HDFC Bank

1.  Merger with Centurion Bank of Punjab Limited
 
 The Scheme of Amalgamation (the Scheme) of Centurion Bank of Punjab
 Limited (CBoP or eCBoP) with HDFC Bank Ltd.  (HDFC Bank or the
 Bank) under section 44 A (4) of the Banking Regulation Act, 1949 which
 was approved by the shareholders of both the banks on March 27, 2008
 was sanctioned by the RBI vide their order DBOD No.
 PSBD.16197/16.01.131/2007-08 dated May 20, 2008, and is effective from
 May 23, 2008. The appointed date of the merger was April 1, 2008. Both
 the entities were banking companies incorporated under the Companies
 Act, 1956 and licensed by the RBI under the Banking Regulation Act,
 1949.
 
 As per the Scheme, upon its coming into effect from the appointed date
 i.e. April 1,2008, the entire undertaking of CBoP including all its
 assets and liabilities stood transferred/deemed to be transferred to
 and vest in HDFC Bank. As per the Scheme, in consideration of the
 transfer of and vesting of the undertaking of CBoP, one equity share of
 HDFC Bank of the face value of Rs. 10/- each fully paid-up was issued
 to members of the eCBoP for every twenty nine equity shares of the face
 value of Re. 1/- each of CBoP held by them on the record date i.e. June
 16, 2008. Accordingly 6,98,83,956 equity shares of Rs. 10/- each of
 HDFC Bank were allotted at par to the shareholders of CBoP vide board
 resolution dated June 24, 2008.  The excess of the value of net assets
 transferred over the paid up value of shares issued in consideration
 have been adjusted in Amalgamation Reserve as per the Scheme of
 Amalgamation.
 
 The amalgamation has been accounted using the pooling of interest
 method. Accordingly, the assets and liabilities of CBoP that vested in
 HDFC Bank as on April 1, 2008 were accounted at the values at which
 they were appearing in the books of CBoP as on March 31,2008 and
 provisions arising out of harmonization of accounting policies and
 estimates, as approved by the Board of Directors of HDFC Bank and as
 prescribed in the Scheme, were made for the difference between the net
 value appearing in the books of CBoP and the value as determined by
 HDFC Bank. Also the Bank provided for merger related expenses on a best
 estimate basis. Such adjustments, as per the Scheme, were made by the
 Bank against the reserves arising on amalgamation.
 
 2 Capital Infusion
 
 Pursuant to the amalgamation of eCBoP with HDFC Bank Ltd. and post
 approval of the shareholders of the Bank at its extraordinary general
 meeting held on March 27, 2008, the Bank issued 2,62,00,220 warrants to
 its promoter HDFC Ltd. on a preferential basis on June 3, 2008. These
 warrants are convertible into equity shares of the Bank at a price of
 Rs. 1,530.13 each (as determined under the SEBI (DIP) guidelines for
 preferential issues). In accordance with the terms of the warrants, 10%
 of the aforesaid price of the equity shares is payable on allotment of
 the warrants. Accordingly, the Bank received an amount of Rs. 400,92
 lacs on June 3, 2008 on allotment of the warrants and the same is shown
 as Equity Share Warrants in the Balance Sheet. HDFC Ltd. can exercise
 the option any time upto December 2, 2009.
 
 3 Reserves and Surplus
 
 General Reserve
 
 The Bank has made an appropriation of Rs. 224,49 lacs (previous year :
 Rs. 159,02 lacs) out of profits for the year ended March 31, 2009 to
 general reserve pursuant to Companies (Transfer of Profits to Reserves)
 Rules, 1975.
 
 Investment Reserve Account
 
 During the year, the Bank has transferred Rs. 13,86 lacs (net) from
 Investment Reserve Account to the Profit and Loss Account. In the
 previous year, the Bank transferred Rs. 38,50 lacs (net) from Profit
 and Loss Account to Investment Reserve Account.
 
 4 Provisions, Contingent Liabilities and Contingent Assets
 
 b) Description of contingent liabilities
 
 Sr. No.   Contingent liability*
 
 1.        Claims against the Bank not acknowledged as debts 
           - taxation
 
 2.        Claims against the Bank not acknowledged as debts 
           - others
 
 3.        Liability on account of forward exchange and 
           derivative contracts.
 
 Brief description
 
 The Bank is a party to various taxation matters in respect of which
 appeals are pending. The Bank expects the outcome of the appeals to be
 favorable based on decisions on similar issues in the previous years by
 the appellate authorities.
 
