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 year ended March 31, 2011
    
For the year ended March 31, 2010
  
  

    

    
(Rs in crores)
    
(Rs in 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.

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.

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.

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.

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 EthisphereInstitute, 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 Rs1,59,983 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.

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 Messrs 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;

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
  
  

    
MUMBAI
    
DEEPAK S. PAREKH
  
  

    
May 10, 2011
    
Chairman