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Housing Development Finance Corporation

BSE: 500010|NSE: HDFC|ISIN: INE001A01036|SECTOR: Finance - Housing
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Notes to Accounts Year End : Mar '19

1. Corporation Overview

Housing Development Finance Corporation Limited (‘HDFC’ or ‘the Corporation’ or ‘the Company’) was incorporated in 1977 as the first specialised Mortgage Company domiciled in India as a limited company having its Corporate office at HDFC House, H T Parekh Marg, Churchgate, Mumbai 400 020. The principal business is providing finance to individuals, corporates and developers for the purchase, construction, development and repair of houses, apartments and commercial properties in India. The business is conducted through its branches in India and its overseas offices at London, Singapore and Dubai supported by a network of agents for sourcing loans as well as deposits. HDFC is the holding company for investments in its associates and subsidiary companies. The Corporation is a public limited company and its shares are listed on the Bombay Stock Exchange (BSE), India, and the National Stock Exchange (NSE), India, and the Corporation’s Synthetic INR Denominated bonds are listed on the London Stock Exchange.

2. Basis of Preparation and Presentation

2.1 Statement of Compliance and basis of preparation and presentation

The standalone financial statements (“financial statements”) have been prepared in accordance with the Companies (Indian Accounting Standards) Rules, 2015 as per Section 133 of the Companies Act, 2013 and relevant amendment rules issued thereafter (“Ind AS”) on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period as explained below, the relevant provisions of the Companies Act, 2013 (the “Act”) and the guidelines issued by the National Housing Bank (“NHB”) to the extent applicable.

Effective April 1, 2018, the Corporation has adopted Ind AS and the adoption was carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards, with April 1, 2017 as the transition date. The transition was carried out from Indian Accounting Principles generally accepted in India as prescribed under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 as amended (“IGAAP”), which was the previous generally accepted accounting principles.

The Balance Sheet, the Statement of Profit and Loss and the Statement of Changes in Equity are prepared and presented in the format prescribed in the Division III of Schedule III to the Act. The Statement of Cash Flows has been prepared and presented as per the requirements of Ind AS 7 “Statement of Cash Flows”.

Amounts in the financial statements are presented in Indian Rupees in crore rounded off to two decimal places as permitted by Schedule III to the Act. Per share data are presented in Indian Rupee to two decimal places. The Corporation presents its Balance Sheet in the order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date and more than 12 months after the reporting date is presented in Note 39.

Accounting policies have been consistently applied except where a newly-issued Ind AS is initially adopted or a revision to an existing Ind AS requires a change in the accounting policy hitherto in use.

2.2 Functional and Presentation Currency

The financial statements are presented in Indian Rupees (?) which is the functional and the presentation currency of the Corporation and all values are rounded to the nearest crore with two decimals, except when otherwise indicated.

2.3 Basis of Measurement

The financial statements have been prepared on historical cost basis except for certain financial instruments that are measured at fair values.

A historical cost is a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the Corporation.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Corporation takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share based payment transactions that are within the scope of Ind AS 102, leasing transactions that are within the scope of Ind AS 17.

Fair value measurements under Ind AS are categorised into fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

- Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation can access on measurement date.

- Level 2 inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

- Level 3 where unobservable inputs are used for the valuation of assets or liabilities.

2.4 Use of Estimates and Judgements

The preparation of the financial statements in conformity with Indian Accounting Standards (“Ind AS”) requires the management to make estimates, judgements and assumptions. These estimates, judgements and assumptions affect the application of accounting policies and the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Accounting estimates could change from period to period. Actual results could differ from those estimates. Revisions to accounting estimates are recognised prospectively. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the differences between the actual results and the estimates are recognised in the periods in which the results are known / materialise.

2.4.1 Determination of Expected Credit Loss (“ECL”)

The measurement of impairment losses (ECL) across all categories of financial assets requires judgement.

In particular, the estimation of the amount and timing of future cash flows based on Corporation’s historical experience and collateral values when determining impairment losses along with the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.

Elements of the ECL models that are considered accounting judgements and estimates include:

- Bifurcation of the financial assets into different portfolios when ECL is assessed on collective basis.

