NDA government led by Prime Minister Narendra Modi has provided the Indian political leadership with a new mandate to continue its reform agenda. These reforms could lead to changes in the rate of economic liberalization, and specific laws and policies affecting financial institutions, foreign investments, currency exchange rates, and other matters affecting investment in India.
Recently, as a result of rising border tensions, the Government is considering the possibility of reducing its economic relationship with China. The Government is exploring the option of imposing both tariff and
non-tariff restrictions
on Chinese goods for this purpose. Such
non-tariff
measures may include increased inspections, product testing and enhanced quality certification requirements. The imposition of these restrictions could result in trade tensions between the two countries and a slowdown in economic recovery. In addition, the Government might also impose restrictions on investment from China. As our performance and the quality and growth of our assets are dependent on the health of the overall Indian economy, any prolonged disagreement or instability in political or economic relations between the two countries could delay the economic recovery and impact business adversely. If the Indian economy deteriorates, our asset base may erode, which would result in a material decrease in our net profits and total assets, which in turn could materially adversely affect our business, results of operations and financial position.
Further, protests against privatizations and government corruption scandals, which have occurred in the past, could slow the pace of liberalization and deregulation. Any change in India’s policy of economic liberalization and deregulation could adversely affect business and economic conditions in India generally, and our business in particular.
Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries would negatively affect the Indian market where our shares trade and lead to a loss of confidence and impair travel, which could reduce our customers’ appetite for our products and services.
Terrorist attacks, such as those in Mumbai in November 2008 and in Pulwana in February 2019, and other acts of violence or war may negatively affect the Indian markets on which our equity shares trade and also adversely affect the worldwide financial markets. These acts may also result in a loss of business confidence, make travel and other services more difficult and, as a result, ultimately adversely affect our business. In addition, any deterioration in relations between India and Pakistan or between India and China might result in investor concern about stability in the region, which could adversely affect the price of our equity shares and ADSs.
India has also witnessed civil disturbances in recent years and future civil unrest as well as other adverse social, economic and political events in India could have an adverse impact on us. Such incidents also create a greater perception that investment in Indian companies involves a higher degree of risk, which could have an adverse impact on our business and the price of our equity shares and ADSs.
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Natural calamities, climate change and health epidemics could adversely affect the Indian economy, or the economy of other countries where we operate, our business and the price of our equity shares and ADSs.
India has experienced natural calamities such as earthquakes, floods and droughts in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as the level and timing of monsoon rainfall, impact the agricultural sector, which constituted approximately ~18 percent of India’s GDP in fiscal 2020 (in current prices terms). Prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and our business, especially our rural portfolio. Similarly, global or regional climate change in India and other countries where we operate could result in change in weather patterns and frequency of natural calamities like droughts, floods and cyclones, which could affect the economy of India, the countries where we operate and our operations in those countries.
Health epidemics could also disrupt our business. In fiscal 2010, there were outbreaks of swine flu, caused by the H1N1 virus, in certain regions of the world, including India and several countries in which we operate. In the ongoing fiscal year, the
COVID-19
pandemic is posing challenges to business operations, such as nationwide lockdowns, travel restrictions and social distancing. The government has recently started easing lockdown related restrictions, which may lead to some increase in economic activity. However, in the event of a second wave of infections, economic growth may contract more than anticipated, which could in turn adversely affect our business and the price of our equity shares and ADSs.
The
COVID-19
pandemic may have a material adverse effect on our business, financial condition and results of operations.
Public health crises such as the
COVID-19
pandemic or similar outbreaks may adversely impact our business. On March 11, 2020, the
COVID-19
outbreak was declared a global pandemic by the WHO and has led to the implementation of various responses, including government-imposed quarantines, travel restrictions,
“stay-at-home”
orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. In India, our main place of business, on March 24, 2020, the Government announced a strict
21-day
lockdown across the country, which was later extended until May 31, 2020. On May 30, 2020, the Government announced a phased reopening of certain activities outside specified containment zones, while the lockdown was extended to June 30, 2020 in such containment zones. Certain states of India further extended the lockdown to July 31, 2020.
To reduce the impact of the pandemic on Indian borrowers, on March 27, 2020 the RBI announced
COVID-19
related regulations, which included permission for financial institutions to extend a three-month moratorium on term loan repayments due between March 1, 2020 and May 31, 2020. This was later renewed for a second period from June 1, 2020 to August 31, 2020. As of June 30, 2020, approximately 9 percent of loans to our customers (measured by total value of our portfolio) were in moratorium. Interest on the term loans continues to accrue during the moratorium and the resulting increase in the interest-burden may adversely affect our customers’ ability to repay their loans, which could adversely affect our profitability. Similarly, the RBI permitted financial institutions to grant deferments with respect to interest payments on working capital facilities between March 31, 2020 and August 31, 2020. At the financial institutions discretion, the interest accumulated during the deferment period may be converted to a funded interest term loan (“FITL”). Furthermore, the RBI also announced that with respect to
non-performing
loans, for which a lender’s
180-day
resolution period had not expired by March 1, 2020, an additional
180-day
resolution period would begin from the date on which the original resolution period was set to expire. There can be no assurance that customers who are granted a moratorium will be able to resume their regular repayment schedule following the end of the moratorium. In accordance with RBI guidelines, we have also waived certain fees for customers. In addition, in response to the pandemic the RBI also reduced the repo rate by 40 basis points to 4.0 percent in May 2020. See also “
Our business is particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect our net interest margin, the value of our fixed income portfolio, our treasury income and our financial performance
”.
The impact of
COVID-19,
including changes in customer behavior and pandemic fears and restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in global and local economic activity. This may persist even after the restrictions related to the
COVID-19
outbreak are lifted. The continued slowdown in economic activity has led to a decrease in loan originations, sale of third-party products, use of credit and debit cards, by customers the efficiency of our debt collection efforts and the waiver of certain fees. As a result, we estimate that our fees and other related income (measured on a non-amortized basis under Indian GAAP) decreased by approximately Rs. 4,500 million during the end of fiscal 2020, compared to the same period in fiscal 2019, and by approximately Rs. 20,000 million in the first quarter of fiscal 2021, compared to the same period in fiscal 2020. The slowdown in economic activity has also significantly affected the business of many of our customers and could result in financial distress for our customer base. Moreover, the continued volatility in global and Indian financial and capital markets could adversely affect our corporate customers’ ability to access debt markets, their cost of funds and other terms of any new debt, which, alongside the economic slowdown, may lead to a rise in the number of customer defaults and consequently an increase in provisions for credit losses. See also “
We have high concentrations of exposures to certain customers and sectors and if any of these exposures were to become
non-performing,
the quality of our portfolio could be adversely affected and our ability to meet capital requirements could be jeopardized
”.
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Similarly, such market volatility, or a downgrade in our credit rating, may negatively affect our ability to access capital. We have implemented remote working arrangements for the majority of our employees, which may result in decreased employee productivity and efficiency and exacerbate certain
IT-related
risks, including an increased risk of cybersecurity attacks and the unauthorized dissemination of confidential information about us or our customers.
COVID-19
may also lead to significant increases in employee absenteeism, including due to illness, quarantines and other restrictions related to the pandemic. Even where such restrictions are eased, we may still elect to continue our remote working arrangements, for example in the event of an outbreak of
COVID-19
among our employees, as a preventive measure to contain the spread of the virus and protect the health of our workforce, or as a strategic measure. Even if the number of new
COVID-19
cases were to significantly decrease, the negative effects on Indian and global economic conditions may persist into the future. The level of economic activity may not fully recover in the short term, or at all, due to changes in lifestyle and business practice.
The extent to which the
COVID-19
pandemic will impact our business, financial condition and results of operation, as well as our regulatory capital and liquidity ratios, will depend on future developments, including the possibility of a recurrence or “multiple waves” of the outbreak, which are highly uncertain. This includes, among other things, any new information concerning the severity of the
COVID-19
pandemic and any action to contain its spread or mitigate its impact, whether government-mandated or elected by us.
Investors may have difficulty enforcing foreign judgments in India against the Bank or its management.
The Bank is a limited liability company incorporated under the laws of India. Substantially all of the Bank’s directors and executive officers and some of the experts named herein are residents of India and a substantial portion of the assets of the Bank and such persons are located in India. As a result, it may not be possible for investors to effect service of process on the Bank or such persons in jurisdictions outside of India, or to enforce against them judgments obtained in courts outside of India predicated upon civil liabilities of the Bank or such directors and executive officers under laws other than Indian Law.
In addition, India is not a party to any multilateral international treaty in relation to the recognition or enforcement of foreign judgments
.
Recognition and enforcement of foreign judgments is provided for under section 13 and section 44A of the Indian Code of Civil Procedure, 1908 (the “Civil Procedure Code”). Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India that the Government has, by notification, declared to be a reciprocating territory, that judgment may be enforced in India by proceedings in execution as if it had been rendered by the relevant court in India. However, section 44A of the Civil Procedure Code is applicable only to monetary decrees other than those in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty and is not applicable to arbitration awards, even if such awards are enforceable as a decree or judgment. Furthermore, the execution of a foreign decree under section 44A of the Civil Procedure Code is also subject to the exception under Section 13 of the Civil Procedure Code, as discussed below.
The United States has not been declared by the government to be a reciprocating territory for the purposes of section 44A of the Civil Procedure Code. However, the United Kingdom has been declared by the government to be a reciprocating territory and the High Courts in England as the relevant superior courts. A judgment of a court in a jurisdiction which is not a reciprocating territory, such as the United States, may be enforced only by a new suit upon the judgment and not by proceedings in execution. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except: (i) where it has not been pronounced by a court of competent jurisdiction; (ii) where it has not been given on the merits of the case; (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where it has been obtained by fraud; or (vi) where it sustains a claim founded on a breach of any law in force in India. A foreign judgment which is conclusive under Section 13 of the Civil Procedure Code may be enforced either by a new suit upon judgment or by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered pursuant to execution. Any judgment in a foreign currency would be converted into Indian rupees on the date of the judgment and not on the date of the payment. The Bank cannot predict whether a suit brought in an Indian court will be disposed of in a timely manner or be subject to considerable delays.
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Risks Relating to the ADSs and Equity Shares
Historically, our ADSs have traded at a premium to the trading prices of our underlying equity shares, a situation which may not continue.
Historically, our ADSs have traded on the New York Stock Exchange (the “NYSE”) at a premium to the trading prices of our underlying equity shares on the Indian stock exchanges. See “
Certain Information About Our American Depositary Shares and Equity Shares
” for the underlying data. We believe that this price premium has resulted from the relatively small portion of our market capitalization previously represented by ADSs, restrictions imposed by Indian law on the conversion of equity shares into ADSs, and an apparent preference for investors to trade dollar-denominated securities. Over time, some of the restrictions on issuance of ADSs imposed by Indian law have been relaxed and we expect that other restrictions may be relaxed in the future. It is possible that in the future our ADSs will not trade at any premium to our equity shares and could even trade at a discount to our equity shares.
Investors in ADSs will not be able to vote.
Investors in ADSs will have no voting rights, unlike holders of equity shares. Under the deposit agreement, the depositary will abstain from voting the equity shares represented by the ADSs. If you wish, you may withdraw the equity shares underlying the ADSs and seek to vote (subject to Indian restrictions on foreign ownership) the equity shares you obtain upon withdrawal. However, this withdrawal process may be subject to delays and additional costs and you may not be able to redeposit the equity shares. For a discussion of the legal restrictions triggered by a withdrawal of equity shares from the depositary facility upon surrender of ADSs, see “
Restrictions on Foreign Ownership of Indian Securities
” and “
Description of American Depositary Shares—Voting Rights
”.
Your ability to withdraw equity shares from the depositary facility is uncertain and may be subject to delays.
India’s restrictions on foreign ownership of Indian companies limit the number of equity shares that may be owned by foreign investors and generally require government approval for foreign investments. Investors who withdraw equity shares from the ADSs depositary facility for the purpose of selling such equity shares will be subject to Indian regulatory restrictions on foreign ownership upon withdrawal. The withdrawal process may be subject to delays. For a discussion of the legal restrictions triggered by a withdrawal of equity shares from the depositary facility upon surrender of ADSs, see “
Restrictions on Foreign Ownership of Indian Securities
”.
Restrictions on deposit of equity shares in the depositary facility could adversely affect the price of our ADSs.
Under current Indian regulations, an ADSs holder who surrenders ADSs and withdraws equity shares may deposit those equity shares again in the depositary facility in exchange for ADSs. An investor who has purchased equity shares in the Indian market may also deposit those equity shares in the ADSs program. However, the deposit of equity shares may be subject to securities law restrictions and the restriction that the cumulative aggregate number of equity shares that can be deposited as of any time cannot exceed the cumulative aggregate number represented by ADSs converted into underlying equity shares as of such time. These restrictions increase the risk that the market price of our ADSs will be below that of our equity shares.
There is a limited market for the ADSs.
Although our ADSs are listed and traded on the NYSE, any trading market for our ADSs may not be sustained, and there is no assurance that the present price of our ADSs will correspond to the future price at which our ADSs will trade in the public market. Indian legal restrictions may also limit the supply of ADSs. The only way to add to the supply of ADSs would be through an additional issuance. We cannot guarantee that a market for the ADSs will continue.
Conditions in the Indian securities market may affect the price or liquidity of our equity shares and ADSs.
The Indian securities markets are smaller and more volatile than securities markets in more developed economies. The Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities. Currently, prices of securities listed on Indian exchanges are displaying signs of volatility linked among other factors to the uncertainty in the global markets and the rising inflationary and interest rate pressures domestically. The governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Future fluctuations or trading restrictions could have a material adverse effect on the price of our equity shares and ADSs.
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Settlement of trades of equity shares on Indian stock exchanges may be subject to delays.
The equity shares represented by our ADSs are listed on the NSE and BSE. Settlement on these stock exchanges may be subject to delays and an investor in equity shares withdrawn from the depositary facility upon surrender of ADSs may not be able to settle trades on these stock exchanges in a timely manner.
You may be subject to Indian taxes arising out of capital gains.
Generally, capital gains, whether short-term or long-term, arising on the sale of the underlying equity shares in India are subject to Indian capital gains tax. Investors are advised to consult their own tax advisers and to carefully consider the potential tax consequences of an investment in ADSs. See also “
Taxation
”.
You may be unable to exercise preemptive rights available to other shareholders.
A company incorporated in India must offer its holders of equity shares preemptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless these rights have been waived by at least 75 percent of the company’s shareholders present and voting at a shareholders’ general meeting. United States investors in our ADSs may be unable to exercise preemptive rights for our equity shares underlying our ADSs unless a registration statement under the Securities Act of 1933 (the “Securities Act”) is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Our decision to file a registration statement will depend on the costs and potential liabilities associated with any registration statement as well as the perceived benefits of enabling United States investors in our ADSs to exercise their preemptive rights and any other factors we consider appropriate at the time. We do not commit to filing a registration statement under those circumstances. If we issue any securities in the future, these securities may be issued to the depositary, which may sell these securities in the securities markets in India for the benefit of the investors in our ADSs. There can be no assurance as to the value, if any, the depositary would receive upon the sale of these securities. To the extent that investors in our ADSs are unable to exercise preemptive rights, their proportional interests in us would be reduced.
Financial difficulty and other problems in certain financial institutions in India could adversely affect our business and the price of our equity shares and ADSs.
We are exposed to the risks of the Indian financial system by being a part of the system which may be affected by the financial difficulties faced by certain Indian financial institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. Such “systemic risk”, may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and exchanges with which we interact on a daily basis. Any such difficulties or instability of the Indian financial system in general could create an adverse market perception about Indian financial institutions and banks and adversely affect our business. Our transactions with these financial institutions expose us to various risks in the event of default by a counterparty, which can be exacerbated during periods of market illiquidity.
Because the equity shares underlying our ADSs are quoted in rupees in India, you may be subject to potential losses arising out of exchange rate risk on the Indian rupee and risks associated with the conversion of rupee proceeds into foreign currency.
Fluctuations in the exchange rate between the United States dollar and the Indian rupee may affect the value of your investment in our ADSs. Specifically, if the relative value of the Indian rupee to the United States dollar declines, each of the following values will also decline:

| • |  | the United States dollar equivalent of the Indian rupee trading price of our equity shares in India and, indirectly, the United States dollar trading price of our ADSs in the United States;

| • |  | the United States dollar equivalent of the proceeds that you would receive upon the sale in India of any equity shares that you withdraw from the depositary; and

| • |  | the United States dollar equivalent of cash dividends, if any, paid in Indian rupees on the equity shares represented by our ADSs.

There may be less information available on Indian securities markets than securities markets in developed countries.
There is a difference between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of markets in the United States and other developed economies. The Securities and Exchange Board of India (“SEBI”) and the stock exchanges are responsible for improving disclosure and other regulatory standards for the Indian securities markets. The SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed economies.
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HDFC Limited’s significant holdings could have an effect on the trading price of our equity shares and ADSs.
HDFC Limited and its subsidiaries hold a significant portion of our equity, and are entitled to certain rights to appoint directors to our Board. While we are professionally managed and overseen by an independent board of directors, HDFC Limited can exercise influence over our board and over matters subject to a shareholder vote that could directly or indirectly favor the interests of HDFC Limited over our interests. See “
—HDFC Limited holds a significant percentage of our share capital and can exercise influence over board decisions that could directly or indirectly favor the interests of HDFC Limited over our interests
” and “
—We may face conflicts of interest relating to our promoter and principal shareholder, HDFC Limited, which could cause us to forego business opportunities and consequently have an adverse effect on our financial performance
”. HDFC Limited’s concentration of ownership may adversely affect the trading price of our equity shares to the extent investors perceive a disadvantage in owning stock of a company with a significant shareholder.
Investors may be subject to Indian taxes arising out of capital gains on the sale of equity shares.
Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are generally taxable in India. Until March 31, 2018, any gain realized on the sale of listed equity shares on a stock exchange held for more than 12 months was not subject to capital gains tax in India if securities transaction tax (“STT”) was paid on the transaction. STT is levied on and collected by a domestic stock exchange on which the equity shares are sold. However, with the enactment of the Finance Act, 2018, (“Finance Act”) the exemption previously granted in respect of payment of long-term capital gains tax has been withdrawn and such taxes are now payable by the investors with effect from April 1, 2018. Further, any gain realized on the sale of listed equity shares held for a period of 12 months or less will be subject to short-term capital gains tax in India. Capital gains arising from the sale of equity shares will be exempt from taxation in India in cases where the exemption from taxation in India is provided under a treaty between India and the country of which the seller is resident.
Indian tax treaties, for example with the United States and the United Kingdom, do not limit India’s ability to impose tax on capital gains. The treaties provide that except as provided in case of taxation of shipping and air transport provisions, each contracting state may tax capital gains in accordance with the provisions of the domestic law. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdiction on a gain upon the sale of equity shares. However, credit for the same may be available in accordance with the provisions of the respective treaty and in accordance with the provisions under the domestic law, if applicable.
Future issuances or sales of equity shares and ADSs could significantly affect the trading price of our equity shares and ADSs.
The future issuance of shares by us or the disposal of shares by any of our major shareholders, or the perception that such issuance or sales may occur, may significantly affect the trading price of our equity shares and ADSs. There can be no assurance that we will not issue further shares or that the major shareholders will not dispose of, pledge or otherwise encumber their shares.
Foreign Account Tax Compliance Act withholding may affect payments on our equity shares and ADSs.
Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) (provisions commonly known as “FATCA” or the Foreign Account Tax Compliance Act) impose (a) certain reporting and due diligence requirements on foreign financial institutions (“FFIs”) and, (b) potentially require such FFIs to deduct a 30 percent withholding tax from (i) certain payments from sources within the United States, and (ii) “foreign passthru payments” (which is not yet defined in current guidance) made to certain FFIs that do not comply with such reporting and due diligence requirements or certain other payees that do not provide required information. We as well as relevant intermediaries such as custodians and depositary participants are classified as FFIs for these purposes. The United States has entered into a number of intergovernmental agreements (“IGAs”) with other jurisdictions which may modify the operation of this withholding. India has entered into a Model 1 IGA with the United States for giving effect to FATCA, and Indian FFIs, including us, are generally required to comply with FATCA based on the terms of the IGA and relevant rules made pursuant thereto.
Under current guidance it is not clear whether or to what extent payments on ADSs or equity shares will be considered “foreign passthru payments” subject to FATCA withholding or the extent to which withholding on “foreign passthru payments” will be required under the applicable IGA. Investors should consult their own tax advisers on how the FATCA rules may apply to payments they receive in respect of the ADSs or equity shares.
Should any withholding tax in respect of FATCA be deducted or withheld from any payments arising to any investor, neither we nor any other person will pay additional amounts as a result of the deduction or withholding.
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CERTAIN INFORMATION ABOUT OUR AMERICAN DEPOSITARY SHARES AND EQUITY SHARES
Our ADSs, each representing three equity shares, par value Rs. 1.0 per equity share, are listed on the NYSE under the symbol “HDB”. Our equity shares, including those underlying the ADSs, are listed on the NSE under the symbol “HDFCBANK” and the BSE Limited (formerly known as Bombay Stock Exchange Limited) under the trading code 500180. Our fiscal quarters end on June 30 of each year for the first quarter, September 30 for the second quarter, December 31 for the third quarter and March 31 for the fourth quarter.
As of March 31, 2020, there were 1,349,474 holders of record of our equity shares, including the shares underlying ADSs of which 1484 had registered addresses in the United States and held an aggregate of 20,958,930 equity shares representing 0.11 percent of our shareholders. In our records, only the depositary, JPMorgan Chase Bank, N.A., is the shareholder with respect to equity shares underlying the ADSs.
Upon our acquisition of CBoP in 2008, CBoP had global depository receipts (GDRs) outstanding, representing the right to receive shares in CBoP, which, upon the consummation of the acquisition, converted into our GDRs, representing the right to receive our shares. As of March 31, 2019, there were 22,860,766 GDRs outstanding, representing 11,430,383 shares of the Bank (in aggregate 0.42 percent of our
paid-up
capital). In 2019, the Bank terminated its Global Depository Receipts (“GDRs”) program by delisting of the GDRs from Luxembourg Stock Exchange with effect from July 15, 2019. The remaining securities underlying the GDRs were sold by JPMorgan Chase Bank N.A. on March 3, 2020. The net proceeds of the sales, after deduction of applicable withholding taxes, are being made available to the remaining GDR holders.
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DESCRIPTION OF EQUITY SHARES
The Company
We are registered under Corporate Identity Number L65920MH1994PLC080618 with the Registrar of Companies, Maharashtra State, India. Our Memorandum of Association permits us to engage in a wide variety of activities, including all the activities in which we currently engage or intend to engage, as well as other activities in which we currently have no intention of engaging.
Our authorized share capital is Rs. 6,500,000,000 consisting of 6,500,000,000 equity shares of par value Rs. 1.0 each. The shareholders of the Bank at the 25th Annual General Meeting held on July 12, 2019 approved the
sub-division
(split) of one equity share of the Bank from a face value of Rs. 2/- each into two equity shares with a face value of Rs. 1/- each, effective as of September 20, 2019.
The Board of Directors, at their meeting held on July 20, 2019, also declared a special interim dividend of Rs. 2.5 per equity share for fiscal 2020, and fixed the record date for the dividend as August 2, 2019.
Dividends
Under Indian law and subject to the Banking Regulation Act, a company pays dividends upon a recommendation by its board of directors and approval by a majority of its shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. The shareholders have the right to decrease but not increase the dividend amount recommended by the Board of Directors. Dividends are generally declared as a percentage of par value (on a per share basis) and distributed and paid to shareholders. The Companies Act provides that shares of a company of the same class must receive equal dividend treatment.
These distributions and payments are required to be deposited into a separate bank account within five (5) days of the declaration of such dividend and paid to shareholders within thirty (30) days of the annual general meeting where the resolution for declaration of dividends is approved.
The Companies Act states that any dividends that remain unpaid or unclaimed after that period are to be transferred to a special bank account. Any dividend amount that remains unclaimed for seven years from the date of the transfer is to be transferred by us to a fund, called the Investor Education and Protection Fund, created by the Government.
Our Articles of Association authorize our Board of Directors to declare interim dividends, the amount of which must be deposited in a separate bank account within five (5) days and paid to the shareholders within thirty (30) days of the declaration.
Under the Companies Act, final dividends payable can be paid only in cash to the registered shareholder at a record date fixed prior to the relevant annual general meeting, to his order or to the order of his banker.
Before paying any dividend on our shares, we are required under the Banking Regulation Act to write off all capitalized expenses (including preliminary expenses, organization expenses, share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets). We are permitted to declare dividends of up to 35.0 percent of net profit calculated under Indian GAAP without prior RBI approval subject to compliance with certain prescribed requirements. Further, upon compliance with the prescribed requirements, we are also permitted to declare interim dividends subject to the above-mentioned cap computed for the relevant accounting period.
Dividends may only be paid out of our profits for the relevant year arrived at after providing for depreciation or out of the profits of the company for any previous financial years arrived at after providing for depreciation and in certain contingencies out of the free reserves of the company, provided that in computing profits any amount representing unrealized gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded. Before declaring dividends, we are required by the RBI to transfer 25.0 percent of our net profits (calculated under Indian GAAP) of each year to a reserve fund.
Bonus Shares
In addition to permitting dividends to be paid out of current or retained earnings calculated under Indian GAAP, the Companies Act permits our Board of Directors, subject to the approval of our shareholders, to distribute to the shareholders, in the form of fully
paid-up
bonus equity shares, an amount transferred from the company’s free reserves, securities premium account or the capital redemption reserve account. Bonus equity shares can be distributed only with the prior approval of the RBI. These bonus equity shares must be distributed to shareholders in proportion to the number of equity shares owned by them.
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Bonus shares can only be issued if the company has not defaulted in payments of the employees, such as, contribution to provident fund, gratuity and bonus statutory dues or principal/interest payments on fixed deposits or debt securities issued by it. Bonus shares must not be issued in lieu of dividend. Further, listed companies are also required to follow the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (the “SEBI ICDR Regulations”) for issuance of bonus shares.
Pre-emptive
Rights and Issue of Additional Shares
Subject to the Banking Regulation Act, and other applicable guidelines issued by the RBI, the Companies Act gives shareholders the right to subscribe for new shares in proportion to their existing shareholdings unless otherwise determined by a resolution passed by three-fourths of the shareholders present and voting at a general meeting. Under the Companies Act and our Articles, in the event of an issuance of securities, subject to the limitations set forth above, we must first offer the new equity shares to the holders of equity shares on a fixed record date. The offer, required to be made by notice, must include:

| • |  | the right, exercisable by the shareholders of record, to renounce the shares offered in favor of any other person;

| • |  | the number of shares offered; and

| • |  | the period of the offer, which may not be less than 15 days from the date of the offer and shall not exceed 30 days. If the offer is not accepted, it is deemed to have been declined.

Our Board of Directors is permitted to distribute equity shares not accepted by existing shareholders in the manner it deems beneficial for us in accordance with our Articles. Holders of ADSs may not be able to participate in any such offer. See “
Description of American Depositary Shares—Share Dividends and Other Distributions
”.
General Meetings of Shareholders
There are two types of general meetings of shareholders: annual general meetings and extraordinary general meetings. We are required to convene our annual general meeting within five months after the end of each fiscal year. We may convene an extraordinary general meeting when necessary or at the request of the shareholders holding on the date of the request at least 10 percent of our
paid-up
capital. A general meeting is generally convened by our company secretary in accordance with a resolution of the Board of Directors. Written notice or notice via email or other permitted electronic means stating the agenda of the meeting must be given at least 21 clear days prior to the date set for the general meeting to the shareholders whose names are in the register at the record date. Shorter notice is permitted if consent is received from 95 percent of the members entitled to vote. Those shareholders who are not registered at the record date do not receive notice of this meeting and are not entitled to attend or vote at this meeting.
The annual general meeting is held in Mumbai, the city in which our registered office is located. General meetings other than the annual general meeting may be held at any location if so determined by a resolution of our Board of Directors.
Voting Rights
Section 108 of the Companies Act and Rule 20 of the Companies (Management and Administration) Rules, 2014 deal with the exercise of right to vote by members by electronic means. In terms of Rule 20 of the Companies (Management and Administration) Rules, 2014, every listed company (other than a company referred to in Chapters XB or XC of the SEBI ICDR Regulations) is required to provide to its members facility to exercise their right to vote at general meetings by electronic means. Section 110 of the Companies Act allows such a company to transact all items of business at a general meeting, provided the company offers to its members a facility to exercise their right to vote at general meetings by electronic means. The Ministry of Corporate Affairs, has clarified that voting by show of hands would not be allowable in cases where Rule 20 is applicable.
A shareholder has one vote for each equity share and voting may be on a poll or through electronic means or postal ballot. Under Section 12 of the Banking Regulation Act, 1949 as amended with effect from January 18, 2013 by the Banking Laws Amendment Act, 2012, no person holding shares in a banking company shall, in respect of any shares held by such person, exercise voting rights on poll in excess of ten percent of the total voting rights of all the shareholders of the banking company, provided that RBI may increase, in a phased manner, such ceiling on voting rights from ten percent to
twenty-six
percent. On July 21, 2016 the RBI issued a notification, which was notified in the Gazette of India on September 17, 2016, which stated that the current ceiling on voting rights is at
twenty-six
percent. At a general meeting, upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy is in the same proportion as the capital paid up on each share held by such holder bears to the company’s total paid up capital, subject to the limits prescribed under the Banking Regulation Act. Voting is by a show of hands, unless a poll is ordered by the Chairman of the meeting. However, voting by show of hands is not permitted for listed companies. The Chairman of the meeting has a casting vote.
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Unless the Articles provide for a larger number, the quorum for a general meeting is: (a) five members present (in person or by proxy) if the number of members as of the date of the meeting is not more than one thousand; (b) fifteen members present (in person or by proxy) if the number of members as of the date of the meeting is more than one thousand but not more than five thousand; and (c) thirty members present (in person or by proxy) if the number of members as of the date of the meeting exceeds five thousand. Generally, resolutions may be passed by simple majority of the shareholders present and voting at any general meeting. However, resolutions such as an amendment to the organizational documents, commencement of a new line of business, an issue of additional equity shares (which is not a preemptive issue) and reductions of share capital, require that the votes cast in favor of the resolution (whether by show of hands or on a poll) are not less than three times the number of votes, if any, cast against the resolution. As provided in our Articles, a shareholder may exercise his voting rights by proxy to be given in the form prescribed by us. This proxy, however, is required to be lodged with us at least 48 hours before the time of the relevant meeting. A shareholder may, by a single power of attorney, grant general power of representation covering several general meetings. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at all general meetings. The Companies Act also provides for the passing of resolutions in relation to certain matters specified by the Government of India, by means of a postal ballot. A notice to all the shareholders must be sent along with a draft resolution explaining the reasons therefore and requesting the shareholders to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of dispatch of the notice. Shareholders may exercise their right to vote at general meetings, through postal ballot by sending their votes through the postal arrangements or through electronic means
(e-voting),
for which separate facilities are provided to the shareholders.
ADS holders have no voting rights with respect to the deposited shares.
Annual Report
At least 21 clear days before an annual general meeting, we must circulate either a detailed or abridged version of our Indian GAAP audited financial accounts, together with the Directors’ Report and the Auditor’s Report, to the shareholders along with a notice convening the annual general meeting. We are also required under the Companies Act to make available upon the request of any shareholder our complete balance sheet and profit and loss account. The above-mentioned documents must also be made available for inspection at its registered office during working hours for a period of 21 days before the date of the annual general meeting. A statement containing the salient features of these documents in a prescribed manner (or copies of these documents) is required to be sent to every member of the company and to every debenture trustee at least 21 days before the date of the annual general meeting. Under the Companies Act, we must file with the Registrar of Companies our Indian GAAP balance sheet and profit and loss account within 30 days in form
AOC-4
of the conclusion of the annual general meeting and our annual return in form
MGT-7
within 60 days of the conclusion of that meeting.
Register of Shareholders, Record Dates and Transfer of Shares
The equity shares are in registered form. We maintain a register of our shareholders in Mumbai. We register transfers of equity shares on the register of shareholders upon presentation of certificates in respect of the transfer of equity shares held in physical form together with a transfer deed duly executed by the transferor and transferee. These transfer deeds are subject to stamp duty, which has been fixed at 0.25 percent of the transfer price. As set out in the SEBI directive, effective April 1, 2019, physical transfer of shares is prohibited in the case of listed Indian companies. Therefore, shareholders need to dematerialize the shares for transfer.
For the purpose of determining equity shares entitled to annual dividends, the register of shareholders is closed for a period prior to the annual general meeting. The Companies Act and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 permit us, pursuant to a resolution of our Board of Directors and upon at least seven days’ advance notice to the stock exchanges, to set the record date and close the register of shareholders after seven days’ public notice for not more than 30 days at a time, and for not more than 45 days in a year, in order for us to determine which shareholders are entitled to certain rights pertaining to the equity shares. Trading of equity shares and delivery of certificates in respect of the equity shares may, however, continue after the register of shareholders is closed.
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Transfer of Shares
Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with the regulations laid down by the SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depositary are exempt from stamp duty. We have entered into an agreement for such depository services with the National Securities Depository Limited (“NSDL”) and the Central Depository Services India Limited (“CDSL”).
The SEBI requires that our equity shares for trading and settlement purposes be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange. Transfers of equity shares in book-entry form require both the seller and the purchaser of the equity shares to establish accounts with depositary participants appointed by depositories established under the Depositaries Act, 1996. Charges for opening an account with a depositary participant, transaction charges for each trade and custodian charges for securities held in each account vary depending upon the practice of each depositary participant. Upon delivery, the equity shares shall be registered in the name of the relevant depositary on our books and this depositary shall enter the name of the investor in its records as the beneficial owner. The transfer of beneficial ownership shall be done through the records of the depositary. The beneficial owner shall be entitled to all rights and benefits and subject to all liabilities in respect of his securities held by a depositary.
The requirement to hold the equity shares in book-entry form will apply to the ADS holders when the equity shares are withdrawn from the depositary facility upon surrender of the ADSs. In order to trade the equity shares in the Indian market, the withdrawing ADS holder will be required to comply with the procedures described above.
Our equity shares are freely transferable, subject to the provisions of the Companies Act under which, if a transfer of equity shares contravenes the provisions of Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or the regulations issued under it or any other law in force at the time, the National Company Law Tribunal may, on application made by us, a depositary incorporated in India, an investor, the SEBI or certain other parties, direct a rectification of the register of records. It was a condition of our listing that we transfer equity shares and deliver share certificates duly endorsed for the transfer within 15 days of the date of lodgment of transfer. If a company without sufficient cause refuses to register a transfer of equity shares within thirty (30) days from the date on which the instrument of transfer is delivered to the company, the transferee may appeal to the National Company Law Tribunal seeking to register the transfer of equity shares. The National Company Law Tribunal may, in its discretion, issue an interim order suspending the voting rights attached to the relevant equity shares before completing its investigation of the alleged contravention. However, effective from and on April 1, 2019, the SEBI decided that except in cases of transmission or transposition of securities, requests for effecting the transfer of securities shall not be processed unless the securities are held in dematerialized form with a depositary. Our Articles provide for certain restrictions on the transfer of equity shares, including granting power to the Board of Directors in certain circumstances, to refuse to register or acknowledge transfer of equity shares or other securities issued by us. Furthermore, the RBI requires us to obtain its approval before registering a transfer of equity shares in favor of a person which together with equity shares already held by him represent more than five (5) percent of our share capital.
Our transfer agent, Datamatics Business Solutions Limited, is located in Mumbai. Certain foreign exchange control and security regulations apply to the transfer of equity shares by a
non-resident
or a foreigner.
Disclosure of Ownership Interest
The provisions of the Companies Act generally require beneficial owners of equity shares of Indian companies that are not holders of record to declare to the company details of the holder of record and holders of record to declare details of the beneficial owner. While it is unclear whether these provisions apply to holders of an Indian company’s ADSs, investors who exchange ADSs for equity shares are subject to this provision. Failure to comply with these provisions would not affect the obligation of a company to register a transfer of equity shares or to pay any dividends to the registered holder of any equity shares in respect of which this declaration has not been made, but any person who fails to make the required declaration may be liable for an initial fine of up to Rs. 50,000 coupled with a further fine of up to Rs. 1,000 for each day this failure continues. However, under the Banking Regulation Act, a registered holder of any equity shares, except in certain conditions, shall not be liable to any suit or proceeding on the ground that the title to those equity shares vests in another person.
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Acquisition by the Issuer of Its Own Shares
The Companies Act permits a company to acquire its own equity shares and reduce its capital under certain circumstances. Such reduction of capital requires compliance with
buy-back
provisions specified in the Companies Act and by the SEBI.
ADS holders will be eligible to participate in a
buy-back
in certain cases. An ADS holder may acquire equity shares by withdrawing them from the depositary facility and then sell those equity shares back to us. ADS holders should note that equity shares withdrawn from the depositary facility may only be redeposited into the depositary facility under certain circumstances.
There can be no assurance that the equity shares offered by an ADS investor in any
buy-back
of shares by us will be accepted by us. The position regarding participation of ADS holders in a
buy-back
is not clear. ADS investors are advised to consult their Indian legal advisers prior to participating in any
buy-back
by us, including in relation to any regulatory approvals and tax issues relating to the
buy-back.
Liquidation Rights
Subject to the rights of depositors, creditors and employees, in the event of our winding up, the holders of the equity shares are entitled to be repaid the amounts of capital paid up or credited as paid up on these equity shares. All surplus assets remaining belong to the holders of the equity shares in proportion to the amount paid up or credited as paid up on these equity shares, respectively, at the commencement of the winding up.
Acquisition of the Undertaking by the Government
Under the Banking Regulation Act, the Government may, after consultation with the RBI, in the interest of our depositors or banking policy or better provision of credit generally or to a particular community or area, acquire our banking business. The RBI may acquire our business if it is satisfied that we have failed to comply with the directions given to us by the RBI or that our business is being managed in a manner detrimental to the interest of our depositors. Similarly, the Government of India may also acquire our business based on a report by the RBI.
Takeover Code
Under the Securities and Exchange Board of India (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Code”), upon the acquisition of shares which taken together with the shares/voting rights already held aggregates 5 percent or more of the outstanding shares or voting rights of a publicly listed Indian company, a purchaser is required to notify the company and all the stock exchanges on which the shares of such company are listed. Such notification is also required when a person holds 5 percent or more of the outstanding shares or voting rights in a target company and there is a change in his holding either due to purchase or disposal of shares of 2 percent or more of the outstanding shares/voting rights in the target company or if such change results in shareholding falling below 5 percent, if there has been a change from the previous disclosure.
No acquisition of shares/voting rights by an acquirer in a target company which entitles the acquirer, together with persons acting in concert with them, to 25 percent or more of such shares or voting rights is permissible unless the acquirer makes a public announcement of an open offer for acquiring the shares of the target company in the manner provided in the Takeover Code. The public announcement of an open offer is also mandatory where an acquirer who, together with persons acting in concert with them, holds 25 percent of the shares/voting rights in the target company, but less than the maximum permissible
non-public
shareholding, seeks to acquire an additional 5 percent or more of the shares/voting rights in the target company during any fiscal year. However, the Takeover Code applies only to shares or securities convertible into shares which carry a voting right. This provision will apply to an ADS holder only once he or she converts the ADSs into the underlying equity shares.
In terms of the Takeover Code, the acquirer or holder of shares/voting rights in a target company shall in accordance with the “Continual Disclosure” requirements disclose to the target company and the stock exchanges the details of holdings of equity shares/voting rights if such holding of shares/voting rights is 25 percent or more of the outstanding shares/aggregate voting rights as at March 31 every year.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Shares
JPMorgan Chase Bank, N.A., as depositary, issues the American Depositary Shares, or ADSs. Each ADS represents an ownership interest in three equity shares, which we have deposited with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary and each ADR holder. In the future, each ADS will also represent any securities, cash or other property deposited with the depositary but which it has not distributed directly to an ADR holder. The ADSs are evidenced by what is known as American Depositary Receipts or ADRs.
The depositary’s office is located at J.P. Morgan Depositary Receipts, 383 Madison Ave, Floor 11, New York, NY 10179.
Investors may hold ADSs either directly or indirectly through their broker or other financial institution. If an investor holds ADSs directly, by having an ADR certificate evidencing a specific number of ADSs registered in his name on the books of the depositary, or by holding an ADS in the depositary’s direct registration system, he is an ADR holder. This description assumes that the investor holds his ADSs directly. If an investor holds the ADSs through his broker or financial institution nominee, he must rely on the procedures of such broker or financial institution to assert the rights of an ADR holder described in this section. Investors should consult with their broker or financial institution to find out what these procedures are.
Because the depositary’s nominee will actually be the registered owner of the shares, investors must rely on the depositary to exercise the rights of a shareholder on their behalf. The obligations of the depositary and its agents are set out in the deposit agreement. The deposit agreement and the ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement. Because it is a summary, it does not contain all the information that may be important to investors. For more complete information, investors should read the entire deposit agreement and the form of ADR, which contains the terms of the ADSs. Investors can read a copy of the amended and restated deposit agreement, which was filed as an exhibit to the registration statement on Form
F-6
on September 9, 2015. Investors may also obtain a copy of the amended and restated deposit agreement at the Securities and Exchange Commission Office, Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
See “
Description of Equity Shares—The Company
”.
Share Dividends and Other Distributions
We may make various types of distributions with respect to our securities. The depositary has agreed to pay to the investor the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, after deducting its charges and expenses. The investor will receive these distributions in proportion to the number of deposited securities that the investor’s ADSs represent. To the extent practicable, the depositary will deliver such distributions to ADR holders in proportion to their interests in the following manner:
Cash
The depositary will distribute any United States dollars available to it resulting from a cash dividend or other cash distribution if this is practicable and can be done in a reasonable manner. The depositary will distribute this cash in a practicable manner, and may deduct any taxes required to be withheld, any expenses of converting foreign currency and transferring funds to the United States and other expenses and adjustments. If exchange rates fluctuate during a time when the depositary cannot convert a foreign currency, investors may lose some or all of the value of the distribution.
Shares
In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be issued. The depositary will sell any shares which would result in fractional ADSs and distribute the net proceeds to the ADR holders entitled to them.
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Rights to Receive Additional Shares
In the case of a distribution of rights to subscribe for additional shares or other rights, if we provide satisfactory evidence that the depositary may lawfully distribute the rights, the depositary may arrange for ADR holders to instruct the depositary as to the exercise of the rights. However, if we do not furnish such evidence, the depositary may:

| • |  | sell the rights, if practicable, and distribute the net proceeds as cash.

| • |  | if it is not practicable to sell the rights, allow the rights to lapse, in which case ADR holders will receive nothing.

We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADR holders or furnish evidence that the depositary may lawfully make any rights available to ADR holders.
Other Distributions
In the case of a distribution of securities or property other than those described above, the depositary may either:

| • |  | distribute such securities or property in any manner it deems equitable and practicable; or

| • |  | to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such securities or property and distribute any net proceeds in the same way it distributes cash.

Any United States dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents (fractional cents will be withheld without liability for interest and handled by the depositary in accordance with its then current practices).
The depositary may choose, after consultation with us, if practicable, any practical method of distribution for any specific ADR holder, including the distribution of foreign currency, securities or property, or it may retain those items, without paying interest on or investing them, on behalf of the ADR holder as deposited securities, in which case the ADSs will also represent the retained items.
The depositary is not responsible if it fails to determine that any distribution or action is lawful or reasonably practicable.
We cannot assure investors that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, or that any of such transactions can be completed within a specified time period. All purchases and sales of securities will be handled by the depositary in accordance with its then current policies, which are currently set forth in the “Depositary Receipt Sale and Purchase of Security” section available at https://
www.adr.com/Investors/FindOutAboutDRs
, the location and contents of which the depositary shall be solely responsible for.
Deposit, Withdrawal and Cancellation
The depositary issues ADSs upon the deposit of shares or evidence of rights to receive shares with the custodian after payment of the fees and expenses owing to the depositary in connection with such issuance.
Except for shares that we deposit, no shares may be deposited by persons located in India, residents of India or for, or on the account of, such persons. Under current Indian laws and regulations, the depositary cannot accept deposits of outstanding shares and issue ADRs evidencing ADSs representing such shares without prior approval of the Government of India. However, an investor who surrenders an ADS and withdraws shares may be permitted to redeposit those shares in the depositary facility in exchange for ADSs and the depositary may accept deposits of outstanding shares purchased by a
non-resident
of India on the local stock exchange and issue ADSs representing those shares. However, in each case, the number of shares
re-deposited
or deposited cannot exceed the number represented by ADSs converted into underlying shares.
Shares deposited in the future with the custodian must be accompanied by certain documents, including instruments showing that such shares have been properly transferred or endorsed to the person on whose behalf the deposit is being made. To the extent delivery of certificates is impracticable, the shares may be deposited by any other delivery means reasonably acceptable to the depositary or custodian, including by way of crediting the shares to an account maintained by the custodian with us or an accredited intermediary acting as registrar for the shares.
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We will inform the depositary if any of the shares permitted to be deposited do not rank
pari passu
with other deposited securities and the depositary will arrange for the issuance of temporary ADSs representing such shares until such time as the shares become fully fungible with the other deposited securities.
The custodian will hold all deposited shares for the account of the depositary. ADR holders thus have no direct ownership interest in the shares and only have such rights as are contained in the deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items are referred to as “deposited securities”.
Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name of the person entitled thereto evidencing the number of ADSs to which such person is entitled. All ADSs issued will be evidenced by way of registration in the depositary’s direct registration system, unless certificated ADRs are specifically requested by the holder. Rather than receiving a certificate, registered holders will receive periodic statements from the depositary showing the number of ADSs to which they are entitled. Certificated ADRs will be delivered at the depositary’s designated transfer office.
When an investor turns in his ADR certificate at the depositary’s office, or provides proper instructions and documentation in the case of direct registration ADSs, the depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares. Delivery of deposited securities in certificated form will be made at the custodian’s office or, at the investor’s risk and expense, the depositary may deliver such deposited securities at such other place as may be requested by the investor. A stamp duty will be payable by the relevant ADR holder in respect of any withdrawal of shares, unless the shares are held in dematerialized form. Any subsequent transfer by the holder of the shares after withdrawal will require the approval of the RBI, which approval must be obtained by the purchaser and us under the provisions of the Foreign Management Regulation Act, 1999 unless the transfer is on a stock exchange or in connection with an offer under the Indian takeover regulations.
The depositary may only restrict the withdrawal of deposited securities in connection with:

| • |  | temporary delays caused by closing the Bank’s transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of dividends;

| • |  | the payment of fees, taxes and similar charges; or

| • |  | compliance with any United States or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.

This right of withdrawal may not be limited by any other provision of the deposit agreement.
Voting Rights
Investors who hold ADRs have no voting rights with respect to the deposited equity shares. The depositary will abstain from exercising the voting rights of the deposited equity shares. The RBI examined the matter relating to the exercise of voting rights by the depositary and issued a circular dated February 5, 2007 pursuant to which the Bank furnished to the RBI a copy of its agreement with the depositary. We have given an undertaking to the RBI stating that we will not recognize voting by the depositary if the vote given by the depositary is in contravention of its agreement with us and that we or the depositary will not bring about any change in our depositary agreement without the prior approval of the RBI.
Equity shares which have been withdrawn from the depositary facility and transferred on our register of shareholders to a person other than the depositary or its nominee may be voted by that person. However, such shareholders may not receive sufficient advance notice of shareholder meetings to enable them to withdraw the underlying shares and vote at such meetings.
Record Dates
The depositary may, after consultation with us, if practicable, fix record dates for the determination of the ADR holders, who will be entitled or obligated (as the case may be) to receive any distribution on or in respect of deposited securities, or to pay the fee assessed by the depositary for administration of the ADR program and any expenses provided for in the ADR, subject to the provisions of the deposit agreement.
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Reports and Other Communications
The depositary will make available for inspection by ADR holders at the offices of the depositary and at the transfer office any written communications from us which are both received by the custodian or its nominee as a holder of deposited securities and made generally available to the holders of deposited securities. The depositary will distribute copies of such communications, or English translations or summaries thereof, to ADR holders when furnished by us.
Fees and Charges for Holders of American Depositary Shares
The depositary collects the following fees from holders of ADRs or intermediaries acting on their behalf:

Category |  | Depositary actions |  | Associated fee
(a) |  | Issuing ADSs |  | Issuing ADSs upon deposits of shares, issuances in respect of share distributions, rights and other distributions, stock dividends, stock splits, mergers, exchanges of securities or any other transaction or event or other distribution affecting the ADSs or the deposited securities. |  | US$ 5.00 for each 100 ADSs (or portion thereof) issued or delivered.
(b) |  | Distributing dividends |  | Distribution of cash. |  | US$ 0.02 or less per ADS.
(c) |  | Distributing or selling securities |  | Distribution to ADR holders of securities received by the depositary or net proceeds from the sale of such securities. |  | US$ 5.00 for each 100 ADSs (or portion thereof), the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities.
(d) |  | Cancellation or reduction of ADSs |  | Acceptance of ADSs surrendered for withdrawal of deposited shares, or the cancellation or reduction of ADSs for any other reason. |  | US$ 5.00 for each 100 ADSs (or portion thereof) reduced, canceled or surrendered (as the case may be).

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(e) |  | Transferring, splitting or combining ADRs |  | Transfer, split or combination of depositary receipts. |  | US$ 1.50 per ADR.
(f) |  | General depositary services |  | Services performed by the depositary in administering the ADRs. |  | US$ 0.01 per ADS per calendar year (or portion thereof).
(g) |  | Other |  | Fees, charges and expenses incurred on behalf of holders in connection with: |  | The amount of such fees, charges and expenses incurred by the depositary and/or any of its agents.
|  |  |  | •   compliance with foreign exchange control regulations or any law or regulation relating to foreign investment; |  |
|  |  |  | •   the servicing of shares or other deposited securities; |  |
|  |  |  | •   the sale of securities; |  |
|  |  |  | •   the delivery of deposited securities; |  |
|  |  |  | •   the depositary’s or its custodian’s compliance with applicable laws, rules or regulations; |  |
|  |  |  | •   stock transfer or other taxes and other governmental charges; |

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|  |  |  | •   cable, telex and facsimile transmission and delivery charges; |  |
|  |  |  | •   transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; |  |
|  |  |  | •   the conversion of foreign currency into United States dollars (which are deducted by the depositary out of such foreign currency); or |  |
|  |  |  | •   the fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public or private sale of securities under the deposit agreement. |  |

As provided in the amended and restated deposit agreement, the depositary may collect its fees for making cash and other distributions to holders by deducting fees from distributable amounts or by selling a portion of the distributable property. The depositary may generally refuse to provide services until its fees for those services are paid.
Fees Paid by the Depositary to us
Direct and Indirect Payments
The depositary has agreed to contribute certain reasonable direct and indirect expenses related to our ADS program incurred by us in connection with the program. Under certain circumstances, we may be required to repay to the depositary amounts contributed by them.
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The table below sets forth the contribution received by us from the depositary towards our direct and indirect expenses during fiscal 2020.

Category |  | Contribution received |
Legal, accounting fees and other expenses incurred in connection with our ADS program |  | US$ | 4,712,196.17 (approximately Rs. 355.3 million) |

Payment of Taxes
ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution, and by holding or having held an ADR, the holder and all prior holders, jointly and severally, agree to indemnify, defend and save harmless the depositary and its agents. If an ADR holder owes any tax or other governmental charge, the depositary may:

| • |  | deduct the amount thereof from any cash distributions; or

| • |  | sell deposited securities and deduct the amount owing from the net proceeds of such sale.

In either case the ADR holder remains liable for any shortfall. Additionally, if any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer,
split-up
or combination of deposited securities or withdrawal of deposited securities (except under limited circumstances mandated by securities regulations). If any tax or governmental charge is required to be withheld on any
non-cash
distribution, the depositary may sell the distributed property or securities to pay such taxes and distribute any remaining net proceeds to the ADR holders entitled to them.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (1) any change in par value,
split-up,
consolidation, cancellation or other reclassification of deposited securities or (2) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to:

| • |  | amend the form of ADR;

| • |  | distribute additional or amended ADRs;

| • |  | distribute cash, securities or other property it has received in connection with such actions;

| • |  | sell any securities or property received and distribute the proceeds as cash; or

| • |  | take no action.

If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then represent a proportionate interest in such property.
Amendment and Termination
We may agree with the depositary to amend the deposit agreement and the ADSs without the consent of ADR holders for any reason. ADR holders must be given at least 30 days’ notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or prejudices any substantial existing right of ADR holders. If an ADR holder continues to hold an ADR or ADRs after being notified of these changes, the ADR holder is deemed to agree to, and be bound by, such amendment. Notwithstanding the foregoing, an amendment can become effective before notice is given if this is necessary to ensure compliance with a new law, rule or regulation.
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No amendment will impair an ADR holder’s right to surrender its ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law. If a governmental or regulatory body adopts new laws, rules or regulations which require the deposit agreement or the ADS to be amended, the Bank and the depositary may make the necessary amendments, which could take effect before an ADR holder receives notice thereof.
The depositary may terminate the deposit agreement by giving the ADR holders at least 30 days’ prior notice and it must do so at our request. After termination, the depositary’s only responsibility will be (i) to deliver deposited securities to ADR holders who surrender their ADRs, and (ii) to hold or sell distributions received on deposited securities. As soon as practicable after the expiration of six months from the termination date, the depositary will sell the remaining deposited securities and hold the net proceeds of such sales, together with any other cash then held by it under the deposit agreement, in trust for the pro rata benefit of ADR holders who have not yet surrendered their ADRs. After making those sales, the depositary shall have no obligations except to account for such proceeds and other cash. The depositary will not be required to invest such proceeds or pay interest on them.
Limitations on Obligations and Liability to ADR Holders
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents. Neither we nor the depositary nor any such agent will be liable if:

| • |  | any present or future law, rule, regulation, fiat, order or decree of the United States, the Republic of India or any other country, or of any governmental or regulatory authority or securities exchange or market or automated quotation system, the provisions of or regulation governing any deposited securities, any present or future provision of our charter, any act of God, war, terrorism, nationalization or other circumstance beyond its control shall prevent or delay, or shall cause it to be subject to any civil or criminal penalty in connection with any act which the deposit agreement or the ADRs provide shall be done or performed by it;

| • |  | it exercises or fails to exercise discretion under the deposit agreement or the ADR;

| • |  | it takes any action or inaction in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any registered holder of ADRs, or any other person believed by it to be competent to give such advice or information;

| • |  | it performs its obligations under the deposit agreement without gross negligence or willful misconduct; or

| • |  | it relies upon any written notice, request, direction, instruction or document believed by it to be genuine and to have been signed, presented or given by the proper party or parties.

Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs. We and our agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs, which in our opinion may involve us in expense or liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as we require.
The depositary will not be liable for the price received in connection with any sale of securities or any delay or omission to act nor will the depositary be responsible for any error or delay in action, omission to act, default or negligence on the part of the party retained in connection with any sale or proposed sale of securities.
The depositary may own and deal in any class of securities and in ADSs.
Disclosure of Interest in ADSs
From time to time we may request ADR holders and beneficial owners of ADSs to provide information as to:

| • |  | the capacity in which they own or owned ADSs;

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| • |  | the identity of any other persons then or previously interested in such ADSs; and

| • |  | the nature of such interest and various other matters.

Investors in ADSs agree to provide any information requested by us or the depositary pursuant to the deposit agreement. The depositary has agreed to use reasonable efforts, without risk, liability or expense on the part of the depositary, to comply with written instructions received from us requesting that it forward any such requests to investors in ADSs and other holders and beneficial owners and to forward to us any responses to such requests to the extent permitted by applicable law.
We may restrict transfers of the shares where any such transfer might result in ownership of shares in contravention of, or exceeding the limits under, applicable law or our organizational documents. We may also instruct ADR holders that we are restricting the transfers of ADSs where such a transfer may result in the total number of shares represented by the ADSs beneficially owned by ADR holders contravening or exceeding the limits under the applicable law or our organizational documents. We reserve the right to instruct ADR holders to deliver their ADSs for cancellation and withdrawal of the shares underlying such ADSs and holders agree to comply with such instructions.
Requirements for Depositary Actions
We, the depositary or the custodian may refuse to:

| • |  | issue, register or transfer an ADR or ADRs;

| • |  | effect a split-up or combination of ADRs;

| • |  | deliver distributions on any such ADRs; or

| • |  | permit the withdrawal of deposited securities (unless the deposit agreement provides otherwise), until the following conditions have been met:

| • |  | the holder has paid all taxes, governmental charges and fees and expenses as required in the deposit agreement;

| • |  | the holder has provided the depositary with any information it may deem necessary or proper, including, without limitation, proof of identity and the genuineness of any signature, and information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law, regulations, provisions of or governing deposited securities and terms of the deposit agreement and the ADRs; and

| • |  | the holder has complied with such regulations as the depositary may establish consistent with the deposit agreement.

The depositary may also suspend the issuance of ADSs, the deposit of shares, the registration, transfer,
split-up
or combination of ADRs, or the withdrawal of deposited securities (unless the deposit agreement provides otherwise), if the register for ADRs or any deposited securities is closed or if any such action is deemed advisable by the depositary.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and
split-up
of ADRs, which, in the case of registered ADRs, shall include the depositary’s direct registration system. ADR holders may inspect the depositary’s designated records at all reasonable times. Such register may be closed at any time from time to time, when deemed expedient by the depositary.
The depositary will maintain facilities for the delivery and receipt of ADRs.
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Pre-release
of ADSs
The depositary may issue ADSs prior to the receipt of shares and deliver shares prior to the receipt of ADSs for the withdrawal of deposited securities. Each such transaction is called a
pre-release
of the ADSs. A
pre-release
is closed out as soon as the underlying shares (or other ADSs) are delivered to the depositary. The depositary may
pre-release
ADSs only if:

| • |  | the person or entity to whom ADSs or shares will be delivered;

| • |  | represents that, at the time of the pre-release, the applicant or its customer owns the shares or ADSs to be delivered;

| • |  | agrees to indicate the depositary as owner of such shares or ADSs in its records and to hold such shares or ADSs in trust for the depositary until they have been delivered to the depositary or custodian;

| • |  | unconditionally guarantees to deliver the shares or ADSs to the depositary or custodian, as applicable;

| • |  | agrees to any additional restrictions or requirements that the depositary deems appropriate; and

| • |  | the depositary has received collateral for the full market value of the pre-released ADSs or shares.

In general, the number of
pre-released
ADSs and shares is limited to 30.0 percent of all ADSs outstanding at any given time (without giving effect to those ADSs issued prior to the receipt of shares). However, the depositary may change or disregard such limit from time to time as it deems appropriate. The depositary may also set limits with respect to the number of ADSs and shares involved in
pre-release
transactions with any one person on a
case-by-case
basis as it deems appropriate. The depositary may retain for its own account any compensation received by it in conjunction with
pre-release
transactions, including earnings on collateral but excluding the collateral itself.
The Depositary
The depositary is JPMorgan Chase Bank, N.A., a commercial bank offering a wide range of banking services to its customers both domestically and internationally. JPMorgan Chase Bank, National Association is a wholly owned bank subsidiary of JPMorgan Chase & Co., a Delaware corporation.
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DIVIDEND POLICY
We have paid dividends every year since fiscal 1997. The following table sets forth, for the periods indicated, the dividend per equity share and the total amount of dividends declared on the equity shares, both exclusive of dividend tax. All dividends were paid in rupees.

|  | Dividend per equity share |  |  | Total amount of dividends declared |
|  |  |  |  |  |  |  | (in millions) |
Relating to Fiscal Year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2016 |  |  | 4.75 |  |  | US$ | 0.063 |  |  |  | 24,017.8 |  |  | US$ | 318.6 |
2017 |  |  | 5.50 |  |  |  | 0.073 |  |  |  | 28,188.0 |  |  |  | 373.9 |
2018 |  |  | 6.50 |  |  |  | 0.086 |  |  |  | 33,736.2 |  |  |  | 447.5 |
2019 |  |  | 7.50 |  |  |  | 0.099 |  |  |  | 40,849.6 |  |  |  | 541.8 |
2020* |  |  | 2.50 |  |  |  | 0.033 |  |  |  | 13,664.1 |  |  |  | 181.2 |

| * | i) A special interim dividend was declared in a meeting of the Board held on July 20, 2019 to commemorate 25 years of HDFC Bank’s operations with the record date fixed as August 2, 2019.

| ii) The RBI in its circular No. RBI/2019-20/218 DOR.BP.BC.No.64/21.02.067/2019-20, dated April 17, 2020 decided that banks shall not make any further dividend pay-outs from the profits pertaining to the financial year ended March 31, 2020 until further instructions. This restriction was put in place to ensure that banks conserve capital and retain their ability to support the economy and absorb losses in an environment of heightened uncertainty caused by COVID-19.

Our dividends are generally declared and paid in the fiscal following the fiscal to which they relate. Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the annual general meeting of shareholders held within six months of the end of each fiscal year. The shareholders have the right to decrease but not to increase the dividend amount recommended by the Board of Directors.
By an ordinary resolution on July 12, 2019, the shareholders of the Bank approved a subdivision (stock split) of the Bank’s equity shares to reduce the face value of each equity share from Rs. 2.0 to Rs. 1.0 per equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to 5,470,763,894 shares of par value Rs. 1.0 each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three equity shares.
In accordance with the Finance Act 2020, with effect from April 1, 2020, the dividend distribution tax payable by a company upon the distribution of dividends has been abolished. As a result, as of April 1, 2020, the Bank is no longer required to pay direct tax in respect of dividends paid by the Bank. Although no direct taxes are to be paid by the Bank on dividends distributed from and after April 1, 2020, under Section 115AC of the Finance Act 2020, such dividends are now taxable to ADR holders at the rate of 10 percent plus applicable surcharge and cess,
and such amount of tax is required to be withheld or deducted from the amount of any dividends distributed to ADR holders after March 31, 2020.
Future dividends will depend on our revenues, cash flows, financial condition (including capital position) and other factors. ADS holders will be entitled to receive dividends payable in respect of the equity shares represented by ADSs. One ADS represents three equity shares. Cash dividends in respect of the equity shares represented by ADSs will be paid to the depositary in Indian rupees and, except in certain instances, will be converted by the depositary into United States dollars. The depositary will distribute these proceeds to ADS holders. The equity shares represented by ADSs will rank equally with all other equity shares in respect of dividends.
For a description of regulation of dividends, see “
Supervision and Regulation—Special Provisions of the Banking Regulation Act—Restrictions on Payment of Dividends
”.
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SELECTED FINANCIAL AND OTHER DATA
The following tables set forth our selected financial and other data. Our selected income statement data for the fiscal years ended March 31, 2018, 2019 and 2020 and the selected balance sheet data as of March 31, 2019 and 2020 are derived from our audited financial statements included in this report. Our selected balance sheet data as of March 31, 2016, March 31, 2017 and March 31, 2018 and selected income statement data for the fiscal years ended March 31, 2016 and March 31, 2017 are derived from our audited financial statements not included in this report.
For the convenience of the reader, the selected financial data as of and for the year ended March 31, 2020 have been translated into U.S. dollars at the rate on such date of Rs. 75.39 per US$1.00. The U.S. dollar equivalent information should not be construed to imply that the real amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.
By an ordinary resolution on July 12, 2019, the shareholders of the Bank approved a sub division (stock split) of the Bank’s equity shares to reduce the face value of each equity share from Rs. 2.0 to Rs. 1.0 per equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to 5,470,763,894 shares of par value Rs. 1.0 each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three equity shares.
You should read the following data with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements. Footnotes to the following data appear below the final table.

|  | Year ended March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in millions, except per equity share data and ADS data) |
Selected income statement data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest and dividend revenue |  | Rs. | 625,428.6 |  |  | Rs. | 725,554.3 |  |  | Rs. | 843,465.3 |  |  | Rs. | 1,041,714.9 |  |  | Rs. | 1,211,982.9 |  |  | US$ | 16,076.2 |
Interest expense |  |  | 333,067.1 |  |  |  | 373,758.7 |  |  |  | 420,314.7 |  |  |  | 534,209.3 |  |  |  | 618,455.5 |  |  |  | 8,203.4 |
Net interest revenue |  |  | 292,361.5 |  |  |  | 351,795.6 |  |  |  | 423,150.6 |  |  |  | 507,505.6 |  |  |  | 593,527.4 |  |  |  | 7,872.8 |
Provisions for credit losses |  |  | 21,531.3 |  |  |  | 37,951.4 |  |  |  | 59,397.8 |  |  |  | 72,279.3 |  |  |  | 117,621.9 |  |  |  | 1,560.2 |
Net interest revenue after provisions for credit losses |  |  | 270,830.2 |  |  |  | 313,844.2 |  |  |  | 363,752.8 |  |  |  | 435,226.3 |  |  |  | 475,905.5 |  |  |  | 6,312.6 |
Non-interest revenue, net |  |  | 96,833.9 |  |  |  | 110,326.1 |  |  |  | 144,607.0 |  |  |  | 160,122.2 |  |  |  | 198,219.0 |  |  |  | 2,629.4 |
Net revenue |  |  | 367,664.1 |  |  |  | 424,170.3 |  |  |  | 508,359.8 |  |  |  | 595,348.5 |  |  |  | 674,124.5 |  |  |  | 8,942.0 |
Non-interest expense |  |  | 182,077.3 |  |  |  | 204,204.8 |  |  |  | 231,253.4 |  |  |  | 255,389.5 |  |  |  | 308,280.5 |  |  |  | 4,089.2 |
Income before income tax expense |  |  | 185,586.8 |  |  |  | 219,965.5 |  |  |  | 277,106.4 |  |  |  | 339,959.0 |  |  |  | 365,844.0 |  |  |  | 4,852.8 |
Income tax expense |  |  | 67,536.9 |  |  |  | 79,224.9 |  |  |  | 98,272.5 |  |  |  | 119,393.5 |  |  |  | 105,480.0 |  |  |  | 1,399.1 |
Net income before noncontrolling interest |  |  | 118,049.9 |  |  |  | 140,740.6 |  |  |  | 178,833.9 |  |  |  | 220,565.5 |  |  |  | 260,364.0 |  |  |  | 3,453.7 |
Less: Net income attributable to shareholders of noncontrolling interest |  |  | 134.6 |  |  |  | 210.8 |  |  |  | 319.0 |  |  |  | 461.7 |  |  |  | 94.1 |  |  |  | 1.2 |
Net income attributable to HDFC Bank Limited |  | Rs. | 117,915.3 |  |  | Rs. | 140,529.8 |  |  | Rs. | 178,514.9 |  |  | Rs. | 220,103.8 |  |  | Rs. | 260,269.9 |  |  | US$ | 3,452.5 |
Per equity share data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per equity share, basic |  | Rs. | 23.42 |  |  | Rs. | 27.62 |  |  | Rs. | 34.59 |  |  | Rs. | 41.07 |  |  | Rs. | 47.59 |  |  | US$ | 0.63 |
Earnings per equity share, diluted |  |  | 23.17 |  |  |  | 27.29 |  |  |  | 34.15 |  |  |  | 40.66 |  |  |  | 47.27 |  |  |  | 0.62 |
Dividends per share |  |  | 4.75 |  |  |  | 5.50 |  |  |  | 6.50 |  |  |  | 7.50 |  |  |  | 2.50 |  |  |  | 0.03 |
Book value (1) |  |  | 171.92 |  |  |  | 200.21 |  |  |  | 226.23 |  |  |  | 299.74 |  |  |  | 345.25 |  |  |  | 4.58 |
Equity share data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity shares outstanding at end of period |  |  | 5,056.4 |  |  |  | 5,125.0 |  |  |  | 5,190.2 |  |  |  | 5,446.6 |  |  |  | 5,483.3 |  |  |  | 5,483.3 |
Weighted average equity shares outstanding—basic |  |  | 5,034.8 |  |  |  | 5,088.6 |  |  |  | 5,161.0 |  |  |  | 5,360.0 |  |  |  | 5,468.8 |  |  |  | 5,468.8 |
Weighted average equity shares outstanding—diluted |  |  | 5,090.8 |  |  |  | 5,150.8 |  |  |  | 5,227.8 |  |  |  | 5,413.6 |  |  |  | 5,505.8 |  |  |  | 5,505.8 |
ADS data (where one ADS represents three shares): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per ADS—basic |  |  | 70.26 |  |  |  | 82.85 |  |  |  | 103.77 |  |  |  | 123.21 |  |  |  | 142.77 |  |  |  | 1.89 |
Earnings per ADS—diluted |  |  | 69.50 |  |  |  | 81.86 |  |  |  | 102.45 |  |  |  | 121.98 |  |  |  | 141.81 |  |  |  | 1.86 |

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|  | As of March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in millions) |
Selected balance sheet data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks, and restricted cash |  | Rs. | 377,671.7 |  |  | Rs. | 430,708.6 |  |  | Rs. | 574,151.0 |  |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |  |  | US$ | 8,117.3 |
Loans, net of allowance |  |  | 4,935,474.3 |  |  |  | 5,910,412.8 |  |  |  | 7,263,671.8 |  |  |  | 8,963,232.6 |  |  |  | 10,425,022.4 |  |  |  | 138,281.2 |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments held for trading |  |  | 71,860.9 |  |  |  | 35,363.7 |  |  |  | 167,513.9 |  |  |  | 265,516.1 |  |  |  | 304,962.9 |  |  |  | 4,045.1 |
Investments available for sale, debt securities |  |  | 1,877,503.7 |  |  |  | 2,109,877.9 |  |  |  | 2,221,443.3 |  |  |  | 2,633,348.4 |  |  |  | 3,406,289.2 |  |  |  | 45,182.2 |
Total |  |  | 1,949,364.6 |  |  |  | 2,145,241.6 |  |  |  | 2,388,957.2 |  |  |  | 2,898,864.5 |  |  |  | 3,711,252.1 |  |  |  | 49,227.4 |
Total assets (2) |  | Rs. | 7,736,723.3 |  |  | Rs. | 9,066,980.5 |  |  | Rs. | 11,367,308.8 |  |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  | US$ | 211,724.1 |
Long-term debt |  |  | 522,313.5 |  |  |  | 730,920.7 |  |  |  | 932,906.3 |  |  |  | 1,044,553.0 |  |  |  | 1,026,518.3 |  |  |  | 13,616.1 |
Short-term borrowings |  |  | 253,562.4 |  |  |  | 322,265.6 |  |  |  | 779,201.7 |  |  |  | 654,058.0 |  |  |  | 377,417.6 |  |  |  | 5,006.2 |
Total deposits |  |  | 5,457,860.3 |  |  |  | 6,431,322.9 |  |  |  | 7,883,751.5 |  |  |  | 9,225,026.9 |  |  |  | 11,462,071.3 |  |  |  | 152,037.0 |
Of which: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  |  | 4,575,414.5 |  |  |  | 5,277,644.0 |  |  |  | 6,693,649.3 |  |  |  | 7,804,717.5 |  |  |  | 9,730,481.3 |  |  |  | 129,068.6 |
Non-interest bearing deposits |  |  | 882,445.8 |  |  |  | 1,153,678.9 |  |  |  | 1,190,102.2 |  |  |  | 1,420,309.4 |  |  |  | 1,731,590.0 |  |  |  | 22,968.4 |
Total liabilities (2) |  |  | 6,865,928.1 |  |  |  | 8,039,079.4 |  |  |  | 10,190,815.5 |  |  |  | 11,644,449.0 |  |  |  | 14,065,395.3 |  |  |  | 186,568.4 |
Noncontrolling interest |  |  | 1,485.0 |  |  |  | 1,847.5 |  |  |  | 2,329.7 |  |  |  | 3,049.3 |  |  |  | 3,411.4 |  |  |  | 45.3 |
HDFC Bank Limited shareholders’ equity |  |  | 869,310.2 |  |  |  | 1,026,053.6 |  |  |  | 1,174,163.6 |  |  |  | 1,632,575.3 |  |  |  | 1,893,082.4 |  |  |  | 25,110.4 |
Total liabilities and shareholders’ equity |  | Rs. | 7,736,723.3 |  |  | Rs. | 9,066,980.5 |  |  | Rs. | 11,367,308.8 |  |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  |  | 211,724.1 |
|  | Year ended March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in millions) |
Period average (3) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets |  | Rs. | 6,334,288.6 |  |  | Rs. | 7,584,354.9 |  |  | Rs. | 9,052,769.4 |  |  | Rs. | 11,082,789.8 |  |  | Rs. | 12,882,466.7 |  |  | US$ | 170,877.7 |
Loans, net of allowance |  |  | 4,278,152.9 |  |  |  | 5,156,042.6 |  |  |  | 6,507,446.5 |  |  |  | 8,012,985.1 |  |  |  | 9,342,363.0 |  |  |  | 123,920.5 |
Total assets |  |  | 6,776,037.8 |  |  |  | 8,099,122.2 |  |  |  | 9,634,335.7 |  |  |  | 11,774,471.6 |  |  |  | 13,797,721.6 |  |  |  | 183,017.9 |
Interest-bearing deposits |  |  | 4,301,515.1 |  |  |  | 5,053,872.7 |  |  |  | 5,849,539.4 |  |  |  | 7,131,163.3 |  |  |  | 8,684,183.5 |  |  |  | 115,190.1 |
Non-interest bearing deposits |  |  | 620,340.4 |  |  |  | 784,108.7 |  |  |  | 946,157.4 |  |  |  | 1,029,226.1 |  |  |  | 1,202,574.5 |  |  |  | 15,951.4 |
Total deposits |  |  | 4,921,855.5 |  |  |  | 5,837,981.4 |  |  |  | 6,795,696.8 |  |  |  | 8,160,389.4 |  |  |  | 9,886,758.0 |  |  |  | 131,141.5 |
Interest-bearing liabilities |  |  | 5,130,083.6 |  |  |  | 6,104,324.6 |  |  |  | 7,260,929.1 |  |  |  | 8,926,793.0 |  |  |  | 10,306,283.8 |  |  |  | 136,706.2 |
Long-term debt |  |  | 485,713.4 |  |  |  | 646,512.9 |  |  |  | 881,556.7 |  |  |  | 1,015,061.9 |  |  |  | 1,023,425.5 |  |  |  | 13,575.1 |
Short-term borrowings |  |  | 342,855.1 |  |  |  | 403,939.0 |  |  |  | 529,833.0 |  |  |  | 780,567.8 |  |  |  | 598,674.8 |  |  |  | 7,941.0 |
Total liabilities |  |  | 5,955,268.7 |  |  |  | 7,155,571.9 |  |  |  | 8,553,295.8 |  |  |  | 10,355,177.0 |  |  |  | 12,069,459.7 |  |  |  | 160,093.6 |
Total shareholders’ equity |  |  | 820,769.1 |  |  |  | 943,550.3 |  |  |  | 1,081,039.9 |  |  |  | 1,419,294.6 |  |  |  | 1,728,261.9 |  |  |  | 22,924.3 |

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|  | As of or for the year ended March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in percentage) |
Profitability: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income attributable to HDFC Bank Limited as a percentage of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Average total assets |  |  | 1.7 |  |  |  | 1.7 |  |  |  | 1.9 |  |  |  | 1.9 |  |  |  | 1.9 |
Average total shareholders’ equity |  |  | 14.4 |  |  |  | 14.9 |  |  |  | 16.5 |  |  |  | 15.5 |  |  |  | 15.1 |
Dividend payout ratio (4) |  |  | 20.4 |  |  |  | 20.1 |  |  |  | 18.9 |  |  |  | 18.6 |  |  |  | 5.3 |
Spread (5) |  |  | 4.1 |  |  |  | 4.1 |  |  |  | 4.2 |  |  |  | 4.0 |  |  |  | 4.0 |
Net interest margin (6) |  |  | 4.6 |  |  |  | 4.6 |  |  |  | 4.7 |  |  |  | 4.6 |  |  |  | 4.6 |
Cost-to-net revenue ratio (7) |  |  | 49.5 |  |  |  | 48.1 |  |  |  | 45.5 |  |  |  | 42.9 |  |  |  | 45.7 |
Cost-to-average assets ratio (8) |  |  | 2.7 |  |  |  | 2.5 |  |  |  | 2.4 |  |  |  | 2.2 |  |  |  | 2.2 |
Capital: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital adequacy ratio (9) |  |  | 15.53 |  |  |  | 14.55 |  |  |  | 14.82 |  |  |  | 17.11 |  |  |  | 18.52 |
Tier I capital adequacy ratio (9) |  |  | 13.22 |  |  |  | 12.79 |  |  |  | 13.25 |  |  |  | 15.78 |  |  |  | 17.23 |
Tier II capital adequacy ratio (9) |  |  | 2.31 |  |  |  | 1.76 |  |  |  | 1.57 |  |  |  | 1.33 |  |  |  | 1.29 |
Average total shareholders’ equity as a percentage of average total assets |  |  | 12.1 |  |  |  | 11.7 |  |  |  | 11.2 |  |  |  | 12.1 |  |  |  | 12.5 |
Asset quality: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross non-performing customer assets as a percentage of gross customer assets (10) |  |  | 1.0 |  |  |  | 1.3 |  |  |  | 1.4 |  |  |  | 1.5 |  |  |  | 1.4 |
Net non-performing customer assets as a percentage of net customer assets (10) |  |  | 0.4 |  |  |  | 0.6 |  |  |  | 0.6 |  |  |  | 0.6 |  |  |  | 0.5 |
Total allowance for credit losses as a percentage of gross non-performing credit assets |  |  | 108.3 |  |  |  | 94.6 |  |  |  | 103.5 |  |  |  | 105.6 |  |  |  | 126.3 |

(1) | Represents the difference between total assets and total liabilities, reduced by noncontrolling interests in subsidiaries, divided by the number of shares outstanding at the end of each reporting period.

(2) | With effect from April 1, 2019, the Bank adopted FASB ASU 2016-02 “Leases (Topic 842)” using the modified retrospective method.

(3) | Average balances are the average of daily outstanding amounts.

(4) | Represents the ratio of total dividends payable on equity shares relating to each fiscal year, excluding the dividend distribution tax, as a percentage of net income of that year. Dividends declared each year are typically paid in the following fiscal year. With effect from April 1, 2020, dividend distribution tax on dividends distributed has been abolished. The RBI in its circular No. RBI/2019-20/218 DOR.BP.BC.No.64/21.02.067/2019-20, dated April 17, 2020 decided that banks shall not make any further dividend pay-outs from the profits pertaining to the financial year ended March 31, 2020 until further instructions. See “ Dividend Policy ”

(5) | Represents the difference between yield on average interest-earning assets and cost of average interest-bearing liabilities. Yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. Cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. For purposes of calculating spread, interest-bearing liabilities includes non-interest bearing current accounts.

(6) | Represents the ratio of net interest revenue to average interest-earning assets. The difference in net interest margin and spread arises due to the difference in the amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, the net interest margin is greater than the spread. If average interest-bearing liabilities exceed average interest-earning assets, the net interest margin is less than the spread.

(7) | Represents the ratio of non-interest expense to the sum of net interest revenue after provision for credit losses and non-interest revenue.

(8) | Represents the ratio of non-interest expense to average total assets.

(9) | Calculated in accordance with RBI guidelines (Basel III Capital Regulations, generally referred to as “Basel III”). See also “ Supervision and Regulation ”.

(10) | Customer assets consist of loans and credit substitutes.

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SELECTED STATISTICAL INFORMATION
The following information should be read together with our financial statements included in this report as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Certain amounts presented in this section are in accordance with U.S. GAAP and certain figures are presented according to RBI guidelines where noted. Footnotes appear at the end of each related section of tables.
Average Balance Sheet
The table below presents the average balances for our assets and liabilities together with the related interest revenue and expense amounts, resulting in the presentation of the average yields and cost for each period. The average balance is the daily average of balances outstanding. The average yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. The average cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. The average balances of loans include
non-performing
loans and are net of allowance for credit losses.

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Average balance |  |  | Interest revenue/ expense |  |  | Average yield/ cost |  |  | Average balance |  |  | Interest revenue/ expense |  |  | Average yield/ cost |  |  | Average balance |  |  | Interest revenue/ expense |  |  | Average yield/ cost |
|  | (in millions, except percentages) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Due from banks (1) |  | Rs. | 155,134.1 |  |  | Rs. | 6,969.3 |  |  |  | 4.5 | % |  | Rs. | 148,277.5 |  |  | Rs. | 7,221.5 |  |  |  | 4.9 | % |  | Rs. | 431,461.7 |  |  | Rs. | 18,665.8 |  |  |  | 4.3 | %
Investments available for sale debt securities |  |  | 2,185,498.3 |  |  |  | 158,209.2 |  |  |  | 7.2 |  |  |  | 2,617,688.2 |  |  |  | 190,992.5 |  |  |  | 7.3 |  |  |  | 2,811,228.3 |  |  |  | 198,383.2 |  |  |  | 7.1 |
Investments held for trading |  |  | 76,921.8 |  |  |  | 4,049.1 |  |  |  | 5.3 |  |  |  | 165,237.5 |  |  |  | 8,892.9 |  |  |  | 5.4 |  |  |  | 160,667.5 |  |  |  | 7,392.1 |  |  |  | 4.6 |
Loans, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail loans |  |  | 4,629,220.5 |  |  |  | 515,334.1 |  |  |  | 11.1 |  |  |  | 5,655,160.9 |  |  |  | 626,359.1 |  |  |  | 11.1 |  |  |  | 6,465,548.5 |  |  |  | 736,290.1 |  |  |  | 11.4 |
Wholesale loans |  |  | 1,878,226.0 |  |  |  | 152,124.6 |  |  |  | 8.1 |  |  |  | 2,357,824.2 |  |  |  | 201,323.9 |  |  |  | 8.5 |  |  |  | 2,876,814.5 |  |  |  | 245,504.7 |  |  |  | 8.5 |
Other assets |  |  | 127,768.7 |  |  |  | 6,779.0 |  |  |  | 5.3 |  |  |  | 138,601.5 |  |  |  | 6,925.0 |  |  |  | 5.0 |  |  |  | 136,746.2 |  |  |  | 5,747.0 |  |  |  | 4.2 |
Total interest-earning assets: |  | Rs. | 9,052,769.4 |  |  | Rs. | 843,465.3 |  |  |  | 9.3 | % |  | Rs. | 11,082,789.8 |  |  | Rs. | 1,041,714.9 |  |  |  | 9.4 | % |  | Rs. | 12,882,466.7 |  |  | Rs. | 1,211,982.9 |  |  |  | 9.4 | %
Non-interest-earning assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks, and restricted cash |  |  | 346,111.0 |  |  |  |  |  |  |  |  |  |  |  | 415,721.0 |  |  |  |  |  |  |  |  |  |  |  | 490,459.0 |  |  |  |  |  |  |  |  |
Property and equipment |  |  | 38,790.1 |  |  |  |  |  |  |  |  |  |  |  | 40,943.0 |  |  |  |  |  |  |  |  |  |  |  | 45,124.2 |  |  |  |  |  |  |  |  |
Other assets |  |  | 196,665.2 |  |  |  |  |  |  |  |  |  |  |  | 235,017.8 |  |  |  |  |  |  |  |  |  |  |  | 379,671.7 |  |  |  |  |  |  |  |  |
Total non-interest earning assets |  |  | 581,566.3 |  |  |  |  |  |  |  |  |  |  |  | 691,681.8 |  |  |  |  |  |  |  |  |  |  |  | 915,254.9 |  |  |  |  |  |  |  |  |
Total assets |  | Rs. | 9,634,335.7 |  |  | Rs. | 843,465.3 |  |  |  | 8.8 | % |  | Rs. | 11,774,471.6 |  |  | Rs. | 1,041,714.9 |  |  |  | 8.8 | % |  | Rs. | 13,797,721.6 |  |  | Rs. | 1,211,982.9 |  |  |  | 8.8 | %
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Savings account deposits |  | Rs. | 1,919,734.0 |  |  | Rs. | 72,103.0 |  |  |  | 3.8 | % |  | Rs. | 2,226,287.0 |  |  | Rs. | 80,630.0 |  |  |  | 3.6 | % |  | Rs. | 2,552,856.0 |  |  | Rs. | 92,813.0 |  |  |  | 3.6 | %
Time deposits |  |  | 3,929,805.4 |  |  |  | 254,614.8 |  |  |  | 6.5 |  |  |  | 4,904,876.3 |  |  |  | 329,396.4 |  |  |  | 6.7 |  |  |  | 6,131,327.5 |  |  |  | 415,075.8 |  |  |  | 6.8 |
Short-term borrowings (2) |  |  | 529,833.0 |  |  |  | 26,299.4 |  |  |  | 5.0 |  |  |  | 780,567.8 |  |  |  | 39,101.8 |  |  |  | 5.0 |  |  |  | 598,674.8 |  |  |  | 27,366.2 |  |  |  | 4.6 |
Long-term debt |  |  | 881,556.7 |  |  |  | 67,297.5 |  |  |  | 7.6 |  |  |  | 1,015,061.9 |  |  |  | 85,081.1 |  |  |  | 8.4 |  |  |  | 1,023,425.5 |  |  |  | 83,200.5 |  |  |  | 8.1 |
Total interest-bearing liabilities |  | Rs. | 7,260,929.1 |  |  | Rs. | 420,314.7 |  |  |  | 5.8 | % |  | Rs. | 8,926,793.0 |  |  | Rs. | 534,209.3 |  |  |  | 6.0 | % |  | Rs. | 10,306,283.8 |  |  | Rs. | 618,455.5 |  |  |  | 6.0 | %
Non-interest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest-bearing deposits |  |  | 946,157.4 |  |  |  |  |  |  |  |  |  |  |  | 1,029,226.1 |  |  |  |  |  |  |  |  |  |  |  | 1,202,574.5 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 346,209.3 |  |  |  |  |  |  |  |  |  |  |  | 399,157.9 |  |  |  |  |  |  |  |  |  |  |  | 560,601.4 |  |  |  |  |  |  |  |  |
Total non-interest-bearing liabilities |  |  | 1,292,366.7 |  |  |  |  |  |  |  |  |  |  |  | 1,428,384.0 |  |  |  |  |  |  |  |  |  |  |  | 1,763,175.9 |  |  |  |  |  |  |  |  |
Total liabilities |  | Rs. | 8,553,295.8 |  |  | Rs. | 420,314.7 |  |  |  | 4.9 | % |  | Rs. | 10,355,177.0 |  |  | Rs. | 534,209.3 |  |  |  | 5.2 | % |  | Rs. | 12,069,459.7 |  |  | Rs. | 618,455.5 |  |  |  | 5.1 | %
Total shareholders’ equity |  |  | 1,081,039.9 |  |  |  |  |  |  |  |  |  |  |  | 1,419,294.6 |  |  |  |  |  |  |  |  |  |  |  | 1,728,261.9 |  |  |  |  |  |  |  |  |
Total liabilities and shareholders’ equity |  | Rs. | 9,634,335.7 |  |  | Rs. | 420,314.7 |  |  |  | 4.4 | % |  | Rs. | 11,774,471.6 |  |  | Rs. | 534,209.3 |  |  |  | 4.5 | % |  | Rs. | 13,797,721.6 |  |  | Rs. | 618,455.5 |  |  |  | 4.5 | %

(1) | Includes securities purchased under agreements to resell.

(2) | Includes securities sold under repurchase agreements.

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Analysis of Changes in Interest Revenue and Interest Expense
The following table sets forth, for the periods indicated, the allocation of the changes in our interest revenue and interest expense between average balance and average rate.

|  | Fiscal 2019 vs. Fiscal 2018 Increase (decrease) (1) due to |  |  | Fiscal 2020 vs. Fiscal 2019 Increase (decrease) (1) due to |
|  | Net change |  |  | Change in Average balance |  |  | Change in average rate |  |  | Net change |  |  | Change in Average balance |  |  | Change in average rate |
|  |  |  |  |  |  |  | (in millions) |  |  |  |  |  |  |
Interest revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks, and restricted cash |  | Rs. | 252.2 |  |  | Rs. | (308.0 | ) |  | Rs. | 560.2 |  |  | Rs. | 11,444.3 |  |  | Rs. | 13,791.8 |  |  | Rs. | (2,347.5 | )
Investments available for sale debt securities |  |  | 32,783.3 |  |  |  | 31,323.0 |  |  |  | 1,460.3 |  |  |  | 7,390.7 |  |  |  | 13,736.0 |  |  |  | (6,345.3 | )
Investments held for trading |  |  | 4,843.8 |  |  |  | 4,648.9 |  |  |  | 194.9 |  |  |  | (1,500.8 | ) |  |  | (246.0 | ) |  |  | (1,254.8 | )
Loans, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail loans |  |  | 111,025.0 |  |  |  | 114,209.7 |  |  |  | (3,184.7 | ) |  |  | 109,931.1 |  |  |  | 89,757.6 |  |  |  | 20,173.5 |
Wholesale loans |  |  | 49,199.3 |  |  |  | 38,844.5 |  |  |  | 10,354.8 |  |  |  | 44,180.7 |  |  |  | 44,314.2 |  |  |  | (133.5 | )
Other assets |  |  | 146.0 |  |  |  | 655.5 |  |  |  | (509.5 | ) |  |  | (1,178.0 | ) |  |  | (92.7 | ) |  |  | (1,085.3 | )
Total interest-earning assets |  | Rs. | 198,249.6 |  |  | Rs. | 189,373.6 |  |  | Rs. | 8,876.0 |  |  | Rs. | 170,268.0 |  |  | Rs. | 161,260.9 |  |  | Rs. | 9,007.1 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Savings account deposits |  | Rs. | 8,527.0 |  |  | Rs. | 11,513.8 |  |  | Rs. | (2,986.8) |  |  | Rs. | 12,183.0 |  |  | Rs. | 11,827.4 |  |  | Rs. | 355.6 |
Time deposits |  |  | 74,781.6 |  |  |  | 63,175.5 |  |  |  | 11,606.1 |  |  |  | 85,679.4 |  |  |  | 82,364.7 |  |  |  | 3,314.7 |
Short-term borrowings |  |  | 12,802.4 |  |  |  | 12,445.8 |  |  |  | 356.6 |  |  |  | (11,735.6 | ) |  |  | (9,111.8 | ) |  |  | (2,623.8 | )
Long-term debt |  |  | 17,783.6 |  |  |  | 10,191.7 |  |  |  | 7,591.9 |  |  |  | (1,880.6 | ) |  |  | 701.0 |  |  |  | (2,581.6 | )
Total interest-bearing liabilities |  | Rs. | 113,894.6 |  |  | Rs. | 97,326.8 |  |  | Rs. | 16,567.8 |  |  | Rs. | 84,246.2 |  |  | Rs. | 85,781.3 |  |  | Rs. | (1,535.1 | )
Net interest revenue |  | Rs. | 84,355.0 |  |  | Rs. | 92,046.8 |  |  | Rs. | (7,691.8 | ) |  | Rs. | 86,021.8 |  |  | Rs. | 75,479.6 |  |  | Rs. | 10,542.2 |

(1) | The changes in net interest revenue between periods have been reflected as attributed either to average balance or average rate changes. For purposes of this table, changes which are due to both average balance and average rate have been allocated solely to changes in average rate.

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Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields, spreads and interest margins on our interest-earning assets.

