H D F C Management Discussions

INTRODUCTION Global Overview

During the year, the global economy continued to face shocks emanating from deepening geopolitical tensions, fragmented supply chains and rising inflationary pressures resulting in a cost-of-living crisis. Towards the end of the financial year in March 2023, increased headwinds stemmed from the banking turmoil in some advanced economies. This triggered concerns of potential risks of contagion, which in turn resulted in increased turbulence across global markets.

As per the International Monetary Fund (IMF), global headline inflation stood at 8.7% in 2022. To anchor spiraling inflation, major central banks across the world resorted to monetary policy tightening. In the current upward interest rate cycle, as of date, the US Federal Reserve had cumulatively raised interest rates by 500 basis points (bps), the Bank of England by 415 bps and the European Central Bank by 350 bps. The Reserve Bank of India (RBI) increased the policy repo rate by a relatively lower amount of 250 bps. Globally, the elevated consumer price inflation levels were well above the targeted inflation rates of most central banks.

As per the IMFs World Economic Outlook, global GDP growth for the calendar year 2022 was 3.4%, of which GDP of advanced economies was 2.7% and emerging markets and developing economies was 4.0%.

India Overview

The Indian economy staged a broad-based recovery from the pandemic induced slowdown. Despite global headwinds, domestic economic activity was resilient. Most high frequency indicators, including those that were impacted during the pandemic recorded positive growth.

As per the second advance estimates by the National Statistical Office (NSO), the Indian economy is estimated to grow by 7% in FY23. India has continued to be the fastest growing major economy.

The Consumer Price Index (CPI) inflation for FY23 remained at elevated levels for most parts of the year under review, aggravated by rising commodity prices and adverse supply shocks. In the month of March 2023, with lower food and fuel prices, the CPI eased to 5.7%, marking a 15-month low.

During the year, to anchor inflationary pressures, the RBI undertook a series of calibrated repo rate increases - 40 bps in May 2022, 50 bps each in June, August and September 2022, 35 bps in December 2022 and 25 bps in February 2023. In April 2023, the RBI kept the repo rate unchanged, but continued with its withdrawal of accommodation policy stance.

As at March 31, 2023, year-on-year bank credit growth was robust at 15.0%, though deposits growth lagged at 9.6%.

Owing to global macro-economic risks and geo-political tensions, during the year, foreign portfolio investors were net sellers of equity to the tune of Rs 40,413 crore. The Indian equity markets, however, were strongly supported by domestic institutional investors - largely mutual funds and insurance companies who were net buyers amounting to Rs 2.5 lac crore.

Housing and Real Estate Markets

FY23 marked a year of sustained growth for the Indian real estate sector. Residential markets saw strong traction in both, new launches and sales across the metros, tier II and tier III cities. Despite rising costs of construction and labour, real estate prices at a pan-India level recorded modest increases, though certain pockets, particularly in the higher-end luxury segment saw sharper increases in prices during the year. The strong momentum in the residential market was also evident from the fact that across the top metro cities, the unsold inventory stood at the lowest level in the past five years.

Despite rising interest rates, the inherent demand for home loans continued on the back of rising disposable incomes, increased urbanisation and continued fiscal incentives. The demand for home loans was predominantly in the mid-income and premium segments.

Indias net absorption of commercial office space during the year surpassed the five year pre-pandemic average rate. This showed the continued resilience in the India office space, despite certain companies opting for hybrid/ flexible work models. In addition, demand for commercial space is arising from logistics, warehousing, data centres, hospitality, lab spaces, amongst others.

MATERIAL DEVELOPMENTS Ongoing Scheme of Amalgamation

On April 4, 2022, the Board of Directors of HDFC (the Corporation) and HDFC Bank Limited (HDFC Bank) at their respective meetings, inter alia, approved a composite scheme of amalgamation (Scheme) for the amalgamation of (i) the Corporations wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited, with and into the Corporation; and (ii) The Corporation with and into HDFC Bank, under Sections 230 to 232 of the Companies Act, 2013 and other applicable laws, regulations and approvals.

Upon the Scheme becoming effective, the subsidiaries/ associates of the Corporation will become subsidiaries/ associates of HDFC Bank. Shareholders of the Corporation as on the record date will receive 42 shares of HDFC Bank (each of face value of Rs 1), for every 25 shares held in the Corporation (each of face value of Rs 2), and the equity shares held by the Corporation in HDFC Bank will be extinguished as per the Scheme. Upon the Scheme becoming effective, HDFC Bank will be 100% owned by public shareholders and existing shareholders of the Corporation will own 41% of HDFC Bank.

During the year, the Corporation received various no- objection/approval letters regarding the Scheme from RBI, Securities and Exchange Board of India (SEBI), Competition Commission of India, Pension Fund Regulatory and Development Authority, National Housing Bank (NHB) and the stock exchanges. Further, during the year, the Scheme was approved by the shareholders of the Corporation. On March 17, 2023, the Honble National Company Law Tribunal (NCLT), Mumbai Bench approved the Scheme.

As of date, certain approvals are awaited from regulators pertaining to a few subsidiary/associate companies of the Corporation in respect of change in control/transfer of shares to HDFC Bank. The Scheme shall become effective upon receipt of all such requisite approvals, fulfilment of conditions prescribed therein and upon filing of the certified copy of the NCLT order with the Registrar of Companies, Mumbai (ROC) by all the companies involved in the Scheme.

Upon the Scheme coming into effect, HDFC Investments Limited, HDFC Holdings Limited and the Corporation would be dissolved without being wound up.

KEY REGULATORY HIGHLIGHTS

The Corporation is a Non-Banking Finance Company - Housing Finance Company (NBFC-HFC) regulated by RBI. Given below is the status of some key regulations:

Principal Business Criteria: To qualify as a NBFC-HFC, of the total assets (netted off by intangible assets), not less than 60% should be towards providing finance for housing. Further, out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing finance for individuals.

The transition timeline for compliance is as under:

Timeline	Minimum percentage of total assets towards housing finance	Minimum percentage of total assets towards housing finance for individuals
March 31, 2023	55%	45%
March 31, 2024	60%	50%

As at March 31, 2023, 59.3% of the Corporations total assets were towards housing finance and 56.0% of total assets were towards housing finance for individuals.

Liquidity Coverage Ratio (LCR): With effect from December 1, 2021, all deposit taking NBFC-HFCs are required to maintain liquidity buffers to withstand potential liquidity disruptions by ensuring that it has sufficient High Quality Liquid Assets (HQLA) to survive any acute liquidity stress scenario lasting for 30 days on a daily basis. As per the guidelines, the weighted values are calculated after the application of respective haircuts for HQLA and after considering stress factors on inflows at 75% and outflows at 115%. NBFC-HFCs have been allowed a phased transition to attain 100% LCR by December 1, 2025.

During the year, the Corporation built up its liquidity buffers, largely through investments in government securities. For the quarter ended March 31, 2023, the average LCR stood at 128%.

Risk Based Internal Audit (RBIA): Deposit taking HFCs were mandated to put in place a RBIA framework by June 30, 2022. The objective is to have an audit methodology that links an organisations overall risk management framework and provides an assurance to the board and senior management on the quality and effectiveness of the organisations internal controls, risk management and governance related systems and processes. During the year, the Corporation put in place a RBIA policy and manual and implemented RBIA. The internal audit for most functions is carried out in-house. In certain specific areas which requires special domain expertise, the Corporation has appointed audit experts to carry out the RBIA only for those functions.

Scale Based Regulation: RBIs ‘The Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs came into effect from October 1, 2022. SBR entails further alignment of regulations for NBFCs with those applicable to banks on internal capital adequacy assessment process (ICAAP), concentration of credit/investment, large exposure framework, corporate governance guidelines and adoption of core financial services solution, amongst others.

