Directors
To the Members,
Your Directors have great pleasure in presenting the Eighteenth Annual Report on the
business and operations of your Bank together with the audited accounts for the year ended
March 31, 2012.
FINANCIAL PERFORMANCE
(Rs. in crore)
|
For the year ended |
|
March 31, 2012 |
March 31, 2011 |
| Deposits and Other Borrowings |
270,553.0 |
222,980.5 |
| Advances |
195,420.0 |
159,982.7 |
| Total Income |
32,530.0 |
24,263.4 |
| Profit before Depreciation and Tax |
8,055.7 |
6,316.1 |
| Net Profit |
5,167.1 |
3,926.4 |
| Profit brought forward |
6,174.2 |
4,532.8 |
| Total Profit available for Appropriation |
11,341.3 |
8,459.2 |
| Appropriations: |
|
|
| Transfer to Statutory Reserve |
1,291.8 |
981.6 |
| Transfer to General Reserve |
516.7 |
392.6 |
| Transfer to Capital Reserve |
- |
0.4 |
| Transfer to / (from) Investment Reserve |
(41.7) |
15.6 |
| Proposed Dividend |
1,009.1 |
767.6 |
| Tax Including Surcharge and Education Cess on Dividend |
163.7 |
124.5 |
| Dividend (including tax/cess thereon) pertaining to previous year paid during the year |
2.1 |
2.6 |
| Balance carried over to Balance Sheet |
8,399.6 |
6,174.2 |
The Bank posted total income and net profit of Rs. 32,530.0 crore and Rs. 5,167.1 crore
respectively for the financial year ended March 31, 2012 as against Rs. 24,263.4 crore and
Rs. 3,926.4 crore respectively in the previous year. Appropriations from net profit have
been effected as per the table given above.
DIVIDEND
Your Bank has had a dividend policy that balances the dual objectives of appropriately
rewarding shareholders through dividends and retaining capital in order to maintain a
healthy capital adequacy ratio to support future growth. It has had a consistent track
record of moderate but steady increase in dividend declarations over its history with the
dividend payout ratio ranging between 20% and 25%. Consistent with this policy and in
recognition of the overall performance during this financial year, your directors are
pleased to recommend a dividend of Rs. 4.30 per equity share of Rs. 2 for the year ended
March 31, 2012 as against Rs. 3.30 per equity share of Rs. 2 (which was Rs. 16.50 per
share of Rs. 10 before the share split) for the previous year ended March 31, 2011. This
dividend shall be subject to tax on dividend to be paid by the Bank.
AWARDS
As in the past years, awards and recognition were conferred on your Bank by leading
domestic and international organizations and publications during the financial year ended
March 31, 2012.
Some of them are:
The Asian Banker International Excellence in Retail Financial Services Awards 2012
• Best Retail Bank in India
• Best Bancassurance Business in India
• Best Risk Management in India Business World Best Bank Award 2011
• Best Bank
CNBC TV18 Best Bank and Financial Institution Awards 2011
• Best Bank
• Aditya Puri - Outstanding Finance Professional CNBC TV18 Financial Advisor Award
2011
• Best Performing Bank (Private)
DSCI (Data Security Council of India) Excellence Awards 2011
• Security in Bank
Dun & Bradstreet Banking Awards 2011
• Best Private Sector Bank - SME Financing Euromoney Awards for Excellence 2011
• Best Bank in India
Finance Asia Country Awards 2011
• Best Bank in India
• Best Cash Management Bank in India
• Best Trade Finance Bank in India
Financial Express Best Bank Survey 2010-11
• Best in Strength and Soundness
Institute of Chartered Accountants of India Awards 2011
• Excellence in Financial Reporting
International Data Corporation Financial Insights Innovation Awards 2011
• Excellence in Customer Experience
Skoch Foundation Financial Inclusion Awards 2012
• SHG/ JLG linkage program
RATINGS
| Instrument |
Rating |
Rating Agency |
Comments |
| Fixed Deposit Program |
CARE AAA (FD) |
CARE |
Represents instruments considered to be ‘of the best credit quality, offering
highest safety for timely servicing of debt obligations, and carry minimal credit
risk’. |
|
tAAA (ind) |
FITCH |
Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry lowest credit
risk. |
| Certificate of Deposits Program |
CARE A1+ |
CARE |
Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry lowest credit
risk. |
|
A1+ (ind) |
FITCH |
Instruments with this rating are considered to have very strong degree of safety
regarding timely payment of financial obligations. Such instruments carry lowest credit
risk. |
| Long term unsecured, subordinated |
CARE AAA |
CARE |
Represents instruments considered to be ‘of the best credit quality, offering
highest safety for timely servicing of debt obligations, and carry minimal credit
risk’. |
| (Lower Tier II) Bonds |
|
|
|
|
AAA (ind) with a Stable outlook |
FITCH |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry lowest credit
risk. |
| Tier I Perpetual Bonds |
CARE AAA |
CARE |
Represents instruments considered to be ‘of the best credit quality, offering
highest safety for timely servicing of debt obligations, and carry minimal credit
risk’ |
|
AAA Stable Stable outlook |
CRISIL |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry lowest credit
risk. |
| Upper Tier II Bonds |
CARE AAA |
CARE |
Represents instruments considered to be ‘of the best credit quality, offering
highest safety for timely servicing of debt obligations, and carry minimal credit
risk’ |
|
AAA stable |
CRISIL |
Instruments with this rating are considered to have the highest degree of safety
regarding timely servicing of financial obligations. Such instruments carry lowest credit
risk. |
CARE – Credit Analysis & Research Limited
FITCH – Fitch Ratings India Private Limited (100% subsidiary of Fitch Inc.)
CRISIL – CRISIL Ltd. (A Standard & Poor’s company)
ISSUANCE OF EQUITY SHARES
During the year under review, 205.6 lac shares (post subdivision, each equity share of
Rs. 2) were allotted to the employees of your Bank pursuant to the exercise of options
under the Employee Stock Option Schemes of the Bank. These include the shares allotted
under the Employee Stock Option Schemes of the erstwhile Centurion Bank of Punjab.
EMPLOYEE STOCK OPTIONS
The information pertaining to Employee Stock Options is given in an annexure to this
report.
CAPITAL ADEQUACY RATIO
Your Bank’s total Capital Adequacy Ratio (CAR) calculated in line with Basel II
framework stood at 16.5%, well above the regulatory minimum of 9.0%. Of this, Tier I CAR
was 11.6%.
SUBSIDIARY COMPANIES
Your Bank has two subsidiaries, HDFC Securities Limited (‘HSL’) and HDB
Financial Services Limited (‘HDBFS’). HSL is primarily in the business of
providing brokerage services through the internet and other channels with a focus to
emerge as a full-fledged financial services provider through a distribution of a bouquet
of financial services products. The company continued to strengthen its distribution
franchise and as on March 31, 2012 had a network of 184 branches across the country.
During the year under review, the company’s total income amounted to Rs. 210.0 crore
as against Rs. 260.5 crore in the previous year. The operations resulted in a net profit
after tax of Rs. 54.1 crore.
HDBFS is a non-deposit taking non-bank finance company (‘NBFC’), the customer
segments being addressed by HDBFS are typically underserviced by the larger commercial
banks, and thus create a profitable niche for the company to operate. Apart from lending
to individuals, the company grants loans to small and medium business enterprises and
micro small and medium enterprises, the principle businesses of HDBFS are as follows:
• Loans – The company offers a range of loans in the secured and unsecured
loans space that fulfill the financial needs of its target segment
• Insurance Services – HDBFS is a corporate agent for HDFC Standard Life
Insurance Company and sells standalone insurance products as well as products such as Loan
Cover and Asset Cover.
• Collections – BPO Services – The Company runs 6 call centres with a
capacity of over 1700 seats. These centres cover collection requirements at over 200 towns
through its calling and field teams. Currently the company has a contract with your Bank
for collection services.