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Interest and dividend revenue |  | Rs. | 843,465.3 |  |  | Rs. | 1,041,714.9 |  |  | Rs. | 1,211,982.9 |
Average interest-earning assets |  |  | 9,052,769.4 |  |  |  | 11,082,789.8 |  |  |  | 12,882,466.7 |
Interest expense |  |  | 420,314.7 |  |  |  | 534,209.3 |  |  |  | 618,455.5 |
Average interest-bearing liabilities |  |  | 7,260,929.1 |  |  |  | 8,926,793.0 |  |  |  | 10,306,283.8 |
Average total assets |  |  | 9,634,335.7 |  |  |  | 11,774,471.6 |  |  |  | 13,797,721.6 |
Average interest-earning assets as a percentage of average total assets |  |  | 94.0 | % |  |  | 94.1 | % |  |  | 93.4 | %
Average interest-bearing liabilities as a percentage of average total assets |  |  | 75.4 | % |  |  | 75.8 | % |  |  | 74.7 | %
Average interest-earning assets as a percentage of average interest-bearing liabilities |  |  | 124.7 | % |  |  | 124.2 | % |  |  | 125.0 | %
Yield |  |  | 9.3 | % |  |  | 9.4 | % |  |  | 9.4 | %
Cost of funds (1) |  |  | 4.9 | % |  |  | 5.2 | % |  |  | 5.1 | %
Spread (2) |  |  | 4.2 | % |  |  | 4.0 | % |  |  | 4.0 | %
Net interest margin (3) |  |  | 4.7 | % |  |  | 4.6 | % |  |  | 4.6 | %

(1) | Excludes total shareholders’ equity.

(2) | Represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. The yield on average interest-earning assets is the ratio of interest revenue to average interest-earning assets. The cost of average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. For purposes of calculating spread, interest-bearing liabilities include non-interest bearing current accounts.

(3) | The net interest margin is the ratio of net interest revenue to average interest-earning assets. The difference in the net interest margin and spread arises due to the difference in the amount of average interest-earning assets and average interest-bearing liabilities. If average interest-earning assets exceed average interest-bearing liabilities, the net interest margin is greater than the spread. If average interest-bearing liabilities exceed average interest-earning assets, the net interest margin is less than the spread.

Return on Equity and Assets
The following table presents selected financial ratios for the periods indicated.

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Net income |  | Rs. | 178,514.9 |  |  | Rs. | 220,103.8 |  |  | Rs. | 260,269.9 |
Average total assets |  |  | 9,634,335.7 |  |  |  | 11,774,471.6 |  |  |  | 13,797,721.6 |
Average total shareholders’ equity |  |  | 1,081,039.9 |  |  |  | 1,419,294.6 |  |  |  | 1,728,262.0 |
Net income as a percentage of average total assets |  |  | 1.9 | % |  |  | 1.9 | % |  |  | 1.9 | %
Net income as a percentage of average total shareholders’ equity |  |  | 16.5 | % |  |  | 15.5 | % |  |  | 15.1 | %
Average total shareholders’ equity as a percentage of average total assets |  |  | 11.2 | % |  |  | 12.1 | % |  |  | 12.5 | %
Dividend payout-ratio |  |  | 18.9 | % |  |  | 18.6 | % |  |  | 5.3 | %

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Investment Portfolio
Available for Sale Debt Investments
The following tables set forth, as of the dates indicated, information related to our investments available for sale debt securities.

|  | At March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Amortized Cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair value |  |  | Amortized cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair value |  |  | Amortized cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair Value |
|  | (in millions) |
Government securities |  | Rs. | 1,872,187.9 |  |  | Rs. | 11,519.2 |  |  | Rs. | 17,572.9 |  |  | Rs. | 1,866,134.2 |  |  | Rs. | 2,292,568.3 |  |  | Rs. | 26,746.0 |  |  | Rs. | 10,310.6 |  |  | Rs. | 2,309,003.7 |  |  | Rs. | 2,814,520.3 |  |  | Rs. | 63,967.7 |  |  | Rs. | 1,491.6 |  |  | Rs. | 2,876,996.4 |
Government securities outside India |  |  | 4,223.8 |  |  |  | — |  |  |  | 6.8 |  |  |  | 4,217.0 |  |  |  | 7,201.6 |  |  |  | 3.3 |  |  |  | — |  |  |  | 7,204.9 |  |  |  | 8,367.0 |  |  |  | 48.4 |  |  |  | 0.0 |  |  |  | 8,415.4 |
Other debt securities |  |  | 333,385.3 |  |  |  | 495.4 |  |  |  | 1,682.1 |  |  |  | 332,198.6 |  |  |  | 277,475.7 |  |  |  | 930.8 |  |  |  | 1,570.1 |  |  |  | 276,836.4 |  |  |  | 390,452.4 |  |  |  | 2,522.3 |  |  |  | 1,086.9 |  |  |  | 391,887.8 |
Total debt securities |  | Rs. | 2,209,797.0 |  |  | Rs. | 12,014.6 |  |  | Rs. | 19,261.8 |  |  | Rs. | 2,202,549.8 |  |  | Rs. | 2,577,245.6 |  |  | Rs. | 27,680.1 |  |  | Rs. | 11,880.7 |  |  | Rs. | 2,593,045.0 |  |  | Rs. | 3,213,339.7 |  |  | Rs. | 66,538.4 |  |  | Rs. | 2,578.5 |  |  | Rs. | 3,277,299.6 |
Others* |  |  | 19,186.3 |  |  |  | 66.0 |  |  |  | 358.8 |  |  |  | 18,893.5 |  |  |  | 40,259.7 |  |  |  | 166.3 |  |  |  | 122.6 |  |  |  | 40,303.4 |  |  |  | 127,392.6 |  |  |  | 1,747.0 |  |  |  | 150.0 |  |  |  | 128,989.6 |
Total |  | Rs. | 2,228,983.3 |  |  | Rs. | 12,080.6 |  |  | Rs. | 19,620.6 |  |  | Rs. | 2,221,443.3 |  |  | Rs. | 2,617,505.3 |  |  | Rs. | 27,846.4 |  |  | Rs. | 12,003.3 |  |  | Rs. | 2,633,348.4 |  |  | Rs. | 3,340,732.3 |  |  | Rs. | 68,285.4 |  |  | Rs. | 2,728.5 |  |  | Rs. | 3,406,289.2 |

* | Includes asset and mortgage backed securities and mutual funds.

Held for Trading Investments
The following table sets forth, as of the dates indicated, information related to our investments held for trading:

|  | At March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Amortized cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair value |  |  | Amortized cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair value |  |  | Amortized cost |  |  | Gross unrealized gain |  |  | Gross unrealized loss |  |  | Fair value |
|  | (in millions) |
Government securities |  | Rs. | 25,962.2 |  |  | Rs. | 19.0 |  |  | Rs. | 8.0 |  |  | Rs. | 25,973.2 |  |  | Rs. | 134,084.9 |  |  | Rs. | 163.2 |  |  | Rs. | 0.1 |  |  | Rs. | 134,248.0 |  |  | Rs. | 207,131.4 |  |  | Rs. | 592.9 |  |  | Rs. | 17.2 |  |  | Rs. | 207,707.1 |
Other debt securities |  |  | 49,982.3 |  |  |  | 62.8 |  |  |  | 0.4 |  |  |  | 50,044.7 |  |  |  | 33,990.6 |  |  |  | 15.8 |  |  |  | 1.1 |  |  |  | 34,005.3 |  |  |  | 4,495.9 |  |  |  | 7.1 |  |  |  | 32.5 |  |  |  | 4,470.5 |
Total debt securities |  | Rs. | 75,944.5 |  |  | Rs. | 81.8 |  |  | Rs. | 8.4 |  |  | Rs. | 76,017.9 |  |  | Rs. | 168,075.5 |  |  | Rs. | 179.0 |  |  | Rs. | 1.2 |  |  | Rs. | 168,253.3 |  |  | Rs. | 211,627.3 |  |  | Rs. | 600.0 |  |  | Rs. | 49.7 |  |  | Rs. | 212,177.6 |
Non-debt securities |  |  | 91,488.6 |  |  |  | 7.4 |  |  |  | — |  |  |  | 91,496.0 |  |  |  | 96,935.6 |  |  |  | 327.2 |  |  |  | — |  |  |  | 97,262.8 |  |  |  | 92,683.9 |  |  |  | 101.40 |  |  |  | — |  |  |  | 92,785.3 |
Total |  | Rs. | 167,433.1 |  |  | Rs. | 89.2 |  |  | Rs. | 8.4 |  |  | Rs. | 167,513.9 |  |  | Rs. | 265,011.1 |  |  | Rs. | 506.2 |  |  | Rs. | 1.2 |  |  | Rs. | 265,516.1 |  |  | Rs. | 304,311.2 |  |  | Rs. | 701.4 |  |  | Rs. | 49.7 |  |  | Rs. | 304,962.9 |

Residual Maturity Profile
The following table sets forth, for the periods indicated, an analysis of the residual maturity profile of our investments in government and other debt securities classified as
available-for-sale
debt securities and their market yields.
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|  | At March 31, 2020 |
|  | Up to one year |  |  | One to five years |  |  | Five to ten years |  |  | More than ten years |
|  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |  |  | Amount |  |  | Yield |
|  | (in millions, except percentages) |
Government securities |  | Rs. | 859,680.4 |  |  |  | 4.3 | % |  | Rs. | 747,677.6 |  |  |  | 5.6 | % |  | Rs. | 930,580.1 |  |  |  | 6.5 | % |  | Rs. | 339,058.3 |  |  |  | 6.4 | %
Government securities outside India |  |  | 8,415.4 |  |  |  | 2.1 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other debt securities |  |  | 247,850.6 |  |  |  | 6.2 |  |  |  | 114,141.2 |  |  |  | 7.4 |  |  |  | 15,722.2 |  |  |  | 8.6 |  |  |  | 14,173.8 |  |  |  | 9.1 |
Total debt securities, fair value |  | Rs. | 1,115,946.4 |  |  |  | 4.7 | % |  | Rs. | 861,818.8 |  |  |  | 5.8 | % |  | Rs. | 946,302.3 |  |  |  | 6.6 | % |  | Rs. | 353,232.1 |  |  |  | 6.5 | %
Total amortized cost |  | Rs. | 1,112,389.9 |  |  |  |  |  |  | Rs. | 838,625.0 |  |  |  |  |  |  | Rs. | 916,798.3 |  |  |  |  |  |  | Rs. | 345,526.5 |  |  |  |  |

Funding
Our funding operations are designed to ensure stability, low cost of funding and effective liquidity management. The primary source of funding is deposits raised from retail customers, which were 77 percent of total deposits, as of March 31, 2019 and March 31, 2020. Wholesale banking deposits represented 23 percent of total deposits, as of March 31, 2019 and March 31, 2020.
Total Deposits
The following table sets forth, for the periods indicated, our average outstanding deposits and the percentage composition by each category of deposits. The average cost (interest expense divided by the average of the daily balance for the relevant period) of savings deposits was 3.8 percent in fiscal 2018, 3.6 percent in fiscal 2019 and 3.6 percent in fiscal 2020. The average cost of time deposits was 6.5 percent in fiscal 2018, 6.7 percent in fiscal 2019 and 6.8 percent in fiscal 2020. The average deposits for the periods set forth are as follows:

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Amount |  |  | % of total |  |  | Amount |  |  | % of total |  |  | Amount |  |  | % of total |
|  | (in millions, except percentages) |
Current deposits |  | Rs. | 946,157.4 |  |  |  | 14.0 | % |  | Rs. | 1,029,226.1 |  |  |  | 12.6 | % |  | Rs. | 1,202,574.5 |  |  |  | 12.2 | %
Savings deposits |  |  | 1,919,734.0 |  |  |  | 28.2 |  |  |  | 2,226,287.0 |  |  |  | 27.3 |  |  |  | 2,552,856.0 |  |  |  | 25.8 |
Time deposits |  |  | 3,929,805.4 |  |  |  | 57.8 |  |  |  | 4,904,876.3 |  |  |  | 60.1 |  |  |  | 6,131,327.5 |  |  |  | 62.0 |
Total |  | Rs. | 6,795,696.8 |  |  |  | 100.0 | % |  | Rs. | 8,160,389.4 |  |  |  | 100.0 | % |  | Rs. | 9,886,758.0 |  |  |  | 100.0 | %

As of March 31, 2020, individual time deposits in excess of Rs. 0.1 million had a balance to maturity profile as follows:

|  | At March 31, 2020 |
|  | Up to three months |  |  | Three to six months |  |  | Six to twelve months |  |  | More than one year |
|  | (in millions) |
Balance to maturity for time deposits exceeding Rs. 0.1 million each |  | Rs. | 1,933,085.3 |  |  | Rs. | 1,156,010.4 |  |  | Rs. | 1,957,460.5 |  |  | Rs. | 1,351,141.9 |

Short-term Borrowings
The following table sets forth, for the periods indicated, information related to our short-term borrowings, which are comprised primarily of money-market borrowings. Short-term borrowings include securities sold under repurchase agreements.

|  | Years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Period end |  | Rs. | 917,201.7 |  |  | Rs. | 828,058.0 |  |  | Rs. | 885,399.6 |
Average balance during the period |  | Rs. | 529,833.0 |  |  | Rs. | 780,567.8 |  |  | Rs. | 598,674.8 |
Maximum outstanding |  | Rs. | 917,619.6 |  |  | Rs. | 1,112,780.5 |  |  | Rs. | 971,364.0 |
Average interest rate during the period (1) |  |  | 5.0 | % |  |  | 5.0 | % |  |  | 4.6 | %
Average interest rate at period end (2) |  |  | 5.1 | % |  |  | 5.6 | % |  |  | 1.6 | %

(1) | Represents the ratio of interest expense on short-term borrowings to the average of daily balances of short-term borrowings.

(2) | Represents the weighted average rate of short-term borrowings outstanding as of March 31, 2018, 2019 and 2020.

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Subordinated Debt
We also obtain funds from the issuance of unsecured subordinated debt securities, which qualify as Tier I or Tier II capital as per the eligibility criteria under the RBI’s Basel III capital regulations. Subordinated debt and Perpetual Debt Instruments with face value outstanding as of March 31, 2020 were Rs. 133.76 billion (previous year: Rs. 128.32 billion) and Rs. 85.00 billion (previous year: 83.00 billion), respectively. The breakup of the same is shown hereunder:

Type |  | Currency |  |  | Year of issue |  |  | Year of maturity |  |  | Average tenor (years) |  |  | Interest rate (%) |  |  | Year of call |  |  | Step-up rate (%) |  |  | Face value (Rupees in billions) |
Tier II |  |  | INR |  |  |  | 2010-11 |  |  |  | 2025-26 |  |  |  | 15.0 |  |  |  | 8.70 |  |  |  | 2020-21 |  |  |  | 9.20 |  |  |  | 11.05 |
Tier II |  |  | INR |  |  |  | 2011-12 |  |  |  | 2026-27 |  |  |  | 15.0 |  |  |  | 9.48 |  |  |  | 2021-22 |  |  |  | — |  |  |  | 36.50 |
Tier II |  |  | INR |  |  |  | 2012-13 |  |  |  | 2027-28 |  |  |  | 15.0 |  |  |  | 9.45 |  |  |  | 2022-23 |  |  |  | — |  |  |  | 34.77 |
Tier II |  |  | INR |  |  |  | 2012-13 |  |  |  | 2022-23 |  |  |  | 10.0 |  |  |  | 10.20 |  |  |  | — |  |  |  | — |  |  |  | 2.50 |
Tier II |  |  | INR |  |  |  | 2012-13 |  |  |  | 2022-23 |  |  |  | 10.0 |  |  |  | 9.70 |  |  |  | — |  |  |  | — |  |  |  | 1.50 |
Tier II |  |  | INR |  |  |  | 2012-13 |  |  |  | 2022-23 |  |  |  | 10.0 |  |  |  | 9.60 |  |  |  | — |  |  |  | — |  |  |  | 2.00 |
Tier II |  |  | INR |  |  |  | 2013-14 |  |  |  | 2023-24 |  |  |  | 10.0 |  |  |  | 10.20 |  |  |  | — |  |  |  | — |  |  |  | 1.00 |
Tier II |  |  | INR |  |  |  | 2013-14 |  |  |  | 2023-24 |  |  |  | 10.0 |  |  |  | 10.05 |  |  |  | — |  |  |  | — |  |  |  | 0.50 |
Tier II |  |  | INR |  |  |  | 2013-14 |  |  |  | 2023-24 |  |  |  | 10.0 |  |  |  | 10.19 |  |  |  | — |  |  |  | — |  |  |  | 0.80 |
Tier II |  |  | INR |  |  |  | 2014-15 |  |  |  | 2024-25 |  |  |  | 10.0 |  |  |  | 9.70 |  |  |  | — |  |  |  | — |  |  |  | 2.00 |
Tier II |  |  | INR |  |  |  | 2014-15 |  |  |  | 2024-25 |  |  |  | 10.0 |  |  |  | 9.55 |  |  |  | — |  |  |  | — |  |  |  | 1.00 |
Tier II |  |  | INR |  |  |  | 2014-15 |  |  |  | 2024-25 |  |  |  | 10.0 |  |  |  | 9.55 |  |  |  | — |  |  |  | — |  |  |  | 2.00 |
Tier II |  |  | INR |  |  |  | 2016-17 |  |  |  | 2026-27 |  |  |  | 10.0 |  |  |  | 8.79 |  |  |  | — |  |  |  | — |  |  |  | 2.20 |
Tier II |  |  | INR |  |  |  | 2016-17 |  |  |  | 2026-27 |  |  |  | 10.0 |  |  |  | 8.05 |  |  |  | — |  |  |  | — |  |  |  | 1.70 |
Tier II |  |  | INR |  |  |  | 2017-18 |  |  |  | 2027-28 |  |  |  | 10.0 |  |  |  | 7.56 |  |  |  | — |  |  |  | — |  |  |  | 20.00 |
Tier II |  |  | INR |  |  |  | 2017-18 |  |  |  | 2027-28 |  |  |  | 10.0 |  |  |  | 8.42 |  |  |  | — |  |  |  | — |  |  |  | 1.50 |
Tier II |  |  | INR |  |  |  | 2017-18 |  |  |  | 2027-28 |  |  |  | 10.0 |  |  |  | 8.45 |  |  |  | — |  |  |  | — |  |  |  | 1.30 |
Tier II |  |  | INR |  |  |  | 2018-19 |  |  |  | 2028-29 |  |  |  | 10.0 |  |  |  | 9.05 |  |  |  | — |  |  |  | — |  |  |  | 2.50 |
Tier II |  |  | INR |  |  |  | 2018-19 |  |  |  | 2028-29 |  |  |  | 10.0 |  |  |  | 9.70 |  |  |  | — |  |  |  | — |  |  |  | 3.50 |
Tier II |  |  | INR |  |  |  | 2019-20 |  |  |  | 2029-30 |  |  |  | 10.0 |  |  |  | 8.85 |  |  |  | — |  |  |  | — |  |  |  | 3.15 |
Tier II |  |  | INR |  |  |  | 2019-20 |  |  |  | 2029-30 |  |  |  | 9.4 |  |  |  | 8.36 |  |  |  | — |  |  |  | — |  |  |  | 2.29 |
Perpetual Bond |  |  | INR |  |  |  | 2017-18 |  |  |  |  |  |  |  |  |  |  |  | 8.85 |  |  |  | 2022-23 |  |  |  | — |  |  |  | 80.00 |
Perpetual Bond |  |  | INR |  |  |  | 2018-19 |  |  |  |  |  |  |  |  |  |  |  | 9.40 |  |  |  | 2028-29 |  |  |  | — |  |  |  | 2.00 |
Perpetual Bond |  |  | INR |  |  |  | 2018-19 |  |  |  |  |  |  |  |  |  |  |  | 9.15 |  |  |  | 2028-29 |  |  |  | — |  |  |  | 1.00 |
Perpetual Bond |  |  | INR |  |  |  | 2019-20 |  |  |  |  |  |  |  |  |  |  |  | 9.70 |  |  |  | 2029-30 |  |  |  | — |  |  |  | 1.00 |
Perpetual Bond |  |  | INR |  |  |  | 2019-20 |  |  |  |  |  |  |  |  |  |  |  | 8.84 |  |  |  | 2029-30 |  |  |  | — |  |  |  | 1.00 |

We have a right to redeem certain of the issuances as noted above under “year of call”. If not called, the interest rate on some of the debt instruments increases to the
step-up
rate.
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Asset Liability Gap
The following table sets forth, for the periods indicated, our asset-liability gap position:

|  | As of March 31, 2020 (1) |
|  | 0-28 days |  |  | 29-90 days |  |  | 91-180 days |  |  | 6-12 months |  |  | Total within one year |  |  | Over 1 year to 3 years |  |  | Over 3 years to 5 years |  |  | Over 5 years |  |  | Total |
|  | (in millions, except percentages) |
Cash and due from banks, and restricted cash (2)(3) |  |  | 320,549.8 |  |  |  | 24,023.5 |  |  |  | 20,942.8 |  |  |  | 28,517.9 |  |  |  | 394,034.0 |  |  |  | 127,865.3 |  |  |  | 4,019.6 |  |  |  | 86,042.1 |  |  |  | 611,961.0 |
Investments held for trading (4) |  |  | 201,763.1 |  |  |  | 103,199.8 |  |  |  | — |  |  |  | — |  |  |  | 304,962.9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 304,962.9 |
Investments available for sale debt securities (5)(6) |  |  | 1,465,620.5 |  |  |  | 228,048.0 |  |  |  | 177,712.2 |  |  |  | 222,120.8 |  |  |  | 2,093,501.5 |  |  |  | 753,615.3 |  |  |  | 71,907.1 |  |  |  | 487,265.3 |  |  |  | 3,406,289.2 |
Securities purchased under agreement to resell |  |  | 250,000.0 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 250,000.0 |
Loans, net (7)(8) |  |  | 795,345.2 |  |  |  | 947,105.2 |  |  |  | 978,423.1 |  |  |  | 1,138,054.9 |  |  |  | 3,858,928.4 |  |  |  | 4,337,357.7 |  |  |  | 1,098,384.7 |  |  |  | 1,130,351.6 |  |  |  | 10,425,022.4 |
Accrued interest receivable |  |  | 103,035.9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 103,035.9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 103,035.9 |
Other assets (13) |  |  | 2,883.8 |  |  |  | 16,387.9 |  |  |  | 11,983.6 |  |  |  | 64,047.0 |  |  |  | 95,302.3 |  |  |  | 577,184.4 |  |  |  | 21,623.1 |  |  |  | 20,643.6 |  |  |  | 714,753.4 |
Total financial assets |  |  | 3,139,198.3 |  |  |  | 1,318,764.4 |  |  |  | 1,189,061.7 |  |  |  | 1,452,740.6 |  |  |  | 7,099,765.0 |  |  |  | 5,796,022.7 |  |  |  | 1,195,934.5 |  |  |  | 1,724,302.6 |  |  |  | 15,816,024.8 |
Deposits (9)(10) |  |  | 1,500,338.6 |  |  |  | 838,832.4 |  |  |  | 723,406.7 |  |  |  | 983,261.2 |  |  |  | 4,045,838.9 |  |  |  | 4,295,337.8 |  |  |  | 146,312.3 |  |  |  | 2,974,582.3 |  |  |  | 11,462,071.3 |
Debt (11) |  |  | 179,851.2 |  |  |  | 183,029.8 |  |  |  | 55,092.3 |  |  |  | 196,237.6 |  |  |  | 614,210.9 |  |  |  | 474,693.4 |  |  |  | 112,200.0 |  |  |  | 202,831.6 |  |  |  | 1,403,935.9 |
Securities sold under repurchase agreements |  |  | 507,982.0 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 507,982.0 |
Other Liabilities (12)(13) |  |  | 197,137.7 |  |  |  | 58,840.2 |  |  |  | 47,145.0 |  |  |  | 4,190.1 |  |  |  | 307,313.0 |  |  |  | 384,093.1 |  |  |  | — |  |  |  | — |  |  |  | 691,406.1 |
Total financial liabilities |  |  | 2,385,309.5 |  |  |  | 1,080,702.4 |  |  |  | 825,644.0 |  |  |  | 1,183,688.9 |  |  |  | 5,475,344.8 |  |  |  | 5,154,124.3 |  |  |  | 258,512.3 |  |  |  | 3,177,413.9 |  |  |  | 14,065,395.3 |
Asset/(liability) gap |  |  | 753,888.8 |  |  |  | 238,062.0 |  |  |  | 363,417.7 |  |  |  | 269,051.7 |  |  |  | 1,624,420.2 |  |  |  | 641,898.4 |  |  |  | 937,422.2 |  |  |  | (1,453,111.3 | ) |  |  | 1,750,629.5 |
Cumulative gap |  |  | 753,888.8 |  |  |  | 991,950.8 |  |  |  | 1,355,368.5 |  |  |  | 1,624,420.2 |  |  |  | 1,624,420.2 |  |  |  | 2,266,318.6 |  |  |  | 3,203,740.8 |  |  |  | 1,750,629.5 |  |  |  | 1,750,629.5 |
Cumulative gap as a percentage of total financial assets |  |  | 24.0 | % |  |  | 22.3 | % |  |  | 24.0 | % |  |  | 22.9 | % |  |  | 22.9 | % |  |  | 17.6 | % |  |  | 22.7 | % |  |  | 11.1 | % |  |  | 11.1 | %

(1) | Assets and liabilities are classified into the applicable maturity categories based on residual maturity unless specifically mentioned.

(2) | Cash on hand is classified in the “0-28” days category.

(3) | Cash and due from banks, and restricted cash include balances with the RBI to satisfy its cash reserve ratio requirements. These balances are held in the form of overnight cash deposits but we classify these balances as part of the applicable maturity categories on a basis proportionate to the classification of related deposits.

(4) | Securities in the trading book are classified based on the expected time of realization for such investments. Units of open ended mutual funds, if any, are classified in “0-28” days category.

(5) | Securities held towards satisfying the statutory liquidity requirement prescribed by the RBI are classified based on the applicable maturity categories on a basis proportionate to the classification of related deposits.

(6) | Shares in the available-for-sale debt investment portfolio are classified in the “over 5 years” category. Units of open ended mutual funds, if any, are classified in “0-28” days category.

(7) | Includes net non-performing loans which are classified in the “Over 3 years to 5 years” and “Over 5 years” categories.

(8) | Ambiguous maturity overdrafts are classified under various maturity categories based on a historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such advances.

(9) | Current and savings deposits are classified under various maturity categories based on a historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such deposits.

(10) | Time deposits under Rs. 20 million are classified under various maturity categories based on the historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such deposits taking into account rollovers and premature withdrawals. The rest have been classified under various maturity categories based on the residual maturity.

(11) | Includes short-term borrowings and long-term debt.

(12) | Cash floats are classified under various maturity categories based on the historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such floats.

(13) | Other assets and other liabilities are classified under various maturity categories based on historical behavioral analysis that we have performed to determine the appropriate maturity categorization of such other assets and other liabilities.

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For further information on how we manage our asset liability risk, see “
Business—Risk Management—Market Risk
”.
Loan Portfolio and Credit Substitutes
As of March 31, 2020, our gross loan portfolio amounted to Rs. 10,623.9 billion. As of that date, our gross credit substitutes outstanding were Rs. 362.4 billion. Almost all our gross loans and credit substitutes are to borrowers in India and approximately 90 percent are denominated in rupees. For a description of our retail and wholesale loan products, see “
Business—Retail Banking—Retail Loans and Other Asset Products
” and “
Business—Wholesale Banking—Commercial Banking Products—Commercial Loan Products and Credit Substitutes
”.
The following table sets forth, for the periods indicated, our gross loan portfolio classified by product group:

|  | At March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions) |
Retail loans |  | Rs. | 3,458,565.7 |  |  | Rs. | 4,048,961.3 |  |  | Rs. | 5,213,364.6 |  |  | Rs. | 6,237,903.6 |  |  | Rs. | 7,040,800.4 |
Wholesale loans |  |  | 1,534,268.7 |  |  |  | 1,939,948.4 |  |  |  | 2,162,814.4 |  |  |  | 2,873,561.0 |  |  |  | 3,583,055.2 |
Gross loans |  | Rs. | 4,992,834.4 |  |  | Rs. | 5,988,909.7 |  |  | Rs. | 7,376,179.0 |  |  | Rs. | 9,111,464.6 |  |  | Rs. | 10,623,855.6 |
Credit substitutes (at fair value) |  |  | 297,241.0 |  |  |  | 419,540.6 |  |  |  | 324,031.5 |  |  |  | 272,886.8 |  |  |  | 362,373.7 |
Gross loans plus credit substitutes |  | Rs. | 5,290,075.4 |  |  | Rs. | 6,408,450.3 |  |  | Rs. | 7,700,210.5 |  |  | Rs. | 9,384,351.4 |  |  | Rs. | 10,986,229.3 |

Maturity and Interest Rate Sensitivity of Loans and Credit Substitutes
The following tables set forth, for the period indicated, the maturity and interest rate sensitivity of our loans and credit substitutes:

|  | At March 31, 2020 |
|  | Due in one year or less |  |  | Due in one to five years |  |  | Due after five years |
|  | (in millions) |
Retail loans |  | Rs. | 2,140,034.9 |  |  | Rs. | 4,290,512.7 |  |  | Rs. | 610,252.8 |
Wholesale loans |  |  | 1,718,893.5 |  |  |  | 1,191,304.1 |  |  |  | 672,857.6 |
Gross loans |  | Rs. | 3,858,928.4 |  |  | Rs. | 5,481,816.8 |  |  | Rs. | 1,283,110.4 |
Credit substitutes (at fair value) |  |  | 244,961.2 |  |  |  | 107,058.6 |  |  |  | 10,353.9 |
Gross loans plus credit substitutes |  | Rs. | 4,103,889.6 |  |  | Rs. | 5,588,875.4 |  |  | Rs. | 1,293,464.3 |
|  | At March 31, 2020 |
|  | Due in one year or less |  |  | Due in one to five years |  |  | Due after five years |
|  | (in millions) |
Interest rate classification of loans by maturity: |  |  |  |  |  |  |  |  |  |  |  |
Variable rates |  | Rs. | 991,618.2 |  |  | Rs. | 2,493,424.0 |  |  | Rs. | 1,167,250.7 |
Fixed rates |  |  | 2,867,310.2 |  |  |  | 2,988,392.8 |  |  |  | 115,859.7 |
Gross loans |  | Rs. | 3,858,928.4 |  |  | Rs. | 5,481,816.8 |  |  | Rs. | 1,283,110.4 |
Interest rate classification of credit substitutes by maturity: |  |  |  |  |  |  |  |  |  |  |  |
Variable rates |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |
Fixed rates |  |  | 244,961.2 |  |  |  | 107,058.6 |  |  |  | 10,353.9 |
Gross credit substitutes |  | Rs. | 244,961.2 |  |  | Rs. | 107,058.6 |  |  | Rs. | 10,353.9 |
Interest rate classification of loans and credit substitutes by maturity: |  |  |  |  |  |  |  |  |  |  |  |
Variable rates |  | Rs. | 991,618.2 |  |  | Rs. | 2,493,424.0 |  |  | Rs. | 1,167,250.7 |
Fixed rates |  |  | 3,112,271.4 |  |  |  | 3,095,451.4 |  |  |  | 126,213.6 |
Gross loans and credit substitutes |  | Rs. | 4,103,889.6 |  |  | Rs. | 5,588,875.4 |  |  | Rs. | 1,293,464.3 |

Concentration of Loans and Credit Substitutes
As of March 31, 2020, our ten largest exposures based on the higher of the outstanding balances of, or limits on, funded and non-funded exposures, computed based on our Indian GAAP financial statements, totaled Rs. 1,264.8 billion and represented 68.6 percent of our capital funds comprised of Tier 1 and Tier II capital, and similarly the largest group of companies under the same management control accounted for 21.2 percent of our capital funds.
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The following table sets forth, for the periods indicated, our gross loans and fair value of credit substitutes outstanding by the borrower’s industry or economic activity and as a percentage of our gross loans and fair value of credit substitutes (where such percentage exceeds 2.0 percent of the total). For the purpose of industry-wise classification of retail loans the end use (i.e., business purpose or personal use) is taken into consideration. Accordingly, exposures to individual and
non-individual
borrowers, where the credit facilities are for business purposes, are being reported under the industry relating to the activity of the borrower. Where the credit facilities are for personal use, the exposure to the individual borrower is classified under Consumer Loans. From fiscal 2017, Agriculture and allied activities is classified under Agriculture Production - Food, Agriculture Production - Non Food, Agriculture - Allied, and Animal Husbandry, respectively. Services are classified under Business Services, and Consumer Services, respectively, and Wholesale Trade is classified under Wholesale Trade - non consumer goods (now named as Wholesale Trade - Industrial), and Wholesale Trade-consumer goods (now named as Wholesale Trade - Non Industrial), respectively. Credit Card receivables and Housing Loans hitherto classified under retail loans are classified under Consumer Loans from fiscal 2017. From fiscal 2018, Agri produce trade is added by classifying certain sub segments from Wholesale Trade - Industrial, Wholesale Trade - Non Industrial and Retail Trade. From fiscal 2020,
Non-Banking
Financial Companies/Financial Intermediaries are classified under the following two sub segments:
Non-Banking
Financial Companies and Financial Intermediaries. Similarly from fiscal 2020 Banks and Financial Institutions are classified under the following two sub segments: Banks and Financial Institutions.

|  | At March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Consumer Loans |  | Rs. | 670,622.8 |  |  |  | 12.7 | % |  | Rs. | 1,526,978.2 |  |  |  | 23.8 | % |  | Rs. | 1,948,328.2 |  |  |  | 25.3 | % |  | Rs. | 2,477,945.6 |  |  |  | 26.4 | % |  | Rs. | 2,961,194.3 |  |  |  | 27.0 | %
Retail trade |  |  | 258,095.4 |  |  |  | 4.9 |  |  |  | 323,818.6 |  |  |  | 5.1 |  |  |  | 386,399.2 |  |  |  | 5.0 |  |  |  | 446,928.5 |  |  |  | 4.8 |  |  |  | 533,499.0 |  |  |  | 4.9 |
Power |  |  | 119,207.9 |  |  |  | 2.3 |  |  |  | 145,608.7 |  |  |  | 2.3 |  |  |  | 193,978.4 |  |  |  | 2.5 |  |  |  | 288,358.1 |  |  |  | 3.1 |  |  |  | 507,625.8 |  |  |  | 4.6 |
Consumer Services |  |  | — |  |  |  | — |  |  |  | 264,554.4 |  |  |  | 4.1 |  |  |  | 311,794.7 |  |  |  | 4.0 |  |  |  | 358,017.7 |  |  |  | 3.8 |  |  |  | 401,061.5 |  |  |  | 3.7 |
Non-Banking Financial Companies |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 394,310.2 |  |  |  | 3.6 |
Road Transportation |  |  | 184,398.2 |  |  |  | 3.5 |  |  |  | 241,771.3 |  |  |  | 3.8 |  |  |  | 310,740.7 |  |  |  | 4.0 |  |  |  | 376,547.1 |  |  |  | 4.0 |  |  |  | 376,829.5 |  |  |  | 3.4 |
Automobile & Auto Ancillary |  |  | 210,699.3 |  |  |  | 4.0 |  |  |  | 271,963.5 |  |  |  | 4.2 |  |  |  | 312,786.0 |  |  |  | 4.1 |  |  |  | 363,393.0 |  |  |  | 3.9 |  |  |  | 349,030.4 |  |  |  | 3.2 |
Agriculture Production-Food |  |  | — |  |  |  | — |  |  |  | 284,748.8 |  |  |  | 4.4 |  |  |  | 319,141.4 |  |  |  | 4.1 |  |  |  | 330,092.5 |  |  |  | 3.5 |  |  |  | 313,143.6 |  |  |  | 2.9 |
Real Estate & Property Services |  |  | 125,193.8 |  |  |  | 2.4 |  |  |  | 170,245.8 |  |  |  | 2.7 |  |  |  | 235,683.0 |  |  |  | 3.1 |  |  |  | 259,035.6 |  |  |  | 2.8 |  |  |  | 285,179.9 |  |  |  | 2.6 |
Financial Institutions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 278,536.3 |  |  |  | 2.5 |
Food and Beverage |  |  | 155,489.6 |  |  |  | 2.9 |  |  |  | 178,848.8 |  |  |  | 2.8 |  |  |  | 211,367.5 |  |  |  | 2.7 |  |  |  | 233,798.9 |  |  |  | 2.5 |  |  |  | 262,299.2 |  |  |  | 2.4 |
Engineering |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 252,451.3 |  |  |  | 2.3 |
Telecom |  |  | — |  |  |  | — |  |  |  | 129,510.8 |  |  |  | 2.0 |  |  |  | — |  |  |  | — |  |  |  | 267,561.0 |  |  |  | 2.9 |  |  |  | 243,344.6 |  |  |  | 2.2 |
Business Services |  |  | — |  |  |  | — |  |  |  | 161,452.2 |  |  |  | 2.5 |  |  |  | 208,815.4 |  |  |  | 2.7 |  |  |  | 237,102.9 |  |  |  | 2.5 |  |  |  | 246,307.2 |  |  |  | 2.2 |
Wholesale Trade-Non Industrial |  |  | — |  |  |  | — |  |  |  | 237,302.7 |  |  |  | 3.7 |  |  |  | 183,081.2 |  |  |  | 2.4 |  |  |  | 200,337.7 |  |  |  | 2.1 |  |  |  | 238,436.5 |  |  |  | 2.2 |
Iron & Steel |  |  | 117,845.3 |  |  |  | 2.2 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 201,003.0 |  |  |  | 2.1 |  |  |  | 232,669.6 |  |  |  | 2.1 |
Agriculture-Allied |  |  | — |  |  |  | — |  |  |  | 129,207.9 |  |  |  | 2.0 |  |  |  | 163,496.3 |  |  |  | 2.1 |  |  |  | 191,132.7 |  |  |  | 2.0 |  |  |  | 223,443.8 |  |  |  | 2.0 |
Non-Banking Financial Companies/Financial Intermediaries |  |  | 220,012.7 |  |  |  | 4.2 |  |  |  | 338,599.3 |  |  |  | 5.3 |  |  |  | 341,744.3 |  |  |  | 4.4 |  |  |  | 409,751.1 |  |  |  | 4.4 |  |  |  | — |  |  |  | — |
Housing Finance Companies |  |  | — |  |  |  | — |  |  |  | 143,236.6 |  |  |  | 2.2 |  |  |  | 171,780.2 |  |  |  | 2.2 |  |  |  | 203,904.2 |  |  |  | 2.2 |  |  |  | — |  |  |  | — |
Wholesale Trade-Industrial |  |  | — |  |  |  | — |  |  |  | 170,084.4 |  |  |  | 2.7 |  |  |  | 167,357.3 |  |  |  | 2.2 |  |  |  | 192,776.2 |  |  |  | 2.1 |  |  |  | — |  |  |  | — |
Agriculture Production – Non food |  |  | — |  |  |  | — |  |  |  | 202,350.3 |  |  |  | 3.2 |  |  |  | 199,451.2 |  |  |  | 2.6 |  |  |  | 192,657.8 |  |  |  | 2.1 |  |  |  | — |  |  |  | — |
Textiles & Garments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 164,476.1 |  |  |  | 2.1 |  |  |  | 191,963.6 |  |  |  | 2.0 |  |  |  | — |  |  |  | — |
Activities allied to agriculture |  |  | 550,848.4 |  |  |  | 10.4 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Wholesale Trade |  |  | 362,316.5 |  |  |  | 6.8 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Services |  |  | 310,019.3 |  |  |  | 5.9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Others (including unclassified retail) |  |  | 2,005,326.2 |  |  |  | 37.8 |  |  |  | 1,488,168.0 |  |  |  | 23.2 |  |  |  | 1,869,789.4 |  |  |  | 24.5 |  |  |  | 1,962,044.2 |  |  |  | 20.8 |  |  |  | 2,886,866.6 |  |  |  | 26.2 |
Total |  | Rs. | 5,290,075.4 |  |  |  | 100.0 | % |  | Rs. | 6,408,450.3 |  |  |  | 100.0 | % |  | Rs. | 7,700,210.5 |  |  |  | 100.0 | % |  | Rs. | 9,384,351.4 |  |  |  | 100.0 | % |  | Rs. | 10,986,229.3 |  |  |  | 100.0 | %

Pursuant to the RBI’s LEF guidelines, the exposure-ceiling limit for a single borrower is 20 percent of our available eligible capital base. We may, as permitted in the LEF and in exceptional circumstances, with the approval of the Board, consider further increasing the exposure to a single counterparty by up to five percent of our available eligible capital base. Tier I capital that fulfils the criteria set out in the RBI’s Basel III guidelines must be considered as eligible capital base for this purpose. See “Supervision and Regulation—Credit Exposure Limits ”. As of March 31, 2020, there were no exposures which exceeded the ceiling under the LEF guidelines.
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Directed Lending
The RBI has established guidelines requiring Indian banks to lend 40 percent of their ANBC, as computed in accordance with RBI guidelines, or the credit equivalent amount of off balance sheet exposures, whichever is higher, as of the corresponding date of the preceding year, to certain sectors called “priority sectors”. Priority sectors are broadly comprised of agriculture, micro enterprises and other PSL, which includes small and medium enterprises, residential mortgages, education, renewal energy and social infrastructure, among others, subject to satisfying certain criteria.
We are required to comply with the PSL requirements as of March 31 of each fiscal year, a date specified by the RBI for reporting. From fiscal 2017, the assessment of whether we have achieved the PSL requirements is made at the end of the fiscal year based on the average of priority sector
target/sub-target
achievement as at the end of each quarter. Accordingly, on the basis of average calculation, the Bank met its total priority sector lending requirements in fiscal 2020. The Bank’s total PSL achievement for fiscal 2020 stood at 40.3 percent. Advances to the agriculture sector were 17.7 percent of ANBC compared to the requirement of 18.0 percent and agricultural advances made to small and marginal farmers were 7.8 percent of ANBC, compared to the requirement of 8.0 percent The PSL master circular mentions that Scheduled Commercial Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to the RIDF established with NABARD and other Funds with NABARD, NHB, SIDBI or MUDRA Ltd., as decided by the RBI from time to time.
We may be required by the RBI to deposit with the Indian Development Banks certain amounts as specified by the RBI in the coming year due to the shortfall in the above mentioned
sub-categories
of priority sector lending targets. As of March 31, 2020, our total investments as directed by RBI in such deposits were Rs. 91.97 billion yielding returns ranging from 3.4 percent to 8.3 percent.
The following table sets forth, for the periods indicated, our loans, broken down by sector, forming part of our directed lending:

|  | As of March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions) |
Directed lending: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agriculture |  | Rs. | 528,672.4 |  |  | Rs. | 631,861.6 |  |  | Rs. | 735,135.0 |  |  | Rs. | 742,724.9 |  |  | Rs. | 823,267.2 |
Micro small and medium enterprises |  |  | 682,621.9 |  |  |  | 785,715.9 |  |  |  | 814,006.9 |  |  |  | 1,168,199.9 |  |  |  | 1,438,145.6 |
Other |  |  | 217,302.5 |  |  |  | 223,502.7 |  |  |  | 205,145.0 |  |  |  | 295,582.8 |  |  |  | 321,819.3 |
Total directed lending |  | Rs. | 1,428,596.8 |  |  | Rs. | 1,641,080.2 |  |  | Rs. | 1,754,286.9 |  |  | Rs. | 2,206,507.6 |  |  | Rs. | 2,583,232.1 |

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Non-Performing
Loans
The following table sets forth, for the periods indicated, information about our
non-performing
loan portfolio:

|  | As of March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Non-performing loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail loans |  | Rs. | 37,423.0 |  |  | Rs. | 52,704.0 |  |  | Rs. | 75,904.5 |  |  | Rs. | 102,268.8 |  |  | Rs. | 122,003.5 |
Wholesale loans |  |  | 15,559.7 |  |  |  | 30,275.7 |  |  |  | 32,812.8 |  |  |  | 38,153.7 |  |  |  | 35,423.4 |
Gross non-performing loans |  | Rs. | 52,982.7 |  |  | Rs. | 82,979.7 |  |  | Rs. | 108,717.3 |  |  | Rs. | 140,422.5 |  |  | Rs. | 157,426.9 |
Allowances for credit losses |  | Rs. | 31,008.1 |  |  | Rs. | 45,730.1 |  |  | Rs. | 62,600.5 |  |  | Rs. | 85,783.0 |  |  | Rs. | 101,601.9 |
Unallocated allowances for credit losses |  |  | 26,352.0 |  |  |  | 32,766.8 |  |  |  | 49,906.7 |  |  |  | 62,449.0 |  |  |  | 97,231.3 |
Non-performing loans net of specific allowances for credit losses |  |  | 21,974.6 |  |  |  | 37,249.6 |  |  |  | 46,116.8 |  |  |  | 54,639.5 |  |  |  | 55,825.0 |
Gross loan assets |  |  | 4,992,834.4 |  |  |  | 5,988,909.7 |  |  |  | 7,376,179.0 |  |  |  | 9,111,464.6 |  |  |  | 10,623,855.6 |
Net loan assets |  | Rs. | 4,935,474.3 |  |  | Rs. | 5,910,412.8 |  |  | Rs. | 7,263,671.8 |  |  | Rs. | 8,963,232.6 |  |  | Rs. | 10,425,022.3 |
Gross non-performing loans as a percentage of gross loans |  |  | 1.1 | % |  |  | 1.4 | % |  |  | 1.5 | % |  |  | 1.5 | % |  |  | 1.5 | %
Gross unsecured non-performing loans as a percentage of gross non-performing loans |  |  | 11.1 | % |  |  | 31.4 | % |  |  | 27.9 | % |  |  | 25.5 | % |  |  | 15.3 | %
Gross unsecured non-performing loans as a percentage of gross unsecured loans. |  |  | 0.5 | % |  |  | 1.7 | % |  |  | 1.5 | % |  |  | 1.3 | % |  |  | 0.7 | %
Non-performing loans net of specific allowances for credit losses as a percentage of net loan assets |  |  | 0.4 | % |  |  | 0.6 | % |  |  | 0.6 | % |  |  | 0.6 | % |  |  | 0.5 | %
Specific allowances for credit losses as a percentage of gross non-performing loans |  |  | 58.5 | % |  |  | 55.1 | % |  |  | 57.6 | % |  |  | 61.1 | % |  |  | 64.5 | %
Total allowances for credit losses as a percentage of gross non-performing loans |  |  | 108.3 | % |  |  | 94.6 | % |  |  | 103.5 | % |  |  | 105.6 | % |  |  | 126.3 | %

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Table of Contents
Recognition of
Non-Performing
Loans
We classify our loan portfolio into loans that are performing and loans that are
non-performing
or impaired. We have categorized our gross loans based on their performance status as follows:

|  | At March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions) |
Performing |  | Rs. | 4,939,851.7 |  |  | Rs. | 5,905,930.0 |  |  | Rs. | 7,267,461.7 |  |  | Rs. | 8,971,042.1 |  |  | Rs. | 10,466,428.7 |
Non-performing or impaired: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
On accrual status |  |  | 4,291.3 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
On non-accrual status |  |  | 48,691.4 |  |  |  | 82,979.7 |  |  |  | 108,717.3 |  |  |  | 140,422.5 |  |  |  | 157,426.9 |
Total non-performing or impaired |  |  | 52,982.7 |  |  |  | 82,979.7 |  |  |  | 108,717.3 |  |  |  | 140,422.5 |  |  |  | 157,426.9 |
Total |  | Rs. | 4,992,834.4 |  |  | Rs. | 5,988,909.7 |  |  | Rs. | 7,376,179.0 |  |  | Rs. | 9,111,464.6 |  |  | Rs. | 10,623,855.6 |

We consider a loan to be performing when no principal or interest payment is three months or more past due and where we expect to recover all amounts due to us. In the case of wholesale loans, we also identify loans as
non-performing
or impaired even when principal or interest payments are less than three months past due but where we believe recovery of all principal and interest amounts is doubtful. Interest income from loans is recognized on an accrual basis using effective interest method when earned except in respect of loans placed on
non-accrual
status, for which interest income is recognized when received. Loans are placed on
“non-accrual”
status when interest or principal payments are three months past due.
Our methodology for determining specific and unallocated allowances is discussed separately below for each category of loans.
Retail
Our retail loan loss allowance consists of specific and allowances for loans collectively evaluated for impairment (termed as “unallocated allowance”).
We establish a specific allowance on our 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 we monitor loan to value ratios for loans against securities. The loans are charged off against allowances typically when the account becomes 150 to 1,083 days past due depending on the type of loans. The defined delinquency levels at which major loan types are charged off are 150 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 we believe 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. Subsequent recoveries, if any, against
write-off
cases, are adjusted to provision for credit losses in the consolidated statement of income.
We also record unallocated allowances for retail loans by product type. Our retail loan portfolio is comprised of groups of large numbers of small value homogeneous loans. We establish an unallocated allowance for loans in each product group based on our estimate of the overall portfolio quality, asset growth, economic conditions and other risk factors. We estimate unallocated allowance for retail loans based on the probability of default and loss given default, determined for the respective risk pools.
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Table of Contents
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 us and is based upon our 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.
We grade our 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 we 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 us 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.
We establish 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. Collateral values are generally based on appraisals from internal and external valuation sources.
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. We determine 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. These factors are considered by the Bank for selection of loans for credit reviews and assessment of impairment.
The Bank has also established an unallocated allowance for wholesale standard loans based on the internal rating grades assigned, the probability of default associated with internal rating grade pools and the loss given default.
Analysis of
Non-Performing
Loans by Industry Sector
The following table sets forth, for the periods indicated, our
non-performing
loans by borrowers’ industry or economic activity in each of the respective periods and as a percentage of our loans in the respective industry or economic activity sector. These figures do not include credit substitutes, which we include for purposes of calculating our industry concentration for RBI reporting. See “
Risk Factors—We have high concentrations of exposures to certain customers and sectors and if any of these exposures were to become
non-performing,
the quality of our portfolio could be adversely affected and our ability to meet capital requirements could be jeopardized”
.
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Table of Contents

|  | As of March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
Industry |  | Gross Loans |  |  | Non performing loans |  |  | % of loans in industry |  |  | Gross Loans |  |  | Non performing loans |  |  | % of loans in industry |  |  | Gross Loans |  |  | Non performing loans |  |  | % of loans in industry |  |  | Gross Loans |  |  | Non performing loans |  |  | % of loans in industry |  |  | Gross Loans |  |  | Non performing loans |  |  | % of loans in industry |
|  | (in millions, except percentages) |
Capital Market Intermediaries |  | Rs. | 18,583.0 |  |  | Rs. | 37.3 |  |  |  | 0.2 | % |  | Rs. | — |  |  | Rs. | — |  |  |  |  | % |  | Rs. | — |  |  | Rs. | — |  |  |  | — | % |  | Rs. | 46,092.7 |  |  | Rs. | 9.2 |  |  |  | 0.0 | % |  | Rs. | 26,869.3 |  |  | Rs. | 4,767.2 |  |  |  | 17.7 | %
Agriculture Production - Food |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 282,673.8 |  |  |  | 4,217.1 |  |  |  | 1.5 |  |  |  | 318,643.5 |  |  |  | 12,227.0 |  |  |  | 3.8 |  |  |  | 330,092.5 |  |  |  | 18,915.0 |  |  |  | 5.7 |  |  |  | 313,143.6 |  |  |  | 22,546.3 |  |  |  | 7.2 |
Plastic & Products |  |  | 24,351.8 |  |  |  | 283.9 |  |  |  | 1.2 |  |  |  | 32,751.4 |  |  |  | 278.5 |  |  |  | 0.9 |  |  |  | 41,665.0 |  |  |  | 155.6 |  |  |  | 0.4 |  |  |  | 51,589.9 |  |  |  | 205.9 |  |  |  | 0.4 |  |  |  | 54,140.2 |  |  |  | 2,472.2 |  |  |  | 4.6 |
Agriculture Produce Trade |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 97,396.9 |  |  |  | 1,522.9 |  |  |  | 1.6 |  |  |  | 122,512.2 |  |  |  | 2,816.6 |  |  |  | 2.3 |  |  |  | 93,403.7 |  |  |  | 3,742.4 |  |  |  | 4.0 |
Road Transportation |  |  | 183,707.5 |  |  |  | 1,826.0 |  |  |  | 1.0 |  |  |  | 241,771.3 |  |  |  | 2,518.7 |  |  |  | 1.0 |  |  |  | 310,740.7 |  |  |  | 3,313.8 |  |  |  | 1.1 |  |  |  | 376,547.1 |  |  |  | 5,536.7 |  |  |  | 1.5 |  |  |  | 376,334.2 |  |  |  | 13,067.6 |  |  |  | 3.5 |
Agriculture Production - Non food |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 202,350.3 |  |  |  | 2,854.5 |  |  |  | 1.4 |  |  |  | 199,451.2 |  |  |  | 4,156.8 |  |  |  | 2.1 |  |  |  | 192,657.8 |  |  |  | 5,492.5 |  |  |  | 2.9 |  |  |  | 171,869.3 |  |  |  | 5,857.2 |  |  |  | 3.4 |
Agriculture-Allied |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 129,207.9 |  |  |  | 3,218.8 |  |  |  | 2.5 |  |  |  | 163,496.3 |  |  |  | 6,184.0 |  |  |  | 3.8 |  |  |  | 191,132.7 |  |  |  | 6,641.6 |  |  |  | 3.5 |  |  |  | 223,443.8 |  |  |  | 7,542.7 |  |  |  | 3.4 |
Food and Beverage |  |  | 152,253.7 |  |  |  | 1,871.7 |  |  |  | 1.2 |  |  |  | 166,494.3 |  |  |  | 3,361.2 |  |  |  | 2.0 |  |  |  | 210,780.7 |  |  |  | 7,007.4 |  |  |  | 3.3 |  |  |  | 233,798.9 |  |  |  | 8,577.3 |  |  |  | 3.7 |  |  |  | 260,907.9 |  |  |  | 8,137.5 |  |  |  | 3.1 |
Infrastructure Development |  |  | 63,931.9 |  |  |  | 2,991.7 |  |  |  | 4.7 |  |  |  | 88,135.0 |  |  |  | 2,738.2 |  |  |  | 3.1 |  |  |  | 109,841.9 |  |  |  | 3,366.7 |  |  |  | 3.1 |  |  |  | 128,273.5 |  |  |  | 3,652.2 |  |  |  | 2.8 |  |  |  | 165,578.8 |  |  |  | 4,911.0 |  |  |  | 3.0 |
Mining and Minerals |  |  | 54,165.4 |  |  |  | 534.5 |  |  |  | 1.0 |  |  |  | 57,585.4 |  |  |  | 1,183.8 |  |  |  | 2.1 |  |  |  | 49,165.3 |  |  |  | 303.0 |  |  |  | 0.6 |  |  |  | 65,879.6 |  |  |  | 1,220.4 |  |  |  | 1.9 |  |  |  | 67,326.2 |  |  |  | 1,942.5 |  |  |  | 2.9 |
Housing Finance Companies |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 163,359.7 |  |  |  | 3,962.7 |  |  |  | 2.4 |
Automobile & Auto Ancillary |  |  | 199,606.7 |  |  |  | 1,789.3 |  |  |  | 0.9 |  |  |  | 240,301.6 |  |  |  | 2,353.5 |  |  |  | 1.0 |  |  |  | 299,680.3 |  |  |  | 2,608.6 |  |  |  | 0.9 |  |  |  | 352,979.1 |  |  |  | 4,262.9 |  |  |  | 1.2 |  |  |  | 330,632.5 |  |  |  | 6,150.1 |  |  |  | 1.9 |
Real Estate & Property Services |  |  | 121,992.9 |  |  |  | 3,559.2 |  |  |  | 2.9 |  |  |  | 168,660.4 |  |  |  | 3,822.8 |  |  |  | 2.3 |  |  |  | 233,700.5 |  |  |  | 4,015.9 |  |  |  | 1.7 |  |  |  | 257,056.8 |  |  |  | 4,175.1 |  |  |  | 1.6 |  |  |  | 280,870.4 |  |  |  | 5,165.5 |  |  |  | 1.8 |
Wholesale Trade - Industrial |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 166,940.1 |  |  |  | 3,905.8 |  |  |  | 2.3 |  |  |  | 167,253.4 |  |  |  | 3,469.0 |  |  |  | 2.1 |  |  |  | 192,708.4 |  |  |  | 3,657.1 |  |  |  | 1.9 |  |  |  | 211,849.6 |  |  |  | 3,880.9 |  |  |  | 1.8 |
Other Industries |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 315,497.4 |  |  |  | 5,426.8 |  |  |  | 1.7 |  |  |  | 334,256.9 |  |  |  | 3,028.6 |  |  |  | 0.9 |  |  |  | 376,953.2 |  |  |  | 4,730.1 |  |  |  | 1.3 |  |  |  | 504,075.6 |  |  |  | 8,497.9 |  |  |  | 1.7 |
Retail Trade |  |  | 253,373.6 |  |  |  | 2,450.3 |  |  |  | 1.0 |  |  |  | 320,876.9 |  |  |  | 3,731.5 |  |  |  | 1.2 |  |  |  | 385,217.8 |  |  |  | 6,279.0 |  |  |  | 1.6 |  |  |  | 445,757.8 |  |  |  | 7,767.0 |  |  |  | 1.7 |  |  |  | 533,155.3 |  |  |  | 8,823.1 |  |  |  | 1.7 |
Wholesale Trade - Non Industrial |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 232,111.9 |  |  |  | 15,722.9 |  |  |  | 6.8 |  |  |  | 180,841.8 |  |  |  | 15,239.0 |  |  |  | 8.4 |  |  |  | 200,089.4 |  |  |  | 15,856.7 |  |  |  | 7.9 |  |  |  | 238,436.5 |  |  |  | 3,893.0 |  |  |  | 1.6 |
Consumer Services |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 260,053.9 |  |  |  | 2,331.4 |  |  |  | 0.9 |  |  |  | 308,333.2 |  |  |  | 2,754.2 |  |  |  | 0.9 |  |  |  | 354,060.4 |  |  |  | 3,771.1 |  |  |  | 1.1 |  |  |  | 399,046.4 |  |  |  | 5,667.6 |  |  |  | 1.4 |
Paper, Printing and Stationery |  |  | 28,610.4 |  |  |  | 178.5 |  |  |  | 0.6 |  |  |  | 31,448.5 |  |  |  | 1,634.9 |  |  |  | 5.2 |  |  |  | 38,025.5 |  |  |  | 1,592.8 |  |  |  | 4.2 |  |  |  | 41,926.3 |  |  |  | 1,881.6 |  |  |  | 4.5 |  |  |  | 46,067.4 |  |  |  | 637.2 |  |  |  | 1.4 |
Business Services |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 159,666.1 |  |  |  | 1,450.0 |  |  |  | 0.9 |  |  |  | 207,868.8 |  |  |  | 2,224.1 |  |  |  | 1.1 |  |  |  | 236,853.7 |  |  |  | 3,074.9 |  |  |  | 1.3 |  |  |  | 244,028.7 |  |  |  | 3,216.2 |  |  |  | 1.3 |
Textiles & Garments |  |  | 92,386.0 |  |  |  | 996.0 |  |  |  | 1.1 |  |  |  | 109,393.7 |  |  |  | 1,511.8 |  |  |  | 1.4 |  |  |  | 159,873.4 |  |  |  | 2,531.5 |  |  |  | 1.6 |  |  |  | 187,527.5 |  |  |  | 2,544.7 |  |  |  | 1.4 |  |  |  | 210,558.2 |  |  |  | 2,587.7 |  |  |  | 1.2 |
Media & Entertainment |  |  | 13,694.2 |  |  |  | 153.2 |  |  |  | 1.1 |  |  |  | 16,761.1 |  |  |  | 137.4 |  |  |  | 0.8 |  |  |  | 16,414.6 |  |  |  | 76.7 |  |  |  | 0.5 |  |  |  | 19,190.2 |  |  |  | 96.5 |  |  |  | 0.5 |  |  |  | 29,495.0 |  |  |  | 310.4 |  |  |  | 1.1 |
Engineering |  |  | 95,022.6 |  |  |  | 1,112.1 |  |  |  | 1.2 |  |  |  | 110,827.8 |  |  |  | 538.5 |  |  |  | 0.5 |  |  |  | 133,216.6 |  |  |  | 983.1 |  |  |  | 0.7 |  |  |  | 159,462.7 |  |  |  | 2,962.3 |  |  |  | 1.9 |  |  |  | 240,196.0 |  |  |  | 2,431.7 |  |  |  | 1.0 |
FMCG & Personal Care |  |  | 10,785.2 |  |  |  | 55.1 |  |  |  | 0.5 |  |  |  | 18,499.9 |  |  |  | 45.6 |  |  |  | 0.2 |  |  |  | 26,273.4 |  |  |  | 117.8 |  |  |  | 0.4 |  |  |  | 31,209.3 |  |  |  | 221.1 |  |  |  | 0.7 |  |  |  | 32,285.3 |  |  |  | 314.3 |  |  |  | 1.0 |
Non-ferrous Metals |  |  | 23,968.0 |  |  |  | 41.1 |  |  |  | 0.2 |  |  |  | 33,010.3 |  |  |  | 247.7 |  |  |  | 0.8 |  |  |  | 40,081.6 |  |  |  | 119.2 |  |  |  | 0.3 |  |  |  | 64,986.2 |  |  |  | 190.7 |  |  |  | 0.3 |  |  |  | 82,217.4 |  |  |  | 716.7 |  |  |  | 0.9 |
Financial Intermediaries |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 8,797.2 |  |  |  | 69.3 |  |  |  | 0.8 |
Consumer Durables |  |  | 32,864.7 |  |  |  | 161.3 |  |  |  | 0.5 |  |  |  | 43,224.5 |  |  |  | 174.2 |  |  |  | 0.4 |  |  |  | 47,822.9 |  |  |  | 205.9 |  |  |  | 0.4 |  |  |  | 59,776.8 |  |  |  | 296.9 |  |  |  | 0.5 |  |  |  | 71,659.2 |  |  |  | 529.4 |  |  |  | 0.7 |
Consumer Loans |  |  | 670,622.8 |  |  |  | 3,818.7 |  |  |  | 0.6 |  |  |  | 1,526,978.2 |  |  |  | 10,760.3 |  |  |  | 0.7 |  |  |  | 1,948,328.2 |  |  |  | 15,236.4 |  |  |  | 0.8 |  |  |  | 2,477,945.6 |  |  |  | 22,513.7 |  |  |  | 0.9 |  |  |  | 2,958,437.7 |  |  |  | 21,718.9 |  |  |  | 0.7 |
Information Technology |  |  | 15,365.5 |  |  |  | 200.4 |  |  |  | 1.3 |  |  |  | 23,518.6 |  |  |  | 171.5 |  |  |  | 0.7 |  |  |  | 40,074.1 |  |  |  | 117.8 |  |  |  | 0.3 |  |  |  | 33,414.7 |  |  |  | 176.5 |  |  |  | 0.5 |  |  |  | 44,115.4 |  |  |  | 281.4 |  |  |  | 0.6 |
Gems and Jewellry |  |  | 69,659.9 |  |  |  | 449.8 |  |  |  | 0.6 |  |  |  | 69,339.0 |  |  |  | 789.1 |  |  |  | 1.1 |  |  |  | 85,017.9 |  |  |  | 1,255.4 |  |  |  | 1.5 |  |  |  | 100,642.9 |  |  |  | 1,083.6 |  |  |  | 1.1 |  |  |  | 78,029.6 |  |  |  | 488.4 |  |  |  | 0.6 |
Iron and Steel |  |  | 97,934.7 |  |  |  | 4,712.7 |  |  |  | 4.8 |  |  |  | 106,816.0 |  |  |  | 4,499.4 |  |  |  | 4.2 |  |  |  | 135,431.1 |  |  |  | 4,196.0 |  |  |  | 3.1 |  |  |  | 195,488.6 |  |  |  | 3,943.2 |  |  |  | 2.0 |  |  |  | 231,524.9 |  |  |  | 1,295.0 |  |  |  | 0.6 |
Drugs and Pharmaceuticals |  |  | 36,854.5 |  |  |  | 372.0 |  |  |  | 1.0 |  |  |  | 31,133.3 |  |  |  | 381.7 |  |  |  | 1.2 |  |  |  | 54,444.1 |  |  |  | 410.2 |  |  |  | 0.8 |  |  |  | 57,963.6 |  |  |  | 359.8 |  |  |  | 0.6 |  |  |  | 74,475.8 |  |  |  | 409.5 |  |  |  | 0.5 |
Chemical and Products |  |  | 38,095.6 |  |  |  | 68.7 |  |  |  | 0.2 |  |  |  | 49,020.6 |  |  |  | 102.7 |  |  |  | 0.2 |  |  |  | 58,460.5 |  |  |  | 193.2 |  |  |  | 0.3 |  |  |  | 71,892.6 |  |  |  | 166.4 |  |  |  | 0.2 |  |  |  | 87,466.3 |  |  |  | 185.2 |  |  |  | 0.2 |
NBFC |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 317,450.0 |  |  |  | 637.4 |  |  |  | 0.2 |
Coal & Petroleum Products |  |  | 46,279.5 |  |  |  | 97.3 |  |  |  | 0.2 |  |  |  | 48,513.8 |  |  |  | 119.7 |  |  |  | 0.2 |  |  |  | 53,206.1 |  |  |  | 135.6 |  |  |  | 0.3 |  |  |  | 92,504.7 |  |  |  | 187.8 |  |  |  | 0.2 |  |  |  | 136,531.9 |  |  |  | 211.2 |  |  |  | 0.2 |
Cement & Products |  |  | 37,872.7 |  |  |  | 43.4 |  |  |  | 0.1 |  |  |  | 38,204.8 |  |  |  | 56.5 |  |  |  | 0.1 |  |  |  | 74,435.8 |  |  |  | 121.0 |  |  |  | 0.2 |  |  |  | 115,169.4 |  |  |  | 83.8 |  |  |  | 0.1 |  |  |  | 126,169.7 |  |  |  | 128.4 |  |  |  | 0.1 |
Fertilisers & Pesticides |  |  | 69,044.6 |  |  |  | 2.3 |  |  |  | 0.0 |  |  |  | 64,778.6 |  |  |  | 1.5 |  |  |  | 0.0 |  |  |  | 81,113.1 |  |  |  | 1.9 |  |  |  | 0.0 |  |  |  | 91,942.1 |  |  |  | 41.7 |  |  |  | 0.0 |  |  |  | 114,574.6 |  |  |  | 46.2 |  |  |  | 0.0 |
Glass & Glass Products |  |  | 8,111.7 |  |  |  | 1,727.1 |  |  |  | 21.3 |  |  |  | 10,165.3 |  |  |  | 1,701.0 |  |  |  | 16.7 |  |  |  | 10,877.3 |  |  |  | 1,962.2 |  |  |  | 18.0 |  |  |  | 14,017.0 |  |  |  | 1,785.3 |  |  |  | 12.7 |  |  |  | 11,765.4 |  |  |  | 3.9 |  |  |  | 0.0 |
Telecom |  |  | 69,477.6 |  |  |  | 54.6 |  |  |  | 0.1 |  |  |  | 108,104.6 |  |  |  | 47.4 |  |  |  | 0.0 |  |  |  | 125,842.1 |  |  |  | 576.3 |  |  |  | 0.5 |  |  |  | 246,272.4 |  |  |  | 530.0 |  |  |  | 0.2 |  |  |  | 232,932.0 |  |  |  | 66.0 |  |  |  | 0.0 |
Power |  |  | 103,437.7 |  |  |  | 114.5 |  |  |  | 0.1 |  |  |  | 125,213.0 |  |  |  | 94.2 |  |  |  | 0.1 |  |  |  | 159,239.8 |  |  |  | 92.8 |  |  |  | 0.1 |  |  |  | 251,169.4 |  |  |  | 82.9 |  |  |  | 0.0 |  |  |  | 458,628.1 |  |  |  | 103.7 |  |  |  | 0.0 |
Leather & Products |  |  | 6,189.0 |  |  |  | 27.1 |  |  |  | 0.4 |  |  |  | 6,898.0 |  |  |  | 78.1 |  |  |  | 1.1 |  |  |  | 11,298.2 |  |  |  | 80.9 |  |  |  | 0.7 |  |  |  | 15,806.2 |  |  |  | 99.6 |  |  |  | 0.6 |  |  |  | 19,426.2 |  |  |  | 4.2 |  |  |  | 0.0 |
Animal Husbandry |  |  | — |  |  |  | — |  |  |  |  |  |  |  | 24,393.9 |  |  |  | 124.7 |  |  |  | 0.5 |  |  |  | 28,038.2 |  |  |  | 466.6 |  |  |  | 1.7 |  |  |  | 19,849.3 |  |  |  | 508.4 |  |  |  | 2.6 |  |  |  | 23,605.4 |  |  |  | 4.1 |  |  |  | 0.0 |
Rubber & Products |  |  | 5,767.0 |  |  |  | 159.0 |  |  |  | 2.8 |  |  |  | 7,483.4 |  |  |  | 116.5 |  |  |  | 1.6 |  |  |  | 8,311.6 |  |  |  | 4.4 |  |  |  | 0.1 |  |  |  | 11,059.7 |  |  |  | 5.6 |  |  |  | 0.1 |  |  |  | 12,038.7 |  |  |  | 1.0 |  |  |  | 0.0 |
Fishing |  |  | 5,117.6 |  |  |  | 19.9 |  |  |  | 0.4 |  |  |  | 7,188.8 |  |  |  | 11.4 |  |  |  | 0.2 |  |  |  | 8,653.5 |  |  |  | 11.5 |  |  |  | 0.1 |  |  |  | 11,384.5 |  |  |  | 31.8 |  |  |  | 0.3 |  |  |  | 12,802.4 |  |  |  | 0.9 |  |  |  | 0.0 |
Wood & Products |  |  | 8,482.6 |  |  |  | 291.0 |  |  |  | 3.4 |  |  |  | 10,994.0 |  |  |  | 345.4 |  |  |  | 3.1 |  |  |  | 14,782.7 |  |  |  | 201.8 |  |  |  | 1.4 |  |  |  | 19,098.5 |  |  |  | 165.1 |  |  |  | 0.9 |  |  |  | 17,449.8 |  |  |  | 1.0 |  |  |  | 0.0 |
Other Non-metallic/Mineral Products |  |  | 9,246.2 |  |  |  | 83.7 |  |  |  | 0.9 |  |  |  | 11,819.7 |  |  |  | 87.5 |  |  |  | 0.7 |  |  |  | 17,680.8 |  |  |  | 57.0 |  |  |  | 0.3 |  |  |  | 20,375.4 |  |  |  | 14.7 |  |  |  | 0.1 |  |  |  | 24,427.1 |  |  |  | 0.2 |  |  |  | 0.0 |
NBFC / Financial Intermediaries |  |  | 130,684.6 |  |  |  | 957.5 |  |  |  | 0.7 |  |  |  | 180,220.7 |  |  |  | 76.6 |  |  |  | 0.0 |  |  |  | 231,249.9 |  |  |  | 111.7 |  |  |  | 0.0 |  |  |  | 311,477.1 |  |  |  | 84.4 |  |  |  | 0.0 |  |  |  | — |  |  |  | — |  |  |  | — |
Banks and Financial Institutions |  |  | 14,494.9 |  |  |  | 13.0 |  |  |  | 0.1 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Shipping |  |  | 2,096.9 |  |  |  | 6.2 |  |  |  | 0.3 |  |  |  | 2,289.8 |  |  |  | 8.9 |  |  |  | 0.4 |  |  |  | 3,838.3 |  |  |  | 2.0 |  |  |  | 0.1 |  |  |  | 7,709.1 |  |  |  | 2.0 |  |  |  | 0.0 |  |  |  | — |  |  |  | — |  |  |  | — |
Tobacco & Products |  |  | 531.1 |  |  |  | 4.4 |  |  |  | 0.8 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 867.4 |  |  |  | 0.1 |  |  |  | 0.0 |  |  |  | — |  |  |  | — |  |  |  | — |
Airlines |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Railways |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Activities allied to agriculture |  |  | 550,848.4 |  |  |  | 7,397.1 |  |  |  | 1.3 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Wholesale Trade |  |  | 349,927.1 |  |  |  | 4,671.8 |  |  |  | 1.3 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Services |  |  | 306,593.9 |  |  |  | 2,473.7 |  |  |  | 0.8 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Miscellaneous industries |  |  | 47,072.1 |  |  |  | 1,057.5 |  |  |  | 2.2 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Retail advances not otherwise classified |  |  | 842,772.6 |  |  |  | 6,118.1 |  |  |  | 0.7 |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  |  |  |  |  |  | 52,982.7 |  |  |  |  |  |  |  |  |  |  |  | 82,979.7 |  |  |  |  |  |  |  |  |  |  |  | 108,717.3 |  |  |  |  |  |  |  |  |  |  |  | 140,422.5 |  |  |  |  |  |  |  |  |  |  |  | 157,426.9 |  |  |  |  |
Specific allowance for credit losses |  |  |  |  |  |  | 31,008.1 |  |  |  |  |  |  |  |  |  |  |  | 45,730.1 |  |  |  |  |  |  |  |  |  |  |  | 62,600.5 |  |  |  |  |  |  |  |  |  |  |  | 85,783.0 |  |  |  |  |  |  |  |  |  |  |  | 101,601.9 |  |  |  |  |
Non-performing loans, net |  |  |  |  |  |  | 21,974.6 |  |  |  |  |  |  |  |  |  |  |  | 37,249.6 |  |  |  |  |  |  |  |  |  |  |  | 46,116.8 |  |  |  |  |  |  |  |  |  |  |  | 54,639.5 |  |  |  |  |  |  |  |  |  |  |  | 55,825.0 |  |  |  |  |

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As of March 31, 2020, our gross
non-performing
loan as a percentage of gross loans in the respective industries was the highest in Capital Market Intermediaries, Agriculture Production - Food and Plastic & Products.
Capital Market Intermediaries
Exchanges in the capital markets segment offer a platform to their broker members (capital market intermediaries) for trading in the cash, derivatives, currency derivatives and commodity segments. Exchanges appoint banks to clear and settle trade obligations. The Bank has had a presence in the stock & commodity exchange segment since the late 1990s as a clearing bank in the Indian capital markets. As a clearing bank, the Bank has been offering various transactional services and credit facilities in the form of fund and
non-fund
based exposures, primarily to brokers in the capital market segments who hold their primary or secondary settlement accounts with the Bank. This acts as a key relationship point as well as a risk mitigant, as all payments to and from the exchanges are required by the relevant exchange to only be settled through these exchanges. The segment is highly regulated. As on March 31, 2020, high NPAs were the result of borrower specific issues.
Agriculture Production - Food
Agriculture production in India is largely dependent on the length of the monsoon season and is impacted by weather conditions which result in uncertainty in crop yields and wide swings in farm income. Government policy on food grain pricing and procurement as well as the prevalent market conditions impact farm income. In fiscal 2020, natural calamities such as floods affected several states thereby impacting farm output. This has impacted recoveries in recent harvest cycles, resulting in delinquency.
Plastic & Products
Competitive rivalry among producers is high owing to the presence of several players in the market for plastic The market is highly fragmented in nature with a larger share occupied by medium and small enterprises engaged in manufacturing of plastic. The principal strategy employed by market players is an increased focus on high margin products. The industry is facing volatility in raw material prices and forex fluctuations along with subdued demand from the auto industry, which is one of the end user industries. For the Bank, the problem exposure mainly relates to a borrower which was affected by high leverage and a decrease in margins.
Top Ten
Non-Performing
Loans
As of March 31, 2020 our top ten
non-performing
loans represented 12.8 percent of our gross
non-performing
loans and 0.2 percent of our gross loan portfolio.
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The following table sets forth information regarding our ten largest
non-performing
loans. The table also sets forth our share of collateral value. We periodically obtain details of collateral from borrowers and external valuation reports and carry out certain procedures for updating and assessing fair values of collateral, however these procedures may not be conclusive to determine the precise net realizable values of any such collateral, which may be substantially less. None of the loans is collateral dependent (i.e. the borrower has no means of repaying the impaired loan other than the collateral). Interest payments not being serviced as of fiscal 2020 for these loans is because of specific factors which have temporarily resulted in inadequate cash flows. The fair value of the collateral and our share thereof and the present value of expected future cash flows from these loans are adequate to cover the principal outstanding net of allowances for credit losses.

|  | At March 31, 2020 |
|  | Industry |  | Type of banking arrangement |  |  | Gross principal outstanding |  |  | Principal outstanding net of allowance for credit losses |  |  | Our share in Collateral value |  |  | Currently servicing all Interest payments |
|  | (in millions) |
Borrower 1 |  | Housing Finance Companies |  |  | Consortium |  |  | Rs. | 3,496.1 |  |  | Rs. | 45.0 |  |  | Rs. | 329.5 |  |  |  | No |
Borrower 2 |  | Agriculture Production-Food |  |  | Consortium |  |  |  | 3,391.2 |  |  |  | 1,492.1 |  |  |  | 2,574.4 |  |  |  | No |
Borrower 3 |  | Capital Market Intermediaries |  |  | Multiple |  |  |  | 3,285.0 |  |  |  | 1,542.5 |  |  |  | 2,268.3 |  |  |  | No |
Borrower 4 |  | Real Estate & Property Services |  |  | Multiple |  |  |  | 2,502.7 |  |  |  | — |  |  |  | 3,334.1 |  |  |  | No |
Borrower 5 |  | Plastic & Products |  |  | Consortium |  |  |  | 2,243.9 |  |  |  | 345.9 |  |  |  | 735.6 |  |  |  | No |
Borrower 6 |  | Housing Finance Companies |  |  | Multiple |  |  |  | 1,416.8 |  |  |  | — |  |  |  | — |  |  |  | No |
Borrower 7 |  | Infrastructure Development |  |  | Consortium |  |  |  | 1,125.3 |  |  |  | 138.9 |  |  |  | 1,405.9 |  |  |  | No |
Borrower 8 |  | Capital Market Intermediaries |  |  | Sole |  |  |  | 1,109.5 |  |  |  | 543.0 |  |  |  | 1,432.3 |  |  |  | No |
Borrower 9 |  | Food and Beverage |  |  | Sole |  |  |  | 830.8 |  |  |  | 412.4 |  |  |  | 745.4 |  |  |  | No |
Borrower 10 |  | Mining and Minerals |  |  | Consortium |  |  |  | 705.1 |  |  |  | — |  |  |  |  |  |  |  | No |
|  |  |  |  |  |  |  | Rs. | 20,106.3 |  |  | Rs. | 4,519.8 |  |  |  |  |  |  |  |  |

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Restructuring of
Non-Performing
Loans
Our
non-performing
loans are restructured on a
case-by-case
basis after our management has determined that restructuring is the best means of maximizing realization of the loan. These loans continue to be on a
non-accrual
basis and are reclassified as performing loans only after sustained performance under the loan’s renegotiated terms for a period of at least one year.
The following table sets forth, as of the dates indicated, our
non-performing
loans that have been restructured through rescheduling of principal repayments and deferral or waiver of interest:

|  | At March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions, except percentages) |
Gross restructured loans |  | Rs. | 4,245.8 |  |  | Rs. | 3,069.3 |  |  | Rs. | 3,012.9 |  |  | Rs. | 3,013.0 |  |  | Rs. | 1,490.5 |
Allowance for credit losses |  |  | 2,090.2 |  |  |  | 686.4 |  |  |  | 1,561.7 |  |  |  | 2,340.6 |  |  |  | 516.8 |
Net restructured loan |  | Rs. | 2,155.6 |  |  | Rs. | 2,382.9 |  |  | Rs. | 1,451.2 |  |  | Rs. | 672.4 |  |  | Rs. | 973.7 |
Gross restructured loans as a percentage of gross non-performing loans |  |  | 8.0 | % |  |  | 3.7 | % |  |  | 2.8 | % |  |  | 2.1 | % |  |  | 0.9 | %
Net restructured loans as a percentage of net non-performing loans |  |  | 9.8 | % |  |  | 6.4 | % |  |  | 3.1 | % |  |  | 1.2 | % |  |  | 1.7 | %

If there is a failure to meet payment or other terms of a restructured loan, it may be considered a failed restructuring, in which case it is no longer classified as a restructured loan. See
“Supervision and Regulation—Restructured Assets
” and “
Supervision and Regulation—
Resolution of Stressed Assets
.”
Remediation Strategy for
Non-Performing
Loans
We focus on early problem recognition and active remedial management efforts in relation to our
non-performing
loans. Because we are involved primarily in working capital finance with respect to wholesale loans, we track our borrower’s performance and liquidity on an ongoing basis. This enables us to define remedial strategies proactively and manage our exposures to industries or customers that we believe are displaying deteriorating credit trends. Relationship managers lead the recovery effort together with strong support from the credit group in the corporate office in Mumbai. Recovery is pursued through, among others, legal processes, enforcement of collateral, negotiated
one-time
settlements and other similar strategies. The particular strategy pursued depends upon the level of cooperation of the borrower, our assessment of the borrower’s management integrity and long-term viability, the credit structure and the role of other creditors.
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Allowance for Credit Losses on Loans
The following table sets forth, for the periods indicated, movements in our allowance for credit losses:

|  | For the years ended March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions) |
Specific allowance for credit losses at the beginning of the period |  | Rs. | 24,709.0 |  |  | Rs. | 31,008.1 |  |  | Rs. | 45,730.1 |  |  | Rs. | 62,600.5 |  |  | Rs. | 85,783.0 |
Additions during the period |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  |  | 24,446.1 |  |  |  | 34,723.4 |  |  |  | 50,794.5 |  |  |  | 69,848.2 |  |  |  | 95,977.2 |
Wholesale |  |  | 2,071.6 |  |  |  | 6,561.8 |  |  |  | 4,054.2 |  |  |  | 6,665.9 |  |  |  | 12,521.3 |
Less allowances no longer required on account of write-offs |  |  | (20,218.6 | ) |  |  | (26,563.2 | ) |  |  | (37,978.3 | ) |  |  | (53,331.6 | ) |  |  | (92,679.6 | )
Specific allowance for credit losses at the end of period |  | Rs. | 31,008.1 |  |  | Rs. | 45,730.1 |  |  | Rs. | 62,600.5 |  |  | Rs. | 85,783.0 |  |  | Rs. | 101,601.9 |
Unallocated allowance for credit losses at the beginning of the period |  | Rs. | 22,625.1 |  |  | Rs. | 26,352.0 |  |  | Rs. | 32,766.8 |  |  | Rs. | 49,906.7 |  |  | Rs. | 62,449.0 |
Additions during the period |  |  | 3,726.9 |  |  |  | 6,414.8 |  |  |  | 17,139.9 |  |  |  | 12,542.3 |  |  |  | 34,782.3 |
Unallocated allowance for credit losses at the end of the period |  | Rs. | 26,352.0 |  |  | Rs. | 32,766.8 |  |  | Rs. | 49,906.7 |  |  | Rs. | 62,449.0 |  |  | Rs. | 97,231.3 |
Total allowance for credit losses at the beginning of the period |  | Rs. | 47,334.1 |  |  | Rs. | 57,360.1 |  |  | Rs. | 78,496.9 |  |  | Rs. | 112,507.2 |  |  | Rs. | 148,232.0 |
Allowance no longer required on account of write-offs |  |  | (20,218.6 | ) |  |  | (26,563.2 | ) |  |  | (37,978.3 | ) |  |  | (53,331.6 | ) |  |  | (92,679.6 | )
Additions during the period |  |  | 30,244.6 |  |  |  | 47,700.0 |  |  |  | 71,988.6 |  |  |  | 89,056.4 |  |  |  | 143,280.8 |
Total allowance for credit losses at the end of the period |  | Rs. | 57,360.1 |  |  | Rs. | 78,496.9 |  |  | Rs. | 112,507.2 |  |  | Rs. | 148,232.0 |  |  | Rs. | 198,833.2 |

Allowances for credit losses for the periods presented have been disclosed net of recoveries.
The following table sets forth, for the periods indicated, the allocation of the total allowance for credit losses:

|  | As of March 31, |
|  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in millions) |
Wholesale |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allocated |  | Rs. | 7,413.4 |  |  | Rs. | 11,713.5 |  |  | Rs. | 15,323.0 |  |  | Rs. | 20,233.2 |  |  | Rs. | 26,426.4 |
Unallocated |  |  | 3,803.4 |  |  |  | 4,656.2 |  |  |  | 7,759.3 |  |  |  | 9,507.9 |  |  |  | 13,201.9 |
Subtotal |  | Rs. | 11,216.8 |  |  | Rs. | 16,369.7 |  |  | Rs. | 23,082.3 |  |  | Rs. | 29,741.1 |  |  | Rs. | 39,628.3 |
Retail |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allocated |  |  | 23,594.7 |  |  |  | 34,016.6 |  |  |  | 47,277.5 |  |  |  | 65,549.8 |  |  |  | 75,175.5 |
Unallocated |  |  | 22,548.6 |  |  |  | 28,110.6 |  |  |  | 42,147.4 |  |  |  | 52,941.1 |  |  |  | 84,029.4 |
Subtotal |  | Rs. | 46,143.3 |  |  | Rs. | 62,127.2 |  |  | Rs. | 89,424.9 |  |  | Rs. | 118,490.9 |  |  | Rs. | 159,204.9 |
Allowance for credit losses |  | Rs. | 57,360.1 |  |  | Rs. | 78,496.9 |  |  | Rs. | 112,507.2 |  |  | Rs. | 148,232.0 |  |  | Rs. | 198,833.2 |

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements included in this report. The following discussion is based on our audited financial statements, which have been prepared in accordance with U.S. GAAP, and on information publicly available from the RBI and other sources.
Introduction
Overview
We are a new generation private sector bank in India. Our principal business activities are retail banking, wholesale banking and treasury services. Our retail banking division provides various products such as deposit products, loans, credit cards, debit cards, third-party mutual funds and insurance products, bill payment services and other products and services. Through our wholesale banking operations we provide products such as loans, deposit products, documentary credits, guarantees, debt syndication services and foreign exchange and derivative products. We also provide cash management services, clearing and settlement services for stock and commodity exchanges, tax and other collections for the Government, custody services and correspondent banking services. Our treasury services segment undertakes trading operations on the proprietary account (including investments in government securities), foreign exchange operations and derivatives trading both on the proprietary account and customer flows and borrowings.
Certain Factors Affecting our Results of Operations
Our revenue consists of interest and dividend revenue as well as
non-interest
revenue. Our interest and dividend revenue is primarily generated by interest on loans, interest or dividends from securities and interest from other activities. We offer a range of loans to retail customers and working capital and term loans to corporate customers. The primary components of our securities portfolio are statutory liquidity ratio investments, credit substitutes and other investments. Statutory liquidity ratio investments principally consist of Government of India treasury securities. Credit substitute securities typically consist of commercial paper and debentures issued by the same customers with whom we have a lending relationship in our wholesale banking business. Other investments include asset-backed securities, mortgage-backed securities, deposit certificates issued by banks and units of mutual funds. Interest revenue from other activities consists primarily of interest on our placements made to comply with the extant RBI guidelines on shortfalls in directed lending
sub-limits
and interest from inter-bank placements.
Two important measures of our results of operations are net interest revenue, which is equal to our interest and dividend revenue net of interest expense, and net interest revenue after allowance for credit losses. Interest expense includes interest on deposits as well as on borrowings. Our interest revenue and expense are affected by fluctuations in interest rates as well as volume of activity. Our interest expense is also affected by the extent to which we fund our activities with
low-interest
and
non-interest
bearing deposits, and the extent to which we rely on borrowings. Our allowance for credit losses is comprised of specific and unallocated allowances for loan loss. Impairments of credit substitutes are not included in our loan loss provision, but are reflected under
“Non-interest
revenue—other than temporary losses on available for sale debt securities” in our consolidated statements of income.
We also use net interest margin and spread to measure our results. Net interest margin represents the ratio of net interest revenue to average interest-earning assets. Spread represents the difference between yield on average interest-earning assets and the cost of average interest-bearing liabilities, including current accounts which are
non-interest
bearing.
Our
non-interest
revenue includes fee and commission income, realized gains and losses on sales of securities and spread from foreign exchange and derivative transactions and income from affiliates. Our principal sources of fee and commission revenue are retail banking services, retail asset fees and charges, credit card fees, home loan sourcing commissions, cash management services, documentary credits and bank guarantees and distribution of third party mutual funds and insurance products.
Our
non-interest
expense includes expenses for salaries and staff benefits, premises and equipment maintenance, depreciation and amortization, expenditure for the purchase of priority sector lending certificates and administrative and other expenses. The costs of outsourcing back office and other functions are included in administrative and other expenses.
Our financial condition and results of operations are affected by general economic conditions prevailing in India. During fiscal 2020, economic growth moderated as compared to fiscal 2019. As per the estimates of the Indian Central Statistics Office (“CSO”), real GDP growth slowed down to 4.2 percent in fiscal 2020 from 6.1 percent in fiscal 2019. Moreover, GDP growth decreased to below 7 percent in the second quarter of fiscal 2019 and decelerated thereafter. While the economy started showing some signs of recovery during the initial months of the fourth quarter of fiscal 2020, the spread of coronavirus and the subsequent lockdown in March 2020 weighed on growth. Real GDP growth slipped to a low of 3.1 percent in the last quarter of fiscal 2020. While our results may not necessarily track the GDP figures directly, how the economy performs affects the environment in which we operate. For example, a weak GDP growth resulting from a decline in consumption and in the level of production of goods and services, may cause a reduced demand for bank credit.
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Moreover, inflation also increased during fiscal 2020, with the average level of CPI increasing to 4.8 percent in fiscal 2020 from 3.4 percent in fiscal 2019 and 3.6 percent in fiscal 2018. While inflation remained under control during the first half of fiscal 2020, vegetable-led food inflation weighed on headline inflation in the second half of fiscal 2020. As a result of the transitionary nature of inflation pressure, the RBI kept the policy rates unchanged between October 2019 and February 2020. Since then, the RBI has reduced the policy rate by 115 basis points cumulatively at its last two emergency meetings to address
COVID-19
related disruptions. The repo rate stood at 4.0 percent as of July 1, 2020. A lower interest rate scenario helps support economic growth and is generally beneficial to the environment in which we operate, provided inflation is under control.
On the fiscal side, the Government appears to be committed to fiscal consolidation with the fiscal deficit reducing from 4.5 percent in fiscal 2014 to 3.5 percent in fiscal 2018. However, given rising fiscal pressures in 2019 and 2020, the Government moved away from its policy of fiscal consolidation. The fiscal deficit as a percentage of GDP stood at 3.4 percent in fiscal 2019 compared to the target of 3.3 percent. For fiscal 2020, the provisional data shows a higher fiscal deficit at 4.6 percent of GDP compared to the revised estimate of 3.8 percent. For fiscal 2021 the budget projects a fiscal deficit of 3.5 percent. However,
COVID-19
related Government spending is likely to result in a significant upward revision of the fiscal 2021 deficit.
Our financial condition and results of operations are also affected by widespread health emergencies (or concerns over the possibility of such emergencies), such as the
COVID-19
pandemic and the actions taken in response to it, which can cause significant volatility in demand for our products, changes in customer behavior and preferences, financial distress for our customers and related increases in customer defaults and provisions for losses, disruptions to our capital expenditure initiatives, limitations on our employees’ ability to work and travel, significant changes in the economic or political conditions in markets in which we operate and related currency volatility, restrictions on our access to, and increases in the cost of, capital and increased regulatory requirements, such as the RBI’s optional moratorium on debt repayments announced on March 23, 2020. As of June 30, 2020, approximately 9 percent of loans to our customers (measured by total value of our portfolio) were in moratorium. In addition, the RBI ordered banks to halt dividend payments for fiscal 2020, and we have accordingly not proposed a final dividend for such fiscal year. This restriction shall be reassessed by the RBI based on the financial results of banks for the quarter ending September 30, 2020. Furthermore, while in ordinary circumstances, declining fiscal deficits tend to have a favorable impact on our operations, as lower fiscal deficit allows the RBI to reduce rates, support a sustainable level of inflation and prevent private investment from being crowded out, the current expansion is also likely to benefit us by offering support to slowing growth, providing relief to businesses and assisting in mitigating
COVID-19
related disruptions. Given the dynamic nature of the outbreak, the extent to which
COVID-19
will continue to impact our business, financial condition and results of operations will depend on future developments, which remain highly uncertain and cannot be accurately predicted at this time.
Notwithstanding the pace of growth in India, we believe we have maintained a strong balance sheet and a low cost of funds. As of March 31, 2020, net
non-performing
customer assets (which consist of loans and credit substitutes) constituted 0.5 percent of net customer assets. In addition, our net customer assets represented 94.1 percent of our deposits and our deposits represented 71.8 percent of our total liabilities and shareholders’ equity. Our average
non-interest
bearing current accounts and
low-interest
bearing savings accounts represented 38.0 percent of our average total deposits for the year ended March 31, 2020. These
low-cost
deposits and the cash float associated with our transactional services led to an average cost of funds (including equity) for fiscal 2020 of 4.5 percent.
Critical Accounting Estimates—Allowance for Credit Losses
We have set forth below the details of our accounting policy and estimates used for the purposes of allowances for credit losses. We provide 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
Our retail loan loss allowance consists of specific allowance and allowance for loans collectively evaluated for impairment (termed as “unallocated allowance”).
We establish 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, we monitor loan to value ratios for loan against securities. The loans are charged off against allowances typically when the account becomes 150 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 150 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. Subsequent recoveries, if any, against
write-off
cases, are adjusted to allowance for credit losses in the consolidated statement of income.
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We also record unallocated allowances for retail loans by product type. Our retail loan portfolio is comprised of groups of large numbers of small value homogeneous loans. We establish an unallocated allowance for loans in each product group based on our estimate of the overall portfolio quality, asset growth, economic conditions and other risk factors. We estimate our unallocated allowance for retail loans based on its probability of default and loss given default, determined for the respective pools.
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 allowance for credit losses in the consolidated statement of income.
We grade our 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 we 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.
We establish 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. Collateral values are generally based on appraisals from internal and external valuation sources.
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. These factors are considered by the Bank for selection of loans for credit reviews and assessment of impairment.
We have also established an unallocated allowance for wholesale standard loans based on the internal rating grades assigned, and the probability of default associated with the internal rating grade pools and the loss given default.
Critical Accounting Policies
We have set forth below some of our critical accounting policies under U.S. GAAP. Investors should keep in mind that we prepare our general purpose financial statements in accordance with Indian GAAP and also report to the RBI and the Indian stock exchanges in accordance with Indian GAAP. In certain circumstances, we may take action that is required or permitted by Indian banking regulations which may have consequences under Indian GAAP that may be different from those under U.S. GAAP.
Revenue Recognition
Interest income from loans and 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. 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. We amortize the annual fees on credit cards over the contractual period of the fees.
Investments in Securities
Investments consist of securities purchased as part of our treasury operations, such as government securities and other debt securities, and investments purchased as part of our wholesale banking operations, such as credit substitute securities issued by our wholesale banking customers. Credit substitute securities typically consist of commercial paper and short-term debentures issued by the same customers with whom we have a lending relationship in our wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as for loans, and we bear the same customer credit risk as we do for loans extended to those customers. Additionally, the yield and maturity terms are generally directly negotiated by us with the issuer. As our exposures to such securities are similar to our exposures on our loan portfolio, additional disclosures have been provided on impairment status in Note 7 of the consolidated financial statements and on concentrations of credit risk in Note 11 of the consolidated financial statements.
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All other securities including mortgage and asset-backed securities are actively managed as part of our treasury operations. The issuers of such securities are either government, public financial institutions or private issuers. These investments are typically purchased from the market, and debt securities are generally publicly rated.
Securities that are held principally for resale in the near term are classified as held for trading (“HFT”) and are carried at fair value, with changes in fair value recorded in net income. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (“HTM”) and are carried at amortized cost.
All debt securities that are not classified as HTM or HFT are classified as available for sale debt securities (“AFS”) and are carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity.
Up to March 31, 2018 equity securities with readily determinable fair values that were not classified as HFT were classified as available for sale and were carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, were reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Dividend income on such securities was included in Interest and dividend revenue- available for sale debt securities.
Non-marketable
equity securities were carried at cost.
We 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. This resulted in a cumulative
catch-up
reclassification from AOCI to retained earnings. Marketable securities are measured at fair value, change in fair value recorded in earnings.
Non-
marketable equity securities under the measurement alternative are carried at cost plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and impairment, if any. Our review for impairment for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, and the expectations of cash flows.
Fair values are based on market quotations where a market quotation is available or otherwise based on present values at current interest rates for such investments.
Transfers between categories are recorded at fair value on the date of the transfer.
Declines in the fair values of held to maturity and available for sale debt securities below their carrying value that are other than temporary are reflected in net income as other than temporary impairment losses, based on management’s best estimate of the fair value of the investment. We conduct a review each year to identify other than temporary declines based on an evaluation of all significant factors. Our review of impairment generally entails identification and evaluation of investments that have indications of possible impairment, analysis of evidential matter, including an evaluation of factors or triggers that would or could cause individual investments to have other than temporary impairment and documentation of the results of these analyses, as required under business policies. Estimates of any declines in the fair values of credit substitute securities that are other than temporary are measured on a
case-by-case
basis together with loans to those customers. We do not recognize an impairment for debt securities if the cause of the decline is related solely to an interest rate increase, we do not intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost.
Goodwill and Other Intangibles
Under applicable accounting guidance, goodwill is reviewed at the reporting unit level for potential impairment at least on an annual basis at the end of the reporting period, or more frequently if events or circumstances indicate a potential impairment. This analysis is a
two-step
process. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, then the goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step is to be performed. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the consolidated balance sheet. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. ASC
350-20
“Goodwill” stipulates that goodwill of a reporting unit shall be tested on an annual basis and in the interim period under certain circumstances. Accordingly, we have determined that we will test the goodwill on our books for impairment at annual rests, unless circumstances warrant us to carry out impairment tests in an interim period. We examined our goodwill that had arisen on acquisition of CBoP for possible impairment as of March 31, 2020. The results of the first step of the impairment test showed no indication of impairment. Accordingly, we did not perform the second step of the impairment test.
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Fair Value Measurements
FASB ASC 820 (Topic 820) “Fair Value Measures and Disclosures” establishes a fair value hierarchy structure that prioritizes the inputs to valuation techniques used to determine the fair value of an asset or liability. ASC 820 distinguishes between inputs that are based on observed market data and unobservable inputs that reflect market participants’ assumptions. It emphasizes the use of valuation methodologies that maximize market inputs. For financial instruments carried at fair value, the best evidence of fair value is a quoted price in an actively traded market (Level 1). Where the market for a financial instrument is not active, valuation techniques are used. The majority of valuation techniques use market inputs that are either observable or indirectly derived from and corroborated by observable market data for substantially the full term of the financial instrument (Level 2). Because Level 1 and Level 2 instruments are determined by observable inputs, less judgment is applied in determining their fair values. In the absence of observable market inputs, the financial instrument is valued based on valuation techniques that feature one or more significant unobservable inputs (Level 3). The determination of the level of fair value hierarchy within which the fair value measurement of an asset or a liability is classified often requires judgment. We consider the following factors in developing the fair value hierarchy:

| • |  | whether the asset or liability is transacted in an active market with a quoted market price that is readily available;

| • |  | the size of transactions occurring in an active market;

| • |  | the level of bid-ask spreads;

| • |  | whether only a few transactions are observed over a significant period of time;

| • |  | whether the inputs to the valuation techniques can be derived from or corroborated with market data; and

| • |  | whether significant adjustments are made to the observed pricing information or model output to determine the fair value.

