Hdfc Bank Ltd 6-K, filed Aug 21, 2024
Hdfc Bank Ltd (HDB)
About this 6-K
Hdfc Bank Ltd filed this 6-K on August 21, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2024
Commission File Number 001-15216
HDFC BANK LIMITED
(Translation of registrant’s name into English)
HDFC Bank House, Senapati Bapat Marg,
Lower Parel, Mumbai. 400 013, India
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (1): Yes ☐ No ☒
Note: Regulation S-T Rule 101(b) (1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b) (7): Yes ☐ No ☒
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HDFC BANK LIMITED | ||||||
| (Registrant) | ||||||
| Date: August 21, 2024 | By | /s/ Srinivasan Vaidyanathan | ||||
| Name: Srinivasan Vaidyanathan | ||||||
| Title: Chief Financial Officer | ||||||
EXHIBIT INDEX
The following documents (bearing the exhibit number listed below) are furnished herewith and are made a part of this Report pursuant to the General Instructions for Form 6-K.
Description
Financial Statements of HDFC Bank Limited prepared in accordance with U.S. GAAP as of and for the six months periods ended September 30, 2022 and 2023.
Exhibit I
| Page | ||||
| Condensed Consolidated Financial Statements of HDFC Bank Limited and Subsidiaries: |
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| Condensed consolidated balance sheets as of March 31, 2023 and September 30, 2023 |
F-2 | |||
| F-3 | ||||
| F-4 | ||||
| F-5 | ||||
| F-7 | ||||
| F-8 | ||||
F-1
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||||||
| March 31, 2023 | September 30, 2023 (Unaudited) |
September 30, 2023 (Unaudited) |
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| (In millions, except number of shares) | ||||||||||||
| ASSETS: |
||||||||||||
| Cash and due from banks, and restricted cash |
Rs. | 1,387,395.2 | Rs. | 1,806,309.0 | US$ | 21,741.8 | ||||||
| Investments held for trading, at fair value |
135,831.1 | 278,000.8 | 3,346.2 | |||||||||
| Investments available for sale debt securities, at fair value [includes restricted investments of Rs. 2,070,953.6 and Rs. 3,274,041.4 (US$ 39,408.3), as of March 31, 2023 and September 30, 2023, respectively] |
4,878,844.0 | 8,329,193.9 | 100,255.1 | |||||||||
| Securities purchased under agreements to resell |
455,275.4 | 34,386.1 | 413.9 | |||||||||
| Loans [net of allowance of Rs. 365,164.5 and Rs. 443,825.1 (US$ 5,342.1), as of March 31, 2023 and September 30, 2023, respectively] |
17,052,927.9 | 24,841,873.2 | 299,011.5 | |||||||||
| Accrued interest receivable |
186,091.2 | 240,815.2 | 2,898.6 | |||||||||
| Property and equipment, net |
87,569.7 | 132,989.8 | 1,600.7 | |||||||||
| Intangible assets, net |
— | 1,409,286.6 | 16,963.0 | |||||||||
| Goodwill |
74,937.9 | 1,647,660.3 | 19,832.2 | |||||||||
| Other assets |
1,496,751.6 | 2,465,449.6 | 29,675.6 | |||||||||
| Separate account assets |
— | 880,461.3 | 10,597.8 | |||||||||
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| Total assets |
Rs. | 25,755,624.0 | Rs. | 42,066,425.8 | US$ | 506,336.4 | ||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY: |
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| Liabilities: |
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| Interest-bearing deposits |
Rs. | 16,097,459.3 | Rs. | 19,240,960.3 | US$ | 231,595.6 | ||||||
| Non-interest-bearing deposits |
2,729,176.3 | 2,472,416.4 | 29,759.5 | |||||||||
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| Total deposits |
18,826,635.6 | 21,713,376.7 | 261,355.1 | |||||||||
| Securities sold under repurchase agreements |
— | 675,162.0 | 8,126.6 | |||||||||
| Short-term borrowings |
1,089,897.5 | 1,705,825.1 | 20,532.3 | |||||||||
| Accrued interest payable |
112,463.2 | 273,930.5 | 3,297.2 | |||||||||
| Long-term debt |
2,054,436.4 | 6,210,912.3 | 74,758.2 | |||||||||
| Accrued expenses and other liabilities |
754,353.4 | 1,474,835.8 | 17,752.1 | |||||||||
| Separate account liabilities |
— | 880,461.3 | 10,597.8 | |||||||||
| Liabilities on policies in force |
— | 1,555,352.5 | 18,721.1 | |||||||||
| Undistributed policy holders earnings account |
— | 138,629.4 | 1,668.6 | |||||||||
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| Total liabilities |
Rs. | 22,837,786.1 | Rs. | 34,628,485.6 | US$ | 416,809.0 | ||||||
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| Commitments and contingencies (see note 20) |
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| Shareholders’ equity: |
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| Equity shares: par value Rs. 1.0 each; authorized 6,500,000,000 shares and 11,906,100,000 shares; issued and outstanding 5,579,742,786 shares and 7,581,816,038 shares, as of March 31, 2023 and September 30, 2023, respectively |
Rs. | 5,579.7 | Rs. 7,581.8 | US$ | 91.3 | |||||||
| Additional paid-in capital |
883,371.9 | 4,315,582.7 | 51,944.9 | |||||||||
| Retained earnings |
1,447,784.1 | 1,529,930.5 | 18,415.1 | |||||||||
| Statutory reserve |
643,738.7 | 726,483.2 | 8,744.4 | |||||||||
| Accumulated other comprehensive income/ (loss) |
(68,273.7 | ) | (57,113.9 | ) | (687.5 | ) | ||||||
| Treasury stock, at cost |
— | (16,868.0 | ) | (203.0 | ) | |||||||
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| Total HDFC Bank Limited shareholders’ equity |
2,912,200.7 | 6,505,596.3 | 78,305.2 | |||||||||
| Noncontrolling interest in subsidiaries |
5,637.2 | 932,343.9 | 11,222.2 | |||||||||
| Total shareholders’ equity |
2,917,837.9 | 7,437,940.2 | 89,527.4 | |||||||||
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| Total liabilities and shareholders’ equity |
Rs. | 25,755,624.0 | Rs. | 42,066,425.8 | US$ | 506,336.4 | ||||||
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See accompanying notes to condensed consolidated financial statements
F-2
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions, except share and per share amounts) | ||||||||||||
| Interest and dividend revenue: |
||||||||||||
| Loans |
Rs. | 618,225.9 | Rs. | 975,932.0 | US$ | 11,746.9 | ||||||
| Trading securities |
1,623.9 | 3,164.7 | 38.1 | |||||||||
| Available for sale debt securities |
143,220.7 | 226,607.5 | 2,727.6 | |||||||||
| Other |
11,014.3 | 32,604.4 | 392.4 | |||||||||
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| Total interest and dividend revenue |
774,084.8 | 1,238,308.6 | 14,905.0 | |||||||||
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| Interest expense: |
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| Deposits |
281,832.9 | 454,995.2 | 5,476.6 | |||||||||
| Short-term borrowings |
19,517.8 | 46,153.2 | 555.5 | |||||||||
| Long-term debt |
43,840.7 | 165,712.1 | 1,994.6 | |||||||||
| Other |
291.3 | 610.4 | 7.3 | |||||||||
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| Total interest expense |
345,482.7 | 667,470.9 | 8,034.0 | |||||||||
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| Net interest revenue |
428,602.1 | 570,837.7 | 6,871.0 | |||||||||
| Provision for credit losses |
46,109.0 | 76,443.8 | 920.1 | |||||||||
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| Net interest revenue after provision for credit losses |
382,493.1 | 494,393.9 | 5,950.9 | |||||||||
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| Non-interest revenue, net: |
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| Fees and commissions |
112,186.5 | 131,893.7 | 1,587.6 | |||||||||
| Trading securities gain/(loss), net |
(59.4 | ) | 12,398.5 | 149.2 | ||||||||
| Realized gain/(loss) on sales of available for sale debt securities, net |
(833.3 | ) | 1,243.1 | 15.0 | ||||||||
| Allowance on available for sale debt securities |
— | 57.2 | 0.7 | |||||||||
| Foreign exchange transactions |
7,984.2 | (4,237.8 | ) | (51.0 | ) | |||||||
| Derivatives gain/(loss), net |
10,802.3 | 3,855.9 | 46.4 | |||||||||
| Premium and other operating income from the insurance business |
— | 117,048.2 | 1,408.9 | |||||||||
| Other, net |
1,416.8 | 7,494.7 | 90.2 | |||||||||
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| Total non-interest revenue, net |
131,497.1 | 269,753.5 | 3,247.0 | |||||||||
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| Total revenue, net |
513,990.2 | 764,147.4 | 9,197.9 | |||||||||
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| Non-interest expense: |
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| Salaries and staff benefits |
93,007.2 | 128,382.6 | 1,545.3 | |||||||||
| Premises and equipment |
21,995.0 | 29,664.7 | 357.1 | |||||||||
| Depreciation and amortization |
11,061.9 | 15,235.9 | 183.4 | |||||||||
| Administrative and other |
88,220.2 | 131,768.5 | 1,586.0 | |||||||||
| Amortization of intangible assets |
— | 8,031.6 | 96.7 | |||||||||
| Claims and benefits paid pertaining to insurance business |
— | 121,579.6 | 1,463.4 | |||||||||
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| Total non-interest expense |
214,284.3 | 434,662.9 | 5,231.9 | |||||||||
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| (Surplus) / Deficit in P&L transferred to undistributed policyholders earnings account |
— | (19,438.6 | ) | (234.0 | ) | |||||||
| Income before income tax expense |
299,705.9 | 310,045.9 | 3,732.0 | |||||||||
| Income tax expense |
76,503.7 | 59,045.0 | 710.7 | |||||||||
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| Net income before noncontrolling interest |
Rs. | 223,202.2 | Rs. | 251,000.9 | US$ | 3,021.3 | ||||||
| Less: Net income attributable to shareholders of noncontrolling interest |
398.1 | (205.0 | ) | (2.5 | ) | |||||||
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| Net income attributable to HDFC Bank Limited |
Rs. | 222,804.1 | Rs. | 251,205.9 | US$ | 3,023.8 | ||||||
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| Per share information: (see note 21) |
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| Earnings per equity share—basic |
Rs. | 40.11 | Rs. | 38.22 | US$ | 0.46 | ||||||
| Earnings per equity share—diluted |
Rs. | 39.98 | Rs. | 38.05 | US$ | 0.45 | ||||||
| Per ADS information (where 1 ADS represents 3 shares): (see note 21) |
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| Earnings per ADS—basic |
Rs. | 120.33 | Rs. | 114.66 | US$ | 1.38 | ||||||
| Earnings per ADS—diluted |
Rs. | 119.94 | Rs. | 114.15 | US$ | 1.37 | ||||||
See accompanying notes to condensed consolidated financial statements
F-3
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Net income before noncontrolling interest |
Rs. 223,202.2 | Rs. 251,000.9 | US$ | 3,021.3 | ||||||||
| Other comprehensive income, net of tax: |
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| Long- duration insurance contract discount rate change |
— | 11,726.2 | 141.1 | |||||||||
| Foreign currency translation adjustment: |
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| Net unrealized gain (loss) arising during the period [net of tax Rs. (988.2) and Rs. (177.0), as of September 30, 2022 and September 30, 2023, respectively] |
2,937.8 | 561.2 | 6.8 | |||||||||
| Available for sale debt securities: |
||||||||||||
| Net unrealized gain/ (loss) arising during the period [net of tax Rs. 22,421.7 and Rs. 186.0, as of September 30, 2022 and September 30, 2023, respectively] |
(66,659.1 | ) | (557.0 | ) | (6.7 | ) | ||||||
| Reclassification adjustment for net (gain) loss included in net income [net of tax Rs. 209.5 and Rs. (372.4), as of September 30, 2022 and September 30, 2023, respectively] |
(623.0 | ) | 1,128.3 | 13.6 | ||||||||
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| Other comprehensive income, net of tax |
(64,344.3 | ) | 12,858.7 | 154.8 | ||||||||
| (Surplus)/ Deficit in OCI transferred to undistributed policyholders earnings account |
— | (1,922.5 | ) | (23.1 | ) | |||||||
| Total comprehensive income |
158,857.9 | 261,937.1 | 3,153.0 | |||||||||
| Less: Comprehensive income attributable to shareholders of noncontrolling interest |
398.1 | (428.6 | ) | (5.2 | ) | |||||||
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| Comprehensive income attributable to HDFC Bank Limited |
Rs. 158,459.8 | Rs. 262,365.7 | US$ | 3,158.2 | ||||||||
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See accompanying notes to condensed consolidated financial statements
F-4
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income before noncontrolling interest |
Rs. 223,202.2 | Rs. 251,000.9 | US$ | 3,021.3 | ||||||||
| Adjustment to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Provision for credit losses |
46,109.0 | 76,443.8 | 920.1 | |||||||||
| Depreciation and amortization |
11,061.9 | 15,235.9 | 183.4 | |||||||||
| Amortization of deferred customer acquisition costs and fees |
4,804.8 | 10,924.4 | 131.5 | |||||||||
| Amortization of premium/(discount) on investments |
3,653.6 | 8,712.6 | 104.9 | |||||||||
| Amortization of intangible assets |
— | 8,031.6 | 96.7 | |||||||||
| Allowance on available for sale debt securities |
— | (57.2 | ) | (0.7 | ) | |||||||
| Deferred tax expense/ (benefit) |
(747.8 | ) | (17,599.4 | ) | (211.8 | ) | ||||||
| Other gains, net |
(360.6 | ) | (4,663.0 | ) | (56.1 | ) | ||||||
| Share-based compensation expense |
5,730.0 | 9,842.8 | 118.5 | |||||||||
| Net realized (gain)/ loss on sale of available for sale debt securities |
833.3 | (1,243.1 | ) | (15.0 | ) | |||||||
| (Gain)/ loss on disposal of property and equipment, net |
54.1 | (359.1 | ) | (4.3 | ) | |||||||
| Unrealized exchange (gain)/ loss |
(5,684.3 | ) | 1,724.1 | 20.8 | ||||||||
| Net change in: |
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| Investments held for trading |
(11,415.8 | ) | 126,971.8 | 1,528.3 | ||||||||
| Accrued interest receivable |
(24,969.1 | ) | (15,321.3 | ) | (184.4 | ) | ||||||
| Other assets |
(192,829.4 | ) | (10,841.0 | ) | (130.5 | ) | ||||||
| Accrued interest payable |
6,863.4 | 48,283.9 | 581.2 | |||||||||
| Accrued expense and other liabilities |
128,261.4 | (5,814.0 | ) | (70.3 | ) | |||||||
| Policyholder’s Fund |
— | 90,058.5 | 1,084.0 | |||||||||
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| Net cash provided by operating activities |
194,566.7 | 591,332.2 | 7,117.6 | |||||||||
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| Cash flows from investing activities: |
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| Term placements, net |
(138,590.3 | ) | (101,416.5 | ) | (1,220.7 | ) | ||||||
| Activity in available for sale debt securities: |
||||||||||||
| Purchases |
(882,880.6 | ) | (2,974,774.9 | ) | (35,806.1 | ) | ||||||
| Proceeds from sales |
8,424.3 | 1,432,506.5 | 17,242.5 | |||||||||
| Maturities, prepayments and calls |
230,259.8 | 620,373.4 | 7,467.2 | |||||||||
| Net change in repurchase agreements and reverse repurchase agreements |
530,596.9 | 1,138,162.9 | 13,699.6 | |||||||||
| Loans purchased |
(343,540.2 | ) | (116,976.0 | ) | (1,408.0 | ) | ||||||
| Repayments on loans purchased |
244,437.3 | 52,750.2 | 634.9 | |||||||||
| Increase in loans originated, net of principal collections |
(1,337,984.3 | ) | (1,549,371.2 | ) | (18,649.1 | ) | ||||||
| Additions to property and equipment |
(17,210.4 | ) | (24,879.4 | ) | (299.5 | ) | ||||||
| Proceeds from sale or disposal of property and equipment |
149.0 | 483.9 | 5.8 | |||||||||
| Net cash received on acquisition of HDFC Limited |
— | 54,793.7 | 659.5 | |||||||||
| Activity in equity securities, net |
(142.1 | ) | 58,529.7 | 704.5 | ||||||||
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| Net cash used in investing activities |
(1,706,480.6 | ) | (1,409,817.7 | ) | (16,969.4 | ) | ||||||
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See accompanying notes to condensed consolidated financial statements
F-5
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(Unaudited)
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Cash flows from financing activities: |
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| Net increase in deposits |
1,115,711.3 | 1,316,230.9 | 15,842.9 | |||||||||
| Net increase/(decrease) in short-term borrowings |
398,812.2 | 37,646.1 | 453.1 | |||||||||
| Proceeds from issue of shares by a subsidiary to noncontrolling interests |
199.1 | 1,196.7 | 14.4 | |||||||||
| Proceeds from issuance of long-term debt |
246,169.7 | 569,672.8 | 6,856.9 | |||||||||
| Repayment of long-term debt |
(300,127.1 | ) | (670,966.0 | ) | (8,076.1 | ) | ||||||
| Proceeds from issuance of equity shares for options and warrants exercised |
22,777.2 | 67,274.5 | 809.8 | |||||||||
| Payment of dividends |
(86,217.5 | ) | (86,315.0 | ) | (1,038.9 | ) | ||||||
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| Net cash provided by financing activities |
1,397,324.9 | 1,234,740.0 | 14,862.1 | |||||||||
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| Effect of exchange rate changes on cash and due from banks, and restricted cash |
5,803.3 | 2,659.3 | 32.0 | |||||||||
| Net change in cash and due from banks, and restricted cash |
(108,785.7 | ) | 418,913.8 | 5,042.3 | ||||||||
| Cash and due from banks, and restricted cash, beginning of year |
1,122,031.1 | 1,387,395.2 | 16,699.5 | |||||||||
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| Cash and due from banks, and restricted cash, end of year |
Rs. | 1,013,245.4 | Rs. | 1,806,309.0 | US$ | 21,741.8 | ||||||
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| Supplementary cash flow information: |
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| Interest paid |
Rs. | 338,515.2 | Rs. | 506,003.6 | US$ | 6,090.6 | ||||||
| Income taxes paid, net of refunds |
Rs. | 77,251.5 | Rs. | 78,216.8 | US$ | 941.5 | ||||||
| Non-cash investment activities |
||||||||||||
| i) Payable for purchase of property and equipment |
Rs. | 4,481.5 | Rs. | 6,216.8 | US$ | 74.8 | ||||||
| ii) Trade date sale receivable of available for sale debt securities |
Rs. | — | Rs. | 2,184.3 | US$ | 26.3 | ||||||
| iii) Operating lease right-of-use assets |
|
Refer to note 20—“Commitments and contingencies— Lease commitments” for more information and balances as of September 30, 2023. |
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See accompanying notes to condensed consolidated financial statements
F-6
HDFC BANK LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Number of Equity Shares |
Equity Share Capital |
Additional Paid in Capital |
Retained Earnings |
Statutory Reserve (*) |
Accumulated Other Comprehensive Income/(Loss) |
Total HDFC Bank Limited Shareholders’ Equity |
Noncontrolling Interest |
Total Shareholders’ Equity |
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| (in millions, except for number of equity shares) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
|
5,545,540,976 | Rs. | 5,545.5 | Rs. | 834,615.2 | Rs. | 1,153,191.1 | Rs. | 529,279.1 | Rs. | (17,792.5) | Rs. | 2,504,838.4 | Rs. | 4,615.0 | Rs. | 2,509,453.4 | ||||||||||||||||||||||
| Shares issued upon exercise of options |
|
24,418,050 | 24.5 | 22,752.7 | 22,777.2 | 22,777.2 | ||||||||||||||||||||||||||||||||||
| Share-based compensation |
|
5,730.0 | 5,730.0 | 5,730.0 | ||||||||||||||||||||||||||||||||||||
| Dividends |
|
(86,217.5 | ) | (86,217.5 | ) | (86,217.5 | ) | |||||||||||||||||||||||||||||||||
| Change in ownership interest in subsidiary |
|
147.3 | 147.3 | (147.3 | ) | — | ||||||||||||||||||||||||||||||||||
| Shares issued to noncontrolling interest |
|
— | 199.1 | 199.1 | ||||||||||||||||||||||||||||||||||||
| Transfer to statutory reserve |
|
(2,001.5 | ) | 2,001.5 | — | — | ||||||||||||||||||||||||||||||||||
| Net income |
|
222,804.1 | 222,804.1 | 398.1 | 223,202.2 | |||||||||||||||||||||||||||||||||||
| Net change in accumulated other comprehensive income |
|
(64,344.3 | ) | (64,344.3 | ) | (64,344.3 | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 |
|
5,569,959,026 | Rs. | 5,570.0 | Rs. | 863,245.2 | Rs. | 1,287,776.2 | Rs. | 531,280.6 | Rs. | (82,136.8) | Rs. | 2,605,735.2 | Rs. | 5,064.9 | Rs. | 2,610,800.1 | ||||||||||||||||||||||
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| Number of Equity Shares |
Equity Share Capital |
Additional Paid in Capital |
Retained Earnings |
Statutory Reserve (*) |
Accumulated Other Comprehensive Income/(Loss) |
Treasury stock at cost |
Total HDFC Bank Limited Shareholders’ Equity |
Noncontrolling Interest |
Total Shareholders’ Equity |
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| (In millions, except for number of equity shares) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
5,579,742,786 | Rs. | 5,579.7 | Rs. | 883,371.9 | Rs. | 1,447,784.1 | Rs. | 643,738.7 | Rs. | (68,273.7) | Rs. | Rs. | 2,912,200.7 | Rs. | 5,637.2 | Rs. | 2,917,837.9 | ||||||||||||||||||||||
| Shares issued upon exercise of options |
31,526,962 | 31.5 | 35,314.9 | 35,346.4 | — | 35,346.4 | ||||||||||||||||||||||||||||||||||
| Shares issued on account of Business Combination (net)(**) |
1,945,770,658 | 1,945.8 | 3,308,588.4 | 3,310,534.2 | 926,787.1 | 4,237,321.3 | ||||||||||||||||||||||||||||||||||
| Purchase consideration towards warrants & options eHDFC |
45,712.9 | 45,712.9 | 45,712.9 | |||||||||||||||||||||||||||||||||||||
| Shares issued upon exercise of equity warrant |
24,775,632 | 24.8 | 31,903.3 | 31,928.1 | — | 31,928.1 | ||||||||||||||||||||||||||||||||||
| Share-based compensation |
9,842.8 | 9,842.8 | 9,842.8 | |||||||||||||||||||||||||||||||||||||
| Dividends |
(86,315.0 | ) | (86,315.0 | ) | (86,315.0 | ) | ||||||||||||||||||||||||||||||||||
| Change in ownership interest in subsidiary |
848.5 | 848.5 | (848.5 | ) | — | |||||||||||||||||||||||||||||||||||
| Shares issued to noncontrolling interest |
— | 1,196.7 | 1,196.7 | |||||||||||||||||||||||||||||||||||||
| Treasury stock |
— | (16,868.0 | ) | (16,868.0 | ) | (16,868.0 | ) | |||||||||||||||||||||||||||||||||
| Transfer to statutory reserve |
(82,744.5 | ) | 82,744.5 | — | — | |||||||||||||||||||||||||||||||||||
| Net income |
251,205.9 | 251,205.9 | (205.0 | ) | 251,000.9 | |||||||||||||||||||||||||||||||||||
| Net change in accumulated other comprehensive income |
11,159.8 | 11,159.8 | (223.6 | ) | 10,936.2 | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 |
7,581,816,038 | Rs. | 7,581.8 | Rs. | 4,315,582.7 | Rs. | 1,529,930.5 | Rs. | 726,483.2 | Rs. | (57,113.9) | Rs. | (16,868.0) | Rs. | 6,505,596.3 | Rs. | 932,343.9 | Rs. | 7,437,940.2 | |||||||||||||||||||||
| Balance at September 30, 2023 |
7,581,816,038 | US$ | 91.3 | US$ | 51,944.9 | US$ | 18,415.1 | US$ | 8,744.4 | US$ | (687.5) | US$ | (203.0 | ) | US$ | 78,305.2 | US$ | 11,222.2 | US$ | 89,527.4 | ||||||||||||||||||||
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| (*) | Under local regulations, the Bank is required to transfer 25% of its profit after tax (per Indian GAAP) to a non-distributable statutory reserve and to meet certain other conditions in order to pay dividends without prior RBI approval. Of the total transfers to the statutory reserve, Rs. 80,557.3 million (US$ 969.6 million) pertains to acquisition of eHDFC. |
| (**) | Net of 1,164,625,834 shares (par value Rs. 1.0 each) cancelled upon business combination. |
See accompanying notes to condensed consolidated financial statements
F-7
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Bank overview
These condensed consolidated financial statements should be read in conjunction with the financial statements of the Bank included in its Form 20-F filed with the Securities and Exchange Commission on July 29, 2023.
HDFC Bank Limited (the “Bank”) was incorporated in August 1994 with its registered office in Mumbai, India. The Bank is a banking company governed by India’s Banking Regulation Act, 1949. The Bank’s shares are listed on the BSE Limited (formerly known as Bombay Stock Exchange Limited) and The National Stock Exchange of India Ltd. Its American Depositary Shares (“ADS”) are listed on the New York Stock Exchange.
Effective July 1, 2023 (“Effective Date”), the Bank’s largest shareholder, Housing Development Finance Corporation Limited (“eHDFC”), along with its subsidiaries merged with the Bank. As on June 30, 2023, along with its subsidiaries it owned 20.8% of the Bank’s equity. The Bank’s equity shares are now widely held by the public and by foreign and Indian institutional investors.
The Bank’s principal business activities are retail banking, wholesale banking, treasury services and insurance services. The Bank’s retail banking division provides a variety of deposit products, as well as loans, credit cards, debit cards, third-party mutual funds and insurance, depositary services, trade finance, foreign exchange and derivative services and sale of gold bars. Through its wholesale banking operations, the Bank provides loans, deposit products, documentary credits, guarantees, bullion trading, foreign exchange, and derivative products. It also provides cash management services, clearing and settlement services for stock exchanges, tax and other collections for the government, custody services for mutual funds and correspondent banking services. The Bank’s treasury group manages its debt securities and money market operations and its foreign exchange and derivative products.
The other subsidiaries and associated companies of the Bank are also largely engaged in a range of financial services. HDFC Life Insurance Company Limited, the Bank’s subsidiary effective July 1, 2023, provides life insurance services and pension management services. HDFC Asset Management Company Limited and its group companies are engaged in asset management business, HDB Financial Services Limited is a non-deposit taking non-banking finance company HDFC Securities Limited is a financial services provider along with broking as a core product, the remaining subsidiaries and associated companies of the Bank are engaged in sourcing business for the Bank or its subsidiaries. HDFC Ergo General Insurance Company Limited, a joint venture company, is engaged in general insurance business.
