HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED
ANNUAL REPORT 2010-2011
DIRECTOR'S REPORT
TO
THE MEMBERS
Your directors are pleased to present the Thirty-fourth Annual Report of
your Corporation with the audited accounts for the year ended March 31,
2011.
FINANCIAL RESULTS:
For the For the
year ended year ended
March 31, March 31,
2011 2010
(Rs. in (Rs. in
crores) crores)
Profit before Tax 4,866.96 3,915.99
Provision for Tax 1,332.00 1,089.50
Profit after Tax 3,534.96 2,826.49
Appropriations have been made as under:
Special Reserve No. II 625.00 500.00
General Reserve 816.40 695.01
Additional Reserve (under Section 29C
of the National Housing Bank Act, 1987) 530.00 432.00
Shelter Assistance Reserve 12.00 9.00
Proposed Dividend (Rs.9 per share of
face value of Rs.2 each) 1,320.20 1,033.60
Additional Tax on Proposed Dividend 214.17 171.67
Additional Tax on Dividend 1.07 (15.16)
Dividend pertaining to Previous Year
paid during the year 16.12 0.37
3,534.96 2,826.49
Dividend:
Your directors recommend payment of dividend for the year ended March 31,
2011 of Rs.9 per equity share of face value of Rs.2 each. In the previous
year, a dividend of Rs.36 per equity share of face value of Rs.10 each was
paid (Rs.7.2 per equity share of face value of Rs.2 each).
The dividend payout ratio for the current year, inclusive of additional tax
on dividend will be 43.4% as compared to 42.7% for the previous year.
Sub-division of Shares:
Pursuant to your approval at the 33rd Annual General Meeting (AGM) of the
Corporation held on July 14, 2010, the nominal face value of the equity
shares of the Corporation was sub-divided from Rs.10 per equity share to
Rs.2 per equity share, with effect from August 21, 2010.
To facilitate this sub-division, shareholders were issued 5 equity shares
of Rs.2 each in lieu of one equity share of Rs.10 each held by them as on
the record date i.e. August 20, 2010, fixed for this purpose.
The total number of retail shareholders has increased to over 2,03,000
representing an increase of 52% post the sub-division of shares.
Warrants:
Consequent to the sub-division of the nominal face value of the equity
shares of the Corporation from Rs.10 per share to Rs.2 per share, the
Warrant Exercise Price was adjusted from Rs.3,000 per equity share of Rs.10
each to Rs.600 per equity share of Rs.2 each, to be paid by the Warrant
holder at the time of exchange of each Warrant at any time on or before
August 24, 2012. As of date, no Warrants have been lodged with the
Corporation for exchange into equity shares of the Corporation.
Lending Operations:
Loan approvals during the year were Rs.75,185 crores as compared to
Rs.60,611 crores in the previous year, representing a growth of 24%. Loan
disbursements during the year were Rs.60,314 crores as against Rs.50,413
crores in the previous year, representing a growth of 20%.
Cumulative loan approvals and disbursements as at March 31, 2011 were
Rs.3,73,246 crores and Rs.3,02,533 crores respectively. This is in respect
of approximately 3.8 million housing units.
The demand for individual home loans continued to be robust, despite rising
interest rates. Other enabling factors included rising disposable incomes
and continued fiscal incentives on housing loans. During the year,
individual approvals grew at 25% and disbursements grew by 27% as compared
to the previous year. The average size of individual loans stood at Rs.18.6
lakhs.
Sale of Loans:
During the year, the Corporation, under the loan assignment route sold
individual loans of Rs.4,379 crores to HDFC Bank pursuant to the buyback
option embedded in the home loan arrangement between the Corporation and
HDFC Bank. Out of the total loans assigned during the year, Rs.4,053 crores
qualify as priority sector advances for the bank.
As at March 31, 2011, total loans outstanding in respect of loans sold
stood at Rs.12,147 crores. HDFC continues to service the loans sold under
these transactions and is entitled to the residual interest on the loans
sold. The residual interest on the individual loans sold is 1.57% per
annum.
The residual income on the loans sold is being recognised over the life of
the underlying loans and not on an upfront basis. Issues through which
loans have been sold have been rated by external agencies and carry a
rating indicating the highest degree of safety.
Repayments:
During the year under review, Rs.36,756 crores were received by way of
scheduled repayment of principal through monthly instalments as well as
redemptions ahead of schedule, as compared to Rs.31,872 crores received
last year.
Loan Book:
As at March 31, 2011, the loan book stood at Rs.1,17,127 crores as against
Rs.97,967 crores in the previous year -an increase of 20%. The growth in
the loan book would have been higher at 24% if the loans sold were included
in the loan book.
Foreign Currency Convertible Bonds (FCCB):
In September 2005, the Corporation concluded the issue of USD 500 million
zero coupon FCCB. The bonds were convertible into equity shares of the
Corporation of the face value of Rs.10 each up to the close of business
hours on July 29, 2010 at the option of the holders, at Rs.1,399 per equity
share, representing a conversion premium of 50% over the initial reference
share price.
All the bonds were lodged with the Corporation for conversion into equity
shares on or prior to the last date for conversion. In aggregate, the
Corporation allotted 1,56,23,732 equity shares of Rs.10 each pursuant to
the conversion of the FCCB. Hence, there are no outstanding FCCB. The
increase in net worth as a result of the FCCB over the life was Rs.2,186
crores.
Approvals & Disbursements (Cumulative):
(Rs. in crores)
Year Approvals Disbursements
2007 145,764 119,281
2008 188,284 152,156
2009 237,450 191,806
2010 298,061 242,219
2011 373,246 302,533
During the year an amount of Rs.2.83 crores has been credited to the Share
Capital Account and an amount of Rs.407.89 crores has been credited to the
Securities Premium Account.
Resource Mobilisation:
Subordinated Debt:
During the year, the Corporation raised Rs.1,000 crores through the issue
of long-term Unsecured Redeemable Non-Convertible Subordinated Debentures.
The subordinated debt was assigned a AAA' rating from both, CRISIL Limited
(CRISIL) and ICRA Limited (ICRA).
As at March 31, 2011, the Corporation's outstanding subordinated debt stood
at Rs.2,875 crores. The debt is subordinated to present and future senior
indebtedness of the Corporation and has been assigned the highest rating by
CRISIL and ICRA. Based on the balance term to maturity, as at March 31,
2011, Rs.2,375 crores of the book value of subordinated debt is considered
as Tier II under the guidelines issued by the National Housing Bank (NHB)
for the purpose of capital adequacy computation.
Non-Convertible Debentures (NCD):
During the year, the Corporation issued NCD amounting to Rs.13,865 crores
on a private placement basis. The Corporation's NCD issues have been listed
on the Wholesale Debt Market segment of the NSE and have been assigned the
highest rating of AAA' by both, CRISIL and ICRA. As at March 31, 2011, NCD
outstanding stood at Rs.41,624 crores.
Loans from Banks:
During the year, the Corporation raised loans amounting to Rs.29,538 crores
from commercial banks, of which Rs.2,610 crores were under the priority
sector category of commercial banks. The Corporation further raised
Rs.2,528 crores from the banking sector as FCNR (B) loans.
HDFC's long-term and short-term bank loan facilities have been assigned the
highest rating of AAA' and PR1+' respectively by CARE Limited, signifying
highest safety for timely servicing of debt obligations.
Refinance from National Housing Bank (NHB):
NHB has an internal rating mechanism for housing finance companies (HFCs)
and the Corporation has been assigned the highest rating for its refinance
schemes by NHB. During the year, the Corporation has drawn refinance
amounting to Rs.687 crores under NHB's Refinance Scheme to Housing Finance
Companies, 2003.
Deposits:
Deposits continued to grow during the financial year under review despite
strong competition from banks. As at March 31, 2011, outstanding deposits
stood at Rs.24,625 crores. The depositor base stood at approximately 9.67
lakh depositors.
CRISIL and ICRA have for the sixteenth consecutive year, reaffirmed their
AAA' rating for HDFC's deposits. This rating represents highest safety,
attractive returns and impeccable service standards' as regards timely
repayment of principal and interest.