Level 1 inputs are unadjusted quoted prices in active markets that the reporting entity has the ability to access at the measurement date for the identical assets or liabilities. A financial instrument is classified as a Level 1 measurement if it is listed on an exchange. We regard financial instruments such as equity securities and bonds listed on the primary exchanges of a country to be actively traded.
Level 2 inputs are inputs that are observable either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets, for substantially the full term of the financial instrument but do not qualify as Level 1 inputs. We generally classify derivative contracts and investments in debt securities, units of mutual funds, mortgage-backed securities and asset-backed securities as Level 2 measurements. Currently, substantially all such items qualify as Level 2 measurements. Level 2 items are fair valued using quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable estimates that management expects market participants would use to determine the fair value of the asset or liability. That is, Level 3 inputs incorporate market participants’ assumptions about risk and the risk premium required by market participants in order to bear that risk. We develop Level 3 inputs based on the best information available in the circumstances.
If quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
We review and update our fair value hierarchy classifications semi-annually. Changes from one half year to the next related to the observability of inputs to a fair value measurement may result in a reclassification between hierarchy levels. Imprecision in estimating unobservable market inputs can impact the amount of revenue, loss or changes in common shareholder’s equity recorded for a particular financial instrument. Furthermore, while we believe our valuation methods are appropriate, the use of different methodologies or assumptions to determine the fair value of certain financial assets and liabilities could result in a different estimate of fair value at the reporting date. See Note 31 of the consolidated financial statements, “
Fair Value Measurement
“ for further details including the classification hierarchy associated with assets and liabilities measured at fair value.
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As of March 31, 2020, our Level 3 instruments recorded at fair value on a recurring basis were
available-for-sale
mortgage and asset-backed securities aggregating Rs. 127,454.3 million. The Level 3 instruments comprised 3.4 percent of our total securities portfolio and 0.8 percent of our total assets, as of March 31, 2020. The valuation of these mortgage and asset-backed securities is dependent on the estimated cash flows that the underlying trust would pay out. The cash flows for mortgage and asset-backed securities are discounted at the
yield-to-maturity
rates and credit spreads published by Fixed Income Money Market and Derivatives Association on month ends.
Available-for-sale
securities aggregating Rs. 0.1 billion and Rs. 5.3 billion classified as Level 1 as of March 31, 2018 and March 31, 2019 were transferred to Level 2 during fiscal 2019 and fiscal 2020, respectively.
A control framework has been established, which is designed to ensure that fair values are either determined or validated by a function independent of the risk-taker. To that end, the ultimate responsibility for the validation of the valuation model rests with the treasury analytics section. The valuation model is also reviewed by the market risk department. The middle office department, which functions independent of the risk taker, is responsible for reporting fair values. Wherever necessary the valuation model is vetted through independent experts. In addition, the model prices are compared with market maker quotes. The types of valuation techniques used include present value based models, Black-Scholes valuation models, including variations and interest rate models as used by market practitioners. Where appropriate the models are calibrated to market prices. The models used, apply appropriate control processes and procedures to ensure that the derived inputs are used to value only those instruments that share similar risk to the relevant benchmark indexes and therefore demonstrate a similar response to market factors. Market data used along with interpolation techniques are as per market conventions.
The validation process consists of an independent validation of the pricing model. The pricing model validation for significant product variants is conducted using an external validation agency or authority. In addition the model prices are also validated by comparing with market maker quotes. All market data conventions are adhered to in terms of yield curve components, volatility surfaces and calibration instruments.
Lease accounting
Effective April 1, 2019, we adopted FASB ASU
2016-02 “Leases
(Topic 842)”. We applied Topic 842 using the modified retrospective method. As a result, comparative information has not been adjusted and continues to be reported under ASC 840. As of April 1, 2019, the date of our initial application of ASC 842, we recognized lease liabilities measured as the present value of lease payments not yet paid, discounted using the incremental borrowing rate as at the date of initial application. The
right-of-use
asset as of the date of the initial application includes an initial measurement of the lease liabilities adjusted for accrued lease payments as of date of initial application.
At the inception of the contract, we assess whether the contract, is or contains, a lease. Our assessment is based on whether (1) the contract involves the use of distinct identified assets, (2) we have the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) we have the right to direct the use of the asset. Leases are examined for classification as either finance leases or operating leases. A lease is classified as finance lease if any one of the following criteria is met: (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the assets that is reasonably certain to be exercised, (3) the lease term is for majority of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the above criteria.
Our lessee arrangements consist of operating leases. We record
right-of-use
assets and lease liabilities at lease commencement date.
Right-of-use
assets are reported in other assets on the Consolidated Balance Sheet, and the related lease liabilities are reported in accrued expenses and other liabilities. We have elected not to record
right-of-use
asset for short-term-leases that have a lease term of 12 months or less and thus, all leases with a lease term exceeding 12 months are recorded on the consolidated balance sheet.
Lease expense is recognized on a straight-line basis over the lease term and is recorded in
non-interest
expense- premises and equipment in the consolidated statements of income. We made an accounting policy decision not to separate lease and
non-lease
components of a contract that is or contains a lease. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the incremental borrowing rate as at the date of lease commencement.
Right-of-use
assets initially equal the lease liabilities, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
We assess leased assets for impairment, and if the carrying amount of the leased asset exceeds the undiscounted cash flows from the lease payments and the estimated residual value upon disposition of the leased asset, an impairment loss is recognized.
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Status of
IND-AS
The Ministry of Corporate Affairs, in its press release dated January 18, 2016, issued a roadmap for the implementation of
IND-AS
converged with International Financial Reporting Standards as issued by the International Accounting Standards Board with certain carve outs for scheduled commercial banks, insurance companies and
non-banking
financial companies (the “2016 Roadmap”), which was subsequently confirmed by the RBI through its circular dated February 11, 2016. The 2016 Roadmap required such institutions to prepare
IND-AS-based
financial statements for accounting periods commencing on or after April 1, 2018, with comparative financial information for accounting periods commencing on or after April 1, 2017. The implementation of
IND-AS
by banks requires certain legislative changes in the format of financial statements to comply with disclosures required by
IND-AS.
In April 2018, the RBI deferred the effective date for implementation of
IND-AS
by one year, by which point the necessary legislative amendments were expected to have been completed. The legislative amendments recommended by the RBI are under consideration of the Government of India. Accordingly, the RBI, in March 2019 deferred the implementation of
IND-AS
until further notice.
In conjunction with the implementation of
IND-AS
for our local Indian results, we may adopt IFRS for the purposes of our filings pursuant to Section 13 or 15(d) of, and our reports pursuant to Rule
13a-16
or
15d-16
under, the Exchange Act. Should we choose to do so, we would be permitted to file two years, rather than three years, of statements of income, changes in shareholders’ equity and cash flows prepared in accordance with IFRS.
Recently Issued Accounting Pronouncements Not Yet Effective
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 are 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 are 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. While the update changes the measurement of the allowance for credit losses, it does not change the credit risk for the Bank’s loan portfolios. The FASB has issued multiple updates to ASU
2016-13
as codified in Topic 326, viz. ASUs
2018-19,
2019-04,
2019-05,
2019-10,
2019-11,
2020-02,
and
2020-03.
These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We will adopt the guidance in fiscal 2021. Key implementation initiatives have included model development and validation, data acquisition for model estimation and new disclosures, and the establishment of policies encompassing aspects of the standard including internal controls. The allowance methodologies and model, duly validated and tested, will be implemented for fiscal 2021. At the date of adoption, the ASU will result in a negative adjustment to retained earnings. The ultimate impact is dependent on the finalization of the assessment of the characteristics of our portfolio, macroeconomic conditions and related forecasts at date of adoption and the potential impact of
COVID-19.
On adoption, the CECL transitional amount (being a cumulative effect adjustment) will be included in shareholders’ equity. This will have no impact on our regulatory capital requirements which are based on Indian GAAP. We are currently assessing the impact this guidance will have on our consolidated financial position or results of operations.
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 amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We expect 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 our consolidated financial position or results of operations or disclosures.
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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. Entities are required to disclose and describe the range and weighted-average of significant observable inputs used to prospectively develop Level 3 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. We expect 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.
In August 2018, the FASB issued ASU
No. 2018-15
“Intangibles—Goodwill and
Other—Internal-Use
Software (Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The update aligns the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software, regardless of whether they convey a license to the hosted software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by this ASU. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity has the option to apply amendments in the ASU either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. We expect to adopt the guidance in fiscal 2021. The adoption of this guidance is not expected to have a material impact on our consolidated financial position or results of operations.
In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” This ASU is part of the FASB’s initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The ASU removes specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income
tax-related
guidance. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. We expect to adopt the guidance in fiscal 2022. We are currently assessing the impact this guidance will have on our consolidated financial position or results of operations.
In January 2020, the FASB issued ASU
2020-01,
“Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” ASU
2016-01
made targeted improvements to accounting for financial instruments, including providing an entity with the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. We expect to adopt the guidance in fiscal 2022. We are currently assessing the impact this guidance will have on our consolidated financial position or results of operations.
In March 2020, the FASB issued ASU
No. 2020-04
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The ASU provides for optional expedients and other guidance related to modification of contracts , hedging relationships, and other transactions affected by the reference rate reform. The ASU also provides an election to account for certain contract amendments related to reference rate reform as modifications rather than extinguishments without the requirement to assess the significance of the amendments. The various practical expedients and elections allow hedge accounting to continue uninterrupted during the transition period. The amendments in the update are elective and applicable on issue. We are currently assessing the update and its impact on our transition away from LIBOR for our financial instruments.
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Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019
Net Interest Revenue after Allowance for Credit Losses
Our net interest revenue after allowances for credit losses increased by 9.3 percent from Rs. 435.2 billion in fiscal 2019 to Rs. 475.9 billion in fiscal 2020. Our net interest margin was 4.6 percent for fiscal 2020. The following table sets out the components of net interest revenue after allowance for credit losses.

|  | Year ended March 31, |
|  | 2019 |  |  | 2020 |  |  | Increase/ Decrease |  |  | % Increase/ Decrease |
|  | (in million, except percentages) |
Interest on loans |  | Rs. | 827,683.0 |  |  | Rs. | 981,794.8 |  |  | Rs. | 154,111.8 |  |  |  | 18.6 |
Interest on securities, including dividends and interest on trading assets |  |  | 199,885.4 |  |  |  | 205,775.3 |  |  |  | 5,889.9 |  |  |  | 2.9 |
Other interest revenue |  |  | 14,146.5 |  |  |  | 24,412.8 |  |  |  | 10,266.3 |  |  |  | 72.6 |
Total interest and dividend revenue |  |  | 1,041,714.9 |  |  |  | 1,211,982.9 |  |  |  | 170,268.0 |  |  |  | 16.3 |
Interest on deposits |  |  | 410,026.4 |  |  |  | 507,888.8 |  |  |  | 97,862.4 |  |  |  | 23.9 |
Interest on short-term borrowings |  |  | 39,054.3 |  |  |  | 27,216.8 |  |  |  | (11,837.5 | ) |  |  | (30.3 | )
Interest on long-term debt |  |  | 85,081.1 |  |  |  | 83,200.5 |  |  |  | (1,880.6 | ) |  |  | (2.2 | )
Other interest expense |  |  | 47.5 |  |  |  | 149.4 |  |  |  | 101.9 |  |  |  | 214.5 |
Total interest expense |  |  | 534,209.3 |  |  |  | 618,455.5 |  |  |  | 84,246.2 |  |  |  | 15.8 |
Net interest revenue |  | Rs. | 507,505.6 |  |  | Rs. | 593,527.4 |  |  | Rs. | 86,021.8 |  |  |  | 16.9 |
Less: Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  |  | 64,051.0 |  |  |  | 104,516.8 |  |  |  | 40,465.8 |  |  |  | 63.2 |
Wholesale |  |  | 8,228.3 |  |  |  | 13,105.1 |  |  |  | 4,876.8 |  |  |  | 59.3 |
Total |  | Rs. | 72,279.3 |  |  | Rs. | 117,621.9 |  |  | Rs. | 45,342.6 |  |  |  | 62.7 |
Net interest revenue after allowance for credit losses |  | Rs. | 435,226.3 |  |  | Rs. | 475,905.5 |  |  | Rs. | 40,679.2 |  |  |  | 9.3 |

Interest and Dividend Revenue
Interest income on loans increased by 18.6 percent, primarily due to an increase in our average loan book. The average balance of our total loan book increased by 16.6 percent from Rs. 8,013.0 billion in fiscal 2019 to Rs. 9,342.3 billion in fiscal 2020. Our average balance of retail loans increased by 14.3 percent from Rs. 5,655.2 billion in fiscal 2019 to Rs. 6,465.5 billion in fiscal 2020. The growth in retail loans was primarily across personal loans/credit cards, housing loans and retail business banking segments. Our average balance of wholesale loans increased by 22.0 percent from Rs. 2,357.8 billion in fiscal 2019 to Rs. 2,876.8 billion in fiscal 2020. Retail loan yields increased from 11.1 percent in fiscal 2019 to 11.4 percent in fiscal 2020. Wholesale loan yields remained stable at 8.5 percent in fiscals 2019 and 2020.
Interest on securities, including dividends and interest on trading assets, increased by 2.9 percent from Rs. 199.9 billion in fiscal 2019 to Rs. 205.8 billion in fiscal 2020. This was primarily driven by an increase in the average balance of investments. The average balance of our investments increased by Rs. 189.0 billion from Rs. 2,782.9 billion in fiscal 2019 to Rs. 2,971.9 billion in fiscal 2020. Yields on our investment decreased from 7.2 percent in fiscal 2019 to 6.9 percent in fiscal 2020.
Other interest revenue increased by 72.6 percent from Rs. 14.1 billion in fiscal 2019 to Rs. 24.4 billion in fiscal 2020, primarily due to increase in the average balance of dues from banks and other interest earning assets during fiscal 2020 The average balance of dues from banks and other interest earning assets increased by 98.1 percent from Rs. 286.9 billion in fiscal 2019 to Rs. 568.2 billion in fiscal 2020. This increase was partially offset by a decline in yields on our dues from banks and other interest earning assets from 4.9 percent in fiscal 2019 to 4.3 percent in fiscal 2020.
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Interest Expense
Our interest expense on deposits increased by 23.9 percent from Rs. 410.0 billion in fiscal 2019 to Rs. 507.9 billion in fiscal 2020. This increase was primarily due to an increase in our average interest bearing deposits, which increased by 21.8 percent from Rs. 7,131.2 billion in fiscal 2019 to Rs. 8,684.2 billion in fiscal 2020. This increase was augmented by an increase in the average cost of our deposits. The average cost of our deposits, including
non-interest
bearing deposits, increased from 5.0 percent in fiscal 2019 to 5.1 percent in fiscal 2020.
The average balance of our savings account deposits increased from Rs. 2,226.3 billion in fiscal 2019 to Rs. 2,552.9 billion in fiscal 2020 and the average balance of our time deposits increased from Rs. 4,904.9 billion in fiscal 2019 to Rs. 6,131.3 billion in fiscal 2020. Cost of time deposits increased from 6.7 percent in fiscal 2019 to 6.8 percent in fiscal 2020.
Interest expense on our short-term borrowings decreased by 30.0 percent from Rs. 39.1 billion in fiscal 2019 to Rs. 27.4 billion in fiscal 2020 primarily on account of a decrease in the average balance of our short-term borrowings. The average balance of our short-term borrowings decreased by 23.3 percent from Rs. 780.6 billion in fiscal 2019 to Rs. 598.7 billion in fiscal 2020. In addition, this decrease was also driven by a decline in the cost of our short-term borrowings which decreased from 5.0 percent in fiscal 2019 to 4.6 percent in fiscal 2020. Interest expense on our long-term debt decreased by 2.2 percent primarily on account of a decrease in the cost of our long term-debt, which decreased from 8.4 percent in fiscal 2019 to 8.1 percent in fiscal 2020. The average balance of our long-term debt increased from Rs. 1,015.1 billion in fiscal 2019 to Rs. 1,023.4 billion in fiscal 2020.
Allowance for Credit Losses
Our loan loss allowance for credit losses consists of specific and unallocated components. Allowances for credit losses increased by 62.7 percent from Rs. 72.3 billion in fiscal 2019 to Rs. 117.6 billion in fiscal 2020.
Our loan loss allowance for credit losses in our retail loan portfolio increased by 63.2 percent from Rs. 64.1 billion in fiscal 2019 to Rs. 104.5 billion in fiscal 2020. Our retail specific loan loss allowance increased from Rs. 53.3 billion in fiscal 2019 to Rs. 73.4 billion in fiscal 2020. This increase was primarily due to higher allowances in our personal loans/ credit cards and commercial transportation segments. Our retail unallocated allowances increased from Rs. 10.8 billion in fiscal 2019 to Rs. 31.1 billion in fiscal 2020, primarily attributable to an increase in the unallocated allowances on our retail business banking, personal loans/credit cards and commercial transportation segments.
Our loan loss allowance for credit losses in our wholesale loan portfolio increased by 59.3 percent from Rs. 8.2 billion in fiscal 2019 to Rs. 13.1 billion in fiscal 2020. Our wholesale specific loan loss allowance increased from Rs. 6.5 billion in fiscal 2019 to Rs. 9.4 billion in fiscal 2020. Our wholesale unallocated loan loss allowance increased from Rs. 1.7 billion in fiscal 2019 to Rs. 3.7 billion in fiscal 2020. Our wholesale unallocated loan loss was higher in fiscal 2020 primarily on account of the growth in our wholesale loan portfolio and an increase in our estimate of losses in our wholesale loan portfolio.
During fiscal 2020, we implemented the package announced by RBI on account of COVID-19 situation which grants temporary extensions in repayment obligations to the borrowers without any interest or financial concessions. There was no concession granted to the borrowers with respect to contractual rate of interest or the principal, and the deferment is for a short term. We expect to collect our dues as per the revised schedule. Hence, these did not meet the conditions to be classified as troubled debt restructuring.
Non-Interest
Revenue
Our
non-interest
revenue increased by 23.8 percent from Rs. 160.1 billion in fiscal 2019 to Rs. 198.2 billion in fiscal 2020. The following table sets forth the components of our
non-interest
revenue:

|  | Years ended March 31, |
|  | 2019 |  |  | 2020 |  |  | Increase/ Decrease |  |  | % Increase/ Decrease |
|  | (in million, except percentages) |
Fees and commissions |  | Rs. | 134,155.2 |  |  | Rs. | 160,099.5 |  |  | Rs. | 25,944.3 |  |  |  | 19.3 |
AFS securities gains/(loss), net |  |  | 1,515.0 |  |  |  | 16,717.2 |  |  |  | 15,202.2 |  |  |  | 1,003.4 |
Trading securities gains/(loss), net |  |  | 1,028.4 |  |  |  | 1,323.4 |  |  |  | 295.0 |  |  |  | 28.7 |
Foreign exchange transactions |  |  | 1,917.8 |  |  |  | 15,265.6 |  |  |  | 13,347.8 |  |  |  | 696.0 |
Derivatives gains/(loss) |  |  | 12,409.1 |  |  |  | 3,550.0 |  |  |  | (8,859.1 | ) |  |  | (71.4 | )
Other |  |  | 9,096.7 |  |  |  | 1,263.3 |  |  |  | (7,833.4 | ) |  |  | (86.1 | )
Total non-interest revenue |  | Rs. | 160,122.2 |  |  | Rs. | 198,219.0 |  |  | Rs. | 38,096.8 |  |  |  | 23.8 |

Fees and commissions increased by 19.3 percent from Rs. 134.2 billion in fiscal 2019 to Rs. 160.1 billion in fiscal 2020, primarily on account of an increase in payments and cards business fees and commissions on distribution of mutual funds and insurance products.
The gain on AFS securities was primarily attributable to realized gain on the sale of Government of India securities. The gain on trading securities was primarily attributable to realized gains on sale of Government of India securities and corporate bonds.
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In fiscal 2020, derivative transactions (unadjusted for credit spread) resulted in a gain of Rs. 3.8 billion, primarily on account of a gain of Rs. 4.1 billion from currency swap and currency options and Rs. 2.2 billion from forward exchange contracts due to
mark-to-market
gains and gains on cancellations of forward exchange contracts. In fiscal 2020, interest rate derivatives resulted in a loss of Rs. 2.5 billion (unadjusted for credit spreads). In fiscal 2019, derivative transactions (unadjusted for credit spreads) resulted in a gain of Rs. 12.4 billion, primarily on account of a gain of Rs. 10.9 billion from forward exchange contracts due to
mark-to-market
gains and gains on cancellations of forward exchange contracts. In fiscal 2019, currency swaps and currency options resulted in a gain of Rs. 0.8 billion (unadjusted for credit spreads) and interest rate derivatives and forward rate agreements resulted in a gain of Rs. 0.7 billion (unadjusted for credit spreads). Income from foreign exchange transactions amounted to Rs. 15.3 billion during fiscal 2020 as compared to Rs. 1.9 billion during fiscal 2019. As a result, income from foreign exchange transactions and derivatives increased from Rs. 14.3 billion in fiscal 2019 to Rs. 18.8 billion in fiscal 2020.
Our other
non-interest
revenue totaled Rs. 1.3 billion in fiscal 2020 compared to Rs. 9.1 billion in fiscal 2019. In fiscal 2019, we adopted ASU
2016-01
“Financial Instruments—Overall (Subtopic
825-10)”
as a result of which our equity investments were measured at fair value with changes in the fair value being recognized through net income. Our other
non-interest
revenue in fiscal 2019 was primarily attributed by the gain on sale of some of our equity investments and
mark-to-market
gains on our equity instruments that are carried at fair value.
Non-Interest
Expense
Our
non-interest
expense was comprised of the following:

|  | Years ended March 31, |
|  | 2019 |  |  | 2020 |  |  | Increase/ Decrease |  |  | percent Increase/ Decrease |  |  | 2019 % of net revenues |  |  | 2020 % of net revenues |
|  | (in million, except percentages) |
Salaries and staff benefits |  | Rs. | 104,652.6 |  |  | Rs. | 130,506.9 |  |  | Rs. | 25,854.3 |  |  |  | 24.7 |  |  |  | 17.6 |  |  |  | 19.4 |
Premises and equipment |  |  | 29,527.7 |  |  |  | 31,533.9 |  |  |  | 2,006.2 |  |  |  | 6.8 |  |  |  | 5.0 |  |  |  | 4.7 |
Depreciation and amortization |  |  | 12,247.8 |  |  |  | 12,800.3 |  |  |  | 552.5 |  |  |  | 4.5 |  |  |  | 2.1 |  |  |  | 1.9 |
Administrative and other |  |  | 108,960.4 |  |  |  | 133,439.4 |  |  |  | 24,479.0 |  |  |  | 22.5 |  |  |  | 18.3 |  |  |  | 19.8 |
Amortization of intangibles |  |  | 1.0 |  |  |  | — |  |  |  | (1.0 | ) |  |  | (100.0 | ) |  |  | — |  |  |  | — |
Total non-interest expense |  | Rs. | 255,389.5 |  |  | Rs. | 308,280.5 |  |  | Rs. | 52,891.0 |  |  |  | 20.7 |  |  |  | 42.9 |  |  |  | 45.7 |

Total
non-interest
expense increased by 20.7 percent from Rs. 255.4 billion in fiscal 2019 to Rs. 308.3 billion in fiscal 2020. Our net interest revenue after allowances for credit losses increased by 9.3 percent from Rs. 435.2 billion in fiscal 2019 to Rs. 475.9 billion in fiscal 2020. Our net revenue increased by 13.2 percent from Rs. 595.3 billion in fiscal 2019 to Rs. 674.1 billion in fiscal 2020. As a result, our
non-interest
expense as a percentage of our net revenues was 45.7 percent in fiscal 2020 compared to 42.9 percent in fiscal 2019.
Salaries and staff benefits increased by 24.7 percent from Rs. 104.7 billion in fiscal 2019 to Rs. 130.5 billion in fiscal 2020 primarily attributable to an increase in the number of our employees and annual wage revisions. The number of our employees increased from 98,061 as of March 31, 2019 to 116,971 as of March 31, 2020.
Premises and equipment costs increased by 6.8 percent from Rs. 29.5 billion in fiscal 2019 to Rs. 31.5 billion in fiscal 2020 primarily on account of an increase in premises and lease costs. Depreciation and amortization expenses increased from Rs. 12.2 billion in fiscal 2019 to Rs. 12.8 billion in fiscal 2020.
Administrative and other expenses increased by 22.5 percent from Rs. 109.0 billion in fiscal 2019 to Rs. 133.4 billion in fiscal 2020, primarily on account of higher cards related costs backed by an increase in cards spends, expenditure for the purchase of priority sector lending certificates and insurance expenses. As of March 31, 2020, we had 5,416 banking outlets and 14,901 ATMs and CDMs across 2,803 locations, which increased from 5,103 banking outlets and 13,489 ATMs and CDMs across 2,748 locations as of March 31, 2019. This also led to an overall increase in our
non-interest
expense.
The intangible assets (i.e., favorable leases) that were acquired through the merger of CBoP were amortized over their estimated remaining useful life. This amortization resulted in a charge of Rs. 1.0 million in fiscal 2019. There were no intangible assets remaining to be amortized in fiscal 2020.
Income Tax
Our income tax expense, net of interest earned on income tax refunds, decreased by 11.7 percent, from Rs. 119.4 billion in fiscal 2019 to Rs. 105.5 billion in fiscal 2020. Our statutory income tax rate decreased from 34.94 percent in fiscal 2019 to 25.17 percent in fiscal 2020. Pursuant to the change in the statutory tax rate, we stated our deferred tax assets as of March 31, 2019 at the newly enacted rate by recognizing a charge of Rs. 11.2 billion in our income tax expense for fiscal 2020. Consequently, our annual effective tax rate was 28.8 percent in fiscal 2020 compared to 35.1 percent in fiscal 2019.
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The following table gives a reconciliation of the Indian statutory income tax rate to our annual effective income tax rate for fiscals 2019 and 2020:

|  | Year ended March 31, |
|  | 2019 |  |  | 2020 |
Effective statutory income tax rate |  |  | 34.94 | % |  |  | 25.17 | %
Adjustments to reconcile statutory income tax rate to effective income tax rate: |  |  |  |  |  |  |  |
Stock-based compensation (net of forfeitures) |  |  | 0.55 |  |  |  | 0.51 |
Income exempt from taxes |  |  | (0.42 | ) |  |  | (0.20 | )
Interest on income tax refunds |  |  | (0.10 | ) |  |  | — |
Effect of change in statutory tax rate |  |  | — |  |  |  | 3.07 |
Other, net |  |  | 0.15 |  |  |  | 0.29 |
Annual effective income tax rate |  |  | 35.12 | % |  |  | 28.84 | %

Net Income
As a result of the foregoing factors, our net income after taxes increased by 18.2 percent from Rs. 220.1 billion in fiscal 2019 to Rs. 260.3 billion in fiscal 2020.
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Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018
Net Interest Revenue after Allowance for Credit Losses
Our net interest revenue after allowances for credit losses increased by 19.6 percent from Rs. 363.8 billion in fiscal 2018 to Rs. 435.2 billion in fiscal 2019. Our net interest margin was 4.6 percent for fiscal 2019. The following table sets out the components of net interest revenue after allowance for credit losses

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | Increase/ Decrease |  |  | % Increase/ Decrease |
|  | (in million, except percentages) |
Interest on loans |  | Rs. | 667,458.7 |  |  | Rs. | 827,683.0 |  |  | Rs. | 160,224.3 |  |  |  | 24.0 |
Interest on securities, including dividends and interest on trading assets |  |  | 162,258.3 |  |  |  | 199,885.4 |  |  |  | 37,627.1 |  |  |  | 23.2 |
Other interest revenue |  |  | 13,748.3 |  |  |  | 14,146.5 |  |  |  | 398.2 |  |  |  | 2.9 |
Total interest and dividend revenue |  |  | 843,465.3 |  |  |  | 1,041,714.9 |  |  |  | 198,249.6 |  |  |  | 23.5 |
Interest on deposits |  |  | 326,717.8 |  |  |  | 410,026.4 |  |  |  | 83,308.6 |  |  |  | 25.5 |
Interest on short-term borrowings |  |  | 26,004.4 |  |  |  | 39,054.3 |  |  |  | 13,049.9 |  |  |  | 50.2 |
Interest on long-term debt |  |  | 67,297.5 |  |  |  | 85,081.1 |  |  |  | 17,783.6 |  |  |  | 26.4 |
Other interest expense |  |  | 295.0 |  |  |  | 47.5 |  |  |  | (247.5 | ) |  |  | (83.9 | )
Total interest expense |  |  | 420,314.7 |  |  |  | 534,209.3 |  |  |  | 113,894.6 |  |  |  | 27.1 |
Net interest revenue |  | Rs. | 423,150.6 |  |  | Rs. | 507,505.6 |  |  | Rs. | 84,355.0 |  |  |  | 19.9 |
Less: Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail |  |  | 52,577.1 |  |  |  | 64,051.0 |  |  |  | 11,473.9 |  |  |  | 21.8 |
Wholesale |  |  | 6,820.7 |  |  |  | 8,228.3 |  |  |  | 1,407.6 |  |  |  | 20.6 |
Total |  | Rs. | 59,397.8 |  |  | Rs. | 72,279.3 |  |  | Rs. | 12,881.5 |  |  |  | 21.7 |
Net interest revenue after allowance for credit losses |  | Rs. | 363,752.8 |  |  | Rs. | 435,226.3 |  |  | Rs. | 71,473.5 |  |  |  | 19.6 |

Interest and Dividend Revenue
Interest income on loans increased by 24.0 percent, primarily due to an increase in our average loan book. The average balance of our total loan book increased by 23.1 percent from Rs. 6,507.4 billion in fiscal 2018 to Rs. 8,013.0 billion in fiscal 2019. Our average balance of retail loans increased by 22.2 percent from Rs. 4,629.2 billion in fiscal 2018 to Rs. 5,655.2 billion in fiscal 2019. The growth in retail loans was across the product segments. Our average balance of wholesale loans increased by 25.5 percent from Rs. 1,878.2 billion in fiscal 2018 to Rs. 2,357.8 billion in fiscal 2019. Retail loan yields remained stable at 11.1 percent in 2019 as compared to fiscal 2018. Wholesale loan yields increased from 8.1 percent in fiscal 2018 to 8.5 percent in fiscal 2019.
Interest on securities, including dividends and interest on trading assets, increased by 23.2 percent from Rs. 162.3 billion in fiscal 2018 to Rs. 199.9 billion in fiscal 2019. This was primarily driven by an increase in the average balance of investments. The average balance of our investments increased by Rs. 518.9 billion from Rs. 2,263.8 billion in fiscal 2018 to Rs. 2,782.7 billion in fiscal 2019. Investment yields remained stable at 7.2 percent in 2019 compared to fiscal 2018.
Other interest revenue increased by 2.9 percent from Rs. 13.7 billion in fiscal 2018 to Rs. 14.2 billion in fiscal 2019, primarily due to increase in yield on dues from banks from 4.5 percent in 2018 to 4.9 percent in 2019. The average balance of dues from banks and other interest earning assets increased by 1.1 percent from Rs. 281.5 billion in fiscal 2018 to Rs. 284.6 billion in fiscal 2019.
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Interest Expense
Our interest expense on deposits increased by 25.5 percent from Rs. 326.7 billion in fiscal 2018 to Rs. 410.0 billion in fiscal 2019. This increase was primarily due to an increase in our average interest bearing deposits, which increased by 21.9 percent from Rs. 5.849.5 billion in fiscal 2018 to Rs. 7,131.2 billion in fiscal 2019. This growth was further driven by an increase in the average cost of our deposits. The average cost of our deposits, including
non-interest
bearing deposits increased from 4.8 percent in fiscal 2018 to 5.0 percent in fiscal 2019.
The average balance of our savings account deposits increased from Rs. 1,919.7 billion in fiscal 2018 to Rs. 2,226.3 billion in fiscal 2019 and the average balance of our time deposits increased from Rs. 3,929.8 billion in fiscal 2018 to Rs. 4,904.9 billion in fiscal 2019. Cost of time deposits increased from 6.5 percent in fiscal 2018 to 6.7 percent in fiscal 2019.
Interest expense on our short-term borrowings increased by 48.7 percent from Rs. 26.3 billion in fiscal 2018 to Rs. 39.1 billion in fiscal 2019 primarily on account of an increase in the average balance of our short-term borrowings. The average balance of our short-term borrowings increased by 47.3 percent from Rs. 529.8 billion in fiscal 2018 to Rs. 780.6 billion in fiscal 2019. The cost of our short-term borrowings remained stable at 5.0 percent in fiscals 2018 and 2019. Interest expense on our long-term debt increased by 26.4 percent primarily on account of an increase in our average balance of long-term debt from Rs. 881.6 billion in fiscal 2018 to Rs. 1,015.1 billion in fiscal 2019. This increase was further augmented by an increase in the cost of our long-term debt, which increased from 7.6 percent in fiscal 2018 to 8.4 percent in fiscal 2019.
Allowance for Credit Losses
Our loan loss allowance for credit losses consists of specific and unallocated components. Allowances for credit losses increased by 21.7 percent from Rs. 59.4 billion in fiscal 2018 to Rs. 72.3 billion in fiscal 2019.
Our loan loss allowance for credit losses in our retail loan portfolio increased by 21.8 percent from Rs. 52.6 billion in fiscal 2018 to Rs. 64.1 billion in fiscal 2019. Our retail specific loan loss allowance increased from Rs. 38.6 billion in fiscal 2018 to Rs. 53.3 billion in fiscal 2019. This increase was primarily due to higher allowances in our auto loans and personal loans/ credit card segments. Our retail unallocated allowances decreased from Rs. 14.0 billion in fiscal 2018 to Rs. 10.8 billion in fiscal 2019, primarily attributable to a decrease in allowances in our retail business banking and agriculture segments and partially offset by an increase in allowances in our personal loans/ credit cards segments.
Our loan loss allowance for credit losses in our wholesale loan portfolio increased by 20.6 percent from Rs. 6.8 billion in fiscal 2018 to Rs. 8.2 billion in fiscal 2019. Our wholesale specific loan loss allowance increased from Rs. 3.7 billion in fiscal 2018 to Rs. 6.5 billion in fiscal 2019. Our wholesale unallocated loan loss allowance decreased from Rs. 3.1 billion in fiscal 2018 to Rs. 1.7 billion in fiscal 2019. Our wholesale unallocated loan loss was higher in fiscal 2018 primarily on account of an increase in our estimate of losses in our wholesale loan portfolio.
Non-Interest
Revenue
Our
non-interest
revenue increased by 10.7 percent from Rs. 144.6 billion in fiscal 2018 to Rs. 160.1 billion in fiscal 2019. The following table sets forth the components of our
non-interest
revenue:

|  | Years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | Increase/ Decrease |  |  | % Increase/ Decrease |
|  | (in million, except percentages) |
Fees and commissions |  | Rs. | 120,060.9 |  |  | Rs. | 134,155.2 |  |  | Rs. | 14,094.3 |  |  |  | 11.7 |
Realized gains/(loss) on AFS securities |  |  | 10,704.1 |  |  |  | 1,515.0 |  |  |  | (9,189.1 | ) |  |  | (85.8 | )
Trading securities gains/(loss), net |  |  | (63.4 | ) |  |  | 1,028.4 |  |  |  | 1,091.8 |  |  |  | * |
Foreign exchange transactions |  |  | 6,209.5 |  |  |  | 1,917.8 |  |  |  | (4,291.7 | ) |  |  | (69.1 | )
Derivatives gains/(loss) |  |  | 6,742.6 |  |  |  | 12,409.1 |  |  |  | 5,666.5 |  |  |  | 84.0 |
Other |  |  | 953.3 |  |  |  | 9,096.7 |  |  |  | 8,143.4 |  |  |  | 854.2 |
Total non-interest revenue |  | Rs. | 144,607.0 |  |  | Rs. | 160,122.2 |  |  | Rs. | 15,515.2 |  |  |  | 10.7 |

* | Not meaningful

Fees and commissions increased by 11.7 percent from Rs. 120.1 billion in fiscal 2018 to Rs. 134.2 billion in fiscal 2019, primarily on account of an increase in payments and cards business fees and deposit related fees.
The realized gain on AFS securities was primarily attributable to the sale of Government of India securities. The gain on trading securities was primarily on account of realized and
mark-to-market
gains on units of mutual funds.
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In fiscal 2019, derivative transactions (unadjusted for credit spread) resulted in a gain of Rs. 12.4 billion, primarily on account of a gain of Rs. 10.9 billion from forward exchange contracts due to
mark-to-market
gains and gains on cancellations of forward exchange contracts. In fiscal 2019, currency swaps and currency options resulted in a gain of Rs. 0.8 billion (unadjusted for credit spreads) and interest rate derivatives and forward rate agreements resulted in a gain of Rs. 0.7 billion (unadjusted for credit spreads). In fiscal 2018, derivative transactions (unadjusted for credit spreads) resulted in a gain of Rs. 6.0 billion, primarily on account of a gain of Rs. 6.9 billion from forward exchange contracts due to
mark-to-market
gains and gains on cancellations of forward exchange contracts. In fiscal 2018, currency swaps and currency options resulted in a loss of Rs. 1.9 billion (unadjusted for credit spreads), partially offset by a gain of Rs. 1.0 billion (unadjusted for credit spreads) from interest rate derivatives and forward rate agreements. Income from foreign exchange transactions amounted to Rs. 1.9 billion during fiscal 2019 compared to Rs. 6.2 billion during fiscal 2018. As a result, income from foreign exchange transactions and derivatives increased from Rs. 13.0 billion in fiscal 2018 to Rs. 14.3 billion in fiscal 2019.
Other
non-interest
revenue was primarily attributable to the gain on the sale of certain of our equity investments and
mark-to-market
gains on our equity instruments that are carried at fair value. This was primarily because our equity investments were measured at fair value with changes in the fair value recognized through net income in accordance with ASU
2016-01
“Financial Instruments—Overall (Subtopic
825-10)”
which we adopted in fiscal 2019. Certain of our equity investments were measured at prices observed in orderly transactions during the year.
Non-Interest
Expense
Our
non-interest
expense was comprised of the following:

|  | Years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | Increase/ Decrease |  |  | percent Increase/ Decrease |  |  | 2018 % of net revenues |  |  | 2019 % of net revenues |
|  | (in million, except percentages) |
Salaries and staff benefits |  | Rs. | 98,483.7 |  |  | Rs. | 104,652.6 |  |  | Rs. | 6,168.9 |  |  |  | 6.0 |  |  |  | 19.4 |  |  |  | 17.6 |
Premises and equipment |  |  | 29,816.9 |  |  |  | 29,527.7 |  |  |  | (289.2 | ) |  |  | (1.0 | ) |  |  | 5.9 |  |  |  | 5.0 |
Depreciation and amortization |  |  | 9,678.9 |  |  |  | 12,247.8 |  |  |  | 2,568.9 |  |  |  | 26.5 |  |  |  | 1.9 |  |  |  | 2.1 |
Administrative and other |  |  | 93,272.9 |  |  |  | 108,960.4 |  |  |  | 15,687.5 |  |  |  | 16.8 |  |  |  | 18.3 |  |  |  | 18.2 |
Amortization of intangibles |  |  | 1.0 |  |  |  | 1.0 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total non-interest expense |  | Rs. | 231,253.4 |  |  | Rs. | 255,389.5 |  |  | Rs. | 24,136.1 |  |  |  | 10.4 |  |  |  | 45.5 |  |  |  | 42.9 |

Total
non-interest
expense increased by 10.4 percent from Rs. 231.3 billion in fiscal 2018 to Rs. 255.4 billion in fiscal 2019. Our net interest revenue after allowances for credit losses increased by 19.6 percent from Rs. 363.8 billion in fiscal 2018 to Rs. 435.2 billion in fiscal 2019. Our net revenue increased by 17.1 percent from Rs. 508.4 billion in fiscal 2018 to Rs. 595.3 billion in fiscal 2019. As a result, our
non-interest
expense as a percentage of our net revenues was 42.9 percent in fiscal 2019 as compared to 45.5 percent in fiscal 2018.
Salaries and staff benefits increased by 6.3 percent from Rs. 98.5 billion in fiscal 2018 to Rs. 104.7 billion in fiscal 2019 primarily attributable to an increase in the number of our employees and annual wage revisions. The number of our employees increased from 88,253 as of March 31, 2018 to 98,061 as of March 31, 2019.
Premises and equipment costs decreased by 1.0 percent from Rs. 29.8 billion in fiscal 2018 to Rs. 29.5 billion in fiscal 2019 primarily on account of a decrease in equipment maintenance costs. Depreciation and amortization expenses increased from Rs. 9.7 billion in fiscal 2018 to Rs. 12.2 billion in fiscal 2019.
Administrative and other expenses increased by 16.8 percent from Rs. 93.3 billion in fiscal 2018 to Rs. 109.0 billion in fiscal 2019, primarily on account of higher cards-related costs backed by an increase in cards spends, expenditure for the purchase of priority sector lending certificates and insurance expenses. As of March 31, 2019, we had 5,103 banking outlets and 13,160 ATMs across 2,748 locations, compared to 4,787 banking outlets and 12,635 ATMs across 2,691 locations as of March 31, 2018. This also led to an overall increase in our
non-interest
expense. We continued to amortize the intangible assets (i.e., favorable leases) that were acquired on the merger of CBoP over their estimated remaining useful life. This amortization resulted in a charge of Rs. 1.0 million in fiscal 2019.
Income Tax
Our income tax expense, net of interest earned on income tax refunds, increased by 21.5 percent, from Rs. 98.3 billion in fiscal 2018 to Rs. 119.4 billion in fiscal 2019. Our effective tax rate was 35.5 percent in fiscal 2018 and 35.1 percent in fiscal 2019. The effective tax rate was lower in fiscal 2019 primarily on account of lower stock-based compensation and higher income exempt from taxes in fiscal 2019 as compared to in fiscal 2018.
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The following table gives a reconciliation of the Indian statutory income tax rate to our annual effective income tax rate for fiscals 2018 and 2019:

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |
Effective statutory income tax rate |  |  | 34.61 | % |  |  | 34.94 | %
Adjustments to reconcile statutory income tax rate to effective income tax rate: |  |  |  |  |  |  |  |
Stock-based compensation (net of forfeitures) |  |  | 0.82 |  |  |  | 0.55 |
Income exempt from taxes |  |  | (0.19 | ) |  |  | (0.42 | )
Interest on income tax refunds |  |  | — |  |  |  | (0.10 | )
Effect of change in statutory tax rate |  |  | (0.08 | ) |  |  | — |
Other, net |  |  | 0.30 |  |  |  | 0.15 |
Annual effective income tax rate |  |  | 35.46 | % |  |  | 35.12 | %

Net Income
As a result of the foregoing factors, our net income after taxes increased by 23.3 percent from Rs. 178.5 billion in fiscal 2018 to Rs. 220.1 billion in fiscal 2019.
Liquidity and Capital Resources
Our growth is financed by a combination of cash generated from operations, increases in our customer deposits, borrowings and new issuances of equity capital and other securities qualifying as Tier I and Tier II capital.
The following table sets forth our cash flows from operating activities, investing activities and financing activities in a condensed format. We have aggregated certain line items set forth in the cash flow statement that is part of our financial statements included elsewhere in this report in order to facilitate an understanding of significant trends in our business.

|  | Year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (in million) |
Cash Flows from Operating Activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income before non-controlling interest |  | Rs. | 178,833.9 |  |  | Rs. | 220,565.5 |  |  | Rs. | 260,364.0 |
Non-cash adjustments to net income |  |  | 69,065.3 |  |  |  | 88,974.5 |  |  |  | 141,478.0 |
Net change in other assets and liabilities |  |  | (153,625.0 | ) |  |  | (126,267.8 | ) |  |  | (230,662.3 | )
Net cash provided by operating activities |  | Rs. | 94,274.2 |  |  | Rs. | 183,272.2 |  |  | Rs. | 171,179.7 |
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |  |  |  |  |
Net change in term placements |  |  | (8,806.4 | ) |  |  | 24,447.4 |  |  |  | 6,055.7 |
Net change in investments |  |  | (149,594.3 | ) |  |  | (390,904.0 | ) |  |  | (740,545.6 | )
Net change in repurchase and resell agreements |  |  | (462,018.6 | ) |  |  | 609,805.1 |  |  |  | 160,195.5 |
Loans purchased net of repayments |  |  | 21,777.2 |  |  |  | (150,642.9 | ) |  |  | (129,916.5 | )
Increase in loans originated, net of principal collections |  |  | (1,440,601.9 | ) |  |  | (1,610,724.3 | ) |  |  | (1,428,007.7 | )
Net additions to property and equipment |  |  | (9,086.4 | ) |  |  | (16,142.7 | ) |  |  | (18,111.9 | )
Activity in equity securities, net |  |  | 4.7 |  |  |  | (2,821.4 | ) |  |  | (157.9 | )
Net cash used in investing activities |  | Rs. | (2,048,325.7 | ) |  | Rs. | (1,536,982.8 | ) |  | Rs. | (2,150,488.4) |
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |  |  |  |  |
Net increase in deposits |  |  | 1,447,097.0 |  |  |  | 1,331,850.9 |  |  |  | 2,213,972.5 |
Net increase (decrease) in short-term borrowings |  |  | 456,558.6 |  |  |  | (127,707.1 | ) |  |  | (277,587.3 | )
Proceeds from issuance of shares by subsidiaries to non-controlling interest |  |  | 366.5 |  |  |  | 459.8 |  |  |  | 466.8 |
Net increase in long-term debt |  |  | 200,366.9 |  |  |  | 96,009.1 |  |  |  | (43,104.9 | )
Proceeds from issuance of equity shares for options exercised |  |  | 27,259.1 |  |  |  | 22,008.2 |  |  |  | 18,486.8 |
Net proceeds from issuance of equity shares |  |  | — |  |  |  | 235,896.2 |  |  |  | — |
Payment of dividends and dividend tax |  |  | (34,490.3 | ) |  |  | (41,015.2 | ) |  |  | (66,447.3 | )
Purchase of subsidiary shares from non-controlling interest |  |  | (143.3 | ) |  |  | — |  |  |  | — |
Net cash provided by financing activities |  | Rs. | 2,097,014.5 |  |  | Rs. | 1,517,501.9 |  |  | Rs. | 1,845,786.6 |
Effect of exchange rate changes on cash and due from banks, and restricted cash |  |  | 479.4 |  |  |  | (3,069.7 | ) |  |  | 10,610.5 |
Net change in cash and due from banks, and restricted cash |  |  | 143,442.4 |  |  |  | 160,721.6 |  |  |  | (122,911.6 | )
Cash and due from banks, and restricted cash, beginning of year |  |  | 430,708.6 |  |  |  | 574,151.0 |  |  |  | 734,872.6 |
Cash and due from banks, and restricted cash, end of year |  | Rs. | 574,151.0 |  |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |

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Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019
Cash Flows from Operating Activities
Our net cash provided by operating activities reflects our net income, adjustments for tax and
non-cash
charges (such as depreciation and amortization), as well as changes in other assets and liabilities. Our net cash provided by operating activities decreased from Rs. 183.3 billion in fiscal 2019 to Rs. 171.2 billion in fiscal 2020, mainly due to lower cash flows in fiscal 2020 as compared to in fiscal 2019. This was largely a result of a higher increase in our investments held for trading in fiscal 2020 as compared to fiscal 2019, partially offset by an increase in our net income.
Cash Flows from Investing Activities
We used our cash from operations and financing activities primarily to invest in our loan book and debt securities. Net cash flows used for loans origination and purchase, net of principal collections and repayments, decreased from Rs. 1,761.4 billion in fiscal 2019 to Rs. 1,557.9 billion in fiscal 2020, largely on account of a lesser increase in both retail and wholesale loan portfolios in fiscal 2020 as compared to in fiscal 2019. Net cash flows used for investing in our debt securities increased from Rs. 390.9 billion in fiscal 2019 to Rs. 740.5 billion in fiscal 2020, primarily on account of an increase in our
available-for-sale
Government of India securities, credit substitutes and asset and mortgage backed securities. Cash flows from repurchase agreements and reverse repurchase agreements decreased from Rs. 609.8 billion in fiscal 2019 to Rs. 160.2 billion in fiscal 2020.
Cash Flows from Financing Activities
Our primary sources of cash flows from financing activities are deposits and, to a lesser extent, borrowings. Our total deposits increased by 24.2 percent from Rs. 9,225.0 billion in fiscal 2019 to Rs. 11,462.1 billion in fiscal 2020. There was a 24.6 percent increase in our time deposits from Rs. 5,317.7 billion in fiscal 2019 to Rs. 6,626.7 billion in fiscal 2020. Savings account deposits increased by 24.8 percent from Rs. 2,487.0 billion as of March 31, 2019 to Rs. 3,103.8 billion as of March 31, 2020. Our
non-interest-bearing
current account deposits increased by 21.9 percent from Rs. 1,420.3 billion as of March 31, 2019 to Rs. 1,731.6 billion as of March 31, 2020. Savings account deposits at Rs. 3,103.8 billion and current account deposits at Rs. 1,731.6 billion accounted for 42.2 percent of our total deposits as of March 31, 2020. Our short-term borrowings decreased by Rs. 276.6 billion from Rs. 654.1 billion in fiscal 2019 to Rs. 377.4 billion in fiscal 2020. Our long-term debt decreased by 1.7 percent from Rs. 1,044.6 billion in fiscal 2019 to Rs. 1,026.5 billion in fiscal 2020.
Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018
Cash Flows from Operating Activities
Our net cash provided by operating activities reflects our net income, adjustments for tax and
non-cash
charges (such as depreciation and amortization), as well as changes in other assets and liabilities. Our net cash provided by operating activities increased from Rs. 94.3 billion in fiscal 2018 to Rs. 183.3 billion in fiscal 2019, mainly due to higher cash flows in fiscal 2019 as compared to fiscal 2018. This was largely a result of an increase in our net income and a lesser increase in our investment portfolio held for trading in fiscal 2019 compared to fiscal 2018, partially offset by a decrease in our bills payable.
Cash Flows from Investing Activities
We used our cash from operations and financing activities primarily to invest in our loan book and debt securities. Loans originated and purchased, net of principal collections and repayments, increased from Rs. 1,418.8 billion in fiscal 2018 to Rs. 1,761.4 billion in fiscal 2019, largely on account of an increase in both retail and wholesale loan portfolios. The increase in investments in fiscal 2019 was Rs. 241.3 billion, primarily on account of an increase in
available-for-sale
Government of India securities, partially offset by a decrease in our investments in credit substitutes.
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Cash Flows from Financing Activities
Our primary sources of cash flows from financing activities are deposits and, to a lesser extent, borrowings. Our total deposits increased by 17.0 percent from Rs. 7,883.8 billion in fiscal 2018 to Rs. 9,225.0 billion in fiscal 2019. There was a 19.3 percent increase in our time deposits from Rs. 4,455.7 billion in fiscal 2018 to Rs. 5,317.7 billion in fiscal 2019. Savings account deposits increased by 11.1 percent from Rs. 2,238.0 billion as of March 31, 2018 to Rs. 2,487.0 billion as of March 31, 2019. Our
non-interest-bearing
current account deposits increased by 19.3 percent from Rs. 1,190.1 billion as of March 31, 2018 to Rs. 1,420.3 billion as of March 31, 2019. Savings account deposits at Rs. 2,487.0 billion and current account deposits at Rs. 1,420.3 billion accounted for 42.4 percent of total deposits as of March 31, 2019. Our short-term borrowings decreased by Rs. 125.1 billion from Rs. 779.2 billion in fiscal 2018 to Rs. 654.1 billion in fiscal 2019. Our long-term debt increased by 12.0 percent from Rs. 932.9 billion in fiscal 2018 to Rs. 1,044.6 billion in fiscal 2019. During fiscal 2019, we raised long-term debt accounting to Rs. 320.1 billion including the long-term debt of Rs. 60.0 billion for lending to the affordable housing sector and for financing infrastructure projects loans.
Pursuant to shareholder and regulatory approvals, we raised equity share capital through a preferential allotment to the Housing Development Finance Corporation Limited, concluding a qualified institutional placement and making an American Depositary Share offering aggregating to Rs. 235.9 billion, net of issuance costs, during fiscal 2019
Financial Condition
Assets
The following table sets forth the principal components of our assets as of March 31, 2019 and March 31, 2020:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | Increase/ (decrease) |  |  | % Increase/ (decrease) |
|  | (in million except percentages) |
Cash and due from banks, and restricted cash |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |  |  | Rs. | (122,911.6 | ) |  |  | (16.7 | )
Investments held for trading |  |  | 265,516.1 |  |  |  | 304,962.9 |  |  |  | 39,446.8 |  |  |  | 14.9 |
Investments available for sale debt securities |  |  | 2,633,348.4 |  |  |  | 3,406,289.2 |  |  |  | 772,940.8 |  |  |  | 29.4 |
Securities purchased under agreements to resell |  |  | 76,213.5 |  |  |  | 250,000.0 |  |  |  | 173,786.5 |  |  |  | 228.0 |
Loans, net |  |  | 8,963,232.6 |  |  |  | 10,425,022.4 |  |  |  | 1,461,789.8 |  |  |  | 16.3 |
Accrued interest receivable |  |  | 93,031.7 |  |  |  | 103,035.9 |  |  |  | 10,004.2 |  |  |  | 10.8 |
Property and equipment |  |  | 43,187.8 |  |  |  | 48,327.7 |  |  |  | 5,139.9 |  |  |  | 11.9 |
Intangibles |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Goodwill |  |  | 74,937.9 |  |  |  | 74,937.9 |  |  |  | — |  |  |  | — |
Other assets |  |  | 395,733.0 |  |  |  | 737,352.1 |  |  |  | 341,619.1 |  |  |  | 86.3 |
Total assets |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  | Rs. | 2,681,815.5 |  |  |  | 20.2 |

Our total assets increased by 20.2 percent from Rs. 13,280.1 billion as of March 31, 2019 to Rs. 15,961.9 billion as of March 31, 2020.
Our cash and due from banks, and restricted cash decreased from Rs. 734.9 billion as of March 31, 2019 to Rs. 612.0 billion as of March 31, 2020, primarily on account of net cash used in our investing activities, partially offset by net cash provided by our operating and financing activities. Cash and due from banks, and restricted cash is comprised of cash and balances due from banks. We are also required to maintain cash balances with the RBI to meet our cash reserve ratio requirement. Banks in India, including us, are required to maintain a specific percentage of our 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. We have classified the cash reserve maintained with the RBI as restricted cash.
Securities held under the trading portfolio are for trading purposes and are generally sold within 90 days from the date of purchase. Investments held for trading increased by 14.9 percent from Rs. 265.5 billion as of March 31, 2019 to Rs. 305.0 billion as of March 31, 2020 primarily on account of an increase in our investments in Government securities.
Investments available for sale debt securities increased by 29.4 percent primarily on account of an increase in our Government securities, credit substitutes and asset and mortgage backed securities.
Net loans increased by 16.3 percent on account of an increase in both retail and wholesale loan portfolios. Our gross retail loan portfolio increased by 12.9 percent from Rs. 6,237.9 billion as of March 31, 2019 to Rs. 7,040.8 billion as of March 31, 2020. The growth in retail loans was primarily across the personal loans/credit cards, housing loans and retail business banking segments. Our gross wholesale loan book increased by 24.7 percent from Rs. 2,873.6 billion as of March 31, 2019 to Rs. 3,583.1 billion as of March 31, 2020.
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Accrued interest receivable increased by 10.8 percent from Rs. 93.0 billion as at March 31, 2019 to Rs. 103.0 billion as of March 31, 2020, primarily on account of an increase in our loans and investment securities.
Our property and equipment increased by Rs. 5.1 billion. We added 316 banking outlets and 716 ATMs and CDMs in fiscal 2019 and 313 banking outlets and 1,412 ATMs and CDMs in fiscal 2020.
We paid a purchase consideration of Rs. 102.8 billion to acquire the net assets of CBoP at a fair value of Rs. 27.8 billion, thereby recognizing unidentified intangibles (goodwill) of Rs. 74.9 billion during fiscal 2009. The primary purpose of the acquisition was to realize potential synergies, growth opportunities and cost savings from combining our businesses. The goodwill arising from the business combination is tested on an annual basis for impairment. The said goodwill has not been impaired as of March 31, 2020 and has been carried forward at the same value as the value at the acquisition date.
Other assets increased by 86.3 percent from Rs. 395.7 billion as of March 31, 2019 to Rs. 737.4 billion as of March 31, 2020, primarily due to an increase in receivables on account of sale of securities pending settlement from Rs. 4.9 billion as of March 31, 2019 to Rs. 222.0 billion as of March 31, 2020 and an increase in derivatives from Rs. 132.5 billion as of March 31, 2019 to Rs. 190.5 billion as of March 31, 2020. The increase in derivatives was largely attributable to an increase in
mark-to-market
gains from forward exchange contracts and interest rate derivatives. We adopted the FASB guidance ASU
2016-02
“Leases (Topic 842)” effective April 1, 2019. To transition to the new guidance, we chose not to reassess (1) the classification of our existing leases, (2) any initial direct costs associated with the leases, or (3) whether any existing contracts are or contain leases. In addition, we elected not to provide a comparative presentation for fiscals 2019 and 2018. Accordingly as of March 31, 2020, other assets include a
right-of-use
asset of Rs. 60.8 billion related to our future lease payments as a lessee under operating leases.
Liabilities and Shareholders’ Equity
The following table sets forth the principal components of our liabilities and shareholders’ equity as of March 31, 2019 and March 31, 2020:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | Increase/ (decrease) |  |  | Increase/ (decrease) |
|  | (in million, except percentages) |  |  | % |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing deposits |  | Rs. | 7,804,717.5 |  |  | Rs. | 9,730,481.3 |  |  | Rs. | 1,925,763.8 |  |  |  | 24.7 |
Non-interest bearing deposits |  |  | 1,420,309.4 |  |  |  | 1,731,590.0 |  |  |  | 311,280.6 |  |  |  | 21.9 |
Total deposits |  |  | 9,225,026.9 |  |  |  | 11,462,071.3 |  |  |  | 2,237,044.4 |  |  |  | 24.2 |
Securities sold under repurchase agreements |  |  | 174,000.0 |  |  |  | 507,982.0 |  |  |  | 333,982.0 |  |  |  | 191.9 |
Short-term borrowings |  |  | 654,058.0 |  |  |  | 377,417.6 |  |  |  | (276,640.4 | ) |  |  | (42.3 | )
Accrued interest payable |  |  | 79,372.5 |  |  |  | 80,078.9 |  |  |  | 706.4 |  |  |  | 0.9 |
Long-term debt |  |  | 1,044,553.0 |  |  |  | 1,026,518.3 |  |  |  | (18,034.7 | ) |  |  | (1.7 | )
Accrued expenses and other liabilities |  |  | 467,438.6 |  |  |  | 611,327.2 |  |  |  | 143,888.6 |  |  |  | 30.8 |
Total liabilities |  |  | 11,644,449.0 |  |  |  | 14,065,395.3 |  |  |  | 2,420,946.3 |  |  |  | 20.8 |
Non-controlling interest in subsidiaries |  |  | 3,049.3 |  |  |  | 3,411.4 |  |  |  | 362.1 |  |  |  | 11.9 |
HDFC Bank Limited shareholders’ equity |  |  | 1,632,575.3 |  |  |  | 1,893,082.4 |  |  |  | 260,507.1 |  |  |  | 16.0 |
Total liabilities and shareholders’ equity |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  | Rs. | 2,681,815.5 |  |  |  | 20.2 |

Our total liabilities increased by 20.8 percent from Rs. 11,644.4 billion as of March 31, 2019 to Rs. 14,065.4 billion as of March 31, 2020. This increase was primarily attributable to the growth in our deposits. The increase in our interest-bearing deposits was on account of an increase in time deposits and savings deposits. Time deposits increased by 24.6 percent from Rs. 5,317.7 billion as of March 31, 2019 to Rs. 6,626.7 billion as of March 31, 2020. Savings account deposits increased by 24.8 percent from Rs. 2,487.0 billion as of March 31, 2019 to Rs. 3,103.8 billion as of March 31, 2020. Our
non-interest
bearing current account deposits increased by 21.9 percent from Rs. 1,420.3 billion as of March 31, 2019 to Rs. 1,731.6 billion as of March 31, 2020.
Most of our funding requirements are met through short-term and medium-term funding sources. Of our total
non-equity
sources of funding, primarily comprised of deposits and borrowings, deposits accounted for 81.5 percent, short-term borrowings accounted for 2.7 percent and long-term debt accounted for 7.3 percent as of March 31, 2020. Our short-term borrowings, comprised primarily of money market borrowings, decreased by Rs. 276.6 billion from Rs. 654.1 billion as of March 31, 2019 to Rs. 377.4 billion as of March 31, 2020. Our long-term debt decreased by 1.7 percent from Rs. 1,044.6 billion in fiscal 2019 to Rs. 1,026.5 billion in fiscal 2020.
Accrued interest payable increased by Rs. 0.7 billion from Rs. 79.4 billion as of March 31, 2019 to Rs. 80.1 billion as of March 31, 2020. This increase was primarily on account of interest accrued on our time deposits partially offset by a decrease in the interest accrued on our borrowings.
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Accrued expenses and other liabilities increased by 30.8 percent from Rs. 467.4 billion as of March 31, 2019 to Rs. 611.3 billion as of March 31, 2020, primarily on account of an increase in derivatives from Rs. 128.4 billion as of March 31, 2019 to Rs. 184.8 billion as of March 31, 2020. This was largely attributable to an increase in
mark-to-market
losses from forward exchange contracts and interest rate derivatives. We adopted the FASB guidance ASU
2016-02
“Leases (Topic 842)” effective April 1, 2019. To transition to the new guidance, we chose not to reassess the classification of our existing leases, any initial direct costs associated with the leases, or whether any existing contracts are or contain leases. In addition, we elected not to provide a comparative presentation for fiscals 2019 and 2018. Accordingly, as of March 31, 2020, accrued expenses and other liabilities include lease liability of Rs. 65.6 billion related to our future lease payments as a lessee under operating leases.
By an ordinary resolution on July 12, 2019, our shareholders approved a sub-division (stock split) of equity shares to reduce the face value of each equity share from Rs. 2.0 to Rs. 1.0 per equity share effective as of September 20, 2019. Accordingly, all share/ADS data reflect the effect of the stock split retroactively. Shareholders’ equity increased on the exercise of 36,673,240 stock options by employees and on an increase in our retained earnings and in our accumulated other comprehensive income (primarily on account of
mark-to-market
gains on available for sale debt securities). One ADS continues to represent three equity shares.
Capital
We are a banking company within the meaning of the Indian Banking Regulation Act, 1949, registered with and subject to supervision by the RBI. Failure to meet minimum capital requirements could lead to regulatory actions by the RBI that, if undertaken, could have a material effect on our financial position. The RBI issued detailed guidelines for implementation of Basel III capital regulations in May 2012. The minimum capital requirements under Basel III are being
phased-in
as per the guidelines prescribed by the RBI. Accordingly, we are required to maintain a minimum Common Equity Tier I ratio of 7.575 percent, a minimum total Tier I capital ratio of 9.075 percent and a minimum total capital ratio of 11.075 percent (each including capital conservation buffer and additional capital applicable to us as a
D-SIB)
as of March 31, 2020.
Our regulatory capital and capital adequacy ratios measured in accordance with Indian GAAP and calculated under Basel III as of March 31, 2019 and March 31, 2020 are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (in million, except percentages) |
Tier I capital |  | Rs. | 1,470,227.6 |  |  | Rs. | 1,714,144.4 |  |  | US$ | 22,737.0 |
Tier II capital |  |  | 124,348.8 |  |  |  | 128,434.1 |  |  |  | 1,703.6 |
Total capital |  | Rs. | 1,594,576.4 |  |  | Rs. | 1,842,578.5 |  |  | US$ | 24,440.6 |
Total risk weighted assets |  | Rs. | 9,319,298.7 |  |  | Rs. | 9,947,157.4 |  |  | US$ | 131,942.7 |
Capital ratios of the Bank: |  |  |  |  |  |  |  |  |  |  |  |
Common Equity Tier I |  |  | 14.93 | % |  |  | 16.43 | % |  |  | 16.43 | %
Tier I |  |  | 15.78 | % |  |  | 17.23 | % |  |  | 17.23 | %
Total capital |  |  | 17.11 | % |  |  | 18.52 | % |  |  | 18.52 | %
Minimum capital ratios required by the RBI:* |  |  |  |  |  |  |  |  |  |  |  |
Tier I |  |  | 9.025 | % |  |  | 9.075 | % |  |  | 9.075 | %
Total capital |  |  | 11.025 | % |  |  | 11.075 | % |  |  | 11.075 | %

* | The Tier I and Total capital ratio includes capital conservation buffer and additional capital applicable to us as a D-SIB.

Capital Expenditure
Our capital expenditures consist principally of expenditures relating to our branch network expansion, as well as investments in our technology and communications infrastructure. Our capital expenditure was Rs. 18.1 billion in fiscal 2020. We have current plans for capital expenditures of approximately Rs. 25.4 billion in fiscal 2021. Our budgeted capital expenditure is primarily to expand our branch and ATM network, to upgrade and expand our hardware, data center, network and other systems, to add new equipment in and expand our existing premises and to relocate our banking outlets and back-offices. We may use these budgeted amounts for other purposes depending on, among other factors the business environment prevailing at the time, and consequently our actual capital expenditures may be higher or lower than our budgeted amounts.
See also “
Risk Factors—A slowdown in economic growth in India would cause us to experience slower growth in our asset portfolio and deterioration in the quality of our assets”, “—Financial instability in other countries may cause increased volatility in the Indian financial markets” and “—The
COVID-19
pandemic may have a material adverse effect on our business, financial condition and results of operations”.
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Financial Instruments and
Off-Balance
Sheet Arrangements
Our foreign exchange and derivative product offerings to our customers cover a range of products, including foreign exchange and interest rate transactions and hedging solutions, such as spot and forward foreign exchange contracts, forward rate agreements, currency swaps, currency options, and interest rate derivatives. These transactions enable our customers to transfer, modify or reduce their foreign exchange and interest rate risks. A specified group of relationship managers from our Treasury front office works on such product offerings jointly with the relationship managers from Wholesale Banking.
We enter into forward exchange contracts, currency options, forward rate agreements, currency swaps and rupee interest rate swaps with inter-bank participants, similar to our Wholesale Banking business, where we enter into such transactions with our customers. To support our clients’ activities, we are an active participant in the Indian inter-bank foreign exchange market. We also trade, to a more limited extent, for our own account. We also engage in proprietary trades of rupee-based interest rate swaps and use them as part of our asset liability management.
Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. A currency option is a contract where the purchaser of the option has the right but not the obligation to either purchase or sell and the seller of the option agrees to sell or purchase an agreed amount of a specified currency at a price agreed in advance and denominated in another currency on a specified date or by an agreed date in the future. A forward rate agreement is a financial contract between two parties to exchange interest payments for a “notional principal” amount on a settlement date, for a specified period from a start date to a maturity date. Currency swaps are commitments to exchange cash flows by way of interest in one currency against another currency and exchanges of principal amounts at maturity (or on specified intermittent dates) based on predetermined rates. Rupee interest rate swaps are commitments to exchange fixed and floating rate cash flows in rupees.
We earn profit on customer transactions by way of a margin as a
mark-up
over the inter-bank exchange or interest rate. We earn profit on inter-bank transactions by way of a spread between the purchase rate and the sale rate. These profits are recorded as income from foreign exchange and derivative transactions. The Bank’s Board of Directors imposes limits on our ability to hold overnight positions in foreign exchange and derivatives and the same are intimated to RBI. The following table presents the aggregate notional principal amounts of the Bank’s outstanding forward exchange and derivative contracts as of March 31, 2020, together with the fair values on each reporting date:

|  | As of March 31, 2020 |
|  | Notional |  |  | Gross Assets |  |  | Gross Liabilities |  |  | Net Fair Value |  |  | Notional |  |  | Net Fair Value |
|  | (In million) |
Interest rate derivatives |  | Rs. | 3,644,495.8 |  |  | Rs. | 49,876.8 |  |  | Rs. | 51,976.9 |  |  | Rs. | (2,100.1) |  |  | US$ | 48,341.9 |  |  | US$ | (27.9 | )
Currency options |  |  | 304,252.4 |  |  |  | 3,034.4 |  |  |  | 4,342.0 |  |  |  | (1,307.6 | ) |  |  | 4,035.7 |  |  |  | (17.3 | )
Currency swaps |  |  | 202,725.6 |  |  |  | 12,396.0 |  |  |  | 6,592.1 |  |  |  | 5,803.9 |  |  |  | 2,689.0 |  |  |  | 77.0 |
Forward exchange contracts |  |  | 6,079,195.0 |  |  |  | 125,230.4 |  |  |  | 121,872.0 |  |  |  | 3,358.4 |  |  |  | 80,636.6 |  |  |  | 44.6 |
Total |  | Rs. | 10,230,668.8 |  |  | Rs. | 190,537.6 |  |  | Rs. | 184,783.0 |  |  | Rs. | 5,754.6 |  |  | US$ | 135,703.2 |  |  | US$ | 76.4 |

We have not designated the above derivative contracts as accounting hedges and accordingly the contracts are recorded at fair value on the balance sheet with subsequent changes in fair value recorded in earnings.
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Guarantees and Documentary Credits
As a part of our commercial banking activities, we issue documentary credits and guarantees. Documentary credits, such as letters of credit, enhance the credit standing of our customers. Guarantees generally represent irrevocable assurances that we will make payments in the event that the customer fails to fulfil its financial or performance obligations. Financial guarantees are obligations to pay a third-party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third-party beneficiary where a customer fails to perform a
non-financial
contractual obligation. The nominal values of guarantees and documentary credits for the dates set forth below were as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In million) |
Nominal values: |  |  |  |  |  |  |  |  |  |  |  |
Bank guarantees: |  |  |  |  |  |  |  |  |  |  |  |
Financial guarantees |  | Rs. | 254,075.9 |  |  | Rs. | 263,758.0 |  |  | US$ | 3,498.6 |
Performance guarantees |  |  | 285,748.4 |  |  |  | 330,164.6 |  |  |  | 4,379.4 |
Documentary credits |  |  | 475,617.8 |  |  |  | 440,232.7 |  |  |  | 5,839.4 |
Total |  | Rs. | 1,015,442.1 |  |  | Rs. | 1,034,155.3 |  |  | US$ | 13,717.4 |

Guarantees and documentary credits outstanding increased by 1.8 percent to Rs. 1,034.1 billion as of March 31, 2020 from Rs. 1,015.4 billion as of March 31, 2019, principally due to growth in our trade finance business.
Undrawn commitments
The Bank has outstanding undrawn commitments to provide loans and financing to customers. These loan commitments aggregated to Rs. 452.9 billion and Rs. 539.8 billion (US$ 7.2 billion) as of March 31, 2019 and March 31, 2020, respectively. Among other things, the making of a loan is subject to a review of the creditworthiness of the customer at the time the customer seeks to borrow, at which time the Bank has the unilateral right to decline to make the loan. If the Bank were to make such loans, the interest rates would be dependent on the lending rates in effect when the loans were disbursed. Further, the Bank has unconditional cancellable commitments aggregating to Rs. 3,150.9 billion and Rs. 3,806.2 billion (US$ 50.5 billion) as of March 31, 2019 and March 31, 2020, respectively. See also Note 24 to the Bank’s consolidated financial statements included elsewhere in this report.
Contractual Obligations and Commercial Commitments
The table below summarizes our principal contractual obligations as of March 31, 2020:
Contractual Obligations

|  | Payments due by period, as of March 31, 2020 |
|  | Total |  |  | Less than 1 year |  |  | 1-3 years |  |  | 3-5 years |  |  | After 5 years |
|  | (in million) |
Subordinated debt (a) |  | Rs. | 133,730.9 |  |  | Rs. | — |  |  | Rs. | 6,000.0 |  |  | Rs. | 7,300.0 |  |  | Rs. | 120,430.9 |
Other long-term debt |  |  | 807,814.7 |  |  |  | 223,540.8 |  |  |  | 312,093.7 |  |  |  | 112,446.2 |  |  |  | 159,734.0 |
Operating leases (b) |  |  | 97,225.7 |  |  |  | 11,411.4 |  |  |  | 20,426.0 |  |  |  | 17,067.3 |  |  |  | 48,321.0 |
Short-term borrowings |  |  | 377,417.6 |  |  |  | 377,417.6 |  |  |  | — |  |  |  | — |  |  |  | — |
Securities sold under repurchase agreements |  |  | 507,982.0 |  |  |  | 507,982.0 |  |  |  | — |  |  |  | — |  |  |  | — |
Unconditional purchase obligations (c) |  |  | 12,756.9 |  |  |  | 12,756.9 |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | Rs. | 1,936,927.8 |  |  | Rs. | 1,133,108.7 |  |  | Rs. | 338,519.7 |  |  | Rs. | 136,813.5 |  |  | Rs. | 328,485.9 |

(a) | Scheduled maturities of subordinated debt do not include perpetual bonds of Rs. 84,972.7 million (net of debt issuance cost).

(b) | Operating leases are principally for the lease of office, branch and ATM premises, residential premises for executives and office equipment.

(c) | Unconditional purchase obligations represent committed capital contracts as of March 31, 2020. See “—Note 27—Commitments and contingencies ” of our consolidated financial statements.

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Commercial Commitments
Our commercial commitments consist principally of letters of credit, guarantees, forward exchange and derivative contracts.
We have recognized a liability of Rs. 4.2 billion as of March 31, 2020, in accordance with FASB ASC
460-10
in respect of guarantees issued or modified. Based on historical trends, in accordance with FASB ASC 450, we have recognized a liability of Rs. 3.0 billion as of March 31, 2020.
As part of our risk management activities, we continuously monitor the creditworthiness of customers as well as guarantee exposures. However, if a customer fails to perform a specified obligation to a beneficiary, the beneficiary may draw upon the guarantee by presenting documents that are in compliance with the guarantee. In that event, we make payment on account of the defaulting customer to the beneficiary, up to the full notional amount of the guarantee. The customer is obligated to reimburse us for any such payment. If the customer fails to pay, we would, as applicable, liquidate collateral and/or set off accounts; if insufficient collateral is held, we recognize a loss.
The residual maturities of the above commitments as of March 31, 2020 are set forth in the following table:

|  | Amount of commitment expiration per period, as of March 31, 2020 |
|  | Total amounts Committed* |  |  | Up to 1 year |  |  | 1-3 years |  |  | 3-5 years |  |  | Over 5 years |
|  | (in million) |
Documentary credits |  | Rs. | 440,232.7 |  |  | Rs. | 431,254.8 |  |  | Rs. | 8,118.7 |  |  | Rs. | 129.7 |  |  | Rs. | 729.5 |
Guarantees |  |  | 593,922.6 |  |  |  | 412,232.1 |  |  |  | 136,067.5 |  |  |  | 34,585.7 |  |  |  | 11,037.3 |
Forward exchange and derivative contracts |  |  | 10,230,668.8 |  |  |  | 7,330,772.8 |  |  |  | 1,376,129.2 |  |  |  | 1,400,047.0 |  |  |  | 123,719.8 |
Total |  | Rs. | 11,264,824.1 |  |  | Rs. | 8,174,259.7 |  |  | Rs. | 1,520,315.4 |  |  | Rs. | 1,434,762.4 |  |  | Rs. | 135,486.6 |

* | Denotes nominal values of documentary credits and guarantees and notional principal amounts of forward exchange and derivative contracts.

Extent of dependence on single customer exposures
Our exposures to our ten largest borrowers as of March 31, 2020, based on the higher of the outstanding balances of or limits on, funded and
non-funded
exposures were as follows. None of these exposures were impaired as of March 31, 2020:

|  | March 31, 2020 |
|  | Borrower Industry |  | Funded Exposure |  |  | Non-Funded Exposure |  |  | Total Exposure |  |  | Total Exposure |
|  |  |  | (in million) |  |  |  |  |  |  |
Borrower 1 |  | Power |  | Rs. | 243,382.8 |  |  | Rs. | 1,200.0 |  |  | Rs. | 244,582.8 |  |  | US$ | 3,244.2 |
Borrower 2 |  | Financial Intermediaries |  |  | 180,100.0 |  |  |  | 305.1 |  |  |  | 180,405.1 |  |  |  | 2,393.0 |
Borrower 3 |  | Financial Intermediaries |  |  | 163,738.7 |  |  |  | 610.9 |  |  |  | 164,349.6 |  |  |  | 2,180.0 |
Borrower 4 |  | Coal and Petroleum Products |  |  | 74,421.4 |  |  |  | 75,432.2 |  |  |  | 149,853.6 |  |  |  | 1,987.7 |
Borrower 5 |  | Financial Institutions |  |  | 135,455.0 |  |  |  | — |  |  |  | 135,455.0 |  |  |  | 1,796.7 |
Borrower 6 |  | Coal and Petroleum Products |  |  | 31,934.6 |  |  |  | 55,651.4 |  |  |  | 87,586.0 |  |  |  | 1,161.8 |
Borrower 7 |  | Telecom |  |  | 63,228.0 |  |  |  | 15,355.2 |  |  |  | 78,583.2 |  |  |  | 1,042.4 |
Borrower 8 |  | Financial Intermediaries |  |  | 75,035.9 |  |  |  | 221.6 |  |  |  | 75,257.5 |  |  |  | 998.2 |
Borrower 9 |  | Financial Intermediaries |  |  | 75,027.7 |  |  |  | 182.8 |  |  |  | 75,210.5 |  |  |  | 997.6 |
Borrower 10 |  | Iron and Steel |  |  | 51,361.3 |  |  |  | 22,128.1 |  |  |  | 73,489.4 |  |  |  | 974.8 |

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Of the total exposure to these ten borrowers, approximately 59 percent was secured by collateral.
In June 2019, the RBI issued the revised Large Exposures Framework, which aims to align the exposure norms for Indian banks with BCBS standards. The guidelines came into effect from April 1, 2019, except for certain provisions which will become effective from April 1, 2020. See “—
Large Exposures Framework
—Supervision and Regulation.” As per this Large Exposure Framework, a bank’s exposures to a single NBFC is restricted to 15 percent of their available eligible capital base, while exposure values of a bank to a single counterparty must not be higher than 20 percent of its available eligible capital base, which can be extended to 25 percent by a bank’s board of directors under exceptional circumstances. The RBI in its circular dated September 12, 2019 stated that a bank’s exposure to a single NBFC (excluding gold loan companies) will be restricted to 20 percent of that bank’s eligible capital base. Bank finance to NBFCs predominantly engaged in lending against gold will continue to be governed by limits prescribed in RBI circular dated May 18, 2012. A bank’s exposure to a single NBFC, having gold loans equivalent to or exceeding 50 per cent of its total financial assets is restricted to 7.5 per cent of the banks’ capital funds, which can be extended to 12.5 per cent if the additional exposure is on account of funds on-lent by the NBFC to the infrastructure sector. Tier I capital that fulfills the criteria set out in the RBI’s Basel III guidelines must be considered as eligible capital base for this purpose. As of March 31, 2020, of our exposure to our ten largest borrowers, exposure to six borrowers was equal to or more than 5 percent of our eligible capital base under this framework and was mainly comprised of large credit facilities to these borrowers. There were no exposures that exceeded the regulatory ceiling established by RBI.
Cross border exposures
The RBI requires banks in India to implement RBI prescribed guidelines on country risk management in respect of those countries where a bank has net funded exposure in excess of a prescribed percentage of its total assets. In the normal course of business, we have both direct and indirect exposure to risks related to counterparties and entities in foreign countries. We monitor such cross-border exposures on an ongoing basis. As of March 31, 2020, our aggregate country risk exposure was 2.2 percent of our total assets and our net funded exposure to any other country did not exceed 1 percent of our total assets as per the said guidelines.
Cybersecurity
We offer internet and mobile banking services to our customers. Our internet and mobile banking channel includes multiple services, such as electronic funds transfer, bill payment services, usage of credit cards online, requesting account statements and requesting check books. We are therefore exposed to cyber threats, such as hacking, phishing and trojans, targeting our customers, wherein fraudsters send unsolicited mails to our customers seeking account sensitive information; hacking, wherein hackers seek to hack into our website with the primary intention of causing reputational damage to us; and data theft, wherein cyber criminals may intrude into our network with the intention of stealing our internal data or our customer information or to extort money.
We have implemented various measures to mitigate risks that emanate from offering online banking to our customers. These are briefly enumerated below:

| • |  | Phishing: We identify phishing sites and trojans targeting our customers and then shut down such sites. Forensic information such as customers details, which may have been compromised are retrieved from such sites and acted upon. We have implemented Secure Access which provides an additional layer of security in addition to the customer identification (ID) and password requirement for internet banking transactions. This system evaluates every critical financial transaction based on our risk model and helps us to determine whether the incumbent transaction is genuine or suspicious. Should the transaction be deemed suspicious, the system has the option of either declining the transaction or asking for additional authentication. As a practice, we send awareness mails to our customers educating them about phishing and the measures that they need to take to protect themselves from falling prey to it.

| • |  | Hacking and Data Theft: We have implemented a network firewall, web application firewalls and intrusion prevention system at the perimeter of our network to block any attempts made to hack or intrude into our network. Our 24 by 7 cybersecurity operations center (CSOC) analyzes logs of its perimeter defences to identify any attempts made to intrude into our network. We have developed an incident management procedure, a cybersecurity policy and a cyber crisis management plan for the incident management process to ensure that in the event of any incident, relevant stakeholders are made aware of what their role is in resolving the incident. We also test our internet-facing infrastructure and applications for vulnerability. Any vulnerability thus identified is remediated in a time-bound manner. In addition, we have deployed a host intrusion prevention solution on the internet banking setup to protect against the unpatched vulnerabilities and exploits. We have defined baseline security standards for the technologies in use. These standards were created taking into consideration industry-best practices and are reviewed on a regular basis to counter new threat vectors and avoid obsolescence. We perform daily malware scanning of the default landing pages of internet websites so that the customers are not compromised by malware that has been injected on the non-logged web pages. We have also subscribed to anti-DDOS services (Distributed Denial Of Services).

We have also undertaken internal data security measures that are taken with respect to breaches or theft of material or sensitive customer data. These are briefly enumerated below:

| • |  | Data Loss Prevention (“DLP”): Information is an important asset of any organization that supports business processes and management decisions. Usage and protection of business information can be heavily influenced by individuals in the end user environment, where most of the corporate data is processed, shared and stored. We have implemented enterprise solutions such as DLP to monitor sensitive data stored, transmitted and shared by users, and to prevent and detect data breaches. Individual business functions are also involved in incident reviews which helps create a sense of ownership and awareness amongst our employees.

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| • |  | Laptop Encryption: Data encryption helps to ensure that business-critical and sensitive data does not fall into the wrong hands, thereby preventing reputational damage or curtailing any monetary losses. The cost arising out of loss of data residing in a laptop is far higher than the cost of replacing the actual device. We have therefore implemented a laptop encryption tool on the laptops used by our employees.

| • |  | Network Access Control: We have implemented a Network Access Control (NAC) system to prevent end-stations that lack antivirus, patches, or host intrusion prevention software from accessing the network. The NAC system allows us to define policies, such as the types of computers or roles of users allowed to access areas of the network. It assists in the mitigation of zero-day attacks and provides authorization, authentication and accounting of network connections.

| • |  | Domain-based Message Authentication, Reporting and Conformance (“DMARC”): We have implemented a DMARC system which gives us the ability to protect the domain from unauthorized use, commonly known as email spoofing. The purpose and primary outcome of implementing DMARC is to protect a domain from being used in business email compromise attacks, phishing emails, email scams and other cyber threat activities.

| • |  | Anti-Advanced Persistence Threat (“APT”): An APT is a prolonged and targeted cyber-attack in which an intruder gains access to a network and remains undetected for an extended period of time. We have implemented an anti-APT system to prevent these attacks. All network elements such as email and web are protected with the anti-APT system, which is also installed on endpoint computers.

| • |  | Awareness programs: Our comprehensive e-learning module, Information Security Ambassador, is a mandatory assessment based course on information and cybersecurity, accessible to all employees. We also send awareness emails, which include cyber-tips, guidance on information, cybersecurity and other related issues as well as operating guidelines to all employees. As a part of on-floor awareness, we also have posters and desktop calendars on phishing, vishing and smishing. All new joiners are informed of various aspects of information security issues in an everyday work environment and complete our induction module, the Information Security Pledge, through classroom training. To gauge the awareness level of our employees, we run phishing surveys. We also test our employees using our own phishing attacks and measure their response and accordingly provide them specific education and awareness to ensure they are better prepared to face such attacks in future.