2. Summary of significant accounting policies
a. Principles of consolidation
The consolidated financial statements include the accounts of HDFC BANK LIMITED AND SUBSIDIARIES. The Bank consolidates subsidiaries in which, directly or indirectly, it holds more than 50% of the voting rights and/or has control. Entities where the Bank holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence are accounted for under the equity method. These investments are included in “Other assets” and the Bank’s proportionate share of income or loss is included in “Non-interest revenue, other”. The Bank consolidates Variable Interest Entities (“VIEs”) where the Bank is determined to be the primary beneficiary . All significant inter-company balances and transactions are eliminated on consolidation.
b. Basis of presentation
These consolidated financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). U.S. GAAP differs in certain material respects from Generally Accepted Accounting Principles in India, the requirements of India’s Banking Regulation Act 1949 and related regulations issued by the Reserve Bank of India (“RBI”), the guidelines issued by the Securities and Exchange Board of India (“SEBI”), and the guidelines issued by the Insurance Regulatory and Development Authority of India (“IRDAI”) (collectively “Indian GAAP”), which form the basis of the statutory general purpose consolidated financial statements of the Bank in India. Principal differences include the determination of the allowance for credit losses, classification and valuation of investments, classification and valuation of insurance contracts, accounting for deferred taxes, stock-based compensation, loan origination fees, derivative financial instruments, business combination, lease accounting and the presentation format and disclosures of the consolidated financial statements and related notes.
c. Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from these estimates. Material estimates included in these consolidated financial statements that are susceptible to change include the allowance for credit losses, the valuation of investments, impairment of securities, valuation of derivatives, valuation of intangible assets acquired on acquisition of eHDFC, valuation of insurance policies liabilities, stock-based compensation, unrecognized tax benefits, valuation of lease liabilities and impairment assessment of recognized intangible assets and goodwill.
F-8
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
d. Investments in securities
Investments consist of securities purchased as part of the Bank’s treasury operations, such as government securities and other debt securities, and investments purchased as part of the Bank’s wholesale banking operations, such as credit substitute securities issued by the Bank’s wholesale banking customers.
Credit substitute securities typically consist of commercial paper and debentures issued by the same customers with whom the Bank has a lending relationship in its wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as for loans, and the Bank bears the same customer credit risk as it does for loans extended to those customers. Additionally, the yield and maturity terms are generally directly negotiated by the Bank with the issuer.
All other securities, including mortgage-and asset-backed securities, are actively managed as part of the Bank’s treasury operations. The issuers of such securities are either government, public financial institutions or private issuers. These investments are typically purchased from the market, and debt securities are generally publicly-rated.
Securities that are held principally for resale in the near term are classified as held for trading (“HFT”) and are carried at fair value, with changes in fair value recorded in net income.
Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (“HTM”) and are carried at amortized cost.
All debt securities that are not classified as HTM or HFT are classified as available for sale (“AFS”) debt securities and are carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income/(loss), a separate component of shareholders’ equity.
Equity securities are classified under “Other assets”. Marketable securities are measured at fair value and any change in fair value is recorded in earnings. Non-marketable equity securities under the measurement alternative are carried at cost plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and impairment, if any. The Bank’s review for impairment for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, and the expectations of cash flows.
Fair values are based on market quotations, where a market quotation is available or otherwise based on present values at current interest rates for such investments.
Transfers between categories are recorded at fair value on the date of the transfer.
F-9
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For equity investments (“investee”), control over an investee is typically determined by majority ownership. However, circumstances may arise where a majority-owned investment is not controlled. In such cases, equity method accounting is applied, particularly when the other shareholder(s) of the investee holds substantive participative rights granted by law or contract.
The Bank’s consolidated net income incorporates its proportionate share of the net income or loss from equity method investees.
e. Impairment of debt securities
The Bank conducts a review of all AFS debt securities with fair value below their carrying value or with zero loss expectation. The Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If the assessment indicates that a credit loss exists, the present value of cash flows to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through a provision for credit loss expense, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The allowance is increased or decreased if credit conditions subsequently worsen or improve. A reversal of credit losses is recognized in net income. The Bank recognizes the entire difference between amortized cost basis and fair value in net income for impaired AFS debt securities that the Bank has an intent to sell or for which the Bank believes it will more-likely-than-not be required to sell prior to recovery of the amortized cost basis. The Bank does not record an allowance on accrued interest receivables on the balance sheet due to its policy to reverse interest income on debt securities in a timely manner in line with the Bank’s non-accrual and past due policies and on any debt security classified as non-performing. The Bank does not purchase debt securities with credit deterioration.
f. Loans
The Bank grants retail and wholesale loans to customers.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances adjusted for an allowance for credit losses. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to net income over the lives of the related loans.
Interest is accrued on the unpaid principal balance and is included in interest income. Loans are generally placed on “non-accrual” status when interest or principal payments are ninety days past due or if they are considered non-performing, at which time no further interest is accrued and any unrealized interest recognized in the consolidated statement of income is reversed. Interest income and principal payments on loans placed on non-accrual status are recognized when received. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
g. Allowance for credit losses
The Bank provides an allowance for credit losses based on management’s estimate of losses inherent in the loan portfolio which includes troubled debt restructuring. The allowance for credit losses consists of allowances for retail loans and wholesale loans.
The Bank’s allowance for credit losses comprises of:
| • | the allowance for credit losses, which covers the Bank’s loan portfolios and is presented separately on the balance sheet in “Loans”, |
| • | the allowance for lending-related commitments, which is recognized on the balance sheet in “Accrued expenses and other liabilities”, |
| • | the allowance for credit losses on investment securities, which covers the Bank’s AFS debt securities and is recognized on the balance sheet in “Investments AFS debt securities”; and |
| • | the allowance for credit losses on other financial assets measured at amortized cost, and other off-balance sheet credit exposures, which is recognized on the balance sheet in “Accrued expenses and other liabilities”. |
All changes in the allowance for credit losses are recognized in the consolidated statement of income.
F-10
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Bank’s policies used to determine its allowance for credit losses and its allowance for lending-related commitments are described below:
The Bank’s loan portfolio is bifurcated into Retail and Wholesale portfolios, wherein the Retail portfolio is segmented into homogenous pools using various factors such as nature of product, delinquencies, and other demographic and behavioral variables of the borrowers. The wholesale portfolio is segmented into various risk grades on the basis of a host of quantitative and qualitative factors including financial performance, industry risk, business risk and management quality. The allowance for loan-related losses and allowance for lending-related commitments represents expected credit losses over the remaining expected life of outstanding loans and lending-related commitments that are not unconditionally cancellable. The Bank does not record an allowance for future draws on unconditionally cancellable lending-related commitments (e.g., credit cards). The Bank does not record an allowance on accrued interest receivables on the balance sheet due to its policy to reverse interest income on loans more than 90 days past due and in the case of agricultural loans more than 365 days past due, and also on any loans classified as non-performing. The expected life for retail loans and wholesale loans is determined based on their contractual terms and expected prepayments as applicable. The expected life of funded credit card loans is generally estimated by considering expected future payments on the credit card account. The Bank has an Unconditionally Cancellable Clause (“UCC”) for credit card lines and in accordance with the current expected credit loss (“CECL”) accounting guidance, the Bank makes an allowance only for debt drawn at the time of expected loss measurement. The Bank applies expected principal payments to the credit card receivable balances existing at the reporting date until the balance is exhausted.
The estimate of expected credit losses includes expected recoveries of amounts previously charged off or expected to be charged off, even if such recoveries result in a negative allowance. The Retail loans are charged off against allowances typically when the account becomes 150 to 1,095 days past due depending on the type of loan. The defined delinquency levels at which major loan types are charged off are 150 days past due for personal loans and credit card receivables, 180 days for auto loans, commercial vehicle and construction equipment finance, 1,095 days past due for housing loans and on a customer by customer basis in respect of retail business banking when management believes that any future cash flows from these loans are remote including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements were not feasible. The Wholesale loans are charged off against the allowance when management believes that the loan balance may not be recovered, including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements were not feasible. Subsequent recoveries, if any, against write-off cases, are adjusted to provision for credit losses in the consolidated statement of income.
Wholesale loans are considered non-performing when, based on current information and events, it is probable that the Bank will be unable to collect scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining non-performance include payment status, the financial condition of the borrower, the value of collateral held, and the probability of collecting scheduled principal and interest payments when due. Wholesale loans that experienced insignificant payment delays and payment shortfalls are generally not classified as non-performing but are placed on a surveillance watch list and closely monitored for deterioration. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, market information, and the amount of the shortfall in relation to the principal and interest owed. These factors are considered by the Bank for selection of loans for credit reviews and assessment of allowance.
In order to estimate the allowance, the Bank primarily relies on its risk-segmentation models, which are also an integral part of the Bank’s risk management framework. Risk segmentation aims to group homogenous exposures together to allow for collective assessment of expected losses. Expected Loss estimation under collective assessment, is primarily based on Probability of Default (“PD”), Loss given Default (“LGD”) and Exposure at Default (“EAD”) estimates. The Bank has modeled its PD estimates at the aforementioned granularity for its retail and wholesale portfolios and has also created the remaining expected life structure of the same for computation of credit losses.
The Bank’s off-balance sheet credit exposures include unfunded loan commitments, financial guarantees including standby letters of credit, and other similar instruments. For off-balance sheet credit exposures, the Bank recognizes an allowance for credit loss (“ACL”) associated with the unfunded amounts. The Bank does not recognize an ACL for commitments that are unconditionally cancellable at the Bank’s discretion. ACL for off-balance sheet credit exposures are reported as a liability in accrued expenses and other liabilities on the consolidated balance sheet. ACL in such cases is measured for the remaining contractual term, adjusted for prepayments, of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts.
Collective and individual assessments
Management estimates the allowance balance using relevant available information from internal and external sources relating to historical experience, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current conditions and forecasts.
The methodology for estimating the amount of credit losses reported in the allowance for credit losses has two basic components: first, a pooled component for expected credit losses for pools of loans that share similar risk characteristics, and second, an asset-specific component involving loans that do not share risk characteristics and the measurement of expected credit losses for such individual loans.
F-11
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
As an integral part of the credit process, the Bank has a rating model appropriate to its retail and wholesale credit segments. The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal rating (model scale) is updated at least annually.
The majority of the Bank’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively assessed for allowance (“portfolio-based component”) by grouping them into homogeneous pools of loans. If an exposure does not share risk characteristics with other exposures, the Bank generally estimates expected credit losses on an individual basis, considering expected repayment and conditions impacting that individual exposure (“asset-specific component”). The asset-specific component covers loans modified or reasonably expected to be modified in a troubled debt restructuring (“TDR”), collateral-dependent loans, and borrowers with financial difficulties.
Portfolio-based component (Pooled Loans)
The portfolio-based component begins with a quantitative calculation that considers the likelihood of the borrower changing delinquency status or moving from one risk rating to another. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying credit loss factors to the Bank’s exposure at default.
Apart from its historical experience, the Bank seeks to incorporate any reasonable and supportable information regarding the prevalent and future economic and operating conditions, and their impact on credit losses for the Bank into its allowance. The Bank therefore includes in its estimation the use of quantitative statistical models to predict the impact of macro-economic variables on defaults. The Bank uses macro-economic variables that are relevant to the specific pool of loans to develop a reasonable and supportable forecast specific to the relevant macro-economic variable for the expected performance of the pool. In deploying these models, the Bank has assessed the impact of an exhaustive set of macro-economic variables on its expected losses, and uses macro-economic forecasts surveyed and published by the Reserve Bank of India: Centre for Monitoring Indian Economy for this assessment. As the macro-economic forecasts are published for a year the Bank reverts to the historical average default rate beyond this period over a straight-line basis.
The Bank estimates its allowance for credit losses for pooled loans based on its PD and LGD, determined for the respective risk pools. The Bank estimated the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts. The allowance for credit losses for the quantitative component of pooled loans is the product of multiplying the PD, LGD and EAD.
Asset-specific component
To determine the asset-specific component of the allowance, collateral-dependent loans (including those loans for which foreclosure is probable) and larger and non-accrual risk-rated loans in the wholesale portfolio segment are generally evaluated individually, while smaller loans (both scored and risk-rated) are aggregated for evaluation based on factors relevant for the respective class of assets. Loans are identified for individual assessment based on financial difficulty which includes nonperforming loans, labeled loans and loans identified based on management judgment.
The Bank generally measures the asset-specific allowance as the difference between the amortized cost of the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment, including those related to the passage of time, are generally recognized as an adjustment to the allowance for credit losses. For collateral-dependent loans, the fair value of collateral less estimated costs to sell is used to determine the charge-off amount for declines in value (to reduce the amortized cost of the loan to the fair value of collateral) or the amount of the negative allowance that should be recognized (for recoveries of prior charge-offs associated with improvements in the fair value of collateral).
The asset-specific component of the allowance for credit losses that have been or are expected to be modified in TDRs incorporates the effect of the modification on the loan’s expected cash flows (including forgone interest, principal forgiveness, and other concessions), and also the potential for redefault. For wholesale loans modified or expected to be modified in TDRs, expected losses incorporate management’s expectation of the borrower’s ability to repay under the modified terms.
Estimating the timing and amounts of future cash flows is highly subject to judgment as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.
F-12
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
h. Insurance Services
i. Undistributed policyholders earnings account
This separate line item appearing as a liability in the consolidated balance sheets is created/recognized to account for any surplus/deficit arising on policyholders’ adjustments under U.S. GAAP. The differential impact of adjustments related to the items identified below are disclosed separately under “Undistributed Policyholders Earnings Account” because this surplus does not belong to shareholders or policyholders. The impact of the adjustments listed below is taken to the separate line item through “(Surplus)/Deficit in P&L transferred to Undistributed Policyholders Earnings Account” in the consolidated statements of income and “(Surplus)/Deficit in OCI transferred to Undistributed Policyholders Earnings Account” in other comprehensive income. This includes:
| • | Actuarial remeasurement of insurance liabilities; |
| • | Effective interest method on Investments; |
| • | Fair value of investments available for sale debt securities and Investments held for trading; |
| • | Fair valuation of employees stock option scheme; |
| • | Adjustment on account of leases; |
| • | Actuarial remeasurement of employee benefits; and |
| • | Reversal of hedge reserve from previous framework |
ii. Liabilities on policies in force
The Bank establishes liabilities for future policy benefits (“LFPBs”) for amounts payable under traditional non-participating and limited-payment long-duration insurance contracts. Generally, amounts are payable over an extended period of time and the related liabilities are calculated as the present value of future expected benefits and claim settlement expenses to be paid, reduced by the present value of future expected net premiums. Contracts are grouped as cohorts when measuring LFPBs. The corresponding liabilities are established based on methods and underlying assumptions in accordance with U.S. GAAP and applicable actuarial standards. A net premium ratio (“NPR”) approach is utilized, where net premiums (i.e., the portion of gross premiums required to fund expected insurance benefits and claim settlement expenses) are accrued each period as LFPBs. Cash flow assumptions are incorporated into the calculation of a cohort’s NPR and LFPB reserve. The Bank’s best estimate assumptions include mortality, persistency, morbidity, and expenses. All assumptions would be updated at each year end except for current discount rates, which will be updated at each valuation date. The impact of all assumption changes at locked in discount rates would flow through the Statement of Income and the impact of discount rate update will be recognized in “Other comprehensive income”.
For limited-payment long-duration contracts, the collection of premiums does not represent the completion of the earnings process. Therefore, any gross premium received in excess of net premiums is deferred and amortized as a deferred profit liability (“DPL”). The amortization basis is set to be the sum assured in-force for traditional policies and benefit outgo for annuities for each cohort, to ensure that profits are recognized over the life of the underlying policies in that cohort, regardless of when premiums are received. This amortization of the DPL is recorded through net income within “Claims and benefits paid pertaining to insurance business”. Consistent with the Bank’s measurement of traditional long-duration products, management also recognizes a LFPB reserve for limited-payment contracts that is representative of the difference between the present value of expected future benefits and the present value of expected future net premiums, subject to retrospective remeasurement through net income and OCI, as described above.
The Bank establishes LFPBs for traditional participating contracts, using a net premium approach, similar to traditional non-participating contracts. For determining present value of benefits, the future reversionary bonus has not been considered. The bonuses will get factored in as and when they are declared. The discount rate and actuarial assumptions are locked-in at inception, and any the impact of discount rate update will be recognized in “Other comprehensive income”.
Deposits related to universal life-type and investment products are credited to policyholder account balances. Policyholder Account Balances liability represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is primarily associated with accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance, as applicable. Unearned revenue reserve primarily relates to the universal life-type products and represents policy charges for services to be provided in future periods. The charges are deferred as unearned revenue are generally amortized over the expected life of the contract similar to DAC.
F-13
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
iii. Separate Account Assets and Liabilities
Separate account assets represents segregated funds that are invested for certain unit-linked life and pension policyholders. The assets consist primarily of equity securities including exchange traded fund, government securities including state government securities, debt securities and reverse repurchase agreements including tri-party repos and are reported at fair value. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Bank. Investment risks associated with market value changes are borne by the customers. The investment income and realized investment gains or losses from separate account assets generally accrue to the policyholders and are not included in the Bank’s results of operations. Mortality, policy administration and surrender charges assessed against the accounts are included in” Premium and other operating income from insurance business”. Asset management fees charged to the accounts are included in “Premium and other operating income from insurance business”. Separate account liabilities primarily represent the policyholder’s account balances in separate account assets and will be equal and offsetting to total separate account assets.
iv. Deferred Acquisition Costs (“DAC”)
Acquisition costs directly related to successful contract acquisitions of products have been deferred to the extent recoverable. Such acquisition costs are capitalized in the period they are incurred, and primarily include initial commission, employees remuneration and welfare benefits, medical fees, stamp duty and goods and services tax. All other acquisition-related costs including those related to general advertising and solicitation, market research, agent training, product development, unsuccessful sales, and underwriting efforts as well as all indirect costs are expensed as incurred. DAC is amortized on a constant level basis that approximates straight line amortization using the following amortization basis:
| • | Traditional life insurance contracts and traditional life insurance limited payment contracts – Sum assured in force. |
| • | Annuity products – Number of policies in force. |
| • | Universal life type contracts – Number of policies in force. |
Amortization of DAC is included in “Administrative and other” expense.
v. Reinsurance
For prospective reinsurance of short duration contracts that meet the criteria for reinsurance accounting, amounts paid (received) are recorded as ceded premium and ceded unearned premiums. Such amounts are amortized through earned premiums over the remaining contract period in proportion to the amount of insurance protection provided. The reinsurance recoverable for long-duration contracts and associated contract features is measured using assumptions and methods generally consistent with the underlying direct policies. Amounts currently recoverable under reinsurance agreements are included in “Other assets”.
The assessment of recoverability of reinsurance recoverable balances in each reporting period, is carried out through either historical trend of disputes and credit events or financial analysis of the credit quality of the reinsurer. These adjustments are recorded to reflect the results of these assessments through an allowance for credit losses and disputes that reduces the carrying amount of reinsurance and other assets on the consolidated balance sheet. The estimate requires significant judgement for which key considerations include paid and unpaid recoverable, whether the balance is in dispute or subject to legal collection, the relative financial health of the reinsurer and whether collateral and collateral arrangement exist. An estimate of the reinsurance recoverable lifetime expected credit losses is established utilizing a probability of default and loss given default method, which reflects the insurer’s risk rating. The allowance for credit losses excludes disputed amounts.
vi. Premium Deficiency
Premium deficiency reserves may be established for short-duration contracts to provide for expected future losses and certain expenses that exceed unearned premiums. These reserves are based on actuarial estimates of the amount of loss inherent in that period, including losses incurred for which claims have not been reported. The provisions for IBNR (incurred but not reported) claims are calculated using studies that measure the historical length of time between the incurred date of a claim and its eventual reporting to the Bank. If loss recognition exists, DAC is written off to the extent required for eliminating losses. If loss recognition still exists after DAC write-off, then a loss recognition liability would be established. For universal life-type contracts, a premium deficiency reserve may be established when existing contract liabilities, together with the present value of future fees and/or premiums, are not sufficient to cover the present value of future benefits and settlement costs. Loss recognition would be charged to net income by an increase in the liability for future benefits presented separately as loss recognition liability.
F-14
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
i. Income tax
The Bank estimates its income tax expense for the interim periods based on its best estimate of the expected effective income tax rate for a full year.
j. Revenue recognition
Interest income from loans and from investments is recognized on an accrual basis using the effective interest method when earned except in respect of loans or investments placed on non-accrual status, where it is recognized when received.
Fees and commissions from guarantees issued are amortized over the contractual period of the commitment. Commission, fees, and charges for rendering services such as investment management are recognized on an accrual basis as per the terms of service or agreement as applicable and where there is reasonable certainty of ultimate collection.
Dividends from investments are recognized when declared.
Realized gains and losses on sale of securities are recorded on the trade date and are determined using the weighted average cost method.
Premiums related to traditional long-duration products are recognized as revenues when due from policyholders. Premiums related to short-duration products are recognized on a pro-rata basis over the applicable contract term. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred as a DPL. The DPL is also recognized on the premiums received on the business acquired as of the PGAAP date. The DPL is amortized or recognized as earnings based on the amortization basis as mentioned in deferred acquisition cost. Premiums related to short-duration products are recognized on a pro rata basis over the applicable contract term. Unearned premiums, representing the portion of premium written related to the unexpired coverage, are reflected as liabilities until earned. Deposits related to universal life and investment-type products are credited to “Premium and other operating income from insurance business”. Revenues from such contracts consist of fees for mortality, policy administration, fund management charges, surrender charges and other charges as applicable are recorded in universal life and investment-type line of business in the period in which services are provided. All revenues and expenses are presented net of reinsurance, as applicable.
Other fees and income are recognized when earned, which is when the service that results in the income has been provided. The Bank amortizes annual fees on credit cards over the contractual period of the fees.
k. Segment information
The Bank operates in five reportable segments, namely retail banking, wholesale banking, treasury services, insurance services and others. Segment-wise information has been provided in note 19.
l. Business combination
The Bank accounts for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair value. The application of the acquisition method requires certain estimates and assumptions, especially concerning the determination of the fair value of the acquired intangible and tangible assets, as well as the liabilities assumed at the date of the acquisition. The judgments made in the context of the purchase price allocation can materially impact the Bank’s future results of operations. The valuations are based on information available at the acquisition date. Purchase consideration in excess of the Bank’s interest and the acquiree’s net fair value of identifiable assets and liabilities is recognized as goodwill.
F-15
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
m. Goodwill
Under applicable accounting guidance, goodwill is reviewed at the reporting unit level for potential impairment at least on an annual basis at the end of the reporting period, or more frequently if events or circumstances indicate a potential impairment. The Bank tests goodwill of each separate reporting unit by initially qualitatively assessing whether events and circumstances indicate that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If such assessment indicates fair value is not less than the carrying value, the reporting unit is deemed not to be impaired and no further analysis is required. If it is more likely than not that fair value of the reporting unit is below its carrying value, a quantitative test is then performed. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis for the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.
n. Intangible Assets
The Bank’s identifiable intangible assets consists of, Brand, Investment Management Contract, Value of Business Acquired (“VOBA”), Distribution Network, Customer Relationship and Transferable Development Rights acquired in Business Combination. All intangible assets except Brand and Investment Management Contract are definite-lived intangible assets and are recorded at acquisition date fair value.
The Bank’s definite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived intangible assets are not amortized but are tested for impairment annually, or more frequently, if necessary.
| Intangible Assets |
Useful lives (years) |
Amortization method | ||
| Brand |
Indefinite | Not applicable | ||
| Investment Management Contract |
Indefinite | Not applicable | ||
| Value of Business Acquired (VOBA) |
Life of the underlying contracts | Constant level basis(*) | ||
| Distribution Network |
17 | Straight line | ||
| Customer Relationship |
17 | Straight line | ||
| Transferable Development Rights |
8 | Straight line |
| (*) | VOBA is amortized on a constant-level basis that approximates straight-line amortization (refer to note 14) |
The Bank reviews intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future net cash flows is less than the carrying value of the asset.
o. Recently adopted accounting standards
As a result of the merger of HDFC Limited with HDFC Bank Limited, HDFC Life Insurance Company Limited became a subsidiary of HDFC Bank. Accounting Standards Update (ASU) 2018-12 – Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, issued by the FASB in August 2018, is applicable to HDFC Life Insurance Company Limited. The FASB subsequently issued several ASUs as amendments to ASU No. 2018-12. The standard requires insurance companies with long duration contracts to: (1) review and, if there is a change, update the assumptions used to measure expected cash flows at least annually; (2) update the discount rate assumption at each reporting date; and (3) enhance certain qualitative and quantitative disclosures. This ASU was applied using a modified retrospective approach that requires restatement of prior periods presented, including a cumulative adjustment to accumulated other comprehensive income as of January 1, 2021 (the transition date). The Bank acquired from eHDFC group an insurance business which has been included in the Bank’s financial results since July 01, 2023. The standard has, among other things, impacted the discount rate used in estimating reserves for the Bank’s life and annuity reinsurance portfolio, which is in runoff.
In March 2022, the FASB issued ASU No. 2022-01 “Fair Value Hedging—Portfolio Layer Method (Topic 815)”. This ASU expands the portfolio layer method of hedge accounting prescribed in ASU 2017-12 to allow multiple hedged layers of a single closed portfolio and to include portfolios of both prepayable and non-prepayable financial assets. This scope expansion is consistent with the FASB’s efforts to simplify hedge accounting and allows entities to apply the same accounting method to similar hedging strategies. This ASU also specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on accounting and disclosure of hedge basis adjustments and specifies how hedge basis adjustments should be considered in determining credit losses for assets in the designated closed portfolio. This ASU is effective for public business entities for interim and annual periods in fiscal years beginning after December 15, 2022. The Bank adopted the ASU effective April 1, 2023. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations.
F-16
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In March 2022, the FASB issued ASU 2022-02 “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40 “Receivables—Troubled Debt Restructurings by Creditors”. This ASU enhances disclosure requirements for certain loan refinancing and restructuring activity by creditors when a borrower is experiencing financial difficulty, updates certain requirements related to accounting for credit losses under ASC 326 and requires disclosure of current-period gross write offs of financing receivables by year of origination. The ASU is effective for the Bank for interim and annual periods in fiscal years beginning after December 15, 2022. The Bank adopted the ASU effective April 1, 2023. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operations.
p. Recently issued accounting pronouncements not yet effective
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Bank does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires enhanced annual disclosures for specific categories in the rate reconciliation and income taxes paid disaggregated by federal, state and foreign taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Bank does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
q. Convenience translation
The accompanying financial statements have been expressed in Indian Rupees (“Rs.”), the Bank’s functional currency. For the convenience of the reader, the financial statements as of and for the six-month period ended September 30, 2023 have been translated into U.S. dollars at US$1.00 = Rs. 83.08 as published by the Federal Reserve Board of New York on September 29, 2023. Such translation should not be construed as a representation that the rupee amounts have been or could be converted into U.S. dollars at that or any other rate, or at all.