- Corporation’s criteria for assessing if there has been a significant increase in credit risk. (Refer Note 3.2.3.2)

- Development of ECL models, including choice of inputs / assumptions used.

The various inputs used and process followed by the Corporation in measurement of ECL has been detailed in Note 3.2.3.1

2.4.2 Fair Valuation of Investments (other than Investment in Subsidiaries and Associates)

Some of the Corporation’s Investments (other than Investment in Subsidiaries and Associates) are measured at fair value. In determining the fair value of such Investments, the Corporation uses quoted prices (unadjusted) in active markets for identical assets or based on inputs which are observable either directly or indirectly. However in certain cases, the Corporation adopts valuation techniques and inputs which are not based on market data. When Market observable information is not available, the Corporation has applied appropriate valuation techniques and inputs to the valuation model.

The Corporation uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Information about the valuation techniques and inputs used in determining the fair value of Investments are disclosed in Note 44.3.2.

2.4.3 Income Taxes

The Corporation’s tax jurisdiction is in India. Significant judgements are involved in determining the provision for income taxes, including amount expected to be paid/recovered for certain tax positions.

2.4.4 Evaluation of Business Model

Classification and measurement of financial instruments depends on the results of the solely payments of principal and interest on the principal amount outstanding (“SPPI”) (Refer Note 1.5) and the business model test (Refer Note 1.4). The Corporation determines the business model at a level that reflects how the Corporation financial instruments are managed together to achieve a particular business objective.

The Corporation monitors financial assets measured at amortised cost or fair value through other comprehensive income that are derecognised prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held. Monitoring is part of the Corporation’s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those instruments.

2.4.5 Share-Based Payments

Estimating fair value for share-based payment transactions requires use of an appropriate valuation model. The Corporation measures the cost of equity-settled transactions with employees using Black-Scholes Model to determine the fair value of the options on the grant date.

Inputs into the valuation model, includes assumption such as the expected life of the share option, volatility and dividend yield.

Further details used for estimating fair value for share-based payment transactions are disclosed in Note 3.9.1.

2.4.6 Defined Benefit Plans

The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

3. First Time Adoption of Ind AS (Ind AS 101)

The Corporation has prepared financial statements for the year ended March 31, 2019, in accordance with Ind AS for the first time. For the periods upto and including the year ended March 31, 2018, the Corporation prepared its financial statements in accordance with the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 (Previous GAAP) and NHB guidelines. Accordingly, the Corporation has prepared its financial statements to comply with Ind AS for the year ending March 31, 2019, together with comparative information as at and for the year ended March 31, 2018, as described in the summary of significant accounting policies. In preparing these financial statements, the Corporation’s opening Balance Sheet was prepared as at April 1, 2017 i.e. the transition date to Ind AS for the Corporation.

This note explains the principal adjustments made by the Corporation in restating its Previous GAAP financial statements, including the Balance Sheet as at April 1, 2017, and the financial statements as at and for the year ended March 31, 2018.

3.1 Exemptions availed

3.1.1 Deemed Cost for Property, Plant and Equipment, Investment Property and Intangible Assets

The Corporation has elected to continue with the carrying value of all of its property, plant and equipment and intangible assets, measured as per the Previous GAAP and use that carrying value as its deemed cost as of the transition date under Ind AS.

3.1.2 Share-Based Payments

The Corporation has not applied Ind AS 102 to equity instruments that vested before the date of transition to Ind AS.

3.1.3 Investments in Subsidiaries and Associates

The Corporation has elected to apply Previous GAAP carrying amount of its investments in Subsidiaries and Associates as deemed cost as on the date of transition to Ind AS.

3.1.4 Classification and Measurement of Financial Assets

The Corporation has classified the financial assets in accordance with Ind AS 109 on the basis of facts and circumstances that exist at the date of transition to Ind AS.

3.1.5 Fair Value of Financial Assets and Liabilities

As per Ind AS exemption, the Corporation has not fair valued the financial assets and liabilities retrospectively and has measured the same prospectively.

3.1.6 Derecognition of Financial Assets

As per Ind AS exemption, the Corporation has not reassessed the securitisation / assignment transactions entered before the transition date and the same is continued to be derecognised.