On September 30, 2022, RBI released a list of NBFCs that qualified under the NBFC Upper Layer (NBFC-UL). RBI stated that the top 10 NBFCs based on asset size would qualify as NBFC-UL. RBI, however, clarified that despite the Corporation qualifying in terms of asset size to be included in NBFC-UL, it was not being considered in this category in light of the impending merger. The Corporation is in compliance with the necessary requirements as applicable under SBR.

The Corporation has a board approved policy on ICAAP as mandated under SBR.

FINANCIAL AND OPERATIONAL PERFORMANCE IN FY23

Highlights of the Financial Performance

Total income of the Corporation for the year ended March 31, 2023 was Rs 60,224 crore compared to Rs 47,990 crore in the previous year. Total expenses stood at Rs 40,210 crore compared to Rs 30,744 crore in the previous year.

The net interest income (NII) for the year ended March 31, 2023 stood at Rs 19,248 crore compared to Rs 17,119 crore in the previous year, representing a growth of 12%.

For the year ended March 31, 2023, dividend income stood at Rs 2,735 crore compared to Rs 1,511 crore in the previous year.

The profit on sale of investments during the year was Rs 184 crore as compared to Rs 263 crore in the previous year.

The provisioning for Expected Credit Loss (ECL) during the year was lower at Rs 1,795 crore as compared to Rs 1,932 crore in the previous year, reflecting improved asset quality.

The reported profit before tax for the year ended March 31, 2023 stood at Rs 20,014 crore compared to Rs 17,246 crore in the previous year, representing a growth of 16%.

After providing for tax of Rs 3,775 crore (previous year: Rs 3,504 crore), the profit after tax for the year ended March 31, 2023 stood at Rs 16,239 crore compared to Rs 13,742 crore in the previous year, recording a growth of 18%.

The total comprehensive income for the year ended March 31, 2023 stood at Rs 15,453 crore compared to Rs 13,776 crore in the previous year.

Statement of Profit and Loss

Key elements of the statement of profit and loss for the year ended March 31, 2023 are:

• During the year, the NII grew by 12%. The NII was impacted primarily due to the RBIs actions of a 40 bps increase in the standing deposit facility combined with the cumulative 250 bps increase in the repo rate. These rate actions had an immediate impact on the borrowing cost, without a simultaneous transmission of interest rates on the asset side, resulting in a short-term impact on the NII. Further, an increased proportion of retail assets in the loan book and the maintenance of a higher LCR also impacted the NII.

• The Net Interest Margin stood at 3.6%.

• The Corporations cost to income ratio (excluding expenses on notional cost of employees stock option scheme (ESOS), corporate social responsibility (CSR) and one-time expenses on account of the impending amalgamation) stood at 9.2% for the year ended March 31, 2023. HDFCs cost to income ratio continues to be among the lowest in the financial sector in Asia.

• Administrative expenses as a percentage of average assets (excluding ESOS, CSR and one-time merger expenses) stood at 0.27% as at March 31, 2023 compared to 0.23% in the previous year.

• Credit costs reduced to 27 bps compared to 33 bps in the previous year, signifying improved asset quality.

• The pre-tax return on average assets was 3.0% compared to 2.9% in the previous year.

• The post tax on average assets was 2.5% compared to 2.3% in the previous year.

• The Return on Equity stood at 12.8% compared to 12.0% in the previous year.

• The Board of Directors declared an interim dividend of Rs 44 per equity share of face value Rs 2 per equity share compared to a final dividend of Rs 30 per equity share in the previous year. No final dividend was recommended for the year ended March 31, 2023. The dividend pay-out ratio is 49.7%.

• Under the Indian Accounting Standards (IndAS), equity includes certain items which do not form part of

Tier I capital under the prudential regulations. These include -

• IndAS Transition Reserve;

• Deferred Tax Liability on Special Reserve;

• Fair value gains on investments through Other Comprehensive Income (OCI);

• Investments in subsidiaries/associates in excess of 10% of net owned funds;

• Income on assigned loans recognised upfront in accordance with IndAS

These items aggregate to Rs 20,726 crore. Hence, Tier I Capital stood at Rs 1,13,259 crore as against the reported net worth of Rs 1,33,985 crore.

Based on the above, as at March 31, 2023 the return on Tier I Capital is 16.0%.

Spread on Loans

The average yield on loan assets during the year was 8.99% p.a. compared to 8.06% p.a. in the previous year. The average all-inclusive cost of funds was 6.70% p.a. as compared to 5.77% p.a. in the previous year. The spread on loans over the cost of borrowings for the year was

2.29% p.a., the same as in the previous year. Spread on individual loans for the year was 1.92% and on nonindividual loans was 3.62%.

Operational Performance Lending Operations

The inherent demand for housing continued to remain strong. During the year, there was increased traction from the mid-income housing and high end, luxury segments.

The combination of the withdrawal of time-bound incentives such as the Credit Linked Subsidy Scheme (CLSS) and the concessional stamp duty rates offered by certain states during the pandemic, along with successive interest rate increases did impact the demand for housing for the economically weaker sections (EWS) and low income groups (LIG).

During the year, individual approvals and disbursements grew by 13% and 16% respectively. The average size of individual loans stood at Rs 36.2 lac during the year, compared to Rs 33.1 lac in the previous year. The increase in the average loan size is reflective of an increased proportion of loans in value terms to high income groups compared to the previous year.

Based on loans disbursed during the year, 77% were salaried customers, while 23% were self-employed (including professionals). In terms of the acquisition mode, of the loans disbursed during the year, 54% were first- purchase homes i.e. directly from the builder, 38% were through resale and 8% self-construction.

As at March 31, 2023, cumulatively, the Corporation had financed 10.2 million housing units.

Affordable Housing

During the year, the Corporation continued its efforts towards lending for affordable housing.

The Ministry of Housing and Urban Poverty Alleviation had launched CLSS in June 2015 under the Pradhan Mantri Awas Yojana (PMAY- Urban) - Housing for All. The original scheme covered Middle Income Groups (MIG), EWS and LIG segments. Though the schemes validity was till March 31, 2022, during the year under review, the subsidy amount continued to be released by the government to qualifying beneficiaries.

The Corporation has the largest number of home loan customers - of approximately 3.65 lac who have availed benefits under CLSS. As at March 31, 2023, cumulative loans disbursed by the Corporation under CLSS stood at Rs 60,427 crore. The cumulative subsidy amount stood at Rs 8,529 crore, representing a 15% share of the total subsidy amount released by the government under CLSS.

Housing Loan Approvals Based on Income Slabs

During the year, the Corporation witnessed a decreasing share of the EWS/LIG segment, while the share of higher income group (HIG) showed an increased share.

		Home Loan Approvals
Category	Household Income per annum	FY23		FY22
		% in Value Terms	% in Number Terms	% in Value Terms	% in Number Terms
Economically	EWS: Up to	9	23	13	29
Weaker Section	Rs 3 lac
(EWS) & Low	LIG: Above
Income Group (LIG)	Rs 3 lac up to Rs 6 lac
Middle Income Group	Above Rs 6 lac up to Rs 18 lac	38	48	42	48
High Income Group	Above Rs 18 lac	53	29	45	23
Total		100	100	100	100

The average home loan to the EWS and LIG segment during the year stood at Rs 10.7 lac and Rs 19.4 lac respectively.

The Corporations ‘HDFC Reach product focuses on lending to the informal segment. Lending under this product is largely to micro-entrepreneurs and salaried individuals who may not have sufficient income documentation. As at March 31, 2023, loans outstanding under this product stood at Rs 10,573 crore.

Rural Housing

Against the backdrop of a good monsoon and robust agricultural growth, lending opportunities in rural India continued to remain promising. Indias foodgrain production is estimated to touch a record high of 323.6 million tonnes for the crop year 2022-23. Apart from meeting domestic requirements, India has also emerged as a net exporter of agricultural products, with agri exports crossing USD 50 billion in FY23.