The support of the agents and their commitment to the Corporation has been
instrumental in HDFC's deposit products continuing to be a preferred
investment for households and trusts.
Unclaimed Deposits:
As of March 31, 2011, public deposits amounting to Rs.250 crores had not
been claimed by 35,898 depositors. Since then, 8,595 depositors have
claimed or renewed deposits of Rs.68 crores. Depositors were intimated
regarding the maturity of deposits with a request to either renew or claim
their deposits. Where the deposit remains unclaimed, reminder letters are
sent to depositors periodically and follow up action is initiated through
the concerned distributor/branch.
As per the provisions of Section 205C of the Companies Act, 1956, deposits
remaining unclaimed for a period of seven years from the date they became
due for payment have to be transferred to the Investor Education and
Protection Fund (IEPF) established by the Central Government. Accordingly,
during the year, despite repeated reminders being sent to depositors, an
amount of Rs.31.76 lakhs has been transferred to the IEPF. In terms of the
said section, no claims would lie against the Corporation or the IEPF after
the transfer.
Funds Employed:
(Rs. in crores)
Year Net Worth Term Borrowings Deposits
2007 5,551 46,809 10,384
2008 11,947 57,855 11,296
2009 13,137 64,481 19,375
2010 15,198 73,484 23,081
2011 17,317 90,785 24,625
Non-Performing Loans:
Gross non-performing loans as at March 31, 2011 amounted to Rs.903.85
crores. This is equivalent to 0.77% of the portfolio (as against 0.79% in
the previous year). This is the twenty-fifth consecutive quarter end at
which the percentage of non-performing loans have been lower than the
corresponding quarter in the previous year.
Based on a six months overdue basis, the non-performing loans as at March
31, 2011 stood at 0.46% of the loan portfolio as against 0.53% in the
previous year.
In terms of the prudential norms as stipulated by NHB, the Corporation is
required to carry a provision in respect of non-performing assets and a
general provision on outstanding standard non-housing loans. In addition,
during the year, NHB further stipulated a general provision of 0.40% on
standard assets under housing loans to non-individuals and a 2% provision
on standard assets in respect of housing loans granted under the Dual Rate
Home Loan scheme. This requirement has been partly met by utilisation of
Rs.298.59 crores (net) from Additional Reserve under Section 29 C of the
National Housing Bank Act, 1987. Based on the aforesaid as per NHB norms,
the Corporation is required to carry a total provision of Rs.813.53 crores.
The balance in the provision for contingencies account as at March 31, 2011
stood at Rs.1,124.37 crores, which is equivalent to 0.95% of the portfolio.
Thus as at March 31, 2011, the Corporation's net non-performing loans was
nil.
The Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI) has proved to be a useful
recovery tool and the Corporation has been able to successfully initiate
recovery action under this Act in the case of wilful individual and
corporate defaulters.
Regulatory Guidelines/Amendments:
HDFC has complied with the Housing Finance Companies (NHB) Directions, 2010
prescribed by NHB regarding accounting standards, prudential norms for
asset classification, income recognition, provisioning, capital adequacy
and credit rating. The Corporation is in compliance with the concentration
of investments and capital market exposure norms other than on its
investments in HDFC Bank and GRUH Finance Limited. NHB has granted the
Corporation time for such compliance.
During the year, NHB stipulated that the loan to value ratio (LTV) for
individual housing loans up to Rs.20 lakhs should not exceed 90% and for
loans above Rs.20 lakhs, the LTV should not exceed 80%.
NHB also amended the risk weights for individual housing loans. Thus risk
weights on individual housing loans range from 50% to 125%, depending on
the loan amount and LTV.
HDFC's capital adequacy ratio stood at 14% of the risk weighted assets, as
against the minimum requirement of 12%. Tier I capital was 12.2% against a
minimum requirement of 6%.
Codes and Standards:
NHB has issued comprehensive Know Your Customer (KYC) Guidelines and Anti
Money Laundering Standards in the context of recommendations made by the
Financial Action Task Force on Anti Money Laundering Standards and on
Combating Financing of Terrorism Standards. During the year, the board
reviewed and approved the amendments to the Corporation's KYC and
Prevention of Money Laundering Policy as stipulated by NHB. The Corporation
has adhered to the compliance requirements in terms of the said policy
relating to monitoring and reporting of cash/suspicious transactions.
The Fair Practices Code framed by NHB seeks to promote good and fair
practices by setting minimum standards in dealing with customers, increase
transparency so customers have a better understanding of what they can
reasonably expect of the services being offered, encourage market forces
through competition to achieve higher operating standards, promote fair and
cordial relationships between customers and the housing finance company and
foster confidence in the housing finance system. During the year, the board
reviewed and approved the amendments to the Corporation's Fair Practices
Code as notified by NHB. The Corporation has put in place a mechanism to
monitor and review adherence to the Fair Practices Code as approved by the
Board of Directors.
The Corporation has adopted the Model Code of Conduct for Direct Selling
Agents and Guidelines for Recovery Agents engaged by HFCs as stipulated by
NHB and duly approved by the Board of Directors.
Risk Management Framework:
The Corporation has a Risk Management Framework, which provides the
mechanism for risk assessment and mitigation. The Risk Management Committee
(RMC) of the Corporation comprises the Managing Director as the
chairperson, the Executive Director and some members of senior management.
The RMC reviewed the risks associated with the business of the Corporation,
its root causes and the efficacy of the measures taken to mitigate the
same, twice during the year. Thereafter, the Board of Directors also
reviewed the key risks associated with the business of the Corporation, the
procedures adopted to assess the risks and efficacy of the mitigation
measures.
Marketing and Distribution:
To reach out effectively to customers, the Corporation's distribution
network now spans 289 outlets, which include 71 offices of the HDFC's
wholly owned distribution company, HDFC Sales Private Limited (HSPL). To
further augment this network, HDFC covers over 90 additional locations
through its outreach programmes. HDFC has international offices in London,
Singapore and Dubai. The Dubai office reaches out to its customers across
West Asia through its service associates based in Kuwait, Qatar, Oman,
Sharjah, Abu Dhabi and Saudi Arabia - Al Khobar, Jeddah and Riyadh.
HDFC's reach and presence is also enhanced by its distribution channels,
which include HSPL, HDFC Bank and a third party direct selling associates
(DSAs). During the year, efforts were focused on empanelling financial
consultants with a pan-India presence as business sourcing associates for
HDFC. All distribution channels only source loans, while HDFC continues to
retain control over the credit, legal and technical appraisal, thereby
ensuring that the quality of loans disbursed is not compromised in any way
and is consistent across all distribution channels.
HDFC organises property fairs across major cities in the country. The aim
of these fairs is to provide a wide spectrum of approved projects under a
single roof. These fairs in turn help customers in making their decision to
buy a home. Under India Homes Fair', HDFC brings together eminent builders
who showcase their properties for the Indian Diaspora. During the year,
HDFC organised India Homes Fair' in London, Singapore, Kuwait, Saudi
Arabia and Qatar.
Besides running various product-based campaigns during the year, the
Corporation also ran a brand campaign highlighting its leadership position
in the Indian mortgage industry.
Loan Quality & Provision for Contingencies (%):
Year Gross NPLs Six Month Provision for
as a % of Gross NPLs Contingencies
Portfolio as a % of as a % of
Portfolio Portfolio
2007 0.92 0.77 0.71
2008 0.84 0.68 0.63
2009 0.81 0.56 0.72
2010 0.79 0.53 0.66
2011 0.77 0.46 0.95
Portfolio includes loans and investments in debentures and corporate
deposits for financing real estate projects.
Cross Selling and Distribution of Financial Products and Services:
HDFC's subsidiary companies have strong synergies with HDFC and hence
efforts are channelled into cross selling so as to offer customers a wide
range of financial products and services under the HDFC' brand.
HDFC is a Composite Corporate Agent for HDFC Standard Life Insurance
Company Limited (HDFC Life) and HDFC ERGO General Insurance Company Limited
(HDFC-ERGO). In addition, the distribution networks of HDFC and HSPL are
used by Credila Financial Services Private Limited, which offers education
loans.
International Housing Finance Initiatives:
HDFC's expertise in housing finance is well regarded and therefore a number
of existing and new housing finance companies in various parts of the world
are keen to tap HDFC for training, strategic input and technical assistance
in housing finance.
