Form 6-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2016

Commission File Number 001-15216

 

 

HDFC BANK LIMITED

(Translation of registrant’s name into English)

 

 

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

(Address of principal executive office)

 

 

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

Form 20-F  x            Form 40-F  ¨

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

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

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

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

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

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

 

 

 


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SIGNATURES

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

 

    HDFC BANK LIMITED
              (Registrant)
Date: February 2, 2016     By  

/s/ Sashidhar Jagdishan

    Name:   Sashidhar Jagdishan
    Title:   Chief Financial Officer


Table of Contents

EXHIBIT INDEX

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

Exhibit I

Description

Financial Statements of HDFC Bank Limited prepared in accordance with US GAAP as of and for the six month periods ended September 30, 2014 and 2015.


Table of Contents

Exhibit I

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Consolidated Financial Statements of HDFC Bank Limited and its Subsidiaries:

  

Condensed consolidated balance sheets as of March 31, 2015 and September 30, 2015

     F-2   

Condensed consolidated statements of income for the six-months periods ended September 30, 2014 and 2015

     F-3   

Condensed consolidated statements of comprehensive income for the six-months periods ended September  30, 2014 and 2015

     F-4   

Condensed consolidated statements of cash flows for the six-months periods ended September  30, 2014 and 2015

     F-5   

Condensed consolidated statements of shareholders’ equity for the periods ended September  30, 2014 and 2015

     F-7   

Notes to condensed consolidated financial statements

     F-8   

 

F-1


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     As of  
     March 31, 2015      September 30, 2015
(unaudited)
     September 30, 2015
(unaudited)
 
     (In millions, except number of shares)  

ASSETS:

        

Cash and cash equivalents

   Rs. 341,124.3       Rs. 314,408.5       US$ 4,800.1   

Term placements

     169,989.5         163,793.8         2,500.7   

Investments held for trading, at fair value

     61,292.8         56,534.2         863.1   

Investments available for sale, at fair value [includes restricted investments of Rs. 721,933.3 and Rs. 694,395.5 (US$ 10,601.5), respectively]

     1,504,412.8         1,686,742.8         25,751.8   

Securities purchased under agreements to resell

     1,592.6         2,808.5         42.9   

Loans [net of allowance of Rs. 47,334.1 and Rs. 53,794.1 (US$ 821.3), respectively]

     3,896,115.0         4,365,300.8         66,645.8   

Accrued interest receivable

     45,705.0         54,169.8         827.0   

Property and equipment, net

     33,355.9         34,249.1         522.9   

Intangible assets, net

     12.0         8.5         0.1   

Goodwill

     74,937.9         74,937.9         1,144.1   

Other assets

     130,478.0         140,022.0         2,137.8   
  

 

 

    

 

 

    

 

 

 

Total assets

   Rs. 6,259,015.8       Rs. 6,892,975.9       US$ 105,236.3   
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

        

Liabilities:

        

Interest-bearing deposits

   Rs. 3,768,678.8       Rs. 4,367,445.8       US$ 66,678.6   

Non-interest-bearing deposits

     733,032.0         696,460.5         10,633.0   
  

 

 

    

 

 

    

 

 

 

Total deposits

     4,501,710.8         5,063,906.3         77,311.6   

Securities sold under repurchase agreements

     50,000.0         25,610.0         391.0   

Short-term borrowings

     214,191.9         225,475.5         3,442.4   

Accrued interest payable

     32,689.5         50,246.6         767.1   

Long-term debt

     457,934.4         457,438.9         6,983.8   

Accrued expenses and other liabilities

     250,921.6         273,580.6         4,176.8   
  

 

 

    

 

 

    

 

 

 

Total liabilities

   Rs. 5,507,448.2       Rs. 6,096,257.9       US$ 93,072.7   
  

 

 

    

 

 

    

 

 

 

Commitments and contingencies (see note 14)

        

Shareholders’ equity:

        

Equity shares: par value—Rs. 2.0 each; authorized 2,750,000,000 shares; issued and outstanding 2,506,495,317 shares and 2,518,193,217 shares, as of March 31, 2015 and September 30, 2015, respectively

   Rs. 5,013.0       Rs. 5,036.4       US$ 76.9   

Additional paid-in capital

     387,486.1         399,625.6         6,101.2   

Retained earnings

     228,804.4         256,528.0         3,916.4   

Statutory reserve

     118,122.2         118,635.9         1,811.2   

Accumulated other comprehensive income (loss)

     10,826.4         15,509.3         236.8   
  

 

 

    

 

 

    

 

 

 

Total HDFC Bank Limited shareholders’ equity

     750,252.1         795,335.2         12,142.5   

Noncontrolling interest in subsidiaries

     1,315.5         1,382.8         21.1   
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

     751,567.6         796,718.0         12,163.6   
  

 

 

    

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   Rs. 6,259,015.8       Rs. 6,892,975.9       US$ 105,236.3   
  

 

 

    

 

 

    

 

 

 

See accompanying notes to condensed consolidated financial statements

 

F-2


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HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

     Six months ended September 30,  
     2014     2015     2015  
     (In millions, except share and per share amounts)  

Interest and dividend revenue:

      

Loans

   Rs. 184,717.1      Rs. 223,988.7      US$ 3,419.7   

Trading securities

     2,459.3        2,579.0        39.4   

Available for sale securities

     44,038.0        64,867.6        990.3   

Other

     7,390.8        7,472.0        114.1   
  

 

 

   

 

 

   

 

 

 

Total interest and dividend revenue

     238,605.2        298,907.3        4,563.5   
  

 

 

   

 

 

   

 

 

 

Interest expense:

      

Deposits

     106,776.4        138,919.1        2,120.9   

Short-term borrowings

     3,719.6        5,086.0        77.6   

Long-term debt

     14,744.6        16,443.5        251.0   

Other

     206.5        316.3        4.8   
  

 

 

   

 

 

   

 

 

 

Total interest expense

     125,447.1        160,764.9        2,454.3   
  

 

 

   

 

 

   

 

 

 

Net interest revenue

     113,158.1        138,142.4        2,109.2   

Provision for credit losses

     7,332.5        11,564.1        176.6   
  

 

 

   

 

 

   

 

 

 

Net interest revenue after provision for credit losses

     105,825.6        126,578.3        1,932.6   
  

 

 

   

 

 

   

 

 

 

Non-interest revenue, net:

      

Fees and commissions

     32,309.8        38,390.1        586.1   

Trading securities gain/(loss), net

     218.0        1,568.6        23.9   

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

     244.2        833.5        12.7   

Other than temporary impairment losses on available for sale securities

     (1.8     —          —     

Foreign exchange transactions

     747.6        (6,582.0 )     (100.5 )

Derivatives gain/(loss), net

     (774.1 )     8,779.9        134.0   

Other, net

     160.7        184.4        2.8   
  

 

 

   

 

 

   

 

 

 

Total non-interest revenue, net

     32,904.4        43,174.5        659.0   
  

 

 

   

 

 

   

 

 

 

Total revenue, net

     138,730.0        169,752.8        2,591.6   
  

 

 

   

 

 

   

 

 

 

Non-interest expense:

      

Salaries and staff benefits

     34,257.9        40,566.2        619.3   

Premises and equipment

     10,021.1        11,755.2        179.5   

Depreciation and amortization

     3,392.6        3,652.9        55.8   

Administrative and other

     23,264.6        30,322.4        462.8   

Amortization of intangible assets

     210.5        3.5        0.1   
  

 

 

   

 

 

   

 

 

 

Total non-interest expense

     71,146.7        86,300.2        1,317.5   
  

 

 

   

 

 

   

 

 

 

Income before income tax expense

     67,583.3        83,452.6        1,274.1   

Income tax expense

     24,576.7        30,954.0        472.6   
  

 

 

   

 

 

   

 

 

 

Net income before noncontrolling interest

   Rs. 43,006.6      Rs. 52,498.6      US$ 801.5   

Less: Net income attributable to shareholders of noncontrolling interest

     30.1        60.5        0.9   
  

 

 

   

 

 

   

 

 

 

Net income attributable to HDFC Bank Limited

   Rs. 42,976.5      Rs. 52,438.1      US$ 800.6   
  

 

 

   

 

 

   

 

 

 

Per share information:

      

Earnings per equity share—basic

   Rs. 17.85      Rs. 20.88      US$ 0.32   

Earnings per equity share—diluted

   Rs. 17.71      Rs. 20.65      US$ 0.31   

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

      

Earnings per ADS—basic

   Rs. 53.55      Rs. 62.64      US$ 0.96   

Earnings per ADS—diluted

   Rs. 53.13      Rs. 61.95      US$ 0.93   

Dividends declared per equity share

   Rs 6.85      Rs 8.00      US$ 0.12   

See accompanying notes to condensed consolidated financial statements

 

F-3


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HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

     Six months ended September 30,  
     2014      2015     2015  
     (In millions)  

Net income before noncontrolling interest

   Rs. 43,006.6       Rs. 52,498.6      US$ 801.5   

Other comprehensive income, net of tax:

       

Foreign currency translation reserve:

       

Net unrealized gain (loss) arising during the period [net of tax nil and Rs. 103.0 respectively]

     73.8         199.9        3.1   

Available for sale securities:

       

Net unrealized gain (loss) arising during the period [net of tax Rs. (3,675.3) and Rs. (2,756.9) respectively]

     7,138.0         4,948.3        75.5   

Reclassification adjustment for net (gain)/ loss included in net income [net of tax Rs. (100.4) and Rs. 239.6 respectively]

     194.9         (465.3 )     (7.1 )
  

 

 

    

 

 

   

 

 

 

Other comprehensive income, net of tax

     7,406.7         4,682.9        71.5   

Total comprehensive income

     50,413.3         57,181.5        873.0   

Less: Comprehensive income attributable to shareholders of noncontrolling interest