The Corporation continued its focus on rural housing, providing loans to both, salaried and self-employed customers for properties situated in rural areas. Most of these customers have household incomes from agriculture and agri-allied industries. The properties are situated in rural areas. As at March 31, 2023, loans outstanding under this product stood at Rs 51,980 crore.

The Corporation has a rural home loan mobile application to capture information on crop cultivation, geo-coordinates of the farm land, soil conditions, irrigation facilities, amongst others. The information captured during field visits flows on a real time basis directly to the appraisal hub, thereby enabling faster and efficient loan processing. To strengthen the credit appraisal, the Corporation uses satellite imagery and datasets on relief features and crop performance. Under the Digital India initiative of the government, land records in many states have been digitalised, thereby facilitating increased rural lending.

Non-Individual Loans

During the year, the non-individual loan book de-grew compared to the previous year on account of various factors. First, over the last few quarters, the Corporation has received some scheduled repayments of loan facilities given earlier and there were also some resolutions of certain loans. Secondly, despite interest rates rising sharply during the year, there was aggressive pricing by competition and the Corporation desisted from lending at sub-optimal rates. Thirdly, the non-individual portfolio had certain loans which are permissible under the regulatory guidelines as applicable for NBFC-HFCs, but not under banking norms. In light of the impending amalgamation, there has been a run-down on exposures which are not compliant with banking regulations.

There, however, continues to be demand for non-individual loans. In the case of lease rental discounting, loans are disbursed against ready projects with tenants in place and hence the turnaround time between approval and disbursement is relatively short.

Disbursement for construction finance is based on the progress of construction and is provided only after the developer has brought in a commensurate share of equity into the project. As a result, there is a longer lead time between approval and full disbursement of the construction finance facility.

The lower unsold inventory stock and the strong pipeline of new launches augurs well for the housing sector. The recent consolidation by the stronger developers has been beneficial for the sector. The Corporation maintains that it is important to continue to fund the supply which in turn creates incremental demand for housing finance.

Loan Portfolio

The loan approval process of the Corporation is decentralised, with varying approval limits. The Corporation has a three-tiered committee of management structure with varying approval limits. Larger proposals, are referred to the board of directors.

The Assets Under Management (AUM) as at March 31, 2023 amounted to Rs 7,23,988 crore as compared to Rs 6,53,902 crore in the previous year.

On an AUM basis, the growth in the individual loan book was 17%. The growth in the total loan book on an AUM basis was 11%.

During the year, the Corporations loan book increased from Rs 5,68,363 crore to Rs 6,20,507 crore as at March 31, 2023. In addition, total loans securitised and/or assigned by the Corporation and outstanding as at March 31, 2023 amounted to Rs 1,03,481 crore.

The table below provides a synopsis of the gross loan book of the Corporation:

		(Rs crore)
	As at March 31, 2023	As at March 31, 2022
Individual Loans	4,99,496	4,31,553
Non-Individual Loans	1,21,011	1,36,810
Total	6,20,507	5,68,363

The net increase in the loan book during the year, (after removing the loans that were sold) stood at Rs 52,144 crore.

Principal loan repayments stood at Rs 1,14,958 crore compared to Rs 99,005 crore in the previous year after excluding loans written off during the year amounting to Rs 2,655 crore (Previous Year: Rs 1,633 crore).

Prepayments on retail loans stood at 11.3% of the opening balance of individual loans, compared to 10.3% in the previous year. 61% of these prepayments were full prepayments.

Of the total loan book (including loans sold), individual loans comprise 83%.

The growth in the individual loan book, after adding back loans sold in the preceding twelve months was 24% (16% net of loans sold).

The growth in the total loan book would have been 16% had the Corporation not sold any loans during the year.

Assignment/Sale of Individual Loans

During the year, the Corporation sold individual loans amounting to Rs 36,910 crore (Previous Year: Rs 28,455 crore). The loans assigned during the year were to HDFC Bank pursuant to the buyback option embedded in the home loan arrangement between the Corporation and HDFC Bank. Of the total individual loans sold during the year, Rs 7,221 crore qualified as priority sector advances for banks.

As at March 31, 2023, individual loans outstanding in respect of all loans assigned/securitised stood at Rs 1,02,071 crore. HDFC continues to service these loans.

Product-wise Loan Performance

As at March 31, 2023, the product-wise break-up of loans on an AUM basis was — individual loans: 83%, construction finance: 7%, commercial lease rental discounting: 6% and corporate loans: 4%.

During the year, on an AUM basis, the entire incremental growth in the loan book came from individual loans.

Sourcing of Loans

The Corporations distribution channels which include HDFC Sales Private Limited (HSPL), HDFC Bank and third party direct selling associates (DSAs) play an important role in sourcing home loans.

HDFC has third party distribution tie-ups with commercial banks, small finance banks, non-banking financial companies and other distribution companies including e-portals for retail loans. All distribution channels only source loans, while the control over the credit, legal and technical appraisal continues to rest with HDFC, thereby ensuring that the quality of loans disbursed is not compromised in any way and is consistent across all distribution channels.

The Corporation also has retail home loan referral arrangements with other banks who provide leads of prospective home loan customers.

In value terms, HSPL, HDFC Bank and third party DSAs sourced 51%, 31% and 16% of home loans disbursed respectively during the year. Total loans sourced from distribution channels accounted for 98% of individual loans disbursed by the Corporation. 84% of the Corporations individual loan business during the year was sourced directly or through the Corporations affiliates.

Physical and Digital Reach Geographic Reach

The Corporations physical distribution network now spans 737 outlets, which includes 214 offices of HDFCs wholly owned distribution company, HSPL.

During the year, efforts continued to focus on expanding into deeper geographies so as to widen the Corporations footprint. These offices are the Corporations emerging market desks and are typically manned by one or two individuals and leverage on the digital platforms of the Corporation.

HDFC has overseas offices in London, Singapore and Dubai. The Dubai office caters to customers across Middle- East through its service associates.

Digitalisation Initiatives

The Corporations digitalisation objective is to transform the customers journey across the lifecycle to improve the customers overall experience. The Corporation has adopted ‘DASH philosophy — Digital first, Agile methods, Seamless architecture and HDFC for You, the platform to track outcomes and input metrics.

The Corporation has several digitalisation tools and platforms in place to support the lending business. The digital on-boarding platform is used for direct and website based applications and by channel partners as well. The Corporations mobile app for channel partners facilitates real time tracking and processing of loan applications.

Direct fetch information from public portals like the Goods and Services Tax Network, Ministry of Corporate Affairs, Income Tax and tools like bank statement information analysers, which provides real-time, analytical capabilities are integrated into the loan processes, thereby strengthening loan origination and processing controls. Several other loan control checks have been automated. The application programming interface (API) has been facilitated through various fintech platforms.

During the year, approximately 94% new loan applications were received through digital channels. The Corporation also has an end-to-end digitally enabled product, wherein all checks and controls are entirely system driven and loans are auto approved.

The Corporation has conversational artificial intelligence (CAI) platforms, enabling customers to have human like interactions during their home loan journey. The CAI platforms facilitates the delivery of smart customer experience (CX) solutions, which helps to improve overall productivity and efficiency.

Marketing Initiatives

During the year, the Corporation continued to increase its use of marketing technology solutions which enabled customers to seamlessly avail home loans digitally. This also helps the Corporation provide uninterrupted and realtime service to its customers across geographies.

The Corporation used marketing automation technologies to effectively market on multiple digital channels by identifying potential customers and automating the process to bring in efficiency in the sales funnel. The Corporation leveraged various enterprise solutions to understand user behaviour and journeys, optimise customer engagement by delivering personalised experiences, identify customer segments and use them effectively for marketing purposes.