As on March 31, 2012, HDBFS had 180 branches in 135 cities in order to distribute its
products and services. During the financial year ended March 31, 2012, the company’s
total income increased by over 141% to Rs. 431.8 crore as compared to Rs. 178.9 crore in
the previous year. During the same period the company’s net profit was Rs. 51.1 crore
as compared to Rs. 15.8 crore in the previous year.
In terms of the approval granted by the Government of India, the provisions contained
under Section 212 (1) of the Companies Act, 1956 shall not apply in respect of the
Bank’s subsidiaries. Accordingly, a copy of the balance sheet, profit and loss
account, report of the Board of Directors and the report of the auditors of HSL and HDBFS
have not been attached to the accounts of the Bank for the year ended March 31, 2012.
Shareholders who wish to have a copy of the annual accounts and detailed information on
HSL and HDBFS may write to the Bank for the same. Further, the said documents shall also
be available for inspection by shareholders at the registered offices of the Bank, HSL and
HDBFS.
MANAGEMENT’S DISCUSSIONS AND ANALYSIS
Macro-economic and Industry Developments
It was a challenging year for the Indian economy with lingering concerns over global
growth prospects and financial stability weighing on external demand and international
funding. Further, local headwinds such as inflation, rising interest rates and policy
impediments have only exacerbated the impact of a shaky global environment on domestic
growth. Aggressive monetary tightening curtailed leveraged spending pulling private
consumption growth lower from 8.1% for the financial year ended March 31, 2011 to 6.5% for
the financial year ended March 31, 2012, while policy hurdles such as land acquisition
problems and environmental clearances dampened investment momentum dragging investment
growth lower to 5.8% from 11.1% a year ago. The intensification of the debt crisis in
Europe as well as a moderation in emerging markets across the globe pulled down export
growth sharply in the second half of the financial year to 6% from close to 25% in first
half of the financial year 2012, weakening a vital support to the GDP growth in the
financial year 2012.
The drag from local and global dampeners was largely concentrated on the industrial
sector with growth for the year at 3.9%, sharply lower than the 7.2% recorded a year ago.
Agricultural growth too slowed down over the past year but this was largely because of an
unfavorable base. While the monsoon season was more than adequate in the financial year
2012 and food grain production was strong, an adverse base pulled down agricultural growth
in financial year 2012 to a lower but robust rate of 3.0% against a remarkably strong
reading of 7.0% in financial year 2011. Meanwhile, service sector growth remained strong
supported by structural drivers such as firm rural demand and low penetration and
registered a growth of 9.4% against 9.3% in financial year 2011. On balance however,
sturdy service sector growth was not enough to offset the drag from industry growth which
pulled headline GDP growth in financial year 2012 lower to 6.9% against 8.4% a year ago.
While growth slowed down over the past year, inflation was slower to respond to this
deceleration, remaining elevated through most of the financial year 2012. Exchange rate
depreciation pressures driven by periods of extreme risk aversion exacerbated the impact
of firm global commodity prices on domestic manufactured goods prices. Further, large
fiscal imbalances and a relatively loose fiscal policy kept demand pressures on inflation
intact. These led to the generalization of input price increases and have kept core
inflation in the 7.5-8.0% range. Additionally, structural demand-supply mismatches in
specific food items kept food inflation sticky. As a result, headline inflation averaged
8.8% in financial year 2012 only marginally lower than the average inflation rate of 9.5%
a year ago.
The RBI therefore kept its vigil on inflation, hiking key policy rates by an aggressive
175 basis points between April, 2011-November, 2011. There are signs however that
inflation is slowly moderating in response to subdued domestic demand and the lagged
impact of past monetary tightening measures. While a favorable base helped, sequential
price pressures also stabilized in recent months pulling headline inflation lower to 7.0%
in February, 2012 from 9.5% a year ago. Further, core inflation came down from close to
8.0% a year ago to 5.7% in February, 2012. Given the attendant risks to growth and some
signs of moderating inflation, the RBI diluted its hawkish stance in recent months,
pausing its tightening cycle in December, 2011 and following this up with CRR cuts of 125
basis points since January, 2012 to address tight liquidity conditions. As a result, while
lending rates were hiked by a sharp 150 basis points on average, most of this increase has
been concentrated in first half of the financial year 2012. Rising interest rates,
inflation and weak domestic demand impacted credit growth taking it lower from 23% in
April, 2011 to 16% in February, 2012. Interest rate sensitive segments such as retail
housing, vehicle and personal loans came under pressure with credit growth in this
category slowing to 11.0% in February, 2012 from 16.5% a year ago. Further, tardy
infrastructure project execution and subdued capex especially in areas such as power took
infrastructure loan growth lower to 18.8% in February, 2012 from 40.0% a year ago. Some
segments such as roads and highways benefited from a turnaround in awarding activity which
kept loan growth to the sector strong at 26-30% but this did little to arrest the slowdown
in broader loan disbursements.
Firm interest rates and deposit rate hikes of nearly 150 basis points over September,
2010-July, 2011 boosted deposit growth in first half of the financial year 2012. However,
subdued base money growth reflecting muted forex asset accretion and thin foreign inflows
started impacting deposit mobilization which pulled deposit growth lower to 14-15%, thus
creating a structural drag on domestic liquidity.
While liberalization in non-resident deposit rates helped growth in private remittances
and transfers pushing it higher from 14% in financial year 2011 to over 25% in financial
year 2012, firm commodity prices meant that import growth was much stronger. Fur ther,
growing global risk aversion boosted domestic demand for gold pushing the annual growth
rate in gold imports to 75% from 25% a year ago. While subdued global demand drove export
growth lower from 25% in first half of financial year 2012 to single digits in second half
of financial year 2012, import growth remained strong at 25-30% thus widening the current
account deficit close to 4% of GDP in financial year 2012 from 2.7% a year ago. On the
other hand, muted global risk sentiment and periods of intense financial instability meant
thin net capital inflows totaling USD 66 billion against USD 62 billion a year ago. As a
result, the country saw net foreign outflows of USD 8-9 billion over the past year against
net inflows of USD 13 billion a year ago. This kept the exchange rate under pressure
leading to periods of extreme depreciation amidst a sharp fall in global risk sentiment
and forcing the RBI to intervene and stabilize the domestic currency unit.
While thin foreign inflows and efforts by the RBI to stem the pace of currency
depreciation kept domestic liquidity under pressure, the government’s large market
borrowing target only exacerbated the liquidity shortage. A combination of lower than
budgeted revenue mobilization and an overshoot in subsidies drove the government to
surpass its fiscal deficit target by more than 1% of GDP. This translated to extra
borrowings of close to Rs. 1,00,000 crore through dated securities and a similar amount
through treasury bills in second half of financial year 2012 on top of an already hefty
dated securities draft of Rs. 4,17,000 crore budgeted for the year. As a result, the
average banking system borrowing against surplus SLR (Statutory Liquidity Ratio)
Securities from the RBI widened from Rs. 45,000 crore in first half of financial year 2012
to Rs. 1,20,000 crore in the second half of the year which kept government bond yields
elevated taking the benchmark 10-yr yield to 8.55-8.60%, higher by 80 basis points over
the previous year. Tight liquidity and aggressive monetary tightening over the year meant
that the short-end of the curve came under pressure with the yield curve inverted and the
3-month T-bill yield largely ruled above the 10-yr benchmark yield. The overnight MIBOR
shot up by 200 basis points to close the year at 8.80-9.0%
Since the intensification of the global financial crisis 2008, risks to domestic growth
largely stemmed from the external environment. Over the last year however, domestic
factors played a key role in pushing growth below potential. It follows then that policy
initiatives to reverse this drag both in the form of monetary easing and addressing policy
impediments and supply shortages will determine the trajectory of growth in financial year
2013. Some efforts have been made in resolving policy hurdles in recent months. For
instance, efforts have been made to ease coal supply shortages in the power sector by
securing coal supply agreements from state suppliers for power projects that have already
been commissioned or would get commissioned on or before March, 2015. A draft bill has
been formulated to smooth land acquisition bottlenecks. However most of these policy
changes are yet to be fully implemented and were these delays to persist, could continue
to impede domestic investment and ultimately impact growth.