During the year, the Corporation under its Technical Services Agreement
with Housing Development Finance Corporation Plc., Maldives, provided
technical and consultancy services in key mortgage functions.
Senior executives of the Corporation were invited to Indonesia, Maldives,
Mauritius and Ghana for seminars, consultancy or training assignments in
housing finance.
In July 2010, the Frankfurt School of Finance & Management and HDFC jointly
organised the third Housing Finance Summer Academy' in Germany, which is a
course that aims to provide housing finance solutions for emerging markets
through a combination of academic knowledge and practical experience.
In November 2010, HDFC conducted its own international training programme
Housing Finance Management' at its training centre, Centre for Housing
Finance, located at Lonavla, India. Participants from different countries
across Asia and Africa attended a weeklong residential training programme.
Delegates from Bangladesh, Indonesia and Kenya visited the Corporation to
understand key mortgage finance operations.
Shelter Assistance Reserve (SAR):
HDFC continued to partner and support worthwhile projects undertaken by
non-government organisations, foundations and local bodies through the SAR.
During the year, the Corporation disbursed Rs.11.48 crores from the SAR
towards a wide spectrum of development programmes and activities.
Corpus contributions were made out of the SAR to the Indian Council for
Research on International Economic Relations (ICRIER) - New Delhi, Armed
Forces Flag Day Fund - Mumbai, M. S. Swaminathan Research Foundation -
Chennai and Folk Arts - Rajasthan, amongst others. Support was also
extended towards running a centre for rehabilitation of adults affected by
cerebral palsy in Pune, partnering The Energy and Resources Institute
(TERI) in undertaking an integrated development scheme for sustainable
livelihood across remote villages in Uttarakhand, providing scholarships to
children from impoverished backgrounds through an organisation working with
the rural poor in West Bengal and supporting the construction of a centre
catering to the rehabilitation of hearing impaired individuals in New
Delhi. The Corporation supported the Indian Cancer Society towards meeting
the treatment expenses of patients. HDFC continued partnering municipal
schools to showcase high-performing schools through public-private
partnerships, through initiatives such as the Akanksha School Project,
Bhavishya Yaan and Teach for India. The SAR was also utilised towards
providing relief assistance to victims of the Leh cloudburst in August
2010.
During the year, the Corporation disbursed Rs.2 crores to the Indian
Institute of Human Settlements (IIHS) -Bengaluru, taking the Corporation's
total contribution to IIHS to Rs.4 crores. IIHS is a privately funded
education institution focusing on various aspects of urban practice.
Training and Human Resource Management:
The Corporation believes that the ability to keep learning is a key
sustainable advantage and hence strong emphasis is placed on constantly
upgrading the skills of its employees.
During the year, all new recruits underwent an induction training
programme. In addition, employees who were promoted across various grades
attended Executive Development and Managerial Skills programmes. During the
year, a leadership programme was designed and conducted by the Indian
Institute of Management, Ahmedabad, for a select group of employees
identified on the basis of their performance and future potential.
Amongst many others, internal training programmes were conducted in the
areas of rural housing finance, corporate risk management, negotiative
selling skills, credit risk management and six sigma.
The Corporation also nominated staff members for a variety of external
programmes including real estate and housing, education, treasury and risk
management, information technology, taxation and International Financial
Reporting Standards.
Composition of Loans Outstanding (%) (Inclusive of loans sold) (As at March
31, 2011):
Individuals - 66%
Corporates - 33%
Others - 1%
New Initiatives:
HDFC RED:
During the year, HDFC Real Estate Destination (HDFC RED), an on-line real
estate portal was launched with the key objective of providing a single
destination to potential home buyers to search and short-list desired
properties that suit their requirements. HDFC RED functions as a
centralised digital platform to bridge the gap between home buyers and
developers across India. Developers are charged a subscription fee to list
their projects on HDFC RED and in turn are able to attract potential
buyers. HDFC RED is currently operational in six cities in India -
Bengaluru, Chennai, Hyderabad, Mumbai, New Delhi and Pune.
Awards and Recognitions:
During the year, some of the awards and recognitions received by the
Corporation include:
* HDFC is the only Indian company to be included in the fifth annual list
of the 2011 World's Most Ethical Companies' by Ethisphere Institute, USA.
* Best Governed Company Award, 2010 - Asian Centre for Corporate Governance
& Sustainability.
* India Shining Star CSR Award' -for outstanding CSR in the Banking and
Financial Sector.
* HDFC one of India's Best Managed Companies' - Finance Asia's 10th Annual
Poll.
* HDFC the most admired company in the Financial Sector in India' -Wall
Street Journal's Asia 200 survey.
Subsidiary Companies:
In terms of Section 212(8) of the Companies Act, 1956, the Central
Government has granted its approval, exempting the Corporation from the
requirement of attaching to its annual report, the balance sheet, profit
and loss account and the report of the directors and auditors thereon, in
respect of all its sixteen subsidiary companies. Accordingly, a copy of the
balance sheet, profit and loss account, report of the Board of Directors
and Report of the Auditors of the following subsidiary companies of the
Corporation - HDFC Developers Limited, HDFC Investments Limited, HDFC
Holdings Limited, HDFC Asset Management Company Limited, HDFC Trustee
Company Limited, HDFC Realty Limited, HDFC Standard Life Insurance Company
Limited, HDFC ERGO General Insurance Company Limited, GRUH Finance Limited,
HDFC Sales Private Limited, HDFC Ventures Trustee Company Limited, HDFC
Venture Capital Limited, HDFC Property Ventures Limited and Credila
Financial Services Private Limited and the following step-down subsidiary
companies - HDFC Asset Management Company (Singapore) Pte. Limited and
Griha Investments have not been attached to the balance sheet of the
Corporation for the financial year ended March 31, 2011.
The Annual Report of the Corporation, the annual accounts and the related
documents of the Corporation's subsidiary companies are posted on the
website of the Corporation, www.hdfc.com. Shareholders who wish to have a
copy of the annual accounts and detailed information on any subsidiary
company can download the same from the website or may write to the
Corporation for the same. Further, the said documents shall be available
for inspection by the shareholders at the registered office of the
Corporation. The Corporation has not made any loans or advances in the
nature of loans to any of its subsidiary or associate company or companies
in which its directors are deemed to be interested, other than in the
ordinary course of business.
Review of Key Subsidiary and Associate Companies HDFC Bank Limited (HDFC
Bank):
HDFC and HDFC Bank continue to maintain an arm's length relationship in
accordance with the regulatory framework. Both organisations, however,
capitalise on the strong synergies through a system of referrals, special
arrangements and cross selling in order to effectively provide a wide range
of products and services under the HDFC brand name.
As at March 31, 2011, net advances of HDFC Bank stood at Rs.1,59,983 crores
- an increase of 27% over the previous year. As at March 31, 2011, HDFC
Bank's distribution network included 1,986 branches and 5,471 ATMs in 996
cities as against 1,725 branches and 4,232 ATMs in 779 cities as of March
31, 2010. The bank has a customer base of 21.9 million as at March 31,
2011.
For the year ended March 31, 2011, HDFC Bank reported a profit after tax of
Rs.3,926 crores as against Rs.2,949 crores in the previous year,
representing an increase of 33%. HDFC Bank recommended a dividend of
Rs.16.50 per share as against Rs.12 per share in the previous year.
HDFC together with its wholly owned subsidiaries, HDFC Investments Limited
and HDFC Holdings Limited holds 23.4% of the equity share capital of HDFC
Bank.
HDFC Standard Life Insurance Company Limited (HDFC Life):
Gross premium income of HDFC Life for the year ended March 31, 2011 stood
at Rs.9,004 crores as compared to Rs.7,005 crores in the previous year - a
growth of 29%. The sum assured in force for the current year was Rs.98,917
crores as compared to Rs.72,610 crores in the previous year.
The company has a portfolio of 27 retail products and 6 group products
covering saving, investment, protection and retirement needs of the
customers, along with 9 optional rider benefits.