3.1.7 Long Term Foreign Currency Monetary Items

As per Ind AS exemption, the Corporation has continued the policy adopted for accounting for exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the effective date as per the previous GAAP.

3.1.8 Business Combinations

Ind AS 103 Business Combinations has not been applied to acquisitions of subsidiaries, or of interests in associates and joint ventures and transactions which are considered businesses for Ind AS, that occurred before 1st April, 2017. The carrying amounts of assets and liabilities in accordance with previous GAAP are considered as their deemed cost at the date of acquisition. After the date of the acquisition, measurement is in accordance with Ind AS.

3.1.9 Estimates

On assessment of the estimates made under the previous GAAP financial statements, the Corporation has concluded that there is no necessity to revise the estimates under Ind AS, as there is no objective evidence of an error in those estimates. However, estimates that were required under Ind AS but not required under

Previous GAAP are made by the Corporation for the relevant reporting dates reflecting conditions existing as at that date.

3.1.10 Classification and measurement of financial assets

The classification of financial assets to be measured at amortised cost or fair value through other comprehensive income is made on the basis of the facts and circumstances that existed on the date of transition to Ind AS.

3.2 Reconciliation of Equity as at April 1, 2017 and March 31, 2018 and Total Comprehensive income for the year ended March 31, 2018

3.2.A. Amalgamation of Grandeur Properties Private Limited, Haddock Properties Private Limited, Pentagram Properties Private Limited, Winchester Properties Private Limited and Windermere Properties Private Limited with the Corporation

During the year ended March 31, 2018, Grandeur Properties Private Limited, Haddock Properties Private Limited, Pentagram Properties Private Limited, Winchester Properties Private Limited and Windermere Properties Private Limited (collectively referred to as ‘Transferor Companies’ primarily engaged in holding properties) were amalgamated with the Corporation on March 28, 2018 with the appointed date of April 1, 2016, as per the Order issued by the National Company Law Tribunal, Mumbai Bench on the Scheme of Amalgamation. The transition date balance sheet of the Corporation has been adjusted by net liabilities aggregating INR 334.74 crore representing the financial information of the aforesaid Transferor Companies, which is based on the financial statements of such Transferor Companies prepared in accordance with Previous GAAP, as adjusted for the differences arising from transition to Ind AS to give effect to the amalgamation from the beginning of the preceding period in the financial statements and based on “pooling of interest” method as per Ind AS 103 Business Combinations.

3.2.1 Impairment on Financial Instruments (Reversal of provision of Standard / Non-Performing Assets (NPA) and Provision for Expected Credit Losses (ECL)

Under the Previous GAAP, provision for standard asset and NPA, were presented under provisions. However, under Ind AS financial assets measured at amortised cost are presented net of provision for Expected Credit Losses. Consequently, the Corporation has reversed provisions for standard assets / NPA’s amounting to Rs. 3,011.00 crore and Rs. 4,944.15 crore as on April 1, 2017 and March 31, 2018 respectively and provision for ECL has been recognised amounting to Rs. 3,277 crore and Rs. 5,448.83 crore as on April 1, 2017 and March 31, 2018. The Corporation has reinstated interest income on credit impaired instruments amounting to Rs. 133.18 crore.

Above has led to increase in profit before tax of Rs. 48.18 crore and profit after tax of Rs. 30.59 crore for the year ended March 31, 2018.

3.2.2 Fair Valuation of Investments [other than Investments in Subsidiaries and Associates]:

Under Previous GAAP, long-term investments were measured at cost less diminution in value other than temporary. Under Ind AS, these financial assets have been classified as FVTPL or FVOCI and consequently the provisions for diminution on Investments held as per previous GAAP have been reversed as on the date of transition to Ind As.

Above has led to increase in profit before tax of Rs. 24.66 crore and profit after tax of Rs. 14.07 crore for the year ended March 31, 2018.

3.2.3 Deferred Tax

The Previous GAAP requires deferred tax accounting using the income statement approach, which focuses on differences between taxable profits and accounting profits for the period. Ind AS 12 requires entities to account for deferred taxes using the Balance Sheet approach, which focuses on temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base.