While adequate capital provisioning and stringent prudential regulations largely
shielded the domestic banking system from the global crisis, cyclical deterioration in
asset quality remains a concern. Loans to the power sector where financial closure of
projects has been delayed by policy hurdles, coal supply shortages and end-product pricing
problems have come under stress. Further, there is some concern that a portion of the
loans that banks were allowed to restructure may become impaired and will add to the stock
of non-performing loans. As a result, the gross NPA ratio of the system is likely to move
higher from 2.3% in financial year 2011 to 3.0% in financial year 2012. Recent stress
tests have however revealed that the banking system as a whole remains robust enough to
withstand a sharp increase in asset quality slippages and capitalization levels of
stressed banks are likely to be maintained either through government assistance or further
equity infusion.
While monetary easing in response to slowing domestic demand is likely to be modest it
is likely to be enough to offset at least a part of the tightening over the last year.
Leveraged consumer spending could thus gain some impetus. Further, while greenfield capex
could remain restricted, brownfield capacity expansion involving minimal interface with
regulatory hurdles could benefit from easing domestic funding conditions and firm private
consumption. Besides, some sectors such as roads and highways that have seen considerable
traction in activity over the last year are likely to remain an important support to
investment momentum going ahead.
Despite a slowdown in growth over financial year 2012, India has continued to
outperform the global economy. With world output growth likely to remain relatively feeble
at 3.3% in 2012 against 3.8% in 2011, structural supports from a rapidly expanding rural
and semi-urban economy, favorable demographics and low product penetration are likely to
continue to keep domestic growth higher than world growth.
(Sources: Ministry of Finance, RBI, CSO, Ministry of Commerce)
Mission and Business Strategy
Your Bank’s mission is to be a ‘World Class Indian Bank’, benchmarking
itself against international standards and best practices in terms of product offerings,
technology, service levels, risk management and audit & compliance. The objective is
to continue building sound customer franchises across distinct businesses so as to be a
preferred provider of banking services for its target retail and wholesale customer
segments, and to achieve a healthy growth in profitability, consistent with the
Bank’s risk appetite. Your Bank is committed to do this while ensuring the highest
levels of ethical standards, professional integrity, corporate governance and regulatory
compliance.
The Bank’s business strategy emphasizes the following:
• Develop innovative products and services that attract its targeted customers and
address inefficiencies in the Indian financial sector;
• Increase its market share in India’s expanding banking and financial
services industry by following a disciplined growth strategy focusing on balancing quality
and volume growth while delivering high quality customer service;
• Leverage its technology platform and open scaleable systems to deliver more
products to more customers and to control operating costs;
• Maintain high risk standards for asset quality through disciplined credit risk
management;
• Continue to develop products and services that reduce its cost of funds; and
• Focus on healthy earnings growth and low volatility
Financial Performance
The financial performance of your Bank during the financial year ended March 31, 2012
remained healthy with total net revenues (net interest income plus other income)
increasing by 17.9% to Rs. 17,540.5 crore from Rs. 14,878.3 crore in the previous
financial year. Revenue growth was driven by an increase in both, net interest income and
other income. Net interest income grew by 16.6% due to acceleration in loan growth to
22.2% coupled with a net interest margin (NIM) of 4.2% for the year ending March 31, 2012.
From May 2011, the RBI mandated that interest payable on savings deposits be increased
to 4% from 3.5%, which resulted in an impact of approximately 10-11 basis points on the
bank’s Net Interest Margins (NIM). Further, in November 2011, the same was
de-regulated by RBI. Some of the small private sector banks increased the savings bank
interest rate in the range of 6-7%, while most other banks maintained their savings
deposit rate at 4%. In spite of price based competition, your Bank witnessed a strong
growth of 16.6% in its savings deposits. Further, due to tight liquidity conditions that
were prevalent in the monetary system during the financial year ended March 31, 2012, your
Bank witnessed an increase of about 100 basis points in its retail term deposit rates
during this period. Your Bank has however maintained steady NIMs by managing the yields
across its various customer and product segments in line with its cost of funds.
Other income grew 21.0% over that in the previous year to Rs. 5,243.7 crore during the
financial year ended March 31, 2012. This growth was driven primarily by an increase in
fees and commissions earned and income from foreign exchange and derivatives, offset in
part by a loss on sale / revaluation of investments of Rs. 195.9 crore as compared to a
loss of Rs. 52.6 crore in the previous financial year. In the financial year ended March
31, 2012, commission income increased by 18.9% to Rs. 4,275.5 crore with the primary
drivers being commissions from the distribution of fees on debit and credit cards,
transactional charges and fees on deposit accounts and processing fees on retail assets.
Regulatory changes resulted in the capping of earnings from the distribution of insurance
products; however the increase in your Bank’s sales volumes partly made up for the
reduction in unit commissions. Foreign exchange and derivatives revenues grew by 44.8%
from Rs. 786.3 crore in the previous financial year to Rs. 1,138.9 crore in the financial
year ended March 31, 2012, primarily due to higher customer flows and also higher earnings
from trading arising out of large volatility in foreign exchange markets through the year.
Operating (non-interest) expenses increased from Rs. 7,152.9 crore in the previous
financial year to Rs. 8,590.1 crore in the year under consideration. During the year your
Bank opened 558 new branches and over 3,400 ATMs which resulted in higher infrastructure
and staffing expenses. As a result, the ratio of operating cost to core net revenues
(excluding bonds gains / losses) for your Bank increased to 48.4% during the financial
year ended March 31, 2012, from 47.9% in the previous year.
Total loan loss provisions consisting of specific provisions for non-performing assets
and floating provisions decreased from Rs. 1,433.0 crore to Rs. 1,351.6 crore for the
financial year ended March 31, 2012, on account of healthy asset quality across both
retail and wholesale customer segments. Your Bank’s provisioning policies for
specific loan loss provisions remain higher than regulatory requirements, the coverage
ratio based on specific provisions alone without including write-offs was 82.4% and that
including general and floating provisions was 199.7% as on March 31, 2012. Your Bank made
general provisions of Rs. 150.5 crore during the financial year ended March 31, 2012.
Your Bank’s profit after tax increased by 31.6% from Rs. 3,926.4 crore in the
previous financial year to Rs. 5,167.1 crore in the year ended March 31, 2012. Return on
average net worth was 18.4% while the basic earnings per share increased from Rs. 17.00 to
Rs. 22.11 per equity share.
As at March 31, 2012, your Bank’s total balance sheet size was Rs. 337,909 crore
an increase of 21.8% over Rs. 277,353 crore as at March 31, 2011. Total Deposits increased
18.3% from Rs. 208,586 crore as on March 31, 2011 to Rs. 246,706 crore as on March 31,
2012. Savings account deposits grew by 16.6% to Rs. 73,998 crore while current account
deposits were at Rs. 45,408 crore as on March 31, 2012. Adjusting current account deposits
for one offs, as at March 31, 2011, amounting to Rs. 4,000 crore, the growth was 6.9%. The
proportion of core current and savings deposits (CASA) to total deposits was at 48.4% as
on March 31, 2012. During the financial year under review, gross advances grew by 22.0% to
Rs. 196,890 crore, while system loan growth was approximately 19%. Your Bank’s loan
growth was driven by an increase of 33.7% in retail advances to Rs. 107,126 crore, and an
increase of 10.5% in wholesale advances to Rs. 89,764 crore. The Bank had a market share
of 3.9% in total system deposits and 4.3% in total system advances. The Bank’s Credit
Deposit (CD) Ratio was 79.2% as on March 31, 2012.