HDFC Life covers approximately 495 cities and towns in India through its
780 distribution points in the country with approximately 1.36 lakh
financial consultants appointed by the company. HDFC Life also has a strong
association with its bancassurance partners, which has contributed
significantly to the growth of the company during the year.
HDFC Life has reported a loss of Rs.99 crores for the year ended March 31,
2011. Like most life insurance companies in the initial phase, HDFC Life
has reported losses. This is essentially due to the accounting norms
applicable to insurance companies wherein the commission expenses are
charged upfront in the year in which they are incurred while the
corresponding income is recognised over the entire life of the policies
issued. The mismatch between expenses and income has the effect of
magnifying the initial losses of HDFC Life.
HDFC holds 72.4% of the equity share capital in HDFC Life.
HDFC Asset Management Company Limited (HDFC-AMC):
HDFC and Standard Life Investment Limited are the co-sponsors of HDFC
Mutual Fund.
As at March 31, 2011, HDFC-AMC managed 36 debt, equity and exchange traded
fund schemes of HDFC Mutual Fund. During the year, the average assets under
management stood at Rs.95,950 crores (which is inclusive of average assets
under discretionary portfolio management/advisory services). The number of
investor accounts increased to over 46 lakhs as at March 31, 2011 as
compared to 39 lakhs in the previous year.
As at March 31, 2011, HDFC-AMC has points of acceptances in 114 locations
across the country.
For the year ended March 31, 2011, HDFC-AMC reported a profit after tax of
Rs.242.18 crores as against Rs.208.37 crores in the previous year. HDFC-AMC
paid an interim dividend of Rs.29 per share for the financial year ended
March 31, 2011.
HDFC holds 60% of the equity share capital of HDFC-AMC.
HDFC ERGO General Insurance Company Limited (HDFC-ERGO):
For the year ended March 31, 2011, HDFC-ERGO retained the ranking as the
fifth largest private sector player in the general insurance industry.
Continuing its multi-product and multi-channel strategy, HDFC-ERGO
leverages on its distribution infrastructure developed over the years.
The company offers a complete range of insurance products like motor,
health, travel, home and personal accident in the retail segment and
customised products like property, marine, aviation and liability insurance
in the corporate segment. The company continues to leverage on the HDFC
group's distribution capability to drive its growth and relies on the
technical capability of ERGO in the field of general insurance. The company
has a balanced portfolio mix with the retail segment accounting for 57% of
the business.
The general insurance industry registered a growth of 23% in FY 2010-11 as
compared to 13% in the previous year. In comparison, during the year, HDFC-
ERGO recorded a growth of 40%, with a Gross Written Premium (including
cessions from the motor pool) of Rs.1,408 crores as against Rs.1,005 crores
in the previous year.
After providing for the higher losses from the Indian Motor Third Party
Insurance Pool (IMTPIP), during the year, the company made a loss of
Rs.36.4 crores as against a loss of Rs.94.3 crores in the previous year.
Loss from IMTPIP was Rs.69 crores as against loss of Rs.15 crores in the
previous year.
HDFC holds 74% of the equity share capital of HDFC-ERGO.
Profits:
(Rs. in crores)
Year Profit Before Profit After
Tax Tax
2007 1,968 1,570
2008* 2,737 1,943
2009 3,219 2,283
2010 3,916 2,826
2011 4,867 3,535
HDFC Property Funds:
HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC
Property Fund, a registered venture capital fund with the Securities and
Exchange Board of India (SEBI).
HDFC Property Fund currently has two schemes. The first scheme is HDFC
India Real Estate Fund (HI-REF), with a corpus of Rs.1,000 crores, which
has been fully invested. During the year, the scheme fully exited from one
investment and made partial exits from two other investments.
The second scheme, HDFC IT Corridor Fund has a corpus of Rs.446.40 crores.
This scheme has disbursed the entire corpus in rental income yielding
commercial properties in major cities in India and exits are being explored
for some investments of the scheme.
During the year, HVCL made a profit after tax of Rs.12.21 crores. The
directors of HVCL approved the payment of two interim dividends aggregating
Rs.200 per equity share.
HDFC holds 80.5% of the equity share capital of HVCL.
HDFC Property Ventures Limited (HPVL) provides investment advisory services
to Indian and overseas asset management companies (AMCs). Such AMCs in turn
manage and advise Indian and offshore private equity funds.
During the year, HPVL made a profit after tax of Rs.3.39 crores. The
directors of HPVL approved the payment of two interim dividends aggregating
Rs.20 per equity share.
HDFC holds 100% of the equity share capital of HPVL.
GRUH Finance Limited (GRUH):
GRUH is a housing finance company with operations primarily in the states
of Gujarat and Maharashtra and has now expanded its network to other states
like Karnataka, Madhya Pradesh, Rajasthan, Chhattisgarh and Tamil Nadu.
During the year, GRUH disbursed loans amounting to Rs.1,211 crores as
compared to Rs.780 crores in the previous year - an increase of 55%.
For the year ended March 31, 2011, GRUH reported a profit after tax of
Rs.91.51 crores as compared to Rs.68.96 crores in the previous year - an
increase of 33%. The company recommended a dividend of Rs.8.50 per share
and in addition also recommended a special dividend of Rs.2.50 per share to
commemorate the Silver Jubilee of the company, taking the total recommended
dividend to Rs.11 per share as compared to Rs.6.50 per share in the
previous year.
HDFC's holding in GRUH currently stands at 60.6%.
HDFC Sales Private Limited (HSPL):
HDFC Sales Private Limited (HSPL) continues to strengthen the Corporation's
marketing and sales efforts by providing a dedicated sales force to sell
home loans and other financial products.
HSPL has a presence in 71 locations. During the period under review, HSPL
sourced loans accounting for 46% of individual loans disbursed by HDFC.
HSPL is a wholly owned subsidiary of HDFC.
Credila Financial Services Private Limited (Credila):
Credila is India's first dedicated education loan company, providing loans
to students pursuing higher education in India and abroad. Credila has
funded students studying in over 500 educational institutes, pursuing
higher studies in more than 20 countries.
As at March 31, 2011, Credila had cumulatively disbursed Rs.190 crores in
respect of 2,741 loans. The average loan amount disbursed is Rs.7 lakhs.
In addition to having its own offices and sourcing applications through the
web, Credila capitalises on HDFC's distribution network to source and
market education loans.
The Reserve Bank of India has categorised education loans as priority
sector' lending. Credila's borrowers are entitled to income tax exemption
under Section 80E of the Income Tax Act, 1961.
HDFC holds 62.3% of the equity share capital of Credila.
Particulars of Employees:
HDFC had 1,607 employees as of March 31, 2011. During the year, 8 employees
employed throughout the year were in receipt of remuneration of Rs.60 lakhs
or more per annum.
In accordance with the provisions of Section 217(2A) of the Companies Act,
1956 and the rules framed thereunder, the names and other particulars of
employees are set out in the annex to the Directors' Report. In terms of
the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the
Directors' Report is being sent to all the shareholders of the Corporation
excluding the annex. Any shareholder interested in obtaining a copy of the
said annex may write to the Corporation.
Employees Stock Option Scheme (ESOS):
The Corporation had not granted any stock options during the year. The
options were last granted in November 2008. Unexercised options as at April
1, 2010 relates to ESOS-05, ESOS-07 and ESOS-08.
During the year, options vested aggregated to 1,54,668 and options
exercised aggregated to 34,36,095. Pursuant to the said exercise, the
Corporation received from the employees Rs.473.54 crores as exercise
consideration (excluding tax), of which Rs.3.44 crores was towards share
capital and Rs.470.10 crores towards securities premium. During the year,
pursuant to the exercise of options, 1,71,80,475 equity shares of Rs.2 each
have been allotted to the concerned employees.
During the year, 9,736 options lapsed. Options in force as at March 31,
2011 stood at 83,22,488. Pursuant to the subdivision of the face value of
the equity shares of the Corporation from Rs.10 to Rs.2, upon exercise,
each option is entitled to 5 equity shares of Rs.2 each as against one
equity share of Rs.10 each prior to the sub-division.
There has been no variation in the terms of the options granted.
The Corporation had granted the stock options at the market price and hence
the intrinsic value of the option was nil. Consequently, the compensation
cost was nil. As no options were granted during the year, the compensation
cost under the fair value method was also nil.