Business continuity during the
COVID-19
pandemic-forced lockdown
To ensure business continuity following the outbreak of
COVID-19
and the government mandated lockdown, we implemented our crisis management plan. We advised our employees to either work from their homes or locations near their homes. In implementing our response to the
COVID-19
pandemic, the crisis management team prioritized certain critical functions such as IT and treasury to minimize potential business disruptions.
Our remote working policy led to increased information technology and cybersecurity risks. To mitigate such risks, we:
a) through the Chief Information Security Officer, distributed cybersecurity related information and best practices to all employees;
b) made available IT resources including laptops, and mobile email access as well as virtual desktop infrastructure and virtual private networks;
c) increased hardware capacity for select servers, enabling applications to be securely accessed from home;
d) ensured the IT team monitored any unusual activity, such as hacking attempts, to prevent critical data from being made public; and
e) implemented
two-factor
authentication, strengthened cybersecurity programs and prohibited any downloads on local storage devices.
In addition, to protect the health and safety of our employees, we:
a) increased the frequency of cleaning and sanitization across our offices and banking outlets;
b) identified pandemic response coordinators for each location;
c) provided face masks to security guards, pantry staff and other support staff and made available hand sanitizers at all locations;
d) prohibited vendors and visitors from entering our premises other than under exception circumstances;
e) complied with the regulatory requirements, and responded to the government and regulatory guidance and circulars; and
f) provided accommodation for critical IT resources working in data centers in our training center accommodation and nearby hotels.
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MANAGEMENT
Directors and Senior Management
Our Memorandum and Articles of Association (“Articles”) provide that, until otherwise determined by the general meeting of shareholders, the number of our directors shall not be less than 3 or more than 15, excluding directors appointed pursuant to the terms of issued debt. Our Board of Directors consists of 10 members.
As per the Companies Act, unless the Articles provide for the retirement of all directors at every annual general meeting, not less than
two-thirds
of the total number of directors shall be persons whose period of office is liable to determination by retirement of directors by rotation. However, any retiring director may be
re-appointed
by resolution of the shareholders. Pursuant to the Companies Act, every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year (i.e. an Indian resident).
Under the terms of our Articles, our promoter, HDFC Limited, has a right to nominate the
non-retiring
directors to our Board, so long as HDFC Limited, its subsidiaries or any other company promoted by HDFC Limited, either singly or in the aggregate, holds not less than 20 percent of our
paid-up
equity share capital. The directors so nominated by HDFC Limited currently are the Chairperson and the Managing Director of the Bank.
The Banking Regulation Act, 1949 (“the Banking Regulation Act”) and subsequent RBI notification dated November 24, 2016 requires that not less than 51 percent of the board members shall consist of persons who have specialized knowledge or practical experience in one or more of the following areas: accounting, finance, agriculture and rural economy, banking,
co-operation,
economics, law, small-scale industry, information technology, payment and settlement systems, human resources, risk management, business management and any other matter which in the opinion of the RBI will be useful to the banking company. Of these, not less than two directors shall have specialized knowledge or practical experience in respect of agriculture and the rural economy,
co-operation
or small-scale industry. Mr. Malay Patel is the Independent Director on the Board having specialized knowledge and practical experience in small scale industry and Mr. Umesh Chandra Sarangi is the Independent Director on the Board having specialized knowledge and practical experience in agriculture and rural economy. Mr. Srikanth Nadhamuni is the
Non-Executive
and
Non-Independent
Director on the Board of the Bank having expertise in Information Technology.
Interested directors may not vote at board proceedings, except in relation to contracts or arrangements with a company in which that director (or two or more directors together) holds not more than 2 percent of the
paid-up
share capital. None of our directors or members of our senior management holds 1 percent or more of our equity shares.
Our Board of Directors, as of March 31, 2020, comprised of:

Name |  | Position |  | Age
Mrs. Shyamala Gopinath |  | Part-time Non-Executive Chairperson |  | 70
Mrs. Renu Karnad |  | Additional Non-Executive Director |  | 68
Mr. Malay Patel |  | Non-Executive Director |  | 43
Mr. Umesh Chandra Sarangi |  | Non-Executive Director |  | 68
Mr. Srikanth Nadhamuni |  | Non-Executive Director |  | 56
Mr. Sanjiv Sachar |  | Non-Executive Director |  | 62
Mr. Sandeep Parekh |  | Non-Executive Director |  | 49
Mr. M.D. Ranganath |  | Non-Executive Director |  | 58
Mr. Aditya Puri |  | Managing Director |  | 69
Mr. Kaizad Bharucha |  | Executive Director |  | 54

The Board had appointed both Mr. Sashidhar Jagdishan and Mr. Bhavesh Zaveri each as Additional Director and Executive Director, subject to the approval of the RBI and shareholders, for a period of three years commencing November 28, 2019/ from such date and on such terms as may be approved by the RBI. The Bank had accordingly made an application to the RBI seeking approval for these appointments. The RBI, through its communication dated April 7, 2020, advised the Bank to examine and submit the said proposals after a new managing director assumes charge later this year. Accordingly, their appointments as executive directors have not taken effect. Mr. Sashidhar Jagdishan and Mr. Bhavesh Zaveri resigned as additional directors from the Board of the Bank in accordance with the Companies Act, with effect from April 18, 2020.
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The term of the Bank’s current Managing Director, Mr. Aditya Puri, will end on October 26, 2020. The Board constituted a search committee tasked with identifying and evaluating internal and external candidates and preparing a final shortlist of candidates to be submitted to the RBI, in accordance with RBI regulations. On April 30, 2020, the Bank submitted in order of preference the names of three candidates to the RBI for approval. As of the date of this report, the RBI had not communicated a decision with respect to its preference for the Bank’s new Managing Director.
The following are brief biographies of our directors:
Mrs.
Shyamala Gopinath
, 70 years of age, is the
part-time Non-Executive Chairperson
of the Bank. She holds a master’s degree in commerce and is a certified associate of the Indian Institute of Bankers (CAIIB). Mrs. Shyamala Gopinath has over 42 years of experience in financial sector policy formulation in different capacities at RBI. As Deputy Governor of the RBI for seven years, and a member of the RBI’s board of directors, she guided and influenced national policies in diverse areas such as regulation and supervision, development of financial markets, capital account management, management of government borrowings, foreign exchange reserves management and the payment and settlement system. She has served on several committees while with the RBI. During 2001-2003, she worked as senior financial sector expert in the then Monetary Affairs and Exchange Department of the International Monetary Fund (Financial Institutions Division). She was on the Corporate Bonds and Securitisation Advisory Committee (CoBoSAC), a
Sub-Committee
of SEBI. She served as the Chairperson on the Advisory Board on Bank, Commercial and Financial Frauds for two years from 2012 to 2014. In addition to her work for HDFC Bank, she is an Independent Director for several other companies, including
not-for-profit
entities. She is also Chairperson of the Board of Governors of Indian Institute of Management, Raipur. Mrs. Gopinath does not hold any shares in the Bank as on March 31, 2020.
Mrs.
Renu Karnad
, 68 years of age, is the Additional
Non-Executive
Director of the Bank. She has been the Managing Director of the Housing Development Finance Corporation Limited since 2010. She has a postgraduate degree in economics from the University of Delhi and holds a degree in law from the University of Mumbai. She is also a Parvin Fellow at the Woodrow Wilson School of Public and International Affairs, Princeton University, USA. Mrs. Karnad brings with her significant experience and knowledge of the mortgage sector, having been associated with the real estate and mortgage industry in India for over 40 years. She has been a
Non-Executive
Director on the Board of the Bank in the past. Mrs. Renu Karnad, along with her relatives, holds 595,320 equity shares in the Bank as on March 31, 2020. The shareholders of the Bank have approved the appointment of Mrs. Renu Karnad as a Non-Executive Director of the Bank at the AGM held on July 18, 2020.
Mr.
Malay Patel,
43 years of age, is a
Non-Executive
Director of the Bank. He holds a major in engineering (mechanical) from Rutgers University, Livingston, NJ, USA, and an associate of arts in business administration (A.A.B.A.) in business from Bergen County College, Fairlawn, New Jersey, USA. He is a director on the board of Eewa Engineering Company Private Limited, a company in the plastics and packaging industry. He has been involved in varied roles such as export, import, procurement, sales and marketing, among others in Eewa Engineering Company Private Limited. He has special knowledge and practical experience in matters relating to small scale industries in terms of
Section 10-A
(2)(a) of the Banking Regulation Act, 1949. He does not hold any shares in the Bank as on March 31, 2020.
Mr.
Umesh Chandra Sarangi
, 68 years of age, is a
Non-Executive
Director of the Bank. He holds a master’s degree in science (botany) from the Utkal University, where he was a gold medalist. Mr. Sarangi has a total of 37 years of experience in the Indian Administrative Services. As the erstwhile Chairman of the National Bank for Agriculture and Rural Development (NABARD) from December 2007 to December 2010, he focused on rural infrastructure, accelerated initiatives such as microfinance, financial inclusion, watershed development and tribal development. He has been appointed as a Director having specialized knowledge and practical experience in agriculture and rural economy pursuant to
Section 10-A
(2)(a) of the Banking Regulation Act 1949. Mr. Sarangi does not hold any shares in the Bank as on March 31, 2020.
Mr.
Srikanth Nadhamuni,
56 years of age, is a
Non-Executive
Director of the Bank. He holds a bachelor’s degree in electronics and communications from National Institute of Engineering and a master’s degree in electrical engineering from Louisiana State University. He is a technologist and an entrepreneur with 30 years of experience in the areas of central processing unit (“CPU”) design, healthcare,
e-governance,
national ID, biometrics, financial technology and banking sectors. He is currently the Chairman of Novopay Solutions Private Limited, a company involved in the area of mobile payments and is the chief executive officer of Khosla Labs Private Limited, a
start-up
incubator. He was also a
co-founder
of the
e-Governments
Foundation, which aims to improve governance in Indian cities and which created the municipal enterprise resource planning (ERP) suite, which improves service delivery of cities. He was the Chief Technology Officer of Aadhaar (UID Authority of India) during 2009 to 2012 where he participated in design and development of the world’s largest biometric based ID system. He was instrumental in development of Aadhaar technology, several banking and financial protocols including MicroATM, Aadhaar Enabled Payment System (AEPS) and Aadhaar Payment Bridge (APB). He spent 14 years in Silicon Valley (California, USA) working for several global companies such as Sun Microsystems (CPU design), Intel Corporation (CPU design), Silicon Graphics (interactive TV) and WebMD (internet healthcare). He was appointed as a Director for his expertise in the field of Information Technology. Mr. Nadhamuni does not hold any shares in the Bank as on March 31, 2020.
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Mr.
Sanjiv Sachar,
62 years of age, is a
Non-Executive
Director of the Bank. He is a Fellow member of the Institute of Chartered Accountants of India. In November 2016 he retired as the Senior Partner of Egon Zehnder, the world’s largest privately held executive search firm. He set up the Egon Zehnder practice in India in 1995 and played a key role in establishing the firm as a market leader in the executive search space across various country segments. Over the course of his two decades at Egon Zehnder, Mr. Sachar has mentored senior executives across industry sectors who have gone on to become board members, CEOs or CFOs of large corporates in India and overseas. He has also been the
co-founder
of the chartered accountancy and management consulting firm, Sachar Vasudeva & Associates, and
co-founded
executive search firm, Direct Impact. Mr. Sanjiv Sachar does not hold any shares in the Bank as on March 31, 2020.
Mr.
Sandeep Parekh,
49 years of age, is a
Non-Executive
Director of the Bank. He holds an LL.M. (Securities and Financial Regulations) degree from Georgetown University and an LL.B. degree from Delhi University. He is the managing partner of Finsec Law Advisors, a financial sector law firm based in Mumbai. He was an Executive Director at the SEBI from 2006 to 2008, heading the enforcement and legal affairs departments. He is on the faculty at the Indian Institute of Management, Ahmedabad. He has worked for law firms in Delhi, Mumbai and Washington, D.C. Mr. Parekh focuses on securities regulations, investment regulations, private equity, corporate governance and financial regulations. He is admitted to practice law in New York and is a member of Mensa. He was recognized by the World Economic Forum as a “Young Global Leader” in 2008. He was Chairman and member of various SEBI and RBI committees and
sub-committees
and is presently the Chairman of SEBI’s proxy advisory working group and a member of SEBI’s mutual fund advisory committee. Mr. Parekh does not hold any shares in the Bank as on March 31, 2020.
Mr.
M.D. Ranganath,
58 years of age, is a
Non-Executive
Director of the Bank. He holds a master’s degree in technology from IIT, Madras and a bachelor’s degree in engineering from the University of Mysore. He has a postgraduate diploma in management from the Indian Institute of Management (IIM), Ahmedabad and is a member of CPA, Australia. He has over 27 years of experience in the global IT services and the financial services industry. He was Chief Financial Officer of Infosys Limited, a globally listed IT services company until November 2018. During his tenure of 18 years at Infosys, he was an integral part of the growth and transformation of Infosys into a globally respected IT services company and successfully held leadership roles in a wide spectrum of areas, including strategy, finance, mergers & acquisitions (M&A), consulting, risk management, and corporate planning, culminating in the role of Chief Financial Officer, where he worked closely with the board of Infosys and its committees in formulating and executing its strategic priorities. Prior to Infosys, he worked at ICICI Limited for eight years, where he was responsible for credit, treasury, equity portfolio management and corporate planning. In the years 2017 and 2018, Mr. Ranganath was the recipient of the Best CFO Asia award in the technology sector, by Institutional Investor publication, based on a poll of the
buy-side
and sell-side investor community. Mr. Ranganath does not hold any shares in the Bank as on March 31, 2020.
Mr.
Aditya Puri,
69 years of age, has been the Managing Director of the Bank since September 1994. He holds a bachelor’s degree in commerce from Punjab University and is an associate member of the Institute of Chartered Accountants of India. Prior to joining the Bank, Mr. Puri was the Chief Executive Officer of Citibank, Malaysia from 1992 to 1994. He has over four decades of experience in the banking sector in India and abroad. He was the first member to be inducted into the Chartered Accountants Hall of Fame by the Institute of Chartered Accountant of India. He was also ranked as the ‘Best CEO’ in Finance Asia’s Survey 2020. Mr. Puri, along with his relatives, holds 7,796,251 equity shares in the Bank as on March 31, 2020. Mr. Puri’s present term as Managing Director of the Bank will end on October 26, 2020.
Mr.
Kaizad Bharucha,
54 years of age, is an Executive Director of the Bank. He holds a bachelor of commerce degree from the University of Mumbai. He has been associated with the Bank since 1995. In his current position as Executive Director, he is responsible for Wholesale Banking covering areas of Corporate Banking, Emerging Corporate Group, Business Banking, Healthcare Finance Group, Infrastructure Finance Group, Rural Banking Group, Department for Special Operations and Inclusive Banking Initiatives Group. In addition to the above, Mr. Kaizad Bharucha is a senior member on various internal committees of the Bank across several functions. In his previous position as Group Head—Credit & Market Risk, he was responsible for the Bank’s entire Credit Risk, Market Risk, Debt Management, Risk Intelligence and Control functions. He is a career banker with over three decades of banking experience. Prior to joining the Bank, he worked at SBI Commercial and International Bank in various areas including Trade Finance and Corporate Banking. He has represented HDFC Bank as a member of the working group constituted by the RBI to examine the role of the Credit Information Bureau and on the
sub-committee
with regard to adoption of the Basel II guidelines. Mr. Bharucha, along with his relatives, holds 2,135,102 equity shares in the Bank as on March 31, 2020.
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Senior Management
As of March 31, 2020, our senior management was comprised of the following:

Name |  | Position |  | Age
Mr. Aditya Puri |  | Managing Director |  | 69
Mr. Kaizad Bharucha |  | Executive Director |  | 54
Mr. Ashish Parthasarthy |  | Head – Treasury, Government Institutional Business & Startups, Liability Products & Third Party Products, Non Resident Business and Private Banking Group |  | 52
Ms. Ashima Bhat |  | Head – Business Finance, Administration and Infrastructure, Corporate Social Responsibility |  | 49
Mr. Ashok Khanna (1) |  | Head – Secured Loans (Vehicles) |  | 63
Mr. Arvind Kapil |  | Head – Retail Assets* |  | 48
Mr. Arvind Vohra |  | Head – Retail Branch Banking |  | 48
Mr. Anjani Kumar Rathor |  | Chief Digital Officer |  | 47
Mr. Bhavesh Zaveri |  | Head – Operations, Technology and Cash Management Products |  | 54
Mr. Benjamin Frank |  | Joint Head – Wholesale Credit |  | 55
Mr. Chakrapani Venkatachari |  | Head – Internal Audit and Quality Initiatives Group |  | 56
Mr. Dhiraj Relli |  | Currently on secondment to HDFC Securities Limited (HSL), our subsidiary |  | 49
Mr. Jimmy Tata |  | Chief Risk Officer |  | 53
Mr. Munish Mittal (2) |  | Chief Information Officer |  | 51
Mr. Nirav Shah |  | Head – Emerging Corporates Group, Infrastructure Finance Group, Rural Banking Group, Transportation Group, Tractor Finance |  | 48
Mr. Parag Rao |  | Head – Payments, Consumer Finance, Digital Banking and Marketing* |  | 54
Mr. Rakesh Singh |  | Head – Investment Banking, Private Banking , Capital Market and Financial Institutions |  | 51
Mr. Rahul Shukla |  | Head – Corporate Banking and Business Banking, Healthcare Finance |  | 51
Mr. Sashidhar Jagdishan |  | Head – Finance, Human Resources, Legal & Secretarial, Corporate Communications, Admin, Infra, CSR and Change Agent of the Bank |  | 55
Ms. Smita Bhagat |  | Head – Government and Institutional Business , Ecommerce and Start-ups |  | 54
Mr. Srinivasan Vaidyanathan |  | Chief Financial Officer |  | 56
Mr. S Sampathkumar |  | Head – Liability Products, Third Party Products and Non-Resident Business |  | 47
Mr. Vinay Razdan |  | Head – Human Resources |  | 53

(1) | retired on March 31, 2020.

(2) | resigned from the services in July 2020, last working day in October 2020.

* | Designation effective April 2020.

A brief biography of each of the members of the Bank’s senior management is set out below:
Mr.
Ashish Parthasarthy
is the Head of Treasury, Government Institutional Business &
Start-ups,
Liability Products & Third Party Products, Non Resident Business and Private Banking Group. He holds a bachelor’s degree in engineering from the National Institute of Technology, Karnataka
(NIT-K)
and has a postgraduate diploma in management from the Indian Institute of Management, Bangalore
(IIM-B).
He has over 29 years of experience in banking, with particular expertise in the interest rate and currency markets.
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Ms.
Ashima Bhat
is the Head of Business Finance, Administration and Infrastructure, Corporate Social Responsibility. Ms. Bhat has over 25 years of experience in banking. She has completed a master’s degree in management studies, majoring in marketing, from Narsee Monjee Institute of Management Studies. Ms. Bhat joined the Bank in 1994 in its
start-up
stage. She has worked in various positions across the Corporate Banking, Supply Chain, SME and Emerging Corporates Group.
Mr. Ashok Khanna
was the Head of Secured Loans (Vehicles). Mr. Khanna is a sales and marketing professional with over 30 years of experience in the automobile companies and banking industry in various capacities. Prior to joining the Bank, he was the Executive Director for Retail Assets at Centurion Bank of Punjab. He has also worked with automobile manufacturers, such as Kinetic Engineering, Toyota (in the Middle East) and other related companies, such as Firestone Tyres. He retired on March 31, 2020.
Mr.
Arvind Kapil
is the Head of Retail Assets. He is an alumnus of the Harvard Business School advanced management program, holds a master’s degree in management studies from Bharati Vidyapeeth Institute of Management Studies and Research and a bachelor’s degree in engineering from K.J. Somaiya College of Engineering in Mumbai. Mr. Kapil has over 25 years of experience in the finance industry and he joined the Bank from Countrywide Consumer Financial Services.
Mr. Arvind Vohra
is the Head of Retail Branch Banking. He has a postgraduate degree in marketing and finance from Xavier Institute of Management, Bhubaneswar and has completed a senior leadership program at London Business School. He has nearly two and a half decades of experience working across banking, telecommunications and consumer goods. He has held leadership positions in sales, marketing and business leadership roles in global organizations such as Whirlpool, Philips and Standard Chartered Bank. Mr. Vohra led business operations at Vodafone India. In addition, he was on the board of directors for Vodafone India’s consumer fixed line subsidiary and led the incubation of the consumer (“Internet of Things”) business. He joined the Bank from Vodafone in September 2018.
Mr.
Anjani Kumar Rathor
is the Chief Digital Officer. He holds a postgraduate diploma from IIM Calcutta and an aerospace engineering degree from IIT Kharagpur. He has over 20 years of experience across Telecom, Financial Services and Aviation in companies such as Airtel, Boeing, Accenture and CitiCorp. He joined the Bank in February 2020.
Mr.
Bhavesh Zaveri
is the Head of Operations, Technology and Cash Management Products. He holds a master’s degree in commerce from Mumbai University and is a Certified Associate of the Indian Institute of Bankers. He has over 28 years of experience in banking, having worked with Oman International Bank and Barclays Bank prior to joining the Bank in April 1998. Mr. Zaveri has been on various RBI & IBA committees and served as a director on the Board of National Payment Corporation of India Ltd, SWIFT SCRL, Brussels, The Clearing Corporation of India Ltd. (CCIL), SWIFT India Domestic Services Pvt Ltd, HDB Financial Services Ltd, HDFC Securities Ltd, and the Goods and Service Tax Network (GSTN).
Mr.
Benjamin Frank
is Joint Head of Wholesale Credit. He has a Bachelor of Science degree from the University of Madras, a master’s degree in business administration from ICFAI University and is a Certified Financial Risk Manager from the Global Association of Risk Professionals. He has over 31 years of experience in the banking industry across Branch Banking, International Banking, Corporate Banking and Credit Risk Management. He previously worked at IDBI Bank and State Bank of India. He joined the Bank in April 2004.
Mr.
Chakrapani Venkatachari
is the Head of Internal Audit and Quality Initiatives Group. He holds a bachelor’s degree in commerce from Mumbai University, is an Associate Member of the Institute of Company Secretaries of India, a Certified Associate of the Indian Institute of Bankers and a Certified Information System Auditor. He has over 33 years of banking experience, having worked with the Bank of Baroda and Standard Chartered Bank prior to joining the Bank in 1994.
Mr.
Dhiraj Relli
is currently on secondment to HDFC Securities Limited (HSL), our subsidiary, where he currently holds the position of Managing Director and Chief Executive Officer. An employee of HDFC since 2008, he has served as Senior Executive Vice President and Head of Branch Banking at HDFC Bank. Mr. Relli is a member of the Trading Member Advisory Committee of National Stock Exchange and a Member of the Advisory Committee of Bombay Stock Exchange. Mr. Relli is a B.Com. (Honors) graduate from Delhi University and a qualified chartered accountant from the Institute of Chartered Accountants of India. He completed the Advance Management Program from the Indian Institute of Management, Bangalore.
Mr.
Jimmy Tata
is Chief Risk Officer. He holds a master’s degree in Financial Management from the Jamnalal Bajaj Institute of Management Studies at Mumbai University and is qualified as a Chartered Financial Analyst with the Institute of Chartered Financial Accountants in Hyderabad. Mr. Tata has been with the Bank since 1994 and has over 30 years of broad experience across various sectors. Prior to joining the Bank he worked as a Financial Analyst in the Financial Division of Apple Industries Limited.
Mr.
Munish Mittal
is the Chief Information Officer. He holds a bachelor’s degree in science from Punjab University and a master’s in business administration from the Indira Gandhi National Open University. Mr. Mittal has more than 31 years of experience, having worked at Bank of Punjab, Datapro and ESPL prior to joining the Bank in August 1996.
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Mr.
Nirav Shah
is Head of Emerging Corporates, Infrastructure Finance Group, Rural Banking Group, Transportation group and Tractor Finance. He holds a master’s degree in management studies from K.J. Somaiya Management Institute at Mumbai University. He has over 23 years of professional experience, joining the Bank from Global Trust Bank in July 1999.
Mr.
Parag Rao
is Head of Payments, Consumer Finance, Digital Banking and Marketing. He holds a master’s degree in management studies degree from S.P. Jain Institute of Management at Mumbai University and a bachelor’s degree in engineering from the Regional Engineering College in Jamshedpur. He has over 28 years of professional experience, joining the Bank from IBM Global Services in April 2002.
Mr.
Rakesh Singh
is the Head of Investment Banking, Private Banking, Capital Market and Financial Institutions. He holds a master’s degree in business administration from the Institute of Management Technology, Ghaziabad and has over 23 years of experience in the financial sector. Mr. Singh joined the Bank from Rothschild in India where he was the Managing Director and
Co-Head
of Financing Advisory. Earlier in his career, he held key positions at Morgan Stanley, Merrill Lynch, Standard Chartered Bank and ANZ Investment Bank.
Mr.
Rahul Shukla
is the Head of Corporate Banking and Business Banking, Healthcare Finance. He holds a bachelor’s degree in technology from IIT Varanasi and an MBA from IIM Bangalore. He started his career in Citibank and in 2010 he took over as Managing Director and Head of Corporate Banking for the South Asia Region, and was a member of the Indian Management Committee and various regulatory governance committees. He has over 27 years of banking experience, joining the Bank from Citibank in March 2018.
Mr.
Sashidhar Jagdishan
is the Head of Finance, Human Resources, Legal & Secretarial, Corporate Communications, Admin, Infra, CSR and also designated as Change Agent of the Bank. He holds a Bachelor of Science degree in physics from the University of Mumbai and a master’s degree in economics of money, banking and finance from the University of Sheffield in the United Kingdom. He is also a Chartered Accountant of the Institute of Chartered Accountants of India. Mr. Jagdishan has been with the Bank since 1996.
Ms.
Smita Bhagat
is the Head of Government and Institutional Business, Ecommerce and
Start-ups.
She holds a Bachelor of Arts degree in economics and statistics, a Master of Commerce degree in financial management and a master’s degree in business administration from the University of Rajasthan. She has over 22 years of experience in banking and joined the Bank from ICICI Bank in 1999.
Mr.
Srinivasan Vaidyanathan
is the Head of Finance. He is a commerce graduate, a Fellow of the Institute of Chartered Accountants of India, a Fellow of the Institute of Cost and Works Accountants of India, a Fellow of the Association of International Accountants, UK, Member of CMA, USA, and has a master’s degree in business administration. He has over 28 years of experience in the financial services industry. He joined the Bank from Citigroup in 2018.
Mr.
S. Sampath Kumar
is Head of Liability Products, Third Party Products and
Non-Resident
Business. He has over two decades of experience and is an alumnus of the University of Madras, Tamil Nadu.
Mr.
Vinay Razdan
is Head of Human Resources. He is an alumnus of Delhi University and holds a postgraduate qualification in personnel management and industrial relations from XLRI, Jamshedpur. Mr. Razdan has over three decades of experience in different roles within the human resources function and has worked across geographies and industry segments. He has held leadership positions with leading organizations in the FMCG, IT Services and Telecommunication sectors. He joined the Bank in September 2018.
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Corporate Governance
Audit Committee
The Audit Committee of the Bank, as of March 31, 2020, has Mr. M.D Ranganath, Mrs. Shyamala Gopinath, Mr. Umesh Chandra Sarangi and Mr. Sanjiv Sachar as its members. Each member of the Audit Committee is an Independent Director. Mr. M. D. Ranganath and Mr. Sanjiv Sachar are the members of Audit Committee with financial expertise. The Audit Committee is chaired by Mr. M.D Ranganath. The Audit Committee met nine times during fiscal 2020.
The terms of reference of the Audit Committee include,
inter alia
, the following:

| a. | overseeing the Bank’s financial reporting process and disclosure of financial information to ensure that the financial statement is correct, sufficient and credible;

| b. | recommending the appointment and removal of external auditors and the fixing of their fees;

| c. | reviewing with management the annual financial statements and auditors report before their submission to the Board, with special emphasis on accounting policies and practices, compliance with accounting standards, disclosure of related party transactions and other legal requirements relating to financial statements;

| d. | reviewing the adequacy of the audit and compliance functions, including their policies, procedures, techniques and other regulatory requirements;

| e. | reviewing and approving all related party transactions ; and

| f. | any other terms of reference as may be included from time to time in the Companies Act and the SEBI Listing Regulations, including any amendments or re-enactments thereof from time to time.

The Board has also adopted a charter for the Audit Committee in connection with certain United States regulatory standards as the Bank’s securities are also listed on the New York Stock Exchange.
Nomination and Remuneration Committee
The terms of reference of the Nomination and Remuneration Committee include scrutinizing the nominations of the directors with reference to their qualifications and experience, to identify “fit and proper” persons and assess their competency and reviewing the compensation levels of the Bank’s employees
vis-à-vis
other banks and the banking industry in general.
The criteria for assessing the competency of the persons nominated are as follows:

| • |  | Academic qualifications;

| • |  | Previous experience;

| • |  | Track record; and

| • |  | Integrity of the candidate.

For assessing the integrity and suitability, features like criminal records, financial position, civil actions undertaken to pursue personal debts, refusal of admission to and expulsion from professional bodies, sanctions applied by regulators or similar bodies and previous questionable business practices are considered.
The Bank’s compensation policy provides a fair and consistent basis for motivating and rewarding employees appropriately according to their job profile or role size, performance, contribution, skill and competence.
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The Nomination and Remuneration Committee also formulates criteria for the evaluation of performance of individual Directors including Independent Directors, the Board of Directors and its committees. The criteria for the evaluation of performance of Directors (including Independent Directors) include personal attributes, such as attendance at meetings, communication skills, leadership skills and adaptability, and professional attributes such as their understanding of the Bank’s core business and strategic objectives, industry knowledge, independent judgment, and adherence to the Bank’s Code of Conduct, ethics and values. Mr. Sanjiv Sachar, Mrs. Shyamala Gopinath, Mr. Sandeep Parekh and Mr. M.D Ranganath were the members of the Nomination and Remuneration Committee as of March 31, 2020. All members of the Nomination and Remuneration Committee are Independent Directors. The Nomination and Remuneration Committee is chaired by Mr. Sanjiv Sachar. The Committee met nine times during fiscal 2020.
Stakeholders’ Relationship Committee
The Stakeholders’ Relationship Committee (the “SRC”) approves and monitors the transfer, transmission, splitting and consolidation of shares and considers requests for dematerialization of shares. Allotments of shares to employees exercising stock options granted under the various Employees Stock Option Schemes (“ESOSs”), which are made in terms of the powers delegated by the Board in this regard. The committee also monitors the redressal of grievances from shareholders relating to matters such as the transfer of shares and
non-receipt
of our annual report and dividends.
The powers to approve share transfers and dematerialization requests have been delegated to executives of the Bank to avoid delays that may arise due to
non-availability
of the members of the SRC. Mr. Santosh Haldankar, Senior Vice President-Legal & Company Secretary of the Bank is the Compliance Officer responsible for expediting the share transfer formalities.
As of March 31, 2020, the SRC consisted of Mr. Umesh Chandra Sarangi, Mr. Malay Patel, Mr. Aditya Puri and Mr. Sandeep Parekh. The Stakeholders’ Relationship Committee is chaired by Mr. Umesh Chandra Sarangi, who is an Independent Director. The SRC met four times during fiscal 2020.
As of March 31, 2020, no instruments of transfer were pending for transfer. The details of the transfers are reported to the SRC from time to time. During the year ended March 31, 2020, the Bank received 2,862 complaints from the shareholders. The Bank has attended to all the complaints. 119 complaints remained pending and 3 complaints have not been resolved to the satisfaction of the shareholders as of March 31, 2020. 6,001 letters were received from the shareholders relating to change of address, nomination requests, updating of email IDs and PAN No(s), updating of complete bank account details, such as core banking account no, IFSC and/MICR code, mandate paying for dividends by the National Automated Clearing House (NACH) and National Electronic Fund Transfer (NEFT), claim of shares from Unclaimed Suspense account, and from the Authority of Investors Education and Protection Fund, queries relating to the annual reports,
non-receipt
of share certificates upon
sub-division
of the Bank’s shares from the face value of Rs. 2/- each to the face value of Rs. 1/- each, amalgamation, request for revalidation of dividend warrants and other investor related matters. These letters have also been responded to.
Risk Policy and Monitoring Committee
The RPMC has been formed as per the guidelines of the RBI on asset liability management and risk management systems. The RPMC is a board-level committee, which supports the Board by supervising the implementation of the risk strategy. It guides the development of policies, procedures and systems for managing risk. It ensures that these are adequate and appropriate to changing business conditions, the structure and needs of the Bank and the risk appetite of the Bank. The RPMC monitors the compliance of risk parameters and aggregate exposures with the risk appetite set by the Board. It ensures that frameworks are established for assessing and managing various risks faced by the Bank, systems are developed to relate risk to the Bank‘s capital level and methods are in place for monitoring compliance with internal risk management policies and processes. The RPMC ensures that the Bank has a suitable framework for risk management and oversees the implementation of the risk management policy.
The functions of the RPMC also include the review of the enterprise-wide risk frameworks, such as the risk appetite framework (the “RAF”), ICAAP and the stress testing framework. The RPMC also reviews the cybersecurity framework in the Bank from time to time.
Further, as per RBI guidelines, the Chief Risk Officer of the Bank regularly interacts with members of the RPMC without the presence of management at meetings of the RPMC . As of March 31, 2020, the Risk Policy and Monitoring Committee consisted of Mr. Srikanth Nadhamuni, Mrs. Shyamala Gopinath, Mr. M.D Ranganath and Mr. Aditya Puri. The Committee is chaired by Mr. Srikanth Nadhamuni. The Committee met six times during fiscal 2020.
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Credit Approval Committee
The committee considers proposals for approval, renewal, or modification of various types of funded and
non-funded
credit facilities to the customers of the Bank within its authority as delegated to it by the Board from time to time. This facilitates a quick response to the needs of the customers and timely disbursement of loans. As of March 31, 2020, the Credit Approval Committee consisted of Mr. Malay Patel, Mr. Aditya Puri, Mr. Kaizad Bharucha and Mr. Srikanth Nadhamuni. The Credit Approval Committee met 24 times during fiscal 2020.
Premises Committee
The committee approves purchases and leasing of land parcels for proposed buildings & premises for the use of the Bank’s branches, back offices, ATMs, residential training centers, currency chests, guest houses (including relocation and renewals) and of residential premises for Bank employees in accordance with the guidelines laid down by the Board from time to time. As of March 31, 2020, Mr. Aditya Puri and Mr. Malay Patel were the members of the Premises Committee. During the year, Mr. Keki Mistry ceased to be a member of the Premises Committee pursuant to his completion of tenure as a Director of the Bank. The premises committee met four times during fiscal 2020.
Fraud Monitoring Committee
Pursuant to the directions of the RBI, the Bank has constituted a Fraud Monitoring Committee, exclusively dedicated to the monitoring and following up of cases of fraud involving amounts of Rs. 10 million and above. The objectives of the Fraud Monitoring Committee are the effective detection and immediate reporting of fraud, including any actions taken against the perpetrators of such fraud, to the concerned regulatory and enforcement agencies. The terms of reference of the Fraud Monitoring Committee include:

| a. | identify the systemic lacunae, if any, that facilitated perpetration of the fraud and put in place measures to plug the same;

| b. | identify the reasons for delay in detection, if any, and report to the top management of the Bank and the RBI;

| c. | monitor the progress of the investigation by the Central Bureau of Investigation and police authorities and the recovery position;

| d. | ensure that staff accountability is examined at all levels in all cases of fraud and that staff side action, if required, is completed quickly without loss of time;

| e. | review the efficacy of the remedial action taken to prevent any recurrence of fraud, such as the strengthening of internal controls; and

| f. | put in place other measures as may be considered relevant to strengthen preventive measures to protect against future instances of fraud.

As of March 31, 2020, the members of the Fraud Monitoring Committee were Mrs. Shyamala Gopinath, Mr. Umesh Chandra Sarangi, Mr. Malay Patel, Mr. Aditya Puri and Mr. Sandeep Parekh. During the year, the Fraud Monitoring Committee met four times during fiscal 2020.
Customer Service Committee
The Customer Service Committee has been constituted to monitor and bring about improvements in the quality of services rendered to the Bank’s customers and also ensures the implementation of directives received from the RBI in this regard. The terms of reference of the Customer Service Committee are to formulate a comprehensive deposit policy incorporating the issues arising from the death of a depositor in relation to the operation of the deceased’s account, the product approval process, the annual survey of depositor satisfaction and the triennial audit of such services.
As of March 31, 2020, the members of the Customer Service Committee were Mrs. Shyamala Gopinath, Mr. Malay Patel, Mr. Srikanth Nadhamuni, Mr. Aditya Puri and Mr. Sandeep Parekh. During the year, Mr. Keki Mistry ceased to be a member of the Committee pursuant to his completion of tenure as a Director of the Bank. The Customer Service Committee met four times during fiscal 2020.
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Corporate Social Responsibility (“CSR”) Committee
The CSR Committee of the Board was constituted to identify, execute and monitor CSR projects and assist the Board and the Bank in fulfilling its corporate social responsibility objectives and achieving the desired results. The CSR Committee also ensures legal and regulatory compliance from a CSR perspective and reporting, as well as communication to all the stakeholders on the Bank’s CSR initiatives.
The Board has constituted a CSR Committee with the following terms of reference:

| a. | to formulate the Bank’s CSR strategy, policy and goals;

| b. | to monitor the Bank’s CSR policy and performance;

| c. | to review the CSR projects and initiatives from time to time;

| d. | to ensure legal and regulatory compliance with respect to CSR;

| e. | to ensure reporting and communication to stakeholders on the Bank’s CSR; and

| f. | to monitor the Bank’s environmental, social, governance framework, strategy, goals and disclosures.

As of March 31, 2020, the members of CSR Committee were Mr. Umesh Chandra Sarangi, Mr. Sanjiv Sachar, Mr. Malay Patel and Mr. Aditya Puri. The Committee met four times during fiscal 2019.
Digital Transaction Monitoring Committee
In order to promote digital transactions of the Bank and to provide directions in terms of strategy and action plans including monitoring the progress of achievement in the digital transactions space the terms of reference of the Digital Transaction Monitoring Committee include:

| a. | framing of the Bank-level strategy and action plans for achieving the target of digital transactions in an organized manner, as may be set by the Government, regulatory authorities and IBA from time to time;

| b. | monitoring the progress of achievement in digital transactions in line with the Bank’s strategy and action plans;

| c. | reviewing and exploring new opportunities for increasing the digital transactions of the Bank from time to time and giving the necessary directions in implementing and improving high levels of digitalization in the Bank;

| d. | reviewing the Digital Banking strategy of the Bank as and when required, thereby providing direction on focus areas;

| e. | reviewing the progress made on the initiatives relating to Digital Banking covering performance initiatives as determined by the Board of Directors and Government of India from time to time;

| f. | to review the customer services rendered on digital platforms from time to time; and

| g. | any other terms of reference as may be specified by the Government, regulatory authorities and IBA from time to time.

As of March 31, 2020, the members of Digital Transaction Monitoring Committee were Mr. Srikanth Nadhamuni, Mr. Malay Patel, Mr. Aditya Puri, and Mr. M.D. Ranganath. The Committee met four times during fiscal 2020.
Review Committee for Willful Defaulters’ Identification
The Board has constituted a Review Committee for Willful Defaulters Identification to review the orders passed by the Committee of Executives for Identification of Willful Defaulters and provide the final decision with regard to identified willful defaulters and any other matters as may be decided by the Board from time to time. As of March 31, 2020, Mrs. Shyamala Gopinath, Mr. Aditya Puri, Mr. Umesh Chandra Sarangi, Mr. Sandeep Parekh and Mr. Sanjiv Sachar were the members of the Review Committee for Willful Defaulters Identification. The Committee met twice during the year, on July 20, 2019 and October 19, 2019.
Review Committee for
Non-Cooperative
Borrowers
The Board has constituted a Review Committee to review matters related to
non-cooperative
borrowers, which are handled by the internal committee of executives appointed for this purpose and any other matters as may be decided by the Board from time to time. As of March 31, 2020, Mrs. Shyamala Gopinath, Mr. Aditya Puri, Mr. Umesh Chandra Sarangi, Mr. Sandeep Parekh and Mr. Sanjiv Sachar were the members of the Review Committee for
Non-Cooperative
Borrower. No meetings of the Review Committee for
Non-Cooperative
Borrowers were held during fiscal 2020.
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Meeting of the Independent Directors
The Independent Directors of the Bank held a meeting on September 18, 2019. All the Independent Directors attended the meeting.
Committees of Executives
We have also established committees of executives that meet frequently to discuss and determine the management of assets and liabilities and other operations and personnel issues.
Borrowing Powers of Directors
At its 21st Annual General Meeting held on July 21, 2015, the Bank’s shareholders passed a special resolution pursuant to Section 180(1)(c) of the Companies Act, 1956 authorizing the Board to borrow, for the purpose of conducting the Bank’s business, such sum or sums of money as they may deem necessary, notwithstanding the fact that the money so borrowed and the monies to be borrowed from time to time (apart from (i) temporary loans obtained from the companies banker in the ordinary course of business and (ii) acceptances of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise and/or temporary loans obtained in the ordinary course of business from banks, whether in India or outside India) will exceed the aggregate of the
paid-up
capital of the Bank and its free reserves, provided that the total outstanding amount of such borrowings shall not exceed Rs. 500 billion over and above the aggregate of the
paid-up
capital of the Bank and its free reserves at any time.
Compensation of Directors and Members of Our Senior Management
The compensation arrangements for our Chairperson, Managing Director and Executive Directors are approved by the shareholders and the RBI on the recommendation of our Board of Directors.
During fiscal 2020, the aggregate amount of compensation paid to our Managing Director, Executive Director and members of our senior management as on March 31, 2020 was Rs. 851.7 million. This remuneration includes basic salary, allowances, performance bonus, and cash allowances in lieu of perquisites or the taxable value of perquisites (if availed) as computed under the income tax rules, but excludes gratuities, provident fund settlements, superannuation settlements and perquisites upon the exercise of stock options.
Under our organizational documents, each director, except the Managing Director and Executive Director, is entitled to sitting fees for attending each meeting of the Board of Directors or of a Board committee. The amount of sitting fees is decided by the Board from time to time in accordance with applicable regulations prescribed by the Companies Act or the Government of India. Directors are paid sitting fees at the rate of Rs. 50,000 for attending committee meetings and Rs. 100,000 for attending Board meetings, respectively.
We reimburse directors for travel and related expenses in connection with Board and committee meetings and related matters. Stock options have not been granted to
Non-Executive
Directors.
Mrs. Shyamala Gopinath, Chairperson, was paid remuneration of Rs. 3.5 million during fiscal 2020. Mrs. Shyamala Gopinath is also paid sitting fees for attending Board and Committee meetings.
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The details of the remuneration paid during fiscal 2020 Mr. Aditya Puri, Managing Director and Mr. Kaizad Bharucha, Executive Director are as follows:

Particulars |  | Aditya Puri |  |  | Kaizad Bharucha |
|  | (Rs. in million, except stock options) |
Basic |  |  | 65.3 |  |  |  | 22.7 |
Allowances and perquisites |  |  | 34.3 |  |  |  | 24.8 |
Provident fund |  |  | 7.8 |  |  |  | 2.7 |
Superannuation |  |  | 9.8 |  |  |  | 3.4 |
Performance bonus |  |  | 72.0 | * |  |  | 32.7 | **
Number of stock options granted during the year*** |  |  | 681,600 |  |  |  | 266,400 |

| * | 60% of the performance bonuses relating to FY 2018 and FY 2019 amounting to Rs. 25.8 million and Rs. 31.0 million, respectively, approved by the RBI in FY 2020. Also includes a deferred bonus for previous years amounting to Rs. 15.2 million.

| ** | 60% of the performance bonuses relating to FY 2018 and FY 2019 amounting to Rs. 12.9 million and Rs. 14.9 million, respectively, approved by the RBI in FY 2020. Also includes a deferred bonus of previous years amounting to Rs. 4.9 million.

| *** | The stock options granted to Mr. Aditya Puri and Mr. Kaizad Bharucha have been granted at the closing market price of the Bank’s securities on the NSE on the day prior to the date of grant. The options granted vest at the rate of 25.0 percent on each of the four successive anniversaries from the date of the grant, subject to performance and approval of the RBI. The options so vested are to be exercised within two years from the respective dates of vesting.

The Bank provides a gratuity scheme for the benefit of all employees who have completed a minimum of five years of continuous service, including our Managing Director, Executive Director and Officers. This scheme provides for the payment of a gratuity in the form of a
lump-sum
payment upon the retirement, termination or resignation of employment or death while in employment of its employees in an amount equal to 15 days’ basic salary, payable for each completed year of service. The Bank makes annual contributions to a gratuity fund administered by trustees and managed by insurance companies. The Bank accounts for the liability of future gratuity benefits based on an independent external actuarial valuation, which is carried out annually. Perquisites, which are evaluated as per the income tax rules, where applicable, or, alternatively, at the actual cost to the Bank, are also provided to directors. Available perquisites include furnished accommodation, including gas, electricity, water, telephone, furnishings and the use of a vehicle, club fees, personal accident insurance, reimbursement for medical expenses, leave travel concessions and retirement benefits, such as provident funds, superannuation fund gratuity and National Pension Scheme.
The details of sitting fees paid to
Non-Executive
Directors during fiscal 2020 are as follows:

Name of the Director |  | Sitting Fees (Rs.) |  |  | Commission # (Rs.) |
Mrs. Shyamala Gopinath |  |  | 2,900,000 |  |  |  | — |
Mrs. Renu Karnad* |  |  | 150,000 |  |  |  | — |
Mr. Malay Patel |  |  | 3,350,000 |  |  |  | 1,000,000 |
Mr. Keki Mistry** |  |  | 1,450,000 |  |  |  | 1,000,000 |
Mr. Umesh Chandra Sarangi |  |  | 2,100,000 |  |  |  | 1,000,000 |
Mr. Srikanth Nadhamuni |  |  | 2,750,000 |  |  |  | 1,000,000 |
Mr. Sanjiv Sachar |  |  | 2,300,000 |  |  |  | 1,000,000 |
Mr. Sandeep Parekh |  |  | 2,100,000 |  |  |  | 1,000,000 |
Mr. M.D. Ranganath |  |  | 2,650,000 |  |  |  | 1,000,000 |

| * | Mrs. Renu Karnad was appointed as an Additional Non-Executive Director with effect from March 3, 2020, subject to the approval of shareholders at the ensuing Annual General Meeting. The shareholders of the Bank have approved the appointment of Mrs. Renu Karnad as a Non-Executive Director of the Bank at the AGM held on July 18, 2020.

| ** | Mr. Keki Mistry ceased to be a director of the Bank with effect from close of business hours on January 18, 2020 on completion of a term of eight continuous years, being the maximum term prescribed under the Banking Regulation Act 1949.

| # | Refers to commission for FY 2018-19, paid out in FY 2019-20.

During fiscal 2020 there were no other pecuniary relationships or transactions of the
Non-Executive
Directors
vis-a-vis
the Bank, except banking transactions in the ordinary course of business done on
arm’s-length
basis.
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At the 22nd annual general meeting of the Bank held on July 21, 2016 the shareholders have approved the payment of profit-related commission to
Non-Executive
Directors, including Independent Directors, but excluding the Chairperson with effect from the fiscal 2016 (being the year in which RBI issued guidelines on compensation to
non-executive
directors of private sector banks), not exceeding in aggregate 1 percent of the net profit of the Bank for the relevant fiscal subject to a maximum of Rupees one million per annum per Director.
The details of remuneration paid to employees who were employed throughout the year and were in receipt of remuneration of more than Rs. 10.2 million per annum and those employed for part of the year and were in receipt of remuneration of more than Rs. 0.85 million per month are given in Annexure 7 to the Directors’ Report.
Other than our Chairperson, Managing Director, and Executive Director, none of our Directors has a service contract with us.
Loans to Members of Our Senior Management
Loans to members of our senior management are granted in the normal course of business, as is the case with employees of the Bank. All loans granted to members of senior management are in accordance with the provisions of local regulations. The table below provides the details of staff loans granted to our senior management as of March 31, 2020:

Name |  | Largest amount outstanding since March 31, 2019 |  |  | Amount outstanding as of March 31, 2020 |  |  | Interest rate as of March 31, 2020 % |  |  | Nature of Loan |
|  | (Rs. in millions, except percentages) |
Mr. Aditya Puri |  |  | 24.73 |  |  |  | 21.20 |  |  |  | 2.00 to 5.00 |  |  |  | Housing Loan |
Mr. Kaizad Barucha |  |  | 4.04 |  |  |  | 3.96 |  |  |  | 2.50 |  |  |  | Housing Loan |
Ms. Ashima Bhat |  |  | 4.07 |  |  |  | 3.99 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Ashish Parthasarthy |  |  | 5.00 |  |  |  | 4.91 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Arvind Kapil |  |  | 0.14 |  |  |  | 0.04 |  |  |  | 5.00 |  |  |  | Personal Loan |
Mr. Bhavesh Zaveri |  |  | 14.52 |  |  |  | 13.98 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Bhavesh Zaveri |  |  | 0.52 |  |  |  | 0.34 |  |  |  | 5.00 |  |  |  | Personal Loan |
Mr. Benjamin Frank |  |  | 0.59 |  |  |  | 0.48 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Benjamin Frank |  |  | 0.18 |  |  |  | 0.07 |  |  |  | 5.00 |  |  |  | Personal Loan |
Mr. Chakrapani Venkatachari |  |  | 11.15 |  |  |  | 9.82 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Munish Mittal |  |  | 3.65 |  |  |  | 2.97 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Munish Mittal |  |  | 0.43 |  |  |  | 0.27 |  |  |  | 5.00 |  |  |  | Personal Loan |
Mr. Nirav Shah |  |  | 14.17 |  |  |  | 13.94 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Nirav Shah |  |  | 0.25 |  |  |  | 0.16 |  |  |  | 5.00 |  |  |  | Personal Loan |
Mr. Rakesh Singh |  |  | 14.17 |  |  |  | 13.86 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. Sashidhar Jagdishan |  |  | 5.59 |  |  |  | 5.46 |  |  |  | 9.30 |  |  |  | Housing Loan |
Ms. Smita Bhagat |  |  | 14.62 |  |  |  | 14.03 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. S. Sampathkumar |  |  | 1.84 |  |  |  | 1.80 |  |  |  | 9.30 |  |  |  | Housing Loan |
Mr. S. Sampathkumar |  |  | 0.57 |  |  |  | 0.40 |  |  |  | 5.00 |  |  |  | Personal Loan |

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Employees Stock Options
Our shareholders approved plan “A” in January 2000, plan “B” in June 2003, plan “C” in June 2005, plan “D” in June 2007, plan “E” in June 2010, plan “F” in June 2013 and Plan “G” in July 2016 for the issuance of stock options to employees and directors of the Bank under the ESOSs, namely
ESOS-001
to ESOS- 034. Under plan “A”, the option price is set as the average of the daily closing prices on the BSE during the 60 days preceding the grant date. Under plan “B”, the option price is set as the closing price on the business day preceding the grant date on whichever stock exchange in India has the highest trading volume for our shares during the two weeks preceding the date of grant. Under plans “C”, “D”, “E”, “F” and “G”, the option price is set as the closing price on the business day preceding the grant date on the stock exchange which has the highest trading volume. Our Nomination and Remuneration Committee (formerly, the Compensation Committee) has issued options under these plans several times since January 2000. Stock options granted under
ESOS-001
to
ESOS-009
vest at the rate of 30.0 percent, 30.0 percent and 40.0 percent on each of the three successive anniversaries following the date of grant, stock options granted under
ESOS-010
to
ESOS-013
vest at the rate of 50.0 percent on each of the two successive anniversaries following the date of grant, those granted under
ESOS-014
and
ESOS-015
vest completely on the first anniversary of the date of the grant, stock options granted under
ESOS-016
to
ESOS-018
vest at the rate of 75.0 percent and 25.0 percent on each of the two successive anniversaries following the date of grant, stock options granted under
ESOS-019
to
ESOS-026
vest at the rate of 40.0 percent, 30.0 percent and 30.0 percent on each of the three successive anniversaries, stock options granted under
ESOS-027
and
ESOS-028
vest at the rate of 40.0 percent, 30.0 percent and 30.0 percent at intervals of fifteen months, twenty-seven months and thirty –nine months, options granted under
ESOS-029
to
ESOS-32
vest at the rate of 35.0 percent, 30.0 percent, 20.0 percent and 15.0 percent on each of the four successive anniversaries and
ESOS-33
to ESOS 34 vest at the rate of 25.0 percent on each of the four successive anniversaries. All of the above are subject to standard vesting conditions. In fiscal 2020, 36.7 million equity shares having a face value of Rs. 1.0 each were allotted as a result of the exercise of stock options by the employees of the Bank. This resulted in our
paid-up
capital increasing by Rs. 36.7 million and the share premium by Rs. 18,450.1 million. As of March 31, 2020, 142,865,602 options convertible to equity shares of Rs. 1.0 each were outstanding.
Other Compensation
All employees, including our Managing Director, Executive Director and officers, receive the benefit of our gratuity and provident fund retirement schemes. Our superannuation fund covers all employees at a senior manager level and above, including our Managing Director. Our gratuity fund, required under Indian law to be paid to an employee following the completion of a minimum of five years of continuous service, is a defined benefit plan which, upon the retirement, termination of employment or death while in employment of such employee, pays a lump sum equal to 15 days’ basic salary for each completed year of service. The superannuation fund is a retirement plan under which we contribute annually 13.0 percent (15.0 percent for the Managing Director, Executive Director and certain employees of CBoP) of the eligible employee’s annual salary to the administrator of the fund. In the case of the provident fund (“PF”), as required by Indian law, each of the employer and the employee contribute monthly at a determined rate of 12.0 percent of the employee’s PF base salary. Of this 12.0 percent, the Bank contributes a specified amount (8.33 percent of the lower of Rs. 15,000 or the employee’s PF base salary) to the pension scheme administered by the Regional Provident Fund Commissioner, and the balance is contributed to a fund set up by the Bank and administered by a board of trustees.
Controls and Procedures
Disclosure Controls and Procedures
The Bank performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of March 31, 2020. Based on this evaluation, our Principal Executive Officer, Mr. Aditya Puri, and our Principal Financial Officer, Mr. Srinivasan Vaidyanathan, have concluded that our disclosure controls and procedures, as defined in Rules
13a-15(e)
and
15d-15(e)
of the Securities Exchange Act of 1934 (the “Exchange Act”), are effective to provide reasonable assurance that the information required to be disclosed in filings and submissions under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions about required disclosure.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f)
and
15d-15(f)
of the Exchange Act. Our internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

| • |  | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets;

| • |  | provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

| • |  | provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisitions, use or dispositions of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness for future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2020. In conducting its assessment, management based its evaluation on the framework contained in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on its assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2020. Our independent registered public accounting firm, KPMG Assurance and Consulting Services LLP (“KPMG”), has performed an integrated audit and has issued their report, included herein, on (1) our consolidated financial statements, and (2) the effectiveness of our internal controls over financial reporting as of March 31, 2020. KPMG (Registered) (a partnership firm with Registration No. BA-62445) converted into KPMG Assurance and Consulting Services LLP (a Limited Liability Partnership with LLP Registration No. AAT-0367), with effect from July 23, 2020.
Changes in Internal Controls
There were no changes in our internal controls or in other factors that could, or are reasonably likely to, materially affect these controls during the period covered by this report.
Audit Committee Financial Expert
Mr. M.D Ranganath and Mr. Sanjiv Sachar are the Audit Committee financial experts, as defined in Item 401(h) of Regulation
S-K,
and are independent pursuant to the applicable SEC rules.
Code of Ethics
We have a written Code of Ethics, which is applicable to the Board Members and officials of the Bank one level below the Board. We believe the code constitutes a “code of ethics”, as defined in Item 16B of Form
20-F.
We will provide a copy of such Code of Ethics to any person without charge upon request. Requests may be made by writing to shareholder.grievances@hdfcbank.com.
We also have a whistleblower policy that contains procedures for receiving, retaining and treating complaints received, and procedures for the confidential and anonymous submission by employees of complaints, regarding questionable accounting or auditing matters or conduct which results in a violation of law by the Bank or in a substantial mismanagement of the Bank’s resources. Under this whistleblower policy, our employees are encouraged to report questionable accounting matters or any fraudulent financial information provided to our shareholders, the government or the financial markets, or any conduct that results in a violation of law by the Bank, to our management (on an anonymous basis, if employees so desire). Under this policy we have also prohibited discrimination, retaliation or harassment of any kind against any employee who, based on the employee’s reasonable belief that such conduct or practices have occurred or are occurring, reports such information or participates in an investigation.
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Principal Accountant Fees and Services
The following table sets forth for the fiscal years indicates the fees pertaining to our principal accountant and its associated entities for various services provided during these periods:

|  | Fiscal Year Ended |
Type of Services |  | March 31, 2019 |  |  | March 31, 2020 |  |  | Description of Services |
|  | (in millions) |  |  |  |
Audit services |  | Rs. | 52.2 |  |  | Rs. | 50.8 |  |  |  | Audit of financial statements |
Audit-related services |  |  | 2.7 |  |  |  | 5.1 |  |  |  | Limited review |
Tax services |  |  | 2.4 |  |  |  | — |  |  |  | Tax services |
Other services |  |  | 6.4 |  |  |  | 5.7 |  |  |  | Certification/other services |
Total |  | Rs. | 63.7 |  |  | Rs. | 61.6 |  |  |  |  |

Our Audit Committee charter requires us to receive the approval of our Audit Committee on every occasion on which we engage our principal accountants or their associated entities to provide any
non-audit
services to us. All of the
non-audit
services provided to us by our principal accountants or their associated entities in the previous two fiscal years have been
pre-approved
by our Audit Committee.
Compliance with NYSE Listing Standards on Corporate Governance
We are incorporated under the Companies Act and our equity shares are listed on the BSE Limited (formerly known as Bombay Stock Exchange Limited) and the National Stock Exchange of India Limited, which are the major stock exchanges in India. Our corporate governance framework is in compliance with the Companies Act, the regulations and guidelines of the Securities and Exchange Board of India (“SEBI”) and the requirements of the listing agreements entered into with the Indian stock exchanges (“Listing Agreement”). We also have American Depositary Shares (“ADSs”) listed on the New York Stock Exchange (the “NYSE”).
Companies listed on the NYSE must comply with certain standards of corporate governance set forth in Section 303A of the NYSE’s Listed Company Manual. Listed companies that are foreign private issuers, as the term is defined in Rule
3b-4
of the Exchange Act, are permitted to follow home country practices in lieu of the provisions of this Section 303A, except that foreign private issuers are required to comply with the requirements of Sections 303A.06, 303A.11 and 303A.12(b) and (c) of the NYSE’s Listed Company Manual. As per these requirements, a foreign private issuer must:

| 1. | Establish an independent audit committee that has specified responsibilities and authority. [NYSE Listed Company Manual Section 303A.06];

| 2. | Provide prompt written notice by its chief executive officer if any executive officer becomes aware of any non-compliance with any applicable corporate governance rules. [NYSE Listed Company Manual Section 303A.12(b)];

| 3. | Provide to the NYSE annual written affirmations with respect to its corporate governance practices, and interim written affirmations in the event of a change to the board or a board committee. [NYSE Listed Company Manual Section 303A.12(c)]; and

| 4. | Include a statement of significant differences between its corporate governance practices and those followed by United States companies in the annual report of the foreign private issuer. [NYSE Listed Company Manual Section 303A.11].

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In a few cases, the Indian corporate governance rules under SEBI Listing Regulations differ from those in the NYSE’s Listed Company Manual as summarized below:

NYSE Corporate Governance Standards applicable to NYSE Listed Companies |  | Corporate Governance Rules as per SEBI Listing Regulations
An NYSE listed company needs to have a majority of independent directors. [ NYSE Listed Company Manual Section 303A.01 ] |  | The board of a listed company must have a combination of executive and non-executive directors, including at least one female director, and not less than 50 percent of the directors may be non-executive directors. The board of directors of the 500 largest listed entities, as determined by market capitalization at the end of the most recent financial year, shall have at least one independent female director by April 1, 2019 and the board of directors of the 1,000 largest listed entities, as determined by market capitalization at the end of the most recent financial year, shall have at least one independent female director by April 1, 2020. If: (i) the chairperson of the board of directors is a non-executive director, at least one-third of the board of directors must be comprised of independent directors; (ii) the company does not have a regular non-executive chairperson, at least half of the board of directors must be comprised of independent directors; and (iii) the regular non-executive chairperson is a promoter of the listed company or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors, at least half of the board of directors of the listed company must consist of independent directors.
A director must meet certain criteria in order to qualify as “independent”. An NYSE listed company must disclose the identity of its independent directors and the basis upon which it is determined that they are independent. [NYSE Listed Company Manual Section 303A.02 ] |  | A director must meet certain criteria in order to qualify as “independent”.
Executive Sessions |  |
Non-management directors need to meet at regularly scheduled executive sessions without management. [ NYSE Listed Company Manual Section 303A.03 ] |  | The board of directors of a listed company must meet at least four times a year, with a maximum time gap of 120 days between any two meetings. The independent directors of the listed company must hold at least one meeting each year without the presence of the non-independent directors and the members of management, and all the independent directors have to endeavor to be present at such meeting.
Nominating/Corporate Governance Committee |  |
An NYSE listed company needs to have a nominating/corporate governance committee composed entirely of independent directors. [ NYSE Listed Company Manual Section 303A.04 ] |  | A listed company needs to have a nomination and remuneration committee. All members of the nomination and remuneration committee must be non-executive directors and at least 50 percent must be independent directors. Where a listed company has equity shares with superior voting rights issued and outstanding, two-thirds of the non-executive directors must be independent directors.

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|  | Listed companies in India are not required to constitute a separate corporate governance committee. The Companies Act 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (the “SEBI Listing Regulations”) prescribe the corporate governance requirements which include, inter alia , obligations regarding the appointment of internal auditors, the constitution of the board of directors as per the prescribed composition and the constitution of an audit committee and nomination and remuneration committee.
The nominating/corporate governance committee needs to have a written charter that addresses certain specific committee purposes and responsibilities and provides for an annual performance evaluation of the committee. [NYSE Listed Company Manual Section 303A.04 ] |  | The nomination and remuneration committee must have the terms of reference specified in the SEBI Listing Regulations and the Companies Act, 2013 such as formulating criteria to determine the qualifications, positive attributes and independence of directors, formulating criteria to evaluate the performance of directors, recommending a remuneration policy for directors and devising a board diversity policy.
Compensation Committee |  |
An NYSE listed company needs to have a compensation committee composed entirely of independent directors. Compensation committee members must satisfy certain additional independence requirements set forth in Section 303A.02 of the NYSE Listed Company Manual by the deadline specified therein. [NYSE Listed Company Manual Section 303A.05] |  | A listed company is permitted to have a combined nomination and remuneration committee. All members of the nomination and remuneration committee must be non-executive directors and at least 50 percent must be independent directors. Where a listed company has equity shares with superior voting rights issued and outstanding, two-thirds of the non-executive directors must be independent directors. The chairperson of the nomination and remuneration committee must be an independent director.
The compensation committee needs to have a written charter that addresses certain specific purposes and responsibilities of the committee and provides for an annual performance evaluation of the committee. [NYSE Listed Company Manual Section 303A.05] |  | The terms of reference and the role of the nomination and remuneration committee have been specified under the Companies Act, 2013 and SEBI Listing Regulations and must include, inter alia , formulating the policy relating to the remuneration of directors, key managerial personnel and other employees, formulating criteria to determine the qualifications, positive attributes and independence of directors and formulating criteria to evaluate the performance of directors.

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Audit Committee |  |
An NYSE listed company needs to have an audit committee with at least three members. All the members of the audit committee must satisfy the independence requirements of Rule 10A-3 under the Exchange Act and the requirements of NYSE Corporate Governance Standard 303A.02. [ NYSE Listed Company Manual Sections 303A.06 and 303A.07 ] |  | A listed company must have a qualified audit committee with a minimum of three directors as members and two-thirds of such members must be independent directors. All members of the audit committee should be financially literate and at least one member must have accounting or related financial management expertise.
The audit committee needs to have a written charter that addresses certain specific purposes of the committee, provides for an annual performance evaluation of the committee and sets forth certain specific minimum duties and responsibilities. [NYSE Listed Company Manual Section 303A.07 ] |  | The terms of reference and the role of the audit committee of a listed company have been specified in the SEBI Listing Regulations and the Companies Act, 2013 and include, inter alia , oversight of the listed company’s financial reporting process and disclosure of its financial information to ensure that such information is correct, sufficient and credible, the recommendation for appointment and remuneration of the auditors of the listed company, and the review of the auditor’s independence and performance.
Internal Audit Function |  |
An NYSE listed company needs to have an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. A company may choose to outsource this function to a third party service provider other than its independent auditor. [NYSE Listed Company Manual Section 303A.07 ] |  | A listed company must appoint an internal auditor to conduct an internal audit. The auditor must review the accounts of the company and submit a report along with financial statements of the company placed before the company in a general meeting. It is the role of the audit committee to review the adequacy of the company’s internal audit function and all internal audit reports relating to internal control weaknesses of the company. The audit committee should also evaluate the internal financial controls and risk management systems of the company.
|  | In addition, a listed company must put in place procedures to inform board members about risk assessment and minimization procedures. The board of directors is responsible for framing, implementing and monitoring the company’s risk assessment and minimization plan. Further, the top 500 listed companies (determined on the basis of market capitalization as at the end of the immediately previous financial year) must establish a risk management committee, consisting of a majority of board members, and define the roles and responsibilities of the risk management committee. Where a listed company has equity shares with superior voting rights issued and outstanding, two thirds of the committee members are required to be independent directors. The board may delegate the monitoring and review of the risk management plan to the risk management committee.

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Shareholder Approval of Equity Compensation Plans |  |
Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with limited exemptions. [NYSE Listed Company Manual Section 303A.08] |  | Under the SEBI (Share Based Employee Benefits) Regulations, 2014, shareholders’ approval is required for all equity compensation plans and material revisions thereto.
Corporate Governance Guidelines/Code of Ethics |  |
An NYSE listed company needs to adopt and disclose corporate governance guidelines. [NYSE Listed Company Manual Section 303A.09] |  | A listed company is required to comply with all mandatory corporate governance requirements as prescribed under the Companies Act, 2013 and the SEBI Listing Regulations, and disclose such compliance to stock exchanges in the corporate governance report contained in the listed company’s annual report. The listed company should also state in its annual report the extent to which it has complied with the non-mandatory corporate governance requirements.
An NYSE listed company needs to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. [NYSE Listed Company Manual Section 303A.10] |  | A listed company needs to adopt a code of conduct (or code of ethics), which is applicable to all members of the board of directors and senior management. The company’s annual report and the yearly compliance report on corporate governance must both disclose any non-compliance with any requirement of the compliance report on corporate governance and contain a declaration signed by the chief executive officer stating that all board members and senior management personnel have complied with the code of conduct.
Certifications as to Compliance |  |
The CEO of each NYSE listed company has to certify on an annual basis that he or she is not aware of any violation by the company of the NYSE corporate governance listing standards. This certification, as well as the CEO/CFO certification required under Section 302 of the Sarbanes-Oxley Act of 2002, must be disclosed in the company’s annual report to shareholders. [NYSE Listed Company Manual Section 303A.12] |  | The CEO and the CFO are required to provide an annual certification on the true and fair view of the company’s financial statements and compliance with existing accounting standards, applicable laws and regulations. In addition, a listed company is required to submit a quarterly compliance report and an annual corporate governance report to stock exchanges which must include a certificate from either the auditors or the practicing company secretary regarding the company’s compliance with the conditions of corporate governance.

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Posting of Charters and Guidelines on Website |  |
An NYSE listed company is required to post the charters of its audit, compensation, and nominating/corporate governance committees, its corporate governance guidelines, and its code of business conduct and ethics on the company’s website, and to state in its proxy statement or annual report that these documents are so posted. The listed company’s website address must be included in such postings. [NYSE Listed Company Manual Sections 303A.04, 303A.05, 303A.07, 303A.09 and 303A.10] |  | A listed company must maintain a functional website containing information about the company including, inter alia, information regarding the composition of various board committees, the company’s code of conduct, details of certain of its policies, a copy of the annual report and contact information.

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Memorandum and Articles of Association
Our main objective is to carry on banking and related activities. Our objective and purpose can be found in clauses A and B of our Articles.
Under the Articles, a director may not vote, participate in discussions or be counted for the purpose of a quorum with respect to any decision relating to whether we will enter into any contract or arrangement if the director is directly or indirectly interested in such contract or arrangement. The Board of Directors may not hold meetings in the absence of a quorum. Under the Companies Act, the quorum for meetings of the Board is
one-third
of the total number of directors (any fraction contained in that
one-third
being rounded off as one) or two directors, whichever is higher. However, where the number of interested directors is equal to or exceeds
two-thirds
of the total number of directors present, the remaining number of directors (
i.e.,
directors who are not interested) present at the meeting, being not less than two will constitute the quorum during such time. Pursuant to the Companies Act, our directors have the power to borrow money for business purposes only with the consent of the shareholders (with certain limited exceptions) through a special resolution (with three-fourths majority).
Sections 172 to 187 of the Articles set forth certain rights and restrictions relating to dividend distributions. One of these restrictions is that dividends may be approved only at a general meeting of shareholders, but in no event in an amount greater than the amount recommended by the Board of Directors.
Subject to the Companies Act, the profits of a company are divisible among shareholders in proportion to the amount of capital paid up on the shares held by those shareholders. In the event of liquidation, any surplus will be distributed in proportion to the capital paid up or which ought to have been paid up on the shares held by the shareholders at the time of commencement of the winding up. The Board of Directors may make calls on shareholders in respect of all money unpaid on the shares held by them and not by the conditions of allotment thereof.
The rights and privileges of any class of shareholders may not be modified without the approval of three-fourths of the issued shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class.
The annual general meeting shall be called for at a time during business hours at our registered office or at some other place within Mumbai as the Board of Directors may determine. The notice of the meeting shall specify it as the “annual general meeting”. Any general meeting of the shareholders of the Bank other than its annual general meeting is called an “extraordinary general meeting”. The Board of Directors is required to call an extraordinary general meeting upon the request of a set number of shareholders, as set forth in the Companies Act.
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PRINCIPAL SHAREHOLDERS
The following table contains information relating to the beneficial ownership of our equity shares as of March 31, 2020 by:

| • |  | each person or group of affiliated persons known by us to beneficially own 5 percent or more of our equity shares; and

| • |  | our individual directors and their relatives as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to equity shares. Unless otherwise indicated, the persons listed in the table have sole voting and sole investment control with respect to all equity shares beneficially owned. All shares issued in India have the same voting rights. We have not issued different classes of securities.
By an ordinary resolution on July 12, 2019, the shareholders of the Bank approved a sub-division (stock split) of equity shares to reduce the face value of each equity share from Rs. 2.0 to Rs. 1 per equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to 5,470,763,894 shares of par value Rs. 1.0 each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three equity shares.
We were founded by our promoter HDFC Limited, a housing finance company in India. As of March 31, 2020, HDFC Group, held an aggregate of 21.24 percent of our equity shares.

|  | Number of Shares |  |  | Percentage of Total Equity Shares Outstanding |
HDFC Group |  |  | 1,164,625,834 |  |  |  | 21.24 | %
Directors and relatives |  |  | 12,546,251 |  |  |  | 0.23 | %

The ADSs are represented by underlying equity shares. As on March 31, 2020, Indian equity shares totaling 1,028,115,528 were held in the form of ADSs and constituted 18.75 percent of the Bank’s capital. In our records, the depositary, JPMorgan Chase Bank, N.A., was the only shareholder with respect to equity shares underlying ADSs. We are unable to estimate the number of record holders of ADSs in the United States.
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RELATED PARTY TRANSACTIONS
The following is a summary of transactions we have engaged in with our promoter and principal shareholder, HDFC Limited, and its subsidiaries and other related parties, including those in which we or our management have a significant equity interest.
All transactions with HDFC group companies and the other related parties listed below are on terms that we believe are as favorable to us as those that could be obtained from a
non-affiliated
third party in an
arm’s-length
transaction. In addition, the RBI guidelines stipulate that we can only transact business with HDFC Limited and its affiliates on an
arm’s-length
basis.
Housing Development Finance Corporation Limited (“HDFC Limited”)
Home Loans
We participate in the home loan business by selling loans provided by HDFC Limited. Under this arrangement, HDFC Limited approves and disburses the loans, which are kept on the books of HDFC Limited, and we are paid a sourcing fee. We also have an option but not an obligation to purchase up to 70 percent of the fully disbursed home loans sourced under this arrangement. During fiscal 2020, we purchased home loans aggregating Rs. 241,272.5 million from HDFC Limited under the above arrangement, some of which qualified as priority sector advances. We earned Rs. 2,841.4 million from HDFC Limited in fiscal 2020 as fees for selling these loans. We paid Rs. 5,612.2 million to HDFC Limited towards administration and servicing of these loans. An amount of Rs. 444.6 million was receivable from HDFC Limited as of March 31, 2020. An amount of Rs. 997.9 million was payable to HDFC Limited as of March 31, 2020.
Property
We have facilities located on properties owned or leased by HDFC Limited. In fiscal 2020, we paid an aggregate of Rs. 25.8 million as rental fees, maintenance and service charges to HDFC Limited for use of these properties. As of March 31, 2020, an amount of Rs. 4.9 million was payable to HDFC Limited. We believe that we pay market rates for these properties. As of March 31, 2020, HDFC Limited held a deposit of Rs. 4.7 million that we have paid to secure these leased properties.
Other Transactions
We also enter into foreign exchange and derivative transactions with HDFC Limited. The notional principal amount and the mark to market gains in respect of foreign exchange and derivative contracts outstanding as of March 31, 2020 were Rs. 120,099.5 million and Rs. 53.5 million, respectively. We have issued guarantee of Rs. 3.9 million on behalf of HDFC Limited. We earned Rs.19.4 million by rendering of various services to HDFC Limited. As of March 31, 2020, an amount of Rs. 0.3 million was receivable from HDFC Limited towards these services.
During fiscal 2020, we paid a dividend (including a special dividend) of Rs. 8,646.2 million to HDFC Limited.
HDFC Life Insurance Company Limited (“HDFC Life”)
In fiscal 2020, we paid HDFC Life Rs. 1,560.3 million as our contribution towards superannuation, gratuity and insurance premiums. In the same period, we received fees and commissions from HDFC Life aggregating Rs. 14,746.0 million for the sale of insurance policies and other services. As of March 31, 2020, Rs. 966.6 million was receivable from HDFC Life. During fiscal 2020, we sold to HDFC Life, debt securities of Rs. 26,213.8 million and purchased from HDFC Life, debt securities of Rs. 4,872.8 million. During fiscal 2020, we paid a dividend (including a special dividend) of Rs. 308.0 million to HDFC Life.
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HDFC Asset Management Company Limited (“HDFC AMC”)
In fiscal 2020, we earned Rs. 41.9 million fees from HDFC AMC for the distribution of units of mutual funds and other services rendered. As of March 31, 2020, fees of Rs. 0.2 million were receivable from HDFC AMC.
HDFC Ergo General Insurance Company Limited (“HDFC Ergo”)
We paid Rs. 1,559.2 million to HDFC Ergo towards insurance premiums in fiscal 2020. During fiscal 2020, we received Rs. 2,146.2 million for the sale of insurance policies and other services rendered. As of March 31, 2020, an amount of Rs. 183.7 million was receivable from HDFC Ergo. As of March 31, 2020, HDFC Ergo had invested Rs. 200.0 million in the Bank’s Tier II bonds. We have given a guarantee of Rs. 20.9 million on behalf of HDFC Ergo. During fiscal 2020, we sold to HDFC Ergo, debt securities of Rs. 1,547.2 million.
Credila Financial Services Private Limited (“Credila”)
During fiscal 2020, we earned Rs. 51.0 million fees from Credila for sourcing education loans. As of March 31, 2020, our investments in debt securities of Credila amounted to Rs. 6,000.0 million. As of March 31, 2020, Rs. 10.8 million was receivable from Credila.
HDFC Pension Management Company Limited (“HDFC PMC”)
We have given a guarantee of Rs. 9.0 million on behalf of HDFC PMC.
HDFC Investments Limited (“HDFC Investments”)
During fiscal 2020 we paid a dividend (including a special dividend) of Rs. 3,000.0 million to HDFC Investments.
HDFC Holdings Limited (“HDFC Holdings”)
During fiscal 2020, we paid a dividend (including a special dividend) of Rs. 0.1 million to HDFC Holdings.
HDFC ERGO Health Insurance Limited( “HDFC Ergo Health”) (formerly known as Apollo Munich Health Insurance Co. Ltd.)
In fiscal 2020, HDFC Ergo Health became a related party by virtue of becoming a subsidiary of HDFC Limited effective from January 9, 2020. During that period, we received Rs. 11.5 million for the sale of insurance policies and other services. As of March 31, 2020, Rs. 3.4 million was receivable from HDFC Ergo Health.
GRUH Finance Limited (“GRUH Finance”)
In fiscal 2020, Gruh Finance ceased to be a related party of the Bank as a result of the merger between Gruh Finance and Bandhan Bank Limited, which became effective on October 17, 2019. In fiscal 2020 we earned Rs. 5.1 million fees from GRUH Finance for services rendered.
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Key Management Personnel
In fiscal 2020, we paid a total remuneration of Rs. 275.6 million to Mr. Aditya Puri, our managing director and Mr. Kaizad Bharucha, our executive director. In the same fiscal year, we paid Rs. 3.1 million to Mr. Kaizad Bharucha, as rent for his residential accommodation. As of March 31, 2020, the outstanding balance of the security deposit we had given to Mr. Kaizad Bharucha was Rs.7.6 million. As of March 31, 2020, the outstanding balances of the housing loans given to Mr. Aditya Puri and Mr. Kaizad Bharucha were Rs. 21.2 million and Rs. 4.0 million, respectively. During fiscal 2020, we paid a dividend (including a special dividend) aggregating to Rs.104.0 million to Mr. Aditya Puri and Mr. Kaizad Bharucha.
Salisbury Investments Private Limited (“Salisbury Investments”)
We have paid a security deposit of Rs. 35.0 million to Salisbury Investments. In fiscal 2020, we paid rent of Rs. 6.6 million for the residential accommodation of our managing director to Salisbury Investments in which the relatives of the managing director hold a stake.
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TAXATION
Indian Taxation
The following is a summary of the principal Indian tax consequences for
non-resident
investors of the ADSs and the equity shares issuable on surrender of ADSs for equity shares (conversion). The summary is based on the provisions of Section 115AC and other applicable provisions of the Income Tax Act, 1961 (43 of 1961) (Indian Income Tax Act) and the Depositary Receipt Scheme, 2014 promulgated by the Government of India (the “Depositary Receipt Scheme”) (together, the “Section 115AC Regime”). Further, it only addresses the tax consequences for persons who are
non-residents,
as defined in the Indian Income Tax Act, who acquire ADSs or equity shares (upon conversion) and who hold such ADSs or equity shares (upon conversion) as capital asset as per Indian Income Tax Act, and does not address the tax consequences which may be relevant to other classes of
non-resident
investors, including dealers. The summary assumes that the person continues to remain a
non-resident
when income by way of dividends and capital gains is earned.
EACH INVESTOR IS ADVISED TO CONSULT HIS/HER TAX ADVISOR ABOUT THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO HIS/HER INVESTMENT IN THE ADSs.
The following discussion describes the material Indian income tax and stamp duty consequences of the purchase, ownership and disposal of the ADSs.
This summary is not intended to constitute a complete analysis of the tax consequences under Indian law of the acquisition, ownership and sale of the ADSs (or equity shares upon conversion) by
non-resident
investors. Investors should therefore consult their tax advisors about the tax consequences of such acquisition, ownership and sale including, specifically, tax consequences under Indian law, the laws of the jurisdiction of their residence, any tax treaty between India and their country of residence or the United States, the country of residence of the overseas depositary bank (the “Depositary”), as applicable, and, in particular, the Section 115AC regime. The Indian Income Tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the Section 115AC regime may be modified or amended by future amendments to the Indian Income Tax Act.
Taxation of Distributions
Prior to April 1, 2020 Indian companies distributing dividends were subject to a dividend distribution tax on the amount of any dividends distributed. The Finance Act 2020 amended
Section 115-O
of the Indian Income tax Act such that Indian companies are no longer required to pay dividend distribution tax on dividends declared, distributed or paid (whichever is earlier) after March 31, 2020. However, such dividends received on our shares are no longer
tax-exempt
to recipient under Section 10(34) of the Indian Income Tax Act (other than those where tax under section
115-O
or 115BBDA has been already paid).
Further, the provisions of Section 115BBDA which deals with tax on dividends to be paid by a resident specified assessee,
i.e.,
persons other than domestic companies, fund/university/trust/institution/other entities referred to clauses (iv), (v), (vi) and (via) under section 10(23C) and a trust or institution registered under section 12A or section 12AA or section 12AB provide that tax at rate of 10.0 percent on dividend income above Rs. 1 million is no longer applicable. In addition, section 115AC of the Indian Income tax Act provides that if total income of a
non-resident
includes income by way of dividends on ADRs, then the same shall be taxable at the rate of 10.0 percent plus applicable surcharge and cess. Accordingly, dividends distributed to the Depositary in respect of the equity shares underlying the ADSs, dividends distributed to ADS holders in respect of the ADSs, and dividends distributed to the holders of the equity shares following conversion of the ADSs into shares are taxable in the hands of holders at 10.0 percent plus applicable surcharge and cess
Distribution to
non-residents
of bonus ADSs or bonus shares or rights to subscribe for equity shares for the purposes of this section, (
“Rights
”) made with respect to ADSs or equity shares should not be subject to Indian tax provided that there is no disproportionate or
non-uniform
allotment.
Taxation of Capital Gains in Relation to ADSs
The taxation of capital gains in the hands of the
non-resident
investor in the time of ADSs and after conversion of ADSs into equity shares is set forth below.
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Transfer of ADSs between
non-residents
The transfer of ADSs by a
non-resident
to another
non-resident
outside India is covered under Section 115AC of the Indian Income Tax Act. However, pursuant to a specific exemption under Section 47(viia) of the Indian Income Tax Act, this is not considered a “transfer” and therefore is not liable to capital gains tax in India.
Conversion of ADSs into Equity Shares
The receipt of equity shares by a
non-resident
upon conversion of ADSs should not constitute a taxable event for Indian income tax purposes as per the provisions of section 47(x) of the Indian Income Tax Act.
Sale of Equity Shares Received Upon Conversion of ADSs
The Finance Act, 2018 has withdrawn the exemption granted to gains arising on account of transfer of a long-term capital asset being an equity shares listed on a recognized stock exchange. To tax such gains, new section 112A has been inserted under the Act. However, for the purpose of computing the period of holding of such equity share, provisions of Explanation 1(he) to section 2(42A) provides that the period of holding of the ADSs shall also be considered. If, on the other hand, equity shares received upon conversion of ADSs and the total period of holding is below 12 months from the date of request for redemption, and the sale is through a recognized stock exchange and STT is paid in respect of such sale, then the gains realized are considered short-term capital gains. Such gains are taxable at the rate of 15.0 percent, plus the applicable surcharge and education cess, under Section 111A(1)(b)(i) of the Indian Income Tax Act.
In respect of a sale and purchase of equity shares entered into on a recognized stock exchange, both the buyer and the seller are required to pay STT on the basis of the transaction value of the securities, if the transaction is a delivery based transaction, which means that the transaction involves actual delivery or transfer of shares. The seller of the shares is required to pay applicable STT of the transaction value of the securities if the transaction is a
non-delivery
based transaction, which means that the transaction is settled without taking actual delivery or transfer of the shares, as would be the case with our equity shares.
For the purpose of computing capital gains tax on the sale of the equity shares the cost of acquisition of equity shares received in exchange for ADSs will be determined on the basis of the prevailing price of the equity shares on the BSE or the NSE as of the date on which the depositary gives notice to its custodian for the delivery of such equity shares upon redemption of the ADSs. A
non-resident
holder’s holding period (for the purpose of determining the applicable Indian capital gains tax) in respect of equity shares received in exchange for ADSs commences on the date on which a request for redemption of the ADSs was made by the relevant Depositary to its custodian.
The provision of the Double Taxation Avoidance Agreement (the “DTAA”) entered into by the Government of India with the country of residence of the
non-resident
investor will be applicable to the extent they are more beneficial to the
non-resident
investor [section 90(2)]. The India-United States income tax treaty does not limit India’s ability to tax capital gains. However, section 90(2A) has made the beneficial provision clause provided under section 90(2) is now subject to the provisions of General Anti-Avoidance Rules under Chapter
X-A.
Tax on
Buy-back
of Shares
The Finance Act (No. 2), 2019 has proposed to amend section 115QA of the Act. The effect of this amendment would mean that a company listed on the stock exchange would have to pay the additional income tax on distributed income on the buyback of shares. Distributed income has been defined under the Act as the difference between the money received by the shareholder on buyback and the issue price of the shares which the Company would have received at the time of issuance of the shares.
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Tax Deduction at Source and return of income
Tax on dividends, long-term and short-term capital gains, if payable, as discussed above, upon a sale of equity shares, is to be deducted at source by the person responsible for paying the
non-resident,
in accordance with the relevant provisions of the Indian Income Tax Act, and the
non-resident
will be entitled to a certificate evidencing such tax deduction in accordance with the provisions of Section 203 of the Indian Income Tax Act. However, as per the provisions of Section 195 of the Indian Income Tax Act, any income other than income from salaries or other specific sections provided for the purpose of withholding tax shall be as per the Indian Income Tax Act or the provisions of the DTAA subject to Chapter
X-A
of the Act, (whichever is more beneficial to the assessee), unless a lower withholding tax certificate is obtained from the tax authorities. Further, the
non-resident
investor must furnish a certificate of his or her residence in a country outside India as per section 90(4) of the Indian Income Tax Act, and such other documents as may be prescribed as per the provision of section 90(5) of the Indian Income Tax Act, to get the benefit of the applicable DTAA. The withholding tax rates are subject to the recipients of income furnishing details, as may be prescribed, to the payer. Failure to provide such details will result in the applicable withholding tax rate being the higher of the rates in force or 20.0 percent, in accordance with section 206AA of the Indian Income Tax Act.
As per provisions of Sec. 115A, if a
non-resident
has income from dividends, interest, royalty or fees for technical services only during the year and tax has been deducted on the same and the rate of tax deduction is not less than the rate specified in section 115A, then the
non-resident
is not required to file the return of income in India.
Capital Losses
Neither Section 115AC nor the Depositary Receipt Scheme deals with capital losses arising on a transfer of equity shares in India. In general terms, losses arising from a transfer of a capital asset in India can only be set off against capital gains on transfer of another capital asset. Furthermore, a long-term capital loss can be set off only against a long-term capital gain. To the extent that losses are not absorbed in the year of transfer, they may be carried forward for a period of eight assessment years immediately succeeding the assessment year for which the loss was first determined by the assessing authority and may be set off against the capital gains assessable for such subsequent assessment years. In order to set off capital losses as above, the
non-resident
investor would be required to file appropriate and timely tax returns in India and undergo the customary assessment procedures.
Stamp Duty
There is no stamp duty on the sale or transfer of ADSs outside India.
Generally, the transfer of ordinary shares in physical form would be subject to Indian stamp duty at the applicable rate of the market value of the ordinary shares on the trade date, and such stamp duty customarily is borne by the transferee, i.e., the purchaser. In order to register a transfer of equity shares in physical form, it is necessary to present a stamped deed of transfer. An acquisition of shares in physical form from the depositary in exchange for ADSs representing such equity shares will not render an investor liable for Indian stamp duty. We will be required to pay stamp duty at the applicable rate on the share certificate. However, since our equity shares are compulsorily deliverable in dematerialized form (except for trades of up to 500 equity shares, which may be delivered in physical form) there would be no stamp duty payable in India on transfer.
Other Taxes
At present, there is no wealth tax, gift tax or inheritance tax which may apply to the ADSs or the underlying shares.
Material United States Federal Income Tax Consequences
The following summary describes certain material United States federal income tax consequences relating to an investment in our ADSs or equity shares as of the date hereof. This summary is based on the Internal Revenue Code, its legislative history, existing final, temporary and proposed Treasury Regulations, rulings and judicial decisions, all as of the date hereof and all of which are subject to prospective and retroactive rulings and changes.
This summary does not purport to address all United States federal income tax consequences that may be relevant to a particular investor, and you are urged to consult your own tax advisor regarding your specific tax situation. The summary applies only to investors who own ADSs or equity shares as “capital assets” (generally, property held for investment) under the Internal Revenue Code, and does not address the tax consequences that may be relevant to investors in special tax situations, including, for example:

| • |  | insurance companies;

| • |  | regulated investment companies and real estate investment trusts;

| • |  | tax-exempt organizations;

| • |  | broker-dealers;

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| • |  | traders in securities that elect to mark-to-market;

| • |  | banks or certain other financial institutions;

| • |  | United States investors whose functional currency is not the United States dollar;

| • |  | certain former citizens or residents of the United States subject to Section 877 of the Internal Revenue Code;

| • |  | investors that hold our ADSs or equity shares as part of a hedge, straddle or conversion transaction; or

| • |  | holders that own, directly, indirectly or constructively, 10.0 percent or more of our total combined voting stock.

Further, this summary does not address the alternative minimum tax consequences of an investment in ADSs or equity shares, or the indirect consequences to owners of equity or partnership interests in entities that own our ADSs or equity shares. In addition, this summary does not address the United States federal estate or gift, state, local and foreign tax consequences of an investment in our ADSs or equity shares.
You should consult your own tax advisor regarding the United States federal, state, local and foreign and other tax consequences of purchasing, owning and disposing of our ADSs or equity shares in your particular circumstances.
Taxation of U.S. Holders
You are a “U.S. Holder” if you are, for United States federal income tax purposes, a beneficial owner of ADSs or equity shares and you are:

| • |  | an individual who is a citizen or resident of the United States;

| • |  | a corporation (or other entity taxable as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

| • |  | an estate, the income of which is subject to United States federal income tax regardless of its source; or

| • |  | a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all substantial decisions of the trust, or if the trust has made a valid election to be treated as a United States person.