The application of ‘Ind AS 12 Income Taxes’ approach has resulted in the various transitional adjustments being temporary differences. Accordingly, the Corporation has accounted for such differences. These adjustments are recognised in co-relation to the underlying transaction either in retained earnings, OCI or the statement of profit and loss respectively.

The major change in Deferred Tax is on account of below:

As required by the NHB, the Corporation had recognised deferred tax liability (DTL) in respect of the balance in the Special Reserve (created under section 36(1)(viii) of the Income-tax Act, 1961) amounting to Rs. 3,413.45 crore as at April 1, 2017. The Corporation believes that the Special Reserve will not be utilised for payment of dividend or any other purpose and accordingly it does not result in a difference in tax base. Hence, DTL on Special Reserve has been reversed to comply with Ind AS 12 on Income Taxes.

3.2.4 Investment Property

Under the Previous GAAP, there was no requirement to present investment property separately and the same was included under non-current investments and measured at cost less provision for diminution other than temporary. Under Ind AS, investment property is required to be presented separately in the balance sheet and depreciation is charged on it. Accordingly, the carrying value of the investment property net of depreciation and Impairment as at April 1, 2017 of Rs. 399.53 crore and as at March 31, 2018 of Rs. 395.13 crore under the Previous GAAP has been reclassified to a separate line item on the face of the balance sheet and the depreciation provided based on estimated useful life.

3.2.5 Effective Interest Rate (EIR)

a. Under Previous GAAP, transaction costs charged to customers and incurred by the Corporation was recognised upfront while under Ind AS, such costs are included in the initial recognition amount of financial asset/financial liability and recognised as interest income/interest expense using the effective interest method. Consequently loan to customers on date of transition date have increased by Rs. 253.91 crore and interest income for the year ended March 31, 2018 has increased by Rs. 29.71 crore.

b. Under Previous GAAP, transaction costs incurred on borrowings was charged to statement of profit and loss upfront while under Ind AS, such costs are included in the initial recognition amount of financial liabilities and recognised as interest expense using the effective interest method. Consequently, Debt Securities on date of transition date have decreased by Rs. 106.54 crore and interest expense for the year ended March 31, 2018 has increased by Rs. 1,262.98 crore.

3.2.6 Derecognition of Assigned Loans

Under the Previous GAAP, retained interest receivable and servicing fees on loan assignment transaction were recognised over the period of such assigned loans. However, under Ind AS, on transfer of substantially all risks and rewards without retention of any residual interest, gain arising on said transactions are recorded in the Statement of Profit and Loss by discounting the future cash flows accruing in the form of differential interest on such assigned loan to their present values. The Corporation recognises a servicing asset, as the fee to be received is expected to be more than adequate compensation for the servicing activities. Corresponding amount is recognised in the statement of profit and loss. These loans is derecognised from the Balance Sheet immediately on assignment of the loan. The Corporation has recorded gain of Rs. 3.08 crore for the year ended March 31, 2018 on account of assignment of loans.

3.2.7 Share-Based Payments

Under Previous GAAP, the cost of equity-settled employee share-based payments was recognised using the intrinsic value method. Under Ind AS, the cost of equity-settled employee share-based payments is recognised based on the fair value of the options as on the grant date. The change does not affect total equity, but there is a decrease in profit before tax as well as profit after tax for the year ended March 31, 2018 by Rs. 937.61 crore.

3.2.8 Defined Benefit Obligation

Both under Previous GAAP and Ind AS, the Corporation recognised costs related to its post-employment defined benefit plan on an actuarial basis. Under Previous GAAP, the entire cost, including actuarial gain and losses, were charged to the statement profit or loss. Under Ind AS, remeasurements (comprising of actuarial gains and losses, the effect of assets ceiling, excluding amounts included in net interest on the net defined benefit liability and return on plan assets excluding amount included in net interest on the net defined benefit liability) are recognised in Other Comprehensive Income (OCI). Thus, employee benefit expense is adjusted by Rs. 9.58 crore and is recognised in OCI for the year ended March 31, 2018.

Current tax amounting to Rs. 3.35 crore is also regrouped from the statement of profit and loss to OCI for the year ended March 31, 2018. The above change does not affect total equity as at March 31, 2018. However, profit before tax and profit after tax for the year ended March 31, 2018, is increased by Rs. 9.58 crore and Rs. 6.23 crore respectively.