The diluted EPS is Rs.23.66 against a basic EPS of Rs.24.18.
Unclaimed Dividend:
As at March 31, 2011, dividend amounting to Rs.8.60 crores has not been
claimed by shareholders of the Corporation. The Corporation has been
periodically intimating the concerned shareholders requesting them to
encash their dividend before it becomes due for transfer to the IEPF. The
Corporation continues to take various initiatives to reduce the quantum of
unclaimed dividend. These inter alia include periodic reminders to
shareholders requesting them to claim their dividend, including final
reminders to those shareholders who have not claimed their dividend before
the same is due for transfer to the IEPF. The Corporation also provides
direct credit of unclaimed dividend to the shareholders having a bank
account with HDFC Bank or whose 9 digit MICR code is made available to the
Corporation by the Depositories and dispatches duplicate dividend warrants
directly to the concerned banks wherever the details are made available by
the Depositories.
As per the provisions of Section 205C of the Companies Act, 1956, unclaimed
dividend amounting to Rs.33.96 lakhs for the financial year 2002-03 was
transferred to the IEPF on September 8, 2010. Further, the unclaimed
dividend amounting to Rs.47.84 lakhs in respect of the financial year 2003-
04 must be claimed by August 24, 2011, failing which it is required to be
transferred to the IEPF within a period of 30 days from the said date. In
terms of said section, no claim would lie against the Corporation or the
IEPF after the transfer.
Unclaimed Shares:
Pursuant to an amendment to Clause 5A of the Listing Agreements, the
Corporation has identified share certificates issued by it in physical form
to its shareholders which are lying unclaimed.
The Corporation has sent reminders to the concerned shareholders requesting
them to contact the Investor Services Department of the Corporation to
claim their shares, subject to submission and verification of requisite
documents and compliance with procedures as prescribed in the said clause.
Particulars Regarding Conservation of Energy, Technology Absorption and
Foreign Exchange Earnings and Outgo:
The particulars regarding foreign exchange earnings and expenditure appear
as Item No. 13 in the Notes to the Accounts. Since HDFC does not own any
manufacturing facility the other particulars relating to conservation of
energy and technology absorption as stipulated in the Companies (Disclosure
of Particulars in the Report of the Board of Directors) Rules, 1988 are not
applicable.
Directors:
Mr. D.M. Satwalekar resigned as a director of the Corporation with effect
from November 13, 2010. Mr. Satwalekar had joined the Corporation in 1979.
He was the Managing Director of the Corporation from 1993 up to 2000. He
was thereafter appointed as the Managing Director & Chief Executive Officer
of HDFC Standard Life Insurance Company Limited (HDFC Life) and was
appointed as a non-executive director of the Corporation in 2000.
The Board of Directors wish to place on record its sincere appreciation and
gratitude for the dedicated service and invaluable contribution made by Mr.
Satwalekar during his tenure with the Corporation and HDFC Life.
The Board of Directors, at its meeting held on October 18, 2010, re-
appointed Mr. Keki M. Mistry as the Managing Director of the Corporation
(designated as the Vice Chairman & Chief Executive Officer') for a period
of 5 years, with effect from November 14, 2010, subject to the approval of
the members at the ensuing AGM.
In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Corporation, Mr. D. N. Ghosh, Dr. Ram S.
Tarneja and Dr. Bimal Jalan are liable to retire by rotation at the ensuing
AGM. They are eligible for re-appointment.
Necessary resolutions for the re-appointment of the aforesaid directors
have been included in the notice convening the ensuing AGM.
All the directors of the Corporation have confirmed that they are not
disqualified from being appointed as directors in terms of Section
274(1)(g) of the Companies Act, 1956.
Auditors:
Messrs. Deloitte Haskins & Sells, Chartered Accountants, having
registration number 117366W, statutory auditors of the Corporation and
branch auditors to audit the accounts at the Corporation's branches in
India and offices in London and Singapore hold office until the conclusion
of the ensuing AGM and are eligible for re-appointment.
The Corporation has received a confirmation from Mess's Deloitte Haskins &
Sells to the effect that their appointment, if made, would be within the
limits prescribed under Section 224(1B) of the Companies Act, 1956.
Messrs. PKF, Chartered Accountants, having registration number 10 issued by
the Ministry of Economy, U.A.E. was appointed as the branch auditors to
audit the accounts of the Corporation's branch office in Dubai. Their term
expires at the end of the ensuing AGM and they are eligible for re-
appointment.
Directors' Responsibility Statement:
In accordance with the provisions of Section 217(2AA) of the Companies Act,
1956 and based on the information provided by the management, your
directors state that:
i. In the preparation of annual accounts, the applicable accounting
standards have been followed;
ii. Accounting policies selected were applied consistently. Reasonable and
prudent judgements and estimates were made so as to give a true and fair
view of the state of affairs of the Corporation as at the end of March 31,
2011 and of the profit of the Corporation for the year ended on that date;
iii. Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Corporation and for
preventing and detecting frauds and other irregularities; and
iv. The annual accounts of the Corporation have been prepared on a going
concern basis.
Management Discussion and Analysis Report and Report of the Directors on
Corporate Governance:
In accordance with Clause 49 of the listing agreements, the Management
Discussion and Analysis Report and the Report of the Directors on Corporate
Governance form part of this report.
Corporate Governance - Voluntary Guidelines:
The Board of Directors have taken cognisance of the Corporate Governance
Voluntary Guidelines 2009' issued by the Ministry of Corporate Affairs
(MCA) in December 2009. While the guidelines are recommendatory in nature,
the board recognises the importance and need to constantly assess
governance practices thereby ensuring a sustainable business environment
that generates long-term value to all key stakeholders. The board has
adopted several provisions of the said guidelines.
Acknowledgements:
The Corporation would like to acknowledge the role of all its stakeholders
- shareholders, borrowers, depositors, key partners and lenders for their
continuing support to the Corporation.
The directors appreciate the guidance received from various regulatory
authorities including NHB, RBI, SEBI, MCA, Registrar of Companies,
Financial Intelligence Unit (India), Foreign Investment Promotion Board,
the Stock Exchanges and the Depositories.
Your directors value the professionalism of all the employees of the
Corporation who have relentlessly worked in a challenging environment and
whose efforts have stood the Corporation in good stead.
On behalf of the Board of Directors
Place: MUMBAI DEEPAK S. PAREKH
Dated: May 10, 2011 Chairman
Management Discussion and Analysis Report:
Macro-economic Overview:
During the year under review, the Indian economy continued to be resilient
with an estimated GDP growth rate of 8.6%. This growth has been on the back
of an above normal monsoon and a robust services sector that continued to
be the bedrock of the Indian economy. As at March 31, 2011, year-on-year
bank credit growth was strong at 21% while year-on-year deposit growth was
lower at 16%. In FY 2010-11, foreign institutional investor (FII) inflows
remained buoyant at USD 30 billion.
Inflation continued to be one of the key concerns for the economy,
particularly food inflation, which remained in the double digit range
during the year. The rising price of crude oil prices and other commodities
also contributed to higher inflation. During FY 2010-11, India's central
bank, the Reserve Bank of India, increased the repo rate by 175 basis
points to 6.75% and the reverse repo by 225 basis points to 5.75% to anchor
inflationary expectations.
Market Scenario:
Strong economic growth and rising consumer confidence during the year had a
positive impact on the housing sector. Despite the increase in interest
rates on home loans during the year, the demand for housing remained strong
across the country. However, residential real estate prices in a few
pockets of the country had risen to unrealistic levels, resulting in a
slight slowdown in the volume of sales in these locations.
There has been a pick-up in commercial real estate as compared to the
previous year, with demand coming particularly from the professional
services industry, financial services, telecom and IT & ITES which have
absorbed large spaces. The commercial rental market also saw a pick-up in
demand, resulting in an increase in commercial rents.
Measures on the housing sector in the Union Budget 2011-12 predominantly
focused on enhancing affordable housing. The 1% Interest Subvention Scheme
was further liberalised wherein housing loans up to Rs. 15 lakhs with
property cost up to Rs. 25 lakhs would qualify under the scheme. There was
also a commitment to create a Mortgage Risk Guarantee Fund under Rajiv Awas
Yojana to enhance credit worthiness of housing loans given to the
economically weaker sections and low income group.