     30.1         60.5        0.9   
  

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to HDFC Bank Limited

   Rs. 50,383.2       Rs. 57,121.0      US$ 872.1   
  

 

 

    

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

F-4


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six months ended September 30,  
     2014     2015     2015  
     (In millions)  

Cash flows from operating activities:

      

Net income before noncontrolling interest

   Rs. 43,006.6      Rs. 52,498.6      US$ 801.5   

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

      

Provision for credit losses

     7,332.5        11,564.1        176.6   

Depreciation and amortization

     3,392.6        3,652.9        55.8   

Amortization of intangible assets

     210.5        3.5        0.1   

Amortization of deferred acquisition costs

     2,846.2        4,150.4        63.4   

Amortization of premium (discount) on investments

     (573.8 )     395.5        6.0   

Other than temporary impairment losses on available for sale securities

     1.8        —          —     

Provision for deferred income taxes

     (441.2 )     (1,600.3 )     (24.4

Share-based compensation expense

     4,985.4        5,486.9        83.8   

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

     (244.2 )     (833.5 )     (12.7

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

     (52.5     (3.0 )     —     

Exchange (gain) loss

     1,928.1        (1,314.3 )     (20.1

Net change in:

      

Investments held for trading

     24,356.4        (696.7 )     (10.6

Accrued interest receivable

     92.6        (8,330.8 )     (127.2

Other assets

     65,099.7        11,763.9        179.6   

Accrued interest payable

     10,973.4        17,261.7        263.5   

Accrued expense and other liabilities

     (81,303.2 )     21,917.3        334.6   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     81,610.9        115,916.2        1,769.9   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Net change in term placements

     (16,996.1 )     6,195.7        94.6   

Activity in available for sale securities:

      

Purchases

     (570,066.7 )     (1,011,339 )     (15,440.3 )

Proceeds from sales

     88,484.8        135,802.5        2,073.3   

Maturities, prepayments and calls

     289,329.3        702,161.5        10,720.0   

Net change in repurchase options and reverse repurchase options

     34,006.5        (25,605.9     (390.9

Loans purchased

     (20,148.7 )     (65,346.7 )     (997.7

Repayments on loans purchased

     18,537.4        21,787.3        332.6   

Increase in loans originated, net of principal collections

     (216,578.3 )     (422,416.5     (6,449.0

Additions to property and equipment

     (3,444.2 )     (4,907.3 )     (74.9

Proceeds from sale or disposal of property and equipment

     100.0        48.4        0.7   
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (396,776.0 )     (663,620.0 )     (10,131.6 )
  

 

 

   

 

 

   

 

 

 

See accompanying notes to condensed consolidated financial statements

 

F-5


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

 

     Six months ended September 30,  
     2014     2015     2015  
     (In millions)  

Cash flows from financing activities:

      

Net increase in deposits

     224,726.4        537,217.2        8,201.7   

Net increase (decrease) in short-term borrowings

     (48,340.2 )     11,283.6        172.3   

Purchase of subsidiary shares from noncontrolling interest

     (715.7     —         —    

Proceeds from issue of shares by a subsidiary to noncontrolling interests

     —         6.5        0.1   

Proceeds from issuance of long-term debt

     40,865.1        25,595.9        390.8   

Repayment of long-term debt

     (33,772.8 )     (38,324.6 )     (585.1

Proceeds from issuance of equity shares for options exercised

     6,154.1        6,676.3        101.9   

Payment of dividends and dividend tax

     (19,300.7 )     (24,200.8 )     (369.5
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     169,616.2        518,254.1        7,912.2   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     3,045.2        2,733.9        41.6   

Net change in cash and cash equivalents

     (142,503.7     (26,715.8     (407.9

Cash and cash equivalents, beginning of year

     370,835.2        341,124.3        5,208.0   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

     228,331.5      Rs. 314,408.5      US$ 4,800.1   
  

 

 

   

 

 

   

 

 

 

Supplementary cash flow information:

      

Interest paid

     114,311.3      Rs. 143,207.8      US$ 2,186.4   

Income taxes paid

     25,872.5      Rs. 32,081.3      US$ 489.8   

Non-cash investment activities

      

Payable for purchase of property and equipment

     539.8      Rs. 693.2      US$ 10.6   

See accompanying notes to condensed consolidated financial statements

 

F-6


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

    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, 2014

    2,399,050,435      Rs. 4,798.1      Rs. 271,709.6      Rs. 175,105.9      Rs. 91,883.5      Rs. (11,590.4 )   Rs. 531,906.7      Rs. 1,094.0     Rs. 533,000.7   

Shares issued upon exercise of options

    15,271,720        30.5        6,123.6              6,154.1         6,154.1  

Share-based compensation

        4,985.4              4,985.4         4,985.4  

Advances received pending allotment of shares

                 

Dividends, including dividend tax

          (19,300.7         (19,300.7       (19,300.7

Change in ownership interest in subsidiary

        (333.7 )           (333.7     (382.0 )     (715.7 )

Net income

          42,976.5           42,976.5       30.1        43,006.6  

Net change in accumulated other comprehensive income

              7,406.7       7,406.7         7,406.7  

Balance at September 30, 2014

    2,414,322,155      Rs. 4,828.6      Rs. 282,484.9      Rs. 198,781.7      Rs. 91,883.5      Rs. (4,183.7   Rs. 573,795.0      Rs. 742.1     Rs. 574,537.1   
    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
 

Balance at March 31, 2015

    2,506,495,317      Rs. 5,013.0     Rs. 387,486.1      Rs. 228,804.4      Rs. 118,122.2      Rs. 10,826.4      Rs. 750,252.1      Rs. 1,315.5      Rs. 751,567.6   

Shares issued upon exercise of options

    11,697,900.0        23.4       6,652.9              6,676.3         6,676.3  

Share-based compensation

        5,486.9              5,486.9         5,486.9  

Advances received pending allotment of shares

                 

Dividends, including dividend tax

          (24,200.8         (24,200.8       (24,200.8

Change in ownership interest in subsidiary

        (0.3 )           (0.3     0.3        —    

Shares issued to noncontrolling interest

                —         6.5        6.5  

Transfer to statutory reserve

          (513.7     513.7          —           —    

Net income

          52,438.1            52,438.1       60.5        52,498.6  

Net change in accumulated other comprehensive income

              4,682.9       4,682.9         4,682.9  

Balance at September 30, 2015

    2,518,193,217      Rs. 5,036.4     Rs. 399,625.6      Rs. 256,528.0      Rs. 118,635.9      Rs. 15,509.3      Rs. 795,335.2      Rs. 1,382.8     Rs. 796,718.0   

Balance at September 30, 2015

    US$ 76.9      US$ 6,101.2      US$ 3,916.4      US$ 1,811.2      US$ 236.8      US$ 12,142.5      US$ 21.1      US$ 12,163.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* In terms of local regulations, the Bank is required to transfer 25% of its profit after tax (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 condensed consolidated financial statements

 

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Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These condensed consolidated financial statements should be read in conjunction with the financial statements of the Bank included in its Form 20-F filed with the Securities and Exchange Commission on July 31, 2015.

1. Summary of significant accounting policies

a. Principles of consolidation

The consolidated financial statements include the accounts of HDFC Bank Limited and its subsidiaries. The Bank consolidates subsidiaries in which, directly or indirectly, it holds more than 50% of the voting rights 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 under Financial Accounting Standard Board Accounting Standard Codification “FASB ASC” Topic 810 “Consolidations”. All significant inter-company accounts 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 income taxes, stock-based compensation, employee benefits, loan origination fees, derivative financial instruments, business combination and the presentation format and disclosures of the financial statements and related notes. The condensed consolidated balance sheet at March 31, 2015 has been derived from the Bank’s audited consolidated financial statement at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included.

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 periods presented. Actual results could differ from these estimates. Material estimates included in these financial statements that are susceptible to change include the allowance for credit losses, the valuation of unquoted investments, other than temporary impairment, valuation of derivatives, stock-based compensation, unrecognized tax benefits and impairment assessment of goodwill.

 

F-8


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

d. Allowance for credit losses

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

Retail

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

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 and credit card receivables, 180 days past due for auto loans, commercial vehicle and construction equipment finance, 720 days past due for housing loans and on a customer by customer basis in respect of retail business banking when management believes that any future cash flows from these loans are remote including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements are not feasible.

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

Wholesale

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

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

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

 

F-9


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

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

e. Income tax

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

f. 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. Nominal loan application fees are charged which offset the related costs incurred.

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

Dividends from investments are recognized when declared.

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

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

g. Recently adopted accounting standards

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860)”. The amendments in this update change the current accounting outcome by requiring repurchase-to-maturity transactions to be accounted for as secured borrowings and for repurchase financing arrangement the amendments require separate accounting for a transfer of the financial asset executed contemporaneously with a repurchase agreement with same counterparty. The amendments also require new disclosures. The Bank adopted the provisions of ASU 2014-11 effective April 1, 2015. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations.

h. Recently issued accounting pronouncements not yet effective

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This update clarifies the principles for revenue recognition in transactions involving contracts with customers. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. The Bank has not yet evaluated what impact, if any, the adoption of this guidance may have on the Bank’s financial condition, results of operations, or disclosures.

 

F-10


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In August 2014, the FASB also issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU requires management to perform an assessment of going concern and provides specific guidance on when and how to assess or disclose going concern uncertainties. The new standard also defines terms used in the evaluation of going concern, such as “substantial doubt.” Following the application, the Bank will be required to perform assessments at each annual and interim period, provide an assessment period of one year from the issuance date, and make disclosures in certain circumstances in which substantial doubt is identified. The amendment will be effective for the Bank for the first reporting period ending after December 15, 2016. Earlier application is permitted. The Bank does not expect this ASU to have an impact on its financial position, result of operations, or disclosures.

