Commitments and contingencies

12 Months Ended

Mar. 31, 2020

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).

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.

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