Business Segments’ Update
Consistent with its performance in the past, in the last financial year, your Bank has
achieved healthy growth across various operating and financial parameters. This
performance reflected the strength and diversity of the Bank’s three primary business
franchises – retail banking, wholesale banking and treasury and of its disciplined
approach to risk – reward management.
Retail Banking
Your Bank caters to various customer segments with a wide range of products and
services. The Bank is a ‘one stop shop’ financial services provider of various
deposit products, of retail loans (auto loans, personal loans, commercial vehicle loans,
mortgages, business banking, loan against gold jewellery etc.), credit cards, debit cards,
depository (custody services), investment advisory, bill payments and several
transactional services. Apart from its own products, the Bank distributes third party
financial products such as mutual funds and life and general insurance.
The growth in your Bank’s retail banking business was robust during the financial
year ended March 31, 2012. The Bank’s total retail deposits grew by over 27.6% to Rs.
178,657 crore in the financial year ended March 31, 2012, driven by retail term deposits
which grew much faster at 45.4% during the same period. The Bank’s retail assets grew
by 33.7% to Rs. 107,126 crore during the financial year ended March 31, 2012 driven
primarily by a growth in commercial vehicle loans, mortgages, business banking, and auto
loans.
During this year your Bank expanded its distribution network from 1,986 branches in 996
cities as on March 31, 2011 to 2,544 branches in 1,399 Indian cities on March 31, 2012.
The Bank’s ATMs increased from 5,471 to 8,913 during the same period. Your
Bank’s branch network is deeply entrenched across the country with significant
density in areas conducive to the growth of its businesses. The Bank’s focus on
semi-urban and under-banked markets continued, with over 75% of the Bank’s branches
now outside the top nine Indian cities. The Bank’s customer base grew in line with
the growth in its network and increased product penetration initiatives. This currently
stands at 26 million customers. The Bank continues to provide unique products and services
with customer centricity as a key objective.
In order to provide its customers increased choices, flexibility and convenience the
Bank continued to make significant headway in its multi channel servicing strategy. Your
Bank offered its customers the use of ATMs, internet, phone and mobile banking in addition
to its expanded branch network to serve their banking needs.
The increase in the Bank’s debit card base this year coupled with a growth in its
ATM network translated to an increase in ATM transactions by 20%. The Bank also made
strong inroads in its internet banking channel with around 60% of its registered customers
now using net banking facilities for their banking requirements. Your bank now offers
phone banking in 1397 locations in addition to giving its customers the convenience of
accessing their bank accounts over their mobile phones. The success of the Bank’s
multi-channel strategy is evidenced in the fact that over 80% of customer initiated
transactions are serviced through the non-branch channels.
Your Bank continued to grow at a healthy pace in almost all the retail loan products
that it offers and further consolidated its position amongst the top retail lenders in
India. The Bank grew its retail asset portfolio in a well balanced manner focusing on both
returns as well as risk. While the Bank’s auto finance business remained a key
business driver for its retail asset portfolio, other retail loan products exhibited
robust growth rates and good asset quality.
The Bank continued its focus on internal customers for its credit cards portfolio.
Credit cards remained a profitable business for your Bank with 5.6 million cards in force
as at March 31, 2012. As part of its strategy to drive usage of its credit cards the Bank
also has a significant presence in the ‘merchant acquiring’ business with the
total number of point-of-sale (POS) terminals installed at over 180,000.
In addition to the above products the Bank does home loans in conjunction with HDFC
Limited. Under this arrangement the Bank sells loans provided by HDFC Limited through its
branches. HDFC Limited approves and disburses the loans, which are booked in their books,
with the Bank receiving a sourcing fee for these loans. HDFC Limited offers the Bank an
option to purchase up to 70% of the fully disbursed home loans sourced under this
arrangement through either the issue of mortgage backed pass through certificates (PTCs)
or by a direct assignment of loans; the balance is retained by HDFC Limited. Both the PTCs
and the loans thus assigned are credit enhanced by HDFC Limited up to a AAA level. The
Bank purchases these loans at the underlying home loan yields less a fee paid to HDFC
Limited for the administration and servicing of the loans. Your Bank originated
approximately an average Rs. 800 crore of mortgages every month in the financial year
ended March 31, 2012, an increase from the Rs. 700 crore per month that it originated in
the previous year. During the year the Bank also purchased from HDFC Ltd. under the
"loan assignment" route approximately Rs. 4,900 crore of AAA credit enhanced
home loans most of which qualified as priority sector advances.
Your Bank also distributes life, general insurance and mutual fund products through its
tie-ups with insurance companies and mutual fund houses. The new regulations and product
mix has adversely impacted fees from these sources, though increase in volumes of
distribution has offset to some extent the drop in commission rates. Third party
distribution income contributes approximately 17% of total fee income.
The Bank’s data warehouse, Customer Relationship Management (CRM) and analytics
solutions have helped it target existing and potential customers in a cost effective
manner and offer them products appropriate to their profile and needs. Apart from reducing
costs of acquisition, this has also led to deepening of customer relationships and greater
efficiency in fraud control and collections resulting in lower credit losses. The Bank is
committed to investing in advanced technology in this area which will provide a cutting
edge in the Bank’s product and service offerings.
Wholesale Banking
The Bank provides its corporate and institutional clients a wide range of commercial
and transactional banking products, backed by high quality service and relationship
management. The Bank’s commercial banking business covers not only the top end of the
corporate sector but also the emerging corporate segments and some small and medium
enterprises (SMEs). The Bank has a number of business groups catering to various segments
of its wholesale banking customers with a wide range of banking services covering their
working capital, term finance, trade services, cash management, foreign exchange and
electronic banking requirements.
The Bank’s financial institutions and government business group (FIG) offers
commercial and transaction banking products to financial institutions, mutual funds,
public sector undertakings, central and state government departments. The main focus for
this segment remained offering various deposit and transaction banking products to this
segment besides deepening these relationships by offering funded, non-funded treasury and
foreign exchange products.
The Bank’s wholesale deposits grew by around 5.3%, adjusted for one off current
account deposits of Rs. 4,000 crore at March 31, 2011, while wholesale advances showed a
growth of over 10.5%. Your Bank provides its customers both working capital and term
financing. The Bank witnessed an increase in the proportion of its medium tenor term
lending, however working capital loans and short tenor term loans retained a large share
of its wholesale advances. While the duration of the Bank’s term loans largely
remained small to medium term, the Bank did witness an increase in its longer duration
term loans and project lending including loans to the infrastructure segment.
During the financial year ended March 31, 2012, growth in the wholesale banking
business continued to be driven by new customer acquisition and higher cross-sell with a
focus on optimizing yields and increasing product penetration. Your Bank’s cash
management and vendor & distributor (supply chain) finance products continued to be an
important contributor to growth in the corporate banking business. Your Bank further
consolidated its position as a leading player in the cash management business (covering
all outstation collection, disbursement and electronic fund transfer products across the
Bank’s various customer segments) with volumes of over Rs. 25 trillion. The Bank also
strengthened its market leadership in cash settlement services for major stock exchanges
and commodity exchanges in the country. The Bank met the overall priority sector lending
requirement of 40% of net bank credit and also strived for healthy growth in the
sub-targets such as weaker sections, direct agriculture, and the micro and SME segments.
International Operations
The Bank has a wholesale banking branch in Bahrain, a branch in Hong Kong and two
representative offices in UAE and Kenya. The branches offer the Bank’s suite of
banking services including treasury and trade finance products to its corporate clients.
Your Bank has built up an asset book over USD 1.7 billion through its overseas branches.
The Bank offers wealth management products, remittance facilities and markets deposits to
the non-resident Indian community from its representative offices.
Treasury
The treasury group is responsible for compliance with reserve requirements and
management of liquidity and interest rate risk on the Bank’s balance sheet. On the
foreign exchange and derivatives front, revenues are driven primarily by spreads on
customer transactions based on trade flows and customers’ demonstrated hedging needs.
