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Housing Development Finance Corporation

BSE: 500010|NSE: HDFC|ISIN: INE001A01036|SECTOR: Finance - Housing
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Mar 16
Notes to Accounts Year End : Mar '17

Notes:

1) Unquoted investments include Rs, 94.09 crore (Previous Year Rs, 100.17 crore) in respect of equity shares, which are subject to restrictive covenant. Quoted investments include Rs, 35.08 crore (Previous Year Rs, Nil) in respect of equity shares which are subject to a lock-in period and include Rs, 60.74 crore (Previous Year Rs, 60.74 crore) in respect of equity shares, which are subject to restrictive covenant.

2) Market value of Investments in Unquoted Mutual Funds represents the repurchase price of the units issued by the Mutual Funds.

3) NHB Sumeru Zero Coupon Bonds are held as Capital Assets under Section 2(48) of the Income Tax Act, 1961.

4. DEFERRED TAX ASSET/LIABILITY

In compliance with the Accounting Standard (AS 22) relating to Rs,Accounting for Taxes on IncomeRs,, the Corporation has taken debit of Rs, 495.00 crore (Previous Year Rs, 142.00 crore) in the Statement of Profit and Loss for the year ended March 31, 2017 towards deferred tax liability (net) for the year, arising on account of timing differences, Rs, 1,119.08 crore (Previous Year Rs, 559.54 crore) has been adjusted against the General Reserve (as per Note 3.2).

53 Loans granted by the Corporation aggregating to Rs, 2,63,167.07 crore (Previous Year Rs, 2,33,106.17 crore) and Corporate Deposits aggregating to Rs, 2,957.08 crore (Previous Year Rs, 3.80 crore) are secured or partly secured by one or a combination of the following securities;

(a) Registered / equitable mortgage of property;

(b) Non disposal undertakings in respect of shares, pledge of shares, units, other securities, assignment of life insurance policies;

(c) Hypothecation of assets;

(d) Bank guarantees, company guarantees or personal guarantees;

(e) Negative lien;

(f) Assignment of receivables;

(g) Liquidity Support, Collateral''s [e.g. DSRA (Debt Service Reserve Account), Lien of Fixed Deposit]

6. Loans include Rs, 95.73 crore (Previous Year Rs, 75.77 crore) in respect of properties held for disposal under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

7. Long-term loans and advances includes Sub-Standard and Doubtful Loans of Rs, 2,377.69 crore (Previous Year Rs, 1,832.75 crore).

8. Bank deposits, with maturities beyond twelve months from the balance sheet date, includes earmarked balances Rs, 132.88 crore (Previous Year Rs, 161.70 crore) against foreign currency loans [Refer Note 4.4] and Rs, Nil (Previous Year Rs, 0.14 crore) towards letter of credit issued by Bank.

9. Loans granted by the Corporation, aggregating Rs, 29,357.81 crore (Previous Year Rs, 21,225.01 crore) are secured and considered good [Refer Note 15.3].

10. Out of the Corporate Deposits, amounts aggregating to Rs, 2,134.50 crore (Previous Year Rs, 522.87 crore) are secured and considered good [Refer Note 15.3].

11. Corporate Deposits includes amounts due from the related parties Rs, 13.30 crore (Previous Year Rs, 14.08 crore) [Refer Note 35].

12. Other Advances includes amounts due from the related parties Rs, 9.52 crore (Previous Year Rs, 10.53 crore) [Refer Note 35].

13. Investments in Debentures and Corporate Deposits amounting to Rs, 817.68 crore (Previous Year Rs, 905.59 crore) are towards financing Real Estate Projects. The Debentures are classified as investments in Note 17.

14. Current maturities of staff loans includes amounts due from the directors Rs, 0.01 crore (Previous Year Rs, 0.01 crore) [Refer Note 35].

15. Receivables on Sale of Investments in the previous year represents amount receivable on sale of shares of HDFC Standard Life Insurance Company Limited.

16. CONTINGENT LIABILITIES AND COMMITMENTS

The Company is involved in certain appellate, judicial and arbitration proceedings (including those described below) concerning matters arising in the course of conduct of the Company''s businesses and is exposed to other contingencies arising from having issued guarantees to lenders and other entities. Some of these proceedings in respect of matters under litigation are in various stages, and in some other cases, the claims are indeterminate.

17. Given below are amounts in respect of claims asserted by revenue authorities and others;

a) Contingent liability in respect of income-tax demands, net of amounts provided for and disputed by the Corporation, amounts to Rs, 1,241.88 crore (Previous Year Rs, 1,290.84 crore). The said amount has been paid/ adjusted and will be received as refund if the matters are decided in favour of the Corporation.

b) Contingent liability in respect of disputed dues towards wealth tax, interest on lease tax, and payment towards employersRs, contribution to ESIC not provided for by the Corporation amounts to Rs, 0.15 crore (Previous Year Rs, 0.15 crore).