Interest Rate Scenario:
In line with the interest rate movements in the economy, HDFC increased its
Corporate Prime Lending Rate (CPLR) for non-individual loans by 175 basis
points during the year under review. The CPLR is a dynamic benchmark based
on an index of money market instruments. HDFC also increased its Retail
Prime Lending Rate (RPLR) by 175 basis points during the year.
Lending Operations:
Loan approvals during the year were Rs.75,185 crores as compared to
Rs.60,611 crores in the previous year, representing a growth of 24%. Loan
disbursements during the year were Rs.60,314 crores as against Rs.50,413
crores in the previous year, representing a growth of 20%.
Cumulative loan approvals and disbursements as at March 31, 2011 were
Rs.3,73,246 crores and Rs.3,02,533 crores respectively. This is in respect
of approximately 3.8 million housing units.
The demand for individual home loans continued to be robust, despite rising
interest rates. Other enabling factors included rising disposable incomes
and continued fiscal incentives on housing loans. During the year,
individual approvals grew at 25% and disbursements grew by 27% as compared
to the previous year. The average size of individual loans stood at Rs.18.6
lakhs.
Sale of Loans:
During the year, the Corporation, under the loan assignment route sold
individual loans of Rs.4,379 crores to HDFC Bank pursuant to the buyback
option embedded in the home loan arrangement between the Corporation and
HDFC Bank. Out of the total loans assigned, Rs.4,053 crores qualify as
priority sector advances for the bank.
As at March 31, 2011, total loans outstanding in respect of loans sold
stood at Rs.12,147 crores. HDFC continues to service the loans sold under
these transactions and is entitled to the residual interest on the loans
sold. The residual interest on the individual loans sold is 1.57% per
annum.
The residual income on the loans sold is being recognised over the life of
the underlying loans, and not on an upfront basis. Issues through which
loans have been sold have been rated by external agencies and carry a
rating indicating the highest degree of safety.
Loan Portfolio:
The loan approval process of HDFC is decentralised, with varying approval
limits. Approval of lending proposals beyond certain limits is referred to
the committee of management (COM). Larger proposals, as appropriate, are
referred to the Board of Directors.
During the year, HDFC's loan book increased to Rs.1,17,127 crores from
Rs.97,967 crores in the previous year. In addition to this, loans
securitised and/or assigned by the Corporation and outstanding as at March
31, 2011 amounted to Rs.12,147 crores.
Loans Outstanding:
Year (Rs. in crores)
2007 56,512
2008 73,328
2009 85,198
2010 97,967
2011 117,127
The net increase in the loan book of Rs.19,160 crores has been determined
after taking into account loan repayments of Rs.36,756 crores (previous
year Rs.31,872 crores) and net loans written off during the year amounting
to Rs.19.75 crores (previous year Rs.16.38 crores).
The loan book, net of loans sold has grown by 20% during the year. The
growth in the loan book would have been higher at 24% had the Corporation
not sold any loans during the year.
Dual Rate Home Loans (DRHL):
In November 2009, the Corporation introduced a flexible home loan product
with dual interest rates. The DRHL product comprises two components -an
initial fixed rate period up to March 31, 2012 and thereafter the loan
switches to a floating rate linked to the RPLR. All the DRHL loans will
convert to floating rates linked to the RPLR on April 1, 2012. The
outstanding individual loans under DRHL as at March 31, 2011 was Rs.22,334
crores.
This loan product was launched as a result of the steep yield curve where
the short term interest rates were significantly lower than the medium to
long term rates. The product was extremely well received by customers. With
the flattening of the yield curve and the hardening of interest rates in
the economy, the product was withdrawn with effect from December 1, 2010.
The Corporation adopted a cautious approach to appraise such loans wherein
the repayment capacity and credit worthiness is determined on the basis of
the instalment that the customer is expected to pay with effect from the
commencement of the subsequent period on a variable rate basis.
The Corporation accounts only for the lower rate of interest until March
31, 2012 and with effect from April 1, 2012 will start accounting for
income at the higher rates that will be applicable.
During the year, the National Housing Bank (NHB) has stipulated a
provisioning of 2% on standard assets in respect of housing loans granted
under the DRHL scheme which the Corporation has fully provided for.
Marketing and Distribution:
HDFC's distribution network spans 289 outlets, which include 71 offices of
the wholly owned distribution company, HDFC Sales Private Limited (HSPL).
In addition, HDFC covers over 90 locations through outreach programmes.
To ensure a wider geographic reach, third party channels form an integral
part of the distribution network. Distribution channels sourcing loans for
HDFC include HSPL, which provides HDFC with a dedicated sales force, HDFC
Bank and a few third party direct selling associates (DSAs). Distribution
channels only source loans, while HDFC continues to retain control over the
credit, legal and technical appraisal, ensuring no compromise on the
quality of loans disbursed and is consistent across all distribution
channels.
Total loans sourced from distribution channels during the year accounted
for 83% of individual loans disbursed by HDFC in value terms. The total
commission payable to distribution channels amounted to Rs.199.45 crores.
The entire amount has been charged to the Profit and Loss Account against
fee income.
HDFC organises property fairs across major cities in the country. The aim
of these fairs is to provide a wide spectrum of approved projects under a
single roof. These fairs in turn help customers in making their decision to
buy a home. Under India Homes Fair', HDFC brings together eminent builders
who showcase their properties for the Indian Diaspora. During the year,
HDFC organised India Homes Fair' in London, Singapore, Kuwait, Saudi
Arabia and Qatar.
Cross-selling of financial products and services continued to form the
cornerstone of HDFC's marketing strategy, thereby providing a wide range of
financial services and products under the HDFC umbrella'. HDFC distributes
insurance products under a referral fee programme with HDFC Standard Life
Insurance Company Limited (HDFC Life) and HDFC ERGO General Insurance
Company Limited (HDFC-ERGO). In addition, the distribution networks of HDFC
and HSPL are used by Credila Financial Services Private Limited, which
offers education loans.
Investments:
The Investment Committee constituted by the Board of Directors is
responsible for approving investment proposals in line with the limits as
set out by the Board of Directors. The Executive Directors are members of
the Committee.
The investment function supports the core business of housing finance. The
investment mandate includes ensuring adequate levels of liquidity to
support core business requirements, maintaining a high degree of safety and
optimising the level of returns, consistent with acceptable levels of risk.
As at March 31, 2011, the investment portfolio stood at Rs.11,832 crores as
against Rs.10,727 crores last year. The proportion of investments to total
assets was 9%.
Housing Finance Companies (HFCs) are required to maintain a statutory
liquidity ratio (SLR) in respect of public deposits raised. Currently the
SLR requirement is 12.5% of public deposits. As at March 31, 2011, HDFC had
Rs.1,516 crores in bonds of the National Housing Bank (NHB) and bank
deposits and Rs.1,278 crores in government securities.
As at March 31, 2011, the treasury portfolio (excluding investments in
equity shares) had an average balance period to maturity of 15 months. The
average yield on the non-equity portfolio for the year was 8.71% per annum.
HDFC has classified its investments into current and long-term investments.
The current investments have been entirely marked to market'. In respect
of long-term investments, provisions have been made to reflect any
permanent diminution in the value of investments. The aggregate provision
on account of such current and long-term investments amounts to Rs.56.85
crores. After considering the opening balance of Rs.36.41 crores in the
diminution in the value of Investments account, and the write back of
provisions on account of investments sold, a provision of Rs.20.44 crores
has been made for diminution in value of investments through the Provision
for Contingencies account. As at March 31, 2011, the market value of quoted
investments was higher by Rs.21,392 crores as compared to the value at
which these investments are reflected in the balance sheet. This unrealised
gain includes appreciation in the market value of investments held by
HDFC's wholly owned subsidiaries, HDFC Investments Limited and HDFC
Holdings Limited.
Subsidiaries and Associates:
Though housing remains the core business, HDFC has continued to make
investments in its subsidiary and associate companies. These investments
are made in companies where there are strong synergies with HDFC. HDFC will
continue to explore avenues for such investments with the objective of
providing a wide range of financial services and products under the HDFC
brand name.