If a partnership holds ADSs or equity shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners of partnerships holding our ADSs or equity shares should consult their own tax advisors.
For United States federal income tax purposes, a U.S. Holder of an ADS will generally be treated as the owner of the equity shares represented by the ADS. Accordingly, no gain or loss will be recognized upon the exchange of an ADS for equity shares. A U.S. Holder’s tax basis in the equity shares will be the same as the tax basis in the ADS surrendered therefore, and the holding period in the equity shares will include the period during which the holder held the surrendered ADS.
The U.S. government has expressed concerns that parties to whom ADSs are released before the underlying shares are delivered to the depositary
(“pre-release”),
or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends that constitute qualified dividend income received by certain
non-corporate
holders. Accordingly, the availability of the reduced tax rate for qualified dividend income received by certain
non-corporate
U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries.
This discussion assumes that we are not, and will not become, a passive foreign investment company (“PFIC”) for United States federal income tax purposes, as described below.
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Distributions on ADSs or Equity Shares
The gross amount of cash distributions made by us to a U.S. Holder with respect to ADSs or equity shares generally will be taxable to such U.S. Holder as ordinary dividend income when such U.S. Holder receives the distribution, actually or constructively, to the extent paid out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes).
Subject to the discussion above regarding
“pre-release”,
if dividends constitute qualified dividend income (“QDI”), individual U.S. Holders of our ADSs or equity shares will generally pay tax on such dividends at a reduced rate, provided certain holding period requirements and other conditions are satisfied. Assuming we are not a PFIC in the taxable year in which we pay the dividends or in the preceding taxable year, dividends paid by us will be QDI if we are a qualified foreign corporation (“QFC”) at the time the dividends are paid. We believe that we are currently, and will continue to be, a QFC so we expect all dividends paid by us to be QDI for United States federal income tax purposes. Distributions in excess of our current and accumulated earnings and profits (as determined for United States federal income tax purposes) will be treated first as a
non-taxable
return of capital reducing such U.S. Holder’s tax basis in the ADSs or equity shares. Any distribution in excess of such tax basis will be treated as capital gain and will be either long-term or short-term capital gain depending upon whether the U.S. Holder held the ADSs or equity shares for more than one year. However, we currently do not, and we do not intend to, calculate our earnings and profits under United States federal income tax principles. Therefore, a U.S. Holder should expect that a distribution generally will be reported as dividend income. Dividends paid by us generally will not be eligible for the dividends-received deduction available to certain United States corporate shareholders and will generally be treated as “passive income” for purposes of computing allowable foreign tax credits for U.S. tax purposes. You should consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.
The amount of any cash distribution paid in Indian rupees will equal the United States dollar value of the distribution, calculated by reference to the exchange rate in effect at the time the distribution is received by the depositary, in the case of ADSs, or by the U.S. Holder, in the case of equity shares, regardless of whether the payment is in fact converted to United States dollars at that time. Generally, a U.S. Holder should not recognize any foreign currency gain or loss if such Indian rupees are converted into United States dollars on the date received and it is expected that the depositary will, in the ordinary course, convert foreign currency received by it as distributions into United States dollars on the date of receipt. However, if the Indian rupees are not converted into United States dollars on the date of receipt, gain or loss may be recognized upon a subsequent sale or other disposition of the Indian rupees. Such foreign currency gain or loss, if any, will be United States source ordinary income or loss.
Sale or Exchange of ADSs or Equity Shares
A U.S. Holder will generally recognize capital gain or loss upon the sale, exchange or other disposition of ADSs or equity shares measured by the difference between the United States dollar value of the amount received and the U.S. Holder’s tax basis (determined in United States dollars) in the ADSs or equity shares. Any gain or loss will be long-term capital gain or loss if the ADSs or equity shares in the sale, exchange or other taxable disposition have been held for more than one year and will generally be United States source gain or loss. The holding period for equity shares withdrawn from the depositary facility will include the holding period of the ADSs exchanged therefor. Your ability to deduct capital losses is subject to limitations. Under certain circumstances described under “
Indian Taxation of the ADSs—Taxation of Capital Gains in Relation to ADSs
”, you may be subject to Indian tax upon the disposition of ADSs or equity shares. In such circumstances and subject to applicable limitations a U.S. Holder entitled to the benefits of the India-United States income tax treaty may be able to credit the Indian tax against the U.S. Holder’s United States federal income tax liability. You should consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.
For cash-basis U.S. Holders who receive foreign currency in connection with a sale or other taxable disposition of equity shares, the amount realized will be based upon the United States dollar value of the foreign currency received with respect to such equity shares as determined on the settlement date of such sale, exchange or other taxable disposition.
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Pursuant to the Treasury Regulations applicable to foreign currency transactions, accrual-basis U.S. Holders may elect the same treatment required of cash-basis taxpayers with respect to a sale, exchange or other taxable disposition of ADSs or equity shares, provided that the election is applied consistently from year to year. Such election cannot be changed without the consent of the Internal Revenue Service (the “IRS”). Accrual-basis U.S. Holders that do not elect to be treated as cash-basis taxpayers for this purpose may have foreign currency gain or loss for United States federal income tax purposes because of differences between the United States dollar value of the foreign currency received prevailing on the date of such sale, exchange or other taxable disposition and the value prevailing on the date of payment. Any such foreign currency gain or loss will generally be treated as ordinary income or loss that is sourced from within the United States, in addition to the gain or loss, if any, recognized on the sale, exchange or other taxable disposition of ADSs or equity shares.
Medicare Tax
Certain U.S. Holders who are individuals, estates, or trusts are required to pay a 3.8 percent Medicare surtax on all or part of that holder’s “net investment income”, which includes, among other items, dividends on, and capital gains from the sale or other taxable disposition of, the ADSs or equity shares, subject to certain limitations and exceptions. Prospective investors should consult their own tax advisors regarding the effect, if any, of this surtax on their ownership and disposition of the ADSs or equity shares.
Passive Foreign Investment Company Rules
U.S. Holders generally will be subject to a special, adverse tax regime that would differ in certain respects from the tax treatment described above if we are, or were to become, a PFIC for United States federal income tax purposes. Although the determination of whether a corporation is a PFIC is made annually and thus may be subject to change, based on an active banking exception, we do not believe that we are, nor do we expect to become, a PFIC. However, the matter is not free from doubt. We urge you to consult your own tax advisor regarding the potential application of the PFIC rules.
Information with Respect to Foreign Financial Assets
Individuals (and, under proposed Treasury Regulations, certain entities) who are U.S. Holders that own “specified foreign financial assets”, including stock of a
non-U.S.
corporation not held through a financial institution, with an aggregate value in excess of certain dollar thresholds may be required to file an information report with respect to such assets on IRS Form 8938 with their United States federal income tax returns. Penalties apply for failure to properly complete and file IRS Form 8938. U.S. Holders are encouraged to consult their tax advisors regarding the application of this reporting requirement to their ownership of our ADSs or equity shares.
Taxation of
Non-U.S.
Holders
A
“Non-U.S.
Holder” is a beneficial owner of our ADSs or equity shares that is neither a U.S. Holder nor a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes. If a partnership holds our ADSs or equity shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners in partnerships holding our ADSs or equity shares should consult their own tax advisors.
Distributions on ADSs or Equity Shares
Non-U.S.
Holders generally will not be subject to United States federal income or withholding tax on dividends received from us with respect to ADSs or equity shares, unless such income is considered effectively connected with the
Non-U.S.
Holder’s conduct of a United States trade or business for United States federal income tax purposes (and, if required by an applicable income tax treaty, the income is attributable to a permanent establishment maintained in the United States).
Sale or Exchange of ADSs or Equity Shares
Non-U.S.
Holders generally will not be subject to United States federal income tax on any gain realized upon the sale, exchange or other taxable disposition of ADSs or equity shares unless:

| • |  | such gain is considered effectively connected with the Non-U.S. Holder’s conduct of a United States trade or business (and, if required by an applicable income tax treaty, the income is attributable to a permanent establishment maintained in the United States); or

| • |  | such Non-U.S. Holder is an individual that is present in the United States for 183 days or more during the taxable year of the disposition and certain other conditions are met.

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In addition, if you are a corporate
Non-U.S.
Holder, any effectively connected dividend income or gain (subject to certain adjustments) may be subject to an additional branch profits tax at a rate of 30.0 percent (or such lower rate as may be specified by an applicable income tax treaty).
Backup Withholding and Information Reporting
In general, dividends on ADSs or equity shares, and payments of the proceeds of a sale, exchange or other taxable disposition of ADSs or equity shares, paid to a U.S. Holder within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding at a rate currently equal to 24.0 percent unless the U.S. Holder:

| • |  | is a corporation or other exempt recipient; or

| • |  | provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding applies to such U.S. Holder.

Non-U.S.
Holders generally are not subject to information reporting or backup withholding. However, such
Non-U.S.
Holders may be required to provide a certification to establish their
non-U.S.
status in connection with payments received within the United States or through certain U.S.-related financial intermediaries.
Backup withholding is not an additional tax. Holders generally will be allowed a credit of the amount of any backup withholding against their United States federal income tax liability or may obtain a refund of any amounts withheld under the backup withholding rules that exceed such income tax liability by filing a refund claim with the IRS.
Foreign Account Tax Compliance Act
Sections 1471 through 1474 of the Internal Revenue Code (provisions commonly known as FATCA) impose (a) certain reporting and due diligence requirements on foreign financial institutions and, (b) potentially require such foreign financial institutions to deduct a 30.0 percent withholding tax from (i) certain payments from sources within the United States, and (ii) “foreign passthru payments” (which is not yet defined in current guidance) made to certain
non-U.S.
financial institutions that do not comply with such reporting and due diligence requirements or certain other payees that do not provide required information. The United States has entered into a number of IGAs with other jurisdictions with respect to FATCA which may modify the operation of this withholding. The Bank as well as relevant intermediaries such as custodians and depositary participants are classified as financial institutions for these purposes. Given that India has entered into a Model 1 IGA with the United States for giving effect to FATCA, Indian financial institutions such as the Bank are also required to comply with FATCA, based on the terms of the IGA and relevant rules made pursuant thereto.
Under current guidance it is not clear whether or to what extent payments on ADSs or equity shares will be considered “foreign passthru payments” subject to FATCA withholding or the extent to which withholding on “foreign passthru payments” will be required under the applicable IGA. Investors should consult their own tax advisers on how the FATCA rules may apply to payments they receive in respect of the ADSs or equity shares.
Should any withholding tax in respect of FATCA be deducted or withheld from any payments arising to any investor, neither the Bank nor any other person will pay additional amounts as a result of the deduction or withholding.
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SUPERVISION AND REGULATION
The main legislation governing commercial banks in India is the Banking Regulation Act, 1949 (the “Banking Regulation Act”). The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act, 2013 and any other law currently in force. Other important laws include the Reserve Bank of India Act, 1934, the Negotiable Instruments Act, 1881, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the “SARFAESI Act”) and the Bankers’ Books Evidence Act, 1891. Additionally, the RBI, from time to time, issues guidelines to be followed by banks. Compliance with all regulatory requirements is evaluated with respect to our financial statements under Indian GAAP.
RBI Regulations
Commercial banks in India are required under the Banking Regulation Act to obtain a license from the RBI to carry on banking business in India. Before granting the license, the RBI must be satisfied that certain conditions are complied with, including (i) that the Bank is or will be in a position to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the Bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the general character of the proposed management of the Bank will not be prejudicial to the public interest or the interest of its depositors; (iv) that the Bank has adequate capital and earnings prospects; (v) that public interest will be served if a license is granted to the Bank; (vi) that having regard to the banking facilities available in the proposed principal area of operations of the Bank, the potential scope for expansion of banks already in existence in the area and other relevant factors, the grant of the license would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth; and (vii) any other condition, the fulfillment of which would, in the opinion of the RBI, be necessary to ensure that the carrying on of banking business in India by the Bank will not be prejudicial to the public interest or the interests of the depositors. The RBI can cancel the license if the Bank fails to meet the above conditions or if the Bank ceases to carry on banking operations in India.
Being licensed by the RBI, we are regulated and supervised by the RBI. It requires us to furnish statements, information and certain details relating to our business. The RBI has issued guidelines for commercial banks on recognition of income, classification of assets, valuation of investments, maintenance of capital adequacy and provisioning for
non-performing
and restructured assets among others. The RBI has set up a Board for Financial Supervision, under the chairmanship of its Governor, with the primary objective of undertaking consolidated supervision of the financial sector comprised of commercial banks, financial institutions and
non-banking
finance companies (“NBFCs”). This Board oversees the functioning of the Department of Banking Supervision, Department of
Non-Banking
Supervision and Financial Institutions Division of the RBI and gives directions relating to regulatory and supervisory issues. The appointment of the auditors of banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest.
Entry of New Banks in the Private Sector
In February 2013, the RBI released guidelines for licensing of new banks in the private sector. The key items covered under these guidelines are as follows: (i) promoters eligible to apply for banking licenses; (ii) corporate structure; (iii) minimum voting equity capital requirements for new banks; (iv) regulatory framework; (v) foreign shareholding cap; (vi) corporate governance; (vii) prudential norms; (viii) exposure norms; and (ix) business plan. The RBI has permitted private sector entities owned and controlled by Indian residents and entities in the public sector in India to apply to the RBI for a license to operate a bank through a wholly owned
non-operative
financial holding company (“NOFHC”), subject to compliance with certain specified criteria. Such a NOFHC is permitted to be the holding company of the bank as well as any other financial services entity, with the objective that the holding company ring-fences the regulated financial services entities in the group, including the bank, from other activities of the group. Pursuant to these guidelines, two banks, namely IDFC First Bank and Bandhan Bank, commenced banking operations in fiscal 2016.
In November 2014, RBI released guidelines on licensing of payments banks and small finance banks in the private sector (the “November 2014 Guidelines”). The objective of setting up of payments banks is to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to migrant labor workforce, low income households, small businesses, other unorganized sector entities and other users. Payments banks are allowed to accept deposits of up to Rs. 100,000. However, they are not allowed to undertake lending activities or issue credit cards. The foreign shareholding in payments banks would be as per the Foreign Direct Investment (“FDI”) policy for private sector banks, as amended from time to time. In August 2015, the RBI gave
in-principle
approvals to 11 applicants to set up payments banks. In September 2015, the RBI also granted
“in-principle”
approval to ten applicants to setup small finance banks. All 10 applicants have received their final license. The November 2014 Guidelines stated that after gaining experience in dealing with small finance banks, the RBI would consider “on tap” licensing of these banks. Accordingly, in December 2019, the RBI released guidelines for
“on-tap”
licensing of small finance banks (the “December 2019 Guidelines”). Further, the RBI, in its circular dated March 28, 2020, issued certain modifications to the November 2014 Guidelines to harmonize them with the December 2019 Guidelines.
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In August 2016, the RBI released the guidelines for
“on-tap”
licensing of universal banks in the private sector. The guidelines aim at moving from the current “stop and go” licensing approach (wherein the RBI notifies the licensing window during which a private entity may apply for a banking license) to a continuous or
“on-tap”
licensing regime. Among other things, the new guidelines specify conditions for the eligibility of promoters, corporate structure and foreign shareholdings. One of the key features of the new guidelines is that, unlike the February 2013 guidelines (mentioned above), the new guidelines make the NOFHC structure
non-mandatory
in the case of promoters being individuals or standalone promoting/converting entities which do not have other group entities.
In May 2016, the RBI also issued the Reserve Bank of India (Ownership in Private Sector Banks) Directions, 2016. These guidelines prescribe requirements regarding shareholding and voting rights in relation to all private sector banks licensed by the RBI to operate in India. The guidelines specify the following ownership limits for shareholders based on their categorization:

(i) | In the case of individuals and non-financial entities (other than promoters/promoter group), 10.0 percent of the paid up capital. However, in the case of promoters being individuals and non-financial entities in existing banks, the permitted promoter/promoter group shareholding shall be as prescribed under the February 2013 guidelines, i.e., 15.0 percent.

(ii) | In the case of entities from the financial sector, other than regulated or diversified or listed, 15.0 percent of the paid-up capital.

(iii) | In the case of “regulated, well diversified, listed entities from the financial sector” shareholding by supranational institutions, public sector undertaking or government, up to 40.0 percent of the paid-up capital is permitted for both promoters/promoter group and non-promoters.

Financial Holding Company Structure in India
The RBI constituted a Working Group in June 2010 to examine the feasibility of introducing a Financial Holding Company (“FHC”) Structure in India under the chairpersonship of the Deputy Governor. In May 2011, the Working Group submitted its report to recommend a roadmap for the introduction of a holding company structure in the Indian financial sector together with the required regulatory, supervisory and legislative framework. The report served as a guiding document for the introduction of an alternate organizational structure for banks and financial conglomerates in India. Key recommendations of the Working Group were as follows: (i) FHC structure; (ii) regulatory framework; (iii) statutory and taxation related changes; (iv) caps on expansion in
non-banking
business; (v) capital raising; and (vi) transitioning to the FHC structure.
In August 2013, the RBI issued a discussion paper titled “Banking Structure in India—The Way Forward”. The key recommendations in the paper relate to: (i) adoption of the FHC structure; (ii) differential licensing (allowing banks to be licensed to provide only specified services); (iii) consolidation of
large-sized
Indian banks; (iv) requiring large foreign banks to operate through subsidiaries in India and the reduction of the Government’s ownership of state-owned banks to ease the burden on the state where these banks will have to be capitalized to comply with Basel III requirements.
On April 7, 2014, the RBI introduced a new category of NBFCs called NOFHCs and, accordingly, amended the
Non-Banking
Financial
(Non-Deposit
Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. The RBI directions define a NOFHC as a
non-deposit
taking NBFC which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by RBI or by any other financial regulator, to the extent permissible under the applicable regulatory prescriptions.
Under the guidelines for
“on-tap”
licensing of universal banks in the private sector, the RBI has made the NOFHC structure
non-mandatory
in the case of promoters being individuals or standalone promoting/converting entities which do not have other group entities. Under the December 2019 Guidelines, if there is an intermediate company between the promoting entity and the small finance bank, such an intermediate company should be a NOFHC. However, if the small finance bank is set up under a holding company structure without a NOFHC, such holding company is required to be registered as a NBFC –CIC with the RBI.
Regulations Relating to the Opening of Banking Outlets
Section 23 of the Banking Regulation Act provides that banks must obtain the prior permission of the RBI to open new banking outlets. The RBI may cancel a license for violations of the conditions under which it was granted.
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The RBI issues instructions and guidelines to banks on branch authorization from time to time. Centers are categorized as Tier 1 to Tier 6 based on population (as per the 2011 census) and classified in the following manner:

| • |  | Tier 1—100,000 and above;

| • |  | Tier 2—50,000 to 99,999;

| • |  | Tier 3—20,000 to 49,999;

| • |  | Tier 4—10,000 to 19,999;

| • |  | Tier 5—5,000 to 9,999; and

| • |  | Tier 6—Less than 5,000.

The RBI, with effect from September 19, 2013, granted general permission to domestic scheduled commercial banks like us to open banking outlets in Tier 1 to Tier 6 centers, subject to reporting to the RBI and prescribed conditions such as (i) at least 25 percent of the total number of banking outlets opened during the fiscal year must be opened in unbanked rural (Tier 5 and Tier 6) centers, which are defined as centers that do not have a brick and mortar structure of any scheduled commercial bank for customer-based banking transactions; and (ii) the total number of banking outlets opened in Tier 1 centers during a fiscal cannot exceed the total number of banking outlets opened in Tier 2 to Tier 6 centers and all centers in the north eastern states of India and the state of Sikkim. The RBI also permitted banks to open banking outlets in Tier 1 centers over and above the number permitted in accordance with the paragraph above, as an incentive for opening more banking outlets in underbanked districts of underbanked States, subject to specified conditions.
The RBI also permitted scheduled commercial banks to install
off-site/mobile
ATMs at centers/places identified by them, without the need to get permission from the RBI in each case. This, however, is subject to certain conditions, including for closure/shifting of any such
off-site/mobile
ATMs, wherever the RBI considers it necessary. Banks need to report full details of the
off-site
ATMs installed by them in terms of the above general permission as a part of the periodic reports submitted to the RBI.
In May 2017, the RBI has further liberalized the branch authorization policy. Some of the key changes made pursuant to the revised guidelines are as follows:

| • |  | The concept of “branch” has been replaced by “banking outlets”. A banking outlet for a domestic scheduled commercial bank has been defined as a fixed point service delivery unit, manned by either bank’s staff or its business correspondent where services of acceptance of deposits, encashment of checks/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week.

| • |  | At least 25.0 percent of the total number of “banking outlets” opened during a financial year must be opened in unbanked rural centers (Tier 5 and Tier 6). The definition of unbanked rural centers has been modified to mean a rural (Tier 5 and 6) center that does not have a CBS enabled banking outlet of a scheduled commercial bank.

| • |  | The restriction on the number of banking outlets that may be opened in Tier 1 centers has been removed.

Capital Adequacy Requirements
The RBI issued guidelines for the implementation of the New Capital Adequacy Framework (“Basel II”). In order to maintain consistency and harmony with international standards, foreign banks in India and Indian banks having operational presence outside India were advised to adopt the Standardized Approach for Credit Risk and Basic Indicator Approach for Operational Risk with effect from March 31, 2008, while other commercial banks were advised to adopt these approaches with effect from March 31, 2009.
Under these guidelines, we were required to maintain a minimum ratio of capital to risk-adjusted assets and
off-balance
sheet items of 9 percent, at least 6 percent of which must be Tier I capital. Until March 31, 2013, we were also required to ensure that our Basel II minimum capital requirement continued to be higher than the prudential floor of 80 percent of the minimum capital requirement computed as per the Basel I framework for credit and market risks. In May 2013, the RBI withdrew the requirement of parallel run and prudential floor for implementation of Basel II
vis-à-vis
Basel I.
In May 2012, the RBI released guidelines on implementation of Basel III capital regulations in India with effect from April 1, 2013. The RBI has also issued master circular on “Basel III Capital Regulations” consolidating all relevant guidelines on Basel III. The key items covered under these guidelines include: (i) improving the quality, consistency and transparency of the capital base; (ii) enhancing risk coverage; (iii) graded enhancement of the total capital requirement; (iv) introduction of capital conservation buffer and countercyclical buffer; and (v) supplementing the risk-based capital requirement with a leverage ratio. One of the major changes in the Basel III capital regulations is that the Tier I capital will predominantly consist of common equity of the banks which includes common shares, reserves and stock surplus. Innovative instruments and perpetual
non-cumulative
preference share will not be considered a part of
CET-I
capital. Basel III also defines criteria for instruments to be included in Tier II capital to improve their loss absorbency. The guidelines also set out criteria for loss absorption through
conversion/write-off
of all
non-common
equity regulatory capital instruments at the point of
non-viability.
The point of
non-viability
is defined as a trigger event upon the occurrence of which
non-CET-I
and Tier II instruments issued by banks in India may be required to be, at the option of the RBI, written off or converted into common equity.
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Under the Basel III capital regulations, the capital funds of a bank are classified into
CET-I,
Additional Tier I
(“AT-I”)
and Tier II capital. Tier I capital, comprised of, among others,
CET-I
and
AT-I,
provides the most permanent and readily available support against unexpected losses.
CET-I
capital is comprised of
paid-up
equity capital and reserves consisting of any statutory reserves, free reserves and capital reserves. By its circular dated March 2016, the RBI has allowed banks, at their discretion, to include foreign currency translation reserves arising due to the translation of financial statements of their foreign operations in terms of Accounting Standard (“AS”) 11 as
CET-I
capital at a discount of 25.0 percent, subject to certain conditions. Further, the RBI has permitted deferred tax assets which relate to timing differences (other than those related to accumulated losses) to be recognized in the
CET-I
capital up to 10.0 percent of a bank’s
CET-I
capital, at the discretion of banks (instead of full deduction from
CET-I
capital), subject to certain terms and conditions.
AT-I
capital is comprised of, among others, perpetual
non-cumulative
preference shares and debt capital instruments eligible for inclusion as
AT-I
capital. Regulatory adjustments/deductions such as equity investments in financial subsidiaries (in accordance with the directions of the RBI), intangible assets, deferred tax assets (in the manner and to the extent, specified by the RBI), gaps in provisioning and losses in the current period and those brought forward from the previous period are required to be deducted from
CET-I
capital in a phased manner and fully deducted therefrom by March 31, 2017.
Tier II capital consists of revaluation reserves at a discount of 55.0 percent, general provisions and loss reserves (allowed up to a maximum of 1.25 percent of the total credit risk weighted assets), hybrid debt capital instruments (which combine features of both equity and debt securities) such as perpetual cumulative preference shares, redeemable
non-cumulative
preference shares/redeemable cumulative preference shares and debt capital instruments (which should be fully paid up, with a fixed maturity of minimum five years and should not contain clauses that permit
step-ups
or other incentives to redeem). In its circular dated March 1, 2016, the RBI has stated that revaluation reserves arising out of a change in the carrying amount of a bank’s property consequent to its revaluation may, at the discretion of the bank, be considered as
CET-I
capital. As of January 1, 2013, capital instruments which are not Basel III compliant (such as capital debt instruments with
step-ups)
are being
phased-out
in a gradual manner (at a rate of 10.0 percent per year). In April 2018, the RBI advised all banks to create an Investment Fluctuation Reserve (the “IFR”) with effect from the financial year
2018-19,
with a view to building up adequate reserves to protect against an increase in yields in the future. The IFR is eligible for inclusion in Tier II capital, and recently the RBI has clarified that there is no ceiling on the percentage of IFR which may be included as a part of the Tier II capital.
Risk adjusted assets considered for determining the capital adequacy ratios are the aggregation of risk weighted assets of credit risk, market risk and operational risk.
In respect of credit risk, the risk adjusted assets and
off-balance
sheet items considered for determining the capital adequacy ratio are the risk weighted total of certain funded and
non-funded
exposures. Degrees of credit risk expressed as percentage weighting have been assigned to various balance sheet asset items and conversion factors to
off-balance
sheet items. The value of each item is multiplied by the relevant weight and/or conversion factor to arrive at risk-adjusted values of assets and
off-balance
sheet items. Standby letters of credit and general guarantees are treated similarly to funded exposures and are subject to a 100.0 percent credit conversion factor. The credit conversion factor for certain
off-balance
sheet items such as performance bonds, bid bonds and standby letters of credit related to particular transactions is 50.0 percent while that for short-term self-liquidating trade-related contingencies such as documentary credits collateralized by the underlying shipments is 20.0 percent. The credit conversion factor for other commitments like formal standby facilities and credit lines is either 20.0 percent or 50.0 percent, based on the original maturity of the facility. Differential risk weights for credit exposures linked to their external credit rating or asset class have been prescribed.
The RBI has prescribed a matrix of risk weights varying from 35.0 percent to 75.0 percent (since revised to a maximum of 50.0 percent for loans sanctioned on or after June 7, 2017) for individual housing loans based on the size of the loan and the
loan-to-value
ratios. Consumer credit, including personal loans, but excluding credit card receivables carry a risk weight of 100.0 percent or higher corresponding to the rating of the exposure, or lack of such rating. The risk weight for capital markets exposure and credit card receivables is 125.0 percent, or higher corresponding to the rating of the exposure, or lack of such rating. Exposure to venture capital funds are risk weighted at 150.0 percent. Other loans/credit exposures are risk-weighted based on their ratings or turnover. The RBI has also prescribed detailed guidelines for the capital treatment of securitization exposures. The RBI requires banks in India to compute the capital requirements for operational risk under the “Basic Indicator Approach”. Under this approach, banks must hold capital for operational risk equal to the average over the previous three years of a fixed percentage of positive annual gross income. The BCBS has set this percentage at 15.0 percent, which has been followed by the RBI.
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Banks are required to maintain a capital charge for market risks on their trading books in respect of securities included under the
held-for-trading
and
available-for-sale
categories, open gold position, open foreign exchange position limits, trading positions in derivatives and derivatives entered into for hedging trading book exposures. With effect from fiscal 2015, banks are also required to quantify incurred credit valuation adjustment losses and standard credit valuation adjustment capital charge on their derivatives portfolio.
The Basel III capital regulations require a bank to maintain a minimum
CET-I
capital ratio of 5.5 percent, a minimum Tier I capital ratio of 7.0 percent and a capital conservation buffer of 2.5 percent of its risk weighted assets with the minimum overall capital adequacy ratio of 9.0 percent of its risk weighted assets. The transitional arrangements for the implementation of Basel III capital regulations in India began from April 1, 2013, and the guidelines were to be fully
phased-in
and implemented as of March 31, 2019. In January 2019, the RBI has decided to defer the implementation of the last tranche of capital conservation buffer from March 31, 2019 to March 31, 2020. In response to the
COVID-19
pandemic, the RBI in its circular dated March 27, 2020, further deferred the implementation of the last tranche of the capital conservation buffer from March 31, 2020 to September 30, 2020. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
A lower
pre-specified
trigger at
CET-I
of 5.5 percent of risk weighted assets will apply and remain effective before September 30, 2020; from this date the trigger will be raised to
CET-I
of 6.125 percent of risk weighted assets for all such instruments. Additional Tier I instruments issued on, or after, September 30, 2020 will have only one
pre-specified
trigger of
CET-I
of 6.125 percent of risk weighted assets. The capital requirement, including the capital conservation buffer, will be 11.5 percent once these guidelines are fully phased in. In September 2014, the RBI reviewed its guidelines on Basel III capital regulations with a view to facilitate issuance of
non-equity
regulatory capital instruments by banks under Basel III framework. Accordingly, certain specific eligibility criteria of such instruments were amended. These amendments were also intended to incentivize investors and to increase the investor base.
Domestic Systemically Important Banks
In July 2014, the RBI released a framework for dealing with domestic systemically important banks
(“D-SIBs”).
The
D-SIB
framework requires that the RBI disclose the names of banks designated as
D-SIBs
every year in August. Banks identified as systemically important based on their size, inter-connectedness in the financial system, complexity and lack of readily available substitutes or financial infrastructure would be required to maintain additional
CET-I
capital ranging from 0.2 percent to 0.8 percent of risk-weighted assets
(“RWAs”). D-SIBs
may implement the increased capital requirement in a phased manner from April 2016 to April 2019. Our Bank has been classified as a domestic systemically important bank by the RBI during fiscal 2018. The higher capital requirements under the bucketing structure, as provided in the
D-SIB
Framework, in the form of additional
CET-I,
were
phased-in
beginning on April 1, 2018, and became fully effective from April 1, 2019. The RBI, in its circular dated June 28, 2019, reduced the minimum leverage ratio from 4.5 percent to 4.0 percent for
D-SIBs
and 3.5 percent for other banks, with effect from October 1, 2019.
Countercyclical Capital Buffer
In February 2015, the RBI released guidelines for implementation of Countercyclical Capital Buffer (“CCCB”). The CCCB regime requires banks to build up a buffer of capital in good times which may be used to maintain flow of credit to the real sector in difficult times. It also achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk. While the framework for CCCB has taken effect, the activation of CCCB will take place when notified by the RBI. Some of the key points mentioned in the guidelines are as follows: (i) CCCB may be maintained in the form of CET I capital or other fully loss absorbing capital only, and the amount of the CCCB may vary from 0.0 to 2.5 percent of total risk weighted assets of the banks; (ii) the CCCB decision would normally be
pre-announced
with a lead time of four quarters; however, depending on the CCCB indicators, the banks may be advised to build up the requisite buffer in a shorter time period; and (iii) banks will be subject to restrictions on discretionary distributions (including dividend payments, share buybacks and staff bonus payments) if they do not meet the requirement on CCCB. In its first
bi-monthly
monetary policy statement for fiscal 2017, the RBI stated that, following the review and empirical testing of CCCB indicators, it was not necessary to activate the CCCB regime at that point in time. The RBI reiterated this statement in its notification dated April 1, 2020, and stated that it is not necessary to activate CCCB for a period of one year or earlier, as may be necessary.
Loan Loss Provisions and
Non-Performing
Assets
The RBI has issued guidelines on income recognition, asset classification, provisioning standards and the valuation of investments applicable to banks, which are revised from time to time. These guidelines are applied for the calculation of impaired assets under Indian GAAP. For our consolidated financial statements prepared in accordance with U.S. GAAP, loan loss provision is made in accordance with ASC 310 and ASC 450 and as described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under note 2i, “Allowance for credit losses”, to our consolidated financial statements. The principal features of the RBI guidelines are set forth below. It should be noted that in light of the impact of the
COVID-19
pandemic, the RBI relaxed certain requirements including in relation to asset classification, provisioning and restructuring of loans. See also “—
COVID-19
Regulatory Package
” below.
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Non-Performing
Assets
An asset, including a leased asset, becomes
non-performing
when it ceases to generate income for the bank.
The RBI guidelines stipulate the criteria for determining and classifying a
non-performing
asset (“NPA”). An NPA is a loan or an advance where:

| • |  | interest and/or an installment of principal remain overdue (as defined below) for a period of more than 90 days in respect of a term loan;

| • |  | the account remains “out-of-order” (as defined below) in respect of an overdraft or cash credit for more than 90 days;

| • |  | the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted;

| • |  | the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops;

| • |  | the installment of principal or interest thereon remains overdue for one crop season for long duration crops;

| • |  | the amount of a liquidity facility remains outstanding for more than 90 days, in respect of securitization transactions undertaken in accordance with the RBI guidelines on securitization dated February 1, 2006; or

| • |  | in respect of derivative transactions, the overdue receivables representing the positive mark-to-market value of a derivative contract, remain unpaid for a period of 90 days from the specified due date for payment.

Banks should classify an account as an NPA only if the interest imposed during any quarter is not fully repaid within 90 days from the end of the relevant quarter.
“Overdue”
Any amount due to the Bank under any credit facility is “overdue” if it is not paid on the due date fixed by the Bank.
“Out-of-Order”
Status
An account should be treated as
“out-of-order”
if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. In circumstances where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but (i) there are no credits continuously for a period of 90 days as of the date of the balance sheet of the Bank; or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts should be treated as
“out-of-order”.
Asset Classification
Banks are required to classify NPAs into the following three categories based on the period for which the asset has remained
non-performing
and the realizability of the dues:
Sub-standard
Assets:
Assets that are
non-performing
for a period less than or equal to 12 months. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and is characterized by the distinct possibility that the Bank will sustain some loss if deficiencies are not corrected.
Doubtful Assets:
An asset will be classified as doubtful if it remains in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as
sub-standard,
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
Loss Assets:
Assets on which losses have been identified by the Bank or internal or external auditors or on inspection by the RBI, but the amount has not been written off fully. Such an asset is considered uncollectable and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
There are separate asset classification guidelines that will apply to projects under implementation before the commencement of their commercial operation.
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Restructured Assets
The RBI has issued prudential guidelines on the restructuring of advances by banks. The guidelines essentially deal with the norms/conditions, the fulfillment of which is required to maintain the category of the restructured account as a “standard asset”. A standard asset can be restructured by rescheduling principal repayments and/or the interest element, subject to compliance with certain conditions, but must be separately disclosed as a restructured asset.
The following categories of advances are not eligible for being classification as a standard asset upon restructuring: (a) consumer and personal advances; (b) advances classified as capital market exposures; and (c) advances classified as commercial real estate exposures.
The criteria to be fulfilled for the restructured advance to be treated as a “standard asset” includes the viability of the business, infusion of promoters’ contribution, full security coverage and cap on maximum tenor of repayment. The economic loss, if any, arising as a result of a restructuring needs to be provided for in the books of the Bank. The provision is computed as the difference between the fair value of the account before and after restructuring.
Similar guidelines apply to
sub-standard
assets.
Sub-standard
accounts which have been subjected to restructuring, whether in respect of a principal installment or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e., a period of one year after the date when the first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period.
In May 2013, the RBI issued additional guidelines in relation to restructured assets wherein such regulatory forbearance regarding asset classification on restructured accounts will be withdrawn for all restructurings with effect from April 1, 2015, with the exception of provisions related to changes in “Date of Commencement of Commercial Operations” (“DCCO”) in respect of infrastructure as well as
non-infrastructure
project loans. This implies that a standard account would immediately be classified as a
sub-standard
account upon restructuring. These guidelines are also applicable to
non-performing
assets, which, upon restructuring, would continue to have the same asset classification as prior to the restructuring and may be classified into lower categories in accordance with applicable asset classification norms based on the
pre-restructuring
repayment schedule. However, the standard asset classification may be retained, subject to specified conditions, in respect of certain loans granted for infrastructure projects given the importance of the infrastructure sector in national growth and development and the uncertainty involved in obtaining approvals from various authorities. The RBI has, in its circular dated February 7, 2020, issued guidelines regarding the deferment of the DCCO for projects in
non-infrastructure
and commercial real estate (“CRE”) sectors, and clarified that deferment in certain instances will not be treated as restructuring.
Resolution of Stressed Assets
In June 2019, the RBI issued the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019. These directions replace the erstwhile framework for the resolution of stressed assets (including the framework for revitalizing distressed assets, the joint lenders forum mechanism, strategic debt restructuring, and the scheme of sustainable structuring of stressed assets).
As set out in the circular, lenders must recognize developing stress in loan accounts, immediately on default. Lenders must put in place policies approved by their board of directors for the resolution of stressed assets, including the timelines for such resolution, and they are expected to implement the resolution plan before default occurs. If a default occurs, lenders have a review period of 30 days within which their resolution strategy must be decided. The RBI directions provide the timelines within which the banks are required to implement the resolution plan, depending on the aggregate exposure of the borrower to the lender. For large accounts with the aggregate exposure of the lenders being Rs. 20 billion or more, the RBI has specified that the resolution plan must be implemented within 180 days from the end of the review period. If implementation of the resolution plan is delayed, lenders are required to make an additional provision of 20.0 percent of the total outstanding in addition to any provisions already made and those provisions required to be made as per the asset classification status of the borrower, subject to a total provision of 100.0 percent of the total amount outstanding. Lenders are required to make appropriate disclosures of implemented resolution plans in their financial statements under “Notes on Accounts”.
Act Relating to Recovery of NPAs
As a part of the financial sector reforms, the Government introduced the SARFAESI Act. The SARFAESI Act provides banks and other lenders increased powers in the recovery of the collateral underlying NPAs.
Provisioning and Write-Offs
Provisions are based on guidelines specific to the classification of assets. The following guidelines apply to various asset classifications:
Standard Assets
Banks are required to make general provisions for standard assets for the funded outstanding on a global portfolio basis. The provisioning requirement for housing loans at teaser rates is 2.0 percent and will reduce to 0.40 percent after one year from the date on which the teaser rates are reset at higher rates if the accounts remain standard. In November 2012, the RBI increased the provisioning requirement for restructured standard assets from 2.0 percent to 2.75 percent. In May 2013, the RBI increased the provisioning requirement for all types of accounts restructured to 5.0 percent with effect from June 1, 2013. For the stock of restructured standard accounts as of May 31, 2013, this increase was required to be implemented in a phased manner by March 31, 2016. The provisioning requirements for other loans range from 0.25 percent to 1.0 percent on the outstanding loans based on the type of exposure. Derivative exposures, such as credit exposures computed as per the current marked to market value of the contract arising on account of the interest rate and foreign exchange derivative transactions and gold are subject to the same provisioning requirement applicable to the loan assets in the standard category of the concerned counterparties. All conditions applicable for the treatment of the provisions for standard assets would also apply to the aforesaid provisions for derivatives and gold exposures.
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In February 2014, the RBI directed banks to form a JLF if the aggregate exposure of both fund-based and
non-fund
based facilities taken together of lenders in an account is Rs. 1,000 million and above and the account is reported by any of the lenders to CRILC as special mention
account-2
(“SMA-2”).
If the lenders fail to convene the JLF or fail to agree upon a common CAP within the stipulated time frame, the account will be subjected to accelerated provisioning of 5.0 percent if the account is classified as a standard asset in the accounts of the lenders. In October 2014, the RBI decided that accelerated provisioning will be applicable only to the lead Bank having responsibility to convene the JLF and not to all the lenders in the consortium or multiple banking arrangements. In case the lead Bank fails to convene the JLF, the Bank with the second-largest aggregate exposure shall convene the JLF.
The RBI has also introduced incremental provisioning requirements with effect from April 1, 2014, for banks’ exposures to entities with unhedged foreign currency exposure. Banks are required to collect specific information from its customers and assess the extent to which a customer is exposed to unhedged foreign currency on account of volatility in the exchange rate of the rupee
vis-à-vis
foreign currencies and calculate the incremental provisions based on the methodology prescribed by the RBI.
By its circular dated April 18, 2017, the RBI has advised banks to make provisions at higher rates in respect of standard advances to stressed sectors of the economy, and requires Bank to (i) put in place a Board-approved policy for making provisions for standard assets at rates higher than the regulatory minimum based on evaluation of risk and stress in various sectors; (ii) review the policy on a quarterly basis; and (iii) review the telecom sector by June 30, 2017, and consider making provisions for standard assets in this sector at higher rates.
Sub-Standard
Assets
A general provision of 15.0 percent on total outstanding loans is required without making any allowance for the Export Credit Guarantee Corporation of India guarantee cover and securities available. The unsecured exposures which are identified as
sub-standard
are subject to an additional provision of 10.0 percent, i.e., a total of 25.0 percent on the outstanding balance. However, unsecured loans classified as
sub-standard
in relation to infrastructure lending, where certain safeguards such as escrow accounts are available, are subject to an additional provision of only 5.0 percent (i.e., a total of 20.0 percent on the outstanding balance).
Unsecured exposure is defined as an exposure where the realizable value of security, as assessed by the Bank, approved valuers or the RBI’s inspecting officers, is not more than 10 percent,
ab initio
, of the outstanding exposure. Exposure includes all funded and
non-funded
exposures (including underwriting and similar commitments). Security means tangible security properly discharged to the Bank and will not include intangible securities such as guarantees and comfort letters.
Doubtful Assets
A 100.0 percent provision is made against the unsecured portion of the doubtful asset. In cases where there is a secured portion of the asset, depending upon the period for which the asset remains doubtful, a 25.0 percent to 100.0 percent provision is required to be made against the secured asset as follows:

| • |  | Up to one year: 25.0 percent provision.

| • |  | One to three years: 40.0 percent provision.

| • |  | More than three years: 100.0 percent provision.

Loss Assets
The entire asset is required to be written off or 100.0 percent of the outstanding amount is required to be provided for.
Floating Provisions
In June 2006, the RBI issued prudential standards on the creation and utilization of floating provisions (provisions which are not made in respect of specific
non-performing
assets or are made in excess of regulatory requirements for provisions for standard assets). Floating provisions must be held separately and cannot be reversed by credit to the profit and loss account. The RBI has permitted banks to utilize a prescribed percentage of the floating provisions held by them for making specific loan loss allowances for impaired accounts under extraordinary circumstances. Until the utilization of such provisions, they can be netted off from gross
non-performing
assets to arrive at disclosure of net
non-performing
assets, or alternatively, can be treated as part of Tier II capital within the overall ceiling of 1.25 percent of credit RWAs.
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Provisioning Coverage Ratio
With a view to ensuring counter-cyclical provisioning in the banking system, the RBI mandated that banks should augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions (to the extent not used at Tier II capital), and ensure that their total Provisioning Coverage Ratio (“PCR”), including the above floating provisions, is not less than 70 percent as of September 30, 2010. Under the current regime (i) the PCR of 70.0 percent may be computed with reference to the gross NPA position in the relevant banks as of September 30, 2010; (ii) the surplus of the provision under PCR over the amount required by the guidelines, would be treated as “countercyclical provisioning buffer”; and (iii) banks may utilize up to a prescribed percentage of the countercyclical provisioning buffer/floating provisions held by them for making specific provisions for NPAs during periods of system wide downturn, as per the policy approved by the bank’s board of directors. The RBI released a discussion paper on dynamic loan loss provisioning framework in March 30, 2012. The framework proposes to replace the existing standards of general provisioning and recommends that banks make provisions on their loan book based on historical loss experience for different asset classes. Banks can draw down from dynamic provisions during periods of downturn. The RBI has advised that the dynamic provision framework is expected to be in place with improvement in the system.
COVID-19
Regulatory Package
In view of the impact of the
COVID-19
pandemic, the RBI has relaxed certain requirements, including in relation to asset classification, provisioning and the restructuring of loans. The below is a summary of the material regulations included in the
COVID-19
regulatory package:

(i) | Rescheduling of payments:

| • |  | In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India financial institutions, and NBFCs (including housing finance companies) are permitted to grant a moratorium on the payment of all installments falling due between March 1, 2020 and August 31, 2020.

| • |  | In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 up to August 31, 2020. Lending institutions are permitted, at their discretion, to convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (“FITL”) which shall be repayable not later than March 31, 2021.

| • |  | In respect of working capital facilities sanctioned in the form of CC/OD to borrowers facing financial difficulties as a result of the economic fallout of the pandemic, lending institutions may, as a one-time measure:

| • |  | recalculate the “drawing power” by reducing the margins until August 31, 2020. However, in all cases where such a temporary improvement in drawing power is considered, the margins shall be restored to the original levels by March 31, 2021; or,

| • |  | review the working capital sanctioned limits up to March 31, 2021, based on a reassessment of the working capital cycle.

(ii) | Asset classification and provisioning:

| • |  | In respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification.

| • |  | In respect of working capital facilities sanctioned in the form of CC/OD, the deferment period, wherever granted in respect of all facilities classified as standard, including special mention accounts, (“SMAs”), which are accounts that have the potential to become NPAs or stressed assets, as on February 29, 2020, shall be excluded for the determination of out-of-order status.

| • |  | The conversion of accumulated interest into a FITL and the changes in the credit terms permitted to borrowers to specifically tide over economic fallout from COVID-19, as outlined under “— Rescheduling of payments ” above, will not be treated as concessions granted due to financial difficulty of the borrower for the purposes of the prudential norms. Consequently, such a measure, by itself, shall not result in asset classification downgrade.

| • |  | The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (“CICs”) by the lending institutions. CICs shall ensure that permitted actions taken by lending institutions as a consequence of the COVID-19 pandemic do not adversely impact the credit history of the beneficiaries.

| • |  | In accordance with the provisions described above, with respect to accounts classified as standard, but which have become overdue, and where the asset classification benefit is extended, lending institutions shall make general provisions equaling not less than 10 percent of the total outstanding value of such accounts. Such provisions are to be phased in over the course of two financial quarters as described below:

| • |  | Financial quarter ended March 31, 2020– not less than 5 percent; and

| • |  | Financial quarter ending June 30, 2020– not less than 5 percent.

| • |  | These provisioning requirements shall not be used to arrive at net NPAs until these are adjusted against the actual provisioning requirements.

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(iii) | Resolution of stressed assets

| • |  | In respect of accounts which were within the review period as on March 1, 2020, the period from March 1, 2020 to August 31, 2020 shall be excluded from the calculation of the 30-day timeline for the review period under the RBI’s guidelines. In respect of all such accounts, the residual review period shall resume from September 1, 2020, upon expiry of which the lenders shall have the usual 180 days for resolution.

| • |  | In respect of accounts where the review period has been completed, but the 180-day resolution period had not expired as on March 1, 2020, the timeline for resolution is extended by 180 days from the date on which the 180-day period was originally set to expire.

Regulations Relating to Sale of Assets to Asset Reconstruction Companies
The SARFAESI Act provides for the sale of financial assets by banks and financial institutions to asset reconstruction companies. The RBI has also issued guidelines to banks on the process to be followed for the sale of financial assets to asset reconstruction companies. These guidelines provide that a Bank may sell financial assets to an asset reconstruction company provided the asset is an NPA. A Bank could also sell a standard asset only if (i) the asset is under consortium or multiple banking arrangement; (ii) at least 75.0 percent by value of the of the asset is classified as
non-performing
in the books of other banks and financial institutions; and (iii) at least 75.0 percent by value of the banks and financial institutions in the consortium or multiple banking arrangements agree to the sale of the asset to a securitization company or a reconstruction company. The banks selling financial assets must ensure that there is no known liability being transferred to them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Further, banks cannot sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. However, banks may sell specific financial assets with an agreement to share any surplus realized by the asset reconstruction company in the future. While each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than 75.0 percent, by value of the banks or financial institutions, accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash or bonds/debentures issued by the asset reconstruction company or trusts set up by it to acquire financial assets. Banks can also invest in security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.
In June 2019, the RBI permitted asset reconstruction companies to acquire assets from other asset reconstruction companies subject to stipulated conditions. In December 2019, the RBI restricted asset reconstruction companies from buying financial assets from a bank or financial institution which is a sponsor of the asset reconstruction company, lender to the asset reconstruction company or a subscriber to the asset reconstruction fund, or an entity in the group to which the asset reconstruction companies belong.
Guidelines on Sale and Purchase of
Non-Performing
Assets (“NPAs”) among Banks, Financial Institutions and
Non-banking
Financial Institutions
In order to increase the options available to banks for resolving their NPAs and to develop a healthy secondary market for NPAs, in July 2005, the RBI issued guidelines for the purchase and sale of NPAs among banks, financial institutions and NBFCs. In terms of these guidelines, banks’ boards are required to establish policies covering, among others, a valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the assessed cash flows arising out of repayment and recovery prospects. Purchases and sales of NPAs must be without recourse to the seller, on a cash basis, with the entire consideration being paid
up-front,
and after the sale there should not be any known liability devolving on the seller. Previously, an asset needed to be classified by the seller as
non-performing
for at least two years to be eligible for sale and the purchasing bank needed to have held the NPA in its books for at least 15 months before it could sell the asset to another bank.
In February 2014, the RBI issued guidelines wherein the requirement of a minimum holding period of two years by the seller in relation to sale transactions with other banks, financial institutions and NBFCs, was removed. These guidelines reduce the purchasing bank’s holding period requirement to 12 months before it can sell the asset to another bank, financial institution or NBFC. In accordance with these RBI guidelines, the asset cannot be sold back to the original seller.
Further, to incentivize the early sale of NPAs to securitization companies and/or reconstruction companies, banks are allowed to spread over any shortfall, if the sale value is lower than the net book value, over a period of two years for NPAs sold up to March 31, 2016. In its circular of June 2016, the RBI has further extended the dispensation of amortizing the shortfall on the sale of NPAs to securitization companies and reconstruction companies to March 31, 2017. However, in respect of NPAs sold during the period from April 1, 2016 to March 31, 2017, banks may amortize the shortfall over a period of only four quarters from the quarter in which the sale took place.
Guidelines on Sale of Standard Assets
The RBI first issued guidelines for the securitization of standard assets in February 2006. The guidelines provide that for a transaction to be treated as a securitization, a
two-stage
process must be followed. In the first stage there must be a sale of a single asset or pooling and transferring of assets to a bankruptcy remote special purpose vehicle (“SPV”) in return for immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset or pool of assets to third-party investors should be effected. Further, for enabling the transferred assets to be removed from the balance sheet of the seller in a securitization structure, the isolation of assets or “true sale” from the seller or originator to the SPV is an essential prerequisite. Also, an
arm’s-length
relationship must be maintained between the originator, the seller and the SPV.
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Certain regulatory standards for capital adequacy, valuation, profit and loss on sale of assets, income recognition and provisioning, accounting treatment for securitization transactions and disclosure standards have been prescribed. The guidelines are applicable for originators and have prescribed provisions for service providers like: credit enhancers, liquidity support providers and underwriters and investors. Quarterly reporting to the audit
sub-committee
of the board of directors by originating banks of the securitization transactions has also been prescribed. Apart from banks, these guidelines are also applicable to financial institutions and NBFCs.
In May 2012, the RBI revised the guidelines on transfer of assets through securitization and direct assignment of cash flows. These guidelines govern the securitization of debt obligations of a homogenous pool of obligors as well as the direct sale or transfer of a single standard asset. The roles of both the selling and purchasing banks have been defined more clearly. All
on-balance
sheet standard assets except those expressly disallowed in the guidelines are eligible for securitization subject to being held by the originating bank for a minimum holding period. The guidelines also prescribe a minimum retention requirement, i.e., the minimum part of the securitized debts that the originator is required to retain during the term of securitization. Overseas banking outlets of Indian banks cannot undertake securitization in other jurisdictions unless there is a minimum retention requirement in that jurisdiction. These requirements have been established to ensure that the originator exercises due diligence with regard to the securitized assets. The guidelines also establish the upper limit on the total retained exposure of the originator, the disclosures to be made by the originators, applicability of capital adequacy and asset classification and provisioning norms to these transactions. The norms also stipulate stress testing and extensive monitoring requirements on the purchased portfolios. Transactions which do not meet the requirements established by the guidelines will be assigned very high-risk weights under capital adequacy norms. The guidelines on transfer of assets through securitization and direct assignment of cash flows do not apply to:

| • |  | transfer of loan accounts of borrowers by a bank to other bank/financial institutions/NBFCs and vice versa, at the request/instance of borrower;

| • |  | inter-bank participations;

| • |  | trading in bonds;

| • |  | sale of entire portfolio of assets consequent upon a decision to exit the line of business completely (which should have the approval of the board of directors of the Bank);

| • |  | consortium and syndication arrangements and arrangement under corporate debt restructuring mechanism; and

| • |  | any other arrangement/transactions, specifically exempted by the RBI.

Regulations Relating to Making Loans
The provisions of the Banking Regulation Act govern loans made by banks in India. The RBI issues directions covering the loan activities of banks. Major guidelines include norms for bank lending to priority sectors,
non-bank
financial companies, guidelines on banks’ benchmark lending rates, base rates and norms for loans against shares.
In terms of Section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances against the security of its own shares. A banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors has an interest as a partner, manager, employee or guarantor or any other company (not being a subsidiary of the banking company or a company registered under section 8 of the Companies Act or a Government company), or the subsidiary or the holding company of such a company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exceptions in this regard which exclude any transaction which the RBI may specify by general or special order as not being a loan or advance for the purpose of such section. The Government may, on the recommendation of the RBI and subject to conditions as it may deem fit to impose, exempt any banking company from the restriction on lending to the subsidiary, holding company or any other company in which any of the directors of the banking company is a director, managing agent, manager, employee, guarantor or in which such person holds substantial interest.
In the context of granting greater functional autonomy to banks, effective October 18, 1994, the RBI decided to remove restrictions on the lending rates of scheduled commercial banks for credit limits of over Rs. 0.2 million. Banks were given the freedom to fix the lending rates for such credit limits subject to the Benchmark Prime Lending Rate (“BPLR”) and spread guidelines. The BPLR system, however, fell short of its original objective of bringing transparency to lending rates. This was mainly because under the BPLR system, banks could lend below BPLR. Banks consequently were advised by the RBI to switch over to the system of Base Rate with effect from July 1, 2010. The base rate system was aimed at enhancing transparency in lending rates of banks and enabling better assessment of transmission of the monetary policy. The Base Rate included all elements of the lending rates that were common across all categories of borrowers. Banks were allowed to choose any benchmark to arrive at their Base Rate for a specific tenor that could be disclosed. For loans sanctioned up to June 30, 2010, the BPLR was applicable. However, for loans sanctioned up to June 30, 2010, but renewed from July 1, 2010, the Base Rate was applicable.
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In December 2015, the RBI issued revised guidelines on computing interest rates on advances based on the marginal cost of funds. The revised guidelines were issued with a view to improving the transmission of policy rates into bank lending rates, improving transparency in the methodology followed by banks for determining interest rates on advances, and ensuring the availability of bank credit at interest rates which are fair to the borrowers as well as the banks. The guidelines came into effect from April 1, 2016. Pursuant to the revised guidelines, all rupee loans sanctioned and credit limits renewed with effect from April 1, 2016, will be priced with reference to the marginal cost of funds based lending rate system (MCLR). Actual lending rates will be determined by adding the components of spread to the MCLR. Banks will review and publish their MCLR of different maturities every month on a
pre-announced
date. The guidelines provide that existing loans and credit limits linked to the Base Rate may continue until repayment or renewal. Certain types of loans, including fixed rate loans with tenor over three years and loans linked to a market determined external benchmark, are exempt from provisions of MCLR. The existing borrowers will have the option to move to MCLR-linked loan at mutually acceptable terms.
With effect from October 1, 2019 all new floating rate personal or retail loans and floating rate loans to micro and small enterprises are required to be linked to an external benchmark. Banks can adopt any of the following benchmarks: (i) RBI policy repo rate, (ii) Government of India
3-Months
Treasury Bill yield published by Financial Benchmarks India Private Ltd (“FBIL”), (iii) Government of India
6-Months
Treasury Bill yield published by FBIL, and (iv) any other benchmark market interest rate published by FBIL. However, adoption of multiple benchmarks by the same bank is not permitted within a loan category. The RBI in its circular dated February 26, 2020 extended, from April 1, 2020, the requirement to link external benchmarks to new floating rate loans granted to medium enterprises.
Directed Lending
Priority Sector Lending
The guidelines on lending to the priority sector are set forth in the RBI Master Directions on Priority Sector Lending—Targets and Classification as updated from time to time. The priority sector is broadly comprised of agriculture, micro, small and medium enterprises (“MSMEs”), education, housing, export credit, social infrastructure, renewable energy, and others subject to certain limits. The guidelines take into account the revised definition of MSMEs as per the Micro, Small and Medium Enterprises Development Act, 2006.
The priority sector lending targets are linked to the adjusted net bank credit (“ANBC”) or the credit equivalent amount of
off-balance
sheet exposures (“CEOBE”), whichever is higher, as on the corresponding date of the previous year. Domestic banks are required to achieve total priority sector lending equivalent to 40.0 percent of their ANBC or CEOBE. Of the total priority sector advances, agricultural advances are required to be 18.0 percent of ANBC or CEOBE, whichever is higher. Advances to weaker sections are required to be 10.0 percent of ANBC or CEOBE, whichever is higher. Within the 18.0 percent target for agriculture, a target of 8.0 percent of ANBC or CEOBE, whichever is higher, is prescribed for small and marginal farmers. Banks have also been directed to ensure that their overall direct lending to
non-corporate
farmers does not fall below the system-wide average of the achievements over the last three years (which will be notified by the RBI at the beginning of each year, the current percentage being 12.11 percent). The RBI further reiterated that the banks should continue to undertake all efforts to reach the level of 13.5 percent of direct lending to the beneficiaries who earlier constituted the direct agriculture sector. The target for micro enterprises is set at 7.5 percent.
Loans to individuals up to Rs. 3.5 million in metropolitan centers (with populations of 1 million or more) and loans up to Rs. 2.5 million in other centers for the purchase or construction of a dwelling unit per family (provided the overall cost of the dwelling unit in the metropolitan center and at other centers does not exceed Rs. 4.5 million and Rs. 3.0 million, respectively), excluding loans granted by banks to their own employees, are to be treated as part of priority sector lending. Loans to individual borrowers for educational purposes, including vocational courses up to Rs. 1.0 million, are also to be treated as part of priority sector lending. Investments by banks in securitized assets and outright purchases of loans representing loans to various categories of priority sector are eligible for classification under the priority sector only if certain criteria are fulfilled.
Bank loans up to a limit of Rs. 50 million per borrower for building social infrastructure for activities, namely schools, health care facilities, drinking water facilities and sanitation facilities in certain eligible centers as prescribed by the RBI are treated as priority sector lending. Further, Bank loans up to a limit of Rs. 150 million to borrowers for purposes like solar-based power generators, biomass-based power generators, windmills, micro-hydel plants and for
non-conventional
energy-based public utilities like street lighting systems, and remote village electrification are also treated as priority sector lending. Additionally, in March 2018, the RBI removed the loan limits applicable to MSMEs for classification under the priority sector.
Banks are required to ensure compliance with priority sector lending targets on a quarterly basis. Domestic scheduled commercial banks having a shortfall in lending to priority sector targets are allocated amounts for contribution to the Rural Infrastructure Development Fund established with the National Bank for Agriculture and Rural Development or funds with other financial institutions, as may be decided by the RBI, as and when funds are required by them. The interest rates on banks’ contributions to these schemes and periods of deposits, among other things, are fixed by the RBI from time to time. Additionally, as per RBI guidelines,
non-achievement
of priority sector targets and
sub-targets
is taken into account by the RBI when granting regulatory clearances and approvals for various purposes. While computing priority sector achievement, a simple average of all quarters will be arrived at and considered for computation of overall shortfall/ excess at the end of the year.
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Foreign banks having 20 or more banking outlets in India were brought on par with domestic banks for priority sector targets in a phased manner over a maximum period of five years commencing on April 1, 2013, and since have a priority sector lending target of 40.0 percent of ANBC. In March 2018, the RBI directed such banks to achieve a
sub-target
of 8.0 percent of ANBC or CEOBE, whichever is higher, for banks lending to small and marginal farmers. Further, a
sub-target
of 7.5 percent of ANBC or CEOBE, whichever is higher, for banks lending to microenterprises has also become applicable for foreign banks with 20 banking outlets or more from March 31, 2018.
Further, foreign banks with less than 20 banking outlets are directed to achieve a total priority sector lending target of 40.0 percent of ANBC or CEOBE, whichever is higher, on par with other banks by fiscal 2020.
In order to enable banks to achieve the priority sector lending target and
sub-targets,
the RBI, in its circular dated April 7, 2016, has introduced the Priority Sector Lending Certificates (“PSLC”) Scheme. The scheme permits banks to purchase PSLCs in the event of a shortfall from those banks that have achieved a surplus in their priority sector lending targets. There are four kinds of PSLCs:

(i) | PSLC Agriculture: counting for achievement towards the total agriculture lending target;

(ii) | PSLC SF/MF: counting for achievement towards the sub-target for lending to small and marginal farmers;

(iii) | PSLC Micro Enterprises: counting for achievement towards the sub-target for lending to micro enterprises; and

(iv) | PSLC General: counting for achievement towards the overall priority sector target.

Initially until March 31, 2020, the RBI, in its circular dated August 13, 2019, permitted bank loans to registered NBFCs (other than MFIs) for
on-lending
purposes to be classified as priority sector loans, within the relevant categories as outlined above. However, in its circular dated March 23, 2020, the RBI extended this classification to fiscal 2021, subject to the condition that a bank’s loans to registered NBFCs (other than MFIs) and HFCs for
on-lending
purposes will only be permitted up to an overall limit of five per cent of an individual bank’s total priority sector lending.
Export Credit
The RBI also requires banks to make loans to exporters. We provide export credit for
pre-shipment
and post-shipment requirements of exporters in rupees as well as foreign currencies. The incremental export credit extended by domestic banks over the corresponding date of the preceding year, up to 2.0 percent of ANBC or CEOBE, whichever is higher, subject to a limit of Rs. 400 million per borrower shall be classified as priority sector lending. Prior to September 20, 2019, the maximum limit of export credit to units having turnover of up to Rs. 1 billion was Rs. 250 million. A similar limit is applicable to foreign banks with 20 or more banking outlets in India with effect from April 1, 2017. Until March 31, 2017, foreign banks with 20 or more banking outlets are allowed to count a certain percentage of their export credit limit as priority sector lending. Foreign banks with less than 20 banking outlets are allowed to classify up to 32.0 percent of ANBC or CEOBE, whichever is higher, as priority sector lending. The interest rates applicable for all tenors of rupee-denominated export credit advances are required to be at or above Base Rate. As per RBI directions, the Base Rate system has been replaced by the MCLR and all rupee loans and credit limits sanctioned or renewed with effect from April 1, 2016, are required to be priced with reference to the MCLR. Existing loans and credit limits may remain linked to the Base Rate until repayment or renewal. With effect from May 5, 2012, the RBI has deregulated the interest rates on export credit in foreign currencies and has permitted banks to determine their own interest rates in respect thereof.
With effect from October 1, 2019 all new floating rate personal or retail loans and floating rate loans to micro and small enterprises are required to be linked to an external benchmark.
Lending to Infrastructure Sector and Affordable Housing Sector
In order to allow banks to provide long-term funds for project loans to the infrastructure sector and the affordable housing sector, the RBI, in July 2014, issued guidelines for the issuance of long-term bonds by banks for financing infrastructure sector loans and lending to the affordable housing sector. Under these guidelines, banks are permitted to issue long-term fully paid, redeemable and unsecured bonds with a minimum maturity of seven years to enable lending to long-term projects in certain specified infrastructure
sub-sectors
and the affordable housing sector as prescribed in the guidelines. To encourage lending to these sectors, these long-term bonds are not subject to cash reserve ratio (“CRR”) or statutory liquidity ratio (“SLR”) requirements. These bonds are also not included in the computation of ANBC for the purposes of priority sector lending targets subject to the guidelines. However, any infrastructure or affordable housing loans acquired from other banks and financial institutions (such as those that could be involved in a business combination with the Bank) will require the prior approval of the RBI to avail these regulatory incentives.
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Credit Exposure Limits
As a prudential measure aimed at better risk management and avoiding the concentration of credit risks, the RBI has advised banks to fix limits on their exposure to specific industries and sectors and has prescribed regulatory limits on banks’ exposures to individual borrowers and borrower groups. In addition, banks are also required to observe certain statutory and regulatory exposure limits in respect of advances against or investments in shares, convertible debentures or bonds, units of equity-oriented mutual funds and all exposures to venture capital funds (VCFs).
The RBI limits exposure to individual borrowers to not more than 15.0 percent of the capital funds of a Bank and limits exposure to a borrower group to not more than 40.0 percent of the capital funds of a bank. The capital funds for this purpose are comprised of Tier I and Tier II capital, as defined under the capital adequacy standards and as per the published accounts as of March 31 of the previous year. The infusion of Tier I or Tier II capital, either through domestic or overseas issuances, after the published balance sheet date is also eligible for inclusion in the capital funds for determining the exposure ceiling. In the case of infrastructure projects, such as power, telecommunications, road and port projects, an additional exposure of up to 5.0 percent of capital funds is allowed in respect of individual borrowers and up to 10.0 percent in respect of group borrowers. Banks may, in exceptional circumstances and with the approval of their boards, consider increasing their exposure to an individual borrower or a borrower group by a further 5.0 percent of capital funds. With effect from May 2008, the RBI revised the prudential limit to 25.0 percent of capital funds in respect of a bank’s exposure to oil companies to which specified oil bonds have been issued by the Government of India. Banks need to make appropriate disclosures in their annual financial statements in respect of exposures where they have exceeded the prudential exposure limits during the year.
Exposures (both lending and investment, including off balance sheet exposures) of a bank to a single NBFC, NBFC-Asset Financing Company (AFC), or NBFC-Infrastructure Finance Company (IFC) should not exceed 10.0 percent, 15.0 percent and 15.0 percent, respectively, of a bank’s capital funds. A Bank may, however, assume exposures on a single NBFC,
NBFC-AFC,
or
NBFC-IFC
up to 15.0 percent, 20.0 percent and 20.0 percent, respectively, of its capital funds, provided the exposure in excess of 10.0 percent, 15.0 percent and 15.0 percent (referred to above) is on account of funds that the NBFC,
NBFC-AFC,
or
NBFC-IFC
has lent out to the infrastructure sector. Further, all banks may consider fixing internal limits for their aggregate exposure to all NBFCs combined.
Exposure includes credit exposure (funded and
non-funded
credit limits) and investment exposure (including underwriting and similar commitments). The sanctioned limits or outstanding amount, whichever is higher, would be included when arriving at the exposure limit. However, in the case of fully drawn term loans, where there is no scope for
re-drawing
of any portion of the sanctioned limit, banks may consider the outstanding as the exposure. For the purpose of exposure norms, banks shall compute their credit exposures, arising on account of the interest rate and foreign exchange derivative transactions and gold, using the Current Exposure Method. While computing credit exposures, banks may exclude “sold options”, provided that the entire premium or fee or any other form of income is received or realized.
Credit exposure comprises the following elements:

| • |  | all types of funded and non-funded credit limits; and

| • |  | facilities extended by way of equipment leasing, hire purchase finance and factoring services.

Apart from limiting exposures to an individual or a group of borrowers, as indicated above, the RBI guidelines also require banks to consider fixing internal limits for aggregate commitments to specific sectors, so that their exposures are evenly spread across various sectors. These limits are subject to a periodic review by banks.
In August 2016, the RBI has issued a circular imposing certain restrictions on lending by banks to large borrowers. The circular aims to mitigate the risk posed to the banking system by large loans to single corporate borrowers, and also encourage large corporates with borrowings from the banking system above a
cut-off
level to tap the market for their working capital and term loan needs. As per the circular, which is effective April 1, 2017, banks are required to keep exposures to specified borrowers within a normally permitted lending limit (“NPLL”) specified in the circular from the fiscal succeeding that in which the borrower is identified as a specified borrower. For incremental exposures in excess of the NPLL, banks are required to maintain an additional provision of 3.0 percent on such excess. Additional risk weight of 75.0 percent over and above the applicable risk weight for the exposure to the specified borrower is also required to be maintained by the Bank in case of any incremental exposure. The guidelines define “specified borrowers” as having an aggregate fund based credit limit (as described in the circular) of over Rs. 250 billion at any time during fiscal 2018; Rs. 150 billion at any time during fiscal 2019; and Rs. 100 billion at any time from April 1, 2019, onwards.
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In December 2018, the RBI issued guidelines in relation to bank credit to large borrowers. The guidelines state that borrowers having a fund-based working capital limit of Rs. 1,500 million and above from the banking system, will need to have a loan component of at least 40.0 percent. Accordingly, for such borrowers drawings up to 40.0 percent of the total fund-based working capital limits shall only be allowed from the loan component, and drawings in excess of this may be allowed as cash credit facility. These guidelines will become effective from April 1, 2019, and with effect from July 1, 2019, the mandatory loan component will be revised to 60.0 percent.
Large Exposures Framework
In June 2019, the RBI issued the revised Large Exposures Framework, which aims to align the exposure norms for Indian Banks with BCBS standards. The guidelines have come into effect from April 1, 2019, except for certain provisions which will become effective from April 1, 2020. The framework defines “large exposures” and governs banks’ exposures to counterparties. The framework prescribes that the sum of all exposure values of a bank to a single counterparty must not be higher than 20.0 percent of the bank’s available eligible capital base at all times, and that to a group of connected counterparties must not be higher than 25.0 percent of the bank’s available eligible capital base. Tier I capital fulfilling the criteria mentioned in the Basel III guidelines issued by RBI is required to be considered as eligible capital base for this purpose.
In terms of the Large Exposure Framework, banks’ exposures to a single NBFC is restricted to 15.0 percent of their available eligible capital base, while the general single counterparty exposure limit is 20.0 percent, which can be extended to 25.0 percent by banks’ boards under exceptional circumstances. However, the RBI in its circular dated September 12, 2019, stated that a bank’s exposure to a single NBFC (excluding gold loan companies) will be restricted to 20.0 percent of such bank’s eligible capital base. Bank finance to NBFCs predominantly engaged in lending against gold will continue to be governed by limits prescribed in the RBI circular dated May 18, 2012. As a result of the
COVID-19
pandemic, the RBI, in its circular dated May 23, 2020, decided, as a
one-time
measure, to increase a bank’s permitted exposure to a group of connected counterparties from 25.0 percent to 30.0 percent of the eligible capital base of such bank. The increased limit will be applicable until to June 30, 2021.
Regulations Relating to Capital Market Exposure Limits
The RBI has issued guidelines on financing to participants in the capital markets. These guidelines place a ceiling on the overall exposure of a bank to the capital markets.
The aggregate exposure that a bank has to the capital markets in all forms (both fund and
non-fund
based) must not exceed 40 percent of its net worth (both for the stand-alone and the consolidated bank) as of March 31 of the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposure to VCFs must not exceed 20 percent of its net worth (both for the stand-alone and the consolidated Bank). Net worth is comprised of the aggregate of
paid-up
capital, free reserves (including share premium but excluding revaluation reserves), investment fluctuation reserve and credit balance in the profit and loss account, less the debit balance in the profit and loss account, accumulated losses and intangible assets. There are guidelines on loans against equity shares in respect of amount, margin requirement and purpose.
The following exposures are subject to the ceiling:

| • |  | direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds, the fund assets of which are not exclusively invested in corporate debt;

| • |  | advances against shares/bonds/debentures or other securities or advances without security to individuals for investment in shares (including in primary offerings and employee stock option plans), convertible bonds, convertible debentures and units of equity-oriented mutual funds;

| • |  | advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;

| • |  | advances for any other purposes to the extent secured by collateral of shares, convertible bonds, convertible debentures or units of equity oriented mutual funds, i.e., where the primary security other than shares or convertible bonds or convertible debentures or units of equity oriented mutual funds does not fully secure the advances;

| • |  | secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;

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| • |  | loans sanctioned to companies against the security of shares/bonds/debentures or other securities or on a clean basis for meeting a promoter’s contribution to the equity of new companies;

| • |  | bridge loans to companies against expected equity flows/issues;

| • |  | underwriting commitments taken up by banks in respect of primary issues of shares or convertible bonds or convertible debentures or units of equity-oriented mutual funds;

| • |  | financing to stockbrokers for margin trading;

| • |  | all exposure to venture capital funds (both registered and unregistered); and

| • |  | irrevocable payment commitments issued by custodian banks in favor of stock exchanges.

Regulations Relating to Other Loan Exposures
The RBI requires banks to have put in place a policy for exposure to real estate with the approval of their boards. The policy is required to include exposure limits, collateral to be considered, collateral cover and margins and credit authorization. The RBI has also permitted banks to extend financial assistance to Indian companies for the acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investments. Banks are not, however, permitted to provide companies “acquisition finance” to acquire companies in India.
Limits on Intra-group Transactions and Exposures
In February 2014, the RBI issued guidelines on the management of intra-group transactions and exposures which have been in effect since October 1, 2014. These guidelines contain both quantitative limits for the financial intra-group transactions and exposures (“ITEs”) and prudential measures for the
non-financial
ITEs to ensure that the banks engage in ITEs in a prudent manner in order to contain the concentration and contagion risk arising out of ITEs. These measures are aimed at ensuring an
arm’s-length
relationship in dealings with group entities and prescribe minimum requirements with respect to group risk management and group-wide oversight and prudential limits on intra-group exposures. Effective October 2014, a bank’s exposure to a
non-financial
or unregulated financial services entity in its group will be capped at 5.0 percent of its
paid-in
capital and reserves and its exposure to a regulated financial services company in its group will be capped at 10.0 percent of its
paid-in
capital and reserves. In the event a bank’s current intra-group exposure is more than the limits stipulated in the guidelines, that bank was required to bring the exposure within the limits by no later than March 31, 2016. Any exposure beyond the permissible limits subsequent to March 31, 2016, is deducted from
CET-I
capital of the bank.
Regulation Relating to Country Risk Management
The RBI has issued detailed guidelines on country risk management that cover banks’ exposure to those countries to which they have a net funded exposure of 1.0 percent or more of their total assets and no provision is maintained on such country exposure. The countries are categorized into seven risk categories, namely: insignificant, low, moderate, high, very high, restricted and
off-credit.
Required provisioning is based on exposures exceeding 180 days on a graded scale ranging from 0.25 percent to 100.0 percent. Banks may maintain a lower level of provisioning of 25.0 percent of the requirement in respect of exposures with a contractual maturity of less than 180 days.
Regulations Relating to Investments
Exposure Limits
Credit exposure limits specified by the RBI in respect of a bank’s lending to individual borrowers and borrower groups apply in respect of
non-convertible
debt instruments. Within the overall capital market exposure ceiling, a bank’s direct investments in equity securities, convertible bonds and debentures and units of equity-oriented mutual funds should not exceed 20.0 percent of its net worth as of March 31 of the previous year. A bank’s aggregate investment in subordinated bonds eligible for Tier II capital status issued by other banks or financial institutions is restricted to up to 10.0 percent of the investing bank’s capital funds (Tier I plus Tier II capital). Investments in the instruments issued by banks or financial institutions that are eligible for capital status are either risk weighted or deducted from the investee bank’s capital, for capital adequacy purposes, depending upon the extent of investment as prescribed by the RBI under the Basel III capital regulations.
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In order to contain the risks arising out of investment by banks in
non-statutory
liquidity ratio
(“non-SLR”)
securities, and, in particular, the risks arising out of investment in bonds through private placement, the RBI has issued detailed guidelines on investment by banks in
non-SLR
securities. Banks have been advised to restrict their new investments in unlisted securities to 10.0 percent of their total
non-SLR
investments as of March 31 of the previous year. Banks are permitted to invest in unlisted
non-SLR
securities within this limit, provided that such securities comply with disclosure requirements for listed companies as prescribed by the SEBI. Banks’ investments in unlisted
non-SLR
securities may exceed the limit of 10.0 percent by an additional 10.0 percent, provided further that the investment is on account of investments in securitization papers issued for infrastructure projects and bonds/debentures issued by securitization companies or reconstruction companies set up under the SARFAESI Act and registered with the RBI. Investments in security receipts issued by securitization companies or reconstruction companies registered with the RBI, investments in asset-backed securities and mortgage-backed securities, that are rated at or above the minimum investment grade and investments in unlisted convertible debentures will not be treated as unlisted
non-SLR
securities for computing compliance with the prudential limits. The guidelines relating to listing and rating requirements of
non-SLR
securities do not apply to investments in VCFs, commercial paper, certificates of deposit and mutual fund schemes where any part of the corpus can be invested in equity. Banks are not permitted to invest in unrated
non-SLR
securities, except in the case of unrated bonds of companies engaged in infrastructure activities, within the overall ceiling of 10.0 percent for unlisted
non-SLR
securities.
The total investment by banks in liquid/short-term debt schemes (by whatever name called) of mutual funds with a weighted average maturity of the portfolio of not more than one year, will be subject to a prudential cap of 10.0 percent of their net worth as on March 31 of the previous year. The weighted average maturity would be calculated as average of the remaining period of maturity of securities weighted by the sums invested.
Non-Performing
Investments
The RBI has defined
non-performing
investments as those where principal or interest is unpaid for more than 90 days including preference shares where a fixed dividend is not paid or declared. The
non-availability
of the latest balance sheet of a company in whose equity securities a bank has invested will also render those equity shares
non-performing
investments. If any credit facility availed of by the issuer is an NPA in the books of the Bank, investment in any of the securities issued by the same issuer would also be treated as a
Non-Performing
Investment (“NPI”) and vice versa. However, if only preference shares have been classified as an NPI, the investment in any of the other performing securities issued by the same issuer may not be classified as an NPI and any performing credit given to that borrower need not be treated as an NPA.
Restrictions on Investments in a Single Company
In terms of Section 19(2) of the Banking Regulation Act, no banking company may hold shares in any company except as provided in
sub-section (1) of
that Act, whether as pledgee, mortgagee or absolute owner of an amount exceeding 30.0 percent of the
paid-up
share capital of that company or 30.0 percent of its own
paid-up
share capital and reserves, whichever is lower. Further, in terms of Section 19(3) of the Banking Regulation Act, banks must not hold shares, whether as pledgee, mortgagee or absolute owner, in any company in the management of which the managing director, any other director or manager of the Bank is in any manner concerned or interested.
Limit on Transactions through Individual Brokers
Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank’s business should not be transacted only through one broker or a few brokers. The RBI specifies that not more than 5.0 percent of the total transactions through empaneled brokers can be transacted through one broker during a year. If for any reason this limit is breached, the RBI has stipulated that the board of directors of the bank concerned should be informed on a half-yearly basis of such occurrences. These guidelines are not applicable to banks’ dealings through Primary Dealers.
Repo Directions
In July 2018, the RBI has issued the Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018. These directions are applicable to repurchase transactions (Repo), excluding repo/reverse repo transactions under Liquidity Adjustment Facility and Marginal Standing Facility. The directions also cover repo contracts where a third entity (known as
Tri-Party
Agent) acts as an intermediary between two parties to the repo to facilitate services like collateral selection and payment and settlement.
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Valuation of Investments
The RBI has issued guidelines for the categorization and valuation of banks’ investments. The salient features of the guidelines are given below.

| • |  | Banks are required to classify their entire portfolio of approved securities under three categories: “held for trading”, “available for sale” and “held to maturity” banks must decide the category of investment at the time of acquisition.

| • |  | Held to maturity (“HTM”) investments compulsorily include: (i) recapitalization bonds received from the Government; (ii) investments in subsidiaries and joint ventures; and (iii) investment in the long-term bonds (with a minimum residual maturity of seven years) issued by companies engaged in infrastructure activities. The minimum residual maturity of these bonds must be of seven years at the time of investment in these bonds. Once invested, banks may continue to classify these investments under the HTM category even if the residual maturity falls below seven years subsequently. Held to maturity investments also include any other investments identified for inclusion in this category subject to the condition that such investments cannot exceed 25 percent of total investments. Banks are permitted to exceed the limit of 25 percent of investments for the held to maturity category provided the excess is comprised only of investments eligible for statutory liquidity ratio and the aggregate of such investments in the held to maturity category does not exceed a specified percentage of the prescribed demand and time liabilities.

| • |  | Profit on the sale of investments in the HTM category is appropriated to the capital reserve account after being recognized in the profit and loss account. Loss on any sale is recognized in the profit and loss account.

| • |  | Investments under the held for trading category must be sold within 90 days.

| • |  | Available for sale and held for trading securities are required to be valued at market or fair value at prescribed intervals. The market price of the security available from the stock exchange, the price of securities in subsidiary general ledger transactions, the RBI price list or prices declared by the Primary Dealers Association of India jointly with the Fixed Income Money Market and Derivatives Association of India serves as the “market value” for investments in available for sale and held for trading securities.

| • |  | Profit or loss on the sale of investments in both the held for trading and available for sale categories is recorded in the income statement.

| • |  | Shifting of investments from or to HTM is generally not allowed. However, it is permitted only under exceptional circumstances with the approval of the board of directors once a year, normally at the beginning of the accounting year; shifting of investments from available for sale to held for trading may be done, subject to depreciation, if any, applicable on the date of transfer, with the approval of the board of directors, the asset liability management committee or the investment committee; shifting from held for trading to available for sale is generally not permitted, save for under exceptional circumstances where banks are not able to sell the security within 90 days due to tight liquidity conditions, or extreme volatility, or the market becoming unidirectional, in which case transfer is permitted only with the approval of the board of directors, the asset liability management committee or the investment committee.

The
one-time
transfer of securities to/from HTM category with the approval of the board of directors is permitted to be undertaken by banks at the beginning of the accounting year. Additionally, in order to enable banks to shift their excess SLR securities and direct sale from the HTM category to AFS/HFT for the purposes of complying with the existing SLR requirements, the RBI by way of a circular dated October 4, 2017, permitted such shifting as per specified timelines in addition to the shifting permitted at the beginning of the accounting year. Furthermore, such additional shifting of securities explicitly permitted by the RBI from time to time, direct sales from HTM for bringing down SLR holdings in HTM category, sales to the RBI under
pre-announced
OMO auctions and repurchase of Government securities by the Government of India from banks will be excluded from the 5.0 percent cap prescribed for value of sales and transfers of securities to/from HTM category under paragraph 2.3(ii) of the master circular on “Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks”.
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HTM securities are not marked to market and are carried at acquisition cost. Any premium on acquisition of held to maturity securities is amortized.
Depreciation or appreciation for each basket within the available for sale categories is aggregated. While net depreciation is provided for, net appreciation in each basket, if any, is not recognized except to the extent of depreciation already provided.
Investments in security receipts or pass through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies are valued at the lower of redemption value of the security receipts or the net book value of the underlying financial asset.
Prohibition on Short Selling
The RBI does not permit short selling of securities by banks, except short selling of central government securities subject to stipulated conditions. The RBI has permitted scheduled commercial banks to undertake short sales of central government securities, subject to the short position being covered within a maximum period of three months, including the day of trade. The short positions must be covered only by an outright purchase of an equivalent amount of the same security or through a long position in the when issued market or allotment in primary auction.
In February 2015, the RBI permitted
re-repo
of government securities, including state development loans and treasury bills, acquired under reverse repo subject to conditions prescribed by the RBI.
In September 2014, scheduled commercial banks and primary dealers or bond houses were permitted to execute the sale leg of short sale transactions in relation to government securities in the over the counter market. In its circular dated October 29, 2015, the RBI has allowed custodians and banks to short-sell in the government bond market with primary members or individual bank customers, who invest through lenders.
Regulations Relating to Deposits
The RBI has permitted banks to independently determine rates of interest offered on fixed deposits. However, banks are not permitted to pay interest on current account deposits. From April 1, 2010, payment of interest on a savings account deposit is calculated on a daily product basis against the previous practice of interest being payable on the minimum balance held in the account during the period from the tenth day to the last calendar day of the month. With effect from October 25, 2011, the RBI permitted banks to offer varying rates of interest on savings deposits of resident Indians subject to the following conditions:

| • |  | each bank will have to offer a uniform interest rate on savings bank deposits up to Rs. 0.1 million, irrespective of the amount in the account within this limit. While calculating interest on such deposits, banks are required to apply the uniform rate set by them on end-of-day balance up to Rs. 0.1 million; and

| • |  | for any end-of-day savings bank deposits over Rs. 0.1 million a bank may provide differential rates of interest, if it so chooses, by ensuring that it does not discriminate in interest paid on such deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices.

With effect from December 16, 2011, the RBI also permitted banks the flexibility to offer varying rates of interest on
Non-Resident
(External) (“NRE”) and
Non-Resident
(Ordinary) (“NRO”) deposit accounts. However, banks are not permitted to offer rates of interest on NRE or NRO deposit accounts that are higher than those offered on domestic rupee deposit accounts of the same tenor and maturity.
Previously, banks were required to pay interest of 4.0 percent per annum on domestic savings deposits, rupee-denominated NRE Accounts Scheme and NRO Scheme savings deposits. In respect of savings and time deposits accepted from employees, banks are permitted to pay an additional interest of 1.0 percent over the interest payable on deposits from the public.
The RBI has prescribed minimum and maximum maturity thresholds for certain types of deposits.
The RBI has permitted banks the flexibility to offer varying rates of interest on domestic term deposits of the same maturity based on the size of these deposits, subject to the following conditions:

| • |  | a single term deposit is of Rs. 10.0 million (increased from Rs. 1.5 million with effect from April 1, 2013) and above; and

| • |  | interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank and not pursuant to negotiation between the depositor and the bank.

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In April 2015, the RBI has permitted banks to offer differential interest rates based on whether the term deposits are with or without premature withdrawal facility, subject to the following guidelines:

| • |  | All term deposits of individuals (held singly or jointly) of Rs. 1.5 million and below should, necessarily, have premature withdrawal facility.

| • |  | For all term deposits other than mentioned above, banks can offer deposits without the option of premature withdrawal as well. However, banks that offer such term deposits should ensure that the customers are given the option to choose between term deposits either with or without premature withdrawal facility.

| • |  | Banks should disclose in advance the schedule of interest rates payable on deposits i.e., all deposits mobilized by banks should be strictly in conformity with the published schedule.

| • |  | The banks should have a board approved policy with regard to interest rates on deposits including deposits with differential rates of interest and ensure that the interest rates offered are reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.

To achieve greater financial inclusion, banks have been advised by the RBI to offer a basic savings bank deposit (“BSBD”) account without any requirement of minimum balance and without carrying a charge for the stipulated basic minimum services that would make such accounts available as a normal banking service to all. The RBI, in its circular dated June 10, 2019, advised banks to offer the following minimum facilities: (i) deposit of cash at banking outlets as well as ATMs and CDMs, (ii) receipt or payment of monies through any electronic channel or by means of deposit or collection of cheques drawn by the central or state government agencies and departments, (iii) no limit on the number and value of deposits that can be made in a month, (iv) a minimum of four withdrawals in a month, including ATM withdrawal, (v) the provision of ATM cards or
ATM-cum-debit
cards, and (vi) value-added services in addition to such minimum facilities as described here, including the issuance of cheque books. The holders of BSBD accounts will not be eligible to open any other savings bank deposit account in the bank in which such holder maintains a BSBD account. In addition, BSBD accounts shall be subject to the RBI’s KYC and anti-money laundering requirements for opening bank accounts.
On March 3, 2016, the RBI issued the Master Direction on Interest Rates on Deposits. The master direction is applicable to all Scheduled Commercial Banks accepting deposits in rupee and foreign currency. This master direction consolidates instructions on rules and regulations framed by the RBI under various acts including banking issues and foreign exchange transactions.
On July 6, 2017, the RBI released guidelines titled “Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions”, for customer protection by limiting the liability of customers in unauthorized electronic banking transactions. Under these guidelines, banks have been directed to (i) put in place appropriate internal control systems and procedures to ensure safety and security of electronic banking transactions carried out by customers; and (ii) facilitate ease of reporting and monitoring of unauthorized transactions by customers to banks. Further, indicators have been identified by the RBI to banks on situations where liability may or may not be accorded to the customers in case of unauthorized transactions, and the limits on and timelines for such liability of customers for third-party breaches. On January 4, 2019, these guidelines have been extended to apply to
non-bank
prepaid payment instruments issuers.
FCNR (B) Deposits
The RBI has granted general permission to
non-resident
Indians and Persons of Indian Origin (“PIOs”) to open Foreign Currency
Non-resident
(Bank) (“FCNR(B)”) accounts with authorized Indian banks. These FCNR(B) accounts can be funded by: (i) interest accruing on the account; (ii) interest on investment; (iii) maturity proceeds if such investments were made from the relevant FCNR(B) account; (iv) transferring funds from other NRE/FCNR(B) accounts; or (v) any other funds which are repatriable under the prevailing RBI regulations. The RBI permits FCNR(B) deposit holders to avail credit facilities (both offshore and onshore) and offer their FCNR(B) deposits as collateral for such facilities, subject to certain terms and conditions.
As an accelerated measure to increase foreign currency flows into the country, the RBI had, in September 2013, introduced a United States dollar-rupee swap window for fresh FCNR(B) dollar funds, mobilized for a minimum tenor of three years and more. Under the swap arrangement, a bank could sell United States dollars in multiples of US$ 1 million to the RBI and simultaneously agree to buy the same amount of United States dollars at the end of the swap period. The swap was undertaken at a fixed rate of 3.5 percent per annum. The swap window was open till November 30, 2013.
In August 2013, the RBI exempted the FCNR(B)/NRE deposits raised by banks during a specified period having maturity of three years and above from maintenance of CRR and SLR. The RBI also permitted exclusion of loans made in India against these FCNR(B)/NRE deposits from the ANBC computation for priority sector lending targets. The exemption granted on incremental FCNR(B)/NRE deposits from maintenance of CRR/SLR was withdrawn with effect from the fortnight beginning March 8, 2014.
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Deposit Insurance
Demand and time deposits of up to Rs. 100,000 accepted by scheduled commercial banks in India have to be mandatorily insured with the Deposit Insurance and Credit Guarantee Corporation (the “DICGC”), a wholly owned subsidiary of the RBI. Banks are required to pay the insurance premium to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. The RBI, in its press release dated February 4, 2020, raised the limit of insurance cover for depositors in insured banks from the present level of Rs. 100,000 to Rs. 500,000 per depositor, effective February 4, 2020. The DICGC, in its circular dated February 5, 2020, increased the limit of deposit insurance cover and rate of premium payable to insured banks from Rs. 10 paise per Rs. 100 of assessable deposits to Rs. 12 paise per Rs. 100 of assessable deposits per annum, effective from April 1, 2020.
Demonetization Measures
On November 8, 2016, the Government of India announced its decision for existing bank notes of Rs. 500 and Rs. 1000 denominations of the then existing series issued by the RBI to no longer be valid. Citizens were to return all such bank notes to banks as they could no longer be used for transactions or exchange purposes with effect from November 9, 2016. New bank notes of denominations of Rs. 500 and Rs. 2000 were introduced to replace the old notes. Limits for the exchange of demonetized notes and withdrawal of new notes were specified which were subsequently lifted.
Regulations Relating to Knowing the Customer and Anti-Money Laundering
The RBI has issued several guidelines on customer identification and monitoring of transactions. Banks have been advised to put in place systems and procedures to control financial frauds, identify money laundering and suspicious activities, and monitor high value cash transactions. The RBI has also issued guidelines from time to time advising banks to be vigilant while opening accounts for new customers to prevent misuse of the banking system for perpetration of frauds.
Banks have been advised to ensure that a proper policy framework on KYC and AML measures duly approved by the board of directors or regulated entities (as specified in the guidelines) or any committee of the board of directors, is formulated and implemented. This framework is required to,
inter alia
, include procedures/process in relation to (a) customer acceptance policy; (b) customer identification procedures; (c) monitoring of transactions; and (d) risk management.
RBI guidelines require that a profile of the customers should be prepared based on risk categorization. Banks have been advised to apply enhanced due diligence for high-risk customers. The guidelines provide that banks should undertake customer identification procedures while establishing a banking relationship or carrying out a financial transaction or when the Bank has a doubt about the authenticity or the adequacy of the previously obtained customer identification data. Banks must obtain sufficient information necessary to establish the identity of each new customer and the purpose of the intended banking relationship. The guidelines also provide that banks should monitor transactions depending on the account’s risk sensitivity. Prevention of Money Laundering Rules, 2005 require every banking company, and financial institution, as the case may be, to identify the beneficial owner and take all reasonable steps to verify his identity. The term “beneficial owner” has been defined as the natural person who ultimately owns or controls a client and/or the person on whose behalf the transaction is being conducted, including a person who exercises ultimate effective control over a judicial person. The procedure for identification of the beneficial owner has been specified by the Government of India in the Prevention of Money Laundering Rules, 2005 and the regulations prescribed by the RBI from time to time.
The KYC procedures for opening accounts have been simplified for “small accounts” in order to ensure that the implementation of the KYC guidelines do not result in the denial of the banking services to those who are financially or socially disadvantaged. A “small account” is defined as a savings account in a banking company where (i) the aggregate of all credits in a financial year does not exceed Rs. 0.1 million; (ii) the aggregate of all withdrawals and transfers in a month does not exceed Rs. 0.01 million; and (iii) the balance at any point of time does not exceed Rs. 0.05 million. Small accounts are permitted to remain operational initially for a period of 12 months, and thereafter for a further period of 12 months, subject to the account holder applying, and providing evidence of having applied for, any of the officially valid documents during the first twelve months of the opening of such account. In April 2020, the RBI directed that small accounts shall remain operational between April 1, 2020 and June 30, 2020 and such other periods as may be notified by the Government.
In January 2020, the RBI also allowed the use of video-based customer identification processes for the establishment of an account relationship with individual customers, subject to certain conditions, including obtaining such customers’ informed consent.
In addition to keeping customer information confidential, banks must ensure that only information relevant to the perceived risk is collected and that the same is not intrusive in nature. Apart from addressing this concern the guidelines set out in detail the framework to be adopted by banks as regards their customer dealings and are directed towards prevention of financial frauds and money laundering transactions.
In a bid to prevent money laundering activities, the Government enacted the Prevention of Money Laundering Act, 2002 (the “PML Act”) which came into effect from July 1, 2005. The PML Act seeks to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for incidental matters or matters connected therewith.
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All the instructions/guidelines issued to banks on KYC norms, AML standards and obligations of the banks under the PML Act have been consolidated in the Know Your Customer Directions, 2016, issued by the RBI, as updated from time to time. Separate guidelines were also issued by the RBI on July 20, 2017, on detection, reporting, monitoring and impounding of counterfeit notes by banks in India.
The PML Act and the rules relating thereto require that banking companies, financial institutions and intermediaries (together, Institutions) to maintain a comprehensive record of all their transactions, including the nature and value of each transaction. Further, it mandates verification of the identity of all their clients and also requires the Institutions to maintain records of their respective clients. These details are to be provided to the authority established by the PML Act, who is empowered to order confiscation of property where the authority is of the opinion that a crime as recognized under the PML Act has been committed. In addition, the applicable exchange control regulations prescribe reporting mechanisms for transactions in foreign exchange and require authorized dealers to report identified suspicious transactions to the RBI.
Banks are advised to develop suitable mechanisms through an appropriate policy framework for enhanced monitoring of accounts suspected of having terrorist links, identification of the transactions carried out in these accounts and suitable reporting to the Director, Financial Intelligence Unit (India) (the “FIU”). Banks are required to report to the FIU:

| (a) | all cash transactions with a value of more than Rs. 1 million or an equivalent in foreign currency;

| (b) | all series of cash transactions integrally connected to each other which have been valued below Rs. 1 million or an equivalent in foreign currency where such series of transactions have taken place within a month and the aggregate value of such transactions exceeds Rs. 1 million;

| (c) | all transactions involving receipts by non-profit organizations with a value of more than Rs. 1 million or an equivalent in foreign currency;

| (d) | all cash transactions in which forged or counterfeit currency notes or bank notes have been used and where any forgery of a valuable security or a document has taken place facilitating the transaction; and

| (e) | all other suspicious transactions whether or not made in cash and by such other ways as mentioned in the Rules.