In January 2015, the FASB issued ASU 2015-01 - Income Statement -Extraordinary and Unusual Items (Subtopic 225-20). The update removes the concept of extraordinary items from GAAP and eliminates the requirement for extraordinary items to be separately presented in the statement of income. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2015 and early adoption is permitted. The update will not have a material impact on the Bank’s consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02 - Consolidation (Topic 810). The update primarily amends the criteria companies use to evaluate whether they should consolidate certain variable interest entities that have fee arrangements and the criteria used to determine whether partnerships and similar entities are variable interest entities. The update also excludes certain money market funds from the consolidation guidance. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2015 and early adoption is permitted. The Bank has not yet evaluated what impact, if any, the adoption of this guidance may have on the Bank’s financial condition, results of operations, or disclosures.

In April 2015, the FASB issued ASU 2015-03 - Interest - Imputation of Interest (Subtopic 835-30). The update changes the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs should be reported as a deduction from debt liabilities rather than as a deferred charge classified as an asset. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2015 and early adoption is permitted. The update will not have a material impact on the Bank’s consolidated financial statements.

In May 2015, the FASB issued ASU 2015-07 - Fair Value Measurement (Topic 820). The update eliminates the disclosure requirement to categorize investments within the fair value hierarchy that are measured at fair value using net asset value as a practical expedient. The guidance will be effective for the interim and annual reporting periods beginning after December 15, 2015 and early adoption is permitted. The update will not affect the Bank’s consolidated financial statements as it impacts only the fair value disclosure requirements for certain investments.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments- Overall (Subtopic 825-10).” The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The amendments also require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Bank has not yet evaluated what impact, if any, the adoption of this guidance may have on the Bank’s financial condition, results of operations, or disclosures.

i. Convenience translation

The accompanying financial statements have been expressed in Indian Rupees (“Rs.”), the Bank’s functional currency. For the convenience of the reader, the financial statements as of and for the six months period ended September 30, 2015 have been translated into U.S. dollars at U.S.$1.00 = Rs. 65.50 as published by the Federal Reserve Board of New York on September 30, 2015. Such translation should not be construed as a representation that the rupee amounts have been or could be converted into United States dollars at that or any other rate, or at all.

 

F-11


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

2. Investments, held for trading

The portfolio of trading securities as of March 31, 2015 and September 30, 2015 was as follows:

 

    As of March 31, 2015  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs. 60,239.5      Rs. 53.5      Rs. 0.2      Rs. 60,292.8   

Other corporate/financial institution securities

    1,000.0        —         —         1,000.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

  Rs. 61,239.5      Rs. 53.5      Rs. 0.2      Rs. 61,292.8   

Equity securities

    —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 61,239.5      Rs. 53.5      Rs. 0.2      Rs. 61,292.8   
 

 

 

   

 

 

   

 

 

   

 

 

 
    As of September 30, 2015  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs. 55,848.3      Rs. 131.1      Rs. 1.0      Rs. 55,978.4   

Other corporate/financial institution securities

    500.0        45.6        —         545.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total debt securities

  Rs. 56,348.3      Rs. 176.7      Rs. 1.0      Rs. 56,524.0   

Equity securities

    10.2        —         —         10.2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 56,358.5      Rs. 176.7      Rs. 1.0      Rs. 56,534.2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 860.4      US$ 2.7      US$ —       US$ 863.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

3. Investments, available for sale

The portfolio of available for sale securities as of March 31, 2015 and September 30, 2015 was as follows:

 

    As of March 31, 2015  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs. 1,151,520.7      Rs. 13,843.3      Rs. 1,242.7      Rs. 1,164,121.3   

State government securities

    54,134.6        2,074.4        —         56,209.0   

Credit substitutes

    194,992.4        243.9        177.4        195,058.9   

Other corporate/financial institution bonds

    6,555.1        83.3        1.5        6,636.9   

Certificate of Deposit

    56,300.2        85.4        —         56,385.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

    1,463,503.0        16,330.3        1,421.6        1,478,411.7   

Mortgage-backed securities

    1,282.0        50.1        —         1,332.1   

Asset-backed securities

    23,512.3        223.2        452.2        23,283.3   

Other securities (including mutual fund units)

    788.1        597.9        0.3        1,385.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 1,489,085.4      Rs. 17,201.5      Rs. 1,874.1      Rs. 1,504,412.8   
     

 

 

   

 

 

 

Securities with gross unrealized losses

        Rs. 469,004.0   

Securities with gross unrealized gains

          1,035,408.8   
       

 

 

 
        Rs. 1,504,412.8   
       

 

 

 

 

F-12


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

    As of September 30, 2015  
    Amortized Cost     Gross Unrealized
Gains
    Gross Unrealized
Losses
    Fair Value  
    (In millions)  

Government of India securities

  Rs. 1,179,950.2      Rs. 18,295.6      Rs. 293.2      Rs. 1,197,952.6   

State government securities

    83,980.1        3,050.4        —         87,030.5   

Credit substitutes

    332,041.4        505.8        69.7        332,477.5   

Other corporate/financial institution bonds

    8,845.4        61.3        122.0        8,784.7   

Certificate of Deposit

    34,043.0        156.0        —         34,199.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt securities, other than asset and mortgage-backed securities

    1,638,860.1        22,069.1        484.9        1,660,444.3   

Mortgage-backed securities

    751.7        41.1        —         792.8   

Asset-backed securities

    24,013.1        539.8        318.5        24,234.4   

Other securities (including mutual fund units)

    792.1        498.9        19.7        1,271.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 1,664,417.0      Rs. 23,148.9      Rs. 823.1      Rs. 1,686,742.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 25,411.0      US$ 353.4      US$ 12.6      US$ 25,751.8   
       

 

 

 

Securities with gross unrealized losses

        Rs. 153,321.8   

Securities with gross unrealized gains

          1,533,421.0   
       

 

 

 
        Rs. 1,686,742.8   
        US$ 25,751.8   
       

 

 

 

AFS investments of Rs. 1,220,330.3 million and Rs. 1,284,983.1 million (US$ 19,618.1 million) as of March 31, 2015 and September 30, 2015, respectively, are eligible for placement towards the Bank’s statutory liquidity ratio requirements. These balances are subject to withdrawal and usage restrictions, but may be freely traded by the Bank within those restrictions. Of these investments, Rs. 721,933.3 million as of March 31, 2015 and Rs. 694,395.5 million (US$ 10,601.5 million) as of September 30, 2015, respectively, were kept as margins for clearing, collateral borrowing and lending obligation (CBLO), real time gross settlement (RTGS), with the Reserve Bank of India and other financial institutions.

The Bank conducts a review each reporting period to identify and evaluate investments that have indications of possible impairment. An investment in an equity or debt security is impaired if its fair value falls below its cost and the decline is considered other than temporary. Factors considered in determining whether a loss is temporary include length of time and extent to which fair value has been below cost, the financial condition and near-term prospects of the issuer and whether the Bank intends to sell or will be required to sell the security until the forecasted recovery. The Bank evaluated the impaired investments and has fully recognized an expense of Rs. 1.8 million and nil as other than temporary impairment for six months periods ended September 30, 2014 and September 30, 2015, respectively because the Bank intends to sell the securities before recovery of their amortized cost. The Bank is of the opinion that the other unrealized losses on its investments in equity and debt securities as of September 30, 2015 are temporary in nature. The Bank’s review of impairment generally entails:

 

    identification and evaluation of investments that have indications of possible impairment;

 

    analysis of individual investments that have fair values of less than 95% of amortized cost, including consideration of the length of time the investment has been in an unrealized loss position;

 

    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.

As of March 31, 2015 and September 30, 2015, 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.

 

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Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The gross unrealized losses and fair value of available for sale securities at March 31, 2015 was as follows:

 

     As of March 31, 2015                
     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. 10,602.4       Rs. 37.9       Rs. 277,465.1       Rs. 1,204.8       Rs. 288,067.5       Rs. 1,242.7   

State government securities

     —           —           7.5         —           7.5         —     

Credit substitutes

     158,859.4         177.4         —           —           158,859.4         177.4   

Other corporate/financial institution bonds

     1,339.6         1.5         —           —           1,339.6         1.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Debt securities, other than asset and mortgage-backed securities

     170,801.4         216.8         277,472.6         1,204.8         448,274.0         1,421.6   

Mortgage-backed securities

     —           —           —           —           —           —     

Asset-backed securities

     20,727.1         452.2         —           —           20,727.1         452.2   

Equity securities

     2.9         0.3         —           —           2.9         0.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Rs. 191,531.4       Rs. 669.3       Rs. 277,472.6       Rs. 1,204.8       Rs. 469,004.0       Rs. 1,874.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The gross unrealized losses and fair value of available for sale securities at September 30, 2015 was as follows:

 

     As of September 30, 2015                
     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. 7,510.4       Rs. 0.1       Rs. 59,822.7       Rs. 293.1       Rs. 67,333.1       Rs. 293.2   

State government securities

     —           —           —           —           —           —     

Credit substitutes

     62,649.1         69.7         —           —           62,649.1         69.7   

Other corporate/financial institution bonds

     914.8         122.0         —           —           914.8         122.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Debt securities, other than asset and mortgage-backed securities

     71,074.3         191.8         59,822.7         293.1         130,897.0         484.9   

Mortgage-backed securities

     —           —           —           —           —           —     

Asset-backed securities

     22,398.1         318.5         —           —           22,398.1         318.5   

Equity securities

     26.7         19.7         —           —           26.7         19.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Rs. 93,499.1       Rs. 530.0       Rs. 59,822.7       Rs. 293.1       Rs. 153,321.8       Rs. 823.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 1,427.5       US$ 8.1       US$ 913.3       US$ 4.5       US$ 2,340.8       US$ 12.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The contractual residual maturity of available for sale debt securities other than asset and mortgage-backed securities as of September 30, 2015 is set out below:

 

     As of September 30, 2015  
     Amortized Cost      Fair Value      Fair Value  
     (In millions)  