During the year, the Corporation migrated its website to a new digital experience platform, which combines digital asset management with the power of a strong content management system, offering benefits such as heightened security, improved speed, automation and smart tools to deliver content quickly across audiences and channels.

The improved search engine optimisation rankings enabled more users to discover the HDFC brand easily and deliver an elevated customer experience.

For users looking for home loan related information online in their regional language, the Corporation had customised advertisements, hyperlocal digital campaigns and content in vernacular languages.

In keeping with the Corporations vision to create unique digital experiences for its customers, the Corporation launched a unique ‘Spot Offer on an instant messaging app. With this innovative product, the Corporation is able to provide an in-principle home loan approval within two minutes.

The Corporation also integrated a conversational experience and launched ‘InstaBranch, a first-of-its-kind digital branch on a social media platform. This integration enables prospective customers to instantly interact with the bot via direct messages.

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 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, 2023, the investment portfolio stood at Rs 97,718 crore compared to Rs 68,592 crore in the previous year. The proportion of investments to total assets was 13%.

NBFC-HFCs are required to maintain a statutory liquidity ratio (SLR) in respect of public deposits raised. As at March 31, 2023, the SLR requirement was 13% of public deposits.

The Corporation has investments in High Quality Liquid Assets (HQLA) in order to meet SLR and LCR requirements.

As at March 31, 2023, the total government securities stood at Rs 63,331 crore of which Rs 17,316 crore was towards SLR and Rs 46,015 crore comprised securities held towards liquidity support.

Surplus from deployment in liquid funds was Rs 245 crore.

The average yield on the non-equity treasury portfolio for the year was 6.36% p.a. on an annualised basis.

Dividend received during the year was Rs 2,735 crore, of which Rs 2,718 crore was received from subsidiary and associate companies.

During the year, the profit on sale of investments stood at Rs 184 crore.

As at March 31, 2023, the market value of listed equity investments in subsidiary and associate companies was higher by Rs 2,41,392 crore compared to the value at which these investments are reflected in the balance sheet. This unaccounted gain includes appreciation in the market value of investments in HDFC Bank held by the Corporations wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited. It, however, excludes the unrealised gains on unlisted subsidiary and associate companies.

COVID-19 Related Regulatory Forbearances

The Emergency Credit Line Guarantee Scheme (ECLGS) of the government provides financial assistance to those impacted by COVID-19. The government had extended the scheme till March 31, 2023, with a guarantee cover of up to Rs 5 lac crore.

Under ECLGS 1, 2 and 3, the Corporation disbursed an aggregate amount of Rs 1,883 crore as at March 31, 2023. Of the loans disbursed under ECLGS, 95% were non-individual exposures, largely in stressed sectors of real estate and hotels.

The RBI allowed a one-time restructuring (OTR) of loans due to COVID-19 related stress without classifying them as non-performing loans.

As at March 31, 2023, the outstanding loans under OTR 1 and OTR 2 amounted to Rs 3,889 crore, which is equivalent to 0.6% of the loan book. Of the loans being restructured, 98% are individual loans and 2% are non-individual loans.

Asset Quality

Non-Performing Assets & Provisioning

The average collection efficiency for individual loans on a cumulative basis during the year was 99%.

On November 12, 2021, RBI issued a notification on Prudential Norms on Income Recognition, Asset Classification and Provisioning (IRACP) pertaining to Advances - Clarification, with the objective of harmonising regulatory guidelines for all lending institutions. RBI stipulated that borrower accounts be flagged as overdue as part of their day-end process for the due date. RBI also stipulated that NPA accounts can only be upgraded to standard provided all outstanding dues have been fully repaid.

As at March 31, 2023, the gross individual NPLs stood at 0.75% of the individual portfolio, and the gross nonperforming non-individual loans stood at 2.90% of the non-individual portfolio. The gross NPLs as at March 31, 2023 stood at Rs 7,246 crore. This is equivalent to 1.18% of the portfolio.

As at March 31, 2023, the Corporation carried a total provision of Rs 12,145 crore. The provisions carried as a percentage of the Exposure at Default (EAD) is equivalent to 1.96%.

On a gross basis, the Corporation has written off loans aggregating Rs 2,655 crore during the year. On loans that have been written off, the Corporation will continue making efforts to recover the money. The Corporation has, since inception, written off loans (net of subsequent recovery) aggregating to Rs 7,448 crore. Thus, as at March 31, 2023, the total loan write offs stood at 37 basis points of cumulative disbursements since inception of the Corporation.

In accordance with the write off policy of the Corporation, loans may entail either a partial or a full write off, determined on a case-by-case basis.

Where recovery has proven to be difficult, the Corporation adopts various methods to settle loans. The Corporation endeavours to reach settlements through sell-downs to asset reconstruction companies, institutions or private equity players. In certain overdue loans, the Corporation has resorted to the invocation of pledged shares. The Corporation has in select cases, entered into debt asset swap arrangements entailing immovable property.

The Corporation has debt asset swaps wherein the carrying amount of the financial and non-financial assets taken over as at March 31, 2023 stood at Rs 180 crore and Rs 3,997 crore respectively.

Impairment on Financial Instruments - Expected Credit Loss

Under IndAS, asset classification and provisioning moves from the rule based, incurred loss model to the Expected Credit Loss (ECL) model of providing for expected future credit losses. Thus, loan loss provisions are made on the basis of the Corporations historical loss experience and future expected credit loss, after factoring in various other parameters.

Classification of Assets

Exposure at Default (EAD)	As at March 31, 2023	As at March 31, 2022
Stage 1	95.0%	93.3%
Stage 2	3.6%	4.4%
Stage 3	1.4%	2.3%
Total	100.0%	100.0%

As a matter of prudence, the Corporation had classified certain accounts from Stage 1 to Stage 2 if the customer had opted for either ECLGS or OTR.

As at March 31, 2023, the Corporation saw a reduction in Stage 2 and 3 assets to 5.0% of EAD as compared to 6.7% in the previous year. This is reflective of an overall improvement in collection efficiency.

The Corporations Expected Credit Loss (ECL) charged to the Statement of Profit and Loss for the year ended March 31, 2023 was lower at Rs 1,795 crore compared to Rs 1,932 crore in the previous year.

Credit costs for the year ended March 31, 2023 was 27 bps compared to 33 bps in the previous year.

Expected Credit Loss based on Exposure at Default

(Rs in crore)

EAD	Individual		Non-Individual		Total
Stage 1	4,87,781	97.7%	1,01,055	84.0%	5,88,836	95.0%
Stage 2	7,141	1.4%	14,869	12.3%	22,010	3.6%
Stage 3	4,438	0.9%	4,514	3.7%	8,952	1.4%
EAD Total	4,99,360	100.0%	1,20,438	100.0%	6,19,798	100.0%

 

ECL	Individual		Non-Individual		Total
Stage 1	1,297	36.5%	242	2.8%	1,539	12.7%
Stage 2	1,238	34.9%	4,609	53.6%	5,847	48.1%
Stage 3	1,013	28.6%	3,746	43.6%	4,759	39.2%
ECL Total	3,548	100.0%	8,597	100.0%	12,145	100.0%

 

ECL / EAD	Individual	Non-Individual	Total
Stage 1	0.3%	0.2%	0.3%
Stage 2	17%	31%	27%
Stage 3	23%	83%	53%
ECL / EAD	0.71%	7.14%	1.96%

The total balance in the Impairment on Financial Instruments - Expected Credit Loss (provisions carried) as at March 31, 2023 amounted to Rs 12,145 crore. This is equivalent to 1.96% of the EAD. The balance in the Impairment on Financial Instruments - Expected Credit Loss more than adequately covers loans where the instalments were in arrears.