F-17
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
3. Business Combination
During the year, on July 01, 2023, the Bank completed the acquisition of 100% equity interest in eHDFC, a housing finance company in India providing housing loans to individuals as well as corporates, undertaking lease rental discounting and construction finance. Post-acquisition, all the subsidiaries and affiliates of eHDFC (eHDFC and its subsidiaries and affiliates together referred to as “eHDFC group”) became subsidiaries and affiliates of the Bank.
Pursuant to the Scheme of Amalgamation dated April 04, 2022 (the “Scheme”) and as amended, eHDFC shareholders received 42 shares (face value Rs.1 each) of the Bank, as consideration, for every 25 shares (face value Rs.2 each) held in eHDFC. The scheme was approved by the shareholders at the meeting of the shareholders of the Bank convened by the National Company Law Tribunal (“NCLT”) held on November 25, 2022. The NCLT, in its order dated March 17, 2023, sanctioned the Scheme. Upon receipt of all requisite approvals, the Bank filed a Form INC-28 with the Registrar of Companies (“ROC”) on July 01, 2023 and accordingly, the Scheme became effective on July 01, 2023 (the “Effective date”), resulting in the Bank obtaining control of eHDFC.
Total purchase consideration was Rs. 5,337,741.5 million (US$ 64,248.2 million) based on the Bank’s closing price of Rs. 1701.4 (US$ 20.5) per share on the National Stock Exchange (“NSE”) as of June 30, 2023. The Bank allotted 3,110,396,492 common equity shares upon completing the transaction. Share-based compensation awards held by eHDFC’s employees were converted into the Bank’s equity share-based compensation awards with number of shares underlying such awards adjusted based on an exchange ratio resulting in 48,461,845 shares post-acquisition when fairly valued using the binomial method. Share warrants issued to qualified institutional buyers were converted into Bank’s common equity share with number of shares underlying such warrants adjusted based on an exchange ratio resulting in 24,792,768 warrants post acquisition when fairly valued using the Black and Scholes method. The merger is expected to increase revenue opportunities through cross-selling of products, leveraging the extensive customer base, offering a comprehensive suite of financial services, and tapping into operational efficiencies by streamlining back-office functions and benefiting from economies of scale. Additionally, the merger is expected to improve liquidity through access to a wider pool of funds at potentially lower rates and enhanced capital adequacy through the combined strong capital base post-merger.
The results of operations from the eHDFC group have been included in the Bank’s financial statements since July 01, 2023.
The business combination has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair value on the acquisition date. The determination of estimated fair values required management to exercise judgment and make estimates concerning discount rates, anticipated future cash flows and prevailing market conditions among others at the time of the merger, and other forthcoming events that are highly sensitive in nature.
F-18
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table provides a purchase price allocation to the identifiable assets acquired and liabilities assumed of eHDFC group and the noncontrolling interest at their estimated fair values as of the acquisition date.
| Particulars |
As of July 1, 2023, | |||||||
| (In millions) | ||||||||
| Consideration |
||||||||
| Common equity share issued (3,110,396,492 shares of the Bank) |
Rs. | 5,292,028.6 | US$ | 63,698.0 | ||||
| Share-based compensation |
35,240.7 | 424.2 | ||||||
| Share warrants |
10,472.2 | 126.0 | ||||||
|
|
|
|
|
|||||
| Fair value of total consideration transferred |
5,337,741.5 | 64,248.2 | ||||||
| Settlement of pre-existing relationship (refer note below) |
(69,312.6 | ) | (834.3 | ) | ||||
|
|
|
|
|
|||||
| Investment in the Bank by eHDFC (refer note below) |
(1,981,494.4 | ) | (23,850.4 | ) | ||||
| Fair value of net purchase consideration transferred |
3,286,934.5 | 39,563.5 | ||||||
|
|
|
|
|
|||||
| Acquisition-related costs |
1,900.0 | 22.9 | ||||||
| Less: |
||||||||
| A. Recognised amounts of identifiable assets acquired |
||||||||
| Cash and due from banks |
10,344.1 | 124.5 | ||||||
| Investment securities |
2,842,356.2 | 34,212.3 | ||||||
| Loans - Net |
6,428,635.4 | 77,378.9 | ||||||
| Accrued interest receivable |
37,276.7 | 448.7 | ||||||
| Property and equipment |
39,136.2 | 471.1 | ||||||
| Identified intangibles assets |
1,434,818.1 | 17,270.3 | ||||||
| Other assets |
622,978.8 | 7,498.5 | ||||||
| Separate account assets |
857,528.7 | 10,321.7 | ||||||
|
|
|
|
|
|||||
| Total estimated assets acquired |
12,273,074.2 | 147,726.0 | ||||||
|
|
|
|
|
|||||
| Add: |
||||||||
| B. Recognized amounts of identifiable liabilities assumed and Noncontrolling Interests |
||||||||
| Deposits |
1,571,204.5 | 18,911.9 | ||||||
| Accrued expenses and other liabilities |
781,742.3 | 9,409.6 | ||||||
| Borrowings |
4,977,276.5 | 59,909.4 | ||||||
| Separate account liabilities |
857,528.7 | 10,321.7 | ||||||
| Liabilities on policies in force |
1,499,749.1 | 18,051.9 | ||||||
| Noncontrolling Interest in eHDFC subsidiaries |
926,787.1 | 11,155.4 | ||||||
|
|
|
|
|
|||||
| Total estimated liabilities assumed |
10,614,288.2 | 127,759.9 | ||||||
|
|
|
|
|
|||||
| Goodwill |
1,628,148.5 | 19,597.4 | ||||||
|
|
|
|
|
|||||
Above identifiable net assets includes assets and liabilities of the disposal group classified as held for sale as on date of acquisition i.e., HDFC Credila Financial Services Limited and HDFC Education and Development Services Limited amounting to Rs. 103,500 million (US$ 1,245.8 million) [includes goodwill amounting to Rs. 73,576.1 million (US$ 885.6 million)] and Rs. 1,976.0 million (US$ 23.8 million), respectively.
Total amount of goodwill is Rs. 1,628,148.5 million (US$ 19,597.4 million). None of the goodwill recognized is expected to be deductible for income tax purposes.
The recorded goodwill of Rs. 1,628,148.5 million (US$ 19,597.4 million) resulting from the acquisition primarily reflects the anticipated synergies and economies of scale derived from the integration of operations between the Bank and eHDFC group. Additionally, a portion of this goodwill is attributable to intangible assets that do not meet the criteria for separate recognition as per ASC 805, Business Combinations.
F-19
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Goodwill is allocated among the Cash Generating Units (CGUs) as per assignment method where goodwill is derived from the residual amount on the relative excess of the fair value of the CGUs over the net assets of the CGUs. The assignment of Goodwill recorded as a result of the acquisition to the Bank’s reportable segments is as follows:
| Particulars |
As of July 1, 2023, | |||||||
| (In millions) | ||||||||
| Retail Banking |
Rs. | 368,079.6 | US$ | 4,430.4 | ||||
| Wholesale Banking |
71,617.3 | 862.0 | ||||||
| Insurance Services |
959,080.0 | 11,544.1 | ||||||
| Others |
229,371.6 | 2,760.9 | ||||||
|
|
|
|
|
|||||
| Total |
1,628,148.5 | 19,597.4 | ||||||
|
|
|
|
|
|||||
Valuation methodology adopted for estimation of fair values of significant assets acquired and liabilities assumed:
Cash and due from banks: Given the short-term nature of assets, the carrying amount was determined to be reasonable estimate for fair value.
Investment in securities: Includes Investments held for trading, Investments available for sale debt securities and Securities purchased under agreements to resell. The carrying amount of these assets is a reasonable estimate of its fair value which are based on market quotations, where market quotations are available or otherwise based on present values at current interest rates for such investments.
Loans: The loan asset was segmented into two categories i.e. retail loans and wholesale loans. The present value of retail loans is determined by considering the exposure at default (“EAD”), weighted average interest rate, and remaining tenure for each segment. This involves calculating the monthly equated monthly instalments (“EMI”), interest, principal payments, and accounting for prepayments. Discount rates are then applied to the projected cash flows to derive the present value. The valuation methodology of wholesale loans involves computing yields using base rates and spreads to derive yield curves. Monthly cash flows are calculated based on the repayment schedule, with present values derived using the yields as discount rates. The total present value is the sum of the discounted cash flows over the loan’s tenure.
Property and Equipment: Property and Equipment includes buildings and other fixed assets including computer/IT equipment, electric installations, air conditioners, among others. Fair valuation of buildings has been carried out using the sales comparison method under the market approach, which involves comparing the properties being appraised with similar buildings that have recently been sold or rented (comparable buildings) or for which offers to purchase or rent have been made, thereby modelling the behavior of the market. Valuation of other fixed assets is done using depreciated replacement cost method under cost approach. The method considers the remaining useful economic life, age, condition, depreciation, obsolescence, residual value, and other relevant factors to determine the attributable value of the assets.
Other assets: Other assets substantially includes investments in affiliate valued at fair value based on the latest transaction price.
Separate account assets and liabilities: The carrying amount of these assets and liabilities are reasonable estimates of fair value. The assets consist primarily of equity securities, fixed maturities, real estate-related investments, short-term investments and derivative instruments and are reported at fair value. The liabilities primarily represent the policyholder’s account balances in separate account assets and will be equal and offsetting to total separate account assets.
Deposits: The fair value of deposits, including public individual, public trust, recurring deposit, and compounding instruments, is estimated using the discounted cash flow method. This approach applies cumulative interest rates from the respective rate cards, which are determined based on a market participant perspective, and considers the remaining tenure for each deposit category.
Borrowings: The fair value of borrowings comprising commercial papers, non-convertible debentures (“NCDs”), and subordinate debt issued are estimated by discounting the estimated future cash flows using rates currently available to the Bank for debt with similar remaining maturities. As deemed appropriate, proxy discount rates reflecting market yields on commercial papers, zero rates (zero rates are interpolated to map the timing of the interest and notional amounts) of the benchmark curve sourced from Bloomberg for external commercial borrowings (“ECBs”) and bonds, and Fixed Income Money Market and Derivatives Association of India (“FIMMDA”) AAA rate yields for non-banking financial companies for NCDs and other borrowings have been used for the purpose of discounting the cashflows to arrive at the fair value.
Liabilities on policies in force: Liabilities for future policy benefits (LFPBs) for traditional and limited-payment long-duration insurance contracts have been established based on the present value of expected future benefits and expenses, adjusted for net premiums and updated assumptions per U.S. GAAP.
Noncontrolling interest: The fair value of noncontrolling interest was calculated after determination of fair value of the subsidiaries of eHDFC. The noncontrolling interest associated with HDFC Life Insurance Company Limited and HDFC Asset Management Company Limited was determined using the market approach while the portion of noncontrolling interest attributable to HDFC Capital Advisors Limited was recorded at its historical carrying amount.
F-20
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Intangible assets disclosure
The Bank has assigned Rs. 1,434,818.1 million (US$ 17,270.3 million) of the purchase price to identifiable intangible assets consisting of Brand, Investment management contract, Value of business acquired, Distribution network, Customer relationship and Transferable development rights. The following table summarizes the major class of identifiable acquired intangible assets and estimated period of amortization-
| As of July 1, 2023 | ||||||||||||
| Estimated Fair Value (In millions) |
Useful lives (in years) |
Valuation Methodology | ||||||||||
| Intangible asset |
||||||||||||
| Brand |
Rs. | 750,758.2 | US$ | 9,036.6 | Indefinite life | Relief from royalty method(a) | ||||||
| Investment management contract |
369,785.6 | 4,451.0 | Indefinite life | Multi-period excess earnings method(b) | ||||||||
| Value of business acquired |
221,738.5 | 2,669.0 | Life of the underlying contracts | Refer below(c) | ||||||||
| Distribution network |
59,543.2 | 716.7 | 17 | Multi-period excess earnings method(b) | ||||||||
| Customer relationship |
29,874.9 | 359.5 | 17 | Multi-period excess earnings method(b) | ||||||||
| Transferable development rights |
3,117.7 | 37.5 | 8 | Comparison method | ||||||||
|
|
|
|
|
|||||||||
| Total |
1,434,818.1 | 17,270.3 | ||||||||||
|
|
|
|
|
|||||||||
Above intangible assets include Brand amounting to Rs. 8,527.5 million (US$ 102.6 million) and Distribution network amounting to Rs. 8,972.4 million (US$ 108.0 million) pertaining to HDFC Credila Financial Services Limited which was classified as held for sale as of the Effective Date.
(a) Relief from royalty method: The principle of the relief-from-royalty-method asserts that the value of an intangible asset is what the owner would pay to licence of the asset if he did not own it. In other words, the value equates to the avoided cost of not having to pay a royalty.
(b) Multi-period excess earnings method (MEEM): The MEEM method is predicted on the basis that the value of the intangible asset is the present value of the earnings it generates, net of a reasonable return on the other assets also contributing to the stream of earnings. Valuation of Investment Management Contract, Distribution Network and Customer Relationship is done under the Income Approach.
(c) Difference between the estimated Fair Value of liabilities (FVL) and the value of Liabilities (GVL). The FVL is derived as the sum of the best estimate of liabilities (“BEL”) and the risk margin (“RM”). GVL is derived as the liability for future policy benefits (“LFPB”) plus other liability items less reinsurance recoverable (refer to note 14).
Brand: Brand value has been estimated using the income approach with the relief from royalty method. This method considers the projected revenue for future periods multiplied by the royalty rate and is discounted using appropriate risk adjusted discount rate and the sum of present value of the above is considered as the value of the brand. As the brand is expected to contribute to cashflows indefinitely, it would be considered to have an indefinite useful life. Significant assumptions in the valuation include royalty rates, projected revenue growth rates and periods, and the risk adjusted discount rate.
Investment management contract (the “Contract”): The fair value of the Contract was estimated using the income approach with the MEEM method. This method considers future earnings generated by the Contract along with the contributions of other relevant assets (tangible and intangible) needed for its operation. A detailed financial projection was used and notional charges (fair value, return and risk associated with such assets) were factored in to take into account for the economic contribution of these supporting assets. The final fair value of the Contract reflects the present value of its projected earnings after considering taxes and the contribution of other assets by discounting using an appropriate risk adjusted discount rate. The Contract is not expected to be terminated and will contribute to cashflows indefinitely and it would be considered to have an indefinite useful life. Significant assumptions included future period post-tax earnings and projection period, rate of return and the risk adjusted discount rate.
Value of business acquired (“VOBA”): VOBA is valued as the difference between the estimated fair value of liabilities (“FVL”) and the carrying value of those same insurance contract liabilities . The FVL for the acquired business is derived as the sum of the best estimate of liabilities (“BEL”) and the risk margin (“RM”) calculated using the same best estimate assumptions as those used in deriving the company’s Indian embedded value (“IEV”) as at 30 June 2023. The carrying value of those same insurance contract liabilities is derived as the liability for future policy benefits (“LFPB”) plus other liability items (reserves for unmodelled products, sales inducement liability, time value of options and guarantees, and additional reserves) less reinsurance recoverable. Cash flow assumptions including mortality, morbidity, persistency, and discount rates for fair value of liabilities were considered.
Distribution network & Customer relationship: The fair value of the distribution network and customer relationship was estimated using the income approach with the MEEM method. The method requires estimating future excess earnings from acquiring new customers through existing channels of distribution and future excess earnings from existing customers. An attrition rate, derived from historical data, was used to derive the annualized premium equivalent (“APE”) corresponding to such channels of distribution existing as of the Effective Date. Projected profits, based on expected value of new business (“VNB”) margins, were considered for new business. Notional charges (fair value, return and risk associated with contributory assets) for the economic contribution of other assets were considered. Finally, a risk-adjusted discount rate was applied to the projected excess earnings to determine the present value, resulting in the fair value of the distribution network and customer relationship.
Transferable development rights (“TDR”): TDR is valued using comparison method, a comparison is made with similar properties that have recently been quoted/sold in the market and thus have a quoting/transaction price. The comparison approach is the preferred approach when comparable instances are available.
F-21
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Unaudited Pro forma Financial Information:
Following is the unaudited pro forma financial information for the six month period ended September 30, 2022 and September 30, 2023, as if the acquisition of eHDFC group were completed on the same terms at the beginning (i.e., April 01, 2022). The unaudited pro forma information should not be relied upon as being indicative of the historical results of operations that would have occurred had the acquisition taken place on April 01, 2022.
| As of | ||||||||||||||||
| Particulars |
September 30, 2022 | September 30, 2023 | ||||||||||||||
| (In millions) | ||||||||||||||||
| Revenue (a) |
Rs. | 1,073,980.8 | US$ | 12,927.1 | Rs. | 1,157,613.5 | US$ | 13,933.7 | ||||||||
| Net Income |
318,391.7 | 3,832.4 | 274,075.3 | 3,298.9 | ||||||||||||
(a) Revenue includes net interest revenue and non-interest revenue. Acquisition costs are included in the periods where such expenses are incurred
The unaudited pro forma financial information presented includes the estimated business combination accounting effects resulting from the acquisition, notably acquisition related costs amounting to Rs. 1,900.0 million (US$ 22.9 million), and amortization expenses from the intangible assets, advances and debt including its related tax effects amounting to Rs. 14,649.6 million (US$ 176.3 million) and Rs. 17,187.4 million (US$ 206.9 million) for the six month period ended September 30, 2022 and September 30, 2023, respectively. It does not include any anticipated synergies or other expected benefits of the acquisition. Actual results may differ from the unaudited pro forma information presented below and the differences could be significant.
The Bank’s operating results for the six month period ended September 30, 2023, includes the operating results of acquired assets and assumed liabilities of eHDFC group subsequent to the merger on July 1, 2023. Due to the various conversions of eHDFC systems during the six month period ended September 30, 2023, as well as other streamlining and integration of operating activities into those of the Bank, the Bank is unable to report separately eHDFC and its subsidiaries’ operations after July 1, 2023 despite making every reasonable effort to do so and thus including disclosures of eHDFC’s revenue and earnings since Effective Date the accompanying consolidated statements of income for the reporting period is impracticable.
Certain acquired receivables:
The Bank identifies purchased financial assets with credit deterioration (“PCD”) loans as those that have experienced a more-than-insignificant deterioration in credit quality since origination. The Bank considers a variety of factors to evaluate and identify whether acquired loans are PCD loans, including but not limited to, nonaccrual status, delinquency, decreases in credit scores and other factors. Upon acquisition, current expected credit losses are added to the fair value of individual PCD loans to determine the amortized cost basis. After initial recognition, any changes to the estimate of expected credit losses, favorable or unfavorable, are recorded as a provision for credit loss during the period of change. Following are the details of the acquired eHDFC PCD loans.
| As of July 1, 2023 | ||||||||||||||||
| Particulars | Wholesale | Retail | Total | Total | ||||||||||||
| (In millions) | ||||||||||||||||
| Par value of PCD loans at acquisition |
Rs. | 72,684.7 | Rs. | 43,961.6 | Rs. | 116,646.3 | US$ | 1,404.0 | ||||||||
| Allowance for credit losses on PCD loans at acquisition |
36,487.3 | 2,927.9 | 39,415.2 | 474.4 | ||||||||||||
| Fair value of receivables at acquisition |
36,197.4 | 41,003.0 | 77,200.4 | 929.2 | ||||||||||||
| Non-credit discount/(premium) on PCD loans at acquisition |
— | 30.7 | 30.7 | 0.4 | ||||||||||||
Contingencies:
eHDFC group had contingent liabilities on account of disputed dues towards service tax and goods & service tax. The Bank recognizes a loss contingency in accordance with ASC 450 when it is probable that a liability has been incurred and the amount can be reasonably estimated. If both conditions are not met, the Bank discloses the contingency if there is at least a reasonable possibility that a loss may have been incurred The contingent liabilities are in the nature of statutory demands and liabilities in dispute related to service tax and goods & service tax amounting to Rs. 11,063.0 million (US$ 133.2 million).
Separately accounted for transactions, including pre–existing relationship:
Following are the details of the pre-exiting relationship between HDFC Bank group (“the Bank and its subsidiaries”) and eHDFC group:
| As of July 1, 2023 |
||||||||
| (In millions) | ||||||||
| Financial statement line items |
||||||||
| Cash and due from Banks | Rs. | 52,875.3 | US$ | 636.3 | ||||
| Investments, available for sale, at market | 18,407.5 | 221.6 | ||||||
| Accrued expenses and other liabilities | (5,777.5 | ) | (69.5 | ) | ||||
| Other assets | 3,807.3 | 45.8 | ||||||
|
|
|
|
|
|||||
| Net Assets | Rs. | 69,312.6 | US$ | 834.2 | ||||
|
|
|
|
|
|||||
F-22
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The pre-existing relationship between the Bank and eHDFC has been legally extinguished upon the business combination and is effectively settled as part of the acquisition. As of the Effective Date, the pre-existing relationship between the Bank group and eHDFC subsidiaries was an intercompany relationship and was subsequently eliminated during the consolidation process.
Investment in the Bank by eHDFC
eHDFC held a 20.8% equity interest in the Bank. Upon the acquisition of eHDFC by the Bank, this equity interest was cancelled through a share cancellation process, effectively eliminating the shares that eHDFC held in the Bank.
Acquisition costs
Acquisition related costs amount to Rs. 1,900.0 million (US$ 22.9 million) and comprise of expenses recognized separately from the acquisition of assets and assumptions of liabilities in the business combination. The same is recognized as an expense in “Non-interest expense- Administrative and other” in the consolidated statements of income.
4. Cash and due from banks, and restricted cash
The Bank is required to maintain a specific percentage of its demand and time liabilities by way of a balance in a current account with the RBI. This is to maintain the solvency of the banking system. As prescribed by the RBI, the cash reserve ratio has to be maintained on an average basis for a two-week period. The average balance maintained for such two-week period should not fall below the prescribed threshold limit. Non-maintenance of the requisite balance is subject to levy of penalty. The Bank has classified the cash reserve maintained with the RBI as restricted cash or restricted cash equivalents (restricted cash).
The cash and due from banks, and restricted cash consist of restricted cash of Rs. 902,006.6 million and Rs. 1,386,082.2 million (US$ 16,683.7 million) as of March 31, 2023 and September 30, 2023 respectively.
5. Investments, held for trading
The portfolio of trading securities as of March 31, 2023 and September 30, 2023 was as follows:
| As of March 31, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Government of India securities |
Rs. | 106,952.3 | Rs. | 103.6 | Rs. | 23.2 | Rs. | 107,032.7 | ||||||||
| Other corporate/financial institution securities |
20,361.5 | 19.0 | 2.5 | 20,378.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total debt securities |
Rs. | 127,313.8 | Rs. | 122.6 | Rs. | 25.7 | Rs. | 127,410.7 | ||||||||
| Other securities (including mutual fund units) |
8,166.4 | 254.0 | — | 8,420.4 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 135,480.2 | Rs. | 376.6 | Rs. | 25.7 | Rs. | 135,831.1 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| As of September 30, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Government of India securities |
Rs. | 26,172.4 | Rs. | 12.5 | Rs. | 14.8 | Rs. | 26,170.1 | ||||||||
| Other corporate/financial institution securities |
6,248.2 | 33.5 | 200.5 | 6,081.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total debt securities |
Rs. | 32,420.6 | Rs. | 46.0 | Rs. | 215.3 | Rs. | 32,251.3 | ||||||||
| Other securities (including mutual fund units) |
194,048.1 | 55,521.8 | 3,820.4 | 245,749.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 226,468.7 | Rs. | 55,567.8 | Rs. | 4,035.7 | Rs. | 278,000.8 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
US$ | 2,726.0 | US$ | 668.8 | US$ | 48.6 | US$ | 3,346.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-23
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
6. Investments, AFS debt securities
The portfolio of AFS debt securities as of March 31, 2023 and September 30, 2023 was as follows:
| As of March 31, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Government of India securities |
Rs. | 3,860,431.8 | Rs. | 4,656.4 | Rs. | 80,344.5 | Rs. | 3,784,743.7 | ||||||||
| State government securities |
428,980.9 | 1,322.5 | 15,604.8 | 414,698.6 | ||||||||||||
| Government securities outside India |
819.0 | — | 21.8 | 797.2 | ||||||||||||
| Credit substitutes |
511,161.4 | 505.4 | 8,479.0 | 503,187.8 | ||||||||||||
| Other corporate/financial institution bonds |
27,521.4 | 13.4 | 571.3 | 26,963.5 | ||||||||||||
| Debt securities, other than asset and mortgage-backed securities |
4,828,914.5 | 6,497.7 | 105,021.4 | 4,730,390.8 | ||||||||||||
| Mortgage-backed securities |
19.3 | — | 1.8 | 17.5 | ||||||||||||
| Asset-backed securities |
150,271.9 | 55.2 | 1,891.4 | 148,435.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 4,979,205.7 | Rs. | 6,552.9 | Rs. | 106,914.6 | Rs. | 4,878,844.0 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Securities with gross unrealized losses |
Rs. | 3,220,573.8 | ||||||||||||||
| Securities with gross unrealized gains |
1,658,270.2 | |||||||||||||||
|
|
|
|||||||||||||||
| Rs. | 4,878,844.0 | |||||||||||||||
|
|
|
|||||||||||||||
| As of September 30, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Government of India securities |
Rs. | 6,445,733.0 | Rs. | 15,994.4 | Rs. | 90,197.5 | Rs. | 6,371,529.9 | ||||||||
| State government securities |
750,082.3 | 3,105.5 | 16,615.8 | 736,572.0 | ||||||||||||
| Government securities outside India |
1,899.6 | — | 29.2 | 1,870.4 | ||||||||||||
| Credit substitutes |
362,648.5 | 566.5 | 4,813.1 | 358,401.9 | ||||||||||||
| Other corporate/financial institution bonds |
700,142.0 | 6,446.7 | 20,942.7 | 685,646.0 | ||||||||||||
| Debt securities, other than asset and mortgage-backed securities |
8,260,505.4 | 26,113.1 | 132,598.3 | 8,154,020.2 | ||||||||||||
| Mortgage-backed securities |
111.6 | 1.9 | 1.8 | 111.7 | ||||||||||||
| Asset-backed securities |
175,556.9 | 469.2 | 964.1 | 175,062.0 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 8,436,173.9 | Rs. | 26,584.2 | Rs. | 133,564.2 | Rs. | 8,329,193.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
US$ | 101,542.8 | US$ | 320.0 | US$ | 1,607.7 | US$ | 100,255.1 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Securities with gross unrealized losses |
Rs. | 6,012,083.7 | ||||||||||||||
| Securities with gross unrealized gains |
2,317,110.2 | |||||||||||||||
|
|
|
|||||||||||||||
| Rs. | 8,329,193.9 | |||||||||||||||
|
|
|
|||||||||||||||
| US$ | 100,255.1 | |||||||||||||||
|
|
|
|||||||||||||||
F-24
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
AFS investments of Rs. 4,199,442.3 million and Rs. 6,297,623.4 million (US$ 75,801.9 million) as of March 31, 2023 and September 30, 2023, respectively, are eligible towards the Bank’s statutory liquidity reserve requirements. These balances are subject to withdrawal and usage restrictions towards the reserve requirements, but may be freely traded by the Bank. Of these investments, Rs. 2,070,953.6 million as of March 31, 2023 and Rs. 3,274,041.4 million (US$ 39,408.3 million) as of September 30, 2023, were kept as margins for clearing, collateral borrowing and lending obligation (“CBLO”) and real time gross settlement (“RTGS”), with the RBI and other financial institutions.