Within one year

   Rs. 646,409.9       Rs. 647,501.5       US$ 9,885.5   

Over one year through five years

     284,470.2         286,900.7         4,380.2   

Over five years through ten years

     440,658.0         450,034.9         6,870.8   

Over ten years

     267,322.0         276,007.2         4,213.9   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 1,638,860.1       Rs. 1,660,444.3       US$ 25,350.4   
  

 

 

    

 

 

    

 

 

 

 

F-14


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The contractual residual maturity of available for sale mortgage-backed and asset-backed securities as of September 30, 2015 is set out below:

 

     As of September 30, 2015  
     Amortized Cost      Fair Value      Fair Value  
     (In millions)  

Within one year

   Rs. 13,484.1       Rs. 13,595.8       US$ 207.6   

Over one year through five years

     10,647.2         10,593.4         161.7   

Over five years through ten years

     194.9         198.7         3.0   

Over ten years

     438.6         639.3         9.8   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 24,764.8       Rs. 25,027.2       US$ 382.1   
  

 

 

    

 

 

    

 

 

 

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

 

     Six months ended September 30,  
     2014      2015      2015  
     (In millions)  

Gross realized gains on sale

   Rs. 1,192.0       Rs. 1,019.8       US$ 15.6   

Gross realized losses on sale

     (947.8 )      (186.3 )      (2.9 )
  

 

 

    

 

 

    

 

 

 

Realized gains (losses), net

     244.2         833.5         12.7   

Dividends and interest

     44,038.0         64,867.6         990.3   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 44,282.2       Rs. 65,701.1       US$ 1,003.0   
  

 

 

    

 

 

    

 

 

 

4. Investments, held to maturity

There were no HTM securities as of March 31, 2015 and September 30, 2015.

Under Indian GAAP, transfer from an HTM portfolio to an AFS portfolio are permitted by RBI regulations once every year and the Bank has made transfers in accordance with these regulations. However, the Bank has not established an HTM portfolio under US GAAP and therefore the investment classification made under US GAAP and Indian GAAP varies materially.

 

F-15


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

5. Loans

Loan balances include Rs. 192,684.5 million and nil as of March 31, 2015 and September 30, 2015, respectively, which have been pledged as collateral for borrowings and are therefore restricted.

Loans by facility as of March 31, 2015 and September 30, 2015 were as follows:

 

    As of  
    March 31, 2015     September 30, 2015     September 30, 2015  
    (In millions)  

Retail loans:

     

Auto loans

  Rs. 486,251.7      Rs. 541,052.4      US$ 8,260.3   

Personal loans/Credit cards

    449,381.7        531,510.7        8,114.7   

Retail business banking

    660,456.7        715,722.5        10,927.1   

Commercial vehicle and construction equipment finance

    305,995.4        333,523.3        5,092.0   

Housing loans

    241,368.8        284,936.4        4,350.2   

Other retail loans

    577,534.2        660,412.7        10,082.5   
 

 

 

   

 

 

   

 

 

 

Subtotal

  Rs. 2,720,988.5      Rs. 3,067,158.0      US$ 46,826.8   

Wholesale loans

  Rs. 1,222,460.6      Rs. 1,351,936.9      US$ 20,640.3   
 

 

 

   

 

 

   

 

 

 

Gross loans

    3,943,449.1        4,419,094.9        67,467.1   

Less: Allowance for credit losses

    47,334.1        53,794.1        821.3   
 

 

 

   

 

 

   

 

 

 

Total

  Rs. 3,896,115.0      Rs. 4,365,300.8      US$ 66,645.8   
 

 

 

   

 

 

   

 

 

 

Gross loans analyzed by performance are as follows:

 

    As of  
    March 31, 2015     September 30, 2015     September 30, 2015  
    (In millions)  

Performing

  Rs. 3,904,124.3      Rs. 4,374,683.4      US$ 66,789.1   

Impaired

    39,324.8        44,411.5        678.0   
 

 

 

   

 

 

   

 

 

 

Total gross loans

  Rs. 3,943,449.1      Rs. 4,419,094.9      US$ 67,467.1   
 

 

 

   

 

 

   

 

 

 

 

F-16


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table provides details of age analysis of loans as of March 31, 2015 and September 30, 2015.

 

    As of March 31, 2015  
    31-90 days past
due
    Impaired / 91
days or more past
due
    Total current 1,2      Total  
    (in millions)  

Retail Loans

       

Auto loans

  Rs. 2,448.7      Rs. 2,718.7      Rs. 481,084.3      Rs. 486,251.7   

Personal loans/Credit card

    2,361.1        2,648.4        444,372.2        449,381.7   

Retail business banking

    5,262.5        10,012.5        645,181.7        660,456.7   

Commercial vehicle and construction equipment finance

    5,389.7        5,559.4        295,046.3        305,995.4   

Housing loans

    68.7        242.7        241,057.4        241,368.8   

Other retail

    5,184.2        4,653.5        567,696.5        577,534.2   

Wholesale loans

    1,244.7        13,489.6        1,207,726.3        1,222,460.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 21,959.6      Rs. 39,324.8      Rs. 3,882,164.7      Rs. 3,943,449.1   
 

 

 

   

 

 

   

 

 

   

 

 

 
    As of September 30, 2015  
    31-90 days past
due
    Impaired / 91
days or more past
due
    Total current 1,2      Total  
    (in millions)  

Retail Loans

       

Auto loans

  Rs. 3,735.3      Rs. 3,271.2      Rs. 534,045.9      Rs. 541,052.4   

Personal loans/Credit card

    2,937.8        2,849.9        525,723.0        531,510.7   

Retail business banking

    5,656.4        12,770.6        697,295.5        715,722.5   

Commercial vehicle and construction equipment finance

    6,608.2        5,854.8        321,060.3        333,523.3   

Housing loans

    50.4        259.9        284,626.1        284,936.4   

Other retail

    4,551.9        6,716.1        649,144.7        660,412.7   

Wholesale loans

    1,534.8        12,689.0        1,337,713.1        1,351,936.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 25,074.8      Rs. 44,411.5      Rs. 4,349,608.6      Rs. 4,419,094.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 382.8      US$ 678.0      US$ 66,406.3      US$ 67,467.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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 accessed as impaired.

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

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

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

 

F-17


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

As an integral part of the credit process, the Bank has a credit rating model appropriate to its wholesale and retail credit segments (see note 1d). The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal grading is updated at least annually.

Retail Loans

Credit quality indicator based on payment activity as of March 31, 2015 and as of September 30, 2015 is given below.

 

    As of March 31, 2015  
    Auto loans     Personal loans/
Credit card
    Retail business
banking
    Commercial vehicle and
Construction equipment
finance
    Housing loans     Other retail     Total  
    (In millions)  

Performing

  Rs. 483,533.0      Rs. 446,733.3      Rs. 650,444.2      Rs. 300,436.0      Rs. 241,126.1      Rs. 572,880.7      Rs. 2,695,153.3   

Impaired

    2,718.7        2,648.4        10,012.5        5,559.4        242.7        4,653.5        25,835.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 486,251.7      Rs. 449,381.7      Rs. 660,456.7      Rs. 305,995.4      Rs. 241,368.8      Rs. 577,534.2      Rs. 2,720,988.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    As of September 30, 2015  
    Auto loans     Personal loans/
Credit card
    Retail business
banking
    Commercial vehicle and
Construction equipment
finance
    Housing loans     Other retail     Total  
    (In millions)  

Performing

  Rs. 537,781.2      Rs. 528,660.8      Rs. 702,951.9      Rs. 327,668.5      Rs. 284,676.5      Rs. 653,696.6      Rs. 3,035,435.5   

Impaired

    3,271.2        2,849.9        12,770.6        5,854.8        259.9        6,716.1        31,722.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 541,052.4      Rs. 531,510.7      Rs. 715,722.5      Rs. 333,523.3      Rs. 284,936.4      Rs. 660,412.7      Rs. 3,067,158.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 8,260.3      US$ 8,114.7      US$ 10,927.1      US$ 5,092.0      US$ 4,350.2      US$ 10,082.5      US$ 46,826.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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. Labeled loans are those with evidence of weakness where such exposures indicate deteriorating trends which if not corrected could adversely impact repayment of the obligations. The Bank’s model assesses the overall risk over four major categories – industry risk, business risk, management risk and financial risk. The inputs in each of the categories are combined to provide an aggregate numerical rating, which is a function of the aggregate weighted scores based on the assessment under each of these four risk categories.

 

    As of  
    March 31, 2015     September 30, 2015     September 30, 2015  
    (In millions)  

Credit quality indicators-Internally assigned grade and payment activity

     

Pass

  Rs. 1,205,084.8      Rs. 1,335,253.7      US$ 20,385.6   

Labeled

    3,886.2        3,994.2        61.0   

Impaired

    13,489.6        12,689.0        193.7   
 

 

 

   

 

 

   

 

 

 

Total

  Rs. 1,222,460.6      Rs. 1,351,936.9      US$ 20,640.3   
 

 

 

   

 

 

   

 

 

 

 

F-18


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Impaired loans are those for which the Bank believes that it is probable that it will not collect all amounts due according to the original contractual terms of the loans and includes troubled debt restructuring. The following table provides details of impaired loans as of March 31, 2015 and September 30, 2015.