Fixed Assets and Investment Properties

Net Property, Plant and Equipment as at March 31, 2023 amounted to Rs 1,210 crore. Net additions to Property, Plant and Equipment during the year was Rs 306 crore, including right-of-use assets of Rs 151 crore.

Net investment in properties as at March 31, 2023 amounted to Rs 2,700 crore. Net additions to investment properties during the year was Rs 107 crore (including advance for under construction properties).

Resource Mobilisation Share Capital

As on April 1, 2022, the Corporation had a balance of Rs 363 crore in the share capital account. The Corporation has allotted 2,15,27,712 equity shares of face value of Rs 2 each pursuant to the exercise of stock options by certain employees/directors and pursuant to the conversion of warrants. After considering these allotments during the year, the balance in the share capital account as on March 31, 2023 was Rs 367 crore.

Warrants

In August 2020, the Corporation had completed its Qualified Institutional Placement of equity shares and secured, redeemable non-convertible debentures simultaneously with warrants.

The Corporation had raised Rs 307 crore through the issue and allotment of 1,70,57,400 warrants at an issue price of Rs 180 per warrant which was paid up front. The warrants carry a right exercisable by the warrant holder to exchange each warrant for one equity share of face value of Rs 2 each of the Corporation at any time on or before August 10, 2023, at a warrant exercise price of Rs 2,165 per equity share, to be paid by the warrant holder at the time of exchange of the warrants. As at March 31, 2023, 600 warrants were converted into equity shares. As of date, a total of 3,600 warrants have been converted into equity shares.

The equity shares, warrants and Non-Convertible Debentures are listed on BSE Limited (BSE) and National Stock Exchange of India Limited (NSE).

As per the Scheme of Amalgamation, the warrants outstanding on the Effective Date shall continue in the amalgamated company i.e. HDFC Bank. The number of equity shares of HDFC Bank that the warrant holders shall be entitled to upon exercise of such warrants shall be on the basis of the Share Exchange Ratio. There will be no other changes to the terms of the warrants in the amalgamated company.

Subordinated Debt

As at March 31, 2023, the Corporations outstanding subordinated debt stood at Rs 3,000 crore. The debt is subordinated to present and future senior indebtedness of the Corporation and has been assigned the highest rating of CRISIL AAA/Stable and ICRA AAA/Stable. The Corporation did not issue any subordinated debt during the year.

Based on the balance term to maturity, as at March 31, 2023, Rs 600 crore of the book value of subordinated debt was considered as Tier II under the regulatory guidelines for the purpose of capital adequacy computation.

Borrowings

Borrowings as at March 31, 2023 amounted to Rs 5,68,222 crore as against Rs 4,99,681 crore in the previous year. Borrowings constituted 78% of funds employed as at March 31, 2023. Of the total borrowings, debentures and securities constituted 45%, deposits 27% and term loans 28%.

Summary of Total Borrowings

(Rs in crore)

Borrowings	March 31, 2023	March 31, 2022
Term Loans	1,59,955	1,39,851
Market Borrowings	2,56,156	1,98,930
Deposits	1,52,111	1,60,900
Total	5,68,222	4,99,681

Non-Convertible Debentures & Commercial Paper

During the year under review, the Corporation raised an amount of Rs 78,600 crore through secured, redeemable non-convertible debentures (NCDs), issued in various tranches on a private placement basis. Of the NCDs raised during the year, 82% were of original tenors of over 10 years.

The Corporations NCDs have been listed on the wholesale debt market segment of the NSE and the BSE. The NCDs have been assigned the highest ratings of CRISIL AAA/ Stable and ICRA AAA/Stable. The Corporation has been regular in making payments of principal and interest on the NCDs.

The funds raised from the issuance of NCDs were utilised for housing finance business requirements. Details of all the above-mentioned issues and the end use of funds were provided to the Audit and Governance Committee on a periodic basis.

There are no NCDs which have not been claimed by investors or not paid by the Corporation after the date on which the NCDs became due for redemption.

The Corporation has been qualified as a large corporate by SEBI and accordingly has ensured that more than 25% of its incremental borrowings during the year was by way of issuance of debt securities.

The Corporations short-term debt programme has been assigned the highest ratings of CRISIL A1+, ICRA A1+ and CARE A1+ by CRISIL, ICRA and CARE Ratings respectively.

As at March 31, 2023, the Corporation had commercial paper (CPs) with an outstanding amount of Rs 44,268 crore and the weighted average outstanding maturity was 232 days. CPs constituted 7% of the outstanding borrowing as at March 31, 2023. The CPs of the Corporation are listed on the wholesale debt market segments of the NSE and BSE.

Rupee Denominated Bonds Overseas

Under the Corporations Medium Term Note Programme, the Corporation did not raise any funds through Rupee denominated bonds during the year. As at March 31, 2023, total outstanding Rupee denominated bonds overseas stood at Rs 500 crore.

Deposits

According to regulatory directions, housing finance companies can accept public deposits not exceeding 3 times its net owned funds.

As at March 31, 2023, total outstanding deposits stood at Rs 1,52,111 crore. The number of deposit accounts stood at over 20.2 lac. Retail deposits constituted 73% of the total deposits.

CRISIL and ICRA have for the twenty-eighth consecutive year, reaffirmed their AAA/Stable and AAA/Stable ratings respectively for HDFCs deposits. These ratings represent the highest degree of safety regarding timely servicing of financial obligations and also carries the lowest credit risk.

The Corporation continued with its strong mobilisation of deposits during the financial year. The renewal ratio of retail deposits stood at 54% during the year.

The Corporation has 24,714 active key deposit agents. Brokerage is paid on the deposits generated by deposits agents, depending on the product, amount and period of the deposit. Incentive is also paid on certain products, depending on the amount of deposits generated by the deposit agent. Brokerage and incentive payments are amortised over the period of the deposit.

The Corporations online deposit platform continued to be well received and appreciated for its simplicity and convenience, besides being a green initiative. During the year, 66% of transactions were on-boarded through the online deposits platform. The Corporation continued its training of key partners to effectively use the online deposit platform.

Term Loans from Banks, Institutions and Refinance from National Housing Bank (NHB)

As at March 31, 2023, the total loans outstanding from banks, institutions and NHB (including foreign currency borrowings from domestic banks) amounted to Rs 1,59,955 crore as compared to Rs 1,39,851 crore as at March 31, 2022.

HDFCs long-term and short-term bank loan facilities have been assigned the highest rating by CARE and ICRA, signifying highest safety for timely servicing of debt obligations.

During the year, the Corporation availed refinance from NHB under various refinance schemes such as Regular Refinance Scheme, Refinance Scheme Under Affordable Housing Fund and Promoting Green Housing Refinance Scheme amounting to Rs 4,350 crore.

External Commercial Borrowings

The Corporation has in place a medium term note programme for an amount of up to USD 2.8 billion which enables the Corporation to issue rupee/ foreign currency denominated bonds in the international capital markets, subject to regulatory approvals.

In July 2022, RBI increased the limit of External Commercial Borrowings (ECB) under the automatic route from USD 750 million to USD 1.5 billion per financial year. This dispensation was available up to December 31, 2022.

In August 2022, the Corporation raised USD 1.1 billion as a syndicated social loan facility for financing affordable housing. The loan was priced competitively at a margin of 90 bps over the Secured Overnight Financing Rate for a tenor of 3 years. This transaction marked Indias first social ECB loan.

In December 2022, International Finance Corporation disbursed a loan of USD 400 million to the Corporation, for a tenor of 5 years. 75% of the proceeds of this loan is to be utilised for on-lending for green housing.

The borrowings are fully hedged for currency and interest rate risks and the all-in cost on the borrowings were comparable with the domestic cost of funds for a matching tenor.