During the year, HDFC made gross investments in the equity share capital of
its subsidiary companies, HDFC-ERGO (Rs.129.50 crores), HDFC Life
(Rs.117.58 crores) and Credila Financial Services Private Limited (Rs.17
crores).
The shareholding of HDFC (together with its nominees) in its key subsidiary
and associate companies as at March 31, 2011 is mentioned below:
Company Shareholding %
HDFC Developers Limited 100.0
HDFC Investments Limited 100.0
HDFC Holdings Limited 100.0
HDFC Trustee Company Limited 100.0
HDFC Realty Limited 100.0
HDFC Property Ventures Limited 100.0
HDFC Sales Private Limited 100.0
HDFC Ventures Trustee Company Limited 100.0
HDFC Venture Capital Limited 80.5
HDFC ERGO General Insurance Company Limited 74.0
HDFC Standard Life Insurance Company Limited 72.4
Credila Financial Services Private Limited 62.3
GRUH Finance Limited 60.7
HDFC Asset Management Company Limited 60.0
HDFC Bank Limited* 23.4
* (Inclusive of shareholding of HDFC Investments Limited and HDFC Holdings
Limited)
Recoveries:
With effect from March 31, 2005, an asset is a non-performing asset (NPA)
if the interest or instalment is overdue for 90 days as against the earlier
norm where a loan was a NPA if the account was in arrears for over 6
months.
Gross non-performing loans outstanding (along with debentures and corporate
deposits for financing real estate projects) amounted to Rs.903.85 crores
as at March 31, 2011, constituting 0.77% of the portfolio. The principal
outstanding in respect of individual loans where the instalments were in
arrears constituted 0.72% of the individual portfolio and the corresponding
figure was 0.84% in respect of the non-individual portfolio. HDFC has
written off loans aggregating to Rs.20.62 crores during the year. This
pertains to the housing loans outstanding in respect of 1,091 individual
borrowers. These loans have been written off pursuant to one-time
settlements, where HDFC will continue making efforts to recover the money.
During the year, HDFC has written back loans aggregating to Rs.0.87 crores
(these were loans written off in earlier years). The net write off for the
year is Rs.19.75 crores. With this, HDFC has, since inception, written off
loans (net of subsequent recovery) aggregating to Rs.112.92 crores. Thus as
at March 31, 2011, the total loan write-offs stood at 4 basis points of
cumulative disbursements since inception of the Corporation.
Provision for Contingencies:
In terms of the prudential norms as stipulated by NHB, HDFC is required to
carry a provision in respect of non-performing assets and a general
provision on outstanding standard non-housing loans. In addition, during
the year, NHB further stipulated a general provision of 0.40% on standard
assets under housing loans to non-individuals and a 2% provision on
standard assets in respect of housing loans granted under the Dual Rate
Home Loan scheme. This requirement has been partly met by utilisation of
Rs.298.59 crores (net) from Additional Reserve under Section 29 C of the
National Housing Bank Act, 1987. Based on the aforesaid as per NHB norms,
the Corporation is required to carry a total provision of Rs.813.53 crores.
During the year, HDFC has utilised Rs.43.20 crores out of the balance in
provision for contingencies primarily on account of provision in diminution
of value of investments and loan write-offs. After taking into account the
transfers as well as the net utilisation, the balance in provision for
contingencies as at March 31, 2011 stood at Rs.1,124.37 crores.
Year Number of
Outlets*
2007 289
2008 279
2009 267
2010 250
2011 234
* Inclusive of outlets of wholly owned distribution company.
Fixed Assets:
Net fixed assets as at March 31, 2011 amounted to Rs.233.95 crores
(previous year Rs.222.11 crores).
Subordinated Debt:
During the year, the Corporation raised Rs.1,000 crores through the issue
of long-term Unsecured Redeemable Non-Convertible Subordinated Debentures.
The subordinated debt was assigned a AAA' rating from both CRISIL Limited
(CRISIL) and ICRA Limited (ICRA).
As at March 31, 2011, the Corporation's outstanding subordinated debt stood
at Rs.2,875 crores. The debt is subordinated to present and future senior
indebtedness of the Corporation and has been assigned the highest rating by
CRISIL and ICRA. Based on the balance term to maturity, as at March 31,
2011, Rs.2,375 crores of the book value of subordinated debt is considered
as Tier II under the guidelines issued by the NHB for the purpose of
capital adequacy computation.
Foreign Currency Convertible Bonds (FCCB):
In September 2005, the Corporation concluded the issue of USD 500 million
zero coupon FCCB. The bonds were convertible into equity shares of the
Corporation of the face value of Rs.10 each up to the close of business
hours on July 29, 2010 at the option of the holders, at Rs.1,399 per equity
share, representing a conversion premium of 50% over the initial reference
share price.
During the year, 906 FCCB were converted into 28,31,021 equity shares of
face value of Rs.10 each, which were entitled to the receipt of dividend as
the same were converted prior to the date of book closure. Accordingly,
dividend in respect of the previous year amounting to Rs.11.88 crores
(inclusive of tax) was paid during the year.
During the year, an amount of Rs.2.83 crores has been credited to the Share
Capital Account and an amount of Rs.407.89 crores has been credited to the
Securities Premium Account.
All the bonds were lodged with the Corporation for conversion into equity
shares on or prior to the last date for conversion. In aggregate, the
Corporation allotted 1,56,23,732 equity shares of Rs.10 each pursuant to
the conversion of the FCCB. Hence, there are no outstanding FCCB. The
increase in net worth as a result of the FCCB over the life was Rs.2,186
crores.
Borrowings:
Borrowings as at March 31, 2011 amounted to Rs.1,15,410 crores as against
Rs.96,565 crores in the previous year - an increase of 20%. Borrowings
constituted 87% of funds employed as at March 31, 2011. Of the total
borrowings, bonds and debentures constituted 42%, domestic term loans 36%,
deposits 21% and international borrowings 1%.
Foreign Currency Borrowings:
The outstanding foreign currency borrowings constitute borrowings from
FCNR(B) loans from domestic commercial banks (USD 743.54 million), Asian
Development Bank under the Housing Finance Facility Project (USD 71.63
million), International Finance Corporation (USD 100 million), KfW of
Germany (Euro 6.14 million), DEG, a member of the KfW Group (USD 5 million)
and Short Term Foreign Currency Borrowings (USD 175 million).
Deposits:
As at March 31, 2011, outstanding deposits stood at Rs.24,625 crores. The
depositor base stood at approximately 9.67 lac depositors.
Breakdown of Borrowings (%) (As at March 31, 2011):
Deposits - 21%
International Borrowings - 1%
Domestic Term Loans - 36%
Bonds & Debentures - 42%
CRISIL and ICRA have for the sixteenth consecutive year, reaffirmed their
AAA' rating for HDFC's deposits. This rating represents highest safety'
as regards timely repayment of principal and interest.
HDFC pays brokerage to agents who mobilise retail deposits. The brokerage
is linked to the amount and the period of deposit and is paid up-front for
the full term of the deposit. In addition, agents who achieve certain
collection targets are paid an incentive every year. In line with
international accounting standards, HDFC has been amortising the brokerage,
proportionately over the term of the deposit. Incentive brokerage is being
fully charged to the Profit and Loss Account in the year of payment.
Borrowings from Banks and Financial Institutions:
During the year, HDFC raised loans from commercial banks aggregating to
Rs.29,538 crores. Out of this, loans amounting to Rs.2,610 crores qualify
for priority sector allocation. HDFC raised a further Rs.2,528 crores from
the banking sector as FCNR (B) loans.
As at March 31, 2011, the total loans outstanding from banks, financial
institutions and the National Housing Bank amounted to Rs.40,778 crores as
compared to Rs.30,360 crores as at March 31, 2010.
Non-Convertible Debentures (NCD):
During the year, the Corporation issued NCD amounting to Rs.13,865 crores
on a private placement basis. The Corporation's NCD issues have been listed
on the Wholesale Debt Market segment of the National Stock Exchange of
India Limited (NSE). The Corporation's NCD have been assigned the highest
rating of AAA' by both CRISIL and ICRA.