During the financial year ended March 31, 2012, revenues from foreign exchange and
derivative transactions grew by 44.8% to Rs. 1,138.8 crore. These revenues were
distributed across large corporate, emerging corporate, business banking and retail
customer segments for plain vanilla foreign exchange products and across primarily large
corporate and emerging corporate segments for derivatives. The Bank offers Indian rupee
and foreign exchange derivative products to its customers, who use them to hedge their
market risks. The Bank enters into foreign exchange and derivative deals with
counterparties after it has set up appropriate counterparty credit limits based on its
evaluation of the ability of the counterparty to meet its obligations in the event of
crystallization of the exposure. Appropriate credit covenants may be stipulated where
required as trigger events to call for collaterals or terminate a transaction and contain
the risk. Where the Bank enters into foreign currency derivative contracts with its
customers it lays them off in the inter-bank market on a matched basis. For such foreign
currency derivatives, the Bank does not have any open positions or assume any market risks
but carries only the counterparty credit risk (where the customer has crystallized
payables or mark-to-market losses). The Bank also deals in Indian rupee derivatives on its
own account including for the purpose of its own balance sheet risk management. The Bank
recognizes changes in the market value of all derivative instruments (other than those
designated as hedges) in the profit and loss account in the period of change. Derivative
contracts classified as hedge are recorded on an accrual basis.
Given the regulatory requirement of holding government securities to meet the statutory
liquidity ratio (SLR) requirement, your Bank maintains a portfolio of government
securities. While a significant portion of these SLR securities are held in the
‘Held-to-Maturity’ (HTM) category, some of these are held in the ‘Available
for Sale’ (AFS) category.
Information Technology
Since its inception, your Bank has made and continues to make substantial investments
in its technology platform and systems, built multiple distribution channels, including an
electronically linked branch network, automated telephone banking, internet banking and
banking through mobile phones, to offer its customers convenient access to various
products. During this financial year, the bank has made further strides in adding more
capability to the internet banking platform, launched mobile banking for 2G customers and
launched applications for various mobile platforms.
Your Bank has templatized credit underwriting through automated customer data
de-duplication and real-time scoring in its loan origination process. Having enhanced its
cross selling and up-selling capabilities through data mining and analytical customer
relationship management solutions, the Bank’s technology enables it to have a 3600
view of its customers. Your Bank employs event detection technology based customer
messaging and has deployed an enterprise wide data warehousing solution as a back bone to
its business intelligence system.
Implementation of risk management engine for internet transactions coupled with various
multi factor authentication has reduced the phishing attacks significantly. The bank has
also implemented a digital certificate based security engine for corporate internet
banking customers. Credit and debit cards usage of the Bank’s customers is secured by
powerful proactive risk manager technology solutions which does rules based SMS alerts as
well as prompts customer service representatives to call the customer on detecting
abnormal usage behavior. This prevents frauds and minimizes losses to customers, if the
card has been stolen and yet to be hot listed.
Sophisticated automated switch-over and switch-back solutions power the Bank’s
Business Continuity and Disaster Recovery management strategy for core banking and other
key applications. The bank conducts drills periodically to upgrade this capability and to
improve the availability of your Bank’s services to its customers.
With the various initiatives that your Bank has taken using technology, it has been
successful in driving the development of innovative product features, reducing operating
costs, enhancing customer service delivery and minimizing inherent risks.
In April 2011, RBI issued Guidelines on Information Security, Electronic Banking,
Technology Risk Management and Cyber Frauds and provided recommendations for
implementation. The Bank remains committed towards complying with the requirements
outlined in the guidelines and instituted a senior level internal team to oversee the
implementation program for complying with the guidelines. The team supervised the various
domains, performed gap analysis, and prepared remediation plan for each area where gaps
were observed. Significant progress has been made towards remediation over the year and
this has been reported to the board on a quarterly basis.
Service Quality Initiatives
Your Bank was one of the few banks in the country to have put in place a team dedicated
to improve service quality through the Lean and Six Sigma methodologies with a focus on
right origination, cost effective and error free operations and effective complaint
resolution. The Bank continued driving improvements in Service Quality (SQ) initiatives
encompassing all customer touch points namely branches, ATMs, phone banking, net-banking,
e-mail service as well as back office support functions impacting customer service through
a dedicated Quality Initiatives Group (QIG) team. Some of the key elements covered by the
QIG team are workplace management, etiquette and cour tesy, lobby management, complaints
management, management of turnaround times, overall customer service and compliance with
the Bank’s internal processes as well as regulatory compliance. The group also runs
programs such as ‘voice of the customer’ and ‘voice of the employee’
for effective complaint resolution and process improvement. Various departments of the
Bank are empowered to deliver superior customer experience through improvements in
products, processes and people skills.
In addition to above, your Bank continued with the ongoing service quality initiatives
which include the audit of services as well as mystery shopping at various customer touch
points to capture and improve customer experiences extending them to all new branches /
centers. Your Bank has also set up a robust training mechanism; both on the online
platform as well as using conventional class room sessions, to enable its employees
improve the quality of customer service.
Under the institutional drive called "Transformation of Customer Service"
your Bank is benchmarking with the best in class service providers in the banking space
and launch newer and better products and services to delight the customers.
To this effect, your Bank has designed and implemented customized Lean Sigma Project
Management (LSPM) methodology that incorporates the Lean philosophy into the Six Sigma
framework to deliver faster and sustainable results clubbed with customer delight and
improved profitability. Your Bank also takes advantage of various information technology
platforms to improve products, processes and services. Your Bank does not believe in
designing a product and fitting it into the customers’ needs rather it designs
products to meet customer needs. The Bank has always ensured that its products and
services are delivered through processes which are in line with the prevalent regulatory
framework and has adequate controls to safe-guard against possible misuse. Your Bank has
taken various steps to improve the effectiveness of its Grievance re-dressal mechanism
across its delivery channels. Some key measures taken up by the Bank include a three
layered Grievance re-dressal mechanism, bank-wide online complaint resolution system, root
cause remediation, customer service committees at the branch level and at the corporate
headquarters level with representation from customers. The levels of customer service are
periodically reviewed by the board of directors of the Bank. All these have helped in
consistent reduction in the total number of customer complaints and the same is reflected
in written appreciations received from the various offices of honorable Banking Ombudsman
(BO) appointed by the Reserve Bank of India.
In order to ensure continued focus on customer service through standardized and
controlled processes, your Bank has achieved coveted the ISO 9001:2008 Certification of
the grievance handling processes of the bank.
Risk Management and Portfolio Quality
Taking on various types of risk is integral to the banking business. Of the various
types of risks your Bank is exposed to, the most important are credit risk, market risk
and operational risk. The identification, measurement, monitoring and management of risks
remain a key focus area for the Bank. Sound risk management and balancing risk-reward
trade-offs are critical to a bank’s success. Business and revenue growth have
therefore to be weighed in the context of the risks implicit in the Bank’s business
strategy. The Risk Policy and Monitoring Committee of the Board monitors the Bank’s
risk management policies and procedures, vets treasury risk limits before they are
considered by the Board, and reviews portfolio composition and impaired credits.
For credit risk, distinct policies, processes and systems are in place for the retail
and wholesale businesses. In the retail loan businesses, the credit cycle is managed
through appropriate front-end credit, operational and collection processes. For each
product, programs defining customer segments, underwriting standards, security structure
etc., are specified to ensure consistency of credit buying patterns. Given the granularity
of individual exposures, retail credit risk is monitored largely on a portfolio basis,
across various products and customer segments. During the year the Bank obtained the ISO
9001:2008 re-certification of its retail credit underwriting unit, which was confirmed for
35 sites. For wholesale credit exposures, management of credit risk is done through target
market definition, appropriate credit approval processes, ongoing post-disbursement
monitoring and remedial management procedures. Overall portfolio diversification and
periodic as well as proactive reviews facilitate risk mitigation and management. The
credit quality in the wholesale segment continued to be robust. The Bank was largely
insulated from the problems witnessed in the power, telecom, aviation, and other sectors
due to its low exposure to project finance and the existence of superior credit filters
which facilitate a high quality loan book. Some stress was observed in the micro finance
portfolio of the Bank due to environmental factors, however, this portfolio is less than
0.2 percent of the Bank’s advances, and all problem accounts are adequately provided
for.