Amortized cost is net of Rs. 70.9 million and Rs. 13.7 million as allowance for credit losses for the fiscal year ended March 31, 2023 and six-month period ended September 30, 2023, respectively.
The below table presents the gross unrealized losses and the associated fair value of AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or 12 months or greater as of March 31, 2023:
| As of March 31, 2023 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
|||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Government of India securities |
Rs. | 1,038,004.8 | Rs. | 12,622.5 | Rs. | 1,266,775.4 | Rs. | 67,722.0 | Rs. | 2,304,780.2 | Rs. | 80,344.5 | ||||||||||||
| State government securities |
75,707.7 | 1,923.6 | 270,099.2 | 13,681.2 | 345,806.9 | 15,604.8 | ||||||||||||||||||
| Government securities outside India |
797.2 | 21.8 | — | — | 797.2 | 21.8 | ||||||||||||||||||
| Credit substitutes |
254,023.6 | 3,771.0 | 152,702.6 | 4,708.0 | 406,726.2 | 8,479.0 | ||||||||||||||||||
| Other corporate/financial institution bonds |
21,596.9 | 443.0 | 4,205.1 | 128.3 | 25,802.0 | 571.3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Debt securities, other than asset- and mortgage-backed securities |
1,390,130.2 | 18,781.9 | 1,693,782.3 | 86,239.5 | 3,083,912.5 | 105,021.4 | ||||||||||||||||||
| Mortgage-backed securities |
— | — | 17.5 | 1.8 | 17.5 | 1.8 | ||||||||||||||||||
| Asset-backed securities |
110,545.7 | 1,077.3 | 26,098.1 | 814.1 | 136,643.8 | 1,891.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
Rs. | 1,500,675.9 | Rs. | 19,859.2 | Rs. | 1,719,897.9 | Rs. | 87,055.4 | Rs. | 3,220,573.8 | Rs. | 106,914.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The below table presents the gross unrealized losses and the associated fair value of AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or 12 months or greater as of September 30, 2023:
| As of September 30, 2023 | ||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
Fair Value | Unrealized Losses |
|||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Government of India securities |
Rs. | 2,082,920.2 | Rs. | 8,575.7 | Rs. | 2,497,070.1 | Rs. | 81,621.8 | Rs. | 4,579,990.3 | Rs. | 90,197.5 | ||||||||||||
| State government securities |
139,445.9 | 929.6 | 452,523.6 | 15,686.2 | 591,969.5 | 16,615.8 | ||||||||||||||||||
| Government securities outside India |
— | — | 799.2 | 29.2 | 799.2 | 29.2 | ||||||||||||||||||
| Credit substitutes |
61,766.0 | 147.8 | 240,336.5 | 4,665.3 | 302,102.5 | 4,813.1 | ||||||||||||||||||
| Other corporate/financial institution bonds |
155,141.8 | 3,481.0 | 303,390.4 | 17,461.7 | 458,532.2 | 20,942.7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Debt securities, other than asset- and mortgage-backed securities |
2,439,273.9 | 13,134.1 | 3,494,119.8 | 119,464.2 | 5,933,393.7 | 132,598.3 | ||||||||||||||||||
| Mortgage-backed securities |
21.9 | 0.4 | 15.5 | 1.4 | 37.4 | 1.8 | ||||||||||||||||||
| Asset-backed securities |
62,142.1 | 544.7 | 16,510.5 | 419.4 | 78,652.6 | 964.1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
Rs. | 2,501,437.9 | Rs. | 13,679.2 | Rs. | 3,510,645.8 | Rs. | 119,885.0 | Rs. | 6,012,083.7 | Rs. | 133,564.2 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
US$ | 30,108.8 | US$ | 164.7 | US$ | 42,256.2 | US$ | 1,443.0 | US$ | 72,365.0 | US$ | 1,607.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
F-25
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
As of September 30, 2023, there were 383 AFS investments in Government of India securities, State government securities and Government securities outside India with unrealized losses totalling Rs. 106,842.5 million. Upon analyzing the debt security portfolios, the Bank determined that no allowance was required as of September 30, 2023 in government issued or backed securities as the risk of loss was deemed minimal for these debt securities. Additionally, none of the remaining AFS investments in debt securities held by the Bank were past due or in non-accrual status as of September 30, 2023. The declines in the market value of these securities were mainly attributable to changes in interest rates and not credit quality, and because the Bank had the ability and intent to hold these investments until there is a recovery in fair value, which may be at maturity, the Bank did not record any write-offs for credit losses on any of these securities at September 30, 2023.
Allowances for AFS debt securities as of March 31, 2023 are as follows:
| As of March 31, 2023 | ||||||||||||||||
| Allowance for credit losses, beginning of the period |
Write-offs | Addition/ (Deletion)to allowance for credit losses |
Allowance for credit losses, end of the period |
|||||||||||||
| (In millions) | ||||||||||||||||
| Credit substitutes |
Rs. | — | Rs. | — | Rs. | 70.9 | Rs. | 70.9 | ||||||||
| Other corporate/financial institution bonds |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | — | Rs. | — | Rs. | 70.9 | Rs. | 70.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Allowances for AFS debt securities as of September 30, 2023 are as follows:
| As of September 30, 2023 | ||||||||||||||||
| Allowance for credit losses, beginning of the period |
Write-offs | Addition/ (Deletion) to allowance for credit losses |
Allowance for credit losses, end of the period |
|||||||||||||
| (In millions) | ||||||||||||||||
| Credit substitutes |
Rs. | 70.9 | Rs. | — | Rs. | (57.2) | Rs. | 13.7 | ||||||||
| Other corporate/financial institution bonds |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 70.9 | Rs. | — | Rs. | (57.2) | Rs. | 13.7 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
US$ | 0.9 | US$ | — | US$ | (0.7) | US$ | 0.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Credit Quality Indicators
The Bank monitors the credit quality of its investment securities through various risk management procedures, including the monitoring of credit ratings. A majority of the debt securities in the Bank’s investment portfolio were issued by the Government of India or State governments or entities or agencies that are either explicitly or implicitly guaranteed by such governments. The Bank believes the long history of no credit losses on these securities indicates that the expectation of non-payment of the amortized cost basis is zero, even if such governments were to technically default. Therefore, for the aforementioned securities, the Bank does not assess or record expected credit losses due to the zero loss assumption. The Bank monitors the credit quality of its remaining AFS investment portfolio which is updated periodically. Such of the remaining AFS investment portfolio in an unrealized loss position are evaluated to determine if the loss is attributable to credit related factors and if an allowance for credit loss is needed. The average credit rating of the securities comprising the mortgage-backed securities and asset-backed securities was AAA (based upon external ratings where available) as of September 30, 2023.
F-26
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The contractual residual maturity of AFS debt securities other than asset and mortgage-backed securities as of September 30, 2023 is set out below:
| September 30, 2023 | ||||||||||||
| Amortized Cost | Fair Value | Fair Value | ||||||||||
| (In millions) | ||||||||||||
| Within one year |
Rs. | 1,713,673.5 | Rs. | 1,711,710.2 | US$ | 20,603.2 | ||||||
| Over one year through five years |
1,833,008.4 | 1,811,126.3 | 21,799.8 | |||||||||
| Over five years through ten years |
2,802,966.7 | 2,759,656.6 | 33,216.9 | |||||||||
| Over ten years |
1,910,856.8 | 1,871,527.1 | 22,526.8 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 8,260,505.4 | Rs. | 8,154,020.2 | US$ | 98,146.7 | ||||||
|
|
|
|
|
|
|
|||||||
The contractual residual maturity of AFS mortgage-backed and asset-backed debt securities as of September 30, 2023 is set out below:
| As of September 30, 2023 | ||||||||||||
| Amortized Cost | Fair Value | Fair Value | ||||||||||
| (In millions) | ||||||||||||
| Within one year |
Rs. | 72,061.4 | Rs. | 71,689.5 | US$ | 862.9 | ||||||
| Over one year through five years |
103,010.3 | 102,872.0 | 1,238.2 | |||||||||
| Over five years through ten years |
518.2 | 530.9 | 6.4 | |||||||||
| Over ten years |
78.6 | 81.3 | 0.9 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 175,668.5 | Rs. | 175,173.7 | US$ | 2,108.4 | ||||||
|
|
|
|
|
|
|
|||||||
F-27
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Gross realized gains and gross realized losses from sale of AFS debt securities and dividends and interest on such securities are set out below:
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| Gross realized gains on sale |
Rs. | 73.4 | Rs. | 1,460.7 | US$ | 17.6 | ||||||
| Gross realized losses on sale |
(906.7 | ) | (217.6 | ) | (2.6 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Realized gains/ (losses), net |
(833.3 | ) | 1,243.1 | 15.0 | ||||||||
| Dividends and interest |
143,220.7 | 226,607.5 | 2,727.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 142,387.4 | Rs. | 227,850.6 | US$ | 2,742.6 | ||||||
|
|
|
|
|
|
|
|||||||
7. Investments, held to maturity
There were no HTM securities as of March 31, 2023 and September 30, 2023.
8. Loans
Loan balances included Rs. 1,927,514.2 million and Rs. 2,657,553.8 million (US$ 31,987.9 million) as of March 31, 2023 and September 30, 2023, respectively, which have been provided as collateral for borrowings and are therefore restricted.
Loans by facility as of March 31, 2023 and September 30, 2023 were as follows:
| As of | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Retail loans: |
||||||||||||
| Auto loans |
Rs. | 1,221,097.6 | Rs. | 1,310,302.5 | US$ | 15,771.6 | ||||||
| Personal loans/Credit cards |
2,782,828.5 | 2,929,973.8 | 35,266.9 | |||||||||
| Retail business banking |
3,378,625.2 | 3,760,428.7 | 45,262.7 | |||||||||
| Commercial vehicle and construction equipment finance |
1,285,887.8 | 1,442,590.9 | 17,363.9 | |||||||||
| Housing loans |
1,020,901.6 | 6,511,387.1 | 78,374.9 | |||||||||
| Other retail loans |
1,817,239.6 | 2,011,667.7 | 24,213.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Subtotal |
Rs. | 11,506,580.3 | Rs. | 17,966,350.7 | US$ | 216,253.6 | ||||||
| Wholesale loans |
Rs. | 5,911,512.1 | Rs. | 7,319,347.6 | US$ | 88,100.0 | ||||||
|
|
|
|
|
|
|
|||||||
| Gross loans |
17,418,092.4 | 25,285,698.3 | 304,353.6 | |||||||||
| Less: Allowance for credit losses |
365,164.5 | 443,825.1 | 5,342.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 17,052,927.9 | Rs. | 24,841,873.2 | US$ | 299,011.5 | ||||||
|
|
|
|
|
|
|
|||||||
Loans, other than crop-related agricultural loans, are generally placed on non-accrual status and considered non-performing if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Crop-related agricultural loans are generally placed on non-accrual status and considered non-performing if principal or interest payments become 366 days past due and/or management deems the collectability of the principal and/or interest to be doubtful. Loans are returned to accrual status when the principal and interest amounts contractually due are brought current.
F-28
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table provides details of age analysis of loans and finance receivable on non-accrual status as of March 31, 2023 and September 30, 2023.
| As of March 31, 2023 | ||||||||||||||||||||
| 31-90 days past due |
Non-accrual/ 91 days or more past due |
Current (1), (2) | Total | Finance receivable on non-accrual status |
||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Retail Loans |
||||||||||||||||||||
| Auto loans |
Rs. | 5,738.3 | Rs. | 15,941.6 | Rs. | 1,199,417.7 | Rs. | 1,221,097.6 | Rs. | 15,941.6 | ||||||||||
| Personal loans/Credit card |
20,871.1 | 22,770.1 | 2,739,187.3 | 2,782,828.5 | 22,770.1 | |||||||||||||||
| Retail business banking |
21,241.0 | 43,937.8 | 3,313,446.4 | 3,378,625.2 | 43,937.8 | |||||||||||||||
| Commercial vehicle and construction equipment finance |
15,089.3 | 21,823.8 | 1,248,974.7 | 1,285,887.8 | 21,823.8 | |||||||||||||||
| Housing loans |
3,916.0 | 5,900.3 | 1,011,085.3 | 1,020,901.6 | 5,900.3 | |||||||||||||||
| Other retail |
30,007.7 | 56,822.9 | 1,730,409.0 | 1,817,239.6 | 56,822.9 | |||||||||||||||
| Wholesale loans |
3,905.0 | 33,512.3 | 5,874,094.8 | 5,911,512.1 | 33,512.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
Rs. | 100,768.4 | Rs. | 200,708.8 | Rs. | 17,116,615.2 | Rs. | 17,418,092.4 | Rs. | 200,708.8 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | Loans up to 30 days past due are considered current. |
| (2) | Includes crop-related agricultural loans with days past due less than 366, as they are not considered as non-performing, of Rs. 31.8 billion. |
| As of September 30, 2023 | ||||||||||||||||||||
| 31-90 days past due |
Non-accrual/ 91 days or more past due |
Current (1),(2) | Total | Finance receivable on non-accrual status |
||||||||||||||||
| (In millions) | ||||||||||||||||||||
| Retail Loans |
||||||||||||||||||||
| Auto loans |
Rs. | 6,208.0 | Rs. | 15,067.7 | Rs. | 1,289,026.8 | Rs. | 1,310,302.5 | Rs. | 15,067.7 | ||||||||||
| Personal loans/Credit card |
29,913.4 | 24,017.4 | 2,876,043.0 | 2,929,973.8 | 24,017.4 | |||||||||||||||
| Retail business banking |
12,050.4 | 48,524.5 | 3,699,853.8 | 3,760,428.7 | 48,524.5 | |||||||||||||||
| Commercial vehicle and construction equipment finance |
18,229.7 | 22,136.0 | 1,402,225.2 | 1,442,590.9 | 22,136.0 | |||||||||||||||
| Housing loans |
32,929.0 | 45,933.9 | 6,432,524.2 | 6,511,387.1 | 45,933.9 | |||||||||||||||
| Other retail |
28,711.0 | 63,482.1 | 1,919,474.6 | 2,011,667.7 | 63,482.1 | |||||||||||||||
| Wholesale loans |
45,110.0 | 114,405.7 | 7,159,831.9 | 7,319,347.6 | 114,405.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
Rs. | 173,151.5 | Rs. | 333,567.3 | Rs. | 24,778,979.5 | Rs. | 25,285,698.3 | Rs. | 333,567.3 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
US$ | 2,084.3 | US$ | 4,015.0 | US$ | 298,254.3 | US$ | 304,353.6 | US$ | 4,015.0 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | Loans up to 30 days past due are considered current. |
| (2) | Includes crop-related agricultural loans with days past due less than 366, as they are not considered as non-performing, of Rs. 29.8 billion. |
F-29
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For retail loans, the policy and approval processes are designed to account for the Bank’s high volumes of relatively homogeneous, small value transactions in retail loans. There are product programs for each of these products, which define the target markets, credit philosophy and process, detailed underwriting criteria for evaluating individual credits, exception reporting systems and individual loan exposure caps. The quantitative parameters considered include income, residence stability and the nature of the employment/business, while the qualitative parameters include accessibility, contractibility and profile. The credit policies/product programs are based on a statistical analysis of the Bank’s experience and industry data, in combination with the judgment of the Bank’s senior officers. The Bank regularly mines data on its borrower account behavior as well as static data to monitor the portfolio performance of each product segment and uses these as inputs for revising the Bank’s product programs, target market definitions and credit assessment criteria to meet the Bank’s twin objectives of combining volume growth and maintenance of asset quality.
As an integral part of the credit process, the Bank has a credit rating model for its wholesale and retail credit segments. The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal grading is updated at least annually. Disbursals under one-time restructurings are also included.
The amount of purchased financing receivables outstanding as of March 31, 2023 and September 30, 2023 were Rs. 1,024,684.4 million and Rs. 3,826.7 million, respectively.
The following table provides information on primary credit quality indicators as of March 31, 2023:
| Term loans by origination | ||||||||||||||||||||||||||||||||||||
| Credit quality indicators-Internally |
Prior | 2019 | 2020 | 2021 | 2022 | 2023 | Revolving loans |
Revolving loans converted to term loans |
Total | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||
| Auto loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 14,387.2 | Rs. | 37,425.2 | Rs. | 90,148.4 | Rs. | 160,443.6 | Rs. | 308,076.9 | Rs. | 525,693.8 | Rs. | 68,980.9 | Rs. | — | Rs. | 1,205,156.0 | ||||||||||||||||||
| Non-performing |
1,129.9 | 2,324.4 | 3,858.8 | 2,875.4 | 1,990.0 | 748.9 | 3,014.2 | — | 15,941.6 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 15,517.1 | Rs. | 39,749.6 | Rs. | 94,007.2 | Rs. | 163,319.0 | Rs. | 310,066.9 | Rs. | 526,442.7 | Rs. | 71,995.1 | Rs. | — | Rs. | 1,221,097.6 | ||||||||||||||||||
| Personal loans/Credit card |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 2,431.4 | Rs. | 20,673.2 | Rs. | 86,038.7 | Rs. | 155,911.2 | Rs. | 490,598.8 | Rs. | 1,206,873.5 | Rs. | 482,500.3 | Rs. | 315,031.3 | Rs. | 2,760,058.4 | ||||||||||||||||||
| Non-performing |
346.6 | 1,440.1 | 3,511.1 | 2,518.9 | 3,411.9 | 2,254.3 | 8,869.6 | 417.6 | 22,770.1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 2,778.0 | Rs. | 22,113.3 | Rs. | 89,549.8 | Rs. | 158,430.1 | Rs. | 494,010.7 | Rs. | 1,209,127.8 | Rs. | 491,369.9 | Rs. | 315,448.9 | Rs. | 2,782,828.5 | ||||||||||||||||||
| Retail business banking |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 75,583.1 | Rs. | 58,914.7 | Rs. | 94,372.2 | Rs. | 185,698.6 | Rs. | 412,305.0 | Rs. | 600,147.3 | Rs. | 1,907,666.5 | Rs. | — | Rs. | 3,334,687.4 | ||||||||||||||||||
| Non-performing |
4,851.6 | 2,996.8 | 2,847.2 | 4,136.3 | 1,558.3 | 218.4 | 27,329.2 | — | 43,937.8 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 80,434.7 | Rs. | 61,911.5 | Rs. | 97,219.4 | Rs. | 189,834.9 | Rs. | 413,863.3 | Rs. | 600,365.7 | Rs. | 1,934,995.7 | Rs. | — | Rs. | 3,378,625.2 | ||||||||||||||||||
| Commercial vehicle and construction equipment finance |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 3,981.3 | Rs. | 19,618.5 | Rs. | 49,030.6 | Rs. | 92,773.8 | Rs. | 277,461.6 | Rs. | 629,405.5 | Rs. | 191,792.7 | Rs. | — | Rs. | 1,264,064.0 | ||||||||||||||||||
| Non-performing |
398.0 | 2,582.1 | 4,491.4 | 4,696.0 | 3,053.3 | 763.8 | 5,839.2 | — | 21,823.8 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 4,379.3 | Rs. | 22,200.6 | Rs. | 53,522.0 | Rs. | 97,469.8 | Rs. | 280,514.9 | Rs. | 630,169.3 | Rs. | 197,631.9 | Rs. | — | Rs. | 1,285,887.8 | ||||||||||||||||||
| Housing loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 394,712.3 | Rs. | 160,447.9 | Rs. | 143,037.0 | Rs. | 120,214.8 | Rs. | 167,130.4 | Rs. | 29,458.9 | Rs. | — | Rs. | — | Rs. | 1,015,001.3 | ||||||||||||||||||
| Non-performing |
4,031.5 | 1,206.1 | 358.8 | 180.2 | 123.3 | 0.4 | — | — | 5,900.3 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 398,743.8 | Rs. | 161,654.0 | Rs. | 143,395.8 | Rs. | 120,395.0 | Rs. | 167,253.7 | Rs. | 29,459.3 | Rs. | — | Rs. | — | Rs. | 1,020,901.6 | ||||||||||||||||||
| Other retail loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 5,564.3 | Rs. | 10,063.3 | Rs. | 18,382.0 | Rs. | 42,416.7 | Rs. | 150,038.1 | Rs. | 603,873.8 | Rs. | 930,078.5 | Rs. | — | Rs. | 1,760,416.7 | ||||||||||||||||||
| Non-performing |
3,000.6 | 3,254.9 | 11,339.9 | 3,171.9 | 2,261.4 | 971.8 | 32,822.4 | — | 56,822.9 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 8,564.9 | Rs. | 13,318.2 | Rs. | 29,721.9 | Rs. | 45,588.6 | Rs. | 152,299.5 | Rs. | 604,845.6 | Rs. | 962,900.9 | Rs. | — | Rs. | 1,817,239.6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total |
Rs. | 510,417.8 | Rs. | 320,947.2 | Rs. | 507,416.1 | Rs. | 775,037.4 | Rs. | 1,818,009.0 | Rs. | 3,600,410.4 | Rs. | 3,658,893.5 | Rs. | 315,448.9 | Rs. | 11,506,580.3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
F-30
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table provides information on primary credit quality indicators as of September 30, 2023:
| Term loans by origination | ||||||||||||||||||||||||||||||||||||
|
Credit quality |
Prior | Year ended March 31, 2020 |
Year ended March 31, 2021 |
Year ended March 31, 2022 |
Year ended March 31, 2023 |
Six-month period ended September 30, 2023 |
Revolving loans |
Revolving loans converted to term loans |
Total | |||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||
| Auto loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 28,972.4 | Rs. | 63,307.2 | Rs. | 120,708.8 | Rs. | 253,051.7 | Rs. | 470,703.8 | Rs. | 275,689.0 | Rs. | 82,801.9 | Rs. | — | Rs. | 1,295,234.8 | ||||||||||||||||||
| Non-performing |
2,479.1 | 2,793.9 | 2,250.8 | 2,530.1 | 1,969.7 | 113.3 | 2,930.8 | — | 15,067.7 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 31,451.5 | Rs. | 66,101.1 | Rs. | 122,959.6 | Rs. | 255,581.8 | Rs. | 472,673.5 | Rs. | 275,802.3 | Rs. | 85,732.7 | Rs. | — | Rs. | 1,310,302.5 | ||||||||||||||||||
| Write off |
803.4 | 1,090.0 | 941.1 | 883.0 | 631.2 | — | — | — | 4,348.7 | |||||||||||||||||||||||||||
| Personal loans/Credit card |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 10,873.9 | Rs. | 51,617.0 | Rs. | 101,798.1 | Rs. | 346,446.1 | Rs. | 895,304.9 | Rs. | 657,856.7 | Rs. | 617,972.5 | Rs. | 224,087.2 | Rs. | 2,905,956.4 | ||||||||||||||||||
| Non-performing |
1,047.6 | 2,239.7 | 2,146.3 | 3,675.1 | 4,980.9 | 378.2 | 9,549.4 | 0.2 | 24,017.4 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 11,921.5 | Rs. | 53,856.7 | Rs. | 103,944.4 | Rs. | 350,121.2 | Rs. | 900,285.8 | Rs. | 658,234.9 | Rs. | 627,521.9 | Rs. | 224,087.4 | Rs. | 2,929,973.8 | ||||||||||||||||||
| Write off |
1,106.1 | 3,194.9 | 2,084.9 | 5,554.7 | 7,053.3 | 32.0 | 9,211.3 | 7,763.0 | 36,000.2 | |||||||||||||||||||||||||||
| Retail business banking |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 125,218.7 | Rs. | 78,867.3 | Rs. | 147,053.2 | Rs. | 366,113.9 | Rs. | 578,133.2 | Rs. | 325,444.7 | Rs. | 2,091,073.2 | Rs. | — | Rs. | 3,711,904.2 | ||||||||||||||||||
| Non-performing |
9,268.8 | 2,347.8 | 3,416.3 | 1,594.5 | 530.5 | 56.8 | 31,309.8 | — | 48,524.5 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 134,487.5 | Rs. | 81,215.1 | Rs. | 150,469.5 | Rs. | 367,708.4 | Rs. | 578,663.7 | Rs. | 325,501.5 | Rs. | 2,122,383.0 | Rs. | — | Rs. | 3,760,428.7 | ||||||||||||||||||
| Write off |
418.1 | 192.8 | 44.6 | 3.1 | — | — | 5.3 | — | 663.9 | |||||||||||||||||||||||||||
| Commercial vehicle and construction equipment finance |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 32,355.5 | Rs. | 31,100.3 | Rs. | 60,989.5 | Rs. | 223,540.0 | Rs. | 547,988.1 | Rs. | 332,122.0 | Rs. | 192,359.5 | Rs. | — | Rs. | 1,420,454.9 | ||||||||||||||||||
| Non-performing |
2,325.3 | 2,815.8 | 3,690.2 | 3,777.2 | 3,000.2 | 71.0 | 6,456.3 | — | 22,136.0 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 34,680.8 | Rs. | 33,916.1 | Rs. | 64,679.7 | Rs. | 227,317.2 | Rs. | 550,988.3 | Rs. | 332,193.0 | Rs. | 198,815.8 | Rs. | — | Rs. | 1,442,590.9 | ||||||||||||||||||
| Write off |
957.9 | 1,385.9 | 944.7 | 993.1 | 418.9 | 1.3 | — | — | 4,701.8 | |||||||||||||||||||||||||||
| Housing loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 1,484,840.3 | Rs. | 612,658.3 | Rs. | 791,166.9 | Rs. | 1,243,595.5 | Rs. | 1,526,625.0 | Rs. | 806,567.2 | Rs. | — | Rs. | — | Rs. | 6,465,453.2 | ||||||||||||||||||
| Non-performing |
26,707.4 | 7,608.1 | 5,246.6 | 3,817.8 | 2,194.4 | 359.6 | — | — | 45,933.9 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 1,511,547.7 | Rs. | 620,266.4 | Rs. | 796,413.5 | Rs. | 1,247,413.3 | Rs. | 1,528,819.4 | Rs. | 806,926.8 | Rs. | — | Rs. | — | Rs. | 6,511,387.1 | ||||||||||||||||||
| Write off |
8,830.4 | 268.6 | 7.2 | 1.8 | — | — | — | — | 9,108.0 | |||||||||||||||||||||||||||
| Other retail loans |
||||||||||||||||||||||||||||||||||||
| Performing |
Rs. | 13,394.7 | Rs. | 13,382.7 | Rs. | 27,801.6 | Rs. | 81,826.5 | Rs. | 295,711.6 | Rs. | 433,733.5 | Rs. | 1,082,335.0 | Rs. | — | Rs. | 1,948,185.6 | ||||||||||||||||||
| Non-performing |
5,209.3 | 9,523.9 | 2,698.9 | 2,571.7 | 3,029.8 | 306.6 | 40,141.9 | — | 63,482.1 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Subtotal |
Rs. | 18,604.0 | Rs. | 22,906.6 | Rs. | 30,500.5 | Rs. | 84,398.2 | Rs. | 298,741.4 | Rs. | 434,040.1 | Rs. | 1,122,476.9 | Rs. | — | Rs. | 2,011,667.7 | ||||||||||||||||||
| Write off |
870.4 | 2,042.5 | 894.5 | 1,152.2 | 1,405.5 | 3.8 | 1,388.4 | — | 7,757.3 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total |
Rs. | 1,742,693.0 | Rs. | 878,262.0 | Rs. | 1,268,967.2 | Rs. | 2,532,540.1 | Rs. | 4,330,172.1 | Rs. | 2,832,698.6 | Rs. | 4,156,930.3 | Rs. | 224,087.4 | Rs. | 17,966,350.7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total |
US$ | 20,976.1 | US$ | 10,571.3 | US$ | 15,274.0 | US$ | 30,483.1 | US$ | 52,120.6 | US$ | 34,096.0 | US$ | 50,035.3 | US$ | 2,697.2 | US$ | 216,253.6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total (Write Off) |
Rs. | 12,986.3 | Rs. | 8,174.7 | Rs. | 4,917.0 | Rs. | 8,587.9 | Rs. | 9,508.9 | Rs. | 37.1 | Rs. | 10,605.0 | Rs. | 7,763.0 | Rs. | 62,579.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total (Write Off) |
US$ | 156.3 | US$ | 98.4 | US$ | 59.2 | US$ | 103.4 | US$ | 114.5 | US$ | 0.4 | US$ | 127.6 | US$ | 93.4 | US$ | 753.2 | ||||||||||||||||||
|
|
|
|
|
|
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|
|
|||||||||||||||||||
F-31
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Wholesale Loans
The Bank has a process in place for grading each borrower according to its financial health and the performance of its business and each borrower is graded as pass/labeled/non-performing. Wholesale loans that are not non-performing are disclosed as pass or labeled and considered to be performing. Labeled loans are those with evidence of weakness where such exposures indicate deteriorating trends which if not corrected could adversely impact repayment of the obligations. The Bank’s model assesses the overall risk over four major categories: industry risk, business risk, management risk and financial risk. The inputs in each of the categories are combined to provide an aggregate numerical rating, which is a function of the aggregate weighted scores based on the assessment under each of these four risk categories.