3.2.9 Other Comprehensive Income (OCI)

Under Previous GAAP, there was no concept of OCI. Under Ind AS, for equity instruments other than held for trading, the Corporation has exercised irrevocable option to recognise in other comprehensive income subsequent changes in the fair value.

Fair valuation of Bonds and re-measurement of defined benefit plan liability are recognised in OCI.

3.2.10 The Corporation designates certain Currency swaps and Interest rate swaps as cash flow hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions.

When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in Other Comprehensive Income and accumulated in the cash flow hedging reserve, and is transferred to the Statement of Profit and Loss upon the occurrence of the related forecasted transaction.

On a standalone basis, Rs. 48.56 crore is regrouped from profit or loss to OCI (net of tax) for the year ended March 31, 2018.

4.1 Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Corporation, and earn interest at the respective short-term deposit rates.

5.1 Fixed deposit placed with banks earns interest at fixed rate or floating rates.

6.1 Trade Receivables includes amounts due from the related parties Rs. 122.04 crore (As at March 31, 2018 of Rs. 74.80 crore and as at April 01, 2017 of Rs. 57.73 crore) [Refer Note 43].

No trade or other receivable are due from directors or other officers of the Corporation either severally or jointly with any other person. Nor any trade or other receivable are due from firms or private companies respectively in which any director is a partner, a director or a member.

There are no receivables for which there has been a significant increase in credit risk or which have become credit impaired.

Reconciliation of impairment allowance on trade and other receivables:

7 (a) Loans granted by the Corporation are secured or partly secured by one or a combination of the following securities:

- Registered / equitable mortgage of property;

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

- Hypothecation of assets;

- Bank guarantees, company guarantees or personal guarantees;

- Negative lien;

- Assignment of receivables;

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

7 (b) Loans including Installment and Interest outstanding due from the directors amounts to Rs. 0.04 crore (As at March 31, 2018 of Rs. 0.05 crore and As at April 1, 2017 of Rs. 0.06 crore) and other related parties Rs. 112.79 crore (As at March 31, 2018 of Rs. 113.82 crore and As at April 1, 2017 of Rs. 115.01 crore) [Refer Note 43].

7 (c) There were no loans given against the collateral of gold jewellery and hence the percentage of such loans to the total outstanding asset is Nil (As at March 31, 2018 is Nil crore and As at April 1, 2017 is Nil).

7 (d) Loans including Installment and Interest outstanding amounts to Rs. 447.20 crore (As at March 31, 2018 of Rs. 228.32 crore and April 1, 2017 of Rs. 130.46 crore) in respect of properties held for disposal under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

7 (e) Expected Credit Loss

Expected Credit loss is a calculation of the present value of the amount expected not to be recover on a financial asset, for financial reporting purposes. Credit risk is the potential that the obligor and counterparty will fail to meet its financial obligations to the lender. This requires an effective assessment and management of the credit risk at both individual and portfolio level.

The key components of Credit Risk assessment are:

- Probability of Default (PD): represents the likelihood of default over a defined time horizon.

- Exposure at Default (EAD): represents the gross exposure at the time of default.

- Loss Given Default (LGD): represents the proportion of EAD that is likely loss post-default.

The definition of default is taken as more than 90 days past due for all individual loans, corporate loans and others.

Delinquency buckets have been considered as the basis for the staging of all loans with:

- 0-30 days past due loans classified as stage 1,

- 31-90 days past due loans classified as stage 2 and

- > 90 days past due loans classified as stage 3

EAD is the total amount outstanding including accrued interest as on the reporting date.

The ECL is computed as a product of PD, LGD and EAD.

7 (f) Macro Economic Factors

Macro-economic variables relevant to the underlying loan portfolio such as Gross Domestic Product, Inflation, Housing price index. Lending rate (repo rate) and the equity indices were analysed for their correlations. The correlation was minimal and the same was not considered in the ECL framework.

8.1 Individual Loans

8.1.1 Credit quality of assets

The Corporation has classified all individual loans as amortized cost and has assessed it at the collective pool level.