 

    As of March 31, 2015  
    Recorded
investments
    Unpaid
principal
balance
    Related
specific
allowance
    Average recorded
investments
    Finance receivable
on non-accrual status
 
    (In millions)  

Retail Loans

         

Auto loans

  Rs. 2,718.7      Rs. 2,718.7      Rs. 1,226.0      Rs. 2,282.0      Rs. 2,718.7   

Personal loans/ Credit card

    2,648.4        2,648.4        1,634.0        2,316.4        2,648.4   

Retail business banking

    10,012.5        10,012.5        7,105.6        8,558.6        9,723.4   

Commercial vehicle and construction equipment finance

    5,559.4        5,559.4        3,630.6        5,883.6        5,559.4   

Housing loans

    242.7        242.7        127.4        224.3        242.7   

Other retail

    4,653.5        4,653.5        2,901.6        4,117.0        4,653.5   

Wholesale loans

    13,489.6        13,489.6        8,083.8        11,123.9        11,347.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 39,324.8      Rs. 39,324.8      Rs. 24,709.0      Rs. 34,505.8      Rs. 36,893.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The Bank holds no recorded impaired loans for which there is no related allowance.

 

  

 
    As of September 30, 2015  
    Recorded
investments
    Unpaid
principal
balance
    Related
specific
allowance
    Average recorded
investments
    Finance receivable
on non-accrual status
 
    (In millions)  

Retail Loans

         

Auto loans

  Rs. 3,271.2      Rs. 3,271.2      Rs. 1,619.2      Rs. 2,995.0      Rs. 3,271.2   

Personal loans/ Credit card

    2,849.9        2,849.9        1,713.1        2,749.2        2,849.9   

Retail business banking

    12,770.6        12,770.6        8,856.7        11,391.6        12,747.0   

Commercial vehicle and construction equipment finance

    5,854.8        5,854.8        3,972.6        5,707.1        5,854.8   

Housing loans

    259.9        259.9        122.6        251.3        259.9   

Other retail

    6,716.1        6,716.1        3,714.1        5,684.8        6,716.1   

Wholesale loans

    12,689.0        12,689.0        7,458.4        13,089.3        10,477.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  Rs. 44,411.5      Rs. 44,411.5      Rs. 27,456.7      Rs. 41,868.3      Rs. 42,176.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  US$ 678.0      US$ 678.0      US$ 419.2      US$ 639.2      US$ 643.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-19


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Impaired loans by industry as of March 31, 2015 and September 30, 2015 by facility are as follows:

 

     As of March 31, 2015  
     (In millions)  

Gross impaired loans by industry:

  

—Activities allied to agriculture

   Rs.  5,369.3   

—Iron & Steel

     4,793.8   

— Wholesale Trade

     3,608.2   

—Consumer Loans

     2,392.3   

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

     23,161.2   
  

 

 

 

Total

   Rs.  39,324.8   
  

 

 

 

 

     As of September 30, 2015  
     (In millions)  

Gross impaired loans by industry:

     

—Activities allied to agriculture

   Rs. 6,757.4       US$ 103.2   

—Iron & Steel

     4,711.8         71.9   

— Wholesale Trade

     4,284.5         65.4   

—Consumer Loans

     2,667.0         40.7   

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

     25,990.8         396.8   
  

 

 

    

 

 

 

Total

   Rs. 44,411.5       US$ 678.0   
  

 

 

    

 

 

 

Summary information relating to impaired loans during the year ended March 31, 2015 and six months period ended September 30, 2015 is as follows:

 

     As of  
     March 31, 2015      September 30, 2015      September 30, 2015  
     (In millions)  

Average impaired loans, net of allowance

   Rs. 11,826.6       Rs. 15,785.3       US$ 241.0   

Interest income recognized on impaired loans

   Rs. 1,898.0       Rs. 1,203.9       US$ 18.4   

 

F-20


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Allowance for credit losses as of March 31, 2015 are as follows:

 

    As of March 31, 2015  
    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. 796.1      Rs. 1,267.3      Rs. 5,598.1      Rs. 3,472.9      Rs. 116.7      Rs. 2,082.0      Rs. 7,316.1      Rs. 19,225.5      Rs. 2,738.5      Rs. 42,613.2   

Write-offs

    (2,858.9 )     (7,418.1 )     (380.8 )     (4,327.8 )     (9.2 )     (1,328.8 )     (3,480.4 )         (19,804.0 )

Net allowance for credit losses*

    3,288.8        7,784.8        1,888.3        4,485.5        19.9        2,148.4        4,248.1        151.2        509.9        24,524.9   

Allowance for credit losses, end of the period

  Rs. 1,226.0      Rs. 1,634.0      Rs. 7,105.6      Rs. 3,630.6      Rs. 127.4      Rs. 2,901.6      Rs. 8,083.8      Rs. 19,376.7      Rs. 3,248.4      Rs. 47,334.1   

Allowance for credit losses:

                   

Allowance individually evaluated for impairment

  Rs. —       Rs. —       Rs. —       Rs. —       Rs. —       Rs. —       Rs. 8,083.8      Rs. —       Rs. —       Rs. 8,083.8   

Allowance collectively evaluated for impairment

    1,226.0        1,634.0        7,105.6        3,630.6        127.4        2,901.6        —          19,376.7        3,248.4        39,250.3   

Loans:

                   

Loans individually evaluated for impairment

    —          —          —          —          —          —          13,489.6        —          —          13,489.6   

Loans collectively evaluated for impairment

    2,718.7        2,648.4        10,012.5        5,559.4        242.7        4,653.5        —          2,695,153.3        1,208,971.0        3,929,959.5   

 

* Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 7,524.7 million.

 

F-21


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Allowance for credit losses as of September 30, 2015 are as follows:

 

    As of September 30, 2015  
    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. 1,226.0      Rs. 1,634.0      Rs. 7,105.6      Rs. 3,630.6      Rs. 127.4      Rs. 2,901.6      Rs. 8,083.8      Rs. 19,376.7      Rs. 3,248.4      Rs. 47,334.1      US$ 722.7   

Write-offs

    (1,634.3 )     (4,016.6 )     (328.8 )     (1,551.1 )     (11.5 )     (797.2 )     (928.8 )     —          —          (9,268.3 )     (141.5 )

Net allowance for credit losses*

    2,027.5        4,095.7        2,079.9        1,893.1        6.7        1,609.7        303.4        3,604.4        107.9        15,728.3        240.1   

Allowance for credit losses, end of the period

  Rs. 1,619.2      Rs. 1,713.1      Rs. 8,856.7      Rs. 3,972.6      Rs. 122.6      Rs. 3,714.1      Rs. 7,458.4      Rs. 22,981.1      Rs. 3,356.3      Rs. 53,794.1      US$ 821.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Allowance for credit losses:

                     

Allowance individually evaluated for impairment

  Rs. —        Rs. —        Rs. —        Rs. —        Rs. —        Rs. —        Rs. 7,458.4      Rs. —        Rs. —        Rs. 7,458.4      US$ 113.9   

Allowance collectively evaluated for impairment

    1,619.2        1,713.1        8,856.7        3,972.6        122.6        3,714.1        —          22,981.1        3,356.3        46,335.7        707.4   

Loans:

                     

Loans individually evaluated for impairment

    —          —          —          —          —          —          12,689.0       —          —          12,689.0        193.7   

Loans collectively evaluated for impairment

    3,271.2        2,849.9        12,770.6        5,854.8        259.9        6,716.1        —          3,035,435.5        1,339,247.9        4,406,405.9        67,273.4   

 

* Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs 4,164.2 million.

 

F-22


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

Troubled debt restructuring (TDR)

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

The following table summarizes the Bank’s TDR modifications during the year ended March 31, 2015 and six months period ended September 30, 2015 presented by primary modification type and includes the financial effects of these modifications.

 

     Fiscal year ended March 31, 2015  
     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 business banking

   Rs. 257.5       Rs. —        Rs. 257.5       Rs. —        Rs. —        Rs. 9.8   

Wholesale loans

     1,937.3         —          1,937.3         —          —          176.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total4

   Rs. 2,194.8       Rs. —        Rs. 2,194.8       Rs. —        Rs. —        Rs. 185.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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, 2015 comprised of six cases.

 

F-23


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

     Fiscal period ended September 30, 2015  
     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 business banking

   Rs. 19.5       Rs. —        Rs. 19.5       Rs. —        Rs. —        Rs. 4.0   

Commercial vehicle and construction equipment finance

     65.7         —          65.7         —          —          65.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total4

   Rs. 85.2       Rs. —        Rs. 85.2       Rs. —        Rs. —        Rs. 69.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total4

   US$ 1.3       US$ —        US$ 1.3       US$ —        US$ —        US$ 1.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 period ended September 30, 2015 comprised of two cases.

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 September 30, 2015  
     recorded investments  
     (In millions)  

Retail loans:

  

Retail business banking

   Rs.  247.2   

Wholesale loans

     —    
  

 

 

 

Total

   Rs. 247.2   
  

 

 

 

Total

   US$ 3.8   
  

 

 

 

 

F-24


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

6. 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 for the year ended March 31, 2015 and six months period ended September 30, 2015. The entire amount of goodwill was allocated to the retail business. The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by class of intangible assets as of March 31, 2015 and September 15, 2015:

 

     As of March 31, 2015      As of September 30, 2015  
     Gross
carrying
amount
     Accumulated
amortization
     Net
carrying
amount
     Gross
carrying
amount
     Accumulated
amortization
     Net
carrying
amount
     Net
carrying
amount
 
     (In millions)  

Branch network

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

Customer list

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

Core deposit

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

Favorable leases

     543.0         531.0         12.0         543.0         534.5         8.5         0.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Rs. 16,002.0       Rs. 15,990.0       Rs. 12.0       Rs. 16,002.0       Rs. 15,993.5       Rs. 8.5       US$ 0.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

F-25


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The aggregate amortization charged for the six months period ended September 30, 2014 and September 30, 2015 was Rs. 210.5 million and Rs. 3.5 million (USD 0.1 million), respectively.