During the year, the Corporation utilised Rs.532 crores out of the
Securities Premium Account in accordance with Section 78 of the Companies
Act, 1956.
Risk Management:
The Financial Risk Management and Hedging Policy as approved by the Audit
Committee sets limits for exposures on currency and interest rates. HDFC
manages its interest rate and currency risk in accordance with the
guidelines prescribed. The risk management strategy has been to protect
against foreign exchange risk, whilst at the same time exploring any
opportunities for an upside, so as to keep the maximum all-in cost on the
borrowing in line with or lower than the cost of a borrowing in the
domestic market for a similar maturity.
HDFC has to manage various risks associated with the mortgage business.
These risks include credit risk, liquidity risk, foreign exchange risk and
interest rate risk. HDFC manages credit risk through stringent credit
norms. Liquidity risk and interest rate risks arising out of maturity
mismatch of assets and liabilities are managed through regular monitoring
of the maturity profiles.
HDFC has from time to time entered into risk management arrangements in
order to hedge its exposure to foreign exchange and interest rate risks.
The currency risk on the borrowings is actively hedged through a
combination of dollar denominated assets, long term forward contracts,
principal only swaps, full currency swaps and currency options.
As at March 31, 2011, the Corporation had foreign currency borrowings of
USD 1,103.9 million equivalent. The entire principal on the foreign
currency borrowings has been hedged by way of principal only swaps,
currency options, forward contracts and risk management arrangements with
financial institutions. Further, interest rate swaps on a notional amount
of USD 15 million equivalent are outstanding and have been undertaken to
hedge the interest rate risk on the foreign currency borrowings. As at
March 31, 2011, the Corporation's net foreign currency exposure on
borrowings net of risk management arrangements was nil.
As a part of asset liability management and on account of the predominance
of HDFC's Adjustable Rate Home Loan product as well as to reduce the
overall cost of borrowings, HDFC has entered into interest rate swaps
wherein it has converted its fixed rate rupee liabilities of a notional
amount of Rs.23,255 crores as at March 31, 2011 for varying maturities into
floating rate liabilities linked to various benchmarks. In addition, HDFC
has entered into cross currency swaps of a notional amount of USD 697.50
million equivalent wherein it has converted its rupee liabilities into
foreign currency liabilities and the interest rate is linked to benchmarks
of the respective currencies.
The total net foreign currency exposure inclusive of cross currency swaps
is USD 304.21 million. The open position is at 1.18% of the total
borrowings of HDFC.
Assets and liabilities in foreign currency net of risk management
arrangements are revalued at the rates of exchange prevailing at the end of
the year. Cross currency swaps have been marked to market at the year end.
Asset-Liability Management:
As at March 31, 2011, assets and liabilities with maturity up to 1 year
amounted to Rs.36,671 crores and Rs.35,958 crores respectively. Asset and
liabilities with maturity of between 2 years and 5 years amounted to
Rs.57,347 crores and Rs.60,992 crores respectively and assets and
liabilities with maturity beyond 5 years amounted to Rs.45,484 crores and
Rs.42,552 crores respectively.
HDFC does not generally take an interest rate mismatch. As at March 31,
2011, 87% of the assets and 85% of the liabilities were on a floating rate
basis.
Year Assets per Employee
(Rs. in Lacs)
2007 4,520
2008 5,612
2009 6,510
2010 7,426
2011 8,259
Year Spread on Loans (%)
2007 2.18
2008 2.32
2009 2.21
2010 2.31
2011 2.33
Year Profit per Employee
(Rs. in Lacs)
2007 113
2008* 134
2009 153
2010 188
2011 220
* Excludes exceptional income.
Year Cost Income Ratio
(%)
2007 12.0
2008 9.2
2009 8.8
2010 7.9
2011 7.7
Internal Audit and Control:
HDFC has instituted adequate internal control systems commensurate with the
nature of its business and the size of its operations. Internal audit is
carried out by independent firms of chartered accountants and cover all the
offices and key areas of business. All significant audit observations and
follow-up actions thereon are reported to the Audit Committee. The Audit
Committee comprises three independent directors. The committee met five
times during the financial year under review.
Key elements of the profit and loss account for the year ended March 31,
2011 are:
* Profit before tax grew by 24% and profit after tax grew by 25%.
* Income tax provision for the year amounted to Rs.1,332 crores as compared
to Rs.1,089.50 crores in the previous year. The effective tax rate is 27.4%
as compared to 27.8% in the previous year.
* Pre-tax return on average assets was 4% and the post-tax return on
average assets was 2.9%.
* Return on equity is 21.7% in the current year.
* HDFC's cost to income ratio is 7.7% for the year ended March 31, 2011 as
against 7.9% in the previous year. HDFC's cost income ratio continues to be
among the lowest in the financial sector in Asia.
* Administrative expenses, as a percentage of average assets was 0.30% as
at March 31, 2011.
* For the year ended March 31, 2011, a dividend of Rs.9 per share of Rs.2
each is being recommended as against Rs.36 per equity share of face value
of Rs.10 each (Rs.7.20 per share of Rs.2 each) in the previous year. HDFC
would be paying the distribution tax and education cess on the dividend
declared.
* The dividend payout ratio will be 43.4% as against 42.7% in the previous
year.
Year Administrative Expenses
to Average Total
Assets (%)
2007 0.38
2008 0.37
2009 0.35
2010 0.30
2011 0.29
Asset Profile (%) (As at March 31, 2011):
Portfolio (Loans, including debentures &
corporate deposits for financing
housing and real estate projects) - 88%
Investments - 9%
Fixed and Net Current Assets - 3%
Income Comes From (%):
Operating Income - 97%
Other Income - 3%
Total Income: Rs.12,878 crores (PY Rs.11,361 crores).
Expenditure Goes Towards (%):
Interest & Other Charges - 94%
Staff, Establishment, Other Expenses, Depreciation
and Amortisation and Provision for Contingencies - 6%
Expenditure & Other Charges: Rs.8,011 crores (PY Rs.7,445 crores).
Spread on Loans:
The average yield on loan assets during the year was 10.30% per annum as
compared to 10.90% per annum in the previous year. The average all-
inclusive cost of funds was 7.97% per annum as compared to 8.59% per annum
in the previous year. The spread on loans over the cost of borrowings for
the year was to 2.33% per annum as against 2.31% per annum in the previous
year.
Prudential Norms for Housing Finance Companies (HFCs):
NHB has issued guidelines to HFCs on prudential norms for income
recognition, provisioning, asset classification, provisioning for bad and
doubtful debts, capital adequacy and concentration of credit/investments.
HDFC's position with respect to the guidelines is as follows:
* HDFC's capital adequacy ratio stood at 14% of the risk weighted assets,
(of which Tier 1 capital was 12.2%) as against the minimum requirement of
12%.
* HDFC is in compliance with the concentration of investments and capital
market exposure norms other than on its investments in HDFC Bank and GRUH
Finance Limited. NHB has granted the Corporation time for such compliance.
Human Resources:
Human resources are HDFC's most valuable assets. The efficiency of HDFC's
staff is evident from the fact that the number of offices increased from 41
in 1998 to 218 (excluding offices of HSPL) currently as against the number
of employees which increased from 806 to 1,607 during the same period.
Total assets per employee as at March 31, 2011 stood at Rs.83 crores as
compared to Rs.74 crores in the previous year and net profit per employee
as at March 31, 2011 was Rs.220 lacs as compared to Rs.188 lacs in the
previous year.
Audited Consolidated Accounts:
In accordance with the accounting standards prescribed by the Institute of
Chartered Accountants of India, the consolidated financial statements
comprise the individual financial statements of the Corporation together
with its subsidiaries which are consolidated on a line-by-line basis and
its associates which are accounted on the equity method.
On a consolidated basis, for the year ended March 31, 2011, Profit before
tax was Rs.5,244.15 crores as compared to Rs.3,883.63 crores in the
previous year. Profit after tax was Rs.4,528.41 crores as compared to
Rs.3,240.98 crores in the previous year - an increase of 40%. The
consolidated return on equity stood at 22.9% as against 19.6% in the
previous year and the consolidated post tax return on assets stood at 3% as
against 2.6% in the previous year.
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