Pursuant to recent amendments, banks have been directed to periodically carry out AML and terrorist financing (“TF”) risk assessments to identify, assess and mitigate money laundering and terrorist financing risks related to clients, countries or geographic areas, as well as products, services, transactions or delivery channels. While assessing the AML and TF risk, banks are required to account for certain sector-specific vulnerabilities, which the relevant regulatory authority for each sector may share with them from time to time. Further, the internal risk assessment carried out by the banks should be commensurate to their size, geographical presence and complexity of their activities and structure. Banks are required to apply a risk-based approach for mitigation and management of the identified risk and should maintain board approved policies, controls and procedures for such purposes.
Legal Reserve Requirements
Cash Reserve Ratio
Each bank is required to maintain a specific percentage of its net 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 amendments made to the Reserve Bank of India Act, 1934 and the Banking Regulation Act during fiscal 2007 enhanced the operational flexibility in monetary management of the RBI. The RBI (Amendment) Act, 2006 came into force on April 1, 2007. Section 3 of this Act removed the floor and the ceiling rates on CRR and no interest was payable on the CRR balances of banks with effect from March 31, 2007. Scheduled commercial banks are exempted from maintaining CRR on the following liabilities:

| (a) | liabilities to the banking system in India as computed under clause (d) of the explanation to section 42(1) of the Reserve Bank of India Act, 1934;

| (b) | credit balances in Asian Clearing Union (US$) Accounts; and

| (c) | demand and time liabilities in respect of the banks’ Offshore Banking Units.

The CRR requirement as of March 31, 2019, was 4.0 percent of the prescribed net demand and time liabilities of the Bank. In order to address the volatility in rupee exchange rates in early 2013, the RBI in July 2013 increased the requirement of minimum daily CRR balance maintenance to 99.0 percent of the requirement with effect from the first day of the fortnight beginning July 27, 2013. In September 2013, the RBI reduced the minimum daily maintenance of the CRR from 99.0 percent of the requirement to 95.0 percent. In April 2016, the RBI further reduced this requirement to 90.0 percent, with effect from the fortnight beginning April 16, 2016. In response to the
COVID-19
pandemic, the RBI, in its circular dated March 27, 2020, for a period of one year, decided to reduce the CRR of all banks by 100 basis points from 4.0 percent to 3.0 percent of their net demand and time liabilities, from the reporting period beginning on March 28, 2020 and ending on March 26, 2021. Furthermore, given strains on banks’ reporting abilities as a result of social distancing measures for staff, the RBI reduced the minimum CRR balance maintenance requirement from 90 percent to 80 percent, effective from the first day of the reporting period beginning on March 28, 2020. This
one-time
dispensation has been further extended by RBI until September 25, 2020 through its circular dated June 26, 2020. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
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Statutory Liquidity Ratio
In order to maintain liquidity in the banking system, in addition to the CRR, each bank is required to maintain a specified percentage of its net demand and time liabilities by way of liquid assets such as cash, gold or approved securities, such as Government of India and State Government Securities. The percentage of this ratio is fixed by the RBI from time to time and is 18.0 percent from April 11, 2020. The RBI master circular on the Statutory Liquidity Ratio specifies certain liabilities which will not be included in the calculation of the Statutory Liquidity Ratio.
Revisions in Constitution of Bank Assets
The capital regulations with respect to Liquidity Standards under the Basel III framework (LCR, Liquidity Risk Monitoring Tools and LCR Disclosure Standards) were revised by the RBI by way of a circular dated August 2, 2017, to
re-define
the “Level 1” of bank assets as comprising of the following:

| i. | Cash including cash reserves in excess of required CRR.

| ii. | For banks incorporated in India,

| • |  | Reserves held with foreign Central Banks in excess of the reserve requirement, where a foreign sovereign has been assigned a 0 percent risk weight as per rating by an international rating agency.

| • |  | Reserves held with foreign Central Banks in excess of the reserve requirement, to the extent these balances cover the Bank’s stressed net cash outflows in that specific currency, in cases where a foreign sovereign has been assigned a non-0 percent risk weight as per rating by an international rating agency, but a 0 percent risk weight has been assigned at national discretion under Basel II Framework.

| iii. | Government securities in excess of the minimum SLR requirement.

| iv. | Within the mandatory SLR requirement, Government securities to the extent allowed by the RBI, under Marginal Standing Facility (MSF).

| v. | Marketable securities issued or guaranteed by foreign sovereigns satisfying all the following conditions:

(a) assigned a 0 percent risk weight under the Basel II standardized approach for credit risk;
(b) traded in large, deep and active repo or cash markets characterized by a low level of concentration and proven record as a reliable source of liquidity in the markets (repo or sale), even during stressed market conditions; and
(c) not issued by a bank/financial institution/NBFC or any of its affiliated entities.
In June 2014, the RBI issued guidelines in relation to liquidity coverage ratio (“LCR”), liquidity risk monitoring tools and LCR disclosure standards pursuant to the publication of the “Basel III: The Liquidity Coverage Ratio” and liquidity risk monitoring tools in January 2013 and the Liquidity Coverage Ratio Disclosure Standards in January 2014 by the BCBS. The objective of the LCR standard is to ensure that a bank maintains an adequate level of unencumbered high quality liquid assets which could be converted into cash to meet its liquidity needs for a
30-calendar
day time horizon under a significantly severe liquidity stress scenario. The LCR requirement of 100.0 percent is being implemented in a phased manner over a period of four years, with a minimum requirement of 60.0 percent effective January 1, 2015. The prescribed LCR level as of January 1, 2018, was 90.0 percent and was required to be at the increased prescribed level of 100.0 percent on January 1, 2019
.
In April 2020, the RBI reduced the LCR requirement from 100 percent to 80 percent, effective between April 17, 2020 and September 30, 2020. The RBI proposed to increase the reduced LCR requirement in two phases: (i) from 80 percent to 90 percent between October 1, 2020 to March 31, 2021 and (ii) from 90 percent to 100 percent from April 1, 2021. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
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Net Stable Funding Ratio
Net stable funding ratio (“NSFR”) is a global regulatory standard under the Basel III framework. The draft guidelines on NSFR were issued by the RBI by its circular dated May 28, 2015. The RBI has published final guidelines on NSFR on May 17, 2018, and it was required to be implemented from April 1, 2020. Until then, banks were required to comply with Basel III on a “best efforts” basis. In March 2020, the RBI has deferred the implementation of NSFR guidelines to October 1, 2020.
Regulations on Asset Liability Management
Since 1999, the RBI has issued several guidelines relating to ALM in banks in India. The RBI guidelines cover,
inter alia,
the interest rate risk and liquidity risk measurement and reporting framework, including establishing prudential limits. The guidelines require that gap statements for liquidity and interest rate risk are prepared by scheduling all assets and liabilities according to the stated and anticipated
re-pricing
date or maturity date. The RBI has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being
re-priced
in a particular period and place internal prudential limits on the gaps in each time period, as a risk control mechanism. Additionally, the RBI has advised banks to manage their asset-liability liquidity structure within negative gap limits for one day,
2-7
days,
8-14
days and
15-28
days set at 5.0 percent, 10.0 percent, 15.0 percent and 20.0 percent, respectively, of the cumulative cash outflows in the respective time buckets in order to recognize the cumulative impact on liquidity. In respect of other time periods, the RBI has directed banks to lay down internal standards in respect of liquidity gaps. In order to recognize the cumulative impact on liquidity, banks are also advised to prepare the statement of structural liquidity on a daily basis and also undertake dynamic liquidity management. Banks are required to submit the liquidity statements periodically to RBI, as specified in these guidelines.
The RBI’s Guidelines on Banks’ Asset Liability Management Framework—Interest Rate Risk issued in November 2010 mandate banks in India to evaluate interest rate risk using both methods, i.e., TGA and DGA. Banks are required to submit the TGA and DGA results from time to time to the RBI as mentioned in the guidelines.
Further, RBI guidelines on stress testing issued in 2007 have reinforced stress testing as an integral part of a bank’s risk management process, the results of which are used to evaluate the potential vulnerability to some unlikely but plausible events or movements in financial variables that affect both interest rate risk and liquidity risk in the Bank. In December 2013, the RBI specified the minimum level of stress testing to be carried out by all banks.
In November 2012, the RBI issued enhanced guidelines on liquidity risk management by banks. These guidelines consolidate various instructions on liquidity risk management that the RBI had issued from time to time, and where appropriate, harmonize and enhance these instructions in line with the principles for sound liquidity risk management and supervision issued by the BCBS. The RBI’s guidelines require banks to establish a sound process for identifying, measuring, monitoring and controlling liquidity risk, including a robust framework for comprehensively projecting cash flows arising from assets, liabilities and
off-balance
sheet items over an appropriate time horizon. The key items covered under these guidelines include: (i) governance of liquidity risk management including liquidity risk management policy, strategies and practices and liquidity risk tolerance; (ii) management of liquidity risk, including identification, measurement and monitoring of liquidity risk; (iii) collateral position management;
(iv) intra-day
liquidity position management; and (v) stress testing.
Foreign Currency Dealership
The RBI has granted us a full-fledged Authorized Dealers’ License to deal in foreign exchange through our designated banking outlets. Under this license, we have been granted permission to: engage in foreign exchange transactions in all currencies; open and maintain foreign currency accounts abroad; raise foreign currency and rupee-denominated deposits from
non-resident
Indians; grant foreign currency loans to
on-shore
and
off-shore
corporations; open documentary credits; grant import and export loans; handle collection of bills and funds transfer services; issue foreign currency guarantees; and enter into derivative transactions and risk management activities that are incidental to our normal functions authorized under our organizational documents and as permitted under the provisions of the Banking Regulation Act.
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Our foreign exchange operations are subject to the guidelines contained in the Foreign Exchange Management Act, 1999 (Foreign Exchange Management Act). As an authorized dealer, we are, as required, enrolled as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to the foreign exchange business in India.
The RBI from time to time has issued directions regarding the reporting requirements for holdings of, and dealings in, all foreign currencies, as well as foreign exchange transactions by authorized dealers like the Bank. The last such directions were issued by the RBI by way of a circular dated May 22, 2020.
Simplified hedging facility guidelines were issued by the RBI by way of a circular dated November 9, 2017, to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture. These guidelines stipulate operational mechanism and guidelines for resident and
non-resident
entities, other than individuals, for hedging exchange rate risk on transactions, contracted or anticipated, with respect to any Over the Counter (“OTC”) derivative or Exchange Traded Currency Derivative (“ETCD”) permitted under the Foreign Exchange Management Act, 1999 (“FEMA”). Additionally, different facilities have been provided for hedging trade exposures (i.e., currency risks arising out of genuine trade transactions involving exports from and imports to India), invoiced in Indian Rupees in India, by way of the RBI Circular dated October 12, 2017.
In April 2020, the RBI issued revised directions on the hedging of foreign exchange risk, which aim to ease access to the domestic foreign exchange derivative markets. The directions will come into effect from September 1, 2020.
We are required to determine our limits on open positions and maturity gaps in accordance with RBI guidelines and within limits approved by the RBI. Further, we are permitted to hedge foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions.
Setting Up Wholly Owned Subsidiaries by Foreign Banks
In November 2013, the RBI released its framework for establishing wholly owned subsidiaries of foreign banks in India, which aims to tighten regulatory control and encourage foreign banks to convert their existing banking outlets into wholly owned subsidiaries.
Key features of the framework include:

| • |  | requiring certain foreign banks, including banks with complex structures and banks belonging to jurisdictions which: (i) do not have adequate disclosure requirements; or (ii) have legislation which give preferential treatment to deposits of the home country in a winding-up proceeding, to set up a wholly owned subsidiary in order to enter the Indian market;

| • |  | permitting foreign banks that do not fall under the above categories to either set up a branch office or a wholly owned subsidiary;

| • |  | offering near-national treatment to wholly owned subsidiaries of foreign banks, subject to certain conditions;

| • |  | requiring newly incorporated wholly owned subsidiaries to have an initial minimum paid-up voting equity capital of 5 billion rupees. In the case of existing banking outlets of foreign banks that wish to convert into a wholly owned subsidiary, it must have a minimum net worth of 5 billion rupees;

| • |  | requiring at least 50.0 percent of the board of directors of wholly owned subsidiaries to be Indian nationals, non-resident Indians or persons of Indian origin; and

| • |  | mandating that wholly owned subsidiaries comply with the priority sector lending requirements applicable to domestic commercial banks.

Statutes Governing Foreign Exchange and Cross-Border Business Transactions
Foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. All banks are required to monitor the transactions in all
non-resident
accounts to prevent money laundering. These transactions are governed by the provisions of the Foreign Exchange Management Act, and the PML Act.
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In terms of the guidelines prescribed by the RBI (last updated on November 9, 2017) (the “Inter-Bank Dealings Guidelines”), overseas foreign currency borrowings by a bank in India (including overdraft balances in nostro accounts not adjusted within five days) should not exceed 100.0 percent of its unimpaired Tier I capital or US$ 10 million (or its equivalent), whichever is higher. The aforesaid limit applies to the aggregate amount availed of by all the offices and banking outlets in India from all their banking outlets and correspondents abroad and includes overseas borrowings in gold for funding domestic gold loans.
The following borrowings would continue to be outside the above limit:

| 1. | overseas borrowing by banks for the purpose of financing export credit subject to certain conditions prescribed by the RBI;

| 2. | capital funds raised or augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments in foreign currency;

| 3. | subordinated debt placed by head offices of foreign banks with their banking outlets in India as Tier II capital; and

| 4. | any other overseas borrowing with the specific approval of the RBI.

Under the Inter-Bank Dealings Guidelines, AD category – I banks are permitted to borrow from international/multilateral FIs without approaching the RBI on a
case-by-case
approval. Such FIs shall include: (i) international/multilateral FIs of which the Government is a shareholding member; (ii) FIs which have been established by more than one government; or (iii) FIs which have shareholding by more than one government and other international organizations. However, all such borrowings should be for the purpose of general banking business and not for capital augmentation.
Cyber Security Frameworks in Banks
In its circular dated June 2, 2016, the RBI directed banks to formulate a cyber security policy duly approved by their board of directors by September 30, 2016, to combat cyber threats. This policy is required to be distinct from banks’ broader information technology/information security policy.
The Bank had developed a Cybersecurity Policy and Cybersecurity Framework which is to ensure appropriate cybersecurity practices are followed across the Bank’s information systems. The Cybersecurity Policy is formally approved by the Bank’s Board. See also “
Management’s Discussion and Analysis Of Financial Conditions And Results of Operations—Cybersecurity
”.
Special Provisions of the Banking Regulation Act
Prohibited Business
Section 6 of the Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 25.0 percent of the profits of each year before any dividend is declared. Banks are required to take prior approval from the RBI before appropriating any amount from the reserve fund or any other free reserves. The Government may, on the recommendation of the RBI, exempt a bank from requirements relating to its reserve fund.
Restrictions on Payment of Dividends
The Banking Regulation Act requires that a bank pay dividends on its shares only after all of its capital expenses (including preliminary expenses, organization expenses, share selling commissions, brokerage on public offerings, amounts of losses and any other items of expenditure not represented by tangible assets) have been completely written off. The Government may exempt banks from this provision by issuing a notification on the recommendation of the RBI.
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Banks that comply with the following prudential requirements are eligible to declare dividends:

| • |  | the capital adequacy ratio must be at least 9.0 percent for the preceding two completed years and the accounting year for which the Bank proposes to declare a dividend;

| • |  | net non-performing assets must be less than 7.0 percent of advances. In the event a bank does not meet the above capital adequacy norm, but has capital adequacy of at least 9.0 percent for the fiscal year for which it proposes to declare a dividend it would be eligible to declare a dividend if its net non-performing asset ratio is less than 5.0 percent;

| • |  | the bank has complied with the provisions of Sections 15 and 17 of the Banking Regulation Act;

| • |  | the bank has complied with the prevailing regulations/guidelines issued by the RBI, including creating adequate provisions for the impairment of assets and staff retirement benefits and the transfer of profits to statutory reserves;

| • |  | dividends should be payable out of the current year’s profits; and

| • |  | the RBI has not placed any explicit restrictions on the Bank for declarations of dividends.

Banks that comply with the above prudential requirements can pay dividends subject to compliance with the following conditions:

| • |  | the dividend payout ratio (calculated as a percentage of “dividends payable in a year” (excluding dividend tax) to “net profit during the year”) should not exceed 40.0 percent. The RBI has prescribed a matrix of criteria linked to the capital adequacy ratio and the net non-performing assets ratio in order to ascertain the maximum permissible range of the dividend payout ratio; and

| • |  | if the financial statements for which the dividend is declared have any audit qualifications which have an adverse bearing on the profits, the same should be adjusted while calculating the dividend payout ratio.

In case the profit for the relevant periods includes any extra-ordinary profits/income, the payout ratio shall be computed after excluding such extra-ordinary items for compliance with the prudential payout ratio.
In addition to the above, the master circular on “Basel III Capital Regulations” as amended and updated from time to time, also regulates the distribution of dividends by banks. The circular provides that the dividend distribution can be made by a bank only through the current year’s profit. It also requires the banks to maintain a capital conservation buffer outside the period of stress which can be drawn down if losses are incurred during a stressed period. One of the ways in which the banks can build the capital conservation buffer is by reducing the dividend payments. In case of shortfall in the prescribed capital conservation buffer, dividend payment restrictions would be imposed on the banks as per the conditions of the Basel III regulations. The circular further provides that perpetual
non-cumulative
preference shares and perpetual debt instruments issued by a bank for inclusion in the additional Tier I capital of the Bank, may have a dividend stopper arrangement to stop dividend payments on common shares in the event the holders of additional Tier I instruments are not paid dividend or coupon.
In its circular dated April 17, 2020, the RBI directed banks to not make any further dividend payouts from the profits pertaining to the financial year ended March 31, 2020 until further notice. This restriction will be reassessed by the RBI based on the financial results of banks for the quarter ending September 30, 2020. This circular has been issued by the RBI in light of the heightened uncertainty caused by the
COVID-19
pandemic, and is expected to help the banks conserve capital to retain their capacity to support the economy and absorb losses. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
”.
Restriction on Share Capital and Voting Rights
Banks were earlier permitted to issue only ordinary shares. In January 2013, the Banking Regulation Act was amended to,
inter alia
, permit banks to also issue preference shares. However, guidelines governing the issuance of preference shares are yet to be issued. The amended Banking Regulation Act also permits the RBI to increase the cap on the voting rights of a single shareholder of a private bank from the existing cap of 10.0 percent to 26.0 percent in a phased manner. The RBI has issued the Ownership in Private Sector Banks, Directions, 2016, which state that the voting rights in private sector banks shall be limited to the level notified by the RBI from time to time and that the current ceiling on voting rights is 15.0 percent. The RBI, in a notification dated July 21, 2016, which was notified in the Gazette of India on September 17, 2016, increased the ceiling on voting rights to 26 percent.
Restriction on Transfer of Shares
RBI approval is required before a bank can register the transfer of shares to an individual or group which acquires 5.0 percent or more of its total
paid-up
capital.
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Regulatory Reporting and Examination Procedures
The RBI is empowered under the Banking Regulation Act to inspect the books of accounts and the other operations of a bank. The RBI monitors prudential parameters at regular intervals. The findings of these inspections are provided to banks, which are required to comply with the actions recommended in order to correct any discrepancies in their operations as contained in the inspection findings within a stipulated time frame. Further, banks are required to keep the inspection report confidential as per the instructions issued by the RBI. To this end and to enable
off-site
monitoring and surveillance by the RBI, banks are required to report to the RBI on financial and operating measures such as:

| • |  | assets, liabilities and off-balance sheet exposures;

| • |  | the risk weighting of these exposures, the capital base and the capital adequacy ratio;

| • |  | asset quality;

| • |  | concentration of exposures;

| • |  | connected and related lending and the profile of ownership, control and management; and

| • |  | other prudential parameters.

The RBI also conducts periodic
on-site
inspections of matters relating to the Bank’s capital, asset quality, management, earnings, liquidity and systems and controls on an annual basis. We have been subjected to
on-site
inspection by the RBI at yearly intervals. The inspection report, along with the report on actions taken by us, has to be placed before our Board of Directors. On approval by our Board, we are required to submit the report on actions taken by us to the RBI. The RBI also discusses the findings of the inspection with our management team along with members of the Audit Committee of our Board.
The RBI also conducts
on-site
supervision of selected banking outlets of banks with respect to their general operations and foreign exchange related transactions.
The existing supervisory framework has been modified towards establishing a risk-based supervision framework which envisages continuous monitoring of banks through robust offsite reports to the RBI coupled with need-based
on-site
inspection. We have been subject to supervision under this framework with effect from fiscal 2014.
Penalties
The RBI is empowered under the Banking Regulation Act, to impose penalties on banks and their employees in case of infringement of any provision of the Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment.
The Financial Intelligence Unit (India) (the
“FIU-IND”),
in January 2015, levied a fine on us of Rs. 2.6 million relating to our failure to detect and report attempted suspicious transactions, which was publicized by media outlets in 2013. We filed an appeal against the order before the appellate tribunal stating that there were only roving enquiries made by the reporters of the media and there were no instances of any attempted suspicious transactions. In June 2017, the appellate tribunal, dismissed the penalty levied by the
FIU-IND
and observed that in accordance with the provisions of section 13(2)(a) of the PMLA, 2002 a warning was required to be given to the Bank, and that the prescribed matter did not fall within section 13(2)(d) of the PMLA, 2002 (pursuant to which a monetary penalty can be imposed on failure to comply with certain obligations under the PMLA, 2002) as mentioned by the FIU.
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By way of a circular dated October 12, 2017, the RBI specifically levied penal interest for delayed reporting/wrong
reporting/non-reporting
of currency chest transactions and inclusion of ineligible amounts in currency chest balances. The intention behind the levy of penal interest is to inculcate discipline among banks so as to ensure prompt/correct reporting, and so that pleas by banks for waiver of penal interest on grounds that
delayed/wrong/non-reporting
does not result in utilization of RBI’s funds or shortfall in the maintenance of CRR or SLR. On similar lines, by way of an additional circular dated October 12, 2017, the RBI revised the scheme of penalties for banking outlets based on performance in rendering customer service to the members of the public, to ensure that all banking outlets provide better customer service to members of the public with regard to exchange of notes and coins.
In its order dated February 4, 2019, the RBI imposed a monetary penalty of Rs. 2.0 million on us for failing to comply with the RBI’s KYC and AML standards, as set out in their circulars dated November 29, 2004 and May 22, 2008. In its order dated June 13, 2019, the RBI imposed a monetary penalty of Rs. 10 million on us for failing to comply with the KYC, AML and fraud reporting standards, following an investigation into bills of entry submitted by certain importers. The penalties were imposed under Section 47A(1)(c) and Section 46(4)(i) of the Banking Regulation Act, 1949. We have since implemented corrective action to strengthen our internal control mechanisms so as to ensure that such incidents do not repeat themselves.
Following the dismissal of the penalty levied by the
FIU-IND
by the appealed tribunal in June 2017, the
FIU-IND
challenged the tribunal’s order in the Delhi High Court. Subsequently, the Delhi High Court, in its order dated September 4, 2019, held that the violation of the reporting obligations by the respondent banks warranted issuance of a warning in writing under Section 13(2)(a) of the Act, instead of a monetary penalty as imposed under Section 13(2)(d) of the Act, and disposed of the case filed by the
FIU-IND.
In 2020 the Bank received one fine for
non-compliance
with RBI regulations. In its order dated January 29, 2020, the RBI imposed a monetary penalty in the amount of Rs. 10 million on the Bank for failure to undertake ongoing due diligence with respect to 39 current accounts, which had been opened by customers of the Bank to participate in an initial public offering, but where the transactions effected were disproportionate to the declared income and profile of the customers. This penalty was imposed by the RBI using the powers conferred under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949. The Bank has since strengthened its internal control mechanisms to ensure that such incidents are not repeated. See also “
Risk Factors—We have previously been subject to penalties imposed by the RBI. Any regulatory investigations, fines, sanctions, and requirements relating to conduct of business and financial crime could negatively affect our business and financial results, or cause serious reputational harm
”.
Assets to be Maintained in India
Every bank is required to ensure that its assets in India (including import-export bills drawn on/in India and the
RBI-approved
securities, even if the bills and the securities are held outside India) are not less than 75 percent of its demand and time liabilities in India.
Secrecy Obligations
Banks’ obligations relating to maintaining secrecy arise out of regulatory prescription and also common law principles governing the relationship between them and their customers. Banks cannot disclose any information to third parties except under certain limited and clearly defined circumstances as detailed in the guidelines issued by the RBI.
Subsidiaries and Other Investments
Banks require the prior permission of the RBI to incorporate a subsidiary. Banks are required to maintain an
“arm’s-length”
relationship in respect of their subsidiaries and are prohibited from taking actions such as taking undue advantage in borrowing or lending funds, transferring or selling or buying securities at rates other than market rates, giving special consideration for securities transactions, overindulgence in supporting or financing subsidiaries and financing its clients through them when it itself is not able or not permitted to do so. Banks and their subsidiaries have to observe the prudential standards stipulated by the RBI, from time to time, in respect of their underwriting commitments.
Banks also require the prior specific approval of the RBI to participate in the equity of financial services ventures including stock exchanges and depositories, notwithstanding the fact that such investments may be within the ceiling prescribed under Section 19(2) of the Banking Regulation Act. Further, investment by a bank in its subsidiaries, financial services companies or financial institutions should not exceed 10.0 percent of its
paid-up
capital and reserves. Investments by banks in companies which are not its subsidiaries and are not financial services companies would be subject to a limit of 10.0 percent of the investee company’s paid up share capital or 10.0 percent of the Bank’s paid up share capital and reserves, whichever is less. Any investment above this limit will be subject to the RBI approval except as provided otherwise. Equity investments in any
non-financial
services company held by (a) a bank; (b) the bank’s subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and (c) mutual funds managed by Asset Management Companies controlled by the Bank should in the aggregate not exceed 20.0 percent of the investee company’s
paid-up
share capital. Further, a bank’s equity investments in subsidiaries and other entities that are engaged in financial services activities together with equity investments in entities engaged in
non-financial
services activities should not exceed 20.0 percent of the Bank’s
paid-up
share capital and reserves.
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Introduction of Legal Entity Identifier for Large Corporate Borrowers
Pursuant to the Statement on Developmental and Regulatory Policies dated November 2, 2017, the RBI decided to introduce the Legal Entity Identifier (“LEI”) system for all borrowers of banks having total fund based and
non-fund
based exposure of Rs. 50 million and above in a phased manner (and for their parent entity, as well as all subsidiaries and associates). The LEI is a
20-digit
unique code to identify parties to financial transactions worldwide. Borrowers who do not obtain LEI as per the schedule are not to be granted renewal/enhancement of credit facilities. A separate roadmap for borrowers having exposure between Rs. 50 million and up to Rs. 500 million has also been announced to be issued by RBI.
Guidelines for Merger/Amalgamation of Private Sector Banks
The RBI issued detailed guidelines in May 2005 on the merger or amalgamation of private sector banks and for the amalgamation of a NBFC with a banking company. The guidelines lay down the process for a merger proposal, the determination of swap ratios, disclosures, the stages at which the board of directors will get involved in the merger process and norms of buying and selling of shares by the promoters before and during the merger process.
In April 2016, the RBI issued the Reserve Bank of India (Amalgamation of Private Sector Banks) Directions, 2016. The new directions are substantially the same as the 2005 guidelines mentioned above.
Appointment and Remuneration of the Chairman, the Managing Director and Other Directors
Banks require the prior approval of the RBI to appoint their Chairman and Managing Director and any other directors and to fix their remuneration. The RBI is empowered to remove the appointee on the grounds of public interest or the interest of depositors or to ensure the proper management of the Bank. Further, the RBI may order meetings of the board of directors of banks to discuss any matter in relation to the Bank, appoint observers to these meetings and in general may make changes to the management as it may deem necessary and can also order the convening of a general meeting of the company to elect new directors.
In January 2012, the RBI issued revised guidelines relating to salary and other remuneration payable to whole time directors, chief executive officers and other risk takers of new private sector banks. With these guidelines, the RBI aims to achieve effective governance of compensation, alignment of compensation with prudent risk taking and require banks to make appropriate disclosures in their financial statements. Banks are required to formulate and adopt a comprehensive compensation policy in line with the guidelines covering all their employees and conduct annual review thereof. The policy should cover all aspects of the compensation structure such as fixed pay, perquisites, bonus, variable pay deferrals, guaranteed pay, severance package, stock, pension plan and gratuity. These guidelines became effective from the fiscal year 2012-2013. The guidelines also state that private sector banks would be required to obtain regulatory approval for grant of remuneration to whole time directors/chief executive officers in terms of Section 35B of the Banking Regulation Act, on a
case-by-case
basis. In June 2015, the RBI issued guidelines for compensation of
non-executive
directors of private sector banks. The guidelines required the banks to formulate and adopt a comprehensive compensation policy for the
non-executive
directors (other than the part-time
non-executive
Chairman) in accordance with the Companies Act. The policy may provide for payment of compensation in the form of profit related commissions (not exceeding Rs. 1.0 million per annum for each director), sitting fees and reimbursement of expenses for participation in the Board and other meetings.
In November 2019, the RBI issued revised guidelines regarding the compensation of full-time directors, chief executive officers, material risk takers and control function staff. The revised guidelines are applicable for pay cycles beginning on April 1, 2020. The revised guidelines were issued based on experience gained by the RBI and evolving international best practices. Among other things, the RBI has directed all private sector banks to raise the variable portion of remuneration to at least half of the total compensation for the chief executives and full-time directors so that top management rewards reflect the “pay for performance” principle. In addition, total variable pay was limited to a maximum of 300 percent of the fixed pay.
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Regulations and Guidelines of the SEBI
SEBI was established in 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992 to protect the interests of public investors in securities and to promote the development of, and to regulate, the Indian securities market including all related matters. We are subject to SEBI regulations in respect of capital issuances as well as some of our activities, including acting as agent for collecting subscriptions to public offerings of securities made by other Indian companies, underwriting, custodial, depositary participant, and investment banking and because our equity shares are listed on Indian stock exchanges. These regulations provide for registering with SEBI and the functions, responsibilities and the code of conduct applicable for each of these activities.
In June 2017, SEBI constituted a committee under the chairmanship of Mr. Uday Kotak (the “Kotak Committee”), to consult on corporate governance. The Kotak Committee recommended amendments to regulations in order to better align Indian corporate governance norms with global best practices. SEBI in its board meeting on March 28, 2018, accepted most of these recommendations.
Foreign Ownership Restriction
Aggregate foreign investment from all sources, in a private sector bank is permitted up to 49.0 percent of the paid up capital under the automatic route. This limit can be increased up to 74.0 percent of the paid up capital with prior approval from the FIPB. Pursuant to a letter dated February 4, 2015, FIPB has approved foreign investment in the Bank up to 74.0 percent of its paid up capital. The approval is subject to examination by the RBI for compounding on the change of foreign shareholding since April 2010.
See
“
Risk Factors – Foreign investment in our shares may be restricted due to regulations governing aggregate foreign investment in the Bank’s
paid-up
equity share capital”
. On February 16, 2017, the RBI lifted the restriction on the purchase of the equity shares of the Bank by foreign investors, since the foreign shareholding in the Bank was below the maximum prescribed percentage of 74.0 percent. The RBI notified by press release on February 17, 2017, and by separate letter to us dated February 28, 2017 that the foreign shareholding in all forms in the Bank crossed the said limit of 74.0 percent. This was due to secondary market purchases of the Bank’s equity shares during this period. Consequently, the RBI
re-imposed
the restrictions on the purchase of the Bank’s equity shares by foreign investors. Further, SEBI has also enquired regarding the measures that the Bank has taken and will take in respect of breaches of the maximum prescribed percentage of foreign shareholding in the Bank, by its letter dated March 9, 2018. As of March 31, 2020, foreign investment in the Bank, including the shareholdings of HDFC Limited and its subsidiaries, constituted 69.90 percent of the
paid-up
capital of the Bank.
On May 24, 2017, the Government announced its approval to phase out of the FIPB. It is proposed that administrative ministries or departments be allowed to process applications for FDI requiring government approval in consultation with the Department of Industrial Policy and Promotion (“DIPP”), which will also issue the Standard Operating Procedure (“SOP”) for processing of applications and the decision of the Government under the extant FDI policy.
In accordance with the Foreign Exchange Management Act, 1999 (the “Foreign Exchange Management Act”), and the Foreign Exchange Management
(Non-debt)
Instruments Rules, 2019 (the “NDI Rules”) an FPI may invest in the capital of an Indian banking company in the private sector under the portfolio investment scheme which limits the individual holding of a FPI below 10 percent of the capital of the Indian banking company. The aggregate limit for FPI investment is limited by the sectoral caps applicable to an Indian company in relation to FDI in accordance with the NDI Rules. With respect to the Bank, this limit is 75 percent. Subject to a resolution of the board of directors, and a special resolution of the shareholders of the Indian banking company, this limit may be decreased to 24 percent or 49 percent of the total
paid-up
capital of a private sector banking company before March 31, 2020. An Indian banking company which has decreased its aggregate limit of FDI investment can increase it again, to the aggregate limit of 49 percent or 74 percent. However, once the aggregate limit of FPI investment is increased, such limit cannot be reduced to a lower threshold by the Indian banking company. Further, in accordance with the existing policy of the RBI, any allotment or transfer of shares which will take the aggregate shareholding of an individual or a group to an equivalent of 5.0 percent or more of our
paid-up
capital would require the prior acknowledgement of the RBI before we can affect the allotment or transfer of shares. Foreign banks are permitted to have presence in India either by opening banking outlets or through wholly owned subsidiaries, but not both.
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Moratorium, Reconstruction and Amalgamation of Banks
A bank can apply to the high court for the suspension of its business. The high court, after considering the application of the Bank, may order a moratorium staying commencement of an action or proceedings against the relevant banking company for a maximum period of six months. During such period of moratorium, if the RBI is satisfied that it is: (a) in the public interest; or (b) in the interest of the depositors; or (c) in order to secure the proper management of the Bank; or (d) in the interests of the banking system of the country as a whole, it may prepare a scheme for the reconstruction of the Bank or amalgamation of the Bank with any other bank. In circumstances entailing reconstruction of the Bank or amalgamation of the Bank with another Bank, the RBI would invite suggestions and objections on the draft scheme prior to placing the scheme before the Government for its sanction. The Government may sanction the scheme with or without modifications. The law does not require consent of the shareholders or creditors of such banks.
Special Status of Banks in India
The special status of banks is recognized under various statutes including the Sick Industrial Companies (Special Provisions) Act, 1985 (the “SICA”), Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the “DRT Act”) and the SARFAESI Act. As a bank, we are entitled to certain benefits under the DRT Act which provide for the establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions. Under the DRT Act, the procedures for recovery of debt have been simplified and indicative time frames have been fixed for speedy disposal of cases and no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances. The SICA provides for reference of “sick” industrial companies to the Board for Industrial and Financial Reconstruction (the “BIFR”). Under the SICA, other than the board of directors of a company, a scheduled Bank (where it has an interest in the “sick” industrial company by any financial assistance or obligation, rendered by it or undertaken by it) may refer the company to the BIFR. The SICA has been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (the “SICA Repeal Act”). The Ministry of Finance has notified the SICA Repeal Act, and section 4(b) of the SICA Repeal Act came into force on December 1, 2016. Consequently, the SICA stands repealed and the BIFR and Appellate Authority for Industrial and Financial Reconstruction (“AAIFR”) have been dissolved.
The SARFAESI Act focuses on improving the rights and simplifying the procedures for enforcement of security interest of banks and financial institutions and other specified secured creditors as well as asset reconstruction companies by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of courts, in accordance with the provisions of the SARFAESI Act. It also provides the legal framework for the securitization and reconstruction of financial assets.
The Insolvency and Bankruptcy Code, 2016
Banks, as creditors, will benefit from the Insolvency and Bankruptcy Code, 2016 (the “Insolvency and Bankruptcy Code”), which came into effect on December 1, 2016. The Insolvency and Bankruptcy Code is a comprehensive piece of legislation that provides for the efficient and timely resolution of insolvency. It amends 11 laws, including the Companies Act, the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It provides for insolvency resolution processes for companies and individuals, and requires that such processes be completed within 180 days. As per the Insolvency and Bankruptcy Code, the insolvency process can end under either of two circumstances: (i) when the creditors decide to evolve a resolution plan or sell the assets of the debtor; or (ii) when the
180-day
time period for negotiations has come to an end. In case a plan cannot be negotiated during the time limit, the assets of the debtor will be sold to repay the debtor’s outstanding dues. The proceeds from the sale of assets will be distributed based on an order of priority specified under the Insolvency and Bankruptcy Code.
In order to provide relief to corporate entities, which may be facing financial distress as a result of the
COVID-19
pandemic, the President of India has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, which came into effect on June 5, 2020. Pursuant to this ordinance, no application for the initiation of a corporate insolvency resolution process of a corporate debtor can be filed under the Insolvency and Bankruptcy Code, in relation to a default arising on or after March 25, 2020, for a period of six months or such further period, not exceeding one year from such date, as may be notified. See also “
The
COVID-19
pandemic or similar public health crises may have a material adverse effect on our business, financial condition and results of operation
” for further information on the
COVID-19
pandemic.
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On June 13, 2017, the RBI announced the constitution of an Internal Advisory Committee (the “IAC”) to focus on large stressed accounts. The IAC recommended 12 accounts totaling to approximately 25 percent of the current gross NPAs of the banking system for immediate reference under the Insolvency and Bankruptcy Code.
The Banking Regulation (Amendment) Act 2017
The Government of India has recently promulgated the Banking Regulation (Amendment) Act, 2017, which is deemed to have come into force on May 5, 2017. This amendment inserts two new sections in the Banking Regulation Act, 1949. The sections enable the Government to authorize the RBI to direct banking companies to resolve specific stressed assets by initiating an insolvency resolution process, where required. The RBI has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution.
Credit Information Bureau
The Parliament of India has enacted the Credit Information Companies (Regulation) Act, 2005, pursuant to which every credit institution, including a bank, has to become a member of a credit information bureau and furnish to it such credit information as may be required of the credit institution by the credit information bureau about persons who enjoy a credit relationship with it. Other credit institutions, credit information bureaus and such other persons as the RBI specifies may access such disclosed credit information.
Regulations Governing International Banking Outlets and Representative Offices
We have overseas banking outlets in Bahrain, Hong Kong and the DIFC. We have one representative office each in Dubai, UAE, Abu Dhabi, UAE and Nairobi, Kenya. Our branch in Bahrain is regulated by the Central Bank of Bahrain, and has been granted a license designating it as a wholesale bank branch. The activities that can be carried out from the Bahrain branch are deposit taking, providing credit, dealing in financial instruments as principal, dealing in financial instruments as agent, managing financial instruments, operating a collective investment undertaking, arranging deals in financial instruments, advising on financial instruments and issuing/administering means of payment. Our branch in Hong Kong is a full service branch and is regulated by the Hong Kong Monetary Authority. The branch is permitted to undertake banking business in that jurisdiction with certain restrictions. In August 2014, we opened a branch in the DIFC to provide financial services covering arrangement of credit or deals in investments, advising on financial products or credit and arranging custodian services. The activities cater to the requirements of
non-resident
Indians and Indian corporates overseas. The branch is regulated by the Dubai Financial Services Authority.
Our representative offices in Dubai and Abu Dhabi, UAE, are regulated by the Central Bank of UAE and our representative office in Nairobi, Kenya, is regulated by the Central Bank of Kenya.
In June 2017, we opened a branch at the International Financial Service Centre at GIFT City in Gandhinagar, Gujarat, India. This branch is considered a foreign branch by RBI, and offers products such as trade credits, foreign currency term loans (including external commercial borrowings) and derivatives to hedge loans.
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EXCHANGE CONTROLS
Restrictions on Conversion of Rupees
There are restrictions on the conversion of rupees into dollars. Before February 29, 1992, the RBI determined the official value of the rupee in relation to a weighted basket of currencies of India’s major trading partners. In the February 1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60.0 percent of the foreign exchange received on trade or by current account at a market-determined rate and the remaining 40.0 percent at the official rate. All importers were, however, required to buy foreign exchange at the market rate, except for certain priority imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994, the RBI announced relaxations in payment restrictions in the case of a number of transactions. Since August 1994, the Government of India has substantially complied with its obligations owed to the International Monetary Fund, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment. The Government has also, since 1999, relaxed restrictions on capital account transactions by resident Indians. For example, the RBI permits persons resident in India to remit monies outside India for any permissible current or capital account transaction or a combination of both. The limit for such remittances varies: it has been increasing from 2,000 and was US$ 200,000 per financial year, but was reduced to US$ 75,000 in September 2013 for exchange control purposes. As a result of stability in the foreign exchange market, this limit was enhanced to US$ 125,000 in June 2014 and, as of June 2015, has been further increased to US$ 250,000 per person per year.
Restrictions on Sales of the Equity Shares Underlying the ADSs and Repatriation of Sale Proceeds
Under the laws of India, ADSs issued by Indian companies to
non-residents
are freely transferable outside of India. Similarly, RBI approval is not required for the sale of equity shares underlying ADSs by a
non-resident
of India to a person resident in India, subject to reporting requirements and the applicable pricing norms if the shares are not sold on a recognized Indian exchange. However, RBI guidelines relating to the acquisition by purchase or otherwise of the shares of a private bank will apply to both resident and
non-resident
investors where such acquisition results in any person owning or controlling 5.0 percent or more of the paid up capital of the private bank.
The Ministry of Finance, Government of India, has granted general permission for the transfer of ADRs outside India and also permitted
non-resident
holders of ADRs to surrender ADRs in exchange for the underlying shares of the Indian issuer company. Pursuant to the terms of the deposit agreement, an investor who surrenders ADRs and withdraws shares is permitted to redeposit such shares subject to the total issued ADRs and obtain ADRs at a later time, subject to compliance with applicable regulations.
Unlisted companies (private or public) that were previously prohibited from issuing ADSs on
non-Indian
stock exchanges if they were not already listed on a stock exchange in India were, in October 2013, granted a general permission to list on
non-Indian
stock exchanges without having to be listed in India, subject to certain conditions.
In April 2014, the provisions of the Companies Act regulating the issuance of ADSs by Indian companies came into force. In May 2014, the Government of India accepted the recommendations of the M. S. Sahoo Committee, which had drafted a new scheme to regulate ADRs. On October 21, 2014, the Government notified the Depository Receipts Scheme 2014 (“DR Scheme”), which came into force on December 15, 2014. The relevant provisions of the Companies Act and the DR Scheme will only apply to depository receipts (including ADSs) issued after April 1, 2014, and the date of the notification of the DR Scheme, respectively.
Two-Way
Fungibility of ADSs
The RBI permits the
re-conversion
of shares of Indian companies into ADSs, subject to the following conditions:

| • |  | the Indian company has issued ADSs;

| • |  | the shares of the Indian company are purchased by a registered stockbroker in India in the name of the depository, on behalf of the non-resident investor who wishes to convert such shares into ADSs;

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| • |  | shares are purchased on a recognized stock exchange;

| • |  | the shares are purchased with the permission of the custodian of the ADSs of the Indian company and are deposited with the custodian;

| • |  | the number of shares so purchased does not exceed the ADSs converted into underlying shares, and are in compliance with the sectoral caps applicable under the Foreign Direct Investment regime; and

| • |  | the non-resident investor, broker, custodian and the overseas depository comply with the provisions of the Depository Receipt Mechanism and the guidelines issued in relation thereto from time to time.

The RBI requires the domestic custodian to ensure compliance with RBI guidelines and to file reports with the RBI from time to time. The domestic custodian is also required to perform,
inter alia
, the following functions in the context of the
two-way
fungibility of ADSs as per Indian laws:

| • |  | provide a certificate to the RBI and the SEBI stating that the sectoral caps for foreign investment in the relevant company have not been breached;

| • |  | monitor the total number of ADSs that have been converted into underlying shares by non-resident investors;

| • |  | liaise with the issuer company to verify that the sectoral caps for foreign direct investment, if any, are not being breached; and

| • |  | file a monthly report about the ADS transactions under the two-way fungibility arrangement with the RBI and the SEBI.

An investor who surrenders an ADS and withdraws equity shares may be entitled to redeposit those equity shares in the depositary facility in exchange for ADSs and the depositary may accept deposits of outstanding equity shares purchased by a
non-resident
on the local stock exchange and issue ADSs representing those equity shares. However, in each case, the aggregate number of equity shares
re-deposited
or deposited by such persons cannot exceed the number of shares represented by ADSs as have been previously cancelled and not already replaced by further newly issued ADSs. The RBI has issued a notification,
inter alia
, permitting Indian companies to sponsor ADS issues against shares held by their shareholders at a price to be determined by the lead manager. Investors who seek to sell any equity shares in India withdrawn from the depositary facility and to convert the rupee proceeds from the sale into foreign currency and repatriate the foreign currency from India will, subject to the foregoing, not have to obtain RBI approval for each transaction.
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RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
Investment in equity instruments of a company in India by a person resident outside India is governed by the Foreign Exchange Management Act, 1999 (the “Foreign Exchange Management Act”), and the Foreign Exchange Management
(Non-debt)
Instruments Rules, 2019 (the “NDI Rules”). An investment by a person resident outside India which does not comply with the conditions of the NDI Rules requires prior permission of the RBI, which may be provided in consultation with the Government subject to such conditions as may be considered necessary. The NDI Rules supersede the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (the “FEMA Transfer or Issue of Security Regulations 2017”). As was provided under FEMA Transfer or Issue of Security Regulations 2017, the NDI Rules also prescribe an “automatic route” under which no prior consent and approval is required from the RBI or the Government for FDI in certain industries within specified sectoral caps. In respect of all industries that do not fall under the automatic route, and in respect of investments which do not comply with the conditions mentioned under the automatic route, approval is required from the Government under the “government route”.
The Government also publishes a Consolidated Policy on Foreign Direct Investment (the “Consolidated FDI Policy”) which read together with Foreign Exchange Management Act, rules and regulations issued thereunder, and circulars issued by the Government and the RBI from time to time, provides the framework for foreign investments in India.
Under the current foreign investment rules, the following restrictions are applicable to
non-resident
ownership:
Foreign Direct Investment
The Government has put in place a policy framework on FDI that is embodied in the circular on Consolidated FDI Policy, which is generally updated every year to include the regulatory changes effected in the interim. The DIPP, Ministry of Commerce and Industry, and the Government make policy pronouncements on FDI through press notes/press releases which are notified as amendments to the applicable rules and regulations issued under FEMA. These notifications take effect from the date of issue of the press notes/press releases, unless specified otherwise therein. The procedural instructions may be issued by the RBI vide A.P. (DIR Series) Circulars. The regulatory framework, over a period of time, thus, consists of acts, regulations, press notes, press releases and clarifications that are consolidated in the circular on Consolidated FDI Policy from time to time.
The present Consolidated FDI Policy subsumes and supersedes all press notes, press releases, clarifications and circulars issued by the DIPP that were in force as of August 27, 2017 and reflects the FDI policy as of August 28, 2017. Certain actions, such as those listed below, require government approval in consultation with the DIPP by way of prior approval from the administrative ministries or departments:

| • |  | foreign investments, including a transfer of shares, in excess of specified sectoral caps;

| • |  | transfer of control and/or ownership (as a result of a share transfer and/or new share issuance) pursuant to an amalgamation, merger, or acquisition of an Indian company engaged in an activity having limitations on foreign ownership, currently owned or controlled by resident Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens to a non-resident entity;

| • |  | foreign investments in a non-operating company that does not have any downstream investments for undertaking activities which are under Government route. Further, as and when such a company commences business or makes downstream investment, it will have to comply with the relevant sectoral conditions on entry route, conditionalities and caps;

| • |  | foreign investments by an unincorporated entity in certain cases; and

| • |  | foreign investment by swap of shares for sectors under the Government approval route.

On May 24, 2017, the Government approved the
phase-out
of the Foreign Investment Promotion Board (“FIPB”), which had been set up to regulate all foreign direct investment into India and whose approval was required for foreign investment in certain sectors, including defense and public sector banks. The DIPP has also issued the SOP for processing of applications and the decision of the Government under the existing FDI Policy. The SOP provides a list of administrative ministries and departments competent to grant approval (the “Competent Authorities”) in relation to the corresponding sector and the procedure for obtaining such approval. The abolition of the FIPB and the SOP are both set out in the Consolidated FDI Policy dated August 28, 2017.
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A person residing outside India or any entity incorporated outside India has general permission to purchase shares, convertible debentures or preference shares of an Indian company subject to certain terms and conditions. Further, a citizen of Bangladesh or Pakistan or any entity incorporated in Bangladesh or Pakistan may, with the prior approval of the Government, purchase shares, convertible debentures or preference shares of an Indian company subject to certain prescribed terms and conditions. The Government has recently revised the FDI regime and amended the NDI Rules to require governmental approval for any FDI (a) by an entity of a country which shares a land border with India (
i.e
., Pakistan, Bangladesh, Afghanistan, Nepal, Bhutan, Myanmar and China, each a “Neighboring Country”) or (b) where the beneficial owner of an investment into India is (i) situated in a Neighboring Country, or (ii) a citizen of a Neighboring Country.
Subject to certain exceptions, FDI and investment by
non-resident
Indians in Indian companies do not require the prior approval of the Government of India (acting through the concerned ministries or departments, in consultation with the DIPP and the Ministry of Commerce and Industry) or the RBI. The Government of India has indicated that in all cases where FDI is allowed under the automatic route pursuant to the Consolidated FDI Policy, the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. For cases that do require an FDI approval, including cases approved by the Government in the past, the monitoring and compliance of conditions shall be done by the concerned administrative ministries and departments. Further, in cases where the approval of the Government of India is obtained, no approval of the RBI is required. In both cases, the prescribed applicable norms with respect to determining the price at which the shares may be issued by the Indian company to the
non-resident
investor would need to be complied with and a declaration in the prescribed form, detailing the foreign investment, must be filed with the RBI once the foreign investment is made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies.
The Government has set up the Foreign Investment Implementation Authority (the “FIIA”), in the Ministry of Commerce and Industry. The FIIA has been mandated to: (i) translate FDI approvals into implementation; (ii) provide a proactive
one-stop
after-care service to foreign investors by helping them obtain necessary approvals; (iii) sort out operational problems; and (iv) meet with various government agencies to find solutions to foreign investment problems and maximize opportunities through a cooperative approach.
In May 2016, the RBI issued the Reserve Bank of India (Ownership in Private Sector Banks) Directions, 2016. These guidelines prescribe requirements regarding shareholding and voting rights in relation to all private sector banks licensed by the RBI to operate in India. In relation to foreign investment in private sector banks in India, the guidelines state that the foreign investment limits and
sub-limits
and also computation of foreign investment in private sector banks shall be as specified in the Consolidated FDI Policy and the Foreign Exchange Management Act, and regulations made in relation thereto, as amended from time to time. As per the Consolidated FDI Policy dated August 28, 2017 issued by the Government of India, and the NDI Rules, the following restrictions are applicable to foreign ownership in the Bank:

| • |  | Foreign investors may own up to 74 percent of the equity shares of a private sector Indian banking company subject to compliance with guidelines issued by the RBI from time to time. FDI up to 49 percent is permitted under the automatic route and FDI above 49 percent and up to 74 percent requires prior approval of the Competent Authorities. It includes FDI, ADSs, Global Depositary Receipts and investments by FPIs under the foreign portfolio investment scheme and also by non-resident Indians. In addition, it encompasses shares acquired by subscription in private placements and public offerings and acquisitions of shares from existing shareholders. Aggregate foreign investment in the Bank from all sources is allowed up to a maximum of 74 percent of the paid-up capital of the Bank. At least 26 percent of the paid-up capital would have to be held by Indian residents, except in the case of a wholly-owned subsidiary of a foreign bank.

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| • |  | An FPI may invest in the capital of an Indian banking company in the private sector under the portfolio investment scheme which limits the individual holding of an FPI below 10 percent of the capital of the Indian banking company. With effect from April 1, 2020, the aggregate limit for FPI investment is prescribed by sectoral caps applicable to Indian companies in relation to FDI, in accordance with the NDI Rules. Subject to a resolution of the board of directors and a special resolution of the shareholders of the Indian banking company, the 74 percent limit ordinarily applicable to Indian banking companies may be decreased to 24 percent, or 49 percent of the total paid-up capital of a private sector banking company before 31 March, 2020. An Indian banking company which has decreased its aggregate limit of FDI investment can increase it again, to the aggregate limit of 74 percent. However, once the aggregate limit of FPI investment is increased the same cannot be reduced to a lower threshold by the Indian banking company. No single non-resident Indian may own more than 5 percent of the total paid-up capital of a private sector banking company and the aggregate limit cannot exceed 10 percent of the total paid-up capital. However, non-resident Indians’ holdings can be allowed up to 24 percent of the total paid-up capital, provided the banking company passes a special resolution of the shareholders to that effect. In addition, overseas corporate bodies ( i.e. , entities in which non-resident Indians hold at least 60 percent) are not permitted to invest under the portfolio investment scheme though they may continue to hold investments that have already been made under the portfolio investment scheme until such time as these investments are sold on the stock exchange.

FPI Regulations
The Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 have been replaced by the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019 (the “FPI Regulations”). SEBI has also issued operational guidelines dated 5 November 2019 under the FPI Regulations (the “FPI Operational Guidelines”). The regulatory regime governing FPIs and investments made by them replaces the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 (the “FII Regulations”) and the regime for investments by qualified foreign investors (“QFIs”). Pursuant to the original regulations governing FPIs, which came into effect on June 1, 2014, an FII, which held a valid certificate of registration from the SEBI, was deemed to be a registered FPI until the expiry of the block of three years for which fees had been paid as per the FII Regulations. Further, an FII was not eligible to invest as an FII after registering as an FPI.
Similarly, a QFI could continue to buy, sell or otherwise deal in securities until May 31, 2015 or until the QFI obtained a certificate of registration as FPI, whichever occurred earlier.
The FPI Regulations specify that the shares purchased by a single FPI or an investor group must be below 10 percent of the total paid up equity capital of a company on a fully diluted basis. It should be noted that multiple entities registered as FPIs, directly or indirectly, having common ownership of more than 50 percent or common control, shall be treated as part of the same investor group and the investment limits of all such entities shall be combined to calculate the investment limit as applicable to a single FPI.
Under the FPI Regulations, only FPIs classified as Category I and persons eligible for registration as Category I FPIs may issue offshore derivative instruments (“ODIs”). Such ODIs are required to be issued after compliance with applicable “know your client” norms. The ODIs cannot be issued or transferred to persons who are not eligible to be registered as a Category I FPI under the FPI Regulations. Further, any transfer of an ODI requires prior consent of the FPI which has issued the ODI.
The FPI Operational Guidelines directs all the issuers of ODIs to identify and verify the beneficial owners in the subscriber entities who hold in excess of 25 percent, in the case of a company, 15 percent, in the case of partnership firms, trusts and unincorporated bodies, and 10 percent, in case the FPI is based in a high-risk jurisdiction. Prescribed documents for verification of the ODI subscribers and the beneficial owners are required to be submitted by the ODI issuers, and the ODI issuers are also required to file suspicious transaction reports in relation to the ODIs issued by it, if any, with the Indian Financial Intelligence Unit.
Investors in ADSs do not need to seek the specific approval from the Government of India to purchase, hold or dispose of their ADSs. Notwithstanding the foregoing, if an FPI, a
non-resident
Indian or an overseas corporate body were to withdraw its equity shares from the ADS program, its investment in the equity shares would be subject to the general restrictions on foreign ownership.
Issue of Securities Through the Depository Receipt Mechanism
Issue of securities through the depository receipt mechanism by Indian companies is governed by the Companies Act, the Companies (Issue of Global Depository Receipts) Rules, 2014 (the “Depository Receipts Rules”), the DR Scheme and the NDI Rules. SEBI has through its circular dated 10 October 2019 (the “SEBI DR Circular”) on the issue of depository receipts, among other things, provided the framework for issue and transfer of equity shares and debt securities which form the underlying instruments of the depository receipts.
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The Government of India notified the DR Scheme on October 21, 2014, which came into force on December 15, 2014. Consequently, the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 has been repealed except to the extent relating to foreign currency convertible bonds.
Under the DR Scheme, an Indian company, listed or unlisted, private or public, is permitted to issue securities, including equity shares, through the depository receipt mechanism if such company has not been specifically prohibited from accessing capital markets or dealing in securities. Permissible securities that can be issued by an Indian company through the depository receipt mechanism are “securities” as defined under the Securities Contracts (Regulation) Act, 1956, which includes,
inter alia
, shares, bonds, derivatives and units of mutual funds, and similar instruments issued by private companies, provided that such securities are in dematerialized form.
The SEBI DR Circular defines “permissible securities” as equity shares and debt securities, which are in dematerialized form and rank
pari passu
with the securities issued and listed on a recognized stock exchange. The SEBI DR Circular also provides the criteria for companies to be eligible to issue the permissible securities, and prohibits listed companies from issuing permissible securities if any of its promoters, promoter group or directors or selling shareholders are debarred from accessing the capital market by SEBI, any of the promoters or directors of the listed company is a promoter or director of any other company which is debarred from accessing the capital market by SEBI, the listed company or any of its promoters or directors is a willful defaulter, or any of its promoters or directors is a fugitive economic offender. The SEBI DR Circular further states that for the purpose of an initial issue and listing of depositary receipts, pursuant to transfer by existing holders, the listed company shall provide an opportunity to its equity shareholders to tender their shares for participation in such listing of depositary receipts.
An Indian company can issue securities to a foreign depository for the purpose of issuing depository receipts through any mode permissible for the issue of such securities to other investors. The foreign depository can issue depository receipts by way of a public offering or private placement or in any other manner prevalent in the permissible jurisdiction. The DR Scheme specifies a list of permissible jurisdictions and defines a “permissible jurisdiction” as a jurisdiction which is a member of the Financial Action Task Force on Money Laundering and whose securities market regulator is a member of the International Organization of Securities Commissions.
In terms of the DR Scheme, securities can be issued through the depository receipt mechanism up to such a limit that the aggregate underlying securities issued to foreign depositories for issuance of depository receipts along with securities already held by persons resident outside India does not exceed the applicable foreign investment limits prescribed by regulations framed under the Foreign Exchange Management Act. Further, the SEBI DR Circular requires that within this limit the maximum aggregate permissible securities which may be issued by the listed company or transferred by the existing holders for the purpose of issue of depository receipts shall be such that the listed company is able to ensure compliance with the minimum public shareholding requirement, after excluding the permissible securities held by the depository for the purpose of issue of depository receipts.
The depository receipts and the underlying securities may be converted into each other subject to the applicable foreign investment limit.
It should be noted that the RBI guidelines relating to the acquisition by purchase or otherwise of shares of a private bank will apply to both resident and
non-resident
investors where such acquisition results in any person owning or controlling 5.0 percent or more of the
paid-up
capital of the private bank.
The DR Scheme provides that underlying securities shall not be issued to a foreign depository for issuance of depository receipts at a price which is less than the price applicable to a corresponding mode of issuance to domestic investors. The SEBI DR Circular further states that in case of a simultaneous listing of permissible securities on stock exchange(s) in India pursuant to a public offer/ preferential allotment/ qualified institutions placement, and depositary receipts on the international exchange, the price of issue or transfer of permissible securities, for the purpose of issuing depositary receipts by a foreign depository, shall not be less than the price finalized for the domestic investors under the applicable laws. Where permissible securities are issued by a listed company or transferred by the existing holders, for the purpose of issuing depositary receipts by a foreign depository, such permissible securities shall be issued at a price, not less than the price applicable to a corresponding mode of issue of such permissible securities to domestic investors under the applicable laws.
In terms of the DR Scheme, the foreign depository is entitled to exercise voting rights, if any, associated with the underlying securities whether pursuant to voting instructions from the holder of depository receipts or otherwise. Further, a holder of depository receipts issued against underlying equity shares shall have the same obligations as if it is the holder of the equity shares if it has the right to issue voting instruction. However, in accordance with the SEBI DR Circular, the voting rights on permissible securities, if any, can be exercised by the holder of depository receipts through the foreign depository pursuant only to voting instruction from such holder of depository receipts.
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ADDITIONAL INFORMATION
It is possible to read and copy documents referred to in this annual report on Form
20-F
that have been filed with the SEC at the SEC’s public reference room located at 100 F Street NE, Washington, DC 20549. The SEC filings are also available to the public from commercial document retrieval services and at the internet website maintained by the SEC at www.sec.gov. The internet website maintained by the Bank is www.hdfcbank.com. No material on the Bank’s website forms any part of, or is incorporated by reference into, this annual report on Form
20-F.
References herein to the Bank’s website shall not be deemed to cause such incorporation.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of
HDFC Bank Limited
(the “Bank”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control system was designed to provide reasonable assurance to the Bank’s management, its Audit Committee and Board of Directors regarding the preparation and fair presentation of published financial statements.
There are inherent limitations to the effectiveness of any internal control or system of control, however well-designed, including the possibility of human error and the possible circumvention or overriding of such controls or systems. Moreover, because of changing conditions, the reliability of internal controls may vary over time. As a result, even effective internal controls can provide no more than reasonable assurance with respect to the accuracy and completeness of financial statements and their process of preparation.
The Bank management assessed the effectiveness of the Bank’s internal control over financial reporting as of March 31, 2020. In making this assessment, it has used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on those criteria and our assessment we believe that, as of March 31, 2020, the Bank’s internal control over financial reporting was effective.
The Bank’s independent registered public accounting firm, KPMG Assurance and Consulting Services LLP, has issued an audit report on the Bank’s internal control over financial reporting.
HDFC BANK LIMITED
HDFC Bank House,
Senapati Bapat Marg,
Lower Parel,
Mumbai 400 013, India
July 31, 2020
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
HDFC Bank Limited
Opinion on Internal Control Over Financial Reporting
We have audited HDFC Bank Limited and subsidiaries’ (the Company) internal control over financial reporting as of March 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated July 31, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Assurance and Consulting Services LLP
Mumbai, India
July 31, 2020
KPMG (Registered) (a partnership firm with Registration No. BA-62445) converted into KPMG Assurance and Consulting Services LLP (a Limited Liability Partnership with LLP Registration No. AAT-0367), with effect from July 23, 2020.
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INDEX TO FINANCIAL STATEMENTS

|  | Page |
Consolidated Financial Statements of HDFC Bank Limited and its Subsidiaries: |  |  |  |
Report of independent registered public accounting firm |  |  | F-2 |
Consolidated balance sheets as of March 31, 2019 and 2020 |  |  | F-4 |
Consolidated statements of income for the years ended March 31, 2018, 2019 and 2020 |  |  | F-5 |
Consolidated statements of comprehensive income for the years ended March 31, 2018, 2019 and 2020 |  |  | F-6 |
Consolidated statements of cash flows for the years ended March 31, 2018, 2019 and 2020 |  |  | F-7 |
Consolidated statements of shareholders’ equity for the years ended March 31, 2018, 2019 and 2020 |  |  | F-9 |
Notes to consolidated financial statements |  |  | F-11 |

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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
HDFC Bank Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of HDFC Bank Limited and subsidiaries (the Company) as of March 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended March 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2020, based on criteria established in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated July 31, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements as of and for the year ended March 31, 2020 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, such financial statements expressed in Indian rupee have been translated into United States dollars on the basis set forth in Note 2(y) to the consolidated financial statements.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
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Assessment of the allowances for credit losses collectively evaluated for impairment
As discussed in Notes 2(i) and 9 to the consolidated financial statements, the Company’s allowance for credit losses related to loans collectively evaluated for impairment (the unallocated allowance) as at March 31 2020 was Rs. 97,231.3 million. For wholesale loans, the Company estimates the unallocated allowance by segmenting the borrowers into internal rating grades, where the internal rating grades reflect the economic conditions of the borrower. The estimated probability of default for each internal rating grade pool and the loss given default estimate is then applied to the total loan balance of each internal rating grade pool to compute the unallocated allowance. The Company estimates probability of default for each internal rating grade pool based on the default experience of individual borrowers, including other qualitative factors. For retail loans, the Company estimates the unallocated allowance based on historic credit loss experience, computed based on credit risk parameters of probability of default and loss given default including other qualitative factors. These loss estimates are computed by segmenting the retail loan portfolio into homogenous pools based on shared risk characteristics and their respective loss experience.
We identified the assessment of the unallocated allowance as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the industry. This assessment encompassed the evaluation of various components of the unallocated allowance methodology, including the methodologies and models used to estimate the probability of default and loss given default and their key factors and assumptions, including the internal rating grades for wholesale loans and how retail loans with shared risk characteristics are pooled, and other qualitative factors. Further, the assessment of internal rating grades for wholesale loans based on Company’s internal rating models required the use of significant judgment as well as industry knowledge and experience to evaluate individual borrower’s economic condition.
The following are the primary procedures we performed to address this critical audit matter. We tested certain internal controls over (1) the approval of the unallocated allowance methodology, (2) the determination of the key assumptions and inputs used to estimate the probability of default and loss given default, (3) development and validation of the probability of default and loss given default models and (4) analysis of the unallocated allowance results, trends, and ratios. We evaluated the Company’s process to develop the unallocated allowance estimate by testing certain sources of data, factors and assumptions used, and considered the relevance and reliability of such data, factors, and assumptions. We involved credit risk professionals with specialized industry knowledge and experience, who assisted in:

| • |  | evaluating the Company’s unallocated allowance methodology, including significant unallocated allowance models,

| • |  | evaluating the Company’s determination of probability of default and loss given default supported with appropriate observable data, considering the portfolio characteristics,

| • |  | determining whether retail loans are pooled by shared risk characteristics and wholesale loans are pooled by internal credit ratings,

| • |  | evaluating the methodology used to develop the resulting qualitative factors and the effect of those factors on the unallocated allowance compared with relevant credit risk factors and consistency with credit trends, and

| • |  | evaluating the Company’s methodology to assign an internal rating grade to the wholesale loan borrower.

/s/ KPMG Assurance and Consulting Services LLP
We have served as the Company’s auditor since 2015.
Mumbai, India
July 31, 2020
KPMG (Registered) (a partnership firm with Registration No. BA-62445) converted into KPMG Assurance and Consulting Services LLP (a Limited Liability Partnership with LLP Registration No. AAT-0367), with effect from July 23, 2020.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|  | As of |
|  | March 31, 2019 |  |  | March 31, 2020 |  |  | March 31, 2020 |
|  | (In millions, except number of shares) |
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks, and restricted cash |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |  |  | US$ | 8,117.3 |
Investments held for trading, at fair value |  |  | 265,516.1 |  |  |  | 304,962.9 |  |  |  | 4,045.1 |
Investments available for sale debt securities, at fair value [includes restricted investments of Rs. 1,634,673.3 and Rs. 1,760,859.1 (US$ 23,356.7), as of March 31, 2019 and March 31, 2020, respectively]million |  |  | 2,633,348.4 |  |  |  | 3,406,289.2 |  |  |  | 45,182.2 |
Securities purchased under agreements to resell |  |  | 76,213.5 |  |  |  | 250,000.0 |  |  |  | 3,316.1 |
Loans [net of allowance of Rs. 148,232.0 and Rs. 198,833.2 (US$ 2,637.4), as of March 31, 2019 and March 31, 2020, respectively] |  |  | 8,963,232.6 |  |  |  | 10,425,022.4 |  |  |  | 138,281.2 |
Accrued interest receivable |  |  | 93,031.7 |  |  |  | 103,035.9 |  |  |  | 1,366.7 |
Property and equipment, net |  |  | 43,187.8 |  |  |  | 48,327.7 |  |  |  | 641.0 |
Goodwill |  |  | 74,937.9 |  |  |  | 74,937.9 |  |  |  | 994.0 |
Other assets |  |  | 395,733.0 |  |  |  | 737,352.1 |  |  |  | 9,780.5 |
Total assets |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  | US$ | 211,724.1 |
LIABILITIES AND SHAREHOLDERS’ EQUITY: |  |  |  |  |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  | Rs. | 7,804,717.5 |  |  | Rs. | 9,730,481.3 |  |  | US$ | 129,068.6 |
Non-interest-bearing deposits |  |  | 1,420,309.4 |  |  |  | 1,731,590.0 |  |  |  | 22,968.4 |
Total deposits |  |  | 9,225,026.9 |  |  |  | 11,462,071.3 |  |  |  | 152,037.0 |
Securities sold under repurchase agreements |  |  | 174,000.0 |  |  |  | 507,982.0 |  |  |  | 6,738.1 |
Short-term borrowings |  |  | 654,058.0 |  |  |  | 377,417.6 |  |  |  | 5,006.2 |
Accrued interest payable |  |  | 79,372.5 |  |  |  | 80,078.9 |  |  |  | 1,062.2 |
Long-term debt |  |  | 1,044,553.0 |  |  |  | 1,026,518.3 |  |  |  | 13,616.1 |
Accrued expenses and other liabilities |  |  | 467,438.6 |  |  |  | 611,327.2 |  |  |  | 8,108.8 |
Total liabilities |  | Rs. | 11,644,449.0 |  |  | Rs. | 14,065,395.3 |  |  | US$ | 186,568.4 |
Commitments and contingencies (see note 27) |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |
Equity shares: par value—Rs. 1.0 each; authorized 6,500,000,000 shares and 6,500,000,000 shares; issued and outstanding 5,446,613,220 shares and 5,483,286,460 shares, as of March 31, 2019 and March 31, 2020, respectively |  | Rs. | 5,446.6 |  |  | Rs. | 5,483.3 |  |  | US$ | 72.7 |
Additional paid-in capital |  |  | 739,763.6 |  |  |  | 765,888.6 |  |  |  | 10,159.0 |
Retained earnings |  |  | 587,235.2 |  |  |  | 713,340.6 |  |  |  | 9,462.0 |
Statutory reserve |  |  | 288,321.1 |  |  |  | 356,038.3 |  |  |  | 4,722.6 |
Accumulated other comprehensive income (loss) |  |  | 11,808.8 |  |  |  | 52,331.6 |  |  |  | 694.1 |
Total HDFC Bank Limited shareholders’ equity |  |  | 1,632,575.3 |  |  |  | 1,893,082.4 |  |  |  | 25,110.4 |
Noncontrolling interest in subsidiaries |  |  | 3,049.3 |  |  |  | 3,411.4 |  |  |  | 45.3 |
Total shareholders’ equity |  |  | 1,635,624.6 |  |  |  | 1,896,493.8 |  |  |  | 25,155.7 |
Total liabilities and shareholders’ equity |  | Rs. | 13,280,073.6 |  |  | Rs. | 15,961,889.1 |  |  | US$ | 211,724.1 |

See accompanying notes to consolidated financial statements
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions, except share and per share amounts) |
Interest and dividend revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans |  | Rs. | 667,458.7 |  |  | Rs. | 827,683.0 |  |  | Rs. | 981,794.8 |  |  | US$ | 13,022.9 |
Trading securities |  |  | 4,049.1 |  |  |  | 8,892.9 |  |  |  | 7,392.1 |  |  |  | 98.1 |
Available for sale debt securities |  |  | 158,209.2 |  |  |  | 190,992.5 |  |  |  | 198,383.2 |  |  |  | 2,631.4 |
Other |  |  | 13,748.3 |  |  |  | 14,146.5 |  |  |  | 24,412.8 |  |  |  | 323.8 |
Total interest and dividend revenue |  |  | 843,465.3 |  |  |  | 1,041,714.9 |  |  |  | 1,211,982.9 |  |  |  | 16,076.2 |
Interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  | 326,717.8 |  |  |  | 410,026.4 |  |  |  | 507,888.8 |  |  |  | 6,736.8 |
Short-term borrowings |  |  | 26,004.4 |  |  |  | 39,054.3 |  |  |  | 27,216.8 |  |  |  | 361.0 |
Long-term debt |  |  | 67,297.5 |  |  |  | 85,081.1 |  |  |  | 83,200.5 |  |  |  | 1,103.6 |
Other |  |  | 295.0 |  |  |  | 47.5 |  |  |  | 149.4 |  |  |  | 2.0 |
Total interest expense |  |  | 420,314.7 |  |  |  | 534,209.3 |  |  |  | 618,455.5 |  |  |  | 8,203.4 |
Net interest revenue |  |  | 423,150.6 |  |  |  | 507,505.6 |  |  |  | 593,527.4 |  |  |  | 7,872.8 |
Provision for credit losses |  |  | 59,397.8 |  |  |  | 72,279.3 |  |  |  | 117,621.9 |  |  |  | 1,560.2 |
Net interest revenue after provision for credit losses |  |  | 363,752.8 |  |  |  | 435,226.3 |  |  |  | 475,905.5 |  |  |  | 6,312.6 |
Non-interest revenue, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fees and commissions |  |  | 120,060.9 |  |  |  | 134,155.2 |  |  |  | 160,099.5 |  |  |  | 2,123.6 |
Trading securities gain/(loss), net |  |  | (63.4 | ) |  |  | 1,028.4 |  |  |  | 1,323.4 |  |  |  | 17.6 |
Realized gain/(loss) on sales of available for sale debt securities, net |  |  | 10,853.2 |  |  |  | 2,596.0 |  |  |  | 25,826.2 |  |  |  | 342.6 |
Other than temporary impairment losses on available for sale debt securities |  |  | (149.1 | ) |  |  | (1,081.0 | ) |  |  | (9,109.0 | ) |  |  | (120.8 | )
Foreign exchange transactions |  |  | 6,209.5 |  |  |  | 1,917.8 |  |  |  | 15,265.6 |  |  |  | 202.5 |
Derivatives gain/(loss), net |  |  | 6,742.6 |  |  |  | 12,409.1 |  |  |  | 3,550.0 |  |  |  | 47.1 |
Other, net |  |  | 953.3 |  |  |  | 9,096.7 |  |  |  | 1,263.3 |  |  |  | 16.8 |
Total non-interest revenue, net |  |  | 144,607.0 |  |  |  | 160,122.2 |  |  |  | 198,219.0 |  |  |  | 2,629.4 |
Total revenue, net |  |  | 508,359.8 |  |  |  | 595,348.5 |  |  |  | 674,124.5 |  |  |  | 8,942.0 |
Non-interest expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and staff benefits |  |  | 98,483.7 |  |  |  | 104,652.6 |  |  |  | 130,506.9 |  |  |  | 1,731.1 |
Premises and equipment |  |  | 29,816.9 |  |  |  | 29,527.7 |  |  |  | 31,533.9 |  |  |  | 418.3 |
Depreciation and amortization |  |  | 9,678.9 |  |  |  | 12,247.8 |  |  |  | 12,800.3 |  |  |  | 169.8 |
Administrative and other |  |  | 93,272.9 |  |  |  | 108,960.4 |  |  |  | 133,439.4 |  |  |  | 1,770.0 |
Amortization of intangible assets |  |  | 1.0 |  |  |  | 1.0 |  |  |  | — |  |  |  | — |
Total non-interest expense |  |  | 231,253.4 |  |  |  | 255,389.5 |  |  |  | 308,280.5 |  |  |  | 4,089.2 |
Income before income tax expense |  |  | 277,106.4 |  |  |  | 339,959.0 |  |  |  | 365,844.0 |  |  |  | 4,852.8 |
Income tax expense |  |  | 98,272.5 |  |  |  | 119,393.5 |  |  |  | 105,480.0 |  |  |  | 1,399.1 |
Net income before noncontrolling interest |  | Rs. | 178,833.9 |  |  | Rs. | 220,565.5 |  |  | Rs. | 260,364.0 |  |  | US$ | 3,453.7 |
Less: Net income attributable to shareholders of noncontrolling interest |  |  | 319.0 |  |  |  | 461.7 |  |  |  | 94.1 |  |  |  | 1.2 |
Net income attributable to HDFC Bank Limited |  | Rs. | 178,514.9 |  |  | Rs. | 220,103.8 |  |  | Rs. | 260,269.9 |  |  | US$ | 3,452.5 |
Per share information: (see note: 29) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per equity share—basic |  | Rs. | 34.59 |  |  | Rs. | 41.07 |  |  | Rs. | 47.59 |  |  | US$ | 0.63 |
Earnings per equity share—diluted |  | Rs. | 34.15 |  |  | Rs. | 40.66 |  |  | Rs. | 47.27 |  |  | US$ | 0.62 |
Per ADS information (where 1 ADS represents 3 shares): (see note: 29) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Earnings per ADS—basic |  | Rs. | 103.77 |  |  | Rs. | 123.21 |  |  | Rs. | 142.77 |  |  | US$ | 1.89 |
Earnings per ADS—diluted |  | Rs. | 102.45 |  |  | Rs. | 121.98 |  |  | Rs. | 141.81 |  |  | US$ | 1.86 |
Dividends declared per equity share |  | Rs. | 6.5 |  |  | Rs | 7.5 |  |  | Rs | 2.5 |  |  | US$ | 0.03 |

See accompanying notes to consolidated financial statements
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Net income before noncontrolling interest |  | Rs. | 178,833.9 |  |  | Rs. | 220,565.5 |  |  | Rs. | 260,364.0 |  |  | US$ | 3,453.7 |
Other comprehensive income, net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gain (loss) arising during the period [net of tax Rs. (39.6), Rs. (356.6) and Rs. (426.7), as of March 31, 2018, March 31, 2019 and March 31, 2020, respectively] |  |  | 72.1 |  |  |  | 663.9 |  |  |  | 1,771.7 |  |  |  | 23.5 |
Available for sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net unrealized gain (loss) arising during the period [net of tax Rs. 11,319.5, Rs. (9,187.8) and Rs. (15,704.2), as of March 31, 2018, March 31, 2019 and March 31, 2020, respectively] |  |  | (21,445.3 | ) |  |  | 17,105.1 |  |  |  | 47,574.2 |  |  |  | 631.0 |
Reclassification adjustment for net (gain) loss included in net income [net of tax Rs. 4,541.5, Rs. 1,018.1 and Rs. 4,739.2, as of March 31, 2018, March 31, 2019 and March 31, 2020, respectively] |  |  | (8,455.1 | ) |  |  | (1,895.5 | ) |  |  | (8,823.1 | ) |  |  | (117.0 | )
Other comprehensive income, net of tax |  |  | (29,828.3 | ) |  |  | 15,873.5 |  |  |  | 40,522.8 |  |  |  | 537.5 |
Total comprehensive income |  |  | 149,005.6 |  |  |  | 236,439.0 |  |  |  | 300,886.8 |  |  |  | 3,991.2 |
Less: Comprehensive income attributable to shareholders of noncontrolling interest |  |  | 319.0 |  |  |  | 461.7 |  |  |  | 94.1 |  |  |  | 1.2 |
Comprehensive income attributable to HDFC Bank Limited |  | Rs. | 148,686.6 |  |  | Rs. | 235,977.3 |  |  | Rs. | 300,792.7 |  |  | US$ | 3,990.0 |

See accompanying notes to consolidated financial statements
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income before noncontrolling interest |  |  | Rs.178,833.9 |  |  |  | Rs.220,565.5 |  |  |  | Rs.260,364.0 |  |  | US$ | 3,453.7 |
Adjustment to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Provision for credit losses |  |  | 59,397.8 |  |  |  | 72,279.3 |  |  |  | 117,621.9 |  |  |  | 1,560.2 |
Depreciation and amortization |  |  | 9,678.9 |  |  |  | 12,247.8 |  |  |  | 12,800.3 |  |  |  | 169.8 |
Amortization of intangible assets |  |  | 1.0 |  |  |  | 1.0 |  |  |  | — |  |  |  | — |
Amortization of deferred customer acquisition costs and fees |  |  | 9,246.2 |  |  |  | 10,423.1 |  |  |  | 11,673.2 |  |  |  | 154.8 |
Amortization of premium (discount) on investments |  |  | 3,599.4 |  |  |  | 4,532.1 |  |  |  | 5,196.8 |  |  |  | 68.9 |
Other than temporary impairment losses on available for sale debt securities |  |  | 149.1 |  |  |  | 1,081.0 |  |  |  | 9,109.0 |  |  |  | 120.8 |
Deferred tax expense/ ( benefit ) |  |  | (10,403.5 | ) |  |  | (8,129.4 | ) |  |  | (101.2 | ) |  |  | (1.3 | )
Other gains, net |  |  | — |  |  |  | (6,717.5 | ) |  |  | 133.7 |  |  |  | 1.8 |
Share-based compensation expense |  |  | 6,594.6 |  |  |  | 5,343.3 |  |  |  | 7,476.1 |  |  |  | 99.2 |
Net realized (gain) loss on sale of available for sale debt securities |  |  | (10,853.2 | ) |  |  | (2,596.0 | ) |  |  | (25,826.2 | ) |  |  | (342.6 | )
(Gain) loss on disposal of property and equipment, net |  |  | (64.5 | ) |  |  | (64.8 | ) |  |  | 81.9 |  |  |  | 1.1 |
Unrealized exchange (gain) loss |  |  | 1,719.5 |  |  |  | 574.6 |  |  |  | 3,312.5 |  |  |  | 43.9 |
Net change in: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments held for trading |  |  | (131,816.3 | ) |  |  | (96,555.7 | ) |  |  | (227,480.4 | ) |  |  | (3,017.4 | )
Accrued interest receivable |  |  | (10,527.8 | ) |  |  | (15,060.3 | ) |  |  | (9,752.6 | ) |  |  | (129.4 | )
Other assets |  |  | 90,525.6 |  |  |  | (112,726.3 | ) |  |  | (140,959.9 | ) |  |  | (1,869.7 | )
Accrued interest payable |  |  | 20,997.1 |  |  |  | 13,775.0 |  |  |  | 563.7 |  |  |  | 7.5 |
Accrued expense and other liabilities |  |  | (122,803.6 | ) |  |  | 84,299.5 |  |  |  | 146,966.9 |  |  |  | 1,949.4 |
Net cash provided by operating activities |  |  | 94,274.2 |  |  |  | 183,272.2 |  |  |  | 171,179.7 |  |  |  | 2,270.7 |
Cash flows from investing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Term placements , net |  |  | (8,806.4 | ) |  |  | 24,447.4 |  |  |  | 6,055.7 |  |  |  | 80.3 |
Activity in available for sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  | (1,518,100.1 | ) |  |  | (1,781,754.9 | ) |  |  | (2,608,516.6 | ) |  |  | (34,600.3 | )
Proceeds from sales |  |  | 197,206.3 |  |  |  | 453,778.9 |  |  |  | 1,214,082.0 |  |  |  | 16,104.0 |
Maturities, prepayments and calls |  |  | 1,171,299.5 |  |  |  | 937,072.0 |  |  |  | 653,889.0 |  |  |  | 8,673.4 |
Net change in repurchase agreements and reverse repurchase agreements |  |  | (462,018.6 | ) |  |  | 609,805.1 |  |  |  | 160,195.5 |  |  |  | 2,124.9 |
Loans purchased |  |  | (55,216.0 | ) |  |  | (240,356.2 | ) |  |  | (252,738.1 | ) |  |  | (3,352.3 | )
Repayments on loans purchased |  |  | 76,993.2 |  |  |  | 89,713.3 |  |  |  | 122,821.6 |  |  |  | 1,629.1 |
Increase in loans originated, net of principal collections |  |  | (1,440,601.9 | ) |  |  | (1,610,724.3 | ) |  |  | (1,428,007.7 | ) |  |  | (18,941.6 | )
Additions to property and equipment |  |  | (9,181.5 | ) |  |  | (16,355.0 | ) |  |  | (18,294.3 | ) |  |  | (242.7 | )
Proceeds from sale or disposal of property and equipment |  |  | 95.1 |  |  |  | 212.3 |  |  |  | 182.4 |  |  |  | 2.4 |
Activity in equity securities , net |  |  | 4.7 |  |  |  | (2,821.4 | ) |  |  | (157.9 | ) |  |  | (2.1 | )
Net cash used in investing activities |  |  | (2,048,325.7 | ) |  |  | (1,536,982.8 | ) |  |  | (2,150,488.4 | ) |  |  | (28,524.9 | )

See accompanying notes to consolidated financial statements
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Cash flows from financing activities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net increase in deposits |  |  | 1,447,097.0 |  |  |  | 1,331,850.9 |  |  |  | 2,213,972.5 |  |  |  | 29,366.9 |
Net increase (decrease) in short-term borrowings |  |  | 456,558.6 |  |  |  | (127,707.1 | ) |  |  | (277,587.3 | ) |  |  | (3,682.0 | )
Purchase of subsidiary shares from noncontrolling interest |  |  | (143.3 | ) |  |  | — |  |  |  | — |  |  |  | — |
Proceeds from issue of shares by a subsidiary to noncontrolling interests |  |  | 366.5 |  |  |  | 459.8 |  |  |  | 466.8 |  |  |  | 6.2 |
Proceeds from issuance of long-term debt |  |  | 425,517.1 |  |  |  | 320,093.6 |  |  |  | 272,104.7 |  |  |  | 3,609.3 |
Repayment of long-term debt |  |  | (225,150.2 | ) |  |  | (224,084.5 | ) |  |  | (315,209.6 | ) |  |  | (4,181.1 | )
Proceeds from issuance of equity shares for options exercised |  |  | 27,259.1 |  |  |  | 22,008.2 |  |  |  | 18,486.8 |  |  |  | 245.2 |
Proceeds from issuance of equity shares (net of issuance cost) |  |  | — |  |  |  | 235,896.2 |  |  |  | — |  |  |  | — |
Payment of dividends and dividend tax |  |  | (34,490.3 | ) |  |  | (41,015.2 | ) |  |  | (66,447.3 | ) |  |  | (881.4 | )
Net cash provided by financing activities |  |  | 2,097,014.5 |  |  |  | 1,517,501.9 |  |  |  | 1,845,786.6 |  |  |  | 24,483.1 |
Effect of exchange rate changes on cash and due from banks, and restricted cash |  |  | 479.4 |  |  |  | (3,069.7 | ) |  |  | 10,610.5 |  |  |  | 140.8 |
Net change in cash and due from banks, and restricted cash |  |  | 143,442.4 |  |  |  | 160,721.6 |  |  |  | (122,911.6 | ) |  |  | (1,630.3 | )
Cash and due from banks, and restricted cash, beginning of year |  |  | 430,708.6 |  |  |  | 574,151.0 |  |  |  | 734,872.6 |  |  |  | 9,747.6 |
Cash and due from banks, and restricted cash, end of year |  | Rs. | 574,151.0 |  |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |  |  | US$ | 8,117.3 |
Supplementary cash flow information: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest paid |  | Rs. | 399,287.9 |  |  | Rs. | 520,351.2 |  |  | Rs. | 617,749.1 |  |  | US$ | 8,194.0 |
Income taxes paid, net of refunds |  | Rs. | 100,089.3 |  |  | Rs. | 119,365.0 |  |  | Rs. | 104,013.4 |  |  | US$ | 1,379.7 |
Non-cash investment activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
i ) Payable for purchase of property and equipment |  | Rs. | 1,064.5 |  |  | Rs. | 1,323.7 |  |  | Rs. | 1,232.7 |  |  | US$ | 16.4 |
ii) Trade date sale receivable of available for sale debt securities |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 32,730.8 |  |  | US$ | 434.2 |

i
i
i) Operating lease right-of-use assets represent non-cash investing activities. Refer note 27- lease commitments for more information and balances as at March 31, 2020.
See accompanying notes to consolidated financial statements
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

|  | 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 |  |  | 5,125,091,434 |  |  | 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 |  |  | 65,089,100 |  |  |  | 65.1 |  |  |  | 27,194.0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 27,259.1 |  |  |  |  |  |  |  | 27,259.1 |
Share-based compensation |  |  |  |  |  |  |  |  |  |  | 6,594.6 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 6,594.6 |  |  |  |  |  |  |  | 6,594.6 |
Dividends, including dividend tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (34,490.3 | ) |  |  |  |  |  |  |  |  |  |  | (34,490.3 | ) |  |  |  |  |  |  | (34,490.3 | )
Change in ownership interest in subsidiary |  |  |  |  |  |  |  |  |  |  | 60.0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 60.0 |  |  |  | (203.3 | ) |  |  | (143.3 | )
Shares issued to noncontrolling interest |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  |  | 366.5 |  |  |  | 366.5 |
Transfer to statutory reserve |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (45,620.3 | ) |  |  | 45,620.3 |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | — |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 178,514.9 |  |  |  |  |  |  |  |  |  |  |  | 178,514.9 |  |  |  | 319.0 |  |  |  | 178,833.9 |
Net change in accumulated other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (29,828.3 | ) |  |  | (29,828.3 | ) |  |  |  |  |  |  | (29,828.3 | )
Balance at March 31, 2018 |  |  | 5,190,180,534 |  |  | 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 |

|  | 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 |  |  | 5,190,180,534 |  |  | 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 |
Adoption of accounting standard (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 268.0 |  |  |  |  |  |  |  | (268.0 | ) |  |  | — |  |  |  |  |  |  |  | — |
Shares issued in public offering (net of issuance cost of Rs. 1,262.9 million) |  |  | 208,888,078 |  |  |  | 208.9 |  |  |  | 235,687.3 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 235,896.2 |  |  |  |  |  |  |  | 235,896.2 |
Shares issued upon exercise of options |  |  | 47,544,608 |  |  |  | 47.5 |  |  |  | 21,960.7 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 22,008.2 |  |  |  |  |  |  |  | 22,008.2 |
Share-based compensation |  |  |  |  |  |  |  |  |  |  | 5,343.3 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5,343.3 |  |  |  |  |  |  |  | 5,343.3 |
Dividends, including dividend tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (41,015.2 | ) |  |  |  |  |  |  |  |  |  |  | (41,015.2 | ) |  |  |  |  |  |  | (41,015.2 | )
Change in ownership interest in subsidiary |  |  |  |  |  |  |  |  |  |  | 201.9 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 201.9 |  |  |  | (201.9 | ) |  |  | — |
Shares issued to noncontrolling interest |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  |  | 459.8 |  |  |  | 459.8 |
Transfer to statutory reserve |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (54,997.6 | ) |  |  | 54,997.6 |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | — |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 220,103.8 |  |  |  |  |  |  |  |  |  |  |  | 220,103.8 |  |  |  | 461.7 |  |  |  | 220,565.5 |
Net change in accumulated other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 15,873.5 |  |  |  | 15,873.5 |  |  |  |  |  |  |  | 15,873.5 |
Balance at March 31, 2019 |  |  | 5,446,613,220 |  |  | Rs. | 5,446.6 |  |  | Rs. | 739,763.6 |  |  | Rs. | 587,235.2 |  |  | Rs. | 288,321.1 |  |  | Rs. | 11,808.8 |  |  | Rs. | 1,632,575.3 |  |  | Rs. | 3,049.3 |  |  | Rs. | 1,635,624.6 |

(1) | Effective April 1, 2018, the Bank adopted ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10)(see note 19)

See accompanying notes to consolidated financial statements
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(Continued)

|  | 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, 2019 |  |  | 5,446,613,220 |  |  | Rs. | 5,446.6 |  |  | Rs. | 739,763.6 |  |  | Rs. | 587,235.2 |  |  | Rs. | 288,321.1 |  |  | Rs. | 11,808.8 |  |  | Rs. | 1,632,575.3 |  |  | Rs. | 3,049.3 |  |  | Rs. | 1,635,624.6 |
Shares issued upon exercise of options |  |  | 36,673,240 |  |  |  | 36.7 |  |  |  | 18,450.1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 18,486.8 |  |  |  |  |  |  |  | 18,486.8 |
Share-based compensation |  |  |  |  |  |  |  |  |  |  | 7,476.1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 7,476.1 |  |  |  |  |  |  |  | 7,476.1 |
Dividends, including dividend tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (66,447.3 | ) |  |  |  |  |  |  |  |  |  |  | (66,447.3 | ) |  |  |  |  |  |  | (66,447.3 | )
Change in ownership interest in subsidiary |  |  |  |  |  |  |  |  |  |  | 198.8 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 198.8 |  |  |  | (198.8 | ) |  |  | — |
Shares issued to noncontrolling interest |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |  |  |  | 466.8 |  |  |  | 466.8 |
Transfer to statutory reserve |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (67,717.2 | ) |  |  | 67,717.2 |  |  |  |  |  |  |  | — |  |  |  |  |  |  |  | — |
Net income |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 260,269.9 |  |  |  |  |  |  |  |  |  |  |  | 260,269.9 |  |  |  | 94.1 |  |  |  | 260,364.0 |
Net change in accumulated other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 40,522.8 |  |  |  | 40,522.8 |  |  |  |  |  |  |  | 40,522.8 |
Balance at March 31, 2020 |  |  | 5,483,286,460 |  |  | Rs. | 5,483.3 |  |  | Rs. | 765,888.6 |  |  | Rs. | 713,340.6 |  |  | Rs. | 356,038.3 |  |  | Rs. | 52,331.6 |  |  | Rs. | 1,893,082.4 |  |  | Rs. | 3,411.4 |  |  | Rs. | 1,896,493.8 |
Balance at March 31, 2020 |  |  | 5,483,286,460 |  |  | US$ | 72.7 |  |  | US$ | 10,159.0 |  |  | US$ | 9,462.0 |  |  | US$ | 4,722.6 |  |  | US$ | 694.1 |  |  | US$ | 25,110.4 |  |  | US$ | 45.3 |  |  | US$ | 25,155.7 |

* | 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.