The following table provides information on primary credit quality indicators as of March 31, 2023.
| Term loans by origination | ||||||||||||||||||||||||||||||||
| Credit
quality |
Prior | 2019 | 2020 | 2021 | 2022 | 2023 | Revolving Loans |
Total | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Wholesale loans |
||||||||||||||||||||||||||||||||
| Pass |
Rs. | 130,723.1 | Rs. | 135,400.3 | Rs. | 321,191.0 | Rs. | 708,309.0 | Rs. | 1,244,766.9 | Rs. | 1,471,254.9 | Rs. | 1,841,015.5 | Rs. | 5,852,660.7 | ||||||||||||||||
| Labeled |
2,625.3 | 1,586.9 | 635.7 | 4,200.8 | 5,946.5 | 795.3 | 9,548.6 | 25,339.1 | ||||||||||||||||||||||||
| Non-performing |
3,830.5 | 1,914.3 | 66.1 | 326.4 | 6,297.4 | 39.1 | 21,038.5 | 33,512.3 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
Rs. | 137,178.9 | Rs. | 138,901.5 | Rs. | 321,892.8 | Rs. | 712,836.2 | Rs. | 1,257,010.8 | Rs. | 1,472,089.3 | Rs. | 1,871,602.6 | Rs. | 5,911,512.1 | ||||||||||||||||
|
|
|
|
|
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|||||||||||||||||
F-32
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table provides information on primary credit quality indicators as of September 30, 2023.
| Term loans by origination | ||||||||||||||||||||||||||||||||
| Credit quality |
Prior | Year ended March 31, 2020 |
Year ended March 31, 2021 |
Year ended March 31, 2022 |
Year ended March 31, 2023 |
Six-month period ended September 30, 2023 |
Revolving Loans |
Total | ||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Wholesale loans |
||||||||||||||||||||||||||||||||
| Pass |
Rs. | 252,959.2 | Rs. | 304,714.1 | Rs. | 658,267.0 | Rs. | 1,127,339.2 | Rs. | 1,401,116.4 | Rs. | 1,436,413.2 | Rs. | 1,916,874.1 | Rs. | 7,097,683.2 | ||||||||||||||||
| Labeled |
27,834.2 | 1,263.4 | 19,476.6 | 18,710.0 | 16,752.7 | 7,778.3 | 15,443.5 | 107,258.7 | ||||||||||||||||||||||||
| Non-performing |
50,620.8 | 4,189.6 | 15,024.7 | 9,407.2 | 6,585.0 | 7,187.0 | 21,391.4 | 114,405.7 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
Rs. | 331,414.2 | Rs. | 310,167.1 | Rs. | 692,768.3 | Rs. | 1,155,456.4 | Rs. | 1,424,454.1 | Rs. | 1,451,378.5 | Rs. | 1,953,709.0 | Rs. | 7,319,347.6 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total Write off |
Rs. | 20.8 | Rs | — | Rs | — | Rs | — | Rs | — | Rs | — | Rs | — | Rs | 20.8 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
US$ | 3,989.1 | US$ | 3,733.4 | US$ | 8,338.6 | US$ | 13,907.8 | US$ | 17,145.6 | US$ | 17,469.5 | US$ | 23,516.0 | US$ | 88,100.0 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total (Write Off) |
US$ | 0.3 | US$ | — | US$ | — | US$ | — | US$ | — | US$ | — | US$ | — | US$ | 0.3 | ||||||||||||||||
|
|
|
|
|
|
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|
|
|
|||||||||||||||||
Non-performing loans by industry as of March 31, 2023 and September 30, 2023 are as follows:
| As of March 31, 2023 | ||||
| (In millions) | ||||
| Gross non-performing loans by industry: |
||||
| — Consumer Loans |
Rs. | 34,684.8 | ||
| — Agri Production—Food |
28,222.2 | |||
| — Retail Trade |
15,044.4 | |||
| — Agri Allied |
13,426.1 | |||
| — Road Transportation |
11,505.0 | |||
| — Consumer services |
10,031.1 | |||
| — Others (none greater than 5% of non-performing loans) |
87,795.2 | |||
|
|
|
|||
| Total |
Rs. | 200,708.8 | ||
|
|
|
|||
| As of September 30, 2023 | ||||||||
| (In millions) | ||||||||
| Gross non-performing loans by industry: |
||||||||
| — Real Estate & Property Services |
Rs. | 75,839.7 | US$ | 912.9 | ||||
| — Consumer Loans |
68,591.0 | 825.6 | ||||||
| — Agri Production—Food |
32,149.7 | 387.0 | ||||||
| — Consumer Services |
16,684.0 | 200.8 | ||||||
| — Others (none greater than 5% of impaired loans) |
140,302.9 | 1,688.7 | ||||||
|
|
|
|
|
|||||
| Total |
Rs. | 333,567.3 | US$ | 4,015.0 | ||||
|
|
|
|
|
|||||
Summary information relating to interest income recognized on non-performing loans during the fiscal year ended March 31, 2023 the six-month period ended September 30, 2023 is as follows:
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| Interest income recognized on non-performing loans |
Rs. | 7,738.0 | Rs. | 4,452.4 | US$ | 53.6 | ||||||
F-33
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on the sale or operation of the underlying collateral. Such loans are carried at fair value based on current values determined by either independent appraisals or internal evaluations, adjusted for selling costs or other amounts to be deducted when estimating expected net sales proceeds. For the fiscal year ended March 31, 2023 and the six-month period ended September 30, 2023, the Bank did not have collateral-dependent loans wherein the borrower is experiencing financial difficulty and the repayment of the loan is dependent on the sale of the underlying collateral.
Allowances for credit losses as of March 31, 2023 are as follows:
| Auto loans | Personal loans/ Credit card |
Retail business banking |
Commercial vehicle and construction equipment finance |
Housing loans |
Other retail |
Wholesale | Total | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||
| Allowance for credit losses, beginning of the period |
Rs. | 41,769.4 | Rs. | 111,566.4 | Rs. | 49,055.0 | Rs. | 31,750.9 | Rs. | 2,692.2 | Rs. | 61,437.0 | Rs. | 74,400.9 | Rs. | 372,671.8 | ||||||||||||||||
| Write-offs |
(10,456.0 | ) | (88,744.9 | ) | (3,987.8 | ) | (15,270.1 | ) | (479.0 | ) | (15,769.9 | ) | (3,156.0 | ) | (137,863.7 | ) | ||||||||||||||||
| Net allowance for credit losses (*) |
2,522.1 | 76,812.9 | 18,907.6 | 14,649.8 | 1,056.7 | 26,345.3 | (9,938.0 | ) | 130,356.4 | |||||||||||||||||||||||
| Allowance for credit losses, end of the period |
Rs. | 33,835.5 | Rs. | 99,634.4 | Rs. | 63,974.8 | Rs. | 31,130.6 | Rs. | 3,269.9 | Rs. | 72,012.4 | Rs. | 61,306.9 | Rs. | 365,164.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Allowance for credit losses: |
||||||||||||||||||||||||||||||||
| Individually evaluated allowance |
Rs. | 4.6 | Rs. | — | Rs. | 2,320.3 | Rs. | 15.0 | Rs. | — | Rs. | 92.1 | Rs. | 29,264.6 | Rs. | 31,696.6 | ||||||||||||||||
| Collectively evaluated allowance |
33,830.9 | 99,634.4 | 61,654.5 | 31,115.6 | 3,269.9 | 71,920.3 | 32,042.3 | 333,467.9 | ||||||||||||||||||||||||
| Loans: |
||||||||||||||||||||||||||||||||
| Individually evaluated loans |
16.4 | 0.8 | 2,782.0 | 290.8 | — | 92.3 | 33,879.5 | 37,061.8 | ||||||||||||||||||||||||
| Collectively evaluated loans |
1,221,081.2 | 2,782,827.7 | 3,375,843.2 | 1,285,597.0 | 1,020,901.6 | 1,817,147.3 | 5,877,632.6 | 17,381,030.6 | ||||||||||||||||||||||||
| (*) | Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs. 56,142.6 million. Recoveries from retail loans is Rs. 53,374.2 million and from wholesale loans is Rs. 2,768.4 million. |
F-34
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Allowances for credit losses as of September 30, 2023 are as follows:
| Auto loans | Personal loans/ Credit card |
Retail business banking |
Commercial vehicle and construction equipment finance |
Housing loans |
Other retail |
Wholesale | Total | Total | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses, beginning of the period |
Rs. | 33,835.5 | Rs. | 99,634.4 | Rs. | 63,974.8 | Rs. | 31,130.6 | Rs. | 3,269.9 | Rs. | 72,012.4 | Rs. | 61,306.9 | Rs. | 365,164.5 | US$ | 4,395.3 | ||||||||||||||||||
| Allowance for credit losses on PCD Loans at acquisition |
— | — | — | — | 2,927.9 | — | 36,487.3 | 39,415.2 | 474.4 | |||||||||||||||||||||||||||
| Write-offs |
(4,348.7 | ) | (36,000.2 | ) | (663.9 | ) | (4,701.8 | ) | (9,108.0 | ) | (7,757.3 | ) | (20.8 | ) | (62,600.7 | ) | (753.5) | |||||||||||||||||||
| Net allowance for credit losses (*) |
2,463.4 | 35,946.5 | 21,444.8 | 4,946.7 | 12,468.3 | 4,696.3 | 19,880.1 | 101,846.1 | 1,225.9 | |||||||||||||||||||||||||||
| Allowance for credit losses, end of the period |
Rs. | 31,950.2 | Rs. | 99,580.7 | Rs. | 84,755.7 | Rs. | 31,375.5 | Rs. | 9,558.1 | Rs. | 68,951.4 | Rs. | 117,653.5 | Rs. | 443,825.1 | US$ | 5,342.1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Allowance for credit losses: |
||||||||||||||||||||||||||||||||||||
| Individually evaluated allowance |
Rs. | 15.6 | Rs. | 32.2 | Rs. | 3,527.2 | Rs. | 63.6 | Rs. | — | Rs. | 47.2 | Rs. | 73,420.2 | Rs. | 77,106.0 | US$ | 928.0 | ||||||||||||||||||
| Collectively evaluated allowance |
31,934.6 | 99,548.5 | 81,228.5 | 31,311.9 | 9,558.1 | 68,904.2 | 44,233.3 | 366,719.1 | 4,414.0 | |||||||||||||||||||||||||||
| Loans: |
||||||||||||||||||||||||||||||||||||
| Individually evaluated loans |
22.8 | 46.9 | 3,940.7 | 63.6 | — | 47.2 | 145,313.6 | 149,434.8 | 1,798.6 | |||||||||||||||||||||||||||
| Collectively evaluated loans |
1,310,279.7 | 2,929,926.9 | 3,756,488.0 | 1,442,527.3 | 6,511,387.1 | 2,011,620.5 | 7,174,034.0 | 25,136,263.5 | 302,554.9 | |||||||||||||||||||||||||||
| (*) | Net allowances for credit losses charged to expense does not include the recoveries against write-off cases amounting to Rs. 25,402.3 million (US$ 305.8 million). Recoveries from retail loans is Rs. 21,893.5 million and from wholesale loans is Rs. 3,508.8 million. |
The allowance for credit losses is assessed at each period end and the increase/(decrease), as the case may be, is recorded in the consolidated statement of income under allowance for credit losses net of recoveries against write-offs.
F-35
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
9. Goodwill and Intangible Assets
Goodwill arising from a business combination is not amortized but is tested for impairment. The Bank tests the goodwill of each separate reporting unit by initially qualitatively assessing whether events and circumstances indicate that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If such assessment indicates fair value is not less than the carrying value, the reporting unit is deemed not to be impaired and no further analysis is required. If it is more likely than not that fair value of the reporting unit is below its carrying value, a quantitative test is then performed. There were no changes in the carrying amount of goodwill of Rs. 74,937.9 million for the fiscal year ended March 31, 2023. During the six month period ended September 30, 2023 , the carrying amount of goodwill increased by Rs. 1,628,148.5 million (US$ 19,597.4 million) as a result of the merger of eHDFC group with HDFC Bank. Further, goodwill amounting to Rs. 55,426.1 million (US$ 667.1 million) pertains to HDFC Credila Financial Services Limited which is classified as held for sale as on date of acquisition. No impairment charges were recorded against goodwill during the period. The carrying amount of goodwill was Rs. 1,647,660.3 million (US$ 19,832.2 million) as on September 30, 2023.
The following table represents the changes in the carrying amount of goodwill reported in the consolidated balance sheets for the year ended March 31, 2023 and six month period ended September 30, 2023:
| As of September 30, 2023 | ||||||||||||||||||||||||||||
| Retail Banking |
Wholesale Banking |
Treasury Services |
Insurance Services |
Others | Total | Total | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| Balance as at March 31, 2022 |
Rs. | 74,937.9 | Rs. | — | Rs. | — | Rs. | — | Rs. | — | Rs. | 74,937.9 | US$ | 902.0 | ||||||||||||||
| Balance as at March 31, 2023 |
74,937.9 | — | — | — | — | 74,937.9 | 902.0 | |||||||||||||||||||||
| Goodwill on acquisition during the year |
368,079.6 | 71,617.3 | — | 959,080.0 | 229,371.6 | 1,628,148.5 | 19,597.4 | |||||||||||||||||||||
| Less: Goodwill classified as held for sale |
55,426.1 | 55,426.1 | 667.2 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at September 30, 2023 |
Rs. | 443,017.5 | Rs. | 71,617.3 | Rs. | — | Rs. | 959,080.0 | Rs. | 173,945.5 | Rs. | 1,647,660.3 | US$ | 19,832.2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
F-36
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Intangible assets, net, consists of the following:
| As of, | ||||||||||||
| July 1, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Brand |
Rs. | 750,758.2 | Rs. | 742,230.7 | US$ | 8,933.9 | ||||||
| Investment management contract |
369,785.6 | 369,785.6 | 4,451.0 | |||||||||
| Value of business acquired |
221,738.5 | 221,738.5 | 2,669.0 | |||||||||
| Distribution network |
59,543.2 | 50,570.8 | 608.8 | |||||||||
| Customer Relationship |
29,874.9 | 29,874.9 | 359.5 | |||||||||
| Transferable Development Rights |
3,117.7 | 3,117.7 | 37.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Intangible Assets |
Rs. | 1,434,818.1 | Rs. | 1,417,318.2 | US$ | 17,059.7 | ||||||
| Less: Accumulated amortization |
— | 8,031.6 | 96.7 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total intangible assets, net |
Rs. | 1,434,818.1 | Rs. | 1,409,286.6 | US$ | 16,963.0 | ||||||
|
|
|
|
|
|
|
|||||||
| (*) | All the above intangible assets excluding Brand and Investment Management Contract are subject to amortization. Further, intangible assets include Brand amounting to Rs. 8,527.5 million (US $ 102.6 million) and Distribution network amounting to Rs. 8,972.4 million (US $ 108.0 million) pertaining to HDFC Credila Financial Services Limited which was classified as held for sale as on the Effective Date. |
Amortization expenses related to intangible assets was Rs. 8,031.6 million for the six month period ended September 30, 2023. These amounts are included in “Non-Interest Expense -Amortization of intangible assets” in the consolidated financial statements.
At September 30, 2023, the expected future amortization of finite-lived intangible assets is as follows:
| As of September 30, 2023 | ||||||||
| (In millions) | ||||||||
| Due in fiscal year ending March 31: |
||||||||
| 2024 (remaining period) |
Rs.13,169.9 | US$ | 158.5 | |||||
| 2025 |
21,827.1 | 262.7 | ||||||
| 2026 |
19,843.8 | 238.9 | ||||||
| 2027 |
18,138.2 | 218.3 | ||||||
| 2028 |
16,298.0 | 196.2 | ||||||
| Thereafter |
207,995.2 | 2,503.6 | ||||||
|
|
|
|
|
|||||
F-37
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
10. Deposits
Deposits include demand deposits, which are non-interest-bearing, and savings and time deposits, which are interest-bearing. Deposits as of March 31, 2023 and September 30, 2023 were as follows:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Interest-bearing: |
||||||||||||
| Savings deposits |
Rs. | 5,624,911.4 | Rs. | 5,699,558.4 | US$ | 68,603.3 | ||||||
| Time deposits |
10,472,547.9 | 13,541,401.9 | 162,992.3 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total interest-bearing deposits |
16,097,459.3 | 19,240,960.3 | 231,595.6 | |||||||||
| Non-interest-bearing deposits |
2,729,176.3 | 2,472,416.4 | 29,759.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 18,826,635.6 | Rs. | 21,713,376.7 | US$ | 261,355.1 | ||||||
|
|
|
|
|
|
|
|||||||
F-38
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
11. Short-term borrowings
Short-term borrowings were mainly comprised of money market borrowings which are unsecured and are utilized by the Bank for its operations. Short-term borrowings as of March 31, 2023 and September 30, 2023 were comprised of the following:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Borrowed in the call market |
Rs. | 14,359.5 | Rs. | 74,202.7 | US$ | 893.1 | ||||||
| Term borrowings from institutions/banks |
735,131.5 | 1,424,855.2 | 17,150.4 | |||||||||
| Foreign currency borrowings |
320,695.0 | 177,224.7 | 2,133.2 | |||||||||
| Bills rediscounted |
19,711.5 | 29,542.5 | 355.6 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 1,089,897.5 | Rs. | 1,705,825.1 | US$ | 20,532.3 | ||||||
|
|
|
|
|
|
|
|||||||
12. Long-term debt
Long-term debt as of March 31, 2023 and September 30, 2023 was comprised of the following:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Subordinated debt |
Rs. | 375,060.0 | Rs. | 385,435.1 | US$ | 4,639.3 | ||||||
| Others (*) |
1,681,587.2 | 5,828,047.3 | 70,149.8 | |||||||||
| Debt issuance cost |
(2,210.8 | ) | (2,570.1 | ) | (30.9 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 2,054,436.4 | Rs. | 6,210,912.3 | US$ | 74,758.2 | ||||||
|
|
|
|
|
|
|
|||||||
| (*) | Includes securities sold under repurchase agreements amounting to Rs. 90,200.0 million with a stated interest rate of 4.2% per annum for fiscal year ended March 31, 2023 and nil for the six-month period ended September 30, 2023, under RBI long-term repo operation with a three-year maturity period. Increases in “Long-term debt – other” as of September 30, 2023, are essentially on account of the Business Combination (refer to note 3). |
F-39
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The below table presents the balance of long-term debt as of March 31, 2023 and September 30, 2023 and the related contractual rates and maturity dates:
| As of | ||||||||||||||||||||||||
| March 31, 2023 | September 30, 2023 | |||||||||||||||||||||||
| Maturity / Call dates |
Stated interest rates |
Total | Maturity / Call dates |
Stated interest rates |
Total | Total | ||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Subordinated debt |
||||||||||||||||||||||||
| Subordinated debt (other than perpetual debt) |
2024-2033 | 7.35% to 10.20% | Rs. | 248,983.8 | 2024-2032 | 6.67% to 10.2% | Rs. | 258,559.9 | US$ | 3,112.2 | ||||||||||||||
| Perpetual debt — (1) |
2024-2030 | 7.55% to 9.40% | 43,850.5 | 2024-2032 | 7.55% to 9.4% | 43,884.9 | 528.2 | |||||||||||||||||
| Perpetual debt — (2) |
2027 | 3.70% | 81,724.6 | 2027 | 3.70% | 82,665.1 | 995.0 | |||||||||||||||||
| Others (*) |
||||||||||||||||||||||||
| Variable rate — (1) |
2024-2026 | 1.40% to 4.80% | 76,405.9 | 2024-2029 | 6.10% to 6.51% | 386,725.4 | 4,654.9 | |||||||||||||||||
| Variable rate — (2) |
2024-2029 | 4.50% to 9.44% | 148,813.9 | 2024-2030 | 6.90% to 8.9% | 1,249,986.9 | 15,045.6 | |||||||||||||||||
| Fixed rate — (1) |
2024-2030 | 2.80% to 9.81% | 1,374,137.4 | 2024-2034 | 2.80% to 9.60% | 4,056,251.9 | 48,823.4 | |||||||||||||||||
| Fixed rate — (2) |
2024 | 2.58% | 80,520.3 | 2024-2027 | 5.60% to 6.08% | 132,838.2 | 1,598.9 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total |
Rs. | 2,054,436.4 | Rs. | 6,210,912.3 | US$ | 74,758.2 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| (*) | Variable rate — (1), Perpetual debt — (2) and Fixed rate — (2) represent foreign currency debt. Variable rate debt is typically indexed to LIBOR, SOFR, T-bill rates, marginal cost of funds based lending rates (“MCLR”), among others. |
The scheduled maturities of long-term debt are set out below:
| As of September 30, 2023 | ||||||||
| (In millions) | ||||||||
| Due in the fiscal year ending March 31: |
||||||||
| 2024 (remaining period) |
Rs. | 359,404.2 | US$ | 4,326.0 | ||||
| 2025 |
688,704.6 | 8,289.7 | ||||||
| 2026 |
1,294,418.7 | 15,580.4 | ||||||
| 2027 |
1,075,261.2 | 12,942.5 | ||||||
| 2028 |
264,065.3 | 3,178.4 | ||||||
| Thereafter |
2,402,508.3 | 28,918.0 | ||||||
|
|
|
|
|
|||||
| Total(1) |
Rs. | 6,084,362.3 | US$ | 73,235.0 | ||||
|
|
|
|
|
|||||
| (1) | The scheduled maturities of long-term debt do not include perpetual bonds of Rs. 126,550.0 million (net of debt issuance cost). |
During the six-month period ended September 30, 2023, the Bank issued subordinated debt amounting to nil (previous period Rs. 200,000) and perpetual debt amounting to nil (previous period Rs. 30,000.0 million). During the six-month period ended September 30, 2023, the Bank also raised other long-term debt amounting to Rs. 569,672.8 million (previous period Rs. 792,933.1 million).
As of March 31, 2023 and September 30, 2023, other long-term debt includes foreign currency borrowings from other banks aggregating to Rs. 157,092.6 million and Rs. 519,732.1 million, respectively, and functional currency borrowings aggregating to Rs. 1,524,494.6 million and Rs. 5,308,315.2 million, respectively.
F-40
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
13. Accumulated other comprehensive income
The below table presents the changes in accumulated other comprehensive income (“AOCI”) after income tax for the fiscal years ended March 31, 2023 and six-month period ended September 30, 2023.
| AFS debt securities | Foreign currency translation reserve |
Total | ||||||||||
| (In millions) | ||||||||||||
| Balance, March 31, 2022 |
Rs. | (21,063.4 | ) | Rs. | 3,270.9 | Rs. | (17,792.5 | ) | ||||
| Net unrealized gain/(loss) arising during the period |
(52,522.8 | ) | 3,378.5 | (49,144.3 | ) | |||||||
| Amounts reclassified to income |
(1,336.9 | ) | — | (1,336.9 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Balance, March 31, 2023 |
Rs. | (74,923.1 | ) | Rs. | 6,649.4 | Rs. | (68,273.7 | ) | ||||
|
|
|
|
|
|
|
|||||||
| AFS debt securities | Foreign currency translation reserve |
Long-Duration Insurance Contract |
Total | |||||||||||||
| (In millions) | ||||||||||||||||
| Balance, March 31, 2023 |
Rs. | (74,923.1 | ) | Rs. | 6,649.4 | Rs. | — | Rs. | (68,273.7 | ) | ||||||
| Net unrealized gain/ (loss) arising during the period |
(557.0 | ) | 561.2 | — | 4.2 | |||||||||||
| Amounts reclassified to income |
1,128.3 | — | — | 1,128.3 | ||||||||||||
| Long-duration insurance contract discount rate change |
— | — | 11,726.2 | 11,726.2 | ||||||||||||
| Transferred to undistributed policyholders earnings account |
— | — | (1,922.5 | ) | (1,922.5 | ) | ||||||||||
| Net change |
(74,351.8 | ) | 7,210.6 | 9,803.7 | (57,337.5 | ) | ||||||||||
| Less: Other comprehensive income attributable to shareholders of noncontrolling interest |
(5,099.7 | ) | 13.3 | 4,862.8 | (223.6 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance, September 30, 2023 |
Rs. | (69,252.1 | ) | Rs. | 7,197.3 | Rs. | 4,940.9 | Rs. | (57,113.9 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance, September 30, 2023 |
US$ | (833.6 | ) | US$ | 86.6 | US$ | 59.5 | US$ | (687.5 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
F-41
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The below table presents the reclassification out of AOCI by income line item and the related income tax effect for the six-month periods ended September 30, 2022 and September 30, 2023.
| As of September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| AFS debt securities: |
||||||||||||
| Realized (gain)/loss on sales of AFS debt securities, net |
Rs. | (832.5 | ) | Rs. | 1,557.9 | US$ | 18.8 | |||||
| Allowance on AFS debt securities |
— | (57.2 | ) | (0.7 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total before income tax |
Rs. | (832.5 | ) | Rs. | 1,500.7 | US$ | 18.1 | |||||
| Income tax |
209.5 | (372.4 | ) | (4.5 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net of income tax |
Rs. | (623.0 | ) | Rs. | 1,128.3 | US$ | 13.6 | |||||
|
|
|
|
|
|
|
|||||||
14. Insurance services:
Separate account assets and liabilities:
Separate account assets consist of investment accounts established and maintained by the Bank. The investment objectives of these assets are directed by the contract holder. An equivalent amount is reported as separate account liabilities. These accounts are reported separately from the general account assets and liabilities.