The Management is generally unable to reasonably estimate a range of possible loss for proceedings or disputes other than those included in the estimate above as plaintiffs/parties have not claimed an amount of money damages, the proceedings are in early stages and/or there are significant factual issues to be resolved.

The management believes that the above claims made are untenable and is contesting them.

18. Contingent liability in respect of guarantees and undertakings comprise of the following;

a) Guarantees Rs, 628.09 crore (Previous Year Rs, 500.32 crore).

b) Corporate undertakings for securitization of receivables aggregated to Rs, 1,838.21 crore (Previous Year Rs, 1,889.83 crore). The outflows would arise in the event of a shortfall, if any, in the cash flows of the pool of the securitized receivables.

In respect of these guarantees and undertaking, the management does not believe, based on currently available information, that the maximum outflow that could arise, will have a material adverse effect on the Company''s financial condition.

19. Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs, 580.63 crore (Previous Year Rs, 652.74 crore).

20. a) Other Interest includes interest on investments amounting to Rs, 500.74 crore (Previous Year Rs, 389.96 crore), including Rs, 31.32 crore (Previous Year Rs, 21.95 crore) in respect of investments classified as current investments.

b) Other Interest includes interest on income tax refund Rs, 32.59 crore (Previous Year Rs, Nil).

21. Dividend income includes Rs, 524.93 crore (Previous Year Rs, 477.22 crore) received from subsidiary companies which have been classified as Long-Term Investments [Refer Note 35].

22. Surplus from deployment in Cash Management Schemes of Mutual Funds amounting to Rs, 444.64 crore (Previous Year Rs, 307.87 crore) is in respect of investments held as current investments.

13. Fees and Other Charges is net of amounts incurred towards Commission to Direct Selling Agents Rs, 502.38 crore (Previous Year Rs, 442.16 crore).

24. Fees and Other Charges includes brokerage of Rs, 0.07 crore (Previous Year Rs, 0.05 crore) received in respect of insurance/agency business undertaken by the Corporation.

25. Profit on sale of investments includes profit of Rs, 919.90 crore on account of sale of equity shares of HDFC ERGO General Insurance Company Ltd. (Subsidiary Company) [Previous Year Rs, 1,513.41 crore on account of sale of equity shares of HDFC Standard Life Insurance Company Ltd. (Subsidiary Company)].

26. Other Income includes rent of Rs, 26.73 crore (Previous Year Rs, 26.51 crore).

27. In accordance with the Accounting Standard (AS) 19 on ''Leases'', the following disclosures in respect of Operating Leases are made:

Income from Leases includes Rs, 7.47 crore (Previous Year Rs, 4.83 crore) in respect of properties and certain assets leased out by the Corporation under Operating Leases. Out of the above, in respect of the non-cancellable leases, the future minimum lease payments are as follows:

a) The above amounts are net of tax deducted at source.

b) The above expenses include Rs, 15.06 crore (Previous Year - Rs, Nil) debited to Securities Premium, being expenses incurred in respect of issuance of Synthetic INR Denominated Bonds.

28 Salaries and Bonus include provisions made in respect of accumulated leave salary and leave travel assistance which is in the nature of Long-Term Employee Benefits and has been actuarially determined as per the Accounting Standard (AS) 15 on Employee Benefits.

29 Expenditure shown in Note 27 is net of recovery from subsidiary companies in respect of Salaries Rs, 4.11 crore (Previous Year Rs, 4.14 crore).

30 Employee Benefits

(a) Defined contribution plans

The Company makes Provident Fund and Superannuation Fund contributions to defined contribution retirement benefit plans for eligible employees. Under the schemes, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The contributions as specified under the law are paid to the provident fund set up as a trust by the Company. The Company is liable for annual contributions and any deficiency in interest cost compared to interest computed based on the rate of interest declared by the Central Government under the Employees'' Provident Fund Scheme, 1952 and recognises such deficiency as an expense in the year it is determined.

The fair value of the assets of the provident fund and the accumulated members'' corpus is Rs, 334.12 crore and Rs, 332.90 crore respectively (Previous Year Rs, 287.31 crore and Rs, 286.17 crore respectively). In accordance with an actuarial valuation, there is no deficiency in the interest cost as the present value of the expected future earnings on the fund is greater than the expected amount to be credited to the individual members based on the expected guaranteed rate of interest of 8.65%. The actuarial assumptions include discount rate of 7.27% (Previous Year 7.86%) and an average expected future period of 13.27 years (Previous Year 13 years).

The Company recognized Rs, 15.90 crore (Previous Year Rs, 13.73 crore) for provident fund contributions and Rs, 12.88 crore (Previous Year Rs, 12.16 crore) for superannuation contributions in the statement of profit and loss. The contributions payable to these plans by the Company are at rates specified in the rules of the schemes.