See accompanying notes to consolidated financial statements
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Bank overview
HDFC Bank Limited (the “Bank”) was incorporated in August 1994 with its registered office in Mumbai, India. The Bank is a banking company governed by India’s Banking Regulation Act, 1949. The Bank’s shares are listed on the BSE Limited (formerly known as Bombay Stock Exchange Limited) and The National Stock Exchange of India Ltd. Its American Depositary Shares (ADS) are listed on the New York Stock Exchange. Global Depositary Receipts (GDR) which were listed on the Luxembourg Stock Exchange have since been delisted effective July 15, 2019.
The Bank’s largest shareholder is Housing Development Finance Corporation Limited (“HDFC Limited”), which, along with its subsidiaries, owns 21.4% and 21.2% of the Bank’s equity as of March 31, 2019 and March 31, 2020, respectively. The remainder of the Bank’s equity is widely held by the public and by foreign and Indian institutional investors.
By
way of
an ordinary resolution on July 12, 2019, the shareholders of the Bank approved a subdivision (stock split) of
the
Bank’s
equity shares to reduce the face value of each equity share from Rs.
2.0
to Rs.
1.0
per equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to
5,470,763,894
shares of par value Rs.
1.0
each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three
equity
shares.
On July 17, 2018, the Bank made a preferential allotment of 78,193,634 equity shares to Housing Development Finance Corporation Limited at an issue price of Rs. 1,087.05 per equity share. On August 2, 2018, the Bank issued 35,000,000 American Depositary Shares (ADSs) representing 105,000,000 equity shares at a price of US$ 52.00 per ADS. The Bank also allotted 25,694,444 equity shares pursuant to a qualified institutional placement (QIP) offering at a price of Rs. 1,080.0 per equity shares. The total number of shares issued pursuant to exercise of stock options during the period is 47,544,608 shares
.
The Bank’s principal business activities are retail banking, wholesale banking and treasury services. The Bank’s retail banking division provides a variety of deposit products as well as loans, credit cards, debit cards, third-party mutual funds and insurance, depositary services, trade finance, foreign exchange and derivative services and sale of gold bars. Through its wholesale banking operations, the Bank provides loans, deposit products, documentary credits, guarantees, bullion trading, foreign exchange, and derivative products. It also provides cash management services, clearing and settlement services for stock exchanges, tax and other collections for the government, custody services for mutual funds and correspondent banking services. The Bank’s treasury group manages its debt securities and money market operations and its foreign exchange and derivative products.
2. 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 (see note 2j). 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, loan origination fees, derivative financial instruments, business combination, lease accounting and the presentation format and disclosures of the financial statements and related notes.
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Table of Contents
HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, valuation of lease liabilities and impairment assessment of goodwill.
d. Cash and due from banks,
and restricted cash
Cash and due from banks comprise of cash and deposit with banks that have original maturities of 90 days or less. The Bank has captioned cash and cash equivalent as “cash and due from banks, and restricted cash” on the consolidated balance sheets. Cash and due from banks includes restricted cash (see note 3).
e. Customer acquisition costs
Customer acquisition costs principally consist of commissions paid to third party referral agents who source retail loans and such costs are deferred and amortized as a yield adjustment over the life of the loans. Advertising and marketing expenses incurred to solicit new business are expensed as incurred.
f. Investments in securities
Investments consist of securities purchased as part of the Bank’s treasury operations, such as government securities and other debt securities, and investments purchased as part of the Bank’s wholesale banking operations, such as credit substitute securities issued by the Bank’s wholesale banking customers.
Credit substitute securities typically consist of commercial paper and short-term debentures issued by the same customers with whom the Bank has a lending relationship in its wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as for loans, and the Bank bears the same customer credit risk as it does for loans extended to those customers. Additionally, the yield and maturity terms are generally directly negotiated by the Bank with the issuer. As the Bank’s exposures to such securities are similar to its exposures on its loan portfolio, additional disclosures have been provided on impairment status in note 7 and on concentrations of credit risk in note 11.
All other securities including mortgage and asset-backed securities are actively managed as part of the Bank’s treasury operations. The issuers of such securities are either government, public financial institutions or private issuers. These investments are typically purchased from the market, and debt securities are generally publicly rated.
Securities that are held principally for resale in the near term are classified as held for trading (“HFT”) and are carried at fair value, with changes in fair value recorded in net income.
Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (“HTM”) and are carried at amortized cost.
All debt securities that are not classified as HTM or HFT are classified as available for sale debt securities (“AFS”) and are carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity.
Up to March 31, 2018, equity securities with readily determinable fair values that were not classified as HFT were classified as available for sale and were carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, were reported in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Dividend income on such securities was included in Interest and dividend revenue- available for sale debt securities. Non-marketable equity securities were carried at cost.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. This resulted in a cumulative catch-up reclassification from AOCI to retained earnings (see note 14). Marketable securities are measured at fair value, change in fair value recorded in earnings. Non- marketable equity securities under the measurement alternative are carried at cost plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and impairment, if any. The Bank’s review for impairment for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, and the expectations of cash flows.
Fair values are based on market quotations where a market quotation is available or otherwise based on present values at current interest rates for such investments.
Transfers between categories are recorded at fair value on the date of the transfer.
g. Impairment of debt securities
Declines in the fair values of held to maturity and available for sale debt securities below their carrying value that are other than temporary are reflected in net income as other than temporary impairment losses, based on management’s best estimate of the fair value of the investment. The Bank conducts a review each year to identify other than temporary declines based on an evaluation of all significant factors. The Bank’s review of impairment generally entails identification and evaluation of investments that have indications of possible impairment, analysis of evidential matter, including an evaluation of factors or triggers that would or could cause individual investments to have other than temporary impairment and documentation of the results of these analysis, as required under business policies. Estimates of any declines in the fair values of credit substitute securities that are other than temporary are measured on a case-by-case basis together with loans to those customers. The Bank does not recognize an impairment for debt securities if the cause of the decline is related solely to interest rate increase and the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis
h. Loans
The Bank grants retail and wholesale loans to customers.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances adjusted for an allowance for credit losses. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to net income over the lives of the related loans.
Interest is accrued on the unpaid principal balance and is included in interest income. Loans are generally placed on “non-accrual” status when interest or principal payments are past due for a specified period, at which time no further interest is accrued and overdue interest is written off against interest income. Interest income and principal payments on loans placed on non-accrual status is recognized when received. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans are generally placed on “non-accrual” status when interest or principal payments are three months past due or if they 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.
i. 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.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Retail
The Bank’s retail loan loss allowance consists of specific allowance and allowance for loans collectively evaluated for impairment (termed as “unallocated allowance”).
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 150 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 150 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.
Subsequent recoveries, if any, against write-off cases, are adjusted to allowance for credit losses in the consolidated statement of income.
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 its probability of default and loss given default, determined for the respective risk pools.
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 allowance 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. Collateral values are generally based on appraisals from internal and external valuation sources.
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. These factors are considered by the Bank for selection of loans for credit reviews and assessment of impairment.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank has also established an unallocated allowance for wholesale standard loans based on the internal rating grades assigned, and the probability of default associated with internal rating grade pools and the loss given default.
j. Sales/transfer of receivables
The Bank enters into assignment transactions, which are similar to asset-backed securitization transactions through the special purpose entities (SPEs) route, except that such portfolios of receivables are assigned directly to the purchaser and are not represented by pass-through certificates. The Bank also sells finance receivables to SPEs, formerly qualifying special purpose entities (QSPEs) in securitization transactions. Recourse is in the form of the Bank’s investment in subordinated securities issued by these SPEs, cash collateral and other credit and liquidity enhancements. The receivables are derecognized in the balance sheet when they are sold and consideration has been received by the Bank. Sales and transfers that do not meet the criteria for surrender of control are accounted for as secured borrowings.
The Bank first makes a determination as to whether the securitization entity would be consolidated. Second, it determines whether the transfer of financial assets is considered a sale. Furthermore, former qualifying special purpose entities (QSPEs) are now considered VIEs and are no longer exempt from consolidation. The Bank consolidates VIEs when it has both: (1) power to direct activities of the VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses or right to receive benefits from the entity that could potentially be significant to the VIE. The scope conditions examined include whether the entities’ equity investment at risk is insufficient to finance the activities without subordinated financial support and whether the holders of equity lack the characteristics of a financial interest. A controlling financial interest includes characteristics such as ability to make decisions through voting or similar rights, unlimited obligation to absorb the entities expected losses, and unlimited rights to receive the entities expected residual returns.
Gains or losses from the sale of receivables are recognized in the income statement in the period the sale occurs based on the relative fair value of the portion sold and the portion allocated to retained interests, and are reported net of the estimated cost of servicing by the Bank.
Fair values are determined based on the present value of expected future cash flows, using best estimates for key assumptions, such as prepayment and discount rates, commensurate with the risk involved.
k. Property and equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of property and equipment on a straight-line basis at the following rates:

Type of Asset |  | Rate of depreciation |
Premises |  |  | 1.63% |
Software and systems |  |  | 20.00% |
Equipment and furniture |  |  | 10.00%-33.33% |

For assets purchased and sold during the year, depreciation is provided on a pro rata basis by the Bank and capital advances are included in other assets. Improvements to leasehold premises are charged off over the remaining primary period of the lease.
l. Lease accounting
Effective April 1, 2019, the Bank adopted FASB ASU 2016-02 “Leases (Topic 842)”. The Bank applied Topic 842 using the modified retrospective method. As a result, comparative information has not been adjusted and continues to be reported under ASC 840. As of April 1, 2019, the date of the Bank’s initial application of ASC 842, the Bank recognized its lease liabilities measured as the present value of lease payments not yet paid, discounted using the incremental borrowing rate as at the date of initial application. The right-of-use asset as of the date of the initial application includes an initial measurement of the lease liabilities adjusted for accrued lease payments as of date of initial application.
At the inception of the contract, the Bank assesses whether the contract, is or contains, a lease. The Bank’s assessment is based on whether(1) the contract involves the use of distinct identified assets, (2) the Bank has the right to substantially all the economic benefit from the use of the asset throughout the term of the contract, and (3) the Bank has the right to direct the use of the asset. Leases are examined for classification as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria is met (1) the lease transfers ownership of the asset by the end of the lease term, (2) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (3) the lease term is for the major part of the remaining useful life of the asset or (4) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any one of the above criteria.
The Banks’s lessee arrangements consist of operating leases. The Bank records right-of-use assets and lease liabilities at the lease commencement date. Right-of-use assets are reported in other assets on the Consolidated Balance Sheets, and the related lease liabilities are reported in accrued expenses and other liabilities. The Bank has elected not to record right-of-use assets for short-term-leases that have a lease term of 12 months or less and thus, all leases with a lease term exceeding 12 months are recorded on the consolidated balance sheet.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Lease expense is recognized on a straight-line basis over the lease term and is recorded in non-interest expense- premises and equipment in the consolidated statements of income. The Bank made an accounting policy decision not to separate lease and non-lease components of a contract that is or contains a lease. At the lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the incremental borrowing rate as at the date of the lease commencement. Right-of-use assets initially equal the lease liabilities, adjusted for any lease payments made prior to lease commencement and for any lease incentives.
The Bank assesses leased assets for impairment, and if the carrying amount of the leased asset exceeds the undiscounted cash flows from the lease payments and the estimated residual value upon disposition of the leased asset, an impairment loss is recognized.
m. Impairment or disposal of tangible long-lived assets
Whenever events or circumstances indicate that the carrying amount of tangible long lived assets may not be recoverable, the Bank subjects such long lived assets to a test of recoverability based on the undiscounted cash flows from use or disposition of the asset. Such events or circumstances would include changes in the market, technology obsolescence, adverse changes in profitability or regulation. If the asset is impaired, the Bank recognizes an impairment loss estimated as the difference between the carrying value and the net realizable value.
n. Income tax
Income tax expense/benefit consists of the current tax expense and the net change in deferred tax assets or liabilities during the year.
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying values of assets and liabilities for financial reporting purposes and their respective tax bases, and for operating loss and tax credit carry forwards. Deferred tax assets are reduced by a valuation allowance to the amount that is more likely than not to be realized based on management’s judgment. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the deferred tax assets or liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income statement in the period of enactment of the change.
Income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more-likely-than-not to be sustained based on its technical merits in order to be recognized, and 2) the benefit is measured as the largest amount of that position that is greater than 50 percent likely of being realized upon settlement. The difference between the benefit recognized for a position in accordance with this model and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Bank’s policy is to include interest income, interest expense and penalties on overpayments and underpayment of income taxes within income tax expense in the consolidated statement of income. Interest income on overpayments of income taxes is recognized when the related matter is resolved.
The Bank accounted for dividend distribution tax in equity in the year in which a dividend is declared. With effect from April 1, 2020, no direct tax required to be paid by the Bank since dividend distribution tax payable on dividend distributed have been abolished.
The Bank follows specific identification method for releasing income tax effects from accumulated other comprehensive income.
o. 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.
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.
p. Foreign currency transactions
The Bank’s functional currency is the Indian Rupee, except for the Bank’s foreign branches. Foreign currency transactions are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are converted into respective functional currency using exchange rates prevailing on the balance sheet dates. Gains and losses arising on conversion of foreign currency denominated monetary assets and liabilities and on foreign currency transactions are included in the determination of net income under foreign exchange transactions.
For the foreign branches, the assets, liabilities and operations are translated, for consolidation purposes, from functional currency of the foreign branch to the Indian Rupee reporting currency at period-end rates for assets and liabilities and at average rates for operations. The resulting unrealized gains or losses are reported as a component of accumulated other comprehensive income (OCI).
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
q. Stock-based compensation
The fair value of stock-based compensation is estimated on the date of each grant based on a binomial model. For further information, see note 22.
r. Debt issuance costs
Issuance costs of long-term debt are amortized over the tenure of the debt.
s. Earnings per share
Basic earnings per equity share have been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period, using the treasury stock method, except where the result would be anti-dilutive. The Bank also reports basic and diluted earnings per ADS, where each ADS represents three equity shares. Earnings per ADS have been computed as earnings per equity share multiplied by the number of equity shares per ADS. A reconciliation of the number of shares used in computing earnings per share has been provided in note 29.
t. Segment information
The Bank operates in three reportable segments, namely retail banking, wholesale banking and treasury services. Segment-wise information has been provided in note 26.
u. Derivative financial instruments
The Bank recognizes all derivative instruments, including certain derivative instruments embedded in other contracts, as assets or liabilities in the balance sheet and measures them at fair value. The Bank has not designated any derivatives as hedges. As such, all changes in fair value of derivative instruments are recognized in net income under derivative gain/(loss) in the period of change.
The Bank enters into forward exchange contracts, currency swaps and currency options with its customers and typically transfers such customer exposures in the inter-bank foreign exchange markets. The Bank also enters into such instruments to cover its own foreign exchange exposures. All such instruments are carried at fair value, determined based on market quotations or market-based inputs.
The Bank enters into interest rate swaps for its own account. The Bank also enters into interest rate currency swaps and cross currency interest rate swaps with its customers and typically offsets these risks in the inter-bank market. Such contracts are carried on the balance sheet at fair value, or priced using market determined yield curves.
v. Business combination
The Bank accounts for acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The application of the purchase method requires certain estimates and assumptions, especially concerning the determination of the fair values of the acquired intangible and tangible assets, as well as the liabilities assumed at the date of the acquisition. The judgments made in the context of the purchase price allocation can materially impact the Bank’s future results of operations. The valuations are based on information available at the acquisition date. Purchase consideration in excess of bank’s interest and the acquiree’s net fair value of identifiable assets and liabilities is recognized as goodwill.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
w. Goodwill and other intangibles
Under applicable accounting guidance, goodwill is reviewed at the reporting unit level for potential impairment at least on an annual basis at the end of the reporting period, or more frequently if events or circumstances indicate a potential impairment. This analysis is a two-step process. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, then the goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step is to be performed. The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. The adjustments to measure the assets, liabilities and intangibles at fair value are for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the consolidated balance sheet. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.
x. Recently adopted accounting standards
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 lease 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. Lessor accounting is largely unchanged. The Bank adopted the FASB guidance effective April 1, 2019. To transition to the new guidance, the Bank elected several available practical expedients, including not to reassess the classification of its existing leases, any initial direct costs associated with the leases, or whether any existing contracts are or contain leases. In addition, the Bank elected not to provide a comparative presentation for fiscal 2019 and 2018. At adoption, the Bank recognized a lease liability of Rs. 56.9 billion and a corresponding right-of-use asset of approximately
Rs. 53.0
billion on the consolidated balance sheet related to its future lease payments as a lessee under operating leases. Adoption of the ASU did not have a material impact on the consolidated statement of income and cash flows. See note 27 for additional details.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
x. Recently issued accounting pronouncements not yet effective
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 are 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 are 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. While the update changes the measurement of the allowance for credit losses, it does not change the credit risk for the Bank’s loan portfolios. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, viz. ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Bank will adopt the guidance in fiscal 2021. Key implementation initiatives have included model development and validation, data acquisition for model estimation and new disclosures, and the establishment of policies encompassing aspects of the standard including internal controls. The allowance methodologies and model duly validated and tested, will be
implemented
for fiscal 2021. At the date of adoption, the ASU will result in a negative adjustment to retained earnings. The ultimate impact is dependent on the finalization of
the
assessment of the characteristics of the Bank’s portfolio, macroeconomic conditions and related forecasts at date of adoption and the potential impact of COVID-19. On adoption, the CECL transitional amount
(
being
a
cumulative effect adjustment
)
will be included in shareholders’ equity. This will have no impact on the Bank’s regulatory capital requirements which is based on Indian GAAP.
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 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.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. Entities are required to disclose and describe the range and weighted-average of significant observable inputs used to prospectively develop Level 3 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.
In August 2018, the FASB issued ASU No. 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s
A
ccounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. The update aligns the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, regardless of whether they convey a license to the hosted software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by this ASU. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. An entity has the option to apply amendments in the ASU either retrospectively or prospectively to all implementation costs incurred after the date of adoption. 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.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” This ASU is part of the FASB’s initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. The ASU removes specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Bank expects to adopt the guidance in fiscal 2022. The Bank is currently assessing the impact of this guidance will have on its consolidated financial position or results of operations.
In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity
with
the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. The amendments in the ASU are effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Bank expects to adopt the guidance in fiscal 2022. The Bank is currently assessing the impact of this guidance will have on its consolidated financial position or results of operations.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The ASU provides
for
optional expedients and
other
guidance
related to modification of contracts
, hedging relationships, and other transactions
affected by
reference rate reform. The ASU also provides an election to account for certain contract amendments related to reference rate reform as modifications rather than extinguishments without the requirement to assess the significance of the amendments. The various practical expedients and elections allow hedge accounting to continue uninterrupted during the transition period. The
amendments
in
the update are elective and applicable on issue
. The Bank is currently assessing the
various practical expedients and elections provided in the
update and its
suitability and
impact on the Bank’s transition away from LIBOR for its financial instrument.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
y. 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 fiscal year ended March 31, 2020 have been translated into U.S. dollars at U.S.$1.00 = Rs. 75.39 as published by the Federal Reserve Board of New York on March 31, 2020. Such translation should not be construed as a representation that the rupee amounts have been or could be converted into United States dollars at that or any other rate, or at all.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3. Cash and due from banks, and restricted cash
The Bank is required to maintain a specific percentage of its demand and time liabilities by way of a balance in a current account with the RBI. This is to maintain the solvency of the banking system. As prescribed by
the
RBI, the cash reserve ratio has to be maintained on an average basis for a two-week period. The average balance maintained for the
such
two-week period should not fall below the prescribed threshold limit. Non-maintenance of the requisite balance is subject to levy of penalty. The Bank has classified the cash reserve maintained with the RBI as restricted cash or restricted cash equivalents (restricted cash).
The cash and due from banks, and restricted cash consist of restricted cash of Rs. 383,503.0 million and Rs. 361,409.5 million (US$ 4,793.9 million) as at March 31, 2019 and March 31, 2020, respectively.
4. Investments, held for trading
The portfolio of trading securities as of March 31, 2019 and March 31, 2020 was as follows:

|  | As of March 31, 2019 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (In millions) |
Government of India securities |  | Rs. | 134,084.9 |  |  | Rs. | 163.2 |  |  | Rs. | 0.1 |  |  | Rs. | 134,248.0 |
Other corporate/financial institution securities |  |  | 33,990.6 |  |  |  | 15.8 |  |  |  | 1.1 |  |  |  | 34,005.3 |
Total debt securities |  | Rs. | 168,075.5 |  |  | Rs. | 179.0 |  |  | Rs. | 1.2 |  |  | Rs. | 168,253.3 |
Other securities (including mutual fund units) |  |  | 96,935.6 |  |  |  | 327.2 |  |  |  | — |  |  |  | 97,262.8 |
Total |  | Rs. | 265,011.1 |  |  | Rs. | 506.2 |  |  | Rs. | 1.2 |  |  | Rs. | 265,516.1 |
|  | As of March 31, 2020 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (In millions) |
Government of India securities |  | Rs. | 207,131.4 |  |  | Rs. | 592.9 |  |  | Rs. | 17.2 |  |  | Rs. | 207,707.1 |
Other corporate/financial institution securities |  |  | 4,495.9 |  |  |  | 7.1 |  |  |  | 32.5 |  |  |  | 4,470.5 |
Total debt securities |  | Rs. | 211,627.3 |  |  | Rs. | 600.0 |  |  | Rs. | 49.7 |  |  | Rs. | 212,177.6 |
Other securities (including mutual fund units) |  |  | 92,683.9 |  |  |  | 101.4 |  |  |  | — |  |  |  | 92,785.3 |
Total |  | Rs. | 304,311.2 |  |  | Rs. | 701.4 |  |  | Rs. | 49.7 |  |  | Rs. | 304,962.9 |
Total |  | US$ | 4,036.5 |  |  | US$ | 9.3 |  |  | US$ | 0.7 |  |  | US$ | 4,045.1 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. Investments, available for sale debt securities
The portfolio of available for sale debt securities as of March 31, 2019 and March 31, 2020 was as follows:

|  | As of March 31, 2019 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (In millions) |
Government of India securities |  | Rs. | 2,147,934.6 |  |  | Rs. | 21,881.4 |  |  | Rs. | 9,834.9 |  |  | Rs. | 2,159,981.1 |
State government securities |  |  | 144,633.7 |  |  |  | 4,864.6 |  |  |  | 475.7 |  |  |  | 149,022.6 |
Government securities outside India |  |  | 7,201.6 |  |  |  | 3.3 |  |  |  | — |  |  |  | 7,204.9 |
Credit substitutes (see note 7) |  |  | 273,550.7 |  |  |  | 899.9 |  |  |  | 1,563.8 |  |  |  | 272,886.8 |
Other corporate/financial institution bonds |  |  | 3,925.0 |  |  |  | 30.9 |  |  |  | 6.3 |  |  |  | 3,949.6 |
Debt securities, other than asset and mortgage-backed securities |  |  | 2,577,245.6 |  |  |  | 27,680.1 |  |  |  | 11,880.7 |  |  |  | 2,593,045.0 |
Mortgage-backed securities |  |  | 56.3 |  |  |  | 1.0 |  |  |  | 0.4 |  |  |  | 56.9 |
Asset-backed securities |  |  | 38,827.1 |  |  |  | 165.0 |  |  |  | 122.2 |  |  |  | 38,869.9 |
Other securities (including mutual fund units) (1) |  |  | 1,376.3 |  |  |  | 0.3 |  |  |  | — |  |  |  | 1,376.6 |
Total |  | Rs. | 2,617,505.3 |  |  | Rs. | 27,846.4 |  |  | Rs. | 12,003.3 |  |  | Rs. | 2,633,348.4 |
Securities with gross unrealized losses |  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 799,718.5 |
Securities with gross unrealized gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,833,629.9 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 2,633,348.4 |

(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 amortized cost Rs. 855.6 million and carrying value Rs. 1,267.7 million effective April 1, 2018.

|  | As of March 31, 2020 |
|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value |
|  | (In millions) |
Government of India securities |  | Rs. | 2,637,464.4 |  |  | Rs. | 52,630.0 |  |  | Rs. | 1,491.6 |  |  | Rs. | 2,688,602.8 |
State government securities |  |  | 177,055.9 |  |  |  | 11,337.7 |  |  |  | — |  |  |  | 188,393.6 |
Government securities outside India |  |  | 8,367.0 |  |  |  | 48.4 |  |  |  | — |  |  |  | 8,415.4 |
Credit substitutes (see note 7) |  |  | 360,741.5 |  |  |  | 2,309.5 |  |  |  | 677.3 |  |  |  | 362,373.7 |
Other corporate/financial institution bonds |  |  | 29,710.9 |  |  |  | 212.8 |  |  |  | 409.6 |  |  |  | 29,514.1 |
Debt securities, other than asset and mortgage-backed securities |  |  | 3,213,339.7 |  |  |  | 66,538.4 |  |  |  | 2,578.5 |  |  |  | 3,277,299.6 |
Mortgage-backed securities |  |  | 37.3 |  |  |  | 0.8 |  |  |  | — |  |  |  | 38.1 |
Asset-backed securities |  |  | 125,931.2 |  |  |  | 1,746.0 |  |  |  | 150.0 |  |  |  | 127,527.2 |
Other securities (including mutual fund units) |  |  | 1,424.1 |  |  |  | 0.2 |  |  |  | — |  |  |  | 1,424.3 |
Total |  | Rs. | 3,340,732.3 |  |  | Rs. | 68,285.4 |  |  | Rs. | 2,728.5 |  |  | Rs. | 3,406,289.2 |
Total |  | US$ | 44,312.6 |  |  | US$ | 905.8 |  |  | US$ | 36.2 |  |  | US$ | 45,182.2 |
Securities with gross unrealized losses |  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 300,932.1 |
Securities with gross unrealized gains |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,105,357.1 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 3,406,289.2 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | US$ | 45,182.2 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
AFS investments of Rs. 2,309,003.7 million and Rs. 2,876,996.4 million (US$ 38,161.5 million) as of March 31, 2019 and March 31, 2020, 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. 1,634,673.3 million as of March 31, 2019 and Rs. 1,760,859.1 million (US$ 23,356.7 million) as of March 31, 2020, were kept as margins for clearing, collateral borrowing and lending obligation (CBLO) and 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. 149.1 million, Rs. 1,081.0 million and Rs. 9,109.0 million (USD 120.8 million) as other than temporary impairment in fiscal year 2018, 2019 and 2020, 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 debt securities as of March 31, 2020 are temporary in nature. As of March 31, 2019 and March 31, 2020, 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 debt securities at March 31, 2019 was as follows:

|  | As of March 31, 2019 |  |  |  |  |  |  |
|  | 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. | — |  |  | Rs. | — |  |  | Rs. | 568,759.0 |  |  | Rs. | 9,834.9 |  |  | Rs. | 568,759.0 |  |  | Rs. | 9,834.9 |
State government securities |  |  | — |  |  |  | — |  |  |  | 27,415.5 |  |  |  | 475.7 |  |  |  | 27,415.5 |  |  |  | 475.7 |
Government securities outside India |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Credit substitutes (see note 7) |  |  | 17,996.3 |  |  |  | 88.1 |  |  |  | 165,700.5 |  |  |  | 1,475.7 |  |  |  | 183,696.8 |  |  |  | 1,563.8 |
Other corporate/financial institution bonds |  |  | — |  |  |  | — |  |  |  | 2,117.6 |  |  |  | 6.3 |  |  |  | 2,117.6 |  |  |  | 6.3 |
Debt securities, other than asset and mortgage-backed securities |  |  | 17,996.3 |  |  |  | 88.1 |  |  |  | 763,992.6 |  |  |  | 11,792.6 |  |  |  | 781,988.9 |  |  |  | 11,880.7 |
Mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | 45.7 |  |  |  | 0.4 |  |  |  | 45.7 |  |  |  | 0.4 |
Asset-backed securities |  |  | 14,191.2 |  |  |  | 48.9 |  |  |  | 3,492.7 |  |  |  | 73.3 |  |  |  | 17,683.9 |  |  |  | 122.2 |
Other securities (including mutual fund units) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | Rs. | 32,187.5 |  |  | Rs. | 137.0 |  |  | Rs. | 767,531.0 |  |  | Rs. | 11,866.3 |  |  | Rs. | 799,718.5 |  |  | Rs. | 12,003.3 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The gross unrealized losses and fair value of available for sale debt securities at March 31, 2020 was as follows:

|  | As of March 31, 2020 |  |  |  |  |  |  |
|  | 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. | 24,492.8 |  |  | Rs. | 69.8 |  |  | Rs. | 158,735.8 |  |  | Rs. | 1,421.8 |  |  | Rs. | 183,228.6 |  |  | Rs. | 1,491.6 |
State government securities |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Government securities outside India |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Credit substitutes (see note 7) |  |  | 38,039.9 |  |  |  | 481.2 |  |  |  | 18,680.4 |  |  |  | 196.1 |  |  |  | 56,720.3 |  |  |  | 677.3 |
Other corporate/financial institution bonds |  |  | 18,626.2 |  |  |  | 409.6 |  |  |  | — |  |  |  | — |  |  |  | 18,626.2 |  |  |  | 409.6 |
Debt securities, other than asset and mortgage-backed securities |  |  | 81,158.9 |  |  |  | 960.6 |  |  |  | 177,416.2 |  |  |  | 1,617.9 |  |  |  | 258,575.1 |  |  |  | 2,578.5 |
Mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Asset-backed securities |  |  | 41,510.7 |  |  |  | 144.7 |  |  |  | 846.3 |  |  |  | 5.3 |  |  |  | 42,357.0 |  |  |  | 150.0 |
Other securities (including mutual fund units) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | Rs. | 122,669.6 |  |  | Rs. | 1,105.3 |  |  | Rs. | 178,262.5 |  |  | Rs. | 1,623.2 |  |  | Rs. | 300,932.1 |  |  | Rs. | 2,728.5 |
Total |  | US$ | 1,627.1 |  |  | US$ | 14.7 |  |  | US$ | 2,364.5 |  |  | US$ | 21.5 |  |  | US$ | 3,991.6 |  |  | US$ | 36.2 |

The contractual residual maturity of available for sale debt securities other than asset and mortgage-backed securities as of March 31, 2020 is set out below:

|  | As of March 31, 2020 |
|  | Amortized Cost |  |  | Fair Value |  |  | Fair Value |
|  | (In millions) |
Within one year |  | Rs. | 1,112,389.9 |  |  | Rs. | 1,115,946.4 |  |  | US$ | 14,802.3 |
Over one year through five years |  |  | 838,625.0 |  |  |  | 861,818.8 |  |  |  | 11,431.5 |
Over five years through ten years |  |  | 916,798.3 |  |  |  | 946,302.3 |  |  |  | 12,552.1 |
Over ten years |  |  | 345,526.5 |  |  |  | 353,232.1 |  |  |  | 4,685.4 |
Total |  | Rs. | 3,213,339.7 |  |  | Rs. | 3,277,299.6 |  |  | US$ | 43,471.3 |

The contractual residual maturity of available for sale mortgage-backed and asset-backed debt securities as of March 31, 2020 is set out below:

|  | As of March 31, 2020 |
|  | Amortized Cost |  |  | Fair Value |  |  | Fair Value |
|  | (In millions) |
Within one year |  | Rs. | 47,973.3 |  |  | Rs. | 48,473.5 |  |  | US$ | 643.0 |
Over one year through five years |  |  | 75,458.2 |  |  |  | 76,412.3 |  |  |  | 1,013.6 |
Over five years through ten years |  |  | 1,576.5 |  |  |  | 1,621.6 |  |  |  | 21.5 |
Over ten years |  |  | 960.5 |  |  |  | 1,057.9 |  |  |  | 14.0 |
Total |  | Rs. | 125,968.5 |  |  | Rs. | 127,565.3 |  |  | US$ | 1,692.1 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Gross realized gains and gross realized losses from sale of available for sale debt securities and dividends and interest on such securities are set out below:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Gross realized gains on sale |  | Rs. | 11,433.8 |  |  | Rs. | 3,788.1 |  |  | Rs. | 26,128.1 |  |  | US$ | 346.6 |
Gross realized losses on sale |  |  | (580.6 | ) |  |  | (1,192.1 | ) |  |  | (301.9 | ) |  |  | (4.0 | )
Realized gains (losses), net |  |  | 10,853.2 |  |  |  | 2,596.0 |  |  |  | 25,826.2 |  |  |  | 342.6 |
Dividends and interest |  |  | 158,209.2 |  |  |  | 190,992.5 |  |  |  | 198,383.2 |  |  |  | 2,631.4 |
Total |  | Rs. | 169,062.4 |  |  | Rs. | 193,588.5 |  |  | Rs. | 224,209.4 |  |  | US$ | 2,974.0 |

6. Investments, held to maturity
There were no HTM securities as of March 31, 2019 and March 31, 2020.
7. Credit substitutes
Credit substitutes consist of securities that the Bank invests in as part of an overall extension of credit to certain customers. Such securities share many of the risk and reward characteristics of loans and are managed by the Bank together with other credit facilities extended to the same customers. The fair values of credit substitutes by type of instrument as of March 31, 2019 and March 31, 2020 were as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |
|  | Amortized Cost |  |  | Fair Value |  |  | Amortized Cost |  |  | Fair Value |
|  | (In millions) |
Available for sale credit substitute debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Debentures |  | Rs. | 247,869.1 |  |  | Rs. | 247,152.5 |  |  | Rs. | 236,717.2 |  |  | Rs. | 237,980.3 |
Commercial paper |  |  | 25,681.6 |  |  |  | 25,734.3 |  |  |  | 124,024.3 |  |  |  | 124,393.4 |
Total |  | Rs. | 273,550.7 |  |  | Rs. | 272,886.8 |  |  | Rs. | 360,741.5 |  |  | Rs. | 362,373.7 |
|  |  |  |  |  |  |  |  |  | US$ | 4,785.0 |  |  | US$ | 4,806.7 |

The fair values of credit substitutes by the Bank’s internal credit quality indicators and amounts provided for other than temporary impairments is as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Pass |  |  | Rs.272,886.8 |  |  |  | Rs.362,373.7 |  |  | US$ | 4,806.7 |
Impaired—gross balance |  |  | — |  |  |  | — |  |  |  | — |
Less: amounts provided for other than temporary impairments |  |  | — |  |  |  | — |  |  |  | — |
Impaired credit substitutes, net |  |  | — |  |  |  | — |  |  |  | — |
Total credit substitutes, net |  |  | Rs.272,886.8 |  |  |  | Rs.362,373.7 |  |  | US$ | 4,806.7 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impaired credit substitutes:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Gross impaired credit substitutes |  | Rs | — |  |  | Rs | — |  |  | US$ | — |
Gross impaired credit substitutes by industry |  | Rs. | — |  |  | Rs. | — |  |  | US$ | — |
Average impaired credit substitutes |  | Rs. | — |  |  | Rs. | — |  |  | US$ | — |
Interest income recognized on impaired credit substitutes |  | Rs. | — |  |  | Rs. | — |  |  | US$ | — |

As of March 31, 2020, the Bank has no additional funds committed to borrowers whose credit substitutes were impaired.
8. Repurchase and resell agreements
Securities sold under agreements to repurchase (“repos”) and securities purchased under agreements to resell (“reverse repos”) generally do not constitute a sale for accounting purposes of the underlying securities, and so are treated as collateralized transactions. There were no such transactions accounted for as sales during the years ended March 31, 2018, March 31, 2019 and March 31, 2020. Interest paid or received on all repo and reverse repo transactions is recorded in Interest expense or Interest revenue at the contractually specified rate.
a. Securities purchased under agreements to resell
Securities purchased under agreements to resell are classified separately from investments and generally mature within 14 days of the transaction date. Such resell transactions are recorded at the amount of cash advanced on the transaction. Resell transactions outstanding as of March 31, 2019 and March 31, 2020 were Rs. 76,213.5 million and Rs. 250,000.0 million (US$ 3,316.1 million), respectively
(see note 24).
b. Securities sold under repurchase agreements
Securities sold under agreements to repurchase are classified separately under liabilities and generally mature within 14 days of the transaction date. Such repurchase transactions are recorded at the amount of cash received on the transaction. Repurchase transactions outstanding as of March 31, 2019 and March 31, 2020 were Rs. 174,000.0 and Rs. 507,982.0 million (US$ 6,738.1 million), respectively. The Government of India securities are pledged as collateral
(see note 24).
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9. Loans
Loan balances include Rs. 780,869.5 million and Rs. 574,064.8 million (US$ 7,614.6 million) as of March 31, 2019 and March 31, 2020, respectively, which have been provided as collateral for borrowings and are therefore restricted.
Loans by facility as of March 31, 2019 and March 31, 2020 were as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Retail loans: |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 951,744.2 |  |  | Rs. | 952,053.1 |  |  | US$ | 12,628.4 |
Personal loans/Credit cards |  |  | 1,538,107.4 |  |  |  | 1,920,601.6 |  |  |  | 25,475.5 |
Retail business banking |  |  | 1,478,317.8 |  |  |  | 1,658,770.3 |  |  |  | 22,002.5 |
Commercial vehicle and construction equipment finance |  |  | 746,288.0 |  |  |  | 747,382.4 |  |  |  | 9,913.5 |
Housing loans |  |  | 513,771.6 |  |  |  | 634,612.4 |  |  |  | 8,417.7 |
Other retail loans |  |  | 1,009,674.6 |  |  |  | 1,127,380.6 |  |  |  | 14,954.0 |
Subtotal |  | Rs. | 6,237,903.6 |  |  | Rs. | 7,040,800.4 |  |  | US$ | 93,391.6 |
Wholesale loans |  | Rs. | 2,873,561.0 |  |  | Rs. | 3,583,055.2 |  |  | US$ | 47,527.0 |
Gross loans |  |  | 9,111,464.6 |  |  |  | 10,623,855.6 |  |  |  | 140,918.6 |
Less: Allowance for credit losses |  |  | 148,232.0 |  |  |  | 198,833.2 |  |  |  | 2,637.4 |
Total |  | Rs. | 8,963,232.6 |  |  | Rs. | 10,425,022.4 |  |  | US$ | 138,281.2 |

The maturity of gross loans as of March 31, 2020 is set out below:

|  | As of March 31, 2020 |
|  | Wholesale loans |  |  | Retail loans |  |  | Total |
|  | (In millions) |
Maturity profile of loans: |  |  |  |  |  |  |  |  |  |  |  |
Within one year |  | Rs. | 1,718,893.5 |  |  | Rs. | 2,140,034.9 |  |  | Rs. | 3,858,928.4 |
Over one year through five years |  |  | 1,191,304.1 |  |  |  | 4,290,512.7 |  |  |  | 5,481,816.8 |
Over five years |  |  | 672,857.6 |  |  |  | 610,252.8 |  |  |  | 1,283,110.4 |
Total gross loans |  | Rs. | 3,583,055.2 |  |  | Rs. | 7,040,800.4 |  |  | Rs. | 10,623,855.6 |
Total gross loans |  | US$ | 47,527.0 |  |  | US$ | 93,391.6 |  |  | US$ | 140,918.6 |

Gross loans analyzed by performance are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Performing |  | Rs. | 8,971,042.1 |  |  | Rs. | 10,466,428.7 |  |  | US$ | 138,830.5 |
Impaired |  |  | 140,422.5 |  |  |  | 157,426.9 |  |  |  | 2,088.1 |
Total gross loans |  | Rs. | 9,111,464.6 |  |  | Rs. | 10,623,855.6 |  |  | US$ | 140,918.6 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides details of age analysis of loans as of March 31, 2019 and March 31, 2020.

|  | As of March 31, 2019 |
|  | 31-90 days past due |  |  | Impaired / 91 days or more past due |  |  | Current 1,2 |  |  | Total |
|  | (In millions) |
Retail Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 4,807.0 |  |  | Rs. | 13,606.7 |  |  | Rs. | 933,330.5 |  |  | Rs. | 951,744.2 |
Personal loans/Credit card |  |  | 11,520.2 |  |  |  | 15,781.5 |  |  |  | 1,510,805.7 |  |  |  | 1,538,107.4 |
Retail business banking |  |  | 9,087.9 |  |  |  | 29,945.0 |  |  |  | 1,439,284.9 |  |  |  | 1,478,317.8 |
Commercial vehicle and construction equipment finance |  |  | 9,225.0 |  |  |  | 11,254.9 |  |  |  | 725,808.1 |  |  |  | 746,288.0 |
Housing loans |  |  | 784.9 |  |  |  | 2,157.1 |  |  |  | 510,829.6 |  |  |  | 513,771.6 |
Other retail |  |  | 9,480.1 |  |  |  | 29,523.6 |  |  |  | 970,670.9 |  |  |  | 1,009,674.6 |
Wholesale loans |  |  | 202.9 |  |  |  | 38,153.7 |  |  |  | 2,835,204.4 |  |  |  | 2,873,561.0 |
Total |  | Rs. | 45,108.0 |  |  | Rs. | 140,422.5 |  |  | Rs. | 8,925,934.1 |  |  | Rs. | 9,111,464.6 |

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. 34.0 billion.

|  | As of March 31, 2020 |
|  | 31-90 days past due |  |  | Impaired / 91 days or more past due |  |  | Current 1,2 |  |  | Total |
|  | (In millions) |
Retail Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 4,049.3 |  |  | Rs. | 15,279.2 |  |  | Rs. | 932,724.6 |  |  | Rs. | 952,053.1 |
Personal loans/Credit card |  |  | 16,819.3 |  |  |  | 14,481.7 |  |  |  | 1,889,300.6 |  |  |  | 1,920,601.6 |
Retail business banking |  |  | 15,210.9 |  |  |  | 32,866.3 |  |  |  | 1,610,693.1 |  |  |  | 1,658,770.3 |
Commercial vehicle and construction equipment finance |  |  | 17,679.2 |  |  |  | 22,992.2 |  |  |  | 706,711.0 |  |  |  | 747,382.4 |
Housing loans |  |  | 3,330.9 |  |  |  | 2,921.3 |  |  |  | 628,360.2 |  |  |  | 634,612.4 |
Other retail |  |  | 13,038.1 |  |  |  | 33,462.8 |  |  |  | 1,080,879.7 |  |  |  | 1,127,380.6 |
Wholesale loans |  |  | 5,126.9 |  |  |  | 35,423.4 |  |  |  | 3,542,504.9 |  |  |  | 3,583,055.2 |
Total |  | Rs. | 75,254.6 |  |  | Rs. | 157,426.9 |  |  | Rs. | 10,391,174.1 |  |  | Rs. | 10,623,855.6 |
Total |  | US$ | 998.1 |  |  | US$ | 2,088.1 |  |  | US$ | 137,832.4 |  |  | US$ | 140,918.6 |

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. 39.0 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.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
As an integral part of the credit process, the Bank has a credit rating model appropriate to its wholesale and retail credit segments. The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal grading is updated at least annually.
The amount of purchased financing receivable outstanding as of March 31, 2019 and March 31, 2020 is Rs. 514,756.0 and Rs. 644,672.4, respectively.
Retail Loans
Credit quality indicator based on payment activity as of March 31, 2019 and as of March 31, 2020 is given below:

|  | As of March 31, 2019 |
|  | Auto loans |  |  | Personal loans/ Credit card |  |  | Retail business banking |  |  | Commercial vehicle and Construction equipment finance |  |  | Housing loans |  |  | Other retail |  |  | Total |
|  | (In millions) |
Performing |  | Rs. | 938,137.5 |  |  | Rs. | 1,522,325.9 |  |  | Rs. | 1,448,372.8 |  |  | Rs. | 735,033.1 |  |  | Rs. | 511,614.5 |  |  | Rs. | 980,151.0 |  |  | Rs. | 6,135,634.8 |
Impaired |  |  | 13,606.7 |  |  |  | 15,781.5 |  |  |  | 29,945.0 |  |  |  | 11,254.9 |  |  |  | 2,157.1 |  |  |  | 29,523.6 |  |  |  | 102,268.8 |
Total |  | Rs. | 951,744.2 |  |  | Rs. | 1,538,107.4 |  |  | Rs. | 1,478,317.8 |  |  | Rs. | 746,288.0 |  |  | Rs. | 513,771.6 |  |  | Rs. | 1,009,674.6 |  |  | Rs. | 6,237,903.6 |
|  | As of March 31, 2020 |
|  | Auto loans |  |  | Personal loans/ Credit card |  |  | Retail business banking |  |  | Commercial vehicle and Construction equipment finance |  |  | Housing loans |  |  | Other retail |  |  | Total |
|  | (In millions) |
Performing |  | Rs. | 936,773.9 |  |  | Rs. | 1,906,119.9 |  |  | Rs. | 1,625,904.0 |  |  | Rs. | 724,390.2 |  |  | Rs. | 631,691.1 |  |  | Rs. | 1,093,917.8 |  |  | Rs. | 6,918,796.9 |
Impaired |  |  | 15,279.2 |  |  |  | 14,481.7 |  |  |  | 32,866.3 |  |  |  | 22,992.2 |  |  |  | 2,921.3 |  |  |  | 33,462.8 |  |  |  | 122,003.5 |
Total |  | Rs. | 952,053.1 |  |  | Rs. | 1,920,601.6 |  |  | Rs. | 1,658,770.3 |  |  | Rs. | 747,382.4 |  |  | Rs. | 634,612.4 |  |  | Rs. | 1,127,380.6 |  |  | Rs. | 7,040,800.4 |
Total |  | US$ | 12,628.4 |  |  | US$ | 25,475.5 |  |  | US$ | 22,002.5 |  |  | US$ | 9,913.5 |  |  | US$ | 8,417.7 |  |  | US$ | 14,954.0 |  |  | US$ | 93,391.6 |

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.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Credit quality indicators-Internally assigned grade and payment activity |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | Rs. | 2,834,466.7 |  |  | Rs. | 3,524,290.5 |  |  | US$ | 46,747.5 |
Labeled |  |  | 940.6 |  |  |  | 23,341.3 |  |  |  | 309.6 |
Impaired |  |  | 38,153.7 |  |  |  | 35,423.4 |  |  |  | 469.9 |
Total |  | Rs. | 2,873,561.0 |  |  | Rs. | 3,583,055.2 |  |  | US$ | 47,527.0 |

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, 2019 and March 31, 2020.

|  | As of March 31, 2019 |
|  | Recorded investments |  |  | Unpaid principal balance |  |  | Related specific allowance |  |  | Average recorded investments |  |  | Finance receivable on non-accrual status |
|  | (In millions) |
Retail Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 13,606.7 |  |  | Rs. | 13,606.7 |  |  | Rs. | 6,169.0 |  |  | Rs. | 11,120.6 |  |  | Rs. | 13,606.7 |
Personal loans/Credit card |  |  | 15,781.5 |  |  |  | 15,781.5 |  |  |  | 9,694.0 |  |  |  | 12,966.2 |  |  |  | 15,781.5 |
Retail business banking |  |  | 29,945.0 |  |  |  | 29,945.0 |  |  |  | 21,595.3 |  |  |  | 27,746.1 |  |  |  | 29,945.0 |
Commercial vehicle and construction equipment finance |  |  | 11,254.9 |  |  |  | 11,254.9 |  |  |  | 6,544.8 |  |  |  | 9,111.5 |  |  |  | 11,254.9 |
Housing loans |  |  | 2,157.1 |  |  |  | 2,157.1 |  |  |  | 1,105.2 |  |  |  | 2,028.3 |  |  |  | 2,157.1 |
Other retail |  |  | 29,523.6 |  |  |  | 29,523.6 |  |  |  | 20,441.5 |  |  |  | 26,114.0 |  |  |  | 29,523.6 |
Wholesale loans |  |  | 38,153.7 |  |  |  | 38,153.7 |  |  |  | 20,233.2 |  |  |  | 35,483.3 |  |  |  | 38,153.7 |
Total |  | Rs. | 140,422.5 |  |  | Rs. | 140,422.5 |  |  | Rs. | 85,783.0 |  |  | Rs. | 124,570.0 |  |  | Rs. | 140,422.5 |

|  | As of March 31, 2020 |
|  | Recorded investments |  |  | Unpaid principal balance |  |  | Related specific allowance |  |  | Average recorded investments |  |  | Finance receivable on non-accrual status |
|  | (In millions) |
Retail Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto loans |  | Rs. | 15,279.2 |  |  | Rs. | 15,279.2 |  |  | Rs. | 7,814.5 |  |  | Rs. | 14,443.0 |  |  | Rs. | 15,279.2 |
Personal loans/Credit card |  |  | 14,481.7 |  |  |  | 14,481.7 |  |  |  | 8,535.1 |  |  |  | 15,131.6 |  |  |  | 14,481.7 |
Retail business banking |  |  | 32,866.3 |  |  |  | 32,866.3 |  |  |  | 21,687.4 |  |  |  | 31,405.7 |  |  |  | 32,866.3 |
Commercial vehicle and construction equipment finance |  |  | 22,992.2 |  |  |  | 22,992.2 |  |  |  | 11,607.3 |  |  |  | 17,123.6 |  |  |  | 22,992.2 |
Housing loans |  |  | 2,921.3 |  |  |  | 2,921.3 |  |  |  | 1,414.7 |  |  |  | 2,539.2 |  |  |  | 2,921.3 |
Other retail |  |  | 33,462.8 |  |  |  | 33,462.8 |  |  |  | 24,116.5 |  |  |  | 31,493.2 |  |  |  | 33,462.8 |
Wholesale loans |  |  | 35,423.4 |  |  |  | 35,423.4 |  |  |  | 26,426.4 |  |  |  | 36,788.6 |  |  |  | 35,423.4 |
Total |  | Rs. | 157,426.9 |  |  | Rs. | 157,426.9 |  |  | Rs. | 101,601.9 |  |  | Rs. | 148,924.9 |  |  | Rs. | 157,426.9 |
Total |  | US$ | 2,088.1 |  |  | US$ | 2,088.1 |  |  | US$ | 1,347.7 |  |  | US$ | 1,975.4 |  |  | US$ | 2,088.1 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impaired loans by industry as of March 31, 2019 and March 31, 2020 are as follows:

|  | As of March 31, 2019 |
|  | (In millions) |
Gross impaired loans by industry: |  |  |  |
—Consumer Loans |  | Rs. | 22,513.7 |
—Agriculture Production—Food |  |  | 18,915.0 |
—Wholesale Trade- Non Industrial |  |  | 15,856.7 |
—Food and Beverage |  |  | 8,577.3 |
—Retail Trade |  |  | 7,767.0 |
—Others (none greater than 5% of impaired loans) |  |  | 66,792.8 |
Total |  | Rs. | 140,422.5 |

|  | As of March 31, 2020 |
|  | (In millions) |
Gross impaired loans by industry: |  |  |  |  |  |  |  |
—Agri Production—Food |  | Rs. | 22,546.3 |  |  | US$ | 299.1 |
—Consumer Loans |  |  | 21,718.9 |  |  |  | 288.1 |
—Road Transportation |  |  | 13,067.6 |  |  |  | 173.3 |
—Retail Trade |  |  | 8,823.1 |  |  |  | 117.0 |
—Food and Beverage |  |  | 8,137.5 |  |  |  | 107.9 |
—Others (none greater than 5% of impaired loans) |  |  | 83,133.5 |  |  |  | 1,102.7 |
Total |  | Rs. | 157,426.9 |  |  | US$ | 2,088.1 |

Summary information relating to impaired loans during the fiscal year ended March 31, 2018, March 31, 2019 and March 31, 2020 is as follows:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Average impaired loans, net of allowance |  | Rs. | 41,683.2 |  |  | Rs. | 50,378.2 |  |  | Rs. | 55,232.3 |  |  | US$ | 732.6 |
Interest income recognized on impaired loans |  | Rs. | 7,433.7 |  |  | Rs. | 6,994.7 |  |  | Rs. | 10,160.5 |  |  | US$ | 134.8 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. Recoveries from r etail loans is Rs. 12,254.3 million and from w holesale loans is Rs. 336.5 million.

Allowances for credit losses as of March 31, 2019 are as follows:

|  | As of March 31, 2019 |
|  | 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. | 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 |
Write-offs |  |  | (9,155.3 | ) |  |  | (25,197.0 | ) |  |  | (6,665.5 | ) |  |  | (4,812.8 | ) |  |  | (93.3 | ) |  |  | (5,652.0 | ) |  |  | (1,755.7 | ) |  |  | — |  |  |  | — |  |  |  | (53,331.6 | )
Net allowance for credit losses* |  |  | 11,642.1 |  |  |  | 28,708.4 |  |  |  | 9,551.4 |  |  |  | 6,551.5 |  |  |  | 224.1 |  |  |  | 13,170.7 |  |  |  | 6,665.9 |  |  |  | 10,793.7 |  |  |  | 1,748.6 |  |  |  | 89,056.4 |
Allowance for credit losses, end of the period |  | Rs. | 6,169.0 |  |  | Rs. | 9,694.0 |  |  | Rs. | 21,595.3 |  |  | Rs. | 6,544.8 |  |  | Rs. | 1,105.2 |  |  | Rs. | 20,441.5 |  |  | Rs. | 20,233.2 |  |  | Rs. | 52,941.1 |  |  | Rs. | 9,507.9 |  |  | Rs. | 148,232.0 |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance individually evaluated for impairment |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 20,233.2 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 20,233.2 |
Allowance collectively evaluated for impairment |  |  | 6,169.0 |  |  |  | 9,694.0 |  |  |  | 21,595.3 |  |  |  | 6,544.8 |  |  |  | 1,105.2 |  |  |  | 20,441.5 |  |  |  | — |  |  |  | 52,941.1 |  |  |  | 9,507.9 |  |  |  | 127,998.8 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 38,153.7 |  |  |  | — |  |  |  | — |  |  |  | 38,153.7 |
Loans collectively evaluated for impairment |  |  | 13,606.7 |  |  |  | 15,781.5 |  |  |  | 29,945.0 |  |  |  | 11,254.9 |  |  |  | 2,157.1 |  |  |  | 29,523.6 |  |  |  | — |  |  |  | 6,135,634.8 |  |  |  | 2,835,407.3 |  |  |  | 9,073,310.9 |

* | Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 16,777.1 million. Recoveries from r etail loans is Rs. 16,590.9 million and from wholesale loans is Rs. 186.2 million.

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Allowances for credit losses as of March 31, 2020 are as follows:

|  | As of March 31, 2020 |
|  | 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. | 6,169.0 |  |  | Rs. | 9,694.0 |  |  | Rs. | 21,595.3 |  |  | Rs. | 6,544.8 |  |  | Rs. | 1,105.2 |  |  | Rs. | 20,441.5 |  |  | Rs. | 20,233.2 |  |  | Rs. | 52,941.1 |  |  | Rs. | 9,507.9 |  |  | Rs. | 148,232.0 |  |  | US$ | 1,966.2 |
Write-offs |  |  | (11,524.3 | ) |  |  | (41,646.3 | ) |  |  | (9,379.0 | ) |  |  | (10,838.5 | ) |  |  | (130.3 | ) |  |  | (12,833.1 | ) |  |  | (6,328.1 | ) |  |  | — |  |  |  | — |  |  |  | (92,679.6 | ) |  |  | (1,229.3 | )
Net allowance for credit losses* |  |  | 13,169.8 |  |  |  | 40,487.4 |  |  |  | 9,471.1 |  |  |  | 15,901.0 |  |  |  | 439.8 |  |  |  | 16,508.1 |  |  |  | 12,521.3 |  |  |  | 31,088.3 |  |  |  | 3,694.0 |  |  |  | 143,280.8 |  |  |  | 1,900.5 |
Allowance for credit losses, end of the period |  | Rs. | 7,814.5 |  |  | Rs. | 8,535.1 |  |  | Rs. | 21,687.4 |  |  | Rs. | 11,607.3 |  |  | Rs. | 1,414.7 |  |  | Rs. | 24,116.5 |  |  | Rs. | 26,426.4 |  |  | Rs. | 84,029.4 |  |  | Rs. | 13,201.9 |  |  | Rs. | 198,833.2 |  |  | US$ | 2,637.4 |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance individually evaluated for impairment |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 26,426.4 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 26,426.4 |  |  | US$ | 350.5 |
Allowance collectively evaluated for impairment |  |  | 7,814.5 |  |  |  | 8,535.1 |  |  |  | 21,687.4 |  |  |  | 11,607.3 |  |  |  | 1,414.7 |  |  |  | 24,116.5 |  |  |  | — |  |  |  | 84,029.4 |  |  |  | 13,201.9 |  |  |  | 172,406.8 |  |  |  | 2,286.9 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans individually evaluated for impairment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 35,423.4 |  |  |  | — |  |  |  | — |  |  |  | 35,423.4 |  |  |  | 469.9 |
Loans collectively evaluated for impairment |  |  | 15,279.2 |  |  |  | 14,481.7 |  |  |  | 32,866.3 |  |  |  | 22,992.2 |  |  |  | 2,921.3 |  |  |  | 33,462.8 |  |  |  | — |  |  |  | 6,918,796.9 |  |  |  | 3,547,631.8 |  |  |  | 10,588,432.2 |  |  |  | 140,448.8 |

* | Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 25,658.9 million (US$ 340.3 million). Recoveries from r etail loans is Rs.22,548.7 million and from wholesale loans is Rs. 3,110.2 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 allowance for credit losses net of recoveries against write-offs. There is no transfer of amounts to or from the unallocated category to the specific category.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Troubled debt restructuring (TDR)
When the Bank grants a 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.
During fiscal 2020, the Bank implemented the package announced by RBI on account of COVID-19 situation which grants temporary extensions in repayment obligations to the borrowers without any interest or financial concessions. These did not meet the conditions to be classified as TDR. The following table summarizes the Bank’s TDR modifications during the fiscal year ended March 31, 2019 and March 31, 2020 presented by primary modification type and includes the financial effects of these modifications.There was no TDR modification during fiscal year ended March 31, 2018.

|  | Fiscal year ended March 31, 2019 |
|  | Carrying value |  |  | TDRs involving changes in the amount of principal payments (1) |  |  | TDRs involving changes in the amount of interest payments (2) |  |  | TDRs involving changes in the amount of both principal and interest payments |  |  | Balance of principal forgiven |  |  | Net P&L impact (3) |
|  | (In millions) |
Retail Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail business banking |  | Rs. | 17.9 |  |  | Rs. | — |  |  | Rs. | 17.9 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 4.5 |
Commercial vehicle and construction equipment finance |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Wholesale loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total (4) |  | Rs. | 17.9 |  |  | Rs. | — |  |  | Rs. | 17.9 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 4.5 |

(1) | TDRs involving changes in the amount of principal payment may include principal forgiveness or deferral of periodic and/or final principal payments.

(2) | TDRs involving changes in the amount of interest payments may involve a reduction in interest rate.

(3) | Balances reflect charge-offs and/or allowance for credit losses and/or income not recognized/deferred.

(4) | TDR modification during the year ended March 31, 2019 comprised of one case.

|  | Fiscal year ended March 31, 2020 |
|  | Carrying value |  |  | TDRs involving changes in the amount of principal payments (1) |  |  | TDRs involving changes in the amount of interest payments (2) |  |  | TDRs involving changes in the amount of both principal and interest payments |  |  | Balance of principal forgiven |  |  | Net P&L impact (3) |
|  | (In millions) |
Retail Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail business banking |  | Rs. | 964.1 |  |  | Rs. | — |  |  | Rs. | 964.1 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 43.1 |
Commercial vehicle and construction equipment finance |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Wholesale loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total (4) |  | Rs. | 964.1 |  |  | Rs. | — |  |  | Rs. | 964.1 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 43.1 |
Total (4) |  | US$ | 12.8 |  |  | US$ | — |  |  | US$ | 12.8 |  |  | US$ | — |  |  | US$ | — |  |  | US$ | 0.6 |

(1) | TDRs involving changes in the amount of principal payment may include principal forgiveness or deferral of periodic and/or final principal payments.

(2) | TDRs involving changes in the amount of interest payments may involve a reduction in interest rate.

(3) | Balances reflect charge-offs and/or allowance for credit losses and/or income not recognized/deferred.

(4) | TDR modification during the year ended March 31, 2020 comprised of 13 case s .

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below summarizes 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.

|  | As of March 31, 2020 |
|  | recorded investments |
|  | (In millions) |
Retail loans: |  |  |  |
Retail business banking |  | Rs. | 17.9 |
Commercial vehicle and construction equipment finance |  |  | — |
Wholesale loans |  |  | — |
Total |  | Rs. | 17.9 |
Total |  | US$ | 0.2 |

Interest on loans by facility are as follows:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Wholesale loans |  | Rs. | 152,124.6 |  |  | Rs. | 199,928.0 |  |  | Rs. | 245,504.7 |  |  | US$ | 3,256.5 |
Retail loans |  |  | 515,334.1 |  |  |  | 627,755.0 |  |  |  | 736,290.1 |  |  |  | 9,766.4 |
Total |  | Rs. | 667,458.7 |  |  | Rs. | 827,683.0 |  |  | Rs. | 981,794.8 |  |  | US$ | 13,022.9 |

10. Sales/transfer of receivables
The following table summarizes the cash flows received during the years ended March 31, 2018, March 31, 2019 and March 31, 2020 from customers and paid to SPEs/transferees on securitized/ transferred performing loans:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 202 0 |
|  | (In millions) |
Cash flow information |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collections against securitized receivables/transfers |  | Rs. | 303.9 |  |  | Rs. | 233.5 |  |  | Rs. | 142.9 |  |  | US$ | 1.9 |
Payments made |  |  | 301.8 |  |  |  | 237.7 |  |  |  | 139.3 |  |  |  | 1.8 |
Cash flows on retained interests |  | Rs. | 3.8 |  |  | Rs. | 2.1 |  |  | Rs. | 6.1 |  |  | US$ | 0.1 |

Other key disclosures are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Transferred receivables with continuing involvement |  | Rs. | 398.4 |  |  | Rs. | 301.1 |  |  | US$ | 4.0 |
Delinquencies |  |  | 253.8 |  |  |  | 262.0 |  |  |  | 3.5 |
Credit losses |  |  | 242.0 |  |  |  | 256.4 |  |  |  | 3.4 |
Retained interest in sold receivables |  |  | 15.9 |  |  |  | 12.1 |  |  |  | 0.2 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below outlines the economic assumptions and the sensitivity of the estimated fair value of retained interests in finance receivables as of March 31, 2019 and March 31, 2020 to immediate 10% and 20% changes in those assumptions:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Fair value of retained interests |  |  |  |  |  |  |  |  |  |  |  |
Annual prepayment rate: |  |  |  |  |  |  |  |  |  |  |  |
Impact of 10% adverse change |  | Rs. | 1.7 |  |  | Rs. | 1.3 |  |  | US$ | — |
Impact of 20% adverse change |  |  | 3.3 |  |  |  | 2.5 |  |  |  | — |
Expected credit losses: |  |  |  |  |  |  |  |  |  |  |  |
Impact of 10% adverse change |  |  | 2.3 |  |  |  | 1.8 |  |  |  | — |
Impact of 20% adverse change |  |  | 4.5 |  |  |  | 3.6 |  |  |  | — |

Weighted average life in years of the securitized receivables is not subject to change, except in the case of a change in the prepayment rate assumption. Consequently, the above sensitivity analysis does not include the impact on the estimated fair values of the retained interests due to an adverse change in the weighted average life in years and the discount rate.
These sensitivities are hypothetical and should be used with appropriate caution. A 10% change in the assumptions may not result in proportionate changes in the fair values of retained interests. Adverse changes assumed in the above analysis and the resultant change in the fair values of retained interests are calculated independent of each other. In reality, any change in one factor may cause a change in the other factors.
11. Concentrations of credit risk
Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to the Bank’s total credit exposure. The Bank manages its credit risk collectively for its loan portfolio and credit substitute securities as these instruments are invested in as part of an overall lending program for corporate customers; accordingly, information on concentrations of credit risk has been provided for these exposures together.
In the case of wholesale loans, while the Bank generally lends on a cash-flow basis, it also requires collateral which consists of liens on inventory, receivables and other current assets, and in some cases, charges on fixed assets, such as property, movable assets (such as vehicles) and financial assets (such as marketable securities) from a large number of the Bank’s borrowers. The Bank’s retail loans are generally secured by a charge on the asset financed (vehicle loans, property loans and loans against gold and securities). Retail business banking loans are secured with current assets as well as immovable property and fixed assets in some cases. However, collateral securing each individual loan may not be adequate in relation to the value of the loan. If the customer fails to pay, the Bank would, as applicable, liquidate collateral and/or set off accounts. The maximum estimated loss that would be incurred under severe, hypothetical circumstances, for which the Bank believes the possibility is extremely remote, such as where the value of the Bank’s interests and any associated collateral declines to zero, without any consideration of recovery or offset is determined as the carrying values of the instruments as given in the below table.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank’s portfolio of loans, credit substitute securities and non-funded exposure (including derivatives) is broadly diversified along industry and product lines, and as of March 31, 2019 and March 31, 2020 the exposures are as set forth below.

|  | As of March 31, 2019 |
Category |  | Gross loans |  |  | Fair Values Of Credit Substitutes |  |  | Non-funded exposure |  |  | Total |  |  | % |
|  | (In millions, except percentages) |
Consumer Loans |  | Rs. | 2,477,945.6 |  |  | Rs. | — |  |  | Rs. | 1,552.1 |  |  | Rs. | 2,479,497.7 |  |  |  | 23.5 |
Retail trade |  |  | 445,757.8 |  |  |  | 1,170.7 |  |  |  | 15,051.6 |  |  |  | 461,980.1 |  |  |  | 4.4 |
NBFC/Financial Intermediaries |  |  | 311,477.1 |  |  |  | 98,274.0 |  |  |  | 13,203.1 |  |  |  | 422,954.2 |  |  |  | 4.0 |
Automobile & Auto Ancillary |  |  | 352,979.1 |  |  |  | 10,413.9 |  |  |  | 32,546.7 |  |  |  | 395,939.7 |  |  |  | 3.8 |
Road Transportation |  |  | 376,547.1 |  |  |  | — |  |  |  | 9,808.2 |  |  |  | 386,355.3 |  |  |  | 3.7 |
Consumer Services |  |  | 354,060.4 |  |  |  | 3,957.3 |  |  |  | 13,757.6 |  |  |  | 371,775.3 |  |  |  | 3.5 |
Agriculture Production — Food |  |  | 330,092.5 |  |  |  | — |  |  |  | 728.8 |  |  |  | 330,821.3 |  |  |  | 3.1 |
Power |  |  | 251,169.4 |  |  |  | 37,188.7 |  |  |  | 39,998.4 |  |  |  | 328,356.5 |  |  |  | 3.1 |
Telecom |  |  | 246,272.4 |  |  |  | 21,288.6 |  |  |  | 26,245.9 |  |  |  | 293,806.9 |  |  |  | 2.8 |
Real Estate & Property Services |  |  | 257,056.8 |  |  |  | 1,978.8 |  |  |  | 33,482.7 |  |  |  | 292,518.3 |  |  |  | 2.8 |
Engineering |  |  | 159,462.7 |  |  |  | 1,557.3 |  |  |  | 120,816.0 |  |  |  | 281,836.0 |  |  |  | 2.7 |
Food & Beverage |  |  | 233,798.9 |  |  |  | — |  |  |  | 15,325.7 |  |  |  | 249,124.6 |  |  |  | 2.4 |
Business Services |  |  | 236,853.7 |  |  |  | 249.2 |  |  |  | 11,318.3 |  |  |  | 248,421.2 |  |  |  | 2.4 |
Iron & Steel |  |  | 195,488.6 |  |  |  | 5,514.4 |  |  |  | 44,149.5 |  |  |  | 245,152.5 |  |  |  | 2.3 |
Coal & Petroleum Products |  |  | 92,504.7 |  |  |  | 705.0 |  |  |  | 150,857.5 |  |  |  | 244,067.2 |  |  |  | 2.3 |
Wholesale Trade — Industrial |  |  | 192,708.4 |  |  |  | 67.8 |  |  |  | 29,835.7 |  |  |  | 222,611.9 |  |  |  | 2.1 |
Textiles & Garments |  |  | 187,527.5 |  |  |  | 4,436.1 |  |  |  | 26,803.8 |  |  |  | 218,767.4 |  |  |  | 2.1 |
Infrastructure Development |  |  | 128,273.5 |  |  |  | 9,035.5 |  |  |  | 79,596.8 |  |  |  | 216,905.8 |  |  |  | 2.1 |
Wholesale Trade — Non Industrial |  |  | 200,089.4 |  |  |  | 248.3 |  |  |  | 12,218.2 |  |  |  | 212,555.9 |  |  |  | 2.0 |
Others (none greater than 2%) |  |  | 2,081,399.0 |  |  |  | 76,801.2 |  |  |  | 470,669.6 |  |  |  | 2,628,869.8 |  |  |  | 24.9 |
Total |  | Rs. | 9,111,464.6 |  |  | Rs. | 272,886.8 |  |  | Rs. | 1,147,966.2 |  |  | Rs. | 10,532,317.6 |  |  |  | 100.0 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

|  | As of March 31, 2020 |
Category |  | Gross loans |  |  | Fair Values Of Credit Substitutes |  |  | Non-funded exposure |  |  | Total |  |  | Total |  |  | % |
|  | (In millions, except percentages) |
Consumer Loans |  | Rs. | 2,958,437.7 |  |  | Rs. | 2,756.6 |  |  | Rs. | 446.4 |  |  | Rs. | 2,961,640.7 |  |  | US$ | 39,284.3 |  |  |  | 24.3 |
Retail Trade |  |  | 533,155.3 |  |  |  | 343.7 |  |  |  | 22,820.3 |  |  |  | 556,319.3 |  |  |  | 7,379.2 |  |  |  | 4.6 |
Power |  |  | 458,628.1 |  |  |  | 48,997.7 |  |  |  | 41,445.6 |  |  |  | 549,071.4 |  |  |  | 7,283.1 |  |  |  | 4.5 |
Consumer Services |  |  | 399,046.4 |  |  |  | 2,015.1 |  |  |  | 19,135.9 |  |  |  | 420,197.4 |  |  |  | 5,573.6 |  |  |  | 3.4 |
Engineering |  |  | 240,196.0 |  |  |  | 12,255.3 |  |  |  | 144,296.9 |  |  |  | 396,748.2 |  |  |  | 5,262.6 |  |  |  | 3.2 |
NBFC |  |  | 317,450.0 |  |  |  | 76,860.2 |  |  |  | 1,659.1 |  |  |  | 395,969.3 |  |  |  | 5,252.3 |  |  |  | 3.2 |
Road Transportation |  |  | 376,334.2 |  |  |  | 495.3 |  |  |  | 10,849.7 |  |  |  | 387,679.2 |  |  |  | 5,142.3 |  |  |  | 3.2 |
Automobile & Auto Ancillary |  |  | 330,632.5 |  |  |  | 18,397.9 |  |  |  | 33,037.0 |  |  |  | 382,067.4 |  |  |  | 5,067.9 |  |  |  | 3.1 |
Real Estate & Property Services |  |  | 280,870.4 |  |  |  | 4,309.5 |  |  |  | 36,335.2 |  |  |  | 321,515.1 |  |  |  | 4,264.7 |  |  |  | 2.6 |
Agri Production — Food |  |  | 313,143.6 |  |  |  | — |  |  |  | 833.3 |  |  |  | 313,976.9 |  |  |  | 4,164.7 |  |  |  | 2.6 |
Coal & Petroleum Products |  |  | 136,531.9 |  |  |  | 33,834.9 |  |  |  | 115,440.2 |  |  |  | 285,807.0 |  |  |  | 3,791.0 |  |  |  | 2.3 |
Food and Beverage |  |  | 260,907.9 |  |  |  | 1,391.3 |  |  |  | 21,853.6 |  |  |  | 284,152.8 |  |  |  | 3,769.1 |  |  |  | 2.3 |
Financial Institutions |  |  | 219,417.5 |  |  |  | 59,118.8 |  |  |  | 2,058.7 |  |  |  | 280,595.0 |  |  |  | 3,721.9 |  |  |  | 2.3 |
Iron and Steel |  |  | 231,524.9 |  |  |  | 1,144.7 |  |  |  | 45,235.4 |  |  |  | 277,905.0 |  |  |  | 3,686.2 |  |  |  | 2.3 |
Telecom |  |  | 232,932.0 |  |  |  | 10,412.6 |  |  |  | 29,949.6 |  |  |  | 273,294.2 |  |  |  | 3,625.1 |  |  |  | 2.2 |
Infrastructure Development |  |  | 165,578.8 |  |  |  | 2,457.1 |  |  |  | 104,731.8 |  |  |  | 272,767.7 |  |  |  | 3,618.1 |  |  |  | 2.2 |
Business Services |  |  | 244,028.7 |  |  |  | 2,278.5 |  |  |  | 15,953.3 |  |  |  | 262,260.5 |  |  |  | 3,478.7 |  |  |  | 2.1 |
Wholesale Trade — Non Industrial |  |  | 238,436.5 |  |  |  | — |  |  |  | 18,766.1 |  |  |  | 257,202.6 |  |  |  | 3,411.6 |  |  |  | 2.1 |
Wholesale Trade — Industrial |  |  | 211,849.6 |  |  |  | 34.2 |  |  |  | 34,840.2 |  |  |  | 246,724.0 |  |  |  | 3,272.6 |  |  |  | 2.0 |
Others (none greater than 2%) |  |  | 2,474,753.6 |  |  |  | 85,270.3 |  |  |  | 525,004.6 |  |  |  | 3,085,028.5 |  |  |  | 40,920.9 |  |  |  | 25.5 |
Total |  | Rs. | 10,623,855.6 |  |  | Rs. | 362,373.7 |  |  | Rs. | 1,224,692.9 |  |  | Rs. | 12,210,922.2 |  |  | US$ | 161,969.9 |  |  |  | 100.0 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank’s ten largest exposures as of March 31, 2019 and March 31, 2020, based on the higher of the outstanding balance or the limit on loans, investments (including credit substitutes) and non-funded exposures (including derivatives), are as follows:

|  | As of March 31, 2019 |
|  | Funded Exposure |  |  | Non-Funded Exposure |  |  | Total Exposure |
|  |  |  |  | (In millions) |  |  |  |
Borrower 1 |  |  | Rs. 146,141.2 |  |  |  | Rs. 6,457.1 |  |  |  | Rs. 152,598.3 |
Borrower 2 |  |  | 27,488.9 |  |  |  | 115,089.5 |  |  |  | 142,578.4 |
Borrower 3 |  |  | 120,004.3 |  |  |  | 312.8 |  |  |  | 120,317.1 |
Borrower 4 |  |  | 92,271.4 |  |  |  | 1,200.0 |  |  |  | 93,471.4 |
Borrower 5 |  |  | 80,008.5 |  |  |  | 32.6 |  |  |  | 80,041.1 |
Borrower 6 |  |  | 57,604.0 |  |  |  | 14,843.9 |  |  |  | 72,447.9 |
Borrower 7 |  |  | 32,948.9 |  |  |  | 34,806.0 |  |  |  | 67,754.9 |
Borrower 8 |  |  | 51,283.8 |  |  |  | 15,163.0 |  |  |  | 66,446.8 |
Borrower 9 |  |  | 43,602.4 |  |  |  | 22,513.2 |  |  |  | 66,115.6 |
Borrower 10 |  |  | 30,559.1 |  |  |  | 26,347.9 |  |  |  | 56,907.0 |

|  | As of March 31, 2020 |
|  | Funded Exposure |  |  | Non-Funded Exposure |  |  | Total Exposure |  |  | Total Exposure |
|  |  |  |  | (In millions) |  |  |  |
Borrower 1 |  |  | Rs. 243,382.8 |  |  |  | Rs. 1,200.0 |  |  |  | Rs. 244,582.8 |  |  | US$ | 3,244.2 |
Borrower 2 |  |  | 180,100.0 |  |  |  | 305.1 |  |  |  | 180,405.1 |  |  |  | 2,393.0 |
Borrower 3 |  |  | 163,738.7 |  |  |  | 610.9 |  |  |  | 164,349.6 |  |  |  | 2,180.0 |
Borrower 4 |  |  | 74,421.4 |  |  |  | 75,432.2 |  |  |  | 149,853.6 |  |  |  | 1,987.7 |
Borrower 5 |  |  | 135,455.0 |  |  |  | — |  |  |  | 135,455.0 |  |  |  | 1,796.7 |
Borrower 6 |  |  | 31,934.6 |  |  |  | 55,651.4 |  |  |  | 87,586.0 |  |  |  | 1,161.8 |
Borrower 7 |  |  | 63,228.0 |  |  |  | 15,355.2 |  |  |  | 78,583.2 |  |  |  | 1,042.4 |
Borrower 8 |  |  | 75,035.9 |  |  |  | 221.6 |  |  |  | 75,257.5 |  |  |  | 998.2 |
Borrower 9 |  |  | 75,027.7 |  |  |  | 182.8 |  |  |  | 75,210.5 |  |  |  | 997.6 |
Borrower 10 |  |  | 51,361.3 |  |  |  | 22,128.1 |  |  |  | 73,489.4 |  |  |  | 974.8 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. Property and equipment
Property and equipment by asset category is as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Land and premises |  | Rs. | 18,836.5 |  |  | Rs. | 19,567.6 |  |  | US$ | 259.5 |
Software and systems |  |  | 29,855.2 |  |  |  | 33,433.9 |  |  |  | 443.5 |
Equipment and furniture |  |  | 73,601.8 |  |  |  | 82,179.1 |  |  |  | 1,090.1 |
Property and equipment, at cost |  |  | 122,293.5 |  |  |  | 135,180.6 |  |  |  | 1,793.1 |
Less: Accumulated depreciation |  |  | 79,105.7 |  |  |  | 86,852.9 |  |  |  | 1,152.1 |
Property and equipment, net |  | Rs. | 43,187.8 |  |  | Rs. | 48,327.7 |  |  | US$ | 641.0 |

Depreciation and amortization charged for the years ended March 31, 2018, March 31, 2019 and March 31, 2020 was Rs. 9,678.9 million, Rs. 12,247.8 million and Rs. 12,800.3 million (US$ 169.8 million), respectively.
13. 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$ 994.0 million) for the fiscal year ended March 31, 2019 and the year ended March 31, 2020. The entire amount of goodwill was allocated to the retail business.
The net carrying amount, in total and by class of intangible assets as of March 31, 2019 and March 31, 2020 was nil. The aggregate amortization charged for the years ended March 31, 2018, March 31, 2019 and March 31, 2020 was Rs. 1.0 million, Rs. 1.0 million and nil, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Other assets
Other assets include the following:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Security deposits for leased property |  | Rs. | 5,112.9 |  |  | Rs. | 5,410.3 |  |  | US$ | 71.8 |
Sundry accounts receivable |  |  | 49,465.6 |  |  |  | 55,379.5 |  |  |  | 734.6 |
Advance income tax (net of current tax expense) |  |  | 18,785.7 |  |  |  | 25,140.7 |  |  |  | 333.5 |
Advances |  |  | 4,213.1 |  |  |  | 7,639.3 |  |  |  | 101.3 |
Prepaid expenses |  |  | 1,356.7 |  |  |  | 1,374.6 |  |  |  | 18.2 |
Deposits/Margins paid |  |  | 8,319.8 |  |  |  | 15,226.9 |  |  |  | 202.0 |
Derivatives (refer to note 24) |  |  | 132,524.1 |  |  |  | 190,537.6 |  |  |  | 2,527.4 |
Term placements |  |  | 115,428.4 |  |  |  | 109,372.8 |  |  |  | 1,450.8 |
Receivable on account of trade date |  |  | 4,890.7 |  |  |  | 221,960.9 |  |  |  | 2,944.1 |
Right-of-use assets |  |  | — |  |  |  | 60,756.9 |  |  |  | 805.9 |
Others * |  |  | 55,636.0 |  |  |  | 44,552.6 |  |  |  | 590.9 |
Total |  | Rs. | 395,733.0 |  |  | Rs. | 737,352.1 |  |  | US$ | 9,780.5 |

* | Effective April 1, 2018, the Bank adopted ASU 2016-01. The equity securities that were previously reported as AFS securities were reclassified to other assets with carrying value amounting to Rs. 1,267.7 million. Others include equity securities with carrying value amounting to Rs. 11,483.4 million and Rs. 11,611.2 million as at March 31, 2019 and March 31, 2020, respectively. Equity securities include non-marketable equity securities carried at cost Rs. 459.4 million and Rs. 696.9 million as at March 31, 2019 and March 31, 2020, respectively. Unrealized gain \ (loss) recognized in non-interest revenue–other, net Rs 6,717.5 million and Rs. (131.1) million for the fiscal year ended March 31, 2019 and March 31, 2020, respectively.

15. Deposits
Deposits include demand deposits, which are non-interest-bearing, and savings and time deposits, which are interest-bearing. Deposits as of March 31, 2019 and March 31, 2020 were as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Interest-bearing: |  |  |  |  |  |  |  |  |  |  |  |
Savings deposits |  | Rs. | 2,487,001.6 |  |  | Rs. | 3,103,769.5 |  |  | US$ | 41,169.5 |
Time deposits |  |  | 5,317,715.9 |  |  |  | 6,626,711.8 |  |  |  | 87,899.1 |
Total interest-bearing deposits |  |  | 7,804,717.5 |  |  |  | 9,730,481.3 |  |  |  | 129,068.6 |
Non-interest-bearing deposits |  |  | 1,420,309.4 |  |  |  | 1,731,590.0 |  |  |  | 22,968.4 |
Total |  | Rs. | 9,225,026.9 |  |  | Rs. | 11,462,071.3 |  |  | US$ | 152,037.0 |

As of March 31, 2019 and March 31, 2020, time deposits of Rs. 4,570,771.1 million and Rs. 5,233,225.0 million, respectively, had a residual maturity of one year or less. The remaining deposits mature between one and ten years.
As of March 31, 2019 and March 31, 2020, time deposits in excess of Rs.
0.1
million aggregated Rs. 5,145,912.9 million and Rs. 6,397,698.1 million, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of March 31, 20
20
, the scheduled maturities for total time deposits were as follows:

|  | As of March 31, 2020 |
|  | (In millions) |
Due to mature in the fiscal year ending March 31: |  |  |  |  |  |  |  |
2021 |  | Rs. | 5,233,225.0 |  |  | US$ | 69,415.4 |
2022 |  |  | 992,908.7 |  |  |  | 13,170.3 |
2023 |  |  | 251,362.6 |  |  |  | 3,334.2 |
2024 |  |  | 66,752.1 |  |  |  | 885.4 |
2025 |  |  | 49,990.3 |  |  |  | 663.1 |
Thereafter |  |  | 32,473.1 |  |  |  | 430.7 |
Total |  | Rs. | 6,626,711.8 |  |  | US$ | 87,899.1 |

16. 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, 2019 and March 31, 2020 comprised of the following:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Borrowed in the call market |  | Rs. | 9,155.9 |  |  | Rs. | 11,339.8 |  |  | US$ | 150.4 |
Term borrowings from institutions/banks |  |  | 363,921.2 |  |  |  | 73,737.9 |  |  |  | 978.1 |
Foreign currency borrowings |  |  | 280,980.9 |  |  |  | 292,339.9 |  |  |  | 3,877.7 |
Total |  | Rs. | 654,058.0 |  |  | Rs. | 377,417.6 |  |  | US$ | 5,006.2 |
Total borrowings outstanding: |  |  |  |  |  |  |  |  |  |  |  |
Maximum amount outstanding |  | Rs. | 957,026.5 |  |  | Rs. | 971,364.0 |  |  | US$ | 12,884.5 |
Average amount outstanding |  | Rs. | 705,161.6 |  |  | Rs. | 493,786.9 |  |  | US$ | 6,549.8 |
Weighted average interest rate |  |  | 5.3 | % |  |  | 3.2 | % |  |  | 3.2 | %

17. Long-term debt
Long-term debt as of March 31, 2019 and March 31, 2020 comprised of the following:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Subordinated debt |  | Rs. | 211,320.0 |  |  | Rs. | 218,755.0 |  |  | US$ | 2,901.6 |
Others* |  |  | 833,265.2 |  |  |  | 808,222.0 |  |  |  | 10,720.5 |
Less: Debt issuance cost |  |  | (32.2 | ) |  |  | (458.7 | ) |  |  | (6.0 | )
Total |  | Rs. | 1,044,553.0 |  |  | Rs. | 1,026,518.3 |  |  | US$ | 13,616.1 |

* | Includes securities sold under repurchase agreements amounting to Rs. 17,260.0 million (USD 228.9 million ) for the fiscal period ended March 31, 2020 with stated interest rate of 5.15% per annum, under RBI long-term repo operation with a three - year maturity period.

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The below table presents the balance of long-term debt as of March 31, 2019 and March 31, 2020 and the related contractual rates and maturity dates:

|  | As of, |
|  | March 31, 2019 |  |  | March 31, 2020 |
|  | 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) |  |  | 2021-2029 |  |  | 7.56% to 10.20% |  | Rs. | 128,315.8 |  |  |  | 2021-2030 |  |  | 7.56% to 10.20% |  | Rs. | 133,730.8 |  |  | US$ | 1,773.9 |
Perpetual debt |  |  | 2023-2029 |  |  | 8.85% to 9.40% |  |  | 82,997.9 |  |  |  | 2023-2030 |  |  | 8.84% to 9.70% |  |  | 84,972.7 |  |  |  | 1,127.1 |
Others* |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Variable rate—(1) |  |  | 2020-2022 |  |  | 3.30% to 3.88% |  |  | 36,288.8 |  |  |  | 2021-2023 |  |  | 0.80% to 2.87% |  |  | 59,018.7 |  |  |  | 782.8 |
Variable rate—(2) |  |  | 2020-2024 |  |  | 8.25% to 10.05% |  |  | 116,615.2 |  |  |  | 2021-2024 |  |  | 7.50% to 8.95% |  |  | 118,083.8 |  |  |  | 1,566.3 |
Fixed rate—(1) |  |  | 2020-2029 |  |  | 4.60% to 9.56% |  |  | 680,335.3 |  |  |  | 2021-2030 |  |  | 4.15% to 9.56% |  |  | 630,712.3 |  |  |  | 8,366.0 |
Total |  |  |  |  |  |  |  | Rs. | 1,044,553.0 |  |  |  |  |  |  |  |  | Rs. | 1,026,518.3 |  |  | US$ | 13,616.1 |

* | Variable rate (1) represent foreign currency debt. Variable rate debt is typically indexed to LIBOR, T-bill rates, Marginal cost of funds based lending rates (MCLR), among others.

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

|  | As of March 31, 2020 |
|  | (In millions) |
Due in the twelve months ending March 31: |  |  |  |  |  |  |  |
2021 |  |  | Rs. 223,540.8 |  |  | US$ | 2,965.1 |
2022 |  |  | 125,258.5 |  |  |  | 1,661.5 |
2023 |  |  | 192,835.2 |  |  |  | 2,557.8 |
2024 |  |  | 58,948.6 |  |  |  | 781.9 |
2025 |  |  | 60,797.6 |  |  |  | 806.4 |
Thereafter |  |  | 280,164.9 |  |  |  | 3,716.2 |
Total (1) |  |  | Rs. 941,545.6 |  |  | US$ | 12,488.9 |

(1) | The scheduled maturities of long-term debt do not include perpetual bonds of Rs. 84,972.7 million (net of debt issuance cost).