The following information about the separate account liabilities includes disaggregated rollforwards. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular line of business. The separate account liabilities are primarily comprised of the following Unit-Linked Life, Unit-Linked Pension and Group Linked contracts.
The balances of and changes in separate account liabilities were as follows:
| As of September 30, 2023 | ||||||||||||||||||||
| Particulars |
Unit-Linked Life | Unit-Linked Pension |
Group Linked | Total | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Balance, July 1, 2023 |
Rs. | 709,215.4 | Rs. | 55,986.3 | Rs. | 92,327.0 | Rs. | 857,528.7 | US$ | 10,321.7 | ||||||||||
| Premiums and deposits |
26,029.4 | 823.6 | 3,478.0 | 30,331.0 | 365.1 | |||||||||||||||
| Policy Charges |
(4,852.0 | ) | (153.5 | ) | (648.3 | ) | (5,653.8 | ) | (68.1 | ) | ||||||||||
| Surrenders and withdrawals |
(31,621.0 | ) | (2,701.3 | ) | (784.7 | ) | (35,107.0 | ) | (422.6 | ) | ||||||||||
| Benefit Payments |
(11,199.6 | ) | (1,098.3 | ) | 407.7 | (11,890.2 | ) | (143.1 | ) | |||||||||||
| Investment Performance |
43,189.4 | 1,646.8 | 1,410.1 | 46,246.3 | 556.6 | |||||||||||||||
| Other Charges |
(910.5 | ) | (39.9 | ) | (43.3 | ) | (993.7 | ) | (12.0 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Balance, September 30, 2023 |
Rs. | 729,851.1 | Rs. | 54,463.7 | Rs. | 96,146.5 | Rs. | 880,461.3 | US$ | 10,597.6 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
The Bank’s aggregate fair value of assets, by major investment asset category, supporting separate accounts liabilities was as follows:
| As of September 30, 2023 | ||||||||||||||||||||
| Particulars |
Unit-Linked Life | Unit-Linked Pension |
Group Linked |
Total | Total | |||||||||||||||
| (In millions) | ||||||||||||||||||||
| Government of India securities |
Rs. | 37,349.7 | Rs. | 6,131.2 | Rs. | 36,323.8 | Rs. | 79,804.7 | US$ | 960.5 | ||||||||||
| Other corporate/financial institution securities |
80,944.1 | 10,160.2 | 37,032.9 | 128,137.2 | 1,542.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total debt securities |
118,293.8 | 16,291.4 | 73,356.7 | 207,941.9 | 2,502.8 | |||||||||||||||
| Other securities (including mutual fund units) |
605,536.3 | 37,617.4 | 20,912.0 | 664,065.7 | 7,993.1 | |||||||||||||||
| Other net current assets |
6,021.0 | 554.9 | 1,877.8 | 8,453.7 | 101.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
Rs. | 729,851.1 | Rs. | 54,463.7 | Rs. | 96,146.5 | Rs. | 880,461.3 | US$ | 10,597.6 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
F-42
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Liabilities on policies in force
The Bank’s liabilities on policies in force on the consolidated balance sheets was as follows:
| Description |
As of September 30, 2023 | |||||||
| (In millions) | ||||||||
| Liability for Future Policy Benefits |
Rs. 1,456,797.2 | US$ | 17,534.9 | |||||
| Policyholder Account Balances |
92,896.8 | 1,118.2 | ||||||
| Other Policy Liabilities |
5,658.5 | 68.1 | ||||||
|
|
|
|
|
|||||
| Total |
1,555,352.5 | 18,721.2 | ||||||
|
|
|
|
|
|||||
Liabilities for future policy benefits
The Bank’s liabilities for future policy benefits on the consolidated balance sheets was as follows:
| Description |
As of September 30, 2023 | |||||||
| (In millions) | ||||||||
| Non Par Protection |
Rs. 144,105.5 | US$ | 1,734.5 | |||||
| Non Par Riders |
16.8 | 0.2 | ||||||
| Non Par Savings |
440,190.6 | 5,298.4 | ||||||
| Non Par Pension |
18,843.2 | 226.8 | ||||||
| Individual Annuity |
222,746.5 | 2,681.1 | ||||||
| Individual health |
392.2 | 4.7 | ||||||
| Par life |
517,086.3 | 6,224.0 | ||||||
| Par Pension |
16,963.8 | 204.2 | ||||||
| Group Non Par Life |
96,452.3 | 1,161.0 | ||||||
|
|
|
|
|
|||||
| Total |
Rs. 1,456,797.2 | US$ | 17,534.9 | |||||
|
|
|
|
|
|||||
The following information about the liability for future policy benefits includes disaggregated rollforwards of expected future net premiums and expected future benefits. The products grouped within these rollforwards were selected based upon common characteristics and valuations using similar inputs, judgments, assumptions and methodologies within a particular line of business. All amounts presented in the rollforwards and accompanying financial information do not include a reduction for amounts ceded to reinsurers, except with respect to ending net liability for future policy benefits balances where applicable.
F-43
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| Period Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Non Par Protection |
Non Par Riders |
Non Par Savings |
Non Par Pension |
Individual Annuity |
Individual Health |
Par Life | Par Pension |
Group Non Par Life |
Total | Total | ||||||||||||||||||||||||||||||||||
| (Rs. In millions, other than weighted average) | (US$ in millions) | |||||||||||||||||||||||||||||||||||||||||||
| Present value of Expected Net Premium |
||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 01, at current discount rate at balance sheet date |
40,899.8 | 429.3 | 251,372.4 | 97.1 | 2,472.3 | 791.6 | 44.0 | — | — | 296,106.5 | 3,564.1 | |||||||||||||||||||||||||||||||||
| Balance at July 01, at original discount rate |
40,899.8 | 429.3 | 251,372.4 | 97.1 | 2,472.3 | 791.6 | 44.0 | — | — | 296,106.5 | 3,564.1 | |||||||||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions |
(792.0 | ) | — | (161.4 | ) | 0.2 | — | — | (44.0 | ) | — | — | (997.2 | ) | (12.0 | ) | ||||||||||||||||||||||||||||
| Effect of acturial variances from expected experience |
(21.3 | ) | 63.1 | (130.3 | ) | 36.4 | 436.9 | 21.8 | 2,170.1 | 18.3 | (2,309.7 | ) | 285.3 | 3.4 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Adjusted Balance |
40,086.5 | 492.4 | 251,080.7 | 133.7 | 2,909.2 | 813.4 | 2,170.1 | 18.3 | (2,309.7 | ) | 295,394.6 | 3,555.5 | ||||||||||||||||||||||||||||||||
| Issuances |
5,290.2 | 47.0 | 20,922.9 | 632.8 | 11,537.5 | 5.1 | 7,216.3 | 715.5 | 9,968.2 | 56,335.5 | 678.1 | |||||||||||||||||||||||||||||||||
| Interest accrual |
823.3 | 9.8 | 4,851.2 | 12.0 | 136.8 | 14.6 | 155.5 | 11.4 | 36.3 | 6,050.9 | 72.8 | |||||||||||||||||||||||||||||||||
| Net premium collected |
(2,012.3 | ) | (21.9 | ) | (18,747.3 | ) | (181.6 | ) | (10,591.7 | ) | (56.3 | ) | (1,577.8 | ) | (192.2 | ) | (7,694.0 | ) | (41,075.1 | ) | (494.4 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Balance at September 30, at original discount rate |
44,187.7 | 527.3 | 258,107.5 | 596.9 | 3,991.8 | 776.8 | 7,964.1 | 553.0 | 0.8 | 316,705.9 | 3,812.0 | |||||||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions |
(286.6 | ) | (2.7 | ) | (1,106.0 | ) | (2.5 | ) | 7.5 | (3.9 | ) | (43.3 | ) | (2.0 | ) | — | (1,439.5 | ) | (17.3 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Balance at September 30, at current discount rate at balance sheet date |
43,901.1 | 524.6 | 257,001.5 | 594.4 | 3,999.3 | 772.9 | 7,920.8 | 551.0 | 0.8 | 315,266.4 | 3,794.7 | |||||||||||||||||||||||||||||||||
| Present value of Expected Future Policy Benefits |
||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 01, at current discount rate at balance sheet date |
180,285.0 | 413.9 | 658,883.0 | 13,185.7 | 212,888.9 | 1,088.2 | 504,494.2 | 16,744.8 | 66,264.1 | 1,654,247.8 | 19,911.5 | |||||||||||||||||||||||||||||||||
| Balance at July 01, at original discount rate |
180,285.0 | 413.9 | 658,883.0 | 13,185.7 | 212,888.9 | 1,088.2 | 504,494.2 | 16,744.8 | 66,264.0 | 1,654,247.8 | 19,911.5 | |||||||||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions |
(756.7 | ) | — | (161.4 | ) | 23.5 | (2,075.2 | ) | — | (80.3 | ) | 75.5 | 7.3 | (2,967.3 | ) | (35.7 | ) | |||||||||||||||||||||||||||
| Effect of actuarial variances from expected experience |
(145.5 | ) | 59.8 | (129.5 | ) | (86.3 | ) | 1,963.9 | 21.8 | 2,232.9 | (5.7 | ) | (3,185.3 | ) | 726.1 | 8.7 | ||||||||||||||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Adjusted Balance |
179,382.8 | 473.7 | 658,592.1 | 13,122.9 | 212,777.6 | 1,110.0 | 506,646.8 | 16,814.6 | 63,086.1 | 1,652,006.6 | 19,884.5 | |||||||||||||||||||||||||||||||||
| Issuances |
5,283.1 | 47.0 | 20,916.2 | 632.6 | 11,536.5 | 5.1 | 7,201.6 | 715.4 | 9,968.2 | 56,305.7 | 677.7 | |||||||||||||||||||||||||||||||||
| Interest accrual |
3,440.8 | 9.6 | 12,683.3 | 253.6 | 4,229.7 | 20.6 | 9,522.7 | 323.3 | 1,315.9 | 31,799.5 | 382.8 | |||||||||||||||||||||||||||||||||
| Benefits Payments |
(1,642.8 | ) | (14.4 | ) | (2,226.4 | ) | (580.1 | ) | (3,744.4 | ) | (46.8 | ) | (13,739.3 | ) | (727.0 | ) | (6,187.5 | ) | (28,908.7 | ) | (348.0 | ) | ||||||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Balance at September 30, at original discount rate |
186,463.9 | 515.90 | 689,965.2 | 13,429.0 | 224,799.4 | 1,088.9 | 509,631.8 | 17,126.3 | 68,182.7 | 1,711,203.1 | 20,597.0 | |||||||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions |
(2,156.6 | ) | (3.9 | ) | (6,951.7 | ) | (74.4 | ) | (130.7 | ) | (7.3 | ) | (4,293.3 | ) | (101.4 | ) | (229.2 | ) | (13,948.5 | ) | (167.9 | ) | ||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Balance at September 30, at current discount rate at balance sheet date |
184,307.3 | 512.0 | 683,013.5 | 13,354.6 | 224,668.7 | 1,081.6 | 505,338.5 | 17,024.9 | 67,953.5 | 1,697,254.6 | 20,429.1 | |||||||||||||||||||||||||||||||||
| Present value of expected claims expenses |
190.1 | 18.5 | 120.2 | 2.8 | 28.9 | 0.1 | 480.6 | 4.2 | — | 845.4 | 10.2 | |||||||||||||||||||||||||||||||||
| Net liability for future policy benefits |
140,596.3 | 12.3 | 426,132.2 | 12,763.0 | 220,698.3 | 308.8 | 497,898.3 | 16,478.1 | 67,952.7 | 1,382,840.0 | 16,644.6 | |||||||||||||||||||||||||||||||||
| Deferred Profit Liability |
1,741.7 | 4.5 | 7,209.7 | 93.1 | 1,742.0 | — | 17,074.8 | 48.4 | 8,381.1 | 36,295.3 | 436.9 | |||||||||||||||||||||||||||||||||
| Other global reserves |
1,767.4 | — | 6,848.9 | 5,987.0 | 306.3 | 83.4 | 2,113.3 | 437.3 | 20,118.3 | 37,661.9 | 453.3 | |||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total liability for future policy benefits and DPL for September 30, |
144,105.4 | 16.8 | 440,190.8 | 18,843.1 | 222,746.6 | 392.2 | 517,086.4 | 16,963.8 | 96,452.1 | 1,456,797.2 | 17,534.8 | |||||||||||||||||||||||||||||||||
| Less: Reinsurance recoverables |
82,980.1 | 7.4 | (62.3 | ) | — | — | 134.8 | 21,000.4 | — | 3,435.8 | 107,496.2 | 1,293.9 | ||||||||||||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Net liability for future policy benefits, net of reinsurance |
61,125.3 | 9.4 | 440,253.1 | 18,843.1 | 222,746.6 | 257.4 | 496,086.0 | 16,963.8 | 93,016.3 | 1,349,301.0 | 16,240.9 | |||||||||||||||||||||||||||||||||
| Undiscounted- Expected future benefit payments |
959,495.4 | 1,143.8 | 2,586,397.4 | 18,509.2 | 785,550.5 | 1,762.3 | 1,244,944.1 | 24,904.6 | 84,934.2 | 5,707,641.5 | 68,700.5 | |||||||||||||||||||||||||||||||||
| Discounted- Expected future benefit payments (at current discount rate at balance sheet date) |
184,307.4 | 512.1 | 683,013.5 | 13,354.7 | 224,668.7 | 1,081.6 | 505,338.4 | 17,025.0 | 67,953.6 | 1,697,255.0 | 20,429.2 | |||||||||||||||||||||||||||||||||
| Undiscounted-Expected future gross premiums |
269,735.5 | 1,267.3 | 569,297.5 | 1,933.5 | 16,171.7 | 1,822.4 | 510,218.1 | 6,457.9 | 170.8 | 1,377,074.7 | 16,575.3 | |||||||||||||||||||||||||||||||||
| Discounted-Expected future gross premiums |
157,406.5 | 871.9 | 456,404.6 | 1,601.3 | 13,958.8 | 1,323.7 | 411,107.8 | 5,118.6 | 100.3 | 1,047,893.5 | 12,613.1 | |||||||||||||||||||||||||||||||||
| Weighted-average duration of the liability (in years) |
12.90 | 13.50 | 10.40 | 3.50 | 10.10 | 6.00 | 7.80 | 4.00 | 3.10 | — | — | |||||||||||||||||||||||||||||||||
| Weighted-average interest accretion (original locked-in) rate |
7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | 7.69 | % | — | — | ||||||||||||||||||||||||
| Weighted-average current discount rate at balance sheet date |
7.58 | % | 7.59 | % | 7.61 | % | 7.69 | % | 7.61 | % | 7.64 | % | 7.69 | % | 7.69 | % | 7.65 | % | — | — | ||||||||||||||||||||||||
The principal inputs used in the establishment of the LFPB for the Traditional and Limited-Payment products include premiums, guaranteed benefits, claim-related expense projected on the best estimate assumptions basis. The cash flows are discounted using upper-medium grade discount rate at the balance sheet date. The best estimate assumptions include mortality, persistency, morbidity and expenses.
For each of the periods ended September 30, 2023, the net effect of changes in cash flow assumptions was primarily driven by updates in best estimate assumptions.
For the periods ended September 30, 2023, the net effect of actual variances from expected experience was primarily driven by difference between actual cash flows for premiums and benefits and those assumed in the calculation of LFPB.
F-44
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Bank’s gross premiums and interest accretion recognised in the consolidated statements of income and comprehensive income (loss) for Traditional and Limited-Payment contracts, were as follows:
| Traditional and Limited-Payment Contracts: | As of September 30, 2023 | |||||||
| (In millions) | ||||||||
| Gross premiums | Interest accretion | |||||||
| Non Par Protection |
Rs. | 36,847.5 | Rs. | 2,639.4 | ||||
| Non Par Riders |
— | 0.2 | ||||||
|
|
|
|
|
|||||
| Non Par Savings |
1,688.7 | 7,847.4 | ||||||
|
|
|
|
|
|||||
| Non Par Pension |
365.1 | 241.9 | ||||||
| Individual Annuity |
13,336.8 | 4,069.7 | ||||||
| Individual health |
139.8 | 5.6 | ||||||
| Par life |
34,211.4 | 9,647.8 | ||||||
| Par Pension |
604.5 | 311.5 | ||||||
| Group Non Par Life |
23,851.9 | 1,352.7 | ||||||
|
|
|
|
|
|||||
| Total |
Rs. | 111,045.7 | Rs. | 26,116.2 | ||||
|
|
|
|
|
|||||
| Total |
US$ | 1,336.6 | US$ | 314.4 | ||||
|
|
|
|
|
|||||
Policyholder Account Balances
The Bank establishes liabilities for policyholder account balances (PAB) which are generally equal to the account value, and which includes accrued interest credited, but excludes the impact of any applicable charge that may be incurred upon surrender.
The Bank’s policyholder account balances on the consolidated balance sheets were as follows:
| Description | As of September 30, 2023 | |||||||
| (In millions) | ||||||||
| Group traditional life |
Rs.22,986.9 | US$ | 276.7 | |||||
| Group traditional pension |
10,280.4 | 123.7 | ||||||
| Group variable life |
25,392.0 | 305.6 | ||||||
| Group variable pension |
21,658.3 | 260.7 | ||||||
| Individual VIP pension |
10,467.0 | 126.0 | ||||||
| Statutory reserves |
2,112.2 | 25.4 | ||||||
|
|
|
|
|
|||||
| Total |
92,896.8 | 1,118.1 | ||||||
|
|
|
|
|
|||||
Reinsurance
The Bank has primarily two types of reinsurance treaties: auto and facultative reinsurance. The primary reason is to diversify the pool of risk covered by the insurance company, and to limit the liability along with ensuring solvency of the Bank. We remain liable to our policyholders regardless of whether our reinsurers meet their obligations under the reinsurance contracts, and as such, we regularly evaluate the financial condition of our reinsurers and monitor concentration of our credit risk.
The effect of all reinsurance agreements on the consolidated statements of financial income were as follows:
| As of September 30, 2023 | ||||||||
| Liabilities on policies in force: | (In millions) | |||||||
| Direct |
Rs1,554,412.3 | US$ | 18,709.8 | |||||
| Assumed |
940.2 | 11.3 | ||||||
| Total liabilities on policies in force |
1,555,352.5 | 18,721.1 | ||||||
| Ceded (*) |
107,520.4 | 1,294.2 | ||||||
|
|
|
|
|
|||||
| Net liabilities on policies in force |
1,447,832.1 | 17,426.9 | ||||||
|
|
|
|
|
|||||
| (*) | Reinsurance asset reported within other asset |
F-45
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The effects of reinsurance on the consolidated statements of income were as follows:
| As of September 30, 2023 | ||||||||
| Premium and other operating income from insurance business: | (In millions) | |||||||
| Direct |
Rs 118,483.0 | US$ | 1,426.1 | |||||
| Assumed |
512.9 | 6.2 | ||||||
| Ceded |
(1,947.7 | ) | (23.4 | ) | ||||
|
|
|
|
|
|||||
| Total |
117,048.2 | 1,408.9 | ||||||
|
|
|
|
|
|||||
| As of September 30, 2023 | ||||||||
| Claims and benefits paid pertaining to insurance business: | (In millions) | |||||||
| Direct |
Rs 121,557.7 | US$ | 1,463.0 | |||||
| Assumed |
356.6 | 4.3 | ||||||
| Ceded |
(334.7 | ) | (4.0 | ) | ||||
|
|
|
|
|
|||||
| Total |
121,579.6 | 1,463.3 | ||||||
|
|
|
|
|
|||||
Deferred policy acquisition costs:
Information regarding total DAC was as follows:
| As of September 30, 2023 | ||||||||
| (In millions) | ||||||||
| Opening balance July 1, 2023 |
Rs. | — | US$ | — | ||||
| Capitalizations |
18,178.3 | 218.8 | ||||||
| Amortization |
(366.5 | ) | (4.4 | ) | ||||
| Experience Adjustment |
(742.8 | ) | (8.9 | ) | ||||
|
|
|
|
|
|||||
| Balance at September 30, 2023 |
Rs. | 17,069.0 | US$ | 205.5 | ||||
|
|
|
|
|
|||||
Value of Business Acquired (VOBA)
VOBA, an intangible asset, has been valued as the difference between the estimated fair value of liabilities (“FVL”) and the carrying value of those same insurance contract liabilities. The FVL for the acquired business is derived as the sum of the best estimate of liabilities (“BEL”) and the risk margin (“RM”) calculated using the same best estimate assumptions as those used in deriving the Bank’s Indian embedded value (“IEV”) as of June 30, 2023. The carrying value of those same insurance contract liabilities is derived as the LFPB plus other liability items (reserves for unmodelled products, sales inducement liability, time value of options and guarantees, and additional reserves) less reinsurance recoverable. The LFPB is determined using actuarial methodologies as the present value of expected future policy benefits to be paid to or on behalf of policyholders and certain related expenses less the present value of expected future net premiums receivable under the Bank’s insurance contracts. Future policy benefits including bonuses paid to participating policyholders are calculated using actuarial assumptions and estimates such as mortality, morbidity, persistency and discount rates. Cash flow assumptions (mortality, morbidity and persistency) are established at the policy inception and are evaluated annually to determine if an update is needed. Discount rates used to calculate net premiums are locked in at the policy inception and represent the basis to recognize interest expense in the consolidated statement of income. Discount rates used to measure the carrying value of the LFPB in the consolidated balance sheet are updated at each reporting period, and the difference between the liability balances calculated using the locked-in discount rates and the updated discount rates is recognized in accumulated other comprehensive income / (loss). The Bank applies significant judgment in determining these assumptions and estimates.
Information regarding movement of total VOBA contracts from July 1, 2023 (acquisition date) to September 30, 2023 was as follows:
| As of September 30, 2023 | ||||||||
| (In millions) | ||||||||
| Balance at July 1 2023 |
Rs. | 221,738.5 | US$ | 2,669.0 | ||||
| Amortization |
(6,112.5 | ) | (73.6 | ) | ||||
| Experience Adjustment |
(628.3 | ) | (7.6 | ) | ||||
|
|
|
|
|
|||||
| Balance at September 30, 2023 |
Rs. | 214,997.7 | US$ | 2,587.8 | ||||
|
|
|
|
|
|||||
VOBA would be amortized on a constant level basis that approximates straight line amortization using the following amortization basis. This is the same as the basis of amortization used for DAC.
| i) | Traditional life insurance contracts and traditional life insurance limited payment contracts (other than annuity products) – Sum assured in force, as it would provide a reasonable, stable, approximation to a straight-line amortization and is reflection of insurance in force. |
| ii) | Annuity products—Number of policies in force, as it would ensure straight line amortization. |
| iii) | Universal life type contracts—Number of policies in force, as it would ensure straight line amortization. |
F-46
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Information regarding the estimated future amortization of VOBA intangibles over the next five years is as follows:
| As of September 30, 2023 | ||||||||
| Year |
(In millions) | |||||||
| 2024 (remaining period) |
Rs | 29,438.5 | US$ | 354.3 | ||||
| 2025 |
14,586.8 | 175.6 | ||||||
| 2026 |
12,864.7 | 154.8 | ||||||
| 2027 |
11,023.8 | 132.7 | ||||||
| 2028 |
9,404.6 | 113.2 | ||||||
The Bank amortizes DAC and VOBA on a ‘constant-level basis’ that approximates straight-line amortization on an individual contract basis sum assured for traditional products and number of policies in-force for universal life type, investment products and annuity products. The amortization amount is calculated using the same cohorts as the corresponding liabilities on a half-yearly basis, using an amortization rate that includes current period reporting experience and end of period persistency and longevity assumptions that are consistent with those used to measure the corresponding liabilities.
15. Non-interest revenue
Revenue Recognition
Deposit-related fees
Deposit-related fees consist of fees earned on consumer deposit activities and are generally recognized when the transaction occurs or as the service is performed. Consumer fees are earned on consumer deposit accounts for account maintenance and various transaction-based services, such as ATM transactions, wire transfer activities, check and money order processing, standing instruction processing, cash management services, etc.
Lending-related fees
Lending-related fees generally represent transactional fees earned from certain loan related services, guarantees and letters of credit (“LCs”).
Third-party products-related fees
Third-party products related fees consist of fees earned from distribution of third-party products such as insurance and mutual funds.
Payments and cards business fees
Payments and cards business fees include fees earned from merchant acquiring business and on credit, debit, prepaid or forex cards, among others. Cards business income includes annual and renewal fees, late and over-limit fees, currency conversion fees, as well as fees earned from interchange, cash advances and other miscellaneous transactions fees. Interchange fees are recognized upon settlement of the credit and debit card payment transactions and are generally determined on a percentage basis for credit and debit cards based on the corresponding payment network’s rates. Substantially all cards business related fees are recognized at the transaction date, except for certain time-based fees such as annual fees, which are recognized over 12 months. Payments business fees include fees earned from merchants net of interchange expenses paid to issuing banks, rentals from point-of-sale machines and merchant service charges.
Investment Management Fees
Investment management fees from the mutual funds consists of fees from various schemes which invest in different categories of securities such as equity, debt etc. received from the asset management business.
F-47
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The table below presents the fees and commissions disaggregated by revenue source for the six-month periods ended September 30, 2022 and September 30, 2023.
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Deposit related fees |
Rs. | 19,921.4 | Rs. | 22,713.9 | US$ | 273.4 | ||||||
| Lending related fees |
23,909.2 | 26,546.9 | 319.5 | |||||||||
| Third-party products related fees |
23,803.2 | 20,477.2 | 246.5 | |||||||||
| Payments and cards business fees |
33,177.3 | 44,185.2 | 531.8 | |||||||||
| Investment Management Fee |
— | 6,424.4 | 77.3 | |||||||||
| Others |
11,375.4 | 11,546.1 | 139.1 | |||||||||
|
|
|
|
|
|
|
|||||||
| Fees and commissions |
Rs. | 112,186.5 | Rs. | 131,893.7 | US$ | 1,587.6 | ||||||
|
|
|
|
|
|
|
|||||||
The table below presents the fees and commissions disaggregated by segment for the six-month periods ended September 30, 2022 and September 30, 2023.