As of March 31, 2012, your Bank’s ratio of gross non-performing assets (NPAs) to
gross advances was 1.02%. Net non-performing assets (gross non-performing assets less
specific loan loss provisions) were 0.2% of customer assets as of March 31, 2012. The
specific loan loss provisions that the Bank has made for its non-performing assets
continue to be more conservative than the regulatory requirement. In addition, the bank
has made general provisions for standard assets which are as per regulatory prescription
and dynamic counter cyclical provisions or floating provisions which are made as per board
approved policy. The coverage ratio taking into account specific, general and floating
provisions was 199.7% as of March 31, 2012.
In accordance with RBI’s guidelines on Basel II, the Bank is currently on the
Standardized Approach for Credit Risk, the Basic Indicator Approach for Operational Risk
and the Standardized Approach for Market Risk. Parallely, the Bank is progressing with its
initiatives on meeting the requirements for adoption of the advanced approaches for these
risks under Basel II, brought out by RBI in this regard. The framework of the advanced
approaches is in harmony with the Bank’s objective of adopting best practices in risk
management.
INTERNAL AUDIT AND COMPLIANCE
Your Bank has Internal Audit and Compliance functions which are responsible for
independently evaluating the adequacy of all internal controls and ensuring operating and
business units adhere to internal processes and procedures as well as to regulatory and
legal requirements. The audit function also pro-actively recommends improvements in
operational processes and service quality. To ensure independence, the audit department
has a reporting line to the Chairman of the Board of Directors and the Audit and
Compliance Committee of the Board and only a dotted line to the Managing Director. To
mitigate operational risks, the Bank has put in place extensive internal controls
including restricted access to the Bank’s computer systems, appropriate segregation
of front and back office operations and strong audit trails. The Audit and Compliance
Committee of the Board also reviews the performance of the audit and compliance functions
and reviews the effectiveness of controls and compliance with regulatory guidelines.
CORPORATE SOCIAL RESPONSIBILITY
Your Bank has a defined guiding principle for all its social initiatives:
‘Changing Lives by empowering individuals through Finance, Education and
Training’.
An essential element of the Bank’s Corporate Responsibility is its community
initiatives which aim at empowering individuals at the bottom of the pyramid through
developmental initiatives such as education and livelihood support. In the field of
education its interventions are aimed at mainstreaming of school children and ensuring the
quality of education they receive. Your Bank has undertaken a multitude of initiatives for
retaining children in school and arrest the rate of dropouts. As part of this initiatives,
pre-primary schools are run in communities with the objective of preparing and enrolling
these children into mainstream education. Apart from providing basic nutritional and
health needs, regular parent and community meetings are an integral part of this program
which is currently running in Kolkata, Hyderabad and Delhi.
Your Bank in partnership with NGOs and the government has adopted state-run schools by
providing educational support to the children and to train staff to ensure better levels
of learning and lower rate of drop-out in state-run schools in Pune and Mumbai. Also needy
and deserving children are identified based on set criteria and provided with educational
support to cover the cost of their education in state-run schools. In a unique initiative
supported by the Bank, 30 children from government schools have been integrated to DPS
School in Ahmedabad. Your Bank launched its Educational Crisis Scholarship Support (ECSS)
in 2011 to reach out to students, studying in private / government-aided schools, who due
to personal / family constraints, are unable to continue bearing the cost of education and
are at risk of dropping out of school.
Your Bank also undertakes programs that cover around 500 children through
‘afterschool class’ and out-of school children through ‘bridge class’
in Pune, Delhi and Kolkata, a rehabilitation program in Kashmir, Kolkata and Mumbai, where
development, training and placement assistance is provided to differently abled
individuals, so that they can lead a life of dignity, and financial literacy programs for
children which are run in 458 schools in rural areas of Maharashtra, Tamil Nadu and Orissa
to inculcate values of money and concept of savings.
Your Bank has also created a financial literacy module which is run by its employee
volunteers. ‘Power of Banking’ is a two-hour-long interactive module designed
for school children studying in Vth to VIIIth standards and covers simple concepts about
money such as budgeting, saving and banking. Power of banking has also been redesigned to
introduce financial concepts and values associated with money to street children.
Your Bank’s livelihood initiatives are aimed at training and capacity development
of youth and women in the age group of 18-30 years from economically weaker sections of
society and to empower them to gain access to opportunities for sustainable livelihoods
and growth. Your Bank’s livelihood support programs are aimed at empowering
competency-based, skill-oriented technical and vocational training. Such training programs
have been carried out in Andhra Pradesh, Maharashtra and Gujarat. In Kolkata, your Bank
has supported the setting up of a physiotherapy training unit where visually challenged
candidates undergo a diploma in physiotherapy. In a pilot project undertaken in the same
city, interest-free loans were given to school drop-outs who underwent training as
laboratory technicians and were successfully placed in hospitals through industry
interface. In addition to projects implemented through NGO partners, your Bank also drives
direct community initiatives through its employees.
Changing Lives through Employee Engagement
Employees are an integral part of all volunteering programs. With an organization of
over sixty thousand people, your Bank believes that it is in a unique position to leverage
the knowledge base, skills and resources of its employees to ‘Change Lives’.
While employees are part of all the community-based interventions, the Bank also provides
opportunities for employees to contribute through special programs that are centrally
driven.
Payroll Giving: Under this program, employees are provided with an easy and convenient
system to donate small amounts on monthly basis and accumulate it to reach a corpus that
allows them individually to donate to a charity of their choice. Your Bank matches their
contribution, thereby endorsing the charity they choose to support. Currently, we have
employees who have cumulatively supported over 50,000 individuals.
Make A Difference Day: Your Bank celebrates ‘Make A Difference Day’ annually
as a community volunteering day where employees identify NGOs in their region and interact
with beneficiaries. Employees conduct activities, competitions and workshops for the
underprivileged community. ‘Make A Difference Day’ is celebrated as an
opportunity for the employees to leave their laptops, conferences calls and emails and
direct their passion, determination and skills for the benefit of communities.
HDFC Bank Fellowship: Your Bank supports the ‘Teach for India’ movement which
is a nationwide campaign aiming to bridge the educational gap in India by placing young
professionals in low-income schools to teach full-time for two years, advocating
educational equity. Each year, two employees are selected for the fellowship and are given
a two-year sabbatical, during which they continue to receive their basic salary.
Blood Donation: Employees of your Bank have been actively organizing blood camps at all
India level since 2007. The journey started with a collection of 4,385 units of blood and
today has increased to 25,758 units. Identifying a need for preserving the blood
especially in rural areas, employees initiated a drive to identify and support the setup
of blood banks. This year too, your bank supported this initiative and set up four blood
banks.
Environmental Sustainability
Your Bank believes in taking responsibility for the effects of its operations on
society and on the environment. It regards climate change mitigation and environmental
improvements as essential elements of a sustainable business philosophy and this belief
embodies the Bank’s approach to reduction of carbon emissions.
It has conducted an inventory of energy-related emissions from its office buildings and
retail branches and is taking steps to manage Green House Gas (GHG) emissions. Your Bank
is also a signatory to the Carbon Disclosure Project (CDP).
An important aspect of your Bank’s GHG management strategy is behavioral
modifications and employees are constantly being made aware of the importance of
conservation. Through all these measures, the Bank has embarked on a mission to make
tangible and meaningful difference to people’s lives. It will continue to walk the
path and not rest till this goal is achieved.