During the fiscal year ended March 31, 2020 the Bank issued subordinated debt amounting to Rs. 5,435.0 million (previous period Rs. 6,000.0 million) and perpetual debt amounting to Rs. 2,000.0 million (previous period Rs. 3,000.0 million). During the fiscal year ended March 31, 2020 the Bank also raised other long-term debt amounting to Rs. 264,669.7 million (previous period Rs. 311,093.6 million).
As of March 31, 2019 and March 31, 2020, other long-term debt includes foreign currency borrowings from other banks aggregating to Rs. 36,305.9 million and Rs. 59,392.3 million, respectively, and functional currency borrowings aggregating to Rs. 796,959.3 million and Rs. 748,829.7 million, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Accrued expenses and other liabilities
Accrued expenses and oth
e
r liabilities include the amounts set forth below:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Bills payable |  |  | Rs. 70,404.0 |  |  |  | Rs. 75,837.2 |  |  | US$ | 1,005.9 |
Remittances in transit |  |  | 41,721.1 |  |  |  | 35,507.3 |  |  |  | 471.0 |
Accrued expenses |  |  | 57,816.9 |  |  |  | 54,898.3 |  |  |  | 728.2 |
Accounts payable |  |  | 88,212.9 |  |  |  | 103,386.2 |  |  |  | 1,371.4 |
Derivatives (refer to note 24) |  |  | 128,449.0 |  |  |  | 184,783.0 |  |  |  | 2,451.0 |
Lease liabilities |  |  | — |  |  |  | 65,615.1 |  |  |  | 870.3 |
Others |  |  | 80,834.7 |  |  |  | 91,300.1 |  |  |  | 1,211.0 |
Total |  |  | Rs.467,438.6 |  |  |  | Rs.611,327.2 |  |  | US$ | 8,108.8 |

The Bank amortizes annual fees on credit cards over the contractual period of the fees. The unamortized annual fees as of March 31, 2019 and March 31, 2020 was Rs. 538.8 million and Rs. 786.8 million (US$ 10.4 million), respectively.
19. Accumulated other comprehensive income
The below table presents the changes in accumulated other comprehensive income (OCI) after income tax for the years ended March 31, 2019 and March 31, 2020.

|  | Available for sale securities |  |  | Foreign currency translation reserve |  |  | Total |
|  | (In millions) |
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 |  |  | 17,105.1 |  |  |  | 663.9 |  |  |  | 17,769.0 |
Amounts reclassified to income |  |  | (1,895.5 | ) |  |  | — |  |  |  | (1,895.5 | )
Balance, March 31, 2019 |  | Rs. | 10,474.3 |  |  | Rs. | 1,334.5 |  |  | Rs. | 11,808.8 |
Balance, March 31, 2019 |  | Rs. | 10,474.3 |  |  | Rs. | 1,334.5 |  |  | Rs. | 11,808.8 |
Net unrealized gain/(loss) arising during the period |  |  | 47,574.2 |  |  |  | 1,771.7 |  |  |  | 49,345.9 |
Amounts reclassified to income |  |  | (8,823.1 | ) |  |  | — |  |  |  | (8,823.1 | )
Balance, March 31, 2020 |  | Rs. | 49,225.4 |  |  | Rs. | 3,106.2 |  |  | Rs. | 52,331.6 |
Balance, March 31, 2020 |  | US$ | 652.9 |  |  | US$ | 41.2 |  |  | US$ | 694.1 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The below table presents the reclassification out of accumulated other comprehensive income (OCI) by income line item and the related income tax effect for periods ended March 31, 2019 and March 31, 2020.

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Available for sale debt securities: |  |  |  |  |  |  |  |  |  |  |  |
Realized (gain)/loss on sales of available for sale debt securities, net |  | Rs. | (3,994.6 | ) |  | Rs. | (22,671.3 | ) |  | US$ | (300.7 | )
Other than temporary impairment losses on available for sale debt securities |  |  | 1,081.0 |  |  |  | 9,109.0 |  |  |  | 120.8 |
Total before income tax |  | Rs. | (2,913.6 | ) |  | Rs. | (13,562.3 | ) |  | US$ | (179.9 | )
Income tax |  |  | 1,018.1 |  |  |  | 4,739.2 |  |  |  | 62.9 |
Net of income tax |  | Rs. | (1,895.5 | ) |  | Rs. | (8,823.1 | ) |  | US$ | (117.0 | )

20. 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 include fees earned from merchant acquiring business and on Credit, Debit, Prepaid
or Forex cards, among others. 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 12 months. Payments business fees includes fees earned from merchants net of interchange expenses paid to issuing banks, rentals from point of sale machines and merchant service charges.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table below presents the fees and commissions disaggregated by revenue source for the fiscal years ended March 31, 2018, March 31, 2019 and March 31, 2020.

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Deposit related fees |  | Rs. | 22,424.9 |  |  | Rs. | 25,383.0 |  |  | Rs. | 29,031.9 |  |  | US$ | 385.1 |
Lending related fees |  |  | 31,791.6 |  |  |  | 30,176.2 |  |  |  | 30,699.9 |  |  |  | 407.2 |
Third-party products related fees |  |  | 20,908.1 |  |  |  | 22,000.4 |  |  |  | 28,169.6 |  |  |  | 373.7 |
Payments and cards business fees |  |  | 34,551.4 |  |  |  | 47,012.4 |  |  |  | 58,899.3 |  |  |  | 781.3 |
Others |  |  | 10,384.9 |  |  |  | 9,583.2 |  |  |  | 13,298.8 |  |  |  | 176.3 |
Fees and commissions |  | Rs. | 120,060.9 |  |  | Rs. | 134,155.2 |  |  | Rs. | 160,099.5 |  |  | US$ | 2,123.6 |

The table below presents the fees and commission disaggregated by segment for the fiscal years ended March 31, 2018, March 31, 2019 and March 31, 2020.

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Retail Banking |  | Rs. | 110,927.2 |  |  | Rs. | 123,070.6 |  |  | Rs. | 146,855.7 |  |  | US$ | 1,947.9 |
Wholesale Banking |  |  | 8,985.0 |  |  |  | 10,839.6 |  |  |  | 13,041.6 |  |  |  | 173.0 |
Treasury Services |  |  | 148.7 |  |  |  | 245.0 |  |  |  | 202.2 |  |  |  | 2.7 |
Fees and commissions |  | Rs. | 120,060.9 |  |  | Rs. | 134,155.2 |  |  | Rs. | 160,099.5 |  |  | US$ | 2,123.6 |

21. Income taxes
Income tax expense is comprised of the following:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Current tax expense |  | Rs. | 108,676.0 |  |  | Rs. | 128,050.2 |  |  | Rs. | 105,587.8 |  |  | US$ | 1,400.6 |
Deferred tax (benefit) expense |  |  | (10,403.5 | ) |  |  | (8,129.4 | ) |  |  | (101.2 | ) |  |  | (1.3 | )
Interest on income tax refund |  |  | — |  |  |  | (527.3 | ) |  |  | (6.6 | ) |  |  | (0.2 | )
Income tax expense |  | Rs. | 98,272.5 |  |  | Rs. | 119,393.5 |  |  | Rs. | 105,480.0 |  |  | US$ | 1,399.1 |

Income before income tax expense and income tax expense are substantially all from India.
On December 12, 2019,
the
India Taxation Laws (Amendment) Act, 2019, was promulgated, which provided domestic companies with an option to pay income tax at the rate of 22 percent (
previously
30 percent)
,
provided they do not claim certain deductions under the Income Tax Act with effect from the financial year 2019-20 (i
.
e.
,
assessment year 2020-21). The bank intends to elect to be subject to the 22 percent rate (25.17% including surcharge and education cess). The Bank has accounted for the effect of this change in the income tax rate using reasonable estimates based on currently available information and its interpretations thereof.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is the reconciliation of income taxes at the Indian statutory income tax rate to income tax expense as reported:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Income before income tax expense |  | Rs. | 277,106.4 |  |  | Rs. | 339,959.0 |  |  | Rs. | 365,844.0 |  |  | US$ | 4,852.8 |
Statutory income tax rate |  |  | 34.61 | % |  |  | 34.94 | % |  |  | 25.17 | % |  |  | 25.17 | %
Expected income tax expense |  |  | 95,901.0 |  |  |  | 118,795.3 |  |  |  | 92,075.6 |  |  |  | 1,221.3 |
Adjustments to reconcile expected income tax to actual tax expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest on income tax refund |  |  | — |  |  |  | (343.0 | ) |  |  | (4.9 | ) |  |  | (0.1 | )
Stock-based compensation |  |  | 2,282.3 |  |  |  | 1,867.2 |  |  |  | 1,881.6 |  |  |  | 25.0 |
Income exempt from taxes |  |  | (524.8 | ) |  |  | (1,422.8 | ) |  |  | (744.2 | ) |  |  | (9.9 | )
Effect of change in statutory income tax rate |  |  | (209.2 | ) |  |  | — |  |  |  | 11,213.2 |  |  |  | 148.7 |
Others, net |  |  | 823.2 |  |  |  | 496.8 |  |  |  | 1,058.7 |  |  |  | 14.1 |
Income tax expense |  | Rs. | 98,272.5 |  |  | Rs. | 119,393.5 |  |  | Rs. | 105,480.0 |  |  | US$ | 1,399.1 |

The tax effects of significant temporary differences are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Tax effect of: |  |  |  |  |  |  |  |  |  |  |  |
Deductible temporary differences: |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses |  | Rs. | 39,604.8 |  |  | Rs. | 37,561.2 |  |  | US$ | 498.2 |
Lease liabilities |  |  | — |  |  |  | 16,514.0 |  |  |  | 219.0 |
Employee benefits |  |  | 2,063.1 |  |  |  | 1,415.0 |  |  |  | 18.8 |
Accrued expenses and other liabilities |  |  | 4,310.4 |  |  |  | 3,381.2 |  |  |  | 44.8 |
Others |  |  | 1,874.4 |  |  |  | 1,769.4 |  |  |  | 23.5 |
Deferred tax asset |  |  | 47,852.7 |  |  |  | 60,640.8 |  |  |  | 804.3 |
Taxable temporary differences: |  |  |  |  |  |  |  |  |  |  |  |
Right-of-use assets |  |  | — |  |  |  | 16,514.0 |  |  |  | 219.0 |
Unrealized gain on securities available for sale |  |  | 5,680.2 |  |  |  | 16,644.6 |  |  |  | 220.8 |
Loan origination cost and fees |  |  | 5,606.3 |  |  |  | 3,373.3 |  |  |  | 44.7 |
Investments, others |  |  | 2,677.0 |  |  |  | 1,510.2 |  |  |  | 20.0 |
Deferred tax liability |  |  | 13,963.5 |  |  |  | 38,042.1 |  |  |  | 504.5 |
Net deferred tax asset (liability) |  | Rs. | 33,889.2 |  |  | Rs. | 22,598.7 |  |  | US$ | 299.8 |

Management believes that the realization of the recognized deferred tax assets is more likely than not and the realization is based on a combination of reversing taxable temporary differences and expectations as to future pretax income.
The total unrecognized tax benefit as of March 31, 2019 and March 31, 2020 is Rs. 14,448.1 million and Rs. 37,103.2 million, respectively. The major income tax jurisdiction for the Bank is India. The open tax years (first assessment by the tax authorities) is pending from fiscal 2018 onwards. However, appeals filed by the Bank are pending with various local tax authorities in India for earlier tax years.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the beginning and ending b
a
lance of unrecognized tax benefits is as follows:

|  | Fiscal year ended March 31, |
|  | 2019 |  |  | 2020 |  |  | 202 0 |
|  | (In millions) |
Opening balance |  | Rs. | 648.3 |  |  | Rs. | 14,448.1 |  |  | US$ | 191.6 |
Increase related to prior year tax positions |  |  | 13,799.8 |  |  |  | 16,274.4 |  |  |  | 215.9 |
Increase related to current year tax positions |  |  | Rs. — |  |  | Rs. | 6,380.7 |  |  | US$ | 84.6 |
Closing balance |  | Rs. | 14,448.1 |  |  | Rs. | 37,103.2 |  |  | US$ | 492.1 |

The Bank’s total unrecognized tax benefits, if recognized, would reduce the income tax expense by Rs. 37,103.2
million as of March 31, 2020 and thereby would affect the Bank’s effective tax rate. There is no tax liability relating to the above unrecognized tax benefits.
Significant changes in the amount of unrecognized tax benefits within the next 12 months cannot be reasonably estimated as the changes would depend upon the progress of tax examinations with various tax authorities.
22. Stock-based compensation
By way of an ordinary resolution on July 12, 2019, the shareholders of the Bank approved a subdivision (stock split) of the Bank’s equity shares to reduce the face value of each equity share from
Rs. 2.0 to Rs. 1.0
per
equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to 5,470,763,894 shares of par value Rs. 1.0 each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three equity shares.
The stock-based compensation plans of the Bank are as follows:
Employees Stock Option Scheme(ESOP):
The shareholders of the Bank approved in January 2000 Plan “A”, in June 2003 Plan “B”, in June 2005 Plan “C”, in June 2007 Plan “D”, in June 2010 Plan “E”, in June 2013 Plan “F”, in July 2016 Plan “G” of the Employees’ Stock Option Scheme (the “Plan”). The Bank reserved 100.0 million equity shares, with an aggregate nominal value of Rs.100.0 million, for issuance under each Plan “A”, “B” and “C”. Under Plan “D” the Bank reserved 150.0 million equity shares with an aggregate nominal value of Rs.150.0 million. The Bank reserved 200.0 million equity shares with an aggregate nominal value of Rs. 200.0 million, for issuance under each Plan “E”, “F” and “G”. Under the terms of each of these Plans, the Bank may issue stock options to employees and whole time directors of the Bank, each of which is convertible into one equity share.
Plan A provides for the issuance of options at the recommendation of the Nomination and Remuneration Committee of the Board (the “NRC”) at an average of the daily closing prices on the BSE Limited during the 60 days preceding the date of grant of options, which was the minimum prescribed option price under regulations then issued by the Securities and Exchange Board of India (“SEBI”). Presently, there are no stock options issued and outstanding under Plan A.
Plan B, Plan C, Plan D, Plan E, Plan F and Plan G provide for the issuance of options at the recommendation of the NRC at the closing price on the working day immediately preceding the date when options are granted. For Plan B the price is that quoted on an Indian stock exchange with the highest trading volume during the preceding two weeks, while for Plan C, Plan D, Plan E, Plan F and Plan G, the price is that quoted on an Indian stock exchange with the highest trading volume as of the working day preceding the date of grant. Presently, there are no stock options issued and outstanding under Plan B.
Such options vest at the discretion of the NRC. These options are exercisable for a period following vesting at the discretion of the NRC, subject to a maximum of five years, as set forth at the time of the grant.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On September 1, 2018, September 29, 2018 and February 2, 2019 the Nomination and Remuneration Committee of the Board approved, under Plan G, the grant of 38,238,000 options (Scheme XXIX), the grant of 880,000 options (Scheme XXX) and the grant of 672,000 options (Scheme XXXI), respectively, to the employees of the Bank. On August 3, 2019 the Nomination and Remuneration Committee of the Board approved, under Plan G, the grant of 578,000 options (Scheme XXXII) to the employees of the Bank. On October 19, 2019 the Nomination and Remuneration Committee of the Board approved, under Plan G, the grant of 46,175,200 options (Scheme XXXIII) to the employees of the Bank. On March 21, 2020 the Nomination and Remuneration Committee of the Board approved, under Plan G, the grant of 1,020,400 options (Scheme XXXIV) to the employees of the Bank.
Modification of employee stock option schemes
During the periods ended March 31, 2018, March 31, 2019 and March 31, 2020, there were no modifications to employee stock option schemes.
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:

|  | Years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
Dividend yield |  |  | 0.65%-0.66% |  |  |  | 0.62%-0.65% |  |  |  | 0.61%-0.85% |
Expected volatility |  |  | 19.94%-21.65% |  |  |  | 14.53%-18.68% |  |  |  | 15.30%-20.13% |
Risk-free interest rate |  |  | 6.73%-7.20% |  |  |  | 7.23%-8.31% |  |  |  | 5.81%-6.70% |
Expected term (in years) |  |  | 4.66-6.06 |  |  |  | 2.78-5.16 |  |  |  | 2.82-5.42 |

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 year ending March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
Options available to be granted, beginning of period |  |  | 267,347,300 |  |  |  | 235,683,200 |  |  |  | 202,413,370 |
Equity shares allocated for grant under the plan |  |  | — |  |  |  | — |  |  |  | — |
Options granted |  |  | (33,764,100 | ) |  |  | (39,790,000 | ) |  |  | (47,773,600 | )
Forfeited/lapsed |  |  | 2,100,000 |  |  |  | 6,520,170 |  |  |  | 4,847,580 |
Options available to be granted, end of period |  |  | 235,683,200 |  |  |  | 202,413,370 |  |  |  | 159,487,350 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Activity in the options outstanding under the Employee Stock Option Scheme is as follows:

|  | Years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Options |  |  | Weighted average exercise price |  |  | Options |  |  | Weighted average exercise price |  |  | Options |  |  | Weighted average exercise price |
Options outstanding, beginning of period |  |  | 184,312,600 |  |  | Rs. | 452.48 |  |  |  | 150,887,600 |  |  | Rs. | 525.11 |  |  |  | 136,612,822 |  |  | Rs. | 682.99 |
Granted |  |  | 33,764,100 |  |  |  | 716.61 |  |  |  | 39,790,000 |  |  |  | 1,030.24 |  |  |  | 47,773,600 |  |  |  | 1,220.13 |
Exercised |  |  | (65,089,100 | ) |  |  | 418.80 |  |  |  | (47,544,608 | ) |  |  | 462.89 |  |  |  | (36,673,240 | ) |  |  | 504.10 |
Forfeited |  |  | (1,973,600 | ) |  |  | 527.80 |  |  |  | (6,410,770 | ) |  |  | 759.21 |  |  |  | (4,813,580 | ) |  |  | 965.64 |
Lapsed |  |  | (126,400 | ) |  |  | 481.72 |  |  |  | (109,400 | ) |  |  | 418.55 |  |  |  | (34,000 | ) |  |  | 568.10 |
Options outstanding, end of period |  |  | 150,887,600 |  |  | Rs. | 525.11 |  |  |  | 136,612,822 |  |  | Rs. | 682.99 |  |  |  | 142,865,602 |  |  | Rs. | 899.03 |
Options exercisable, end of period |  |  | 93,620,500 |  |  | Rs. | 450.72 |  |  |  | 80,609,722 |  |  | Rs. | 508.89 |  |  |  | 64,464,392 |  |  | Rs. | 638.18 |
Weighted average fair value of options granted during the year |  |  |  |  |  | Rs. | 232.09 |  |  |  |  |  |  | Rs. | 262.79 |  |  |  |  |  |  | Rs. | 305.78 |

The following summarizes information about stock options outstanding as of March 31, 2020:

|  |  |  | As of March 31, 2020 |
Plan |  | Range of exercise price |  | Number of shares arising out of options |  |  | Weighted average remaining life (years) |  |  | Weighted average exercise price |
Plan C |  | Rs.340.00 to Rs.417.75 (or US$ 4.51 to US$ 5.54) |  |  | 485,100 |  |  |  | 0.34 |  |  |  | 344.05 |
Plan D |  | Rs.340.00 (or US$ 5.51) |  |  | 345,900 |  |  |  | 0.30 |  |  |  | 340.00 |
Plan E |  | Rs.340.00 (or US$ 5.51) |  |  | 1,705,500 |  |  |  | 0.30 |  |  |  | 340.00 |
Plan F |  | Rs.417.75 to Rs. 731.08 (or US$ 5.54 to US$ 9.70) |  |  | 58,568,822 |  |  |  | 2.02 |  |  |  | 587.08 |
Plan G |  | Rs.882.85 to Rs. 1,229.00 (or US$ 11.71 to US$ 16.30) |  |  | 81,760,280 |  |  |  | 3.45 |  |  |  | 1,139.82 |

The intrinsic value, of options exercised during the years ended March 31, 2018, March 31, 2019 and March 31, 2020 at grant date was Rs. 28.8 million, nil and nil, respectively, and at exercise date was Rs. 34,123.2 million, Rs. 33,117.4 million and Rs. 13,339.6 million, respectively. The aggregate intrinsic value as of grant date and as at March 31, 2020 attributable to options which are outstanding as on March 31, 2020 was Rs. 0.5 million (previous year Rs. 0.6 million) and Rs. 17,418.0 million (previous year Rs. 65,091.1 million), respectively. The aggregate intrinsic value as at grant date and as at March 31, 2020 attributable to options exercisable as on March 31, 2020 was Rs. 0.4 million (previous year 0.2 million) and was Rs. 16,291.8 million (previous year Rs. 52,441.6 million), respectively. Total stock compensation cost recognized under these plans was Rs. 6,594.6 million, Rs. 5,343.3 million and Rs. 7,476.1 million during the years ended March 31, 2018, March 31, 2019 and March 31, 2020, respectively. As of March 31, 2020, there were 78,401,210 (previous year 56,003,100) unvested options with weighted average exercise price of Rs. 1,113.5 (previous year Rs. 933.6) and aggregate intrinsic value at grant date and as at March 31, 2020 was Rs. 0.2 million (previous year Rs. 0.3 million) and Rs.1,126.2 million (previous year Rs. 12,649.5 million), respectively. As at March 31, 2020, the total estimated compensation cost to be recognized in future periods was Rs.13,294.0 million (previous year Rs. 7,065.9 million). This is expected to be recognized over a weighted average period of 1.21 years.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
23. Retirement benefits
Gratuity
In accordance with Indian law, the Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement, resignation, death while in employment or on termination of employment in an amount equivalent to 15 days’ eligible salary payable for each completed year of service. Vesting occurs upon completion of five years of service. The Bank makes annual contributions to funds administered by trustees and managed by insurance companies for amounts notified by said insurance companies, and in respect of certain employees, the Bank makes contributions to a fund set up for the purpose and administered by the board of trustees. The contributions are invested in specific designated instruments as permitted by Indian law. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on an actuarial valuation done on March 31 of every year.
The following table sets out the funded status of the gratuity plan and the amounts recognized in the Bank’s financial statements as of March 31, 2019 and March 31, 2020:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Change in benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |
Projected benefit obligation (“PBO”), beginning of the period |  | Rs. | 5,975.5 |  |  | Rs. | 6,653.5 |  |  | US$ | 88.3 |
Service cost |  |  | 820.6 |  |  |  | 965.4 |  |  |  | 12.8 |
Interest cost |  |  | 476.7 |  |  |  | 483.3 |  |  |  | 6.4 |
Actuarial(gains)/ losses |  |  | (46.4 | ) |  |  | 368.9 |  |  |  | 4.9 |
Benefits paid |  |  | (572.9 | ) |  |  | (588.1 | ) |  |  | (7.8 | )
Projected benefit obligation, end of the period |  |  | 6,653.5 |  |  |  | 7,883.0 |  |  |  | 104.6 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of the period |  |  | 4,573.4 |  |  |  | 5,501.8 |  |  |  | 73.0 |
Expected return on plan assets |  |  | 347.4 |  |  |  | 389.9 |  |  |  | 5.2 |
Actuarial gains/(losses) |  |  | 130.2 |  |  |  | (620.5 | ) |  |  | (8.2 | )
Actual return on plan assets |  |  | 477.6 |  |  |  | (230.6 | ) |  |  | (3.0 | )
Employer contributions |  |  | 1,023.7 |  |  |  | 1,096.7 |  |  |  | 14.5 |
Benefits paid |  |  | (572.9 | ) |  |  | (588.1 | ) |  |  | (7.8 | )
Fair value of plan assets, end of the period |  |  | 5,501.8 |  |  |  | 5,779.8 |  |  |  | 76.7 |
Funded Status |  | Rs. | (1,151.7 | ) |  | Rs. | (2,103.2 | ) |  | US$ | (27.9 | )

The Bank’s expected contribution to the gratuity fund for the next fiscal year is estimated at Rs. 1,960.6 million. The accumulated benefit obligation as of March 31, 2019 and March 31, 2020 was Rs. 3,777.3 million and Rs. 5,005.9 million, respectively. The vested accumulated benefit obligation as on March 31, 2019 and March 31, 2020 was Rs. 3,292.4 million and Rs. 4,381.2 million, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net gratuity cost for the years ended March 31, 2018, March 31, 2019 and March 31, 2020 was comprised of the following components:

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Service cost |  | Rs. | 741.0 |  |  | Rs. | 820.6 |  |  | Rs. | 965.4 |  |  | US$ | 12.8 |
Interest cost |  |  | 392.2 |  |  |  | 476.7 |  |  |  | 483.3 |  |  |  | 6.4 |
Expected return on plan assets |  |  | (297.4 | ) |  |  | (347.4 | ) |  |  | (389.9 | ) |  |  | (5.2 | )
Actuarial (gains)/losses |  |  | 85.1 |  |  |  | (176.6 | ) |  |  | 989.4 |  |  |  | 13.1 |
Net gratuity cost* |  | Rs. | 920.9 |  |  | Rs. | 773.3 |  |  | Rs. | 2,048.2 |  |  | US$ | 27.1 |

* | Effective April 1, 2018, the Bank adopted ASU 2017-07 Compensation- Retirement Benefits (Topic 715) -Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Accordingly, service cost is reported in the Consolidated Statements of Income in line Non-interest expense-salaries and staff benefits and other components of net benefit cost is reported in the Consolidated Statements of Income in line Non-interest expense –Administrative and other. The amendments have been applied retrospectively.

The assumptions used in accounting for the gratuity plan are set out below:

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (% per annum) |
Discount rate* |  |  | 7.4-8.0 |  |  |  | 7.2-8.4 |  |  |  | 6.0-7.5 |
Rate of increase in compensation levels of covered employees |  |  | 5.0-11.0 |  |  |  | 5.0-9.0 |  |  |  | 7.0-8.0 |
Rate of return on plan assets |  |  | 7.0-8.0 |  |  |  | 7.0-7.2 |  |  |  | 6.0-7.0 |
Mortality rates used are based on the published “Indian Assured Lives Mortality (2012-2014) Ultimate” table |  |  |  |  |  |  |  |  |  |  |  |

* | Weighted average assumptions used to determine both benefit obligations and net periodic benefit cost.

The rate of return on plan assets is based on historical returns, the current market conditions, anticipated future assets allocation and expected future returns. The rate of return on plan assets represents a long-term average view of the expected return.
The following benefit payments, which includes benefits attributable to expected future service, as appropriate, are expected to be paid.

Year ending March 31, |  | Benefit payments |
|  | (In millions) |
2021 |  | Rs. | 969.5 |
2022 |  |  | 784.2 |
2023 |  |  | 679.2 |
2024 |  |  | 602.3 |
2025 |  |  | 538.1 |
2026 - 2030 |  |  | 2,352.8 |

The expected benefit payments are based on the same assumptions used to measure the Bank’s benefit obligations as of March 31, 2020.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The gratuity contributions of the Bank which are administered by a trust set up for the purpose are managed by two insurance companies and in respect of certain employees the funds are invested by the trust set up for the said purpose. The overall asset allocation of the gratuity fund by the two insurance companies is structured so as to provide stable earnings while still allowing for potentially higher returns through an investment in equity securities. As at March 31, 2020, the plan assets as a percentage of the total funds were as follows:

|  | As of March 31, 2020 |
|  | Funds managed by insurance company (1)* |  |  | Funds managed by insurance company (2)* |  |  | Funds managed by trust |
Government securities |  |  | 81.2 | % |  |  | 17.8 | % |  |  | 37.5 | %
Debenture and bonds |  |  | 13.8 | % |  |  | 32.0 | % |  |  | 38.2 | %
Equity securities |  |  | 4.9 | % |  |  | 48.1 | % |  |  | — |
Other |  |  | 0.1 | % |  |  | 2.1 | % |  |  | 24.3 | %
Total |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %

* | The data pertaining to plan investment assets measured at fair value by level and total at March 31, 2020 are provided separately.

Pension
In respect of pensions payable to certain erstwhile CBoP employees, which are payable pursuant to a defined benefit scheme, the Bank contributes 10% of basic salary to a pension fund set up by the Bank and administered by the board of trustees and the balance amount is provided based on an actuarial valuation at the balance sheet date conducted by an independent actuary. In respect of employees who have moved to a cost to company (CTC) driven compensation structure and have completed services up to 15 years as on the date of movement to a CTC driven compensation structure, any contribution made until such date, and any additional one-time contribution made for employees (who have completed more than 10 years but less than 15 years) stand frozen and will be converted into an annuity on separation after a lock-in-period of two years. Hence for this category of employees, liability stands frozen and no additional provision is required except for interest, if any. In respect of employees who accepted the offer and have completed services for more than 15 years, the pension would be paid based on the employee’s salary as of the date of movement to a CTC driven compensation structure and a provision is made based on an actuarial valuation at the balance sheet date conducted by an independent actuary.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets out the funded status of the pension plan and the amounts recognized in the Bank’s financial statements as of March 31, 2019 and March 31, 2020:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Change in benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |
Projected benefit obligation (“PBO”), beginning of the period |  | Rs. | 722.8 |  |  | Rs. | 677.6 |  |  | US$ | 9.0 |
Service cost |  |  | 7.7 |  |  |  | 6.5 |  |  |  | 0.1 |
Interest cost |  |  | 66.3 |  |  |  | 45.3 |  |  |  | 0.6 |
Actuarial (gains)/losses |  |  | 6.5 |  |  |  | 15.3 |  |  |  | 0.2 |
Benefits paid |  |  | (125.7 | ) |  |  | (146.5 | ) |  |  | (1.9 | )
Projected benefit obligation, end of the period |  |  | 677.6 |  |  |  | 598.2 |  |  |  | 8.0 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of the period |  |  | 313.0 |  |  |  | 219.5 |  |  |  | 2.9 |
Expected return on plan assets |  |  | 18.6 |  |  |  | 11.0 |  |  |  | 0.1 |
Actuarial gains/(losses) |  |  | 4.8 |  |  |  | 2.9 |  |  |  | — |
Actual return on plan assets |  |  | 23.4 |  |  |  | 13.9 |  |  |  | 0.1 |
Employer contributions |  |  | 8.8 |  |  |  | 8.3 |  |  |  | 0.1 |
Benefits paid |  |  | (125.7 | ) |  |  | (146.5 | ) |  |  | (1.9 | )
Fair value of plan assets, end of the period |  |  | 219.5 |  |  |  | 95.2 |  |  |  | 1.2 |
Funded Status |  | Rs. | (458.1 | ) |  | Rs. | (503.0 | ) |  | US$ | (6.8 | )

The Bank’s expected contribution to the pension fund for the next fiscal year is estimated at Rs. 129.7 million. The accumulated benefit obligation as of March 31, 2019 and March 31, 2020 was Rs. 468.3 million and Rs. 387.0 million, respectively. The vested accumulated benefit obligation as of March 31, 2019 and March 31, 2020 was Rs. 455.5 million and Rs. 241.3 million, respectively.
Net pension cost for the years ended March 31, 2018, March 31, 2019 and March 31, 2020 was comprised of the following components:

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Service cost |  | Rs. | 7.6 |  |  | Rs. | 7.7 |  |  | Rs. | 6.5 |  |  | US$ | 0.1 |
Interest cost |  |  | 57.9 |  |  |  | 66.3 |  |  |  | 45.3 |  |  |  | 0.6 |
Expected return on plan assets |  |  | (23.6 | ) |  |  | (18.6 | ) |  |  | (11.0 | ) |  |  | (0.1 | )
Actuarial (gains)/losses |  |  | 16.7 |  |  |  | 1.7 |  |  |  | 12.4 |  |  |  | 0.2 |
Net pension cost* |  | Rs. | 58.6 |  |  | Rs. | 57.1 |  |  | Rs. | 53.2 |  |  | US$ | 0.8 |

* | Effective April 1, 2018, the Bank adopted ASU 2017-07 Compensation- Retirement Benefits (Topic 715) -Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Accordingly, service cost is reported in the Consolidated Statements of Income in line Non-interest expense-salaries and staff benefits and other components of net benefit cost is reported in the Consolidated Statements of Income in line Non-interest expense –Administrative and other. The amendments have been applied retrospectively.

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The assumptions used in accounting for the pension plan are set out below:

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | (% per annum) |
Discount rate* |  |  | 8.0 |  |  |  | 8.4 |  |  |  | 7.5 |
Rate of increase in compensation levels of covered employees |  |  | 8.0 |  |  |  | 8.0 |  |  |  | 7.0 |
Rate of return on plan assets |  |  | 7.0 |  |  |  | 7.0 |  |  |  | 7.0 |
Mortality rates used are based on the published “Indian Assured Lives Mortality (2012-2014) Ultimate” table |

* | Weighted average assumptions used to determine both benefit obligations and net periodic benefit cost.

The following benefit payments, which include benefits attributable to expected future service, as appropriate, are expected to be paid.

Year ending March 31, |  | Benefit payments |
|  | (In millions) |
2021 |  | Rs. | 46.6 |
2022 |  |  | 43.7 |
2023 |  |  | 14.1 |
2024 |  |  | 21.3 |
2025 |  |  | 18.1 |
2026-2030 |  |  | 102.3 |

The expected benefits are based on the same assumptions used to measure the Bank’s benefit obligations as of March 31, 2020.
The retirement funds of a section of the employees are managed by a trust set up for the purpose. The trust essentially manages the defined retirement benefit plans belonging to certain employees. The funds are mainly invested in government securities and other corporate bonds. The weighted-average asset allocation of the said plan assets for the pension benefits as at March 31, 2020 is as follows:

Asset category |  | Funds managed by trust |
Government securities |  |  | 20.8 | %
Debenture and bonds |  |  | 17.1 | %
Other |  |  | 62.1 | %
Total |  |  | 100.0 | %

For information on fair value measurements, including descriptions of Levels 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Bank, see note 3
1
– Fair value measurements.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Plan investment assets for gratuity funds and the pension fund measured at fair value by level and in total as of March 31, 2019 and March 31, 2020 are summarized in the table below.

|  | As of March 31, 2019 |  |  | As of March 31, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (In millions) |
Funds managed by insurance company (1) |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 625.0 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 600.2 |
Funds managed by insurance company (2) |  |  | — |  |  |  | 4,632.5 |  |  |  | — |  |  |  | — |  |  |  | 4,937.3 |  |  |  | — |
Funds managed by trust |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
— Government securities |  |  | — |  |  |  | 106.6 |  |  |  | — |  |  |  | — |  |  |  | 110.8 |  |  |  | — |
— Debenture and bonds |  |  | — |  |  |  | 320.1 |  |  |  | — |  |  |  | — |  |  |  | 108.7 |  |  |  | — |
— Others |  |  | 37.1 |  |  |  | — |  |  |  | — |  |  |  | 118.0 |  |  |  | — |  |  |  | — |
Total |  | Rs. | 37.1 |  |  | Rs. | 5,059.2 |  |  | Rs. | 625.0 |  |  | Rs. | 118.0 |  |  | Rs. | 5,156.8 |  |  | Rs. | 600.2 |
|  |  |  |  |  |  |  |  |  |  |  |  |  | US$ | 1.6 |  |  | US$ | 68.4 |  |  | US$ | 8.0 |

The table below presents a reconciliation of all Plan investment assets measured at fair value using significant unobservable inputs (Level 3) during fiscal 2019 and 2020.

|  | Funds managed by Insurance companies as of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Particulars |  |  |  |  |  |  |  |  |  |  |  |
Opening balance |  | Rs. | 519.9 |  |  | Rs. | 625.0 |  |  | US$ | 8.3 |
Realized interest credited to fund |  |  | 36.7 |  |  |  | 48.0 |  |  |  | 0.6 |
Contribution during the period |  |  | 88.6 |  |  |  | 89.5 |  |  |  | 1.2 |
Amount paid towards claim |  |  | (20.2 | ) |  |  | (162.3 | ) |  |  | (2.1 | )
Closing balance |  | Rs. | 625.0 |  |  | Rs. | 600.2 |  |  | US$ | 8.0 |

Superannuation
Eligible employees of the Bank are entitled to receive retirement benefits under the Bank’s superannuation fund. The superannuation fund is a defined contribution plan under which the Bank annually contributes a sum equivalent to 13% of the employee’s eligible annual salary (15% for the Managing Director, Executive Directors and for certain employees of CBoP) to the insurance companies in India, which administers the fund. The Bank has no liability for future superannuation fund benefits other than its annual contribution, and recognizes such contributions as an expense in the year incurred. The Bank contributed Rs. 676.8 million, Rs. 1,034.1 million and Rs. 1,269.9 million to the superannuation plan for the years ended March 31, 2018, March 31, 2019 and March 31, 2020, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Provident fund
In accordance with Indian law, eligible employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a determined rate (currently 12% of an employee’s eligible salary). These contributions are made to a fund set up by the Bank and administered by a board of trustees, except that out of the employer’s contribution, an amount equal to 8.33% of the lower of employee’s monthly eligible salary or Rs. 0.015 million, is contributed by the Bank to the Pension Scheme administered by the Regional Provident Fund Commissioner. Employees are credited with interest, which is subject to a government specified minimum rate. The Bank has no liability for future provident fund benefits other than its annual contribution and the shortfall, if any, between the government specified minimum rate and the yield on the fund’s assets, and recognizes such contributions as an expense in the year incurred. The amount contributed being Rs. 3,081.4 million, Rs. 3,312.1 million and Rs. 4,901.4 million to the Provident Fund Trust and Regional Provident Fund Commissioner for the years ended March 31, 2018, March 31, 2019 and March 31, 2020, respectively. The Hon’ble Supreme Court of India issued an order dated February 28, 2019 relating to employer’s contribution to the provident fund under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. Based on external legal opinion, the Bank has concluded the abovementioned order is applicable prospectively and hence it is not probable that there will be an outflow of resources in relation to past periods. From April 1, 2019, the employer’s contribution by the Bank to the provident fund under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
w
as made in accordance with the terms of the said order.
National Pension Scheme
In respect of employees who opt for contribution to the National Pension Scheme, the Bank contributes a certain percentage of the basic salary of employees to the aforesaid scheme, a defined contribution plan, which is managed and administered by pension fund management companies. The Bank has no liability other than its contribution, and recognizes such contributions as an expense in the year incurred. The amount contributed being Rs. 32.7 million and Rs. 37.9 million to the National Pension Scheme for the fiscal years ended March 31, 2019 and March 31, 2020, respectively.
Compensated absences
The Bank has provided for unutilized leave balances as on March 31, 2020 standing to the credit of each employee on an actuarial valuation conducted by an independent actuary.
24. 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 principal amount at maturity based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating rate interest cash flows. A forward rate agreement gives the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date) when the settlement amount is determined being the difference between the contracted rate and the market rate on the settlement date. Currency options give the buyer the right, but not an obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date.
The market and credit risk associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. Market risk is the exposure created by movements in interest rates and exchange rates during the tenure of the transaction. The extent of market risk affecting such transactions depends on the type and nature of the transaction, the value of the transaction and the extent to which the transaction is uncovered. Credit risk is the exposure to loss in the event of default by counterparties. The extent of loss on account of a counterparty default will depend on the replacement value of the contract at the ongoing market rates.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank uses its pricing models to determine fair values of its derivative financial instruments. The Bank records credit risk valuation adjustments on derivative financial instruments in order to reflect the credit quality of the counterparties and its own credit quality. The Bank calculates valuation adjustments on derivatives based on observable market credit risk spreads.
The following table presents the aggregate notional principal amounts of the Bank’s outstanding forward exchange and other derivative contracts as of March 31, 2019 and March 31, 2020, together with the fair values on each reporting date.

|  | As of March 31, 2019 |
|  | Notional |  |  | Gross Assets |  |  | Gross Liabilities |  |  | Net Fair Value |
Interest rate derivatives |  | Rs. | 3,159,867.1 |  |  | Rs. | 27,932.0 |  |  | Rs. | 27,102.8 |  |  | Rs. | 829.2 |
Forward rate agreements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Currency options |  |  | 282,096.9 |  |  |  | 2,326.1 |  |  |  | 2,617.2 |  |  |  | (291.1 | )
Currency swaps |  |  | 197,044.2 |  |  |  | 5,841.0 |  |  |  | 4,070.7 |  |  |  | 1,770.3 |
Forward exchange contracts |  |  | 5,561,859.5 |  |  |  | 96,425.0 |  |  |  | 94,658.3 |  |  |  | 1,766.7 |
Total |  | Rs. | 9,200,867.7 |  |  | Rs. | 132,524.1 |  |  | Rs. | 128,449.0 |  |  | Rs. | 4,075.1 |

|  | As of March 31, 2020 |
|  | Notional |  |  | Gross Assets |  |  | Gross Liabilities |  |  | Net Fair Value |  |  | Notional |  |  | Net Fair Value |
|  | (In millions) |
Interest rate derivatives |  | Rs. | 3,644,495.8 |  |  | Rs. | 49,876.8 |  |  | Rs. | 51,976.9 |  |  | Rs. | (2,100.1 | ) |  | US$ | 48,341.9 |  |  | US$ | (27.9 | )
Forward rate agreements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Currency options |  |  | 304,252.4 |  |  |  | 3,034.4 |  |  |  | 4,342.0 |  |  |  | (1,307.6 | ) |  |  | 4,035.7 |  |  |  | (17.3 | )
Currency swaps |  |  | 202,725.6 |  |  |  | 12,396.0 |  |  |  | 6,592.1 |  |  |  | 5,803.9 |  |  |  | 2,689.0 |  |  |  | 77.0 |
Forward exchange contracts |  |  | 6,079,195.0 |  |  |  | 125,230.4 |  |  |  | 121,872.0 |  |  |  | 3,358.4 |  |  |  | 80,636.6 |  |  |  | 44.6 |
Total |  | Rs. | 10,230,668.8 |  |  | Rs. | 190,537.6 |  |  | Rs. | 184,783.0 |  |  | Rs. | 5,754.6 |  |  | US$ | 135,703.2 |  |  | US$ | 76.4 |

The Bank has not designated the above contracts as accounting hedges and accordingly the contracts are recorded at fair value on the balance sheet with changes in fair value recorded in net income. The gross assets and the gross liabilities are recorded in ‘other assets’ and ‘accrued expenses and other liabilities’, respectively.
The following table summarizes certain information related to derivative amounts recognized in income:

|  | Non-interest revenue, net – Derivatives for the years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Interest rate derivatives |  | Rs. | 1,027.5 |  |  | Rs. | 736.4 |  |  | Rs. | (2,572.2 | ) |  | US$ | (34.1 | )
Forward rate agreements |  |  | 0.5 |  |  |  | 0.1 |  |  |  | — |  |  |  | — |
Currency options |  |  | (15.0 | ) |  |  | (262.5 | ) |  |  | 585.5 |  |  |  | 7.7 |
Currency swaps |  |  | (1,706.9 | ) |  |  | 1,045.0 |  |  |  | 3,465.5 |  |  |  | 46.0 |
Forward exchange contracts |  |  | 7,436.5 |  |  |  | 10,890.1 |  |  |  | 2,071.2 |  |  |  | 27.5 |
Total gains/(losses) |  | Rs. | 6,742.6 |  |  | Rs. | 12,409.1 |  |  | Rs. | 3,550.0 |  |  | US$ | 47.1 |

Offsetting
The following table shows the impact of netting arrangements on derivative financial instruments, repurchase and reverse repurchase agreements that are subject to enforceable master netting arrangements or similar agreements, but are not offset in accordance with ASC 210-20-45 and ASC
815-10-45.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Bank enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Bank’s foreign exchange and derivative contract counterparties. These master netting agreements, give the Bank, in the event of default by the counterparty, the right to liquidate collaterals held or placed and to offset receivables and payables with the same counterparty. In the table below the Bank has presented the gross derivative assets and liabilities adjusted for the effects of master netting agreements and collaterals received or pledged.
Transactions with counterparties for Securities sold under agreements to repurchase (“repos”) and securities purchased under agreements to resell (“reverse repos”) are settled through the Clearing Corporation of India Limited (“CCIL”), a centralized clearing house. Collaterals received or pledged comprise of highly liquid investments. For undertaking the above transactions, power of attorney is executed by the Bank and the counterparties in favor of CCIL to liquidate the securities pledged in the event of default.

|  | As of March 31, 2019 |
|  | Amounts subject to enforceable netting arrangements |  |  |  |
|  | Effects of offsetting on balance sheet |  |  | Related amounts not offset |  |  |  |
|  | Gross Amounts |  |  | Amounts offset |  |  | Net amounts reported in the balance sheet |  |  | Financial instruments |  |  | Financial collateral (1) |  |  | Net amount |
|  | (In millions) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | Rs. | 132,524.1 |  |  |  | Rs. — |  |  | Rs. | 132,524.1 |  |  | Rs. | 104,025.7 |  |  | Rs. | 2,651.7 |  |  |  | Rs. 25,846.7 |
Securities purchased under agreements to resell |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | Rs. | 128,449.0 |  |  |  | Rs. — |  |  | Rs. | 128,449.0 |  |  | Rs. | 104,025.7 |  |  | Rs. | 3,098.1 |  |  |  | Rs. 21,325.2 |
Securities sold under repurchase agreements |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | — |

(1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged.

|  | As of March 31, 2020 |
|  | Amounts subject to enforceable netting arrangements |  |  |  |  |  |  |
|  | Effects of offsetting on balance sheet |  |  | Related amounts not offset |  |  |  |  |  |  |
|  | Gross Amounts |  |  | Amounts offset |  |  | Net amounts reported in the balance sheet |  |  | Financial instruments |  |  | Financial collateral (1) |  |  | Net amount |  |  |  |
|  | (In millions) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | Rs. | 190,537.6 |  |  |  | Rs. — |  |  | Rs. | 190,537.6 |  |  |  | Rs. 147,844.5 |  |  | Rs. | 8,326.7 |  |  |  | Rs. 34,366.4 |  |  | US$ | 455.8 |
Securities purchased under agreements to resell |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | Rs. | 184,783.0 |  |  |  | Rs. — |  |  | Rs. | 184,783.0 |  |  |  | Rs. 147,844.5 |  |  | Rs. | 6,706.7 |  |  |  | Rs. 30,231.8 |  |  | US$ | 401.0 |
Securities sold under repurchase agreements |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | — |
Long Term debt |  |  | 17,260.0 |  |  |  | — |  |  |  | 17,260.0 |  |  |  | — |  |  |  | 17,260.0 |  |  |  | — |  |  |  | — |

(1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged.

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Guarantees
As a part of its commercial banking activities, the Bank has issued guarantees and documentary credits, such as letters of credit, to enhance the credit standing of its customers. These generally represent irrevocable assurances that the Bank will make payments in the event that the customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third-party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third-party beneficiary where a customer fails to perform a non-financial contractual obligation. The tenure of the guarantees issued or renewed by the Bank is normally in line with requirements on case-by-case basis as may be assessed by the Bank. The remaining tenure of guarantees presently issued by the Bank and currently outstanding ranges from 1 day to 25.6 years.
The credit risk associated with these products, as well as the operating risks, is similar to those relating to other types of financial instruments.
In accordance with FASB ASC 460-10 the Bank has recognized a liability of Rs. 3,544.4 million and Rs. 4,191.9 million as of March 31, 2019 and March 31, 2020, respectively, in respect of guarantees issued or modified. Based on historical trends, in accordance with FASB ASC 450, the Bank has recognized a liability of Rs. 2,589.5 million and Rs. 3,011.9 million as of March 31, 2019 and March 31, 2020, respectively.
Details of guarantees and documentary credits outstanding are set out below:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Nominal values: |  |  |  |  |  |  |  |  |  |  |  |
Bank guarantees: |  |  |  |  |  |  |  |  |  |  |  |
Financial guarantees |  | Rs. | 254,075.9 |  |  | Rs. | 263,758.0 |  |  | US$ | 3,498.6 |
Performance guarantees |  |  | 285,748.4 |  |  |  | 330,164.6 |  |  |  | 4,379.4 |
Documentary credits |  |  | 475,617.8 |  |  |  | 440,232.7 |  |  |  | 5,839.4 |
Total |  | Rs. | 1,015,442.1 |  |  | Rs. | 1,034,155.3 |  |  | US$ | 13,717.4 |
Estimated fair values: |  |  |  |  |  |  |  |  |  |  |  |
Guarantees |  | Rs. | (3,544.4 | ) |  | Rs. | (4,191.9 | ) |  | US$ | (55.6 | )
Documentary credits |  |  | (501.7 | ) |  |  | (488.8 | ) |  |  | (6.5 | )
Total |  | Rs. | (4,046.1 | ) |  | Rs. | (4,680.7 | ) |  | US$ | (62.1 | )

As part of its risk management activities, the Bank continuously monitors the creditworthiness of customers as well as guarantee exposures. If a customer fails to perform a specified obligation, a beneficiary may draw upon the guarantee by presenting documents in compliance with the guarantee. In that event, the Bank makes payment on account of the defaulting customer to the beneficiary up to the full notional amount of the guarantee. The customer is obligated to reimburse the Bank for any such payment. If the customer fails to pay, the Bank liquidates any collateral held and sets off accounts; if insufficient collateral is held, the Bank recognizes a loss. Margins in the form of cash and fixed deposit available to the Bank to reimburse losses realized under guarantees amounted to Rs. 99.5 billion and Rs. 130.5 billion as of March 31, 2019 and March 31, 2020, respectively. Other property or security may also be available to the Bank to cover losses under these guarantees.
Undrawn commitments
The Bank has outstanding undrawn commitments to provide loans and financing to customers. These commitments aggregated to Rs. 452.9 billion and Rs. 539.8 billion (US$ 7.2 billion) as of March 31, 2019 and March 31, 2020, respectively. Among other things, the making of a loan is subject to a review of the creditworthiness of the customer at the time the customer seeks to borrow, at which time the Bank has the unilateral right to decline to make the loan. If the Bank were to make such loans, the interest rates would be dependent on the lending rates in effect when the loans were disbursed. Further, the Bank has unconditional cancellable commitments aggregating to Rs. 3,150.9 billion and Rs. 3,806.2 billion (US$ 50.5 billion) as of March 31, 2019 and March 31, 2020, respectively.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
25. Estimated fair value of financial instruments
The Bank’s financial instruments include financial assets and liabilities recorded on the balance sheet, including instruments such as foreign exchange and derivative contracts. Management uses its best judgment in estimating the fair value of the Bank’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of all the amounts the Bank could have realized in a sales transaction as of March 31, 2019 and March 31, 2020. The estimated fair value amounts as of March 31, 2019 and March 31, 2020 have been measured as of the respective year ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.
A comparison of the fair values and carrying values of financial instruments is set out below:

|  | As of |
|  | March 31, 2019 |  |  | March 31, 2020 |
|  |  |  |  | Estimated Fair Value |  |  |  |  |  | Estimated Fair Value |  |  |  |  |  |  |
|  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Carrying Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Carrying Value |  |  | Estimated Fair Value |
|  | (In millions) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks, and restricted cash |  | Rs. | 734,872.6 |  |  | Rs. | 734,872.6 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 734,872.6 |  |  | Rs. | 611,961.0 |  |  | Rs. | 611,961.0 |  |  | Rs. | — |  |  | Rs. | — |  |  | Rs. | 611,961.0 |  |  | US$ | 8,117.3 |  |  | US$ | 8,117.3 |
Investments held for trading |  |  | 265,516.1 |  |  |  | 1,999.6 |  |  |  | 263,516.5 |  |  |  | — |  |  |  | 265,516.1 |  |  |  | 304,962.9 |  |  |  | 6,291.0 |  |  |  | 298,671.9 |  |  |  | — |  |  |  | 304,962.9 |  |  |  | 4,045.1 |  |  |  | 4,045.1 |
Investments available for sale debt securities |  |  | 2,633,348.4 |  |  |  | 34,807.2 |  |  |  | 2,559,728.3 |  |  |  | 38,812.9 |  |  |  | 2,633,348.4 |  |  |  | 3,406,289.2 |  |  |  | 371,450.5 |  |  |  | 2,907,384.4 |  |  |  | 127,454.3 |  |  |  | 3,406,289.2 |  |  |  | 45,182.2 |  |  |  | 45,182.2 |
Securities purchased under agreements to resell |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | 3,316.1 |  |  |  | 3,316.1 |
Loans |  |  | 8,963,232.6 |  |  |  | — |  |  |  | 2,593,533.9 |  |  |  | 6,378,523.8 |  |  |  | 8,972,057.7 |  |  |  | 10,425,022.4 |  |  |  | — |  |  |  | 2,593,022.1 |  |  |  | 7,936,633.4 |  |  |  | 10,529,655.5 |  |  |  | 138,281.2 |  |  |  | 139,669.1 |
Accrued interest receivable |  |  | 93,031.7 |  |  |  | — |  |  |  | 93,031.7 |  |  |  | — |  |  |  | 93,031.7 |  |  |  | 103,035.9 |  |  |  | — |  |  |  | 103,035.9 |  |  |  | — |  |  |  | 103,035.9 |  |  |  | 1,366.7 |  |  |  | 1,366.7 |
Other assets |  |  | 344,873.6 |  |  |  | 2,390.1 |  |  |  | 340,767.5 |  |  |  | — |  |  |  | 343,157.6 |  |  |  | 641,605.5 |  |  |  | 2,282.4 |  |  |  | 637,594.1 |  |  |  | — |  |  |  | 639,876.5 |  |  |  | 8,510.5 |  |  |  | 8,487.6 |
Financial Liabilities : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits |  |  | 7,804,717.5 |  |  |  | — |  |  |  | 7,826,794.0 |  |  |  | — |  |  |  | 7,826,794.0 |  |  |  | 9,730,481.3 |  |  |  | — |  |  |  | 9,786,793.2 |  |  |  | — |  |  |  | 9,786,793.2 |  |  |  | 129,068.6 |  |  |  | 129,815.5 |
Non-interest-bearing deposits |  |  | 1,420,309.4 |  |  |  | — |  |  |  | 1,420,309.4 |  |  |  | — |  |  |  | 1,420,309.4 |  |  |  | 1,731,590.0 |  |  |  | — |  |  |  | 1,731,590.0 |  |  |  | — |  |  |  | 1,731,590.0 |  |  |  | 22,968.4 |  |  |  | 22,968.4 |
Securities sold under repurchase agreements |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | 6,738.1 |  |  |  | 6,738.1 |
Short-term borrowings |  |  | 654,058.0 |  |  |  | — |  |  |  | 655,215.2 |  |  |  | — |  |  |  | 655,215.2 |  |  |  | 377,417.6 |  |  |  | — |  |  |  | 378,027.9 |  |  |  | — |  |  |  | 378,027.9 |  |  |  | 5,006.2 |  |  |  | 5,014.3 |
Accrued interest payable |  |  | 79,372.5 |  |  |  | — |  |  |  | 79,372.5 |  |  |  | — |  |  |  | 79,372.5 |  |  |  | 80,078.9 |  |  |  | — |  |  |  | 80,078.9 |  |  |  | — |  |  |  | 80,078.9 |  |  |  | 1,062.2 |  |  |  | 1,062.2 |
Long-term debt |  |  | 1,044,553.0 |  |  |  | — |  |  |  | 1,061,687.0 |  |  |  | — |  |  |  | 1,061,687.0 |  |  |  | 1,026,518.3 |  |  |  | — |  |  |  | 1,074,826.3 |  |  |  | — |  |  |  | 1,074,826.3 |  |  |  | 13,616.1 |  |  |  | 14,256.9 |
Accrued expenses and other liabilities |  |  | 366,071.3 |  |  |  | — |  |  |  | 366,071.3 |  |  |  | — |  |  |  | 366,071.3 |  |  |  | 460,931.4 |  |  |  | — |  |  |  | 460,931.4 |  |  |  | — |  |  |  | 460,931.4 |  |  |  | 6,114.0 |  |  |  | 6,114.0 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
26. Segment information
The Bank operates in three reportable segments: wholesale banking, retail banking and treasury services. The revenue and related expense recognition policies are set out in note 2. Substantially all operations and assets are based in India.
The retail banking segment serves retail customers through a branch network and other delivery channels. This segment raises deposits from customers and grant loans, provides credit cards and debit cards, distributes third-party financial products, such as mutual funds and insurance to such customers. Revenues of the retail banking segment are derived from interest earned on retail loans, fees for banking services, profit from foreign exchange and derivative transactions and interest earned from other segments for surplus funds placed with those segments. Expenses of this segment are primarily comprised of interest expense on deposits, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses. The Bank’s retail banking loan products also include loans to small and medium enterprises for commercial vehicles, construction equipment and other business purposes. Such grouping ensures optimum utilization and deployment of specialized resources in the retail banking business.
The wholesale banking segment provides loans and transaction services to corporate customers. As discussed above, loans to small and medium enterprises for commercial vehicles, construction equipment and other business purposes are included in the retail banking segment. Revenues of the wholesale banking segment consist of interest earned on loans given to corporate customers, investment income from credit substitutes, interest earned on the cash float arising from transaction services, fees from such transaction services and profits from foreign exchange and derivative transactions with wholesale banking customers. The principal expenses of the segment consist of interest expense on funds borrowed from other segments, premises expenses, personnel costs, other direct overheads and allocated expenses.
The treasury services segment undertakes trading operations on proprietary account (including investments in government securities), foreign exchange operations and derivatives trading both on proprietary account and customer flows and borrowings. Revenues of the treasury services segment primarily consist of fees and gains and losses from trading operations and of net interest revenue/expense from investments in government securities and borrowings. Revenues from foreign exchange and derivative operations and customer flows are classified under the retail or wholesale segments depending on the profile of the customer.
Segment income and expenses include certain allocations. Interest income is charged by a segment that provides funding to another segment, based on yields benchmarked to an internally developed composite yield curve which broadly tracks market-discovered interest rates.
Directly identifiable overheads are attributed to a segment at actual amounts incurred. Indirect shared costs, principally corporate office expenses, are generally allocated to each segment on the basis of area occupied, number of staff, volume and nature of transactions. Wholesale banking segment includes unallocated tax balances and other items.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized segment information for the years ended March 31, 2018, March 31, 2019 and March 31, 2020:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |
|  | Retail Banking |  |  | Wholesale Banking |  |  | Treasury Services |  |  | Total |  |  | Retail Banking |  |  | Wholesale Banking |  |  | Treasury Services |  |  | Total |
|  | (In millions) |
Net interest income/(expense) (External) |  | Rs. | 279,198.3 |  |  | Rs. | 120,341.3 |  |  | Rs. | 23,611.0 |  |  | Rs. | 423,150.6 |  |  | Rs. | 336,677.1 |  |  | Rs. | 140,085.0 |  |  | Rs. | 30,743.5 |  |  | Rs. | 507,505.6 |
Net interest income/(expense) (Internal) |  |  | 65,690.2 |  |  |  | (48,571.1 | ) |  |  | (17,119.1 | ) |  |  | — |  |  |  | 62,339.1 |  |  |  | (43,842.8 | ) |  |  | (18,496.3 | ) |  |  | — |
Net interest revenue |  |  | 344,888.5 |  |  |  | 71,770.2 |  |  |  | 6,491.9 |  |  |  | 423,150.6 |  |  |  | 399,016.2 |  |  |  | 96,242.2 |  |  |  | 12,247.2 |  |  |  | 507,505.6 |
Less: Provision for credit losses |  |  | 52,577.1 |  |  |  | 6,820.7 |  |  |  | — |  |  |  | 59,397.8 |  |  |  | 64,051.0 |  |  |  | 8,228.3 |  |  |  | — |  |  |  | 72,279.3 |
Net interest revenue, after provision for credit losses |  |  | 292,311.4 |  |  |  | 64,949.5 |  |  |  | 6,491.9 |  |  |  | 363,752.8 |  |  |  | 334,965.2 |  |  |  | 88,013.9 |  |  |  | 12,247.2 |  |  |  | 435,226.3 |
Non-interest revenue |  |  | 122,582.6 |  |  |  | 12,674.1 |  |  |  | 9,350.3 |  |  |  | 144,607.0 |  |  |  | 138,783.0 |  |  |  | 23,789.6 |  |  |  | (2,450.4 | ) |  |  | 160,122.2 |
Non-interest expense |  |  | (210,257.2 | ) |  |  | (19,792.1 | ) |  |  | (1,204.1 | ) |  |  | (231,253.4 | ) |  |  | (230,726.5 | ) |  |  | (22,744.8 | ) |  |  | (1,918.2 | ) |  |  | (255,389.5 | )
Income before income tax |  | Rs. | 204,636.8 |  |  | Rs. | 57,831.5 |  |  | Rs. | 14,638.1 |  |  | Rs. | 277,106.4 |  |  | Rs. | 243,021.7 |  |  | Rs. | 89,058.7 |  |  | Rs. | 7,878.6 |  |  | Rs. | 339,959.0 |
Income tax expense |  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 98,272.5 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 119,393.5 |
Segment assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Segment total assets |  | Rs. | 6,351,601.7 |  |  | Rs. | 4,140,606.7 |  |  | Rs. | 875,100.4 |  |  | Rs. | 11,367,308.8 |  |  | Rs. | 7,432,733.8 |  |  | Rs. | 4,732,290.7 |  |  | Rs. | 1,115,049.1 |  |  | Rs. | 13,280,073.6 |

|  | Fiscal year ended March 31, |
|  | 2020 |
|  | Retail Banking |  |  | Wholesale Banking |  |  | Treasury Services |  |  | Total |  |  | Total |
|  | (In millions) |
Net interest income/(expense) (External) |  | Rs. | 356,017.3 |  |  | Rs. | 204,725.8 |  |  | Rs. | 32,784.3 |  |  | Rs. | 593,527.4 |  |  | US$ | 7,872.8 |
Net interest income/(expense) (Internal) |  |  | 127,065.9 |  |  |  | (101,002.5 | ) |  |  | (26,063.4 | ) |  |  | — |  |  |  | — |
Net interest revenue |  |  | 483,083.2 |  |  |  | 103,723.3 |  |  |  | 6,720.9 |  |  |  | 593,527.4 |  |  |  | 7,872.8 |
Less: Provision for credit losses |  |  | 104,516.8 |  |  |  | 13,105.1 |  |  |  | — |  |  |  | 117,621.9 |  |  |  | 1,560.2 |
Net interest revenue, after provision for credit losses |  |  | 378,566.4 |  |  |  | 90,618.2 |  |  |  | 6,720.9 |  |  |  | 475,905.5 |  |  |  | 6,312.6 |
Non-interest revenue |  |  | 161,890.1 |  |  |  | 36,059.1 |  |  |  | 269.8 |  |  |  | 198,219.0 |  |  |  | 2,629.4 |
Non-interest expense |  |  | (278,605.8 | ) |  |  | (27,774.0 | ) |  |  | (1,900.7 | ) |  |  | (308,280.5 | ) |  |  | (4,089.2 | )
Income before income tax |  | Rs. | 261,850.7 |  |  | Rs. | 98,903.3 |  |  | Rs. | 5,090.0 |  |  | Rs. | 365,844.0 |  |  | US$ | 4,852.8 |
Income tax expense |  |  |  |  |  |  |  |  |  |  |  |  |  | Rs. | 105,480.0 |  |  | US$ | 1,399.1 |
Segment assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Segment total assets |  | Rs. | 8,353,762.3 |  |  | Rs. | 5,933,391.4 |  |  | Rs. | 1,674,735.4 |  |  | Rs. | 15,961,889.1 |  |  | US$ | 211,724.1 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
27. Commitments and contingencies
Commitments and contingent liabilities other than for off balance sheet financial instruments (see note 24) are as follows:
Capital commitments
The Bank has entered into committed capital contracts, principally for branch expansion and technology upgrades. The estimated amounts of contracts remaining to be executed on the capital account as of March 31, 2019 and March 31, 2020 aggregated Rs. 5,503.6 million and Rs. 12,756.9 million, respectively.
Contingencies
The Bank is party to various legal proceedings in the normal course of business. The Bank estimates the provision for contingencies which majorly include indirect taxes since no precedents exist which could be used as points of reference. The amount of claims against the Bank towards indirect taxes and other claims which are not acknowledged as debts as of March 31, 2020 aggregated to Rs. 8,437.8 million (previous year Rs. 8,936.3 million). The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank’s results of operations, financial condition or cash flows. The Bank intends to vigorously defend these claims. Although the results of other legal actions cannot be predicted with certainty, it is the opinion of management, after taking appropriate legal advice, that the likelihood of these claims becoming obligations of the Bank is remote and hence the resolution of these actions will not have a material adverse effect, if any, on the Bank’s business, financial condition or results of operations.
Lease commitments
The Bank is party to operating leases for certain of its office premises and employee residences, with a renewal at the option of the Bank.
Operating lease right-of-use assets and lease liabilities were as follows:

|  | As of March 31, |
|  | 2020 |  |  | 2020 |
|  | (In millions) |
Right-of-use assets |  | Rs. | 60,756.9 |  |  | US$ | 805.9 |
Lease liabilities |  |  | 65,615.1 |  |  |  | 870.3 |

The total lease expenses are as follows:

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
The total minimum lease expense during the year recognized in the consolidated statement of income |  | Rs. | 12,311.3 |  |  | Rs. | 12,700.8 |  |  | Rs. | 13,698.7 |  |  | US$ | 181.7 |

The total operating cash flow for operating lease expenses during the year ended March 31, 2020 was Rs. 11,692.3 million (US
$
155.1 million).
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The future minimum lease payments prior to adoption of ASU 2016-02- Leases as of March 31, 2019 were as follows:

Year ending March 31, |  | Operating leases |
|  | (In millions) |
2020 |  | Rs. | 10,538.6 |
2021 |  |  | 9,921.4 |
2022 |  |  | 9,100.7 |
2023 |  |  | 8,137.3 |
2024 |  |  | 7,104.2 |
Thereafter |  |  | 41,090.6 |
Total |  | Rs. | 85,892.8 |

The future minimum lease payments subsequent to adoption of ASU 2016-02- Leases as of March 31, 2020 were as follows:

Due in fiscal year ending March 31: |  | Operating leases |
|  | (In millions, except for weighted averages) |
2021 |  | Rs. | 11,411.4 |  |  | US$ | 151.4 |
2022 |  |  | 10,617.5 |  |  |  | 140.8 |
2023 |  |  | 9,808.5 |  |  |  | 130.1 |
2024 |  |  | 8,839.5 |  |  |  | 117.3 |
2025 |  |  | 8,227.8 |  |  |  | 109.1 |
Thereafter |  |  | 48,321.0 |  |  |  | 640.9 |
Total lease payments |  | Rs. | 97,225.7 |  |  | US$ | 1,289.6 |
Less: imputed interest |  |  | 31,610.6 |  |  |  | 419.3 |
Total operating lease liabilities |  | Rs. | 65,615.1 |  |  | US$ | 870.3 |
Weighted average remaining lease term (in years) |  |  | 10.3 |  |  |  | 10.3 |
Weighted average discount rate |  |  | 7.4 | % |  |  | 7.4 | %

The Bank adopted ASU 2016-02 “Leases (Topic842)” and subsequent related updates on April 1, 2019. The Bank enters into lease agreements to obtain the right-of-use assets for its business operations, substantially all of which are premises. On April 1, 2019, the Bank recognized a lease liability
of Rs. 56.9
billion and a corresponding right-of-use asset of approximately
Rs. 53.0
billion on the Consolidated Balance Sheet related to its future lease payments as a lessee under operating leases. On adoption of Topic 842, accrued rent amounting to
Rs. 3.9
billion
, earlier included in accrued expenses and other liabilities, reclassified to right-of-use assets as at April 1, 2019. Lease liabilities and right-of-use assets are recognized when the Bank enters into operating leases and represent obligations and rights to use these assets over the period of the leases and are re-measured for modifications. Operating lease liabilities include fixed payments for the contractual duration of the lease, adjusted for renewals or terminations. The lease agreements entered into by the Bank do not include any material residual value guarantees and material restrictive covenants. The lease payments are discounted using a rate determined when the lease is recognized. In general, the Bank does not know the discount rate implicit in the lease, and so the Bank estimates a discount rate that the Bank believes approximates a collateralized borrowing rate for the estimated duration of the lease term. The rate is determined at the date of commencement of the lease and for leases existing as at April 1, 2019, the incremental borrowing rate is determined as at that date. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the incremental borrowing rate. Right-of-use assets are reported in other assets on the consolidated balance sheet and related lease liabilities are reported in accrued expenses and other liabilities. The amortization of operating lease right-of-use assets and the accretion of operating lease liabilities are reported together as fixed lease expenses and are included in non-interest expense- premises and equipment. The lease expense is recognized on a straight-line basis over the life of the lease. The lease agreements entered into by the Bank generally have renewal and escalation clauses. These agreements also in general permit the Bank to terminate the lease arrangement within a certain period of notice of termination. The Bank does not include renewal or termination options in the establishment of the lease term when it is not reasonably certain that it will exercise them. The Bank has elected to exclude leases with terms of less than one year from the operating lease right-of-use assets and lease liabilities. The related short-term lease expense is included in non-interest expense- premises and equipment. As of March 31, 2020, the Bank had additional undiscounted operating lease commitments
of Rs
.6.9
billion, predominantly for premises, with leases which have not yet commenced. These leases will commence by April 2020 and have lease terms ranging
from
4 to 26 years.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Reward points
The movement in provision for credit card and debit card reward points as of March 31, 2019 and March 31, 2020 is as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Opening provision of reward points |  | Rs. | 4,711.2 |  |  | Rs. | 6,030.9 |  |  | US$ | 80.0 |
Provision made during the year |  |  | 3,747.3 |  |  |  | 5,356.0 |  |  |  | 71.0 |
Utilization/write back of provision |  |  | (2,555.9 | ) |  |  | (3,868.8 | ) |  |  | (51.3 | )
Effect of change in rate of accrual of reward points |  |  | 91.5 |  |  |  | (176.6 | ) |  |  | (2.3 | )
Effect of change in cost of reward points |  |  | 36.8 |  |  |  | — |  |  |  | — |
Closing provision of reward points |  | Rs. | 6,030.9 |  |  | Rs. | 7,341.5 |  |  | US$ | 97.4 |

28. Related party transactions
The Bank’s principal related parties consist of HDFC Limited, its principal owner, subsidiaries of HDFC Limited and affiliates of the Bank. Transactions disclosed under “others” primarily consist of transactions with subsidiaries of HDFC Limited and affiliates of the Bank. The Bank enters into transactions with its related parties, such as providing banking services, sharing costs and service providers, purchasing services, making joint investments, and borrowing from related parties and subletting premises. The Bank is prohibited from making loans to companies with which it has directors in common. The Bank, being an authorized dealer, deals in foreign exchange and derivative transactions with certain parties which include the principal owner and related companies. The foreign exchange and derivative transactions are undertaken in line with the RBI guidelines. The Bank’s related party balances and transactions are in the normal course of business and are summarized as follows:
Balances payable to related parties are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |
|  | Principal owner |  |  | Others |  |  | Total |  |  | Principal owner |  |  | Others |  |  | Total |  |  | Total |
|  | (In millions) |
Balances in non-interest-bearing deposits |  | Rs. | 32,176.8 |  |  | Rs. | 14,170.1 |  |  | Rs. | 46,346.9 |  |  | Rs. | 35,128.7 |  |  | Rs. | 8,258.8 |  |  | Rs. | 43,387.5 |  |  | US$ | 575.5 |
Balances in interest-bearing deposits |  |  | 733.1 |  |  |  | 1,732.9 |  |  |  | 2,466.0 |  |  |  | 1,662.0 |  |  |  | 5,954.8 |  |  |  | 7,616.8 |  |  |  | 101.0 |
Accrued expenses and other liabilities |  |  | 836.4 |  |  |  | — |  |  |  | 836.4 |  |  |  | 1,002.8 |  |  |  | — |  |  |  | 1,002.8 |  |  |  | 13.3 |
Total |  | Rs. | 33,746.3 |  |  | Rs. | 15,903.0 |  |  | Rs. | 49,649.3 |  |  | Rs. | 37,793.5 |  |  | Rs. | 14,213.6 |  |  | Rs. | 52,007.1 |  |  | US$ | 689.8 |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balances receivable from related parties are as follows:

|  | As of March 31, |
|  | 2019 |  |  | 2020 |
|  | Principal owner |  |  | Others |  |  | Total |  |  | Principal owner |  |  | Others |  |  | Total |  |  | Total |
|  | (In millions) |
Loans |  | Rs. | — |  |  | Rs. | 33.9 |  |  | Rs. | 33.9 |  |  | Rs. | — |  |  | Rs. | 26.5 |  |  | Rs. | 26.5 |  |  | US$ | 0.4 |
Other assets |  |  | 310.2 |  |  |  | 1,474.7 |  |  |  | 1,784.9 |  |  |  | 449.5 |  |  |  | 1,266.9 |  |  |  | 1,716.4 |  |  |  | 22.8 |
Total |  | Rs. | 310.2 |  |  | Rs. | 1,508.6 |  |  | Rs. | 1,818.8 |  |  | Rs. | 449.5 |  |  | Rs. | 1,293.4 |  |  | Rs. | 1,742.9 |  |  | US$ | 23.2 |

Purchase of property and equipment from related parties for the years ended March 31, 2019 and 2020 were nil. Purchase and sale of investments from Others for the year ended March 31, 2020 were Rs.4,872.8 million (previous year Rs. 6,490.7 million) and Rs. 28,016.8 million (previous year Rs. 22,236.2 million), respectively. Investments of Others in the Bank’s subordinated debt for the fiscal year ended March 31, 2020 were Rs. 200.0 million (previous year Rs. 250.0 million).
Included in the determination of net income are the following significant transactions with related parties:

|  | Fiscal year ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
|  | Principal owner |  |  | Others |  |  | Total |  |  | Principal owner |  |  | Others |  |  | Total |  |  | Principal owner |  |  | Others |  |  | Total |  |  | Total |
|  | (In millions) |
Non-interest revenue-Fees and commissions |  | Rs. | 2,642.7 |  |  | Rs. | 14,913.5 |  |  | Rs. | 17,556.2 |  |  |  | Rs. 2,829.7 |  |  |  | Rs. 14,558.3 |  |  |  | Rs. 17,388.0 |  |  |  | Rs. 3,089.4 |  |  |  | Rs. 17,001.7 |  |  |  | Rs. 20,091.1 |  |  | US$ | 266.5 |
Interest and Dividend revenue |  |  | 132.8 |  |  |  | 1,396.9 |  |  |  | 1,529.7 |  |  |  | 352.0 |  |  |  | 1,549.7 |  |  |  | 1,901.7 |  |  |  | — |  |  |  | 1,194.2 |  |  |  | 1,194.2 |  |  |  | 15.8 |
Interest expense-Deposits |  |  | (59.6 | ) |  |  | (115.9 | ) |  |  | (175.5 | ) |  |  | (54.9 | ) |  |  | (138.0 | ) |  |  | (192.9 | ) |  |  | (85.3 | ) |  |  | (84.2 | ) |  |  | (169.5 | ) |  |  | (2.2 | )
Non-interest expense-Administrative and other |  |  | (4,031.9 | ) |  |  | (2,266.8 | ) |  |  | (6,298.7 | ) |  |  | (4,838.3 | ) |  |  | (2,841.7 | ) |  |  | (7,680.0 | ) |  |  | (5,840.8 | ) |  |  | (3,119.6 | ) |  |  | (8,960.4 | ) |  |  | (118.9 | )
Non-interest expense-Premises and equipment |  |  | (19.8 | ) |  |  | (7.6 | ) |  |  | (27.4 | ) |  |  | (31.2 | ) |  |  | (6.1 | ) |  |  | (37.3 | ) |  |  | (25.8 | ) |  |  | (9.7 | ) |  |  | (35.5 | ) |  |  | (0.5 | )

Other transactions with the Bank’s principal owner are as follows:
During the years ended March 31, 2019 and March 31, 2020, the Bank purchased loans from the principal owner aggregating Rs. 239,824.2 million and Rs. 241,272.5 million, respectively. Dividends paid to the principal owner during the years ended March 31, 2019 and March 31, 2020 were Rs. 5,111.7 million and Rs. 8,646.2 million, respectively. The Bank also enters into foreign exchange and derivative transactions with its principal owner. The notional principal amount and the mark-to-market gains in respect of foreign exchange and derivative contracts outstanding as of March 31, 2020 was Rs. 120,099.5 million (previous year Rs. 58,655.0 million) and Rs. 53.5 million (previous year Rs. 143.1 million), respectively. During the fiscal year ended March 31, 2020, the Bank subscribed to debt securities of nil (previous year Rs. 6,850.0 million) issued by the principal owner. During the fiscal year ended March 31, 2020, the Bank issued Guarantees on behalf of its Principal owner and Others for Rs. 3.9 million (previous year Rs. 3.7 million) and for Rs. 29.9 million (previous year Rs. 1,127.4 million), respectively.
For contributions made to provident funds and pension funds set up by the Bank, see note 23 – Retirement benefits.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
29. Earnings per equity share
By
way of
an ordinary resolution
passed
on July 12, 2019, the shareholders of the Bank approved a subdivision (stock split) of equity shares to reduce the face value of each equity share from Rs. 2.0 to Rs. 1.0 per equity share effective as of September 20, 2019. The number of issued and subscribed equity shares increased to 5,470,763,894 shares of par value Rs. 1.0 each. All share/ADS and per share/ADS data reflect the effect of the stock split retroactively. One ADS continues to represent three
equity
shares.
A reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share has been provided below. Potential equity shares in the nature of ESOPs with average outstanding balance of nil
and 24.2 million
were excluded from the calculation of diluted earnings per share for the years ended March 31, 2019 and March 31, 2020, respectively, as these were anti-dilutive.

|  | As of March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |
Weighted average number of equity shares used in computing basic earnings per equity share |  |  | 5,161,077,010 |  |  |  | 5,360,068,058 |  |  |  | 5,468,802,148 |
Effect of potential equity shares for stock options outstanding |  |  | 66,800,242 |  |  |  | 53,585,896 |  |  |  | 36,990,405 |
Weighted average number of equity shares used in computing diluted earnings per equity share |  |  | 5,227,877,252 |  |  |  | 5,413,653,954 |  |  |  | 5,505,792,553 |

The following are reconciliations of basic and diluted earnings per equity share and earnings per ADS.

|  | Fiscal years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
Basic earnings per share |  | Rs. | 34.59 |  |  | Rs. | 41.07 |  |  | Rs. | 47.59 |  |  | US$ | 0.63 |
Effect of potential equity shares for stock options outstanding |  |  | 0.44 |  |  |  | 0.41 |  |  |  | 0.32 |  |  |  | 0.01 |
Diluted earnings per share |  | Rs. | 34.15 |  |  | Rs. | 40.66 |  |  | Rs. | 47.27 |  |  | US$ | 0.62 |
Basic earnings per ADS |  | Rs. | 103.77 |  |  | Rs. | 123.21 |  |  | Rs. | 142.77 |  |  | US$ | 1.89 |
Effect of potential equity shares for stock options outstanding |  |  | 1.32 |  |  |  | 1.23 |  |  |  | 0.96 |  |  |  | 0.03 |
Diluted earnings per ADS |  | Rs. | 102.45 |  |  | Rs. | 121.98 |  |  | Rs. | 141.81 |  |  | US$ | 1.86 |

Dividends
Any dividends declared by the Bank are based on the profit available for distribution as reported in the statutory financial statements of the Bank prepared in accordance with Indian GAAP. Additionally, the Banking Regulation Act and related regulations require the Bank to transfer 25% of its Indian GAAP profit after-tax to a non-distributable statutory reserve and to meet certain other conditions in order to pay dividends without prior RBI approval. As per the RBI guidelines, the dividend payout (excluding dividend tax) for March 31, 2020 cannot exceed 35% of net income of Rs. 262,573.2 million as calculated under Indian GAAP. Accordingly, the net income reported in these financial statements may not be fully distributable in that year. Dividends declared for the years ended March 31, 2018 and March 31, 2019 were Rs. 6.5 and Rs. 7.5
per equity
share
,
respectively. A special interim dividend of Rs. 2.5 per share to commemorate 25 years of HDFC Bank’s operations was paid on August 2, 2019.
The RBI in its circular dated
April 17, 2020, announced
that banks shall not make any further
dividend
payouts from the profits
relating
to the
financial
year ended March 31,
2020
until further instructions
.
As a result
, the Board of Directors of the Bank, at their meeting held on April 18, 2020, has not proposed any final dividend for fiscal 2020.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
30. Subsidiaries
HDB Financial Services Limited (“HDBFSL”) is a non-deposit taking non-banking finance company and a subsidiary of the Bank. As at March 31, 2020, HDFC Bank Ltd. and its subsidiaries effectively hold 95.9% (previous year 96.1%). The financial statements of HDBFSL are consolidated.
HDFC Securities Ltd. (“HSL”) offers trading facilities in a range of equity, fixed income and derivative products to its clients. As at March 31, 2020 the Bank holds a 96.8% (previous year 97.6%) effective equity interest. The financial statements of HSL are consolidated.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
31. Fair value measurement
FASB Accounting Standards Codification “ASC” 820 (Topic 820) Fair Value Measures and Disclosures, defines fair value, establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level of input |  |
Level 1 |  | Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.
Level 2 |  | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 |  | Inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

The
following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. These valuation methodologies were applied to all of the Bank’s financial assets and financial liabilities carried at fair value. For Level 1 instruments the valuation is based upon the unadjusted quoted prices of identical instruments traded in active markets. For Level 2 instruments, where such quoted market prices are not available, the valuation is based upon the quoted prices for similar instruments in active markets, the quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from standard valuation methodologies or internally developed models that primarily use, as inputs, such as interest rates, yield curves, volatilities and credit spreads, which are available from public sources such as Reuters, Bloomberg and the Fixed Income Money Markets and Derivatives Association of India. The valuation methodology primarily includes discounted cash flow techniques. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Bank’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The valuation of Level 3 instruments is based on valuation techniques or models which use significant market unobservable inputs or assumptions.
The Bank uses its quantitative pricing models to determine the fair value of its derivative instruments. These models use multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the positions that are observable directly or indirectly. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Bank’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
Financial assets and financial liabilities measured at fair value on a recurring basis:
Available for sale debt securities: Available for sale debt securities are carried at fair value. Such fair values were based on quoted market prices, if available. If quoted market prices did not exist, fair values were estimated using the market yield on the balance period to maturity on similar instruments and similar credit risks. The fair values of asset-backed and mortgage-backed securities is estimated based on revised estimated cash flows at each balance sheet date, discounted at current market pricing for transactions with similar risk. A reduction in the estimated cash flows of these instruments will adversely impact the value of these securities. A change in the timing of these estimated cash flows will also impact the value of these securities.
Trading securities: Trading securities are carried at fair value based on quoted market prices or market observable inputs.
Held to maturity securities: There were no HTM securities as of March 31, 2019 and March 31, 2020.
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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes investments measured at fair value on a recurring basis as of March 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

|  | Fair Value Measurements Using |  |  |  |
Particulars |  | Total |  |  | Quoted prices in active markets for identical assets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
|  |  |  |  | (In millions) |  |  |  |
Trading account securities |  | Rs. | 265,516.1 |  |  | Rs. | 1,999.6 |  |  | Rs. | 263,516.5 |  |  | Rs. | — |
Securities Available-for-Sale |  |  | 2,633,348.4 |  |  |  | 34,807.2 |  |  |  | 2,559,728.3 |  |  |  | 38,812.9 |
Equity securities * |  |  | 11,024.0 |  |  |  | 2,390.1 |  |  |  | 8,633.9 |  |  |  | — |
Total |  | Rs. | 2,909,888.5 |  |  | Rs. | 39,196.9 |  |  | Rs. | 2,831,878.7 |  |  | Rs. | 38,812.9 |

* | Equity securities classified within other assets.

The following table summarizes investments measured at fair value on a recurring basis as of March 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

|  | Fair Value Measurements Using |  |  |  |
Particulars |  | Total |  |  | Quoted prices in active markets for identical assets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
|  |  |  |  | (In millions) |  |  |  |
Trading account securities |  | Rs. | 304,962.9 |  |  | Rs. | 6,291.0 |  |  | Rs. | 298,671.9 |  |  | Rs. | — |
Securities Available-for-Sale |  |  | 3,406,289.2 |  |  |  | 371,450.5 |  |  |  | 2,907,384.4 |  |  |  | 127,454.3 |
Equity securities * |  |  | 10,937.5 |  |  |  | 2,282.4 |  |  |  | 8,655.1 |  |  |  | — |
Total |  | Rs. | 3,722,189.6 |  |  | Rs. | 380,023.9 |  |  | Rs. | 3,214,711.4 |  |  | Rs. | 127,454.3 |
Total |  | US$ | 49,372.4 |  |  | US$ | 5,040.7 |  |  | US$ | 42,641.1 |  |  | US$ | 1,690.6 |

* | Equity securities classified within other assets.

Available-for-Sale securities aggregating to Rs.5.3 billion and classified as Level 1 as of March 31, 2019 were transferred to Level 2 during fiscal 2020. The following table summarizes, certain additional information about changes in the fair value of Level 3 assets pertaining to instruments carried at fair value for the years ended March 31, 2019 and March 31, 2020:

Particulars |  | As of March 31, 2019 |
|  | (in millions) |
Beginning balance at April 1, 2018 |  | Rs. | 18,534.6 |
Total gains or losses (realized/unrealized) |  |  |  |
-Included in net income |  |  | — |
-Included in other comprehensive income |  |  | 355.9 |
Purchases/additions |  |  | 42,885.7 |
Sales |  |  | — |
Issuances |  |  | — |
Settlements |  |  | (22,963.3 | )
Transfers in Level 3 |  |  | — |
Transfers out of Level 3 |  |  | — |
Foreign currency translation adjustment |  |  | — |
Ending balance at March 31, 2019 |  | Rs. | 38,812.9 |
Total amount of gains or (losses) included in net income attributable to change in unrealized gains or (losses) relating to assets still held at reporting date |  | Rs | — |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Particulars |  | As of March 31, 2020 |
|  | (In millions) |
Beginning balance at April 1, 2019 |  | Rs. | 38,812.9 |
Total gains or losses (realized/unrealized) |  |  |  |
-Included in net income |  |  | — |
-Included in other comprehensive income |  |  | 1,535.5 |
Purchases/additions |  |  | 126,891.3 |
Sales |  |  | — |
Issuances |  |  | — |
Settlements |  |  | (39,785.4 | )
Transfers in Level 3 |  |  | — |
Transfers out of Level 3 |  |  | — |
Foreign currency translation adjustment |  |  | — |
Ending balance at March 31, 2020 |  | Rs. | 127,454.3 |
Total amount of gains or (losses) included in net income attributable to change in unrealized gains or (losses) relating to assets still held at reporting date |  | Rs | — |

Derivatives: 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 principal amount at maturity based on predetermined rates. Rupee interest rate swaps are commitments to exchange fixed and floating rate cash flows in rupees.
The Bank uses its pricing models to determine the fair value of its derivative instruments. These models use market inputs that are observable directly or indirectly.
The following table summarizes derivative instruments measured at fair value on a recurring basis as of March 31, 2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

|  |  |  |  | Fair Value Measurements Using |
Particulars |  | Total |  |  | Quoted prices in active markets for identical assets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
|  | (In millions) |
Derivative assets |  | Rs. | 132,524.1 |  |  | Rs. | — |  |  | Rs. | 132,524.1 |  |  | Rs. | — |
Derivative liabilities |  | Rs. | 128,449.0 |  |  | Rs. | — |  |  | Rs. | 128,449.0 |  |  | Rs. | — |

The following table summarizes derivative instruments measured at fair value on a recurring basis as of March 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

|  |  |  |  | Fair Value Measurements Using |
Particulars |  | Total |  |  | Quoted prices in active markets for identical assets (Level 1) |  |  | Significant other observable inputs (Level 2) |  |  | Significant unobservable inputs (Level 3) |
|  | (In millions) |
Derivative assets |  | Rs. | 190,537.6 |  |  | Rs. | — |  |  | Rs. | 190,537.6 |  |  | Rs. | — |
Derivative liabilities |  | Rs. | 184,783.0 |  |  | Rs. | — |  |  | Rs. | 184,783.0 |  |  | Rs. | — |

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HDFC BANK LIMITED AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
32. Risk and uncertainties
At the date of approval of the consolidated financial statements, the SARS-CoV-2 virus responsible for COVID-19 continues to spread across the globe and India, contributing to significant volatility in global and Indian financial markets and a significant decrease in global and local economic activity. On March 11, 2020, the COVID-19 outbreak was declared a global pandemic by the World Health Organization. Numerous governments and companies, including the Bank, have introduced a variety of measures to contain the spread of the virus. In India, the Bank’s main place of business, on March 24, 2020, the Government announced a strict 21-day lockdown across the country, which was later extended until May 31, 2020. On May 30, 2020 the Government announced a phased reopening of certain
previously
prohibited activities outside specified containment zones, while the lockdown was extended to June 30, 2020 in such containment zones.
To reduce the
economic
impact of the pandemic on Indian corporate and retail borrowers, on March 27, 2020
, the RBI
announced
COVID-
19 regulations, which included permission for financial institutions to extend a three-month moratorium on the repayment of debt installments or interest, as applicable, due between March 1, 2020 and May 31, 2020 to all eligible borrowers even if overdue, as at February 29, 2020. In line with the RBI’s additional COVID-19 Regulatory Package guidelines dated May 23, 2020, the Bank granted a second three-month moratorium on debt installments or interest, as applicable, due between June 1, 2020 and August 31, 2020. Interest on the debt will continue to accrue during the moratorium.
The extent to which the COVID-19 pandemic will impact the Bank’s results will depend on future developments, which are highly uncertain, including, among other things, any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government-mandated or elected by the Bank.
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EXHIBIT INDEX

Exhibit No. |  | Description of Document
1.1 |  | HDFC Bank Memorandum of Association, as amended (incorporated by reference to HDFC Bank Limited’s Registration Statement on Form F-1 filed on July 12, 2001 (Registration No. 333-13718))*
1.2 |  | HDFC Bank Articles of Association, as amended (incorporated by reference to HDFC Bank Limited’s Registration Statement on Form F-1 filed on July 12, 2001 (Registration No. 333-13718))*
1.3 |  | Amendment to Memorandum and Articles of Association (incorporated herein by reference to HDFC Bank Limited’s Annual Report on Form 20-F filed on September 29, 2008)
1.4 |  | Amendment to Memorandum and Articles of Association (incorporated herein by reference to HDFC Bank Limited’s Annual Report on Form 20-F filed on September 30, 2011)
1.5 |  | Amendment to Memorandum of Association (incorporated herein by reference to HDFC Bank Limited’s Annual Report on Form 20-F filed on July 29, 2016)
1.6 |  | Amendment to Memorandum and Articles of Association dated July 12, 2019
2.1 |  | HDFC Bank’s Specimen Certificate for Equity Shares (incorporated herein by reference to HDFC Bank Limited’s Registration Statement on Form F-1 filed on July 12, 2001 (Registration No. 333-13718))*
2.2 |  | Amended and Restated Deposit Agreement among HDFC Bank Limited, JPMorgan Chase Bank, N.A. and all holders from time to time of American Depositary Receipts issued thereunder (including as an exhibit, the form of American Depositary Receipt) (incorporated herein by reference to Form F-6 filed on September 9, 2015 (Registration No. 333-175521))
12.1 |  | Certification of the Managing Director pursuant to Rule 13a-14(b)
12.2 |  | Certification of the Chief Financial Officer of HDFC Bank pursuant to Rule 13a-14(b)
13 |  | Certifications by the Managing Director and Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
23.1 |  | Consent of Independent Registered Public Accounting Firm KPMG Assurance and Consulting Services LLP
101 |  | The following financial information from HDFC Bank Ltd. Annual Report on Form 20-F for the year ended March 31, 2020 is formatted in Inline XBRL: (i) Consolidated Statements of Income, (ii) Consolidated statements of comprehensive income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
104 |  | The cover page for HDFC Bank Ltd.’s Annual Report on Form 20-F for the year ended March 31, 2020, has been formatted in Inline XBRL

HDFC Bank Limited agrees to furnish to the Securities and Exchange Commission, upon its request, the instruments relating to the long-term debt for securities authorized thereunder that do not exceed 10 percent of HDFC Bank Limited’s total assets.

* | Paper filing

Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

HDFC Bank Limited
/s/ Srinivasan Vaidyanathan
Name: Srinivasan Vaidyanathan
Title: Chief Financial Officer
Date: July 31, 2020