(b) Defined benefit plans

The details of the Corporation''s post-retirement benefit plans for its employees including whole-time directors are given below which is as certified by the actuary and relied upon by the auditors:

a) Audit Fees include Rs, 0.04 crore (Previous Year Rs, 0.04 crore) paid to Branch Auditors.

b) AuditorsRs, Remuneration exclude Rs, 1.55 crore (Net of tax Rs, 1.01 crore) being certification fee in respect of issue of Rupee Denominated Bonds and for Medium Term Note Programme (MTN Programme), utilized out of Securities Premium Account. Previous Year exclude Rs, 0.75 crore (Net of tax Rs, 0.49 crore) being certification fee in respect of Qualified Institutional Placement (QIP) of Non-Convertible Debentures with Warrants of the Corporation, utilized out of Securities Premium Account.

c) Auditors'' Remuneration above is excluding Service Tax, Swachh Bharat Cess and Krishi Kalyan Cess.

31. In accordance with the Accounting Standard (AS) 20 on ''Earnings Per Share'':

(i) In calculating the Basic Earnings Per Share, the Profit After Tax of Rs, 7,439.32 crore (Previous Year Rs, 7,093.10 crore) has been adjusted for amounts utilized out of Shelter Assistance Reserve of Rs, 146.27 crore (Previous Year Rs, 85.32 crore).

Accordingly the Basic Earnings Per Share has been calculated based on the adjusted Profit After Tax of Rs, 7,293.05 crore (Previous Year Rs, 7,007.79 crore) and the weighted average number of shares during the year of 158.34 crore (Previous Year 157.72 crore).

32. RELATED PARTY TRANSACTIONS

As per the Accounting Standard on ‘Related Party Disclosures'' (AS) 18, the related parties of the Corporation are as follows:

A) Subsidiary Companies

HDFC Developers Ltd. HDFC ERGO General Insurance Company Ltd.

HDFC Holdings Ltd. HDFC General Insurance Ltd. (with effect from 9th September, 2016)

HDFC Trustee Company Ltd. (subsidiary of HDFC ERGO General Insurance Company Ltd.)

HDFC Standard Life Insurance Company Ltd. HDFC Sales Pvt. Ltd.

HDFC Venture Capital Ltd. HDFC Property Ventures Ltd.

HDFC Ventures Trustee Company Ltd. HDFC Credila Financial Services Private Ltd.

GRUH Finance Ltd. (formerly known as Credila Financial Services Pvt. Ltd.)

Griha Investments (Subsidiary of HDFC Holdings Ltd.) Griha Pte. Ltd. (Subsidiary of HDFC Investments Ltd.)

HDFC Education and Development Services Pvt. Ltd. HDFC Pension Management Company Ltd.

Windermere Properties Pvt. Ltd. (subsidiary of HDFC Standard Life Insurance Company Ltd.)

Winchester Properties Pvt. Ltd. HDFC International Life and Re Company Limited

HDFC Investments Ltd. (subsidiary of HDFC Standard Life Insurance Company Ltd.)

HDFC Asset Management Company Ltd. Grandeur Properties Pvt. Ltd.

HDFC Capital Advisors Ltd. Pentagram Properties Pvt. Ltd.

HDFC Realty Ltd. Haddock Properties Pvt. Ltd.

B) Associate Companies C) Entities over which control is exercised

HDFC Bank Ltd. HDFC Investment Trust (HIT)

RuralShores Business Services Pvt. Ltd. HDFC Investment Trust - II (HIT- II)

Magnum Foundations Pvt. Ltd.

True North Ventures Private Limited

(formerly known as India Value Fund Advisors Pvt. Ltd.’)

D) Key Management Personnel E) Relatives of Key Management Personnel

Mr. Keki M. Mistry (Where there are transactions)

Ms. Renu Sud Karnad Ms. Arnaaz K. Mistry

Mr. V. Srinivasa Rangan Mr. Nikhil Singhal

Ms. Swarn Sud Mr. Rishi Sud

33. SEGMENT REPORTING

The Corporation''s main business is financing by way of loans for the purchase or construction of residential houses, commercial real estate and certain other purposes, in India. All other activities of the Corporation revolve around the main business. As such, there are no separate reportable segments, as per the Accounting Standard (AS) 17 on ''Segment Reporting''.

34. Previous year''s figures have been regrouped / reclassified wherever necessary to correspond with the current year''s classification / disclosure.

35. DISCLOSURES REQUIRED BY THE NATIONAL HOUSING BANK

36 Minimum Disclosures

The following additional disclosures have been given in terms of Notification no. NHB.HFC.CG-DIR.1/ MD&CEO/2016 dated February 9, 2017 issued by the National Housing Bank.