FINANCIAL INCLUSION
Over the last few years, your Bank has been working on a number of initiatives to
promote Financial Inclusion across identified sections of rural and urban, under-banked
and un-banked consumers. These initiatives target segments of the population that have
limited or no access to the formal banking system for their basic banking and credit
requirements, by building a robust and sustainable model that provides relevant services
and viable and timely credit that ultimately results in economically uplifting its
customers and substituting the borrowings at usurious rates.
The Bank’s initiatives in the rural or deeper geography dovetails in to the
bank’s financial inclusion plans and also compliments the bank’s Corporate
Social Responsibility initiative where the endeavor has been to provide banking services
which are viable both for the customer and the bank. The Banks financial inclusion
initiatives have been integrated across its various businesses, across product groups. By
March 31, 2012 your Bank has brought over 5 million households who were hitherto excluded
from basic banking services under the fold of this program.
Rural Initiative
The Bank offers products and services such as savings, current, fixed & recurring
deposits, loans, ATM facilities, investment products such as mutual funds and insurance,
electronic funds transfers, drafts and remittances etc in its branches located in rural
and under banked locations. The Bank also leverages some of these branches as hubs for
other inclusion initiatives such as direct linkages to self-help groups and to promote
Joint liability Group Loans, POS terminals and information technology enabled kiosks, as
well as other ICT initiatives such as mobile banking in these locations. The Bank covers
over 6,000 villages in the country through various distribution set ups, these include
branches and business correspondents. Around half of the above villages are those having a
population of less than 2,000 that have typically been financially excluded from the
formal banking sector.
A number of retail credit products such as two-wheeler loans, car loans, mortgages etc.
that are consumption products in urban centers happen to be means of income generation for
rural consumers. Apart from loans directly linked to agriculture such as pre and post
harvest credit, there are many other credit products that the Bank uses to aid financial
betterment in rural locations. Your Bank has extended provision of its retail loans to
large segments of the rural population where the end use of the products acquired (by
availing Bank’s loans) is used for income generating activities. For example, loans
for tractors, commercial vehicles, two wheelers etc. supplement the farmer’s income
by improving productivity and reducing expenses.
No Frills Savings Accounts
A savings account is the primary requirement for the provision of other banking
services, the account promotes the habit of savings, provides security, and inculcates
confidence among the target segment in the banking sector.
This product was launched by the Bank with a specific objective to provide customers a
platform that enables them to inculcate the habit of savings. By not insisting on a
requirement of a minimum balance, the entry barrier into the banking system has been
removed, thereby giving the hitherto unbanked person to start experiencing benefits of
banking.
These accounts are offered only to customers who do not have any other bank account
(are un-banked) or who are either beneficiaries of a government welfare scheme or have
annual incomes less than a defined threshold (constitute the bottom of the economic
pyramid). Apart from the basic no frills savings account your Bank also offers these
segments other accounts such as no frills salary accounts and limited KYC accounts.
Given the specific segment that is being targeted, being a customer who does not have
any other Bank account, this product truly addresses the cause of Financial Inclusion.
Additionally the Bank also periodically tracks the behavior in these accounts to ensure
that the accounts opened maintain a balance and are active.
The total number of No Frills Savings Accounts opened as on March 2012 was at 7.60 lac
accounts as against 5.53 lac accounts as on March 2011.
Sustainable Livelihood Financing
Over the last one year, your Bank has accelerated its direct linkage program to
self-help groups, where the Bank itself works at the grass root level with women in
villages, conducts financial literacy programs, forms groups and then funds these groups
for income generation activities. This enables the delivery of viable credit to the rural
poor in a sustainable manner & at the same time also inculcates the saving and banking
habits. Till date the Bank has lent to over 73,000 Self Help Groups and over 1,10,000
Joint Liability groups covering approximately 11.7 Lac households. Your Bank also
disburses loans to its rural customers under the mutual guarantee micro loan product which
is now termed as Joint liability group product. This product works on the principle of
group guarantees and provides clean (not backed by any collateral) loans to the borrowers
based on a guarantee by other borrowers.
Agriculture and Allied Activities
A large portion of India’s un-banked population relies on agriculture as the main
source of livelihood. We believe provision of credit to farmers through various methods
that your Bank has employed replaces the traditional money lending channel, while at the
same time providing income generating activities. The Bank provides various loans to
farmers through its suite of specifically designed products such as the Kisan Gold Card,
tractor and cattle loans etc. In addition, the Bank offers post-harvest cash credit,
warehouse receipt financing and bill discounting facilities to mandi (markets for grain
and other agricultural produce) participants and farmers. These facilities enable the
mandi participants to make timely payments to farmers. The Bank carries out this business
through over 400 branches that are located in close proximity to mandis.
The Bank targets specific sectors to capture supply chain of certain crops from the
production stage to the sales stage. On the basis of these cashflows, your Bank is able to
finance specific needs of the farmers. This is further supported by using Business
Correspondents closer to their respective locations and helping them to create a savings
and banking habit. This model has currently been implemented with dairy and sugarcane
farmers.
The initiative currently underway includes the appointment of dairy societies and
sugarcane co-operatives as business correspondents, through whom the Bank opens accounts
of individual farmers attached to these societies. The societies route all payments to the
farmers through this account.
Gold Loans
The Gold loan product is an offering which allows customers a reliable source of credit
at the time of need. In the absence of this, either, credit would not have been available
to these customers or would have been available at higher rates in form of unsecured
loans. Gold loans provide a source of monetizing the household gold and at the same time
provides an alternate source of funds. It provides financial independence to small
traders, small entrepreneurs and house wives. It also substitutes borrowing at usurious
rates, particularly by small borrowers and weaker sections.
Small and Micro Enterprises
The Bank offers complete banking solutions to micro, small and medium scale enterprises
across industry segments including manufacturers, retailers, wholesalers / traders and
services. The entire suite of financial products including cash credit, overdrafts, term
loans, bills discounting, export packing credit, letter of credit, bank guarantees, cash
management services and other structured products are made available to these customers.
One of the means to financial inclusion is by supporting small and micro enterprises which
in turn provide employment opportunities to the financially excluded. Though indirect, we
believe this model may in many instances be more effective than providing subsidies that
are often unsustainable, or never reach the intended beneficiary.
Promoting Financial Awareness
In addition to providing various products and services to the financially excluded, the
Bank believes that imparting education and training to these target segments is equally
essential to ensure transparency and create awareness. To this effect the Bank has put in
place various training programs, these are conducted by Bank staff in local languages and
cover not only the customers but also various intermediaries such as the Bank’s
business correspondents. Through these programs the Bank provides credit counseling and
information on parameters like savings habit, better utilization of savings, features of
savings products, credit utilization, asset creation, insurance, income generation program
etc. During the financial year ended March 31, 2012, over 5,400 financial awareness
programs covering over 1,40,000 households were conducted. The bank also facilitates need
based capacity building and market place for the customers with the objective of
sustaining their livelihood in holistic manner.
HUMAN RESOURCES
The total number of employees of your Bank was 66,076 as of March 31, 2012. The Bank
continued to focus on training its employees both – on the job as well as through
training programs conducted by internal and external faculty. The Bank has consistently
believed that broader employee ownership of its equity shares has a positive impact on its
performance and employee motivation.
Your Bank lists ‘people’ as one of its stated core values. The Bank believes
in empowering its employees and constantly takes various measures to achieve this
objective.
STATUTORY DISCLOSURES
The information required under Section 217(2A) of the Companies Act, 1956 and the rules
made thereunder as amended, are given in an annexure and forms part of this report. In
terms of section 219(1)(iv) of the Act, the Report and Accounts are being sent to the
shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a
copy of the said annexure may write to the Company Secretary at the Registered Office of
the Bank. The Bank had 66076 employees as on March 31, 2012. 120 employees employed
throughout the year were in receipt of remuneration of more than Rs. 60 lac per annum and
12 employees employed for part of the year were in receipt of remuneration of more than
Rs. 5 lac per month.