The total outstanding ECBs as at March 31, 2023 stood at USD 2.7 billion and JPY 53.2 billion.

Risk Management

The Corporation has a risk management framework with overall governance and oversight from the Risk Management Committee, the Audit and Governance Committee and the board of directors. The Corporations risk management framework entails a combination of both, top-down strategic overview and bottom-up operational or tactical overview of all functions across the organisation.

During the year, there were two new material developments pertaining to risk management. First, was the steep and rapid rise of interest rates by central banks and its impact on the overall economy and the Corporation. Second, was the impending amalgamation of the Corporation with HDFC Bank. Some of the key risk scenarios are elucidated below:

Credit Risk: The steep and rapid rise in interest rates can increase the debt service burden of customers, erode savings and leave certain customers more vulnerable to default. The Corporation has several workflow integrated controls at different stages of the credit lifecycle to identify and evaluate credit risks on its lending portfolio. This is supported on an ongoing basis by analytical industry based studies, credit deviation analysis, specific credit portfolio studies and periodic assessments via risk registers on various external and internal risks on asset quality, recovery and credit loss.

Interest Rate, Market and Liquidity Risk: Higher interest rates may impact profitability and capital if the Corporation is unable to pass on the increase in rates to customers, or if higher interest rates have an adverse impact on credit quality. The Corporation has a board approved Asset and Liability Management (ALM) framework with an ALCO driven approach to periodically evaluate market, liquidity and interest rate risks and various macro-economic events impacting the same. A periodic assessment via risk registers, including risks of market driven uncertainty and regulatory requirements are also assessed on a predefined scoring mechanism to review risk levels.

Integration Risk: The Corporation believes the impending amalgamation of the Corporation with HDFC Bank will result in significant synergies and value creation. The integration entails risks pertaining to people, processes, policies and regulatory compliances as a combined entity. To mitigate the same, an Integration Committee comprising senior executives of both, the Corporation and HDFC Bank was set up to oversee the merger process. In addition, numerous workstreams across all functions have been identified and teams are working together to ensure a seamless transition.

Operational Risk: Various levels of control review by internal and independent teams are undertaken and escalated at appropriate levels, on a periodic basis. These are backed by independent studies on documentation maintenance, adherence to processes and risk register based granular risk event assessment on gaps in people, process and systems.

Cyber Security Risks: The Corporation has a well-developed Information Security and Cyber Security policy framework.

There is a robust mechanism for Securities Operations Centre (SOC) driven alerts and incident management. Initiatives on monitoring and assessment services, end-point protection controls, SOC 24X7, vulnerability assessment and penetration testing, data leakage prevention strategies and mobile application management form important elements of the cyber security strategy of the Corporation.

Climate and ESG risks: The Corporations ESG framework, ESG focused portfolio products, tracking of various sustainability parameters and identifying risk scenarios form part of the risk register. Climate-related risks are elucidated in the board approved report on Climate Related Financial Disclosures: An Introductory Framework, which is placed on the Corporations website.

Reputation Risk: Centralised monitoring of various categories of customer grievances, social media and public media representation, along with a periodic risk profile evaluation of risks impacting the reputation of the Corporation form part of the reputation risk management strategy.

Financial Risk Management

The Corporation manages its liquidity, foreign exchange, interest rate and counterparty risks in accordance with its Financial Risk Management and Asset Liability Management Policy and prescribed guidelines.

The Corporation maintains minimum daily liquidity equivalent of at least one months market maturities, largely in the form of investment in government securities and units of mutual funds. Further, under the RBIs guidelines on Liquidity Risk Management Framework, the Corporation is required to maintain HQLA covering at least the next 30 days of net cash outflows (as defined in the guidelines).

Assets and liabilities in foreign currencies are converted at the rates of exchange prevailing at the year-end. Foreign currency liabilities aggregated to USD 2.7 billion and JPY 53.2 billion as at March 31, 2023. The currency risk on the borrowings is hedged through derivatives such as cross currency swaps entered into with banks/financial institutions. As at March 31, 2023, the Corporations foreign currency exposure on borrowings net of risk management arrangements was nil.

HDFCs foreign currency borrowings are linked to USD LIBOR, Secured Overnight Financing Rate (SOFR) or Tokyo Overnight Average Rate (TONA), the risk on which is hedged through coupon only and foreign currency interest rate swaps. The unhedged exposure on the foreign currency coupon for maturities beyond one year is USD 144 million and nil on JPY.

The Corporation enters into INR interest rate swaps to manage the risk arising from the mismatch on account of floating rate loans forming bulk of the assets and fixed rate borrowings forming a large portion of liabilities. As at March 31, 2023, HDFC has entered into such swaps for converting its fixed rate rupee liabilities of a notional amount of Rs 2,22,190 crore for varying maturities into floating rate liabilities linked to Overnight Index Swaps and government securities. As a result of these swaps, HDFC pays the floating rate and receives the fixed rate. As at March 31, 2023, the Corporation also had USD IRS swaps to hedge USD LIBOR and SOFR rate risk of a notional amount of Rs 22,191 crore.

As at March 31, 2023, 84% of the total assets and 82% of the total liabilities were on a floating rate basis.

The Corporation has an ongoing exercise to hedge potential credit risks on receivables from banks on account of derivative contracts, by entering into collateralisation arrangements with them.

The Corporation does not have any exposures to commodities and hence does not have any commodity price risk.

Asset Liability Management (ALM)

Assets and liabilities are classified on the basis of their contracted maturities. However, the estimates based on past trends in respect of prepayment of loans and renewal of liabilities which are in accordance with the ALM guidelines issued by the regulator have not been taken into consideration while classifying the assets and liabilities under the Schedule III to the Companies Act, 2013.

The ALM position of the Corporation is based on the maturity buckets as per the regulatory guidelines. In computing the information, certain estimates, assumptions and adjustments have been made by the management. The ALM position is as under:

As at March 31, 2023, assets and liabilities with maturity up to 1 year amounted to Rs 1,70,679 crore and Rs 1,20,850 crore respectively. Assets and liabilities with maturity of greater than 1 year and up to 5 years amounted to Rs 3,01,628 crore and Rs 2,58,258 crore respectively and assets and liabilities with maturity beyond 5 years amounted to Rs 2,54,467 crore and Rs 3,47,666 crore respectively.

Capital Adequacy Ratio

The Corporations capital adequacy ratio (CAR) stood at 24.3%, of which Tier I capital was 23.8% and Tier II capital was 0.5%. The minimum CAR as per the prescribed regulations is 15% and minimum Tier 1 Capital is 10%.

As at March 31, 2023, the risk weighted assets stood at approximately Rs 4,75,567 crore.

Internal Control Systems and their Adequacy

The Risk Based Internal Audit policy defines the three lines of defence model, wherein the first line of defence are the risk owners or risk managers who own the risk, the second line of defence comprises risk and compliance functions, who oversee risk control and compliance and the third line of defence is internal audit who provides independent assurance to all stakeholders.

Accordingly, the Corporation 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 an in-house team of professionals having requisite domain knowledge and experience.

The head of internal audit does not have any reporting relationship with the business verticals and is not given any business targets. The head of internal audit also meets the Audit and Governance Committee on a quarterly basis, without the presence of the management.

All significant audit observations and follow-up actions thereon are reported to the Audit and Governance Committee. All the members of the Audit and Governance Committee are independent directors.

Human Resources

The Corporation has always believed that its employees are its most valued resource and has always ensured their all-round development. The employees are trained in functional and behavioural skills to ensure high standards of service to internal and external stakeholders.

During the year, the Corporation continued to leverage on technology and various online courses to ensure upgradation of knowledge and enhance skill based training. Online courses were developed and assigned to all employees on the online e-learning platform - HDFC Aspire. In-house videos on various products and processes were developed by employees to share best practices. Further, the Corporation procured a number of soft skills e-learning courses for its employees.