37 Summary of Significant Accounting Policies

The accounting policies regarding key areas of operations are disclosed as note 1 to the accounts.

38 Exchange Traded Interest Rate (IR) Derivative

The Corporation has not entered into any exchange traded derivative.

39 Disclosures on Risk Exposure in Derivatives A. Qualitative Disclosure

Financial Risk Management

The Corporation has to manage various risks associated with the lending business. These risks include liquidity risk, exchange risk, interest rate risk and counterparty risk.

The Financial Risk Management and Hedging Policy as approved by the Audit Committee sets limits for exposures on currency and other parameters. The Corporation manages its interest rate and currency risk in accordance with the guidelines prescribed therein.

Liquidity risk and interest rate risks arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of maturity profiles. The currency risk on the borrowings is actively managed mainly through a combination of principal only swaps, forward contracts and dollar denominated assets. Counterparty risk is reviewed periodically to ensure that exposure to various counterparties is well diversified and is within the limits fixed by the Derivative Committee.

As a part of Asset Liability Management, the Corporation has entered into interest rate swaps wherein it has converted its fixed rate rupee liabilities into floating rate linked to various benchmarks.

Constituents of Derivative Business

Financial Risk Management of the Corporation constitutes the Audit Committee, Asset Liability Committee (ALCO), Derivative Committee, Risk management and hedging team (front office), mid office, back office and internal auditors.

The Treasury front-office enters into derivative transactions with various counterparties. The Corporation has an independent back-office and mid-office. The Corporation periodically monitors various counterparty risk and market risk limits, within the risk architecture and processes of the Corporation.

Measurement and Accounting

The Guidance Note on Accounting for Derivative Contracts issued by the Institute of Chartered Accountants of India is effective from April 1, 2016.

On and from that date, all derivative contracts are recognized on the balance sheet and measured at fair value. The fair value changes are recognized in the Statement of Profit and Loss unless hedge accounting is used. Where hedge accounting is used, fair value changes of the derivative contracts are recognized through the Statement of Profit and Loss in the same period as the offsetting losses and gains on the hedged item. The tenor of hedging instrument may be less than or equal to the tenor of underlying hedged asset or liability.

The Corporation has entered into fair value hedges through interest rate swaps on fixed rate rupee liabilities as a part of the Asset Liability management whereby a portion of the fixed rate liabilities are converted to floating rate. The Corporation has a mark to market gain of '' 1,059 crore on outstanding Fair value hedges.

The long term monetary items other than derivatives continue to be amortized, through the Statement of Profit and Loss over the balance period of such long term asset or liability. Pursuant to the notification dated December 29, 2011 issued by the Ministry of Corporate Affairs amending the Accounting Standard 11, the Corporation has exercised the option as per Para 46A inserted in the Standard for all long term monetary assets and liabilities.

Valuation of derivatives is based on inputs sourced from quoted market data and application of appropriate mathematical and statistical models to determine fair value.

Foreign exchange forward contracts outstanding at the Balance Sheet date, are effectively valued at the closing spot rate. The premium or discount arising at the inception of such forward exchange contract is amortized as expense or income over the life of the contract.

The Corporation has entered into cash flow hedges to hedge the floating rate benchmark on foreign currency loans. Under the cash flow hedge, the hedging instrument is measured at fair value and any gain or loss that is determined to be an effective hedge is recognized in equity i.e., Cash flow Hedge reserve. In order to match the gains and losses of the hedged item and the hedging instrument in the statement of profit and loss, the changes in fair value of the hedging instrument and the hedged item is recognized at the same time in the Statement of Profit and Loss. The outstanding notional of cash flow hedges is USD 70 mn.

40 Details of financing of parent company products

These details are not applicable since the Corporation is not a subsidiary of any company.

41 Details of Single Borrower Limit (SGL) / Group Borrower Limit (GBL) exceeded by the HFC

The Corporation has not exceeded Single Borrower Limit (SGL) / Group Borrower Limit (GBL) during the financial year.

42 Advances against Intangible Collateral

43 Disclosure of Penalties imposed by NHB and other regulators

During FY 2016-17, there were no penalties imposed by NHB or any other regulators.

44 Related party Transactions

Details of all material transactions with related parties are disclosed in note 35.

45 Rating assigned by Credit Rating Agencies and migration of rating during the year

Note: The Corporation has been assigned the highest ratings in all the above-mentioned instruments. There were no changes in any of the ratings or outlook during the year.

46 Remuneration of Directors

Details of Remuneration of Directors are disclosed as part of the Directors Report.

47 Management

Refer to the Management Discussion and Analysis report for the relevant disclosures.

48 Net Profit or Loss for the period, prior period items and changes in accounting policies There are no prior period items that have impact on the current year''s profit and loss.

48 Revenue Recognition

There have been no instances in which revenue recognition has been postponed pending the resolution of significant uncertainties.

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