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| Retail Banking |
Rs. | 99,134.2 | Rs. | 110,050.6 | US$ | 1,324.6 | ||||||
| Wholesale Banking |
12,982.0 | 14,201.5 | 170.9 | |||||||||
| Treasury Services |
70.3 | 117.5 | 1.4 | |||||||||
| Insurance services |
— | — | — | |||||||||
| Others |
— | 7,524.1 | 90.7 | |||||||||
|
|
|
|
|
|
|
|||||||
| Fees and commissions |
Rs. | 112,186.5 | Rs. | 131,893.7 | US$ | 1,587.6 | ||||||
|
|
|
|
|
|
|
|||||||
16. Stock-based compensation
Employees Stock Option Scheme (“ESOP”)
During six-month period ended September 30, 2023, the Nomination and Renumeration Committee (“NRC”) approved, under Plan E, Plan F and Plan G, the grant of 5,075,360, 12,533,590 and 2,213,500 options respectively (Schemes XLV to XLVII).
Under the terms of the amalgamation agreement, upon the completion of the merger, 48,559,681 options of equity shares with a face value of Rs. 1.0 each were granted to the onboarded employees of eHDFC to replace their options under their eHDFC employee stock option plans.
Restricted Stock Units (“RSUs”)
During the six-month period ended September 30, 2023, the NRC approved, under ESIS-2022, the grant of 5,629,190 RSUs (scheme RSU 004) to the employees of the Bank.
Modification of employee stock option schemes
During the six-month periods ended September 30, 2022 and September 30, 2023, there were no modifications to employee stock option schemes.
Assumptions used
The fair value of employee stock option schemes has been estimated on the dates of each grant using a binomial option pricing model with the following assumptions:
| Six-month period ended September 30, | ||||
| 2022 | 2023 | |||
| Dividend yield |
0.51%-0.97% | 0.67%-0.70% | ||
| Expected volatility |
22.11%-33.50% | 21.91%-26.14% | ||
| Risk-free interest rate |
6.14%-7.59% | 7.31%-7.36% | ||
| expected term (in years) |
2.53-7.25 | 4.63-7.21 | ||
The fair value of restricted stock units has been estimated on the dates of each grant using a binomial option pricing model with the following assumptions:
| Six-month period ended September 30, | ||||
| 2022 | 2023 | |||
| Dividend yield |
— | 0.65%-0.91% | ||
| Expected volatility |
— | 21.82%-27.51% | ||
| Risk-free interest rate |
— | 7.28%-7.31% | ||
| Expected term (in years) |
— | 1.0- 4.0 | ||
F-48
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The Bank recognizes compensation expenses related to stock-based compensation plans over the requisite service period, generally based on the instruments’ grant-date fair value, reduced by expected forfeitures. Ultimately, the compensation costs for all awards that vest are recognized.
Activity and other details
Activity in the options available to be granted under the employee stock option scheme is as follows:
| Number of options available to be granted in the six-month period ended September 30, |
||||||||
| 2022 | 2023 | |||||||
| Options available to be granted, beginning of period |
81,992,420 | 54,214,165 | ||||||
| Equity shares allocated for grant under the plan |
— | — | ||||||
| Options granted |
(30,376,354 | ) | (19,822,510 | ) | ||||
| Forfeited/lapsed |
1,721,990 | 1,044,028 | ||||||
|
|
|
|
|
|||||
| Options available to be granted, end of period |
53,338,056 | 35,435,683 | ||||||
|
|
|
|
|
|||||
Activity in the RSUs outstanding under the various Employees’ Stock Incentive Master Scheme as follows:
| Number of RSUs available to be granted in the six-month period ended September 30, |
||||||||
| 2022 | 2023 | |||||||
| RSUs available to be granted, beginning of period |
— | 97,109,000 | ||||||
| Equity shares allocated for grant under the scheme |
100,000,000 | — | ||||||
| RSUs granted |
— | (5,629,190 | ) | |||||
| Forfeited/lapsed |
— | — | ||||||
|
|
|
|
|
|||||
| RSUs available to be granted, end of the period |
100,000,000 | 91,479,810 | ||||||
|
|
|
|
|
|||||
Activity in the options outstanding under the employee stock option scheme is as follows:
| Six-month period ended September 30, | ||||||||||||||||
| 2022 | 2023 | |||||||||||||||
| Options | Weighted average exercise price |
Options | Weighted average exercise price |
|||||||||||||
| Options outstanding, beginning of period |
158,106,016 | Rs. | 1,175.65 | 151,682,461 | Rs. | 1,264.86 | ||||||||||
| Addition on account of eHDFC merger |
— | — | 48,559,681 | 1,124.77 | ||||||||||||
| Granted |
30,376,354 | 1,423.62 | 19,822,510 | 1,636.90 | ||||||||||||
| Exercised |
(24,418,050 | ) | 932.80 | (31,526,962 | ) | 1,121.15 | ||||||||||
| Forfeited |
(1,419,600 | ) | 1,273.18 | (975,888 | ) | 1,373.01 | ||||||||||
| Lapsed |
(302,390 | ) | 889.07 | (68,140 | ) | 923.68 | ||||||||||
|
|
|
|
|
|||||||||||||
| Options outstanding, end of period |
162,342,330 | Rs. | 1,258.26 | 187,493,662 | Rs. | 1,291.64 | ||||||||||
|
|
|
|
|
|||||||||||||
| Options exercisable, end of period |
50,617,976 | Rs. | 1,131.76 | 89,527,514 | Rs. | 1,186.66 | ||||||||||
| Weighted average fair value of options granted during the year |
Rs. | 546.99 | Rs. | 621.64 | ||||||||||||
Activity in the RSUs outstanding under the various Employees’ Stock Incentive Master Scheme as follows:
| Six-month period ended September 30, | ||||||||||||||||
| 2022 | 2023 | |||||||||||||||
| Units | Weighted average exercise price |
Units | Weighted average exercise price |
|||||||||||||
| RSUs outstanding, beginning of period |
— | Rs. — | 2,891,000 | Rs. | 1.00 | |||||||||||
| Granted |
— | — | 5,629,190 | 1.00 | ||||||||||||
| Exercised |
— | — | — | — | ||||||||||||
| Forfeited |
— | — | — | — | ||||||||||||
| Lapsed |
— | — | — | — | ||||||||||||
|
|
|
|
|
|||||||||||||
| RSUs outstanding, end of period |
— | — | 8,520,190 | 1.00 | ||||||||||||
|
|
|
|
|
|||||||||||||
| RSUs exercisable, end of period |
— | — | — | — | ||||||||||||
| Weighted average fair value of RSUs granted during the year |
Rs. — | Rs. | 1,622.11 | |||||||||||||
F-49
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following summarizes information about stock options outstanding as of September 30, 2023:
| As of September 30, 2023 | ||||||||||||||
| Plan |
Range of exercise price |
Number of shares arising out of options |
Weighted average remaining life (years) |
Weighted average exercise price (Rs.) |
||||||||||
| Plan E |
Rs.1,636.90(or US$19.70) | 5,075,360 | 6.42 | 1,636.9 | ||||||||||
| Plan F |
Rs.716.60 to Rs. 1,636.90 (or US$ 8.63 to US$ 19.70) | 16,117,860 | 5.18 | 1,432.2 | ||||||||||
| Plan G |
Rs. 882.85 to Rs. 1,673.10 (or US$ 10.63 to US$ 20.14) | 121,506,560 | 2.86 | 1,318.9 | ||||||||||
| eHDFC |
Rs. 160.79 to Rs. 1,535.27 (or US$ 1.94 to US$ 18.48) | 44,793,882 | 3.93 | 1,128.03 | ||||||||||
The following summarizes information about RSUs outstanding as of September 30, 2023:
| As of September 30, 2023 | ||||||||||||||
| Plan |
Range of exercise price |
Number of shares arising out of units |
Weighted average remaining life (years) |
Weighted average exercise price (Rs.) |
||||||||||
| ESIS 2022 |
Rs. 1.00 (or US$ 0.01) | 8,520,190 | 3.09 | 1.0 | ||||||||||
The intrinsic value of options exercised during the six-month periods ended September 30, 2022 and September 30, 2023 at the grant date was Rs. 0.5 million and Rs. 2,307.3 million, respectively, and at the exercise date was Rs. 11,929.7 million and Rs. 12,773.2 million, respectively. The aggregate intrinsic value as of the grant date and as of September 30, 2023 attributable to options which are outstanding as on September 30, 2023 was Rs. 25,835.7 million (previous period Rs. 2.1 million) and Rs. 46,216.6 million (previous period Rs. 26,790.9 million), respectively. The aggregate intrinsic value as at the grant date and as of September 30, 2023 attributable to options exercisable as on September 30, 2023 was Rs. 22,986.7 (previous period nil) and was Rs. 30,407.4 million (previous period Rs. 14,691.1 million), respectively. Total stock compensation cost recognized under these plans was Rs. 5,730.0 million and Rs. 8,864.6 million during the six-month periods ended September 30, 2022 and September 30, 2023, respectively. There is no income tax benefit recognized associated with share-based compensation expenses. As of September 30, 2023, there were 97,868,312 unvested options (previous period 111,724,354) with a weighted average exercise price of Rs. 1,300.0 (previous period Rs. 1,315.6) and the aggregate intrinsic value at the grant date and as of September 30, 2023 was Rs.2,708.0 million (previous period Rs. 2.1 million) and Rs. 15,685.3 million (previous period Rs. 12,099.8 million), respectively. As of September 30, 2023, the total estimated compensation cost to be recognized in future periods was Rs. 23,332.5 million (previous period 24,428,4 million). This is expected to be recognized over a weighted average period of 1.04 years.
The intrinsic value of RSUs exercised during the six month period ended at the grant date was nil. The aggregate intrinsic value as of the grant date and as of September 30, 2023 attributable to RSUs which are outstanding as on September 30, 2023 was Rs. 13,826.0 million and Rs. 12,995.8 million, respectively. The aggregate intrinsic value as of the grant date and as of September 30, 2023 attributable to RSUs exercisable as on September 30, 2023 was Rs. nil and nil, respectively. Total stock compensation cost recognized for the RSUs under these plans was Rs. 978.2 million during the six-month period ended September 30, 2023. As of September 30, 2023, there were 8,520,190 unvested RSUs with weighted average exercise price of Rs. 1.0 and the aggregate intrinsic value at the grant date and as of September 30, 2023 was Rs. 13,286.0 million and Rs. 12,995.8 million, respectively. As of September 30, 2023, the total estimated compensation cost for the RSUs to be recognized in future periods was Rs. 10,050.0 million. This is expected to be recognized over a weighted average period of 1.23 years.
HDFC Life Insurance Company Limited
HDFC Life has granted options of its equity shares to employees under various schemes and certain schemes are administered under the HDFC Life employee stock option trust and certain company schemes. The exercise price of the options granted is defined in the respective ESOS schemes.
Total number of outstanding options is 15,628,076 as of September 30, 2023 of which 4,229,516 are exercisable.
HDFC Asset Management Company Limited
HDFC AMC has granted options of its equity shares to employees and directors of company under various schemes. The exercise price of the options granted was based on latest available closing price of the shares of the HDFC AMC on the National Stock Exchange of India Limited.
Total number of outstanding options is 2,318,900 as of September 30, 2023 of which 787,932 are exercisable.
F-50
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
HDFC Capital Advisors Limited
HDFC Capital Advisors has granted options of its equity shares to employees under the schemes ESOP-2021. The exercise price of the options granted was determined by an independent valuer appointed by the Board of Directors.
Total number of outstanding options is 141,006 as of September 30, 2023 of which 141,006 are exercisable.
HDFC Securities Limited
The shareholders of the HDFC Securities Limited (“HSL”) approved a stock option scheme (viz., ESOS - II) in February 2017 (“Company Options”). Under the terms of the scheme, HSL issues stock options of its equity shares to employees, whole-time director, managing director and directors (excluding Independent Directors) of HSL, each of which is convertible into one equity share.
ESOS – II provides issuance of the options at the recommendation of compensation committee of the Board of Directors. The exercise price of the options granted was determined by considering the average price of two independent valuer reports.
Total number of outstanding options is 641,050 as of September 30, 2023 of which 30,375 are exercisable.
HDB Financial Services Limited
The shareholders of HDB Financial Services have approved issuance of options under Employee Stock Option (ESOP) Scheme. Under the term of scheme the company may issue stock options of its equity shares to employees and directors of the company based on approval from NRC.
Total number of outstanding options is 8,500,547 as of September 30, 2023 of which 968,322 are exercisable.
F-51
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
17. Financial instruments
Foreign exchange and derivative contracts
The Bank enters into forward exchange contracts, currency options, forward rate agreements, currency swaps, rupee interest rate swaps and interest rate futures with inter-bank participants on its own account and for customers. These transactions enable customers to transfer, modify or reduce their foreign exchange and interest rate risks.
Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest in one currency against another currency and exchange of principal amount at maturity based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating rate interest cash flows. A forward rate agreement gives the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date) when the settlement amount is determined as the difference between the contracted rate and the market rate on the settlement date. Currency options give the buyer the right, but not an obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date. Interest rate futures are futures contracts with an interest-paying underlying product. A contract is an agreement between a buyer and a seller for the delivery of an interest-bearing asset in the future.
The market and credit risk associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. Market risk is the exposure created by movements in interest rates and exchange rates during the tenure of the transaction. The extent of market risk affecting such transactions depends on the type and nature of the transaction, the value of the transaction and the extent to which the transaction is uncovered. Credit risk is the exposure to loss in the event of default by counterparties. The extent of loss on account of a counterparty default will depend on the replacement value of the contract at the ongoing market rates.
The Bank uses its pricing models to determine the fair value of its derivative financial instruments. The Bank records credit risk valuation adjustments on derivative financial instruments in order to reflect the credit quality of the counterparties and its own credit quality. The Bank calculates valuation adjustments on derivatives based on observable market credit risk spreads.
The following table presents the aggregate notional principal amounts of the Bank’s outstanding forward exchange and other derivative contracts as of March 31, 2023 and September 30, 2023, together with the fair value on each reporting date.
| As of March 31, 2023 | ||||||||||||||||
| Notional | Gross Assets | Gross Liabilities | Net Fair Value | |||||||||||||
| (In millions) | ||||||||||||||||
| Interest rate derivatives |
Rs. | 5,974,019.2 | Rs. | 41,148.2 | Rs. | 36,627.4 | Rs. | 4,520.8 | ||||||||
| Forward rate agreements |
140,693.0 | 1,848.4 | 541.4 | 1,307.0 | ||||||||||||
| Currency options |
257,641.1 | 1,402.4 | 1,578.3 | (175.9 | ) | |||||||||||
| Currency swaps |
372,114.3 | 21,753.7 | 7,213.4 | 14,540.3 | ||||||||||||
| Forward exchange contracts |
9,052,221.4 | 55,596.7 | 52,823.0 | 2,773.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 15,796,689.0 | Rs. | 121,749.4 | Rs. | 98,783.5 | Rs. | 22,965.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| As of September 30, 2023 | ||||||||||||||||||||||||
| Notional | Gross Assets | Gross Liabilities | Net Fair Value | Notional | Net Fair Value | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Interest rate derivatives |
Rs. | 7,848,004.4 | Rs. | 61,138.3 | Rs. | 94,913.1 | Rs. | (33,750.1 | ) | US$ | 94,463.2 | US$ | (406.2 | ) | ||||||||||
| Forward rate agreements |
574,266.7 | 4,923.2 | 3,198.3 | 5,054.5 | 6,912.2 | 60.8 | ||||||||||||||||||
| Currency options |
217,208.3 | 809.9 | 1,005.0 | (195.1 | ) | 2,614.4 | (2.3 | ) | ||||||||||||||||
| Currency swaps |
520,702.7 | 13,153.6 | 13,275.6 | (122.0 | ) | 6,267.5 | (1.5 | ) | ||||||||||||||||
| Forward exchange contracts |
11,292,037.2 | 39,843.3 | 40,407.7 | (564.4 | ) | 135,917.6 | (6.8 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
Rs. | 20,452,219.3 | Rs. | 119,868.3 | Rs. | 152,799.7 | Rs. | (29,577.1 | ) | US$ | 246,174.9 | US$ | (356.0 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The Bank has not designated the above contracts as accounting hedges and, accordingly, the contracts are recorded at fair value on the balance sheet with changes in fair value recorded in net income. The gross assets and the gross liabilities are recorded in “other assets” and “accrued expenses and other liabilities”, respectively.
F-52
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes certain information related to derivative amounts recognized in income:
| Non-interest revenue, net – Derivatives for the six-month period ended September 30 |
||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| Interest rate derivatives |
Rs. | 4,707.3 | Rs. | (11,835.2 | ) | US$ | (142.5 | ) | ||||
| Forward rate agreements |
(226.4 | ) | (1,195.2 | ) | (14.4 | ) | ||||||
| Currency options |
(27.3 | ) | 51.2 | 0.7 | ||||||||
| Currency swaps |
3,330.8 | 13,717.4 | 165.1 | |||||||||
| Forward exchange contracts |
3,017.9 | 3,117.7 | 37.5 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total gains/(losses) |
Rs. | 10,802.3 | Rs. | 3,855.9 | US$ | 46.4 | ||||||
|
|
|
|
|
|
|
|||||||
Offsetting
The following table shows the impact of netting arrangements on derivative financial instruments, repurchase and reverse repurchase agreements that are subject to enforceable master netting arrangements or similar agreements, but are not offset in accordance with ASC 210-20-45 and ASC 815-10-45.
The Bank enters into International Swaps and Derivatives Association, Inc. (“ISDA”) master netting agreements or similar agreements with substantially all of the Bank’s foreign exchange and derivative contract counterparties. These master netting agreements, give the Bank, in the event of default by the counterparty, the right to liquidate collaterals held or placed and to offset receivables and payables with the same counterparty. In the table below, the Bank has presented the gross derivative assets and liabilities adjusted for the effects of master netting agreements and collaterals received or pledged.
Transactions with counterparties for Securities sold under agreements to repurchase (“repos”) and Securities purchased under agreements to resell (“reverse repos”) are settled through the Clearing Corporation of India Limited (“CCIL”), a centralized clearinghouse. Collaterals received or pledged are comprised of highly liquid investments. For undertaking the above transactions, power of attorney is executed by the Bank and the counterparties in favor of CCIL to liquidate the securities pledged in the event of default.
| As of March 31, 2023 | ||||||||||||||||||||||||
| Amounts subject to enforceable netting arrangements | ||||||||||||||||||||||||
| Effects of offsetting on balance sheet | Related amounts not offset | |||||||||||||||||||||||
| Gross Amounts | Amounts offset |
Net amounts reported in the balance sheet |
Financial instruments |
Financial collateral (1) |
Net amount | |||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Financial assets |
||||||||||||||||||||||||
| Derivative assets |
Rs. | 121,749.4 | Rs. | — | Rs. | 121,749.4 | Rs. | 73,045.2 | Rs. | 19,402.2 | Rs. | 29,302.0 | ||||||||||||
| Securities purchased under agreements to resell |
455,275.4 | — | 455,275.4 | — | 455,275.4 | — | ||||||||||||||||||
| Financial liabilities |
||||||||||||||||||||||||
| Derivative liabilities |
Rs. | 98,783.5 | Rs. | — | Rs. | 98,783.5 | Rs. | 73,045.2 | Rs. | 5,084.6 | Rs. | 20,653.7 | ||||||||||||
| Securities sold under repurchase agreements |
— | — | — | — | — | — | ||||||||||||||||||
| Long-term debt |
90,200.0 | — | 90,200.0 | — | 90,200.0 | — | ||||||||||||||||||
| (1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged. |
| As of September 30, 2023 | ||||||||||||||||||||||||||||
| Amounts subject to enforceable netting arrangements | ||||||||||||||||||||||||||||
| Effects of offsetting on balance sheet | Related amounts not offset | |||||||||||||||||||||||||||
| Gross Amounts | Amounts offset |
Net amounts reported in the balance sheet |
Financial instruments |
Financial collateral (1) |
Net amount | Net amount | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| Financial assets |
||||||||||||||||||||||||||||
| Derivative assets |
Rs. | 119,868.3 | Rs. | — | Rs. | 119,868.3 | Rs. | 73,880.7 | Rs. | 10,485.0 | Rs. | 35,502.6 | US$ | 427.3 | ||||||||||||||
| Securities purchased under agreements to resell |
34,386.1 | — | 34,386.1 | — | 34,386.1 | — | — | |||||||||||||||||||||
| Financial liabilities |
||||||||||||||||||||||||||||
| Derivative liabilities |
Rs. | 152,799.7 | Rs. | — | Rs. | 152,799.7 | Rs. | 73,880.7 | Rs. | 35,389.7 | Rs. | 43,529.2 | US$ | 523.9 | ||||||||||||||
| Securities sold under repurchase agreements |
675,162.0 | — | 675,162.0 | — | 675,162.0 | — | — | |||||||||||||||||||||
| (1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged. |
F-53
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Guarantees
As a part of its commercial banking activities, the Bank has issued guarantees and documentary credits, such as letters of credit, to enhance the credit standing of its customers. These generally represent irrevocable assurances that the Bank will make payments in the event that the customer fails to fulfil its financial or performance obligations. Financial guarantees are obligations to pay a third-party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third-party beneficiary where a customer fails to perform a non-financial contractual obligation. The tenure of the guarantees issued or renewed by the Bank is normally in line with requirements on a case-by-case basis as may be assessed by the Bank. The remaining tenure of guarantees issued by the Bank and outstanding ranges from one day to 30.3 years.
The credit risk associated with these products, as well as the operating risks, is similar to those relating to other types of financial instruments.
In accordance with FASB ASC 460-10, the Bank has recognized a liability of Rs. 7,041.8 million as of March 31, 2023 and of Rs. 7,974.4 million as of September, 2023, in respect of guarantees issued or modified.
Details of guarantees and documentary credits outstanding are set out below:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Nominal values: |
||||||||||||
| Bank guarantees: |
||||||||||||
| Financial guarantees |
Rs. | 494,191.3 | Rs. | 564,450.8 | US$ | 6,794.1 | ||||||
| Performance guarantees |
519,953.0 | 566,119.5 | 6,814.1 | |||||||||
| Documentary credits |
614,555.5 | 682,154.0 | 8,210.8 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | 1,628,699.8 | Rs. | 1,812,724.3 | US$ | 21,819.0 | ||||||
|
|
|
|
|
|
|
|||||||
| Estimated fair value: |
||||||||||||
| Guarantees |
Rs. | (7,041.8 | ) | Rs. | (7,974.4 | ) | US$ | (96.0 | ) | |||
| Documentary credits |
(869.3 | ) | (952.8 | ) | (11.5 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
Rs. | (7,911.1 | ) | Rs. | (8,927.2 | ) | US$ | (107.5 | ) | |||
|
|
|
|
|
|
|
|||||||
As part of its risk management activities, the Bank continuously monitors the creditworthiness of customers as well as guarantee exposures. If a customer fails to perform a specified obligation, a beneficiary may draw upon the guarantee by presenting documents in compliance with the guarantee. In that event, the Bank makes payment on account of the defaulting customer to the beneficiary up to the full notional amount of the guarantee. The customer is obligated to reimburse the Bank for any such payment. If the customer fails to pay, the Bank liquidates any collateral held and sets off accounts; if insufficient collateral is held, the Bank recognizes a loss. Margins in the form of cash and fixed deposit available to the Bank to reimburse losses realized under guarantees amounted to Rs. 222.0 billion and Rs. 261.2 billion as of March 31, 2023 and September 30, 2023, respectively. Other property or security may also be available to the Bank to cover losses under these guarantees.
Undrawn commitments
The Bank has outstanding undrawn commitments to provide loans and financing to customers. These commitments aggregated to Rs. 372.3 billion and Rs. 1,174.9 billion (US$ 14.1 billion) as of March 31, 2023 and September 30, 2023, respectively. Among other things, the making of a loan is subject to a review of the creditworthiness of the customer at the time the customer seeks to borrow, at which time the Bank has the unilateral right to decline to make the loan. If the Bank were to make such loans, the interest rates would be dependent on the lending rates in effect when the loans were disbursed. Further, the Bank has unconditional cancellable commitments aggregating to Rs. 7,273.0 billion and Rs. 9,379.8 billion (US$ 112.9 billion) as of March 31, 2023 and September 30, 2023, respectively.
The allowance for credit losses included in accrued expenses and other liabilities on off-balance sheet credit exposures and undrawn commitments is as follows:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Allowance for credit losses, beginning of the period |
Rs. | 6,087.6 | Rs. | 5,828.8 | US$ | 70.2 | ||||||
| Net provision for credit exposures |
(268.9 | ) | 1,162.6 | 14.0 | ||||||||
|
|
|
|
|
|
|
|||||||
| Allowance for credit losses, end of the period |
Rs. | 5,818.7 | Rs. | 6,991.4 | US$ | 84.2 | ||||||
|
|
|
|
|
|
|
|||||||
F-54
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
18. Estimated fair value of financial instruments
The Bank’s financial instruments include financial assets and liabilities recorded on the balance sheet, including instruments such as foreign exchange and derivative contracts. Management uses its best judgment in estimating the fair value of the Bank’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of all the amounts the Bank could have realized in a sales transaction as of March 31, 2023 and September 30, 2023 respectively. The estimated fair value amounts as of March 31, 2023 and September 30, 2023 have been measured as of the respective year ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair value of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year end.