The provisions of Section 217(1)(e) of the Act relating to conservation of energy and
technology absorption do not apply to your Bank. The Bank has, however, used information
technology extensively in its operations.
The report on the Corporate Governance is annexed herewith and forms part of this
report.
The Ministry of Corporate Affairs has issued "Corporate Governance Voluntary
Guidelines" in December 2009. While these guidelines are recommendatory in nature,
the Bank has adopted most of these guidelines as detailed in the Corporate Governance
Report. The Bank will examine the possibilities of adopting the remaining guidelines in an
appropriate manner.
RESPONSIBILITY STATEMENT
The Board of Directors hereby state that
i) In the preparation of the annual accounts, the applicable accounting standards have
been followed along with proper explanation relating to material departures;
ii) We have selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view
of the state of affairs of the Bank as on March 31, 2012 and of the profit of the Bank for
the year ended on that date;
iii) We have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act, 1956 for
safeguarding the assets of the Bank and for preventing and detecting the fraud and other
irregularities;
iv) We have prepared the annual accounts on a going concern basis.
DIRECTORS
Dr. Pandit Palande and Mr.Partho Datta will retire by rotation at the ensuing Annual
General Meeting and are eligible for re-appointment.
Mr. Keki Mistry, who had ceased to be a director from the closing hours of business on
March 26, 2011 on completing the permitted tenure of eight years under the Banking
Regulation Act, 1949, was re-appointed as an additional director by the Board during the
year in accordance with the relevant applicable guidelines of the Reserve Bank of India
and holds office up to the conclusion of the ensuing Annual General Meeting. The Bank has
received a notice pursuant to Section 257 of the Companies Act, 1956 from a shareholder
proposing the candidature of Mr. Keki Mistry as Director of the Bank at the ensuing Annual
General Meeting.
The brief resume/details relating to Directors who are to be reappointed are furnished
in the report on Corporate Governance.
AUDITORS
The Auditors, M/s. BSR & Co., Chartered Accountants will retire at the conclusion
of the forthcoming Annual General Meeting and are eligible for re-appointment. Members are
requested to consider their re-appointment on an annual remuneration (statutory audit
fees) of Rs. 1,05,60,000 (Previous year:
Rs. 96,00,000) plus service tax as applicable, which is approved by the Audit and
Compliance Committee of the Board.
ACKNOWLEDGEMENT
Your Directors would like to place on record their gratitude for all the guidance and
co-operation received from the Reserve Bank of India and other government and regulatory
agencies. Your Directors would also like to take this opportunity to express their
appreciation for the hard work and dedicated efforts put in by the Bank’s employees
and look forward to their continued contribution in building a World Class Indian Bank.
|
On behalf of the Board of Directors |
|
Mr. C. M. Vasudev |
| Mumbai, April 18, 2012 |
Chairman |
Annexure to Directors’ Report for the year ended March 31, 2012 EMPLOYEES’
STOCK OPTIONS
Details of the stock options granted, vested, exercised, forfeited and lapsed during
the year under review are as under :
| Scheme(s) |
Options Granted |
Options Vested |
Options Exercised & Shares Allotted* |
Options Forfeited |
Options Lapsed |
Total Options in Force as on March 31, 2012 |
| A – 2000 |
- |
- |
14,500 |
- |
35,000 |
- |
| B – 2003 |
- |
- |
1,634,200 |
2,500 |
99,000 |
1,950,300 |
| C – 2005 |
- |
- |
3,276,000 |
1,500 |
16,500 |
3,421,500 |
| D – 2007 |
- |
- |
13,476,250 |
- |
47,750 |
26,489,250 |
| E – 2010 |
35,603,250 |
24,063,100 |
1,250,500 |
875,000 |
- |
66,270,250 |
| eCBOP Key ESOP |
- |
- |
44,000 |
- |
- |
33,595 |
| eCBOP – General ESOP |
- |
- |
864,400 |
- |
18,025 |
1,707,845 |
| Total |
35,603,250 |
24,063,100 |
20,559,850 |
879,000 |
216,275 |
99,872,740 |
All numbers as above represent shares of face value of Rs. 2 each post sub-division of
1 equity share of face value of Rs. 10 each into 5 equity shares of face value of Rs. 2
each which was approved by the shareholders at the last Annual General Meeting held on 6th
July, 2011.
| Other details are as under : |
|
| Money realized by exercise of options |
The Bank received Rs. 4.11 crore towards share capital and Rs. 526.15 crore towards
share premium on account of 2,05,59,850 stock options exercised and allotted during the
year. |
| Pricing Formula for options granted under Plan E-2010 |
Closing market price on the stock exchange where there is highest trading volume on
the immediately preceding working day of the date of grant. Options were granted at a
price of Rs. 2,541.15 (post sub-division Rs. 508.23) on 6th July, 2011 and at a price of
Rs. 468.40 on 18th January, 2012. |
| Details of options granted to : |
Name |
Options Granted |
| i. Directors & Senior managerial personnel |
Aditya Puri |
900000 |
|
Paresh Sukthankar |
450000 |
|
Harish Engineer |
450000 |
|
Anil Jaggia |
184000 |
|
Abhay Aima |
184000 |
|
Ashish Parthasarthy |
184000 |
|
Bhavesh Zaveri |
184000 |
|
Jimmy Tata |
184000 |
|
Kaizad Bharucha |
184000 |
|
Navin Puri |
184000 |
|
Pralay Mondal |
184000 |
|
Rajender Sehgal |
184000 |
|
Rahul Bhagat |
184000 |
|
Sashi Jagdishan |
184000 |
| ii. Other employee who receives a grant in any one year of option amounting to 5% or
more of option granted during that year |
None |
| iii. Identified employees who were granted option, during any one year, equal to or
exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the
company at the time of the grant |
None |
| Diluted Earnings Per Share (EPS) pursuant to the issue of shares on exercise of option
calculated in accordance with Accounting Standard (AS) – 20 (Earnings Per Share) |
The Diluted EPS of the Bank calculated after considering the effect of potential
equity shares arising on account of exercise of options is Rs. 21.9 |
| Where the company has calculated the employee compensation cost using the intrinsic
value of the stock options, the difference between the employee compensation cost so
computed and the employee compensation cost that shall have been recognized if it had used
the fair value of the options, shall be disclosed. The impact of this difference on
profits and on EPS of the company shall also be disclosed |
Had the Bank followed fair value method for accounting the stock option compensation
expense would have been higher by Rs. 377.8 crore. Consequently profit after tax would
have been lower by Rs. 377.8 crore and the basic EPS of the Bank would have been Rs. 20.5
per share (lower by Rs. 1.6 per share) and the diluted EPS would have been Rs. 20.3 per
share (lower by Rs. 1.6 per share) |
| Weighted-average exercise prices and weighted average fair values of options shall be
disclosed separately for options whose exercise price either equals or exceeds or is less
than the market price of the stock options |
The weighted average price of the stock options exercised is Rs. 257.9 and the
weighted average fair value is Rs. 91.5. |
| A description of the method and significant assumptions used during the year to
estimate the fair value of options, at the time of the grant including the following
weighted average information: |
The Securities Exchange Board of India (SEBI) has prescribed two methods to account
for stock grants; (i) the intrinsic value method; (ii) the fair value method. The Bank
adopts the intrinsic value method to account for the stock options it grants to the
employees. The Bank also calculates the fair value of options at the time of grant, using
internally developed and tested model with the following assumptions. |
| i. Risk-free interest rate, |
8.04% to 8.22% |
| ii. Expected life, |
1-6 years |
| iii. Expected volatility, |
29.35% |
| iv. Expected dividends, and |
0.65% to 0.70% |
| v. The price of the underlying share in market at the time of option grant |
The per share market price was Rs. 2,541.15 (post sub-division Rs. 508.2) and Rs.
468.4 at the time of grant of options under ESOS XVII and ESOS XVIII respectively. |
|