As at March 31, 2023, the Corporation had 523 offices (excluding offices of HSPL) and the total number of employees was 4,017.

Total assets per employee as at March 31, 2023 stood at Rs 175 crore as compared to Rs 173 crore in the previous year. The net profit per employee as at March 31, 2023 was Rs 4.0 crore compared to Rs 3.8 crore in the previous year.

Awards and Recognitions

During the year, some of the awards and recognitions received by the Corporation included:

• Best Performing Housing Finance Company under Pradhan Mantri Awas Yojana at the Indian Urban Housing Conclave, 2022

• M&A Deal of the Year for the proposed merger of HDFC Limited with HDFC Bank at Mints India Investment Summit, 2023

• Jury Special Award for Contribution to Advancing Financial Inclusion at the 19^th Inclusive Finance India Awards

• Felicitated as the Leader in Corporate Governance at the 7^th Annual Announcement of IFC-IiAS-BSE Governance Scores

• Golden Peacock Award for Excellence in Corporate Governance - 2022 by the Institute of Directors.

• Indias Leading Housing Finance NBFC (Large) award at the Dun & Bradstreet BFSI & Fintech Summit, 2023.

• Awarded as Technology Transformation Leader at Mint Business Transformation Awards, 2022

• Certified as a Best Firm for Data Scientists to work for by Analytics India Magazine

Review of Key Subsidiary and Associate Companies

Though housing finance is the core business, the Corporation has created tremendous value through its investments in its subsidiary and associate companies thereby strengthening the HDFC brand.

For the purposes of consolidated financial statements, HDFC Life Insurance Company Limited (HDFC Life) and HDFC ERGO General Insurance Company Limited (HDFC ERGO) are accounted as subsidiary companies. As per IndAS, the Corporation consolidates a company when it controls the company.

The financials with respect to HDFC Bank, HDFC Life and HDFC ERGO are presented as per their statutory financial statements prepared under Indian GAAP.

Given below is an update on the key subsidiary and associate companies.

HDFC Bank Limited (HDFC Bank)

During the year, the Corporation and HDFC Bank continued to maintain an arms length relationship in accordance with the regulatory framework.

As at March 31, 2023, advances of HDFC Bank stood at Rs 16,00,586 crore - an increase of 17% over the previous year. Total deposits stood at Rs 18,83,395 crore - an increase of 21%. As at March 31, 2023, HDFC Banks distribution network includes 7,821 banking outlets and 19,727 ATMs in 3,811 locations.

For the year ended March 31, 2023, HDFC Bank reported a profit after tax of Rs 44,109 crore as against Rs 36,961 crore in the previous year, representing an increase of 19%.

HDFC Bank recommended a dividend of Rs 19 per share of face value of Rs 1 each for the year ended March 31, 2023 as against Rs 15.5 per share in the previous year.

During the year, the Corporation received dividend of Rs 1,805 crore from HDFC Bank (which includes Rs 465 crore received by HDFC Investments Limited and HDFC Holdings Limited).

HDFC together with its wholly owned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds 20.9% of the equity share capital of HDFC Bank.

HDFC Life Insurance Company Limited (HDFC Life)

In September 2022, HDFC Life allotted 3,57,94,824 equity shares of Rs 10 each at a price of Rs 558.74 per equity share, aggregating approximately Rs 2,000 crore to the Corporation, on a preferential basis. Post this investment, the Corporation holds 1,04,57,60,149 equity shares of HDFC Life.

The Appointed Date of the Scheme of Amalgamation for amalgamation of Exide Life Insurance Company Limited (Exide Life) with and into HDFC Life was April 1, 2022 and the scheme became effective from end of day on October 14, 2022. Accordingly, Exide Life was dissolved without being wound up from the effective date.

The current years numbers of HDFC Life are on a merged basis and hence previous year numbers are not comparable.

For the year ended March 31, 2023, total premium income of HDFC Life stood at Rs 57,533 crore (PY: Rs 45,963 crore).

The company recorded a growth of 27% in terms of individual weighted received premium (WRP) during FY23, with a market share of 16.5% and 10.8% in the private and overall sector respectively. The new business margin for FY23 stood at 27.6%.

The company covered 68.5 million lives in FY23. The 13-month and 61-month persistency stood at 87% and 52% respectively.

As at March 31, 2023, the Indian Embedded Value stood at Rs 39,527 crore (PY: Rs 32,958 crore). The operating return on embedded value stood at 19.7% (PY: 16.6%).

The solvency ratio of the company was 203% as at March 31, 2023 as against the minimum regulatory requirement of 150%.

HDFC Life reported a standalone profit after tax of Rs 1,360 crore for the year ended March 31, 2023 (PY: Rs 1,208 crore).

HDFC Life recommended a dividend of Rs 1.90 per equity share of face value of Rs 10 each for FY23.

During the year, the Corporation received Rs 172 crore as dividend from HDFC Life.

HDFC holds 48.7% of the equity share capital of HDFC Life.

HDFC Asset Management Company Limited (HDFC AMC)

HDFC AMC is one of Indias largest mutual fund managers. As at March 31, 2023, the quarterly average assets under management (QAAUM) stood at Rs 4.5 lac crore, with an overall market share of 11%.

The ratio of equity-oriented AUM and non-equity oriented AUM was 54:46. HDFC AMC is amongst the largest actively managed equity-oriented mutual funds in the country, with a market share of 12% as at March 31, 2023.

For the year ended March 31, 2023, the profit after tax stood at Rs 1,424 crore as against Rs 1,393 crore in the previous year.

HDFC AMC recommended a final dividend of Rs 48 per equity share of Rs 5 each for FY23.

During the year, the Corporation received dividend of Rs 471 crore from HDFC AMC.

HDFC holds 52.6% of the equity share capital of HDFC AMC.

HDFC ERGO General Insurance Company Limited (HDFC ERGO)

HDFC ERGO is the second largest private sector player in the general insurance industry. The company had a market share of 10.5% (private sector) and 6.5% (overall) in terms of gross direct premium for the year ended March 31, 2023.

The company offers a complete range of insurance products like motor, health, travel, home and personal accident in the retail segment, customised products like property, marine, aviation and liability insurance in the corporate segment and crop insurance. The company had a balanced portfolio mix with the retail segment accounting for 60% of the business.

The gross written premium of HDFC ERGO for the year ended March 31, 2023 stood at Rs 16,873 crore compared to Rs 13,707 crore in the previous year.

The combined ratio as at March 31, 2023 stood at 103.3%. The solvency ratio of the company was 181% as at March 31, 2023 as against the minimum regulatory requirement of 150%.

For the year ended March 31, 2023, the profit after tax stood at Rs 653 crore compared to Rs 500 crore in the previous year.

During the year, HDFC ERGO paid an interim dividend of Rs 3.5 per equity share of face value of Rs 10 per share during the year. Accordingly, the Corporation received Rs 125 crore as dividend from HDFC ERGO.

HDFC holds 49.9% of the equity share capital of HDFC ERGO.

HDFC Property Funds

HDFC Capital Advisors Limited (HDFC Capital)

HDFC Capital, a subsidiary of the Corporation, provides real estate private equity financing. Set up in 2016, HDFC Capital is aligned with the Government of Indias

Housing for All initiative and is focused on financing the development of affordable and mid-income homes in a sustainable manner. The company also seeks to promote innovation and the adoption of new technologies within the real estate sector by investing in and partnering with technology companies.

During the year, HDFC Capital achieved the initial close for Scheme 2 of HDFC Capital Affordable Real Estate Fund - 3 (H-CARE 3). H-CARE 3 Scheme 2 combined with H-CARE 3 Scheme 1 and HDFC Capital Affordable Real Estate Funds - 1 & 2 (raised in 2016 and 2017 respectively), creates a USD 3.1 billion funding platform, which is Indias largest private finance platforms focused on the development of affordable and mid-income housing.