 The Bank is a party to various legal proceedings in the normal course
 of business. The Bank does not expect the outcome of these proceedings
 to have a material adverse effect on the Banks financial conditions,
 results of operations or cash flows.
 
 The Bank enters into foreign exchange contracts, currency options,
 forward rate agreements, currency swaps and interest rate swaps with
 inter-bank participants on its own account and for customers. 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/principal in one currency
 
 Sr. No.  Contingent liability*
 
 4.       Guarantees given on behalf of constituents, 
          acceptances, endorsements and other obligations
 
 5.       Other items for which the Bank is contingently liable
 
 Brief description
 
 against another, based on predetermined rates. Interest rate swaps are
 commitments to exchange fixed and floating interest rate cash flows.
 The notional amounts of financial instruments such as foreign exchange
 contracts and derivatives provide a basis for comparison with
 instruments recognised on the balance sheet but do not necessarily
 indicate the amounts of future cash flows involved or the current fair
 value of the instruments and, therefore, do not indicate the Banks
 exposure to credit or price risks. The derivative instruments become
 favorable (assets) or unfavorable (liabilities) as a result of
 fluctuations in market rates or prices relative to their terms.
 
 As a part of its commercial banking activities the Bank issues
 documentary credit and guarantees on behalf of its customers.
 Documentary credits such as letters of credit enhance the credit
 standing of the customers of the Bank. Guarantees generally represent
 irrevocable assurances that the Bank will make payments in the event of
 the customer failing to fulfill its financial or performance
 obligations.
 
 These include:
 
 a) Credit enhancements in respect of securitized-out loans.
 
 b) Bills rediscounted by the Bank.
 
 c) Capital commitments.
 
 d) Repo borrowings.
 
 *Also refer Schedule 12 - Contingent liabilities
 
 5 Interest Income
 
 Interest income under the sub-head Income from Investments includes
 dividend received during the year ended March 31, 2009 on units, equity
 and preference shares amounting to Rs. 230,21 lacs (previous year: Rs.
 267,60 lacs).
 
 6 Commission, Exchange and Brokerage Income
 
 Commission, exchange and brokerage income is net of correspondent bank
 charges and brokerage paid on purchase and sale of investments.
 
 7 Miscellaneous Income
 
 Miscellaneous income includes profit/(loss) of Rs. (158,16) lacs
 (previous year : Rs. 36,71 lacs) pertaining to derivative transactions.
 
 8 Other Expenditure
 
 Other expenditure includes expenses on collections and recoveries
 amounting to Rs. 292,42 lacs (previous year : Rs. 158,73 lacs) and
 outsourcing fees amounting to Rs. 382,51 lacs (previous year : Rs.
 316,02 lacs) exceeding 1% of the total income of the Bank.
 
 9 Penalties Levied by the Reserve Bank of India
 
 No penalties were levied by the Reserve Bank of India during the
 financial years ended March 31, 2009 and March 31, 2008.
 
 10 Dividend in respect of shares to be allotted on exercise of stock
 options
 
 Any allotment of shares after the balance sheet date but before the
 book closure date pursuant to the exercise of options during the said
 period will be eligible for full dividend, if approved at the ensuing
 Annual General Meeting.
 
 11 Disclosure of Letter of Comforts (LoCs) issued by the Bank
 
 The Bank has not issued any Letter of Comfort during the year ended
 March 31, 2009 and March 31, 2008.
 
 12 Changes in Accounting Estimates
 
 Useful Life of Assets
 
 During the year ended March 31, 2009, the Bank changed the useful life
 of software, automated teller machines (ATMs) and certain other fixed
 assets prospectively from April 1, 2008. Where there is a revision of
 the estimated useful life of an asset, the unamortised depreciable
 amount will be charged over the revised remaining useful life. This
 change in estimate has resulted in the profit after tax for the year
 ended March 31, 2009 being higher by Rs. 31,71 lacs.
 
 13 Small and Micro Industries
 
 Under the Micro, Small and Medium Enterprises Development Act, 2006
 which came into force from October 2, 2006, certain disclosures are
 required to be made relating to Micro, Small and Medium enterprises.
 There have been no reported cases of delays in payments to micro and
 small enterprises or of interest payments due to delays in such
 payments.
 
 14 Comparative Figures
 
 Figures for the previous year have been regrouped and reclassified
 wherever necessary to conform to the current years presentation.
 However, previous year figures are not comparable to that of the
 current year as those are of the standalone HDFC Bank and the current
 year figures includes erstwhile Centurion Bank of Punjab. In respect of
 the previous year figures, differences, if any, between figures
 reported in lacs in the previous year and reported in thousands in the
 current year are due to rounding off.