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

 

     As of September 30,  
     2015      2015  
     (In millions)  

To be amortized during the twelve months ending September 30:

     

2016

   Rs. 5.0       US$ 0.1   

2017

     2.0         0.1   

2018

     1.0         —     

2019

     0.5         —     

2020

     —           —     

7. 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, 2015 and September 30, 2015 were comprised of the following:

 

     As of,  
     March 31, 2015      September 30, 2015      September 30, 2015  
     (In millions)  

Borrowed in the call market

   Rs. 14,851.7       Rs. 26,505.4       US$ 404.7   

Term borrowings from institutions/banks

     80,002.8         29,850.0         455.7   

Foreign currency borrowings

     119,337.4         169,120.1         2,582.0   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 214,191.9       Rs. 225,475.5       US$ 3,442.4   
  

 

 

    

 

 

    

 

 

 

8. Long-term debt

Long-term debt as of March 31, 2015 and September 30, 2015 comprised of the following:

 

     As of  
     March 31, 2015      September 30, 2015      September 30, 2015  
     (In millions)  

Subordinated debt

   Rs. 175,849.0       Rs. 169,707.8       US$ 2,591.0   

Others

     282,085.4         287,731.1         4,392.8   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 457,934.4       Rs. 457,438.9       US$ 6,983.8   
  

 

 

    

 

 

    

 

 

 

 

F-26


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The below table presents the balance of long term debt as of March 31, 2015 and September 30, 2015 and the related contractual rates and maturity dates:

 

    As of,  
    March 31, 2015     September 30, 2015  
    Maturity /
Call dates
  Stated interest rates   Total     Maturity /
Call dates
  Stated interest rates   Total     Total  
    (In millions)  

Subordinated debt

             

Lower Tier II

             

Fixed rate

  2016 - 2025   6.00% to 10.70%   Rs. 133,440.0      2016 - 2025   6.00% to 10.70%   Rs. 126,990.0      US$ 1,938.8   

Upper Tier II

             

Fixed rate

  2016 - 2021   8.70% to 10.85%     34,159.0      2016 - 2021   8.70% to 10.85%     34,159.0        521.5   

Variable rate

  2016 - 2017   LIBOR+1.2     6,250.0      2016 - 2017   LIBOR+1.2     6,558.8        100.1   

Perpetual debt

  2016 - 2017   9.92%     2,000.0      2016 - 2017   9.92%     2,000.0        30.5   

Others

             

Variable rate—(1)

  2016 - 2018   1.50% to 2.59%     49,375.0      2016 - 2020   1.28% to 2.81%     54,437.7        831.0   

Variable rate—(2)

  2016 - 2019   9.95% to 10.55%     72,737.8      2016 - 2020   9.50% to 11.35%     65,260.9        996.3   

Fixed rate—(1)

  2016 - 2025   8.45% to 10.81%     83,950.0      2016 - 2025   8.45% to 10.81%     91,429.9        1,395.9   

Fixed rate—(2)

  2016 - 2018   1.11% to 4.30%     76,022.6      2016 - 2018   1.15% to 4.30%     76,602.6        1,169.7   
     

 

 

       

 

 

   

 

 

 

Total

      Rs. 457,934.4          Rs. 457,438.9      US$ 6,983.8   
     

 

 

       

 

 

   

 

 

 

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

 

     As of September 30, 2015  
     (In millions)  

Due in the twelve months ending September 30:

     

2016

   Rs. 34,447.9       US$ 525.9   

2017

     124,078.5         1,894.3   

2018

     88,968.1         1,358.3   

2019

     32,956.7         503.2   

2020

     —           —     

Thereafter (1)

     174,987.7         2,671.6   
  

 

 

    

 

 

 

Total

   Rs. 455,438.9       US$ 6,953.3   
  

 

 

    

 

 

 

 

(1) The scheduled maturities of long-term debt do not include perpetual bonds of Rs. 2.0 billion.

During the six months period ended September 30, 2015 the Bank issued subordinated debt qualifying for Lower Tier II capital, under RBI regulatory guidelines, amounting to nil and raised other long term debt Rs. 25,595.9 million.

As of March 31, 2015 and September 30, 2015, other long-term debt includes foreign currency borrowings from other banks aggregating to Rs. 125,397.6 million and Rs. 131,040.2 million, respectively, and functional currency borrowings aggregating to Rs. 156,687.8 million and Rs. 156,690.9 million, respectively.

 

F-27


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

9. Accumulated other comprehensive income

The below table presents the changes in accumulated other comprehensive income (OCI) after tax for the year ended March 31, 2015 and six months period ended September 30, 2015.

 

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

Balance, March 31, 2014

   Rs. (12,064.9 )    Rs. 474.5       Rs. (11,590.4

Net unrealized gain/(loss) arising during the period

     22,188.9         92.9         22,281.8   

Amounts reclassified to income

     135.0         —          135.0   
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2015

   Rs. 10,259.0       Rs. 567.4       Rs. 10,826.4   
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2015

   Rs. 10,259.0       Rs. 567.4       Rs. 10,826.4   

Net unrealized gain/(loss) arising during the period

     4,948.3         199.9         5,148.2   

Amounts reclassified to income

     (465.3 )      —          (465.3 )
  

 

 

    

 

 

    

 

 

 

Balance, September 30, 2015

   Rs. 14,742.0       Rs. 767.3       Rs. 15,509.3   
  

 

 

    

 

 

    

 

 

 

Balance, September 30, 2015

   US$ 225.1       US$ 11.7       US$ 236.8   
  

 

 

    

 

 

    

 

 

 

The below table presents the reclassification out of accumulated other comprehensive income (OCI) by income line item and the related tax effect for the six months period ended September 30, 2014 and September 30, 2015.

 

     As of September 30,  
     2014      2015      2015  
     (In millions)  

Available for sale securities:

        

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

   Rs. 293.5       Rs. (704.9 )    US$ (10.8 )

Other than temporary impairment losses on available for sale securities

     1.8         —           —    
  

 

 

    

 

 

    

 

 

 

Total before tax

   Rs. 295.3       Rs. (704.9 )    US$ (10.8 )

Income tax

     (100.4 )      239.6         3.7   
  

 

 

    

 

 

    

 

 

 

Net of tax

   Rs. 194.9       Rs. (465.3 )    US$ (7.1 )
  

 

 

    

 

 

    

 

 

 

 

F-28


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

10. Stock-based compensation

For details of the Bank’s employee stock option scheme refer to the Bank’s Form 20-F filed with the Securities and Exchange Commission on July 31, 2015.

Assumptions used

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

 

     Six months period ended September 30,
     2014   2015

Dividend yield

   0.82%   0.73%

Expected volatility

   24.30%-32.00%   23.64%-26.46%

Risk-free interest rate

   8.42%-8.63%   7.98%-8.07%

Expected term (in years)

   4.13-5.45   4.21-5.60

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

 

     Options available to be granted six
months period ended September 30,
 
     2014      2015  

Options available to be granted, beginning of period*

     112,121,300         72,847,350   

Equity shares allocated for grant under the plan

     —           —    

Options granted

     (41,659,000      (44,833,200 )

Forfeited/ lapsed*

     728,550         1,521,800   
  

 

 

    

 

 

 

Options available to be granted, end of period

     71,190,850         29,535,950   
  

 

 

    

 

 

 

 

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

 

F-29


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

 

     Six months period ended September 30,  
     2014      2015  
     Options      Weighted
average
exercise
price
     Options      Weighted
average
exercise
price
 

Options outstanding, beginning of period

     92,476,600       Rs. 556.06         109,033,000       Rs. 683.16   

Granted

     41,659,000         835.50         44,833,200         1,092.65   

Exercised*

     (15,271,720      402.98         (11,697,900      570.72   

Forfeited

     (664,300      737.35         (1,500,200      847.31   

Lapsed

     (64,250      352.35         (21,600      459.12   
  

 

 

       

 

 

    

Options outstanding, end of period

     118,135,330       Rs. 673.48         140,646,500       Rs. 821.33   
  

 

 

       

 

 

    

Options exercisable, end of period

     49,232,630       Rs. 533.57         59,679,200       Rs. 643.99   
  

 

 

    

 

 

    

 

 

    

Weighted average fair value of options granted during the period

      Rs .302.31          Rs. 377.69   

The following summarizes information about stock options outstanding as of September 30, 2015:

 

          As of September 30, 2015  
Plan   

Range of exercise price

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

Rs.680.00 to Rs.835.50 (or US$ 10.38 to US$ 12.76)

     6,453,800         3.82       Rs. 692.33   
Plan D   

Rs.680.00 (or US$ 10.38)

     5,470,800         3.81         680.00   
Plan E   

Rs.440.16 to Rs.680.00 (or US$ 6.72 to US$ 10.38)

     46,117,700         2.71         582.64   
Plan F   

Rs.835.50 to Rs. 1,092.65 (or US$ 12.76 to US$ 16.68)

     82,604,200         5.29         1,092.65   

The intrinsic value, of options exercised during the six months period ended September 30, 2015, at grant date and at exercise date was Rs. 40.7 million (September 30, 2014 Rs. 85.4 million) and Rs. 5,826.5 million (September 30, 2014 Rs. 6,103.1 million), respectively. The aggregate intrinsic value at grant date and as at September 30, 2015 attributable to options outstanding was Rs. 195.6 million and Rs. 35,867.3 million, respectively. The aggregate intrinsic value at grant date and as at September 30, 2015 attributable to options which are exercisable as on September 30, 2015 was Rs. 195.6 million and Rs. 25,352.6 million, respectively. Total stock compensation cost (including on modification) recognized under these plans was Rs. 4,985.4 million and Rs. 5,486.9 million during the six month period ended September 30, 2014 and September 30, 2015, respectively. As of September 30, 2015, there were 80,967,300 unvested options with weighted average exercise price of Rs. 952.0 and aggregate intrinsic value at grant date and as at September 30, 2015 nil and Rs. 10,514.7 million, respectively. As at September 30, 2015, the total estimated compensation cost to be recognized in future periods is Rs. 18,866.8 million. This is expected to be recognized over a weighted average period of 1.06 years.

 

F-30


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

11. 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. 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.

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.