A comparison of the fair value and carrying value of financial instruments is set out below:
F-55
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| As of | ||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Estimated fair value | Estimated fair value | |||||||||||||||||||||||||||||||||||||||||||||||
| Carrying value |
Level 1 | Level 2 | Level 3 | Total | Carrying value |
Level 1 | Level 2 | Level 3 | Total | Carrying value |
Estimated fair value |
|||||||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Assets: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks, and restricted cash |
Rs. | 1,387,395.2 | Rs. | 1,387,395.2 | Rs. | — | Rs. | — | Rs. | 1,387,395.2 | 1,806,309.0 | 1,806,309.0 | Rs. | — | Rs. | — | 1,806,309.0 | US$ | 21,741.8 | US$ | 21,741.8 | |||||||||||||||||||||||||||
| Investments held for trading |
135,831.1 | 184.1 | 135,647.0 | — | 135,831.1 | 278,000.8 | 219,691.5 | 38,093.3 | 20,216.0 | 278,000.8 | 3,346.2 | 3,346.2 | ||||||||||||||||||||||||||||||||||||
| Investments available for sale debt securities |
4,878,844.0 | 507,504.1 | 4,222,904.3 | 148,435.6 | 4,878,844.0 | 8,329,193.9 | 668,728.5 | 7,485,307.3 | 175,158.1 | 8,329,193.9 | 100,255.1 | 100,255.1 | ||||||||||||||||||||||||||||||||||||
| Securities purchased under agreements to resell |
455,275.4 | — | 455,275.4 | — | 455,275.4 | 34,386.1 | — | 34,386.1 | — | 34,386.1 | 413.9 | 413.9 | ||||||||||||||||||||||||||||||||||||
| Loans |
17,052,927.9 | — | 4,138,188.7 | 13,027,096.1 | 17,165,284.8 | 24,841,873.2 | — | 4,500,413.1 | 20,650,089.6 | 25,150,502.7 | 299,011.5 | 302,726.3 | ||||||||||||||||||||||||||||||||||||
| Accrued interest receivable |
186,091.2 | — | 186,091.2 | — | 186,091.2 | 240,815.2 | — | 240,655.8 | 159.4 | 240,815.2 | 2,898.6 | 2,898.6 | ||||||||||||||||||||||||||||||||||||
| Separate account assets |
— | — | — | — | — | 880,461.3 | 721,473.9 | 158,987.4 | — | 880,461.3 | 10,597.8 | 10,597.8 | ||||||||||||||||||||||||||||||||||||
| Other assets |
1,292,086.7 | 3,313.7 | 1,286,529.0 | — | 1,289,842.7 | 1,447,378.8 | 43,045.4 | 1,398,245.9 | 3,014.4 | 1,444,305.7 | 17,421.5 | 17,384.5 | ||||||||||||||||||||||||||||||||||||
| Financial Liabilities: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits |
16,097,459.3 | — | 16,102,822.0 | — | 16,102,822.0 | 19,240,960.3 | — | 19,298,990.1 | — | 19,298,990.1 | 231,595.6 | 232,294.1 | ||||||||||||||||||||||||||||||||||||
| Non-interest-bearing deposits |
2,729,176.3 | — | 2,729,176.3 | — | 2,729,176.3 | 2,472,416.4 | — | 2,472,416.4 | — | 2,472,416.4 | 29,759.5 | 29,759.5 | ||||||||||||||||||||||||||||||||||||
| Securities sold under repurchase agreements |
— | — | — | — | — | 675,162.0 | — | 675,162.0 | — | 675,162.0 | 8,126.6 | 8,126.6 | ||||||||||||||||||||||||||||||||||||
| Short-term borrowings |
1,089,897.5 | — | 1,088,380.5 | — | 1,088,380.5 | 1,705,825.1 | — | 1,696,351.6 | — | 1,696,351.6 | 20,532.3 | 20,418.3 | ||||||||||||||||||||||||||||||||||||
| Accrued interest payable |
112,463.2 | — | 112,463.2 | — | 112,463.2 | 273,930.5 | — | 273,930.5 | — | 273,930.5 | 3,297.2 | 3,297.2 | ||||||||||||||||||||||||||||||||||||
| Long-term debt |
2,054,436.4 | — | 2,045,541.9 | — | 2,045,541.9 | 6,210,912.3 | — | 6,200,653.0 | — | 6,200,653.0 | 74,758.2 | 74,634.7 | ||||||||||||||||||||||||||||||||||||
| Accrued expenses and other liabilities |
567,643.6 | — | 567,643.6 | — | 567,643.6 | 740,557.1 | — | 738,647.2 | 1,909.9 | 740,557.1 | 8,913.8 | 8,913.8 | ||||||||||||||||||||||||||||||||||||
| Separate account liabilities |
— | — | — | — | — | 880,461.3 | — | 880,461.3 | — | 880,461.3 | 10,597.8 | 10,597.8 | ||||||||||||||||||||||||||||||||||||
| Liabilities on policies in force (*) |
— | — | — | — | — | 58,831.0 | — | 58,831.0 | — | 58,831.0 | 708.1 | 708.1 | ||||||||||||||||||||||||||||||||||||
| (*) | The liabilities on policies in force includes only the fair value of contracts that are classified as insurance contract |
F-56
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
19. Segment information
The Bank operates in five reportable segments: wholesale banking, retail banking, insurance services, treasury services and others. The revenue and related expense recognition policies are set out in note 2. Substantially all operations and assets are based in India.
The retail banking segment serves retail customers through a branch network and other delivery channels. This segment raises deposits from customers and grant loans, provides credit cards and debit cards, and distributes third-party financial products, such as mutual funds and insurance to such customers. Revenues of the retail banking segment are derived from interest earned on retail loans, fees for banking services, profit from foreign exchange and derivative transactions and interest earned from other segments for surplus funds placed with those segments. Expenses of this segment are primarily comprised of interest expense on deposits, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses. The Bank’s retail banking loan products also include loans to small and medium enterprises for commercial vehicles, construction equipment and other business purposes. Such grouping ensures optimum utilization and deployment of specialized resources in the retail banking business.
The wholesale banking segment provides loans and transaction services to corporate customers. As discussed above, loans to small and medium enterprises for commercial vehicles, construction equipment and other business purposes are included in the retail banking segment. Revenues of the wholesale banking segment consist of interest earned on loans given to corporate customers, investment income from credit substitutes, interest earned on the cash float arising from transaction services, fees from such transaction services and profits from foreign exchange and derivative transactions with wholesale banking customers. The principal expenses of the segment consist of interest expense on funds borrowed from other segments, premises expenses, personnel costs, other direct overheads and allocated expenses.
The treasury services segment undertakes trading operations on proprietary account (including investments in government securities), foreign exchange operations and derivatives trading both on proprietary account and customer flows and borrowings. Revenues of the treasury services segment primarily consist of fees and gains and losses from trading operations and of net interest revenue/expense from investments in government securities and borrowings. Revenues from foreign exchange and derivative operations and customer flows are classified under the retail or wholesale segments depending on the profile of the customer.
The insurance services segment comprises the Life Insurance business which offers a wide range of individual and group insurance solutions such as Protection, Pension, Savings, Investment, Annuity and Health. Revenues from the insurance segment consists of premiums, investment income from managed assets, linked income (fund management charges, policy administration charges, mortality charges, surrender charge, discontinuance charges, reinstatement fees, etc) and other miscellaneous income. Expenses of this segment primarily comprise commission expenses, operating expenses related to insurance business, benefits paid, changes in valuation of actuarial liability and other direct overheads and allocated expenses.
The others segment comprises businesses other than retail banking segment, wholesale banking segment, treasury services segment and insurance services segment.
Segment income and expenses include certain allocations. Interest income is charged by a segment that provides funding to another segment, based on yields benchmarked to an internally developed composite yield curve which broadly tracks market-discovered interest rates.
Directly identifiable overheads are attributed to a segment at actual amounts incurred. Indirect shared costs, principally corporate office expenses, are generally allocated to each segment on the basis of area occupied, number of staff, volume and nature of transactions. The wholesale banking segment includes unallocated tax balances and other items.
F-57
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Summarized segment information for the six-month periods ended September 30, 2022 and September 30, 2023:
| Six-month period ended September 30, 2022 | ||||||||||||||||
| Retail Banking | Wholesale Banking |
Treasury Services |
Total | |||||||||||||
| (In millions) | ||||||||||||||||
| Net interest income/ (expense) (external) |
Rs. | 273,692.5 | Rs. | 115,555.5 | Rs. | 39,354.1 | Rs. | 428,602.1 | ||||||||
| Net interest income/ (expense) (internal) |
66,363.4 | (42,652.5 | ) | (23,710.9 | ) | — | ||||||||||
| Net interest revenue |
340,055.9 | 72,903.0 | 15,643.2 | 428,602.1 | ||||||||||||
| Less: Provision for credit losses |
53,748.3 | (7,639.3 | ) | — | 46,109.0 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net interest revenue, after provision for credit losses |
286,307.6 | 80,542.3 | 15,643.2 | 382,493.1 | ||||||||||||
| Non-interest revenue |
119,079.9 | 18,242.2 | (5,825.0 | ) | 131,497.1 | |||||||||||
| Non-interest expense |
(207,913.4 | ) | (5,467.6 | ) | (903.3 | ) | (214,284.3 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income before income tax |
Rs. | 197,474.1 | Rs. | 93,316.9 | Rs. | 8,914.9 | Rs. | 299,705.9 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income tax expense |
Rs. | 76,503.7 | ||||||||||||||
| Segment assets: |
||||||||||||||||
| Segment total assets |
Rs. | 12,484,898.1 | Rs. | 8,672,518.0 | Rs. | 1,872,632.2 | Rs. | 23,030,048.3 | ||||||||
| Six-month period ended September 30, 2023 | ||||||||||||||||||||||||||||
| Retail Banking | Wholesale Banking |
Treasury Services |
Insurance Services | Others | Total | Total | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||
| Net interest income/(expense) (external) |
Rs. | 382,532.7 | Rs. | 119,145.9 | Rs. | 38,237.8 | Rs. | 27,955.9 | Rs. | 2,965.4 | Rs. | 570,837.7 | US$ | 6,871.0 | ||||||||||||||
| Net interest income/(expense) (internal) |
36,683.1 | (9,238.1 | ) | (27,445.0 | ) | — | — | — | — | |||||||||||||||||||
| Net interest revenue |
419,215.8 | 109,907.8 | 10,792.8 | 27,955.9 | 2,965.4 | 570,837.7 | 6,871.0 | |||||||||||||||||||||
| Less: Provision for credit losses |
59,947.5 | 16,371.3 | — | — | 125.0 | 76,443.8 | 920.1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net interest revenue, after provision for credit losses |
359,268.3 | 93,536.5 | 10,792.8 | 27,955.9 | 2,840.4 | 494,393.9 | 5,950.9 | |||||||||||||||||||||
| Non-interest revenue |
132,227.1 | 7,153.1 | (925.0 | ) | 122,430.3 | 8,868.0 | 269,753.5 | 3,247.0 | ||||||||||||||||||||
| Non-interest expense |
(263,486.2 | ) | (28,130.6 | ) | (1,847.8 | ) | (154,288.9 | ) | (6,348.0 | ) | (454,101.5 | ) | (5,465.9 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Income before income tax |
Rs. | 228,009.2 | Rs. | 72,559.0 | Rs. | 8,020.0 | Rs. | (3,902.7) | Rs. | 5,360.4 | Rs. | 310,045.9 | US$ | 3,732.0 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Income tax expense |
Rs. | 59,045.0 | US$ | 710.7 | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
| Segment assets: |
||||||||||||||||||||||||||||
| Segment total assets |
Rs. | 21,470,853.3 | Rs. | 13,100,986.4 | Rs. | 2,586,416.9 | Rs. 4,041,189.7 | Rs. | 866,979.5 | Rs. | 42,066,425.8 | US$ | 506,336.4 | |||||||||||||||
F-58
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
20. Commitments and contingencies
Commitments and contingent liabilities other than for off balance sheet financial instruments (see note 17) are as follows:
Capital commitments
The Bank has entered into committed capital contracts, principally for branch expansion and technology upgrades. The estimated amounts of contracts remaining to be executed on the capital account as of March 31, 2023 and September 30, 2023 aggregated Rs. 25,666.0 million and Rs. 33,602.3 million, respectively.
Contingencies
The Bank is party to various legal proceedings in the normal course of business. The Bank estimates the provision for contingencies which primarily include indirect taxes since no precedents exist which could be used as points of reference. The amount of claims against the Bank towards indirect taxes and other claims not acknowledged as debts as of March 31, 2023 and September 30, 2023 amounted to Rs. 9,456.9 million and Rs. 21,859.0 million, respectively. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank’s results of operations, financial condition or cash flows. The Bank intends to vigorously defend these claims. Although the results of other legal actions cannot be predicted with certainty, it is the opinion of management, after taking appropriate legal advice, that the likelihood of these claims becoming obligations of the Bank is remote and hence the resolution of these actions will not have a material adverse effect, if any, on the Bank’s business, financial condition or results of operations.
Lease commitments
The Bank is party to operating leases for certain of its office premises and employee residences, with renewals at the Bank’s option. Operating lease right-of-use assets and lease liabilities were as follows:
| As of, | ||||||||||||
| March 31, 2023 | September 30, 2023 | September 30, 2023 | ||||||||||
| (In millions) | ||||||||||||
| Right-of-use assets |
Rs. | 89,989.3 | Rs. | 105,644.1 | US$ | 1,271.6 | ||||||
| Lease liabilities |
97,658.9 | 114,812.1 | 1,381.9 | |||||||||
The total lease expenses were as follows:
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| (In millions) | ||||||||||||
| The total minimum lease expense during the period recognized in the consolidated statement of income |
Rs. 8,565.8 | Rs. 11,205.9 | US$ | 134.9 | ||||||||
The total operating cash flow for operating lease expenses for the six-month periods ended September 30, 2022 and September 30, 2023 was Rs. 7,793.0 million and Rs. 9,595.3 million (US$ 115.5 million), respectively.
F-59
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The future minimum lease payments as of September 30, 2023 were as follows:
| Due in fiscal year ending March 31: |
Operating leases | |||||||
| (In millions, except for weighted averages) | ||||||||
| 2024 (remaining period) |
Rs. | 9,786.6 | US$ | 117.8 | ||||
| 2025 |
17,750.8 | 213.7 | ||||||
| 2026 |
17,433.1 | 209.8 | ||||||
| 2027 |
16,820.7 | 202.4 | ||||||
| 2028 |
15,832.7 | 190.5 | ||||||
| Thereafter |
91,425.4 | 1,100.5 | ||||||
|
|
|
|
|
|||||
| Total lease payments |
Rs. | 169,049.3 | US$ | 2,034.7 | ||||
| Less: imputed interest |
54,237.2 | 652.8 | ||||||
|
|
|
|
|
|||||
| Total operating lease liabilities |
Rs. | 114,812.1 | US$ | 1,381.9 | ||||
|
|
|
|
|
|||||
| Weighted average remaining lease term (in years) |
10.4 | 10.4 | ||||||
| Weighted average discount rate |
7.24 | % | 7.24 | % | ||||
The Bank enters into lease agreements to obtain the right-of-use assets for its business operations, substantially all of which are premises. Lease liabilities and right-of-use assets are recognized when the Bank enters into operating leases and represent obligations and rights to use these assets over the period of the leases and are re-measured for modifications. Operating lease liabilities include fixed payments for the contractual duration of the lease, adjusted for renewals or terminations. The lease agreements entered into by the Bank do not include any material residual value guarantees and material restrictive covenants. The lease payments are discounted using a rate determined when the lease is recognized. In general, the Bank does not know the discount rate implicit in the lease, and so the Bank estimates a discount rate that the Bank believes approximates a collateralized borrowing rate for the estimated duration of the lease term. At lease commencement, lease liabilities are recognized based on the present value of the remaining lease payments and discounted using the incremental borrowing rate. Right-of-use assets are reported in other assets on the consolidated balance sheet and related lease liabilities are reported in accrued expenses and other liabilities. The amortization of operating lease right-of-use assets and the accretion of operating lease liabilities are reported together as fixed lease expenses and are included in “Non-interest expense- Premises and equipment”. The lease expense is recognized on a straight-line basis over the life of the lease. The lease agreements entered into by the Bank generally have renewal and escalation clauses. These agreements also in general permit the Bank to terminate the lease arrangement within a certain period of notice of termination. The Bank does not include renewal or termination options in the establishment of the lease term when it is not reasonably certain that it will exercise them. The Bank has elected to exclude leases with terms of less than one year from the operating lease right-of-use assets and lease liabilities. The related short-term lease expense is included in “Non-interest expense- Premises and equipment”. The Bank accounted for lease-related concessions obtained as a result of the COVID-19 pandemic in accordance with guidance in Topic 842. As of September 30, 2023, the Bank had additional undiscounted operating lease commitments of Rs. 568.1 million, predominantly for premises, with leases which have not yet commenced. These leases are expected to commence by October 2023 and have lease terms ranging from 3 to 21 years.
F-60
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
21. Earnings per equity share
A reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share has been provided below. Potential equity shares in Employees Stock Option Schemes (“ESOPs”) with average outstanding balance of 12,764,673 million and 40,623,929 million were excluded from the calculation of diluted earnings per share for the six-month periods ended September 30, 2022 and September 30, 2023, respectively, as these were anti-dilutive.
| As of September 30, | ||||||||
| 2022 | 2023 | |||||||
| Weighted average number of equity shares used in computing basic earnings per equity share |
5,555,385,277 | 6,567,139,429 | ||||||
| Effect of potential equity shares for stock options outstanding |
17,006,941 | 30,090,707 | ||||||
|
|
|
|
|
|||||
| Weighted average number of equity shares used in computing diluted earnings per equity share |
5,572,392,218 | 6,597,230,136 | ||||||
|
|
|
|
|
|||||
The following are reconciliations of basic and diluted earnings per equity share and earnings per ADS.
| Six-month period ended September 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| Basic earnings per share |
Rs. | 40.11 | Rs. | 38.22 | US$ | 0.46 | ||||||
| Effect of potential equity shares for stock options outstanding |
0.13 | 0.17 | 0.01 | |||||||||
|
|
|
|
|
|
|
|||||||
| Diluted earnings per share |
Rs. | 39.98 | Rs. | 38.05 | US$ | 0.45 | ||||||
|
|
|
|
|
|
|
|||||||
| Basic earnings per ADS |
Rs. | 120.33 | Rs. | 114.66 | US$ | 1.38 | ||||||
| Effect of potential equity shares for stock options outstanding |
0.39 | 0.51 | 0.01 | |||||||||
|
|
|
|
|
|
|
|||||||
| Diluted earnings per ADS |
Rs. | 119.94 | Rs. | 114.15 | US$ | 1.37 | ||||||
|
|
|
|
|
|
|
|||||||
F-61
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
22. Fair value measurement
FASB ASC 820 Fair Value Measurement defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
| Level of input |
||
| Level 1 | Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. | |
| Level 2 | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| Level 3 | Inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). | |
The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy. These valuation methodologies were applied to all of the Bank’s financial assets and financial liabilities carried at fair value. For Level 1 instruments, the valuation is based upon the unadjusted quoted prices of identical instruments traded in active markets. For Level 2 instruments, where such quoted market prices are not available, the valuation is based upon the quoted prices for similar instruments in active markets, the quoted prices for identical or similar instruments in markets that are not active, prices quoted by market participants and prices derived from standard valuation methodologies or internally developed models that primarily use certain inputs such as interest rates, yield curves, volatilities and credit spreads, which are available from public sources such as Reuters, Bloomberg and the Fixed Income Money Markets and Derivatives Association of India. The valuation methodology primarily includes discounted cash flow techniques. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Bank’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The valuation of Level 3 instruments is based on valuation techniques or models which use significant market unobservable inputs or assumptions.
The Bank uses its quantitative pricing models to determine the fair value of its derivative instruments. These models use multiple market inputs, including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the positions that are observable directly or indirectly. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Bank’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
Financial assets and financial liabilities measured at fair value on a recurring basis:
AFS debt securities: AFS debt securities are carried at fair value. Such fair values were based on quoted market prices, where available. If quoted market prices did not exist, fair values were estimated using the market yield on the balance period to maturity on similar instruments and similar credit risks. The fair value of asset-backed and mortgage-backed securities is estimated based on revised estimated cash flows at each balance sheet date, discounted at current market pricing for transactions with similar risk. A reduction in the estimated cash flows of these instruments will adversely impact the value of these securities. A change in the timing of these estimated cash flows will also impact the value of these securities.
Trading securities: Trading securities are carried at fair value based on quoted market prices or market observable inputs.
Equity securities: Marketable securities are measured at fair value. Non-marketable equity securities under the measurement alternative are carried at cost plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Held to maturity securities: There were no HTM securities as of March 31, 2023 and September 30, 2023.
Separate Account Assets: Separate account assets are carried at fair value based on quoted market prices or market observable inputs.
Separate account liabilities: The portion of separate account assets representing contract holder’s funds shall be reported in the insurance entity’s financial statements as a summary total, with an equivalent summary total reported for related liabilities.
Liabilities on policies in force: Liabilities on policies in force is calculated as the present value of expected benefits to be paid, less the present value of expected premiums. These liabilities are determined based on GAAP and actuarial standards, using assumptions such as mortality, policy lapse, investment returns, and expenses. Assumptions are set at policy issuance to estimate experience over the benefit period. Some assumptions such as mortality, morbidity and interest rates locked in for long-duration contracts and reassessed at every reporting period.
F-62
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes investments measured at fair value on a recurring basis as of March 31, 2023, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:
| Fair Value Measurements Using | ||||||||||||||||
| Particulars |
Total | Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
| (In millions) | ||||||||||||||||
| Trading account securities |
Rs. | 135,831.1 | Rs. | 184.1 | Rs. | 135,647.0 | Rs. | — | ||||||||
| Securities available-for-sale |
4,878,844.0 | 507,504.1 | 4,222,904.3 | 148,435.6 | ||||||||||||
| Equity securities(*) |
19,462.6 | 3,313.7 | 16,148.9 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 5,034,137.7 | Rs. | 511,001.9 | Rs. | 4,374,700.2 | Rs. | 148,435.6 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (*) | Equity securities classified within other assets. |
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| Fair Value Measurements Using | ||||||||||||||||
| Particulars |
Total | Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
| (In millions) | ||||||||||||||||
| Assets |
||||||||||||||||
| Trading account securities |
Rs. | 278,000.8 | Rs. | 219,691.5 | Rs. | 38,093.3 | Rs. | 20,216.0 | ||||||||
| Securities available-for-sale |
8,329,193.9 | 668,728.5 | 7,485,307.3 | 175,158.1 | ||||||||||||
| Equity securities (*) |
77,150.9 | 43,045.4 | 33,593.5 | 512.0 | ||||||||||||
| Separate Account Assets |
880,461.3 | 721,473.9 | 158,987.4 | — | ||||||||||||
| Total |
Rs. | 9,564,806.9 | Rs. | 1,652,939.3 | Rs. | 7,715,981.5 | Rs. | 195,886.1 | ||||||||
| Total |
US$ | 115,127.7 | US$ | 19,895.8 | US$ | 92,874.1 | US$ | 2,357.8 | ||||||||
| Liabilities |
||||||||||||||||
| Liabilities on policies in force |
171.7 | — | 171.7 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
Rs. | 171.7 | Rs. | — | Rs. | 171.7 | Rs. | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
US$ | 2.1 | US$ | — | US$ | 2.1 | US$ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (*) | Equity securities classified within other assets. |
The following table summarizes certain additional information about changes in the fair value of Level 3 assets pertaining to instruments carried at fair value for the fiscal years ended March 31, 2023 and September 30, 2023:
| Particulars |
As of March 31, 2023 | |||
| (In millions) | ||||
| Beginning balance at April 1, 2022 |
Rs. | 143,894.7 | ||
| Total gains or losses (realized/ unrealized) |
||||
| — Included in net income |
— | |||
| — Included in other comprehensive income |
(2,776.3 | ) | ||
| Purchases/additions |
110,969.4 | |||
| Sales |
— | |||
| Issuances |
— | |||
| Settlements |
(103,652.2 | ) | ||
| Transfers into Level 3 |
— | |||
| Transfers out of Level 3 |
— | |||
| Foreign currency translation adjustment |
— | |||
|
|
|
|||
| Ending balance at March 31, 2023 |
Rs. | 148,435.6 | ||
|
|
|
|||
| Total amount of gains/ (losses) included in net income attributable to change in unrealized gains/ (losses) relating to assets still held at reporting date |
Rs | — | ||
|
|
|
|||
| Change in unrealized gains/ losses for the period included in other comprehensive income for assets held at the end of the reporting period |
Rs (1,867.6 | ) | ||
|
|
|
|||
F-63
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| Particulars |
As of September 30, 2023 | |||
| (In millions) | ||||
| Beginning balance at April 1, 2023 |
Rs. | 148,435.6 | ||
| Total gains or losses (realized/unrealized) |
||||
| — Included in net income |
(386.2 | ) | ||
| — Included in other comprehensive income |
1,342.7 | |||
| Purchases/additions |
98,847.2 | |||
| Sales |
(171.9 | ) | ||
| Issuances |
— | |||
| Settlements |
(52,181.3 | ) | ||
| Transfers into Level 3 |
— | |||
| Transfers out of Level 3 |
— | |||
| Foreign currency translation adjustment |
— | |||
|
|
|
|||
| Ending balance at September 30, 2023 |
Rs. | 195,886.1 | ||
|
|
|
|||
| Total amount of gains/ (losses) included in net income attributable to change in unrealized gains/ (losses) relating to assets still held at reporting date |
Rs | (376.1 | ) | |
|
|
|
|||
| Change in unrealized gains/ (losses) for the period included in other comprehensive income for assets held at the end of the reporting period |
Rs | 940.0 | ||
|
|
|
|||
The transfers out of Level 3 occurred due to listing of previously unlisted equity shares, during the six-month period ended September 30, 2023. This reclassification reflects the transition from using unobservable inputs to determine fair value to utilizing quoted prices in an active market.
Derivatives: The Bank enters into forward exchange contracts, currency options, forward rate agreements, currency swaps, rupee interest rate swaps and interest rate futures with inter-bank participants on its own account and for customers. These transactions enable customers to transfer, modify or reduce their foreign exchange and interest rate risks. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest in one currency against another currency and exchange of principal amount at maturity based on predetermined rates. Rupee interest rate swaps are commitments to exchange fixed and floating rate cash flows in rupees.
The Bank uses its pricing models to determine the fair value of its derivative instruments. These models use market inputs that are observable directly or indirectly.
The following table summarizes derivative instruments measured at fair value on a recurring basis as of March 31, 2023, segregated by the level of valuation inputs within the fair value hierarchy:
| Fair Value Measurements Using | ||||||||||||||||
| Particulars |
Total | Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
| (In millions) | ||||||||||||||||
| Derivative assets |
Rs. | 121,749.4 | Rs. | — | Rs. | 121,749.4 | Rs. | — | ||||||||
| Derivative liabilities |
Rs. | 98,783.5 | Rs. | — | Rs. | 98,783.5 | Rs. | — | ||||||||
The following table summarizes derivative instruments measured at fair value on a recurring basis as of September 30, 2023, segregated by the level of valuation inputs within the fair value hierarchy:
| Fair Value Measurements Using | ||||||||||||||||
| Particulars |
Total | Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
| (In millions) | ||||||||||||||||
| Derivative assets |
Rs. | 119,868.3 | Rs. | — | Rs. | 119,868.3 | Rs. | — | ||||||||
| Derivative liabilities |
Rs. | 152,799.7 | Rs. | — | Rs. | 152,799.7 | Rs. | — | ||||||||
F-64
HDFC BANK LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
23. Risk and uncertainties
The Bank continues to monitor the developments complicating the geopolitical landscape, such as the ongoing war between Russia and Ukraine, the conflict between Israel and Hamas and the internal turmoil within Bangladesh. Following the Houthi group’s attack on international ships in the Red Sea, the United States and the United Kingdom launched a joint strike on Yemen. In April 2024, Iran was said to have launched a drone attack on Israel after the latter attacked Iran’s foreign consulate in Syria. Recently, there have been clashes between Israel and Hezbollah in Lebanon and other regional powers. These conflicts may escalate in the future into a wider regional conflict. The Bank seeks to manage the associated impacts on its customers and businesses.
F-65