HDFC Capital was set up with the primary objective of providing long-term equity and mezzanine capital to developers at the land and pre-approval stage predominantly for the development of affordable and mid-income housing in India. These funds are committed with leading developers across India in the affordable and mid-income housing space.

HDFC Capital believes that new technologies will play a vital role in the creation of efficiencies within the real estate development cycle, which is critical for affordable housing projects. The company has set up the HDFC Affordable Real Estate and Technology Programme (H@ART), a first- of-its-kind initiative aimed at creating efficiencies and lowering costs in each part of the development cycle for a real estate project. HDFC Capital also invests in technology companies such as construction-tech, fin-tech, clean-tech amongst others which are engaged in the affordable housing ecosystem.

In May 2022, the Corporation completed sale of 2,35,019 equity shares of Rs 10 each of HDFC Capital, representing 10% of its fully diluted paid-up share capital, to a wholly owned subsidiary of Abu Dhabi Investment Authority, aggregating to Rs 184 crore. Pursuant to the sale, HDFC Capital ceased to be a wholly owned subsidiary of the Corporation, though it continues to remain a subsidiary of the Corporation. In January 2023, the Corporation acquired ESOPs from the employees of HDFC Capital representing 6.49% of the share capital for Rs 108 crore.

The Corporations shareholding in HDFC Capital stood at 89.0%.

HDFC Venture Capital Limited & HDFC Property Ventures Limited

HDFC Venture Capital Limited (HDFC Venture) is the investment manager to HDFC Property Fund, a venture capital fund registered with SEBI. In August 2022, the Corporation acquired 97,500 equity shares of Rs 10 each of HDFC Venture, representing 19.50% of its paid-up equity share capital from State Bank of India, for a consideration of Rs 9.75 lac. Pursuant to the acquisition, HDFC Venture became a wholly owned subsidiary of the Corporation.

HDFC Property Ventures Limited (HDFC Property), a 100% subsidiary of the Corporation, provides investment advisory services to domestic trusts and overseas asset management companies (AMCs). Such AMCs in turn manage and advise offshore private equity funds that invest in the construction and development sector in India. The Corporation holds 100% in HDFC Property.

The board of directors of HDFC Property and HDFC Venture and HDFC Capital at their respective meetings held on August 25, 2022 approved a Scheme of Amalgamation (Scheme of subsidiary companies) for the amalgamation of HDFC Property and HDFC Venture with and into HDFC Capital, under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013, subject to receipt of requisite approvals.

The NCLT vide its order dated March 3, 2023 approved the scheme of subsidiary companies. Since the companies are still under discussions on various aspects pertaining to the amalgamation, an application has been filed with NCLT seeking an extension for filing of the order with the ROC.

HDFC Sales Private Limited (HSPL)

HSPL continues to strengthen the Corporations marketing and sales efforts by providing a dedicated sales force to sell home loans and other financial products, including public deposits. HSPL is also an agent of HDFC Life, HDFC Ergo and HDFC Credila.

HSPL has a presence in 214 locations. During the year under review, HSPL sourced loans accounting for 51% of individual loans disbursed by HDFC.

During the year, the company made a profit of Rs 68 crore.

The company paid a total dividend of Rs 5.05 per equity share of face value of Rs 10 each, compared to total dividend of Rs 2.75 per equity share in the previous year.

During the year, the Corporation received dividend of Rs 62 crore.

HSPL is a wholly owned subsidiary of the Corporation.

HDFC Credila Financial Services Limited (HDFC Credila)

HDFC Credila is Indias first dedicated education loan company, providing loans to students pursuing higher education in India and abroad. As at March 31, 2023, HDFC Credila had cumulatively disbursed Rs 24,356 crore since inceptions. The outstanding loan book stood at Rs 15,239 crore. As at March 31, 2023, the gross non-performing loans stood at 0.12%.

For the year ended March 31, 2023, HDFC Credila reported a profit after tax of Rs 276 crore as against Rs 206 crore in the previous year, representing a growth of 34%.

As at March 31, 2023, the capital adequacy ratio stood at 20.4% and Tier I capital stood at 14.6%.

During the year, the Corporation received Rs 13 crore as dividend.

HDFC Credila has recommended dividend of Rs 1.1 per equity share of face value v 10 per share for the year ended March 31, 2023 (PY: Rs 1 per equity share).

During the year, the Corporation invested a total amount of Rs 800 crore in the equity share capital of the company.

HDFC Credila is a wholly owned subsidiary of the Corporation.

HDFC Education and Development Services Private Limited (HDFC Edu)

HDFC Edu is the Corporations wholly owned subsidiary which focuses on the education sector.

During the year, the Corporation invested Rs 32 crore in the equity share capital of HDFC Edu.

The objective of HDFC Edu entering the education space is to imbibe best practices in education and facilitate innovation, thereby creating a visible impact on the education system in the country. HDFC Edu provides various services to the schools — towards admissions, website development, creating awareness in the community, technology and design consultancy, vendor management, academic content, trainings and other support services required for the smooth functioning of the institutions.

The company provides services to The HDFC Schools which are located in Gurugram, Pune and Bengaluru. These schools are affiliated with the Central Board of Secondary Education. They are also certified as Microsoft Showcase schools and two of them have received The International School Award (ISA), now called International Dimension in Schools (IDS), awarded by the British Council. IDS recognises a schools commitment to embed international awareness and global citizenship within the class and school.

The HDFC Schools believe in inclusive education and can cater to children with special needs. The schools also have children from underprivileged backgrounds. The schools have more than 3,300 students.

The HDFC School, Gurugram has a platinum certification from Indian Green Building Council for implementing sustainable and environmentally friendly initiatives including solar panels, energy efficient lighting, rainwater harvesting, wastewater treatment and organic waste management.

Subsidiaries and Associates in the Context of the Scheme of Amalgamation

Currently, as stipulated by the regulator, the Corporations shareholding in both its insurance companies, HDFC Life and HDFC ERGO is below 50%.

As per the Scheme of Amalgamation, the subsidiary and associate companies of the Corporation will become subsidiary and associate companies of HDFC Bank.

The RBI vide its letter dated April 20, 2023 to HDFC Bank has permitted the following:

• The Corporation or HDFC Bank to increase the shareholding in HDFC Life and HDFC ERGO to more than 50% prior to the effective date of the amalgamation;

• HDFC Edu: Full divestment within 2 years from the effective date; and

• HDFC Credila: Shareholding to be brought down to 10% within 2 years from the effective date, subject to conditionalities as stipulated by RBI.

AUDITED CONSOLIDATED ACCOUNTS

Whilst IndAS has been made applicable for NBFCs, including housing finance companies from the accounting period beginning April 1, 2018, the same is still pending for adoption by banks and insurance companies.

The consolidated financial statements comprise the standalone 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, 2023, the profit before tax was Rs 32,131 crore as compared to Rs 28,252 crore in the previous year.

After providing Rs 4,431 crore (PY: Rs 4,210 crore) for tax, the profit after tax stood at Rs 27,700 crore as compared to Rs 24,042 crore in the previous year.

The total comprehensive income stood at Rs 25,979 crore as compared to Rs 23,311 crore in the previous year.

The profit attributable to the Corporation during the year ended March 31, 2023 was Rs 26,161 crore compared to Rs 22,595 crore, representing a growth of 16%.

The post-tax return on assets for the consolidated group accounts for the year ended March 31, 2023 was 2.7%. The return on equity stood at 13.6%. The basic and diluted earnings per share (on a face value of Rs 2 per share) for the group was Rs 143.77 and Rs 142.54 respectively.