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, 2015 and September 30, 2015, together with the fair values on each reporting date.

 

     As of March 31, 2015  
     Notional      Gross Assets      Gross Liabilities      Net Fair Value  
     (In millions)  

Interest rate derivatives

     Rs. 2,210,332.2       Rs. 6,959.2       Rs. 7,289.0       Rs. (329.8 )

Forward rate agreements

     8,098.5         2.5         2.6         (0.1 )

Currency options

     144,827.2         952.5         1,062.1         (109.6 )

Currency swaps

     70,521.8         4,225.2         3,093.3         1,131.9   

Forward exchange contracts

     6,740,520.9         60,276.3         60,320.5         (44.2 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     Rs. 9,174,300.6       Rs. 72,415.7       Rs. 71,767.5       Rs. 648.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of September 30, 2015  
     Notional      Gross Assets      Gross Liabilities      Net Fair Value     Notional      Net Fair Value  
     (In millions)  

Interest rate derivatives

   Rs. 2,255,129.7       Rs. 8,930.3       Rs. 9,398.0       Rs. (467.7 )   US$ 34,429.5       US$ (7.1 )

Forward rate agreements

     8,498.5         8.9         9.3         (0.4 )     129.7         (0.0 )

Currency options

     296,479.3         1,464.4         2,080.8         (616.4 )     4,526.4         (9.4 )

Currency swaps

     100,921.1         5,233.4         3,467.8         1,765.6        1,540.8         27.0   

Forward exchange contracts

     6,552,234.5         44,136.6         39,368.3         4,768.3        100,034.1         72.8   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   Rs. 9,213,263.1       Rs. 59,773.6       Rs. 54,324.2       Rs. 5,449.4      US$ 140,660.5       US$ 83.3   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

F-31


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 earnings. 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 six months ended September 30,
 
     2014      2015      2015  
     (In millions)  

Interest rate derivatives

   Rs. 222.5       Rs. (332.3    US$ (5.1

Forward rate agreements

     —           6.4         0.1   

Currency options

     (477.8 )      195.3         3.0   

Currency swaps

     1,015.6         761.6         11.6   

Forward exchange contracts

     (1,534.4 )      8,148.9         124.4   
  

 

 

    

 

 

    

 

 

 

Total gains/(losses)

   Rs. (774.1 )    Rs. 8,779.9       US$ 134.0   
  

 

 

    

 

 

    

 

 

 

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.

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.

 

F-32


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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, 2015  
     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. 72,415.7       Rs. —         Rs. 72,415.7       Rs. 53,534.5       Rs. 2,761.7       Rs. 16,119.5   

Securities purchased under agreements to resell

     1,592.6         —          1,592.6         —          1,592.6         —    

Financial liabilities

                 

Derivative liabilities

   Rs. 71,767.5       Rs. —        Rs. 71,767.5       Rs. 53,534.5       Rs. 390.8       Rs. 17,842.2   

Securities sold under repurchase agreements

     50,000.0         —          50,000.0         —          50,000.0         —    

 

(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 September 30, 2015  
     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      Net amount  
     (In millions)  

Financial assets

                    

Derivative assets

   Rs. 59,773.6       Rs. —        Rs. 59,773.6       Rs. 37,667.4       Rs. 3,558.0       Rs. 18,548.2       US$ 283.2   

Securities purchased under agreements to resell

     2,808.5         —          2,808.5         —          2,808.5         —          —    

Financial liabilities

                    

Derivative liabilities

   Rs. 54,324.2       Rs. —        Rs. 54,324.2       Rs. 37,667.4       Rs. 51.5       Rs. 16,605.3       US$ 253.5   

Securities sold under repurchase agreements

     25,610.0         —          25,610.0         —          25,610.0         —          —    

 

(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.

 

F-33


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 his 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 17.4 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 terms of FASB ASC 460-10 the Bank has recognized a liability of Rs. 1,509.7 million and Rs. 1,697.3 million as of March 31, 2015 and September 30, 2015, respectively, in respect of guarantees issued or modified. Based on historical trends, in terms of FASB ASC 450, the Bank has recognized a liability of Rs. 973.3 million and Rs. 1,002.6 million as of March 31, 2015 and September 30, 2015, respectively.

Details of guarantees and documentary credits outstanding are set out below:

 

     As of  
     March 31, 2015      September 30, 2015      September 30, 2015  
     (In millions)  

Nominal values:

        

Bank guarantees:

        

Financial guarantees

   Rs. 160,779.8       Rs. 180,418.0       US$ 2,754.5   

Performance guarantees

     114,906.3         122,342.8         1,867.8   

Documentary credits

     279,900.5         327,055.6         4,993.2   
  

 

 

    

 

 

    

 

 

 

Total

   Rs. 555,586.6       Rs. 629,816.4       US$ 9,615.5   
  

 

 

    

 

 

    

 

 

 

Estimated fair values:

        

Guarantees

   Rs. (1,509.7    Rs. (1,697.3    US$ (25.9

Documentary credits

     (249.0      (290.9      (4.4
  

 

 

    

 

 

    

 

 

 

Total

   Rs. (1,758.7    Rs. (1,988.2    US$ (30.3
  

 

 

    

 

 

    

 

 

 

As part of its risk management activities, the Bank continuously monitors the credit-worthiness 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.

Loan sanction letters

The Bank issues sanction letters indicating its intent to provide new loans to certain customers. The aggregate of loans contemplated in these letters that had not yet been disbursed was Rs. 628,087.2 million and Rs. 651,680.9 (US$ 9,949.3 million) as of March 31, 2015 and September 30, 2015, respectively. 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. The Bank has no commitment to lend under these letters. Among other things, the making of a loan is subject to a review of the credit-worthiness 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.

 

F-34


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

12. 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, 2015 and September 30, 2015. The estimated fair value amounts as of March 31, 2015 and September 30, 2015 have been measured as of the respective period end, 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 period end.

Financial instruments valued at carrying value

The respective carrying values of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash and amounts due from banks,non-interest-bearing deposits in banks, securities purchased and sold under resale and repurchase agreements, accrued interest receivable, acceptances, accrued interest payable, and certain other assets and liabilities that are considered financial instruments. Carrying values were assumed to approximate fair values for these financial instruments as they are short-term in nature and their recorded amounts approximate fair values or are receivable or payable on demand.

Trading securities

Trading securities are carried at fair value based on quoted market prices. If quoted market prices did not exist, fair values were estimated using market yield on balance period to maturity on similar instruments and similar credit risk. For more information on the fair value of these securities, refer to Note 2.

Available for sale securities

Available for sale investments principally comprise of debt securities and 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 a 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 are 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. For more information on the fair value of these securities, refer to Note 3.

Loans

The fair values of consumer installment loans and other consumer loans that do not reprice or mature frequently are estimated using discounted cash flow models. The discount rates are based on internal models. The Level 3 loans would decrease (increase) in value based upon an increase (decrease) in discount rate. Since substantially all individual lines of credit and other variable rate consumer loans reprice frequently, with interest rates reflecting current market pricing, the carrying values of these loans approximate their fair values.

The fair values of commercial loans that do not reprice or mature within relatively short time frames are estimated using discounted cash flow models. The discount rates are based on internal models. The Level 3 loans would decrease (increase) in value based upon an increase (decrease) in discount rate. For commercial loans that reprice within relatively short time frames, the carrying values approximate their fair values.

For purposes of these fair value estimates, the fair values of impaired loans were computed by deducting an estimated market discount from their carrying values to reflect the uncertainty of future cash flows.

 

F-35


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Deposits

The fair value of demand deposits, savings deposits, and money market deposits without defined maturities are the amounts payable on demand. For deposits with defined maturities, the fair values were estimated using discounted cash flow models that apply market interest rates corresponding to similar deposits and timing of maturities.

Short-term borrowings

The fair values of the Bank’s short-term debt were calculated based on a discounted cash flow model. The discount rates were based on yield curves appropriate for the remaining maturities of the instruments.

Long-term debt

The fair values of the Bank’s unquoted long-term debt instruments were calculated based on a discounted cash flow model. The discount rates were based on yield curves appropriate for the remaining maturities of the instruments.

Term placements

The fair values of term placements were estimated using discounted cash flow models. The discount rates were based on current market pricing for placements with similar characteristics and risk factors.

 

F-36


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Derivatives

See note 11

A comparison of the fair values and carrying values of financial instruments is set out below:

 

    As of  
    March 31, 2015     September 30, 2015  
          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 cash equivalents

  Rs. 341,124.3      Rs. 341,124.3      Rs. —       Rs. —       Rs. 341,124.3      Rs. 314,408.5      Rs. 314,408.5      Rs. —       Rs. —       Rs. 314,408.5      US$ 4,800.1      US$ 4,800.1   

Term placements

    169,989.5       —         169,990.7       —         169,990.7       163,793.8       —         162,448.4       —         162,448.4       2,500.7       2,480.1  

Investments held for trading

    61,292.8       —         61,292.8       —         61,292.8       56,534.2       2,862.0       53,672.2       —         56,534.2       863.1       863.1  

Investments available for sale*

    1,503,708.4       105,008.8       1,382,450.2       16,249.4       1,503,708.4       1,686,034.1       28,159.4       1,638,147.3       19,727.4       1,686,034.1       25,741.0       25,741.0  

Securities purchased under agreements to resell

    1,592.6       —         1,592.6       —         1,592.6       2,808.5       —         2,808.5       —         2,808.5       42.9       42.9  

Loans

    3,896,115.0       —         1,190,272.3       2,726,798.2       3,917,070.5       4,365,300.8       —         1,306,517.0       3,078,797.7       4,385,314.7       66,645.8       66,951.4  

Accrued interest receivable

    45,705.0       —         45,705.0       —         45,705.0       54,169.8       —         54,169.8       —         54,169.8       827.0       827.0  

Other assets

    109,722.4       —         108,346.3       —         108,346.3       98,894.4       —         97,558.1       —         97,558.1       1,509.8       1,489.4  

Financial Liabilities:

                       

Interest-bearing deposits

    3,768,678.8       —         3,766,754.6       —         3,766,754.6       4,367,445.8       —         4,379,278.0       —         4,379,278.0       66,678.6       66,859.2  

Non-interest-bearing deposits

    733,032.0       —         733,032.0       —         733,032.0       696,460.5       —         696,460.5       —         696,460.5       10,633.0       10,633.0  

Securities sold under repurchase agreements

    50,000.0       —         50,000.0       —         50,000.0       25,610.0       —         25,610.0       —         25,610.0       391.0       391.0  

Short-term borrowings

    214,191.9       —         214,448.4       —         214,448.4       225,475.5       —         225,819.9       —         225,819.9       3,442.4       3,447.6  

Accrued interest payable

    32,689.5       —         32,689.5       —         32,689.5       50,246.6       —         50,246.6       —         50,246.6       767.1       767.1  

Long-term debt

    457,934.4       —         466,351.5       —         466,351.5       457,438.9       —         470,901.9       —         470,901.9       6,983.8       7,189.3  

Accrued expenses and other liabilities

    200,563.5       —         200,563.5       —         200,563.5       210,599.5       —         210,599.5       —         210,599.5       3,215.3       3,215.3  

 

* excluding investments carried at cost Rs. 708.7 million (US$10.8 million) (as at March 31, 2015, Rs.704.4 million)

 

F-37


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

13. 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 1. 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 makes loans, provides credit cards and debit cards, distributes third-party financial products, such as mutual funds and insurance, and provides advisory services to such customers. Revenues of the retail banking segment are derived from interest earned on retail loans, fees for banking and advisory 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 made 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 the proprietary account (including investments in government securities), foreign exchange operations and derivatives trading both on the 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.

Summarized segment information for the six months periods ended September 30, 2014 and September 30, 2015:

 

     Six months period ended September 30, 2014  
     Retail Banking      Wholesale
Banking
     Treasury
Services
     Total  
     (In millions)  

Net interest income/(expense) (External)

   Rs. 51,811.0       Rs. 53,461.9       Rs. 7,885.2       Rs. 113,158.1   

Net interest income/(expense) (Internal)

     34,883.5         (32,631.9      (2,251.6      —    

Net interest revenue

     86,694.5         20,830.0         5,633.6         113,158.1   

Less: Provision for credit losses

     6,005.7         1,326.8         —          7,332.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest revenue, after allowance for credit losses

     80,688.8         19,503.2         5,633.6         105,825.6   

Non-interest revenue

     33,073.3         4,341.3         (4,510.2      32,904.4   

Non-interest expense

     (65,067.0 )      (5,538.0 )      (541.7 )      (71,146.7 )
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax

   Rs. 48,695.1       Rs. 18,306.5       Rs. 581.7       Rs. 67,583.3   

Income tax expense

            Rs. 24,576.7   
           

 

 

 

Segment assets:

           

Segment total assets

   Rs. 3,039,076.7       Rs. 1,946,500.4       Rs. 334,584.9       Rs. 5,320,162.0   

 

F-38


Table of Contents

HDFC BANK LIMITED AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

     Six months period ended September 30, 2015  
     Retail Banking     Wholesale
Banking
    Treasury
Services
    Total     Total  
     (In millions)  

Net interest income/(expense) (External)

   Rs. 63,770.7      Rs. 59,419.8      Rs. 14,951.9      Rs. 138,142.4      US$ 2,109.2   

Net interest income/(expense) (Internal)

     47,851.9        (40,866.6     (6,985.3     —         —    

Net interest revenue

     111,622.6        18,553.2        7,966.6        138,142.4        2,109.2   

Less: Provision for credit losses

     11,209.0        355.1        —         11,564.1        176.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest revenue, after allowance for credit losses

     100,413.6        18,198.1        7,966.6        126,578.3        1,932.6   

Non-interest revenue

     39,343.8        7,030.5        (3,199.8     43,174.5        659.0   

Non-interest expense

     (80,112.8 )     (5,561.8 )     (625.6 )     (86,300.2 )     (1,317.5 )
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax

   Rs. 59,644.6      Rs. 19,666.8      Rs. 4,141.2      Rs. 83,452.6      US$ 1,274.1   

Income tax expense

         Rs. 30,954.0      US$ 472.6   
        

 

 

   

 

 

 

Segment assets:

          

Segment total assets

   Rs. 3,822,424.7      Rs. 2,567,179.5      Rs. 503,371.7      Rs. 6,892,975.9      US$ 105,236.3   

14. Commitments and contingencies

Commitments and contingent liabilities other than for off balance sheet financial instruments (see note 11) 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, 2015 and September 30, 2015 aggregated Rs. 3,260.4 million and Rs. 4,003.7 million, respectively.

Contingencies

The Bank is party to various legal proceedings in the normal course of business. The Bank estimates the provision for these 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, 2015 and September 30, 2015 aggregated to Rs. 3,964.8 million and Rs. 4,067.0 million, respectively. 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 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, employee residences and ATMs, with a renewal at the option of the Bank. The Bank has sub-leased certain of its properties taken on lease. The rental expenses and sub-lease income is as follows:

 

     Six months period ended September 30,  
     2014      2015      2015  

The total minimum lease expense during the period recognized in the consolidated statement of income

   Rs. 4,307.9       Rs. 5,110.3       US$ 78.0   

 

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The future minimum lease payments as of September 30, 2015 were as follows:

 

Period ending September 30,

   Payments  
     (In millions)  

2016

   Rs. 8,842.4      US$ 135.0   

2017

     8,481.4         129.5  

2018

     7,713.6         117.8  

2019

     6,623.2         101.1  

2020

     5,919.4         90.4  

Thereafter

     23,842.8         364.0  
  

 

 

    

 

 

 

Total

   Rs. 61,422.8      US$ 937.8   
  

 

 

    

 

 

 

15. Earnings per equity share

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 20.8 million and 22.3 million were excluded from the calculation of diluted earnings per share for the six months period ended September 30, 2014 and September 30, 2015, respectively, as these were anti-dilutive.

 

     As of September 30,  
     2014      2015  

Weighted average number of equity shares used in computing basic earnings per equity share

     2,407,093,337         2,511,155,828   

Effect of potential equity shares for stock options outstanding

     19,144,784         28,331,974   
  

 

 

    

 

 

 

Weighted average number of equity shares used in computing diluted earnings per equity share

     2,426,238,121         2,539,487,802   
  

 

 

    

 

 

 

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

 

     Six months period ended September 30,  
     2014      2015      2015  

Basic earnings per share

   Rs. 17.85       Rs. 20.88       US$ 0.32   

Effect of potential equity shares for stock options outstanding

     0.14         0.23         0.01   
  

 

 

    

 

 

    

 

 

 

Diluted earnings per share

   Rs. 17.71       Rs. 20.65       US$ 0.31   
  

 

 

    

 

 

    

 

 

 

Basic earnings per ADS

   Rs. 53.55       Rs. 62.64       US$ 0.96   

Effect of potential equity shares for stock options outstanding

     0.42         0.69         0.03   
  

 

 

    

 

 

    

 

 

 

Diluted earnings per ADS

   Rs. 53.13       Rs. 61.95       US$ 0.93   
  

 

 

    

 

 

    

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

16. 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

  

Definition

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 position 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 securities: Available for sale investments are principally comprised of debt securities and 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, 2015 and September 30, 2015.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table summarizes investments measured at fair value excluding investments carried at cost of Rs. 704.4 million on a recurring basis as of March 31, 2015, 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. 61,292.8       Rs. —        Rs. 61,292.8       Rs. —    

Securities Available-for-Sale

     1,503,708.4         105,008.8         1,382,450.2         16,249.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Rs. 1,565,001.2       Rs. 105,008.8       Rs. 1,443,743.0       Rs. 16,249.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes investments measured at fair value excluding investments carried at cost of Rs. 708.7 million (US$ 10.8 million) on a recurring basis as of September 30, 2015, 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. 56,534.2       Rs. 2,862.0       Rs. 53,672.2       Rs. —    

Securities Available-for-Sale

     1,686,034.1         28,159.4         1,638,147.3         19,727.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   Rs. 1,742,568.3       Rs. 31,021.4       Rs. 1,691,819.5       Rs. 19,727.4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   US$ 26,604.1       US$ 473.6       US$ 25,829.3       US$ 301.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

There have been no transfers between level 1, 2 and 3 for the year ended March 31, 2015 and six months period ended September 30, 2015.

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following table summarizes, certain additional information about changes in the fair value of Level 3 assets pertaining to asset-backed securities for the year ended September 30, 2015:

 

Particulars    As of September 30, 2015  
     (in millions)  

Beginning balance at April 1, 2015

   Rs. 16,249.4   

Total gains or losses (realized/unrealized)

  

-Included in earnings

     —    

-Included in other comprehensive income

     63.2   

Purchases/additions

     8,890.2   

Sales

     —    

Issuances

     —    

Settlements

     (5,475.4 )

Transfers in Level 3

     —    

Transfers out of Level 3

     —    

Foreign currency translation adjustment

     —    
  

 

 

 

Ending balance at September 30, 2015

   Rs. 19,727.4   
  

 

 

 

Total amount of gains or (losses) included in earnings 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, 2015, 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. 72,415.7       Rs.  —        Rs. 72,415.7       Rs.  —    

Derivative liabilities

   Rs. 71,767.5       Rs.  —        Rs. 71,767.5       Rs.  —    

The following table summarizes derivative instruments measured at fair value on a recurring basis as of September 30, 2015, 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. 59,773.6       Rs.  —        Rs. 59,773.6       Rs.  —    

Derivative liabilities

   Rs. 54,324.2       Rs.  —        Rs. 54,324.2       Rs.  —    

 

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