The individual loan book has been divided into the housing and non-housing sub portfolios.

The vintage analysis methodology has been used to create the PD term structure which incorporates both 12 month (Stage 1 Loans) and lifetime PD (Stage 2 Loans).

The vintage analysis captures a vintage default experience across a particular portfolio by tracking the yearly slippages from advances originating in a particular year. The vintage slippage experience/default rate is then used to build the PD term structure.

The vintage analysis methodology has been used to create the LGD vintage. The LGD vintage takes into account the recovery experience across accounts of a particular portfolio post default. The recoveries are tracked and discounted to the date of default using the interest rate. The housing and non-housing portfolio has been considered together for the LGD computation.

8.2 Corporate Lending

8.2.1 Credit Quality of Assets

Measurement of ECL for stage 1 and certain stage 2 non individual / corporate loans is based on portfolio approach where PD and LGD is calculated based on historic performance of the portfolio further segmented into:

i) Corporate Finance

ii) Construction Finance

iii) Lease Rental Discounting

iv) Inter-Corporate Deposits.

Certain loans classified as stage 2 and all the loans classified as Stage 3 are assessed for ECL provisioning based on case to case approach by calculating probability weighted average cashflows under different recovery scenarios.

The 12 month PD has been applied on stage 1 loans. The PD term structure i.e Lifetime PD has been applied on the stage 2 loans according to the repayment schedule for stage 2 loans and PD is considered to be 100% for stage 3 loans. PD has been separately calculated for each segment as described above.

The vintage analysis methodology has been used to create the LGD vintage for measurement of ECL, based on portfolio approach. The LGD vintage takes into account the recovery experience across accounts of a particular portfolio post default. The recoveries are tracked and discounted to the date of default using the effective interest rate.

The Corporation has identified certain non individual accounts as Watch List under Stage 2 based on the following criteria.

- Builder’s Cash flows are insufficient to service the loan due to slow sales or the project is stalled.

- Borrower’s operational cashflows are insufficient indicating possibility of further delayed payments

- Security cover is insufficient for repayment of loans

- Where the borrowing company has been proceeded upon under Insolvency and Bankruptcy Code (IBC) by creditors and such reference has been admitted by the National Company Law Tribunal (NCLT).

Such accounts identified as watchlist are upgraded by the Corporation, where the management is satisfied that the risks associated with the account has abated.

8.3 An analysis of changes in the gross carrying amount and the corresponding ECL allowances in relation to loans is, as follows:

9.1 The Board of Directors of Gruh Finance Limited (‘GRUH’) a listed Subsidiary of the Corporation, at its meeting held on 7 January 2019, approved a Scheme of Amalgamation between GRUH and Bandhan Bank Limited (Bandhan) with effect from proposed Appointed Date of 1 January 2019 under section 230 and 232 of the Companies Act, 2013. In this regards, Competition Commission of India, BSE and NSE have approved proposed scheme of merger. The Scheme remains, subject to receipt of approval of National Company Law Tribunal and the respective Shareholders and Creditors of GRUH and Bandhan.

10.1 Inter Corporate Deposits are secured or partly secured by one or a combination of the following securities:

- Registered / equitable mortgage of property;

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

- Hypothecation of assets;

- Bank guarantees, company guarantees or personal guarantees;

- Negative lien;

- Assignment of receivables;

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

10.2 Inter Corporate Deposits include amounts due from related parties Rs. Nil (As at March 31, 2018 of Rs. Nil crore and As at April 1, 2017 of Rs. 13.30 crore) [Refer Note 43].

The fair value of the Corporation’s investment properties as at March 31, 2019, March 31, 2018 and April 1, 2017 has been arrived at on the basis of a Internal Valuation (Level 3).

11.1 Leasing Arrangements

In accordance with the Indian Accounting Standard (Ind AS) 17 on ‘Leases’, the following disclosures in respect of Operating Leases are made:

Income from Leases includes Rs. 39.69 crore (Previous Year Rs. 6.30 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:

12.1 Other Advances includes amounts due from the related parties Rs. 11.31 crore (As at March 31, 2018 Rs. 9.82 crore and As at April 1, 2017 Rs. 9.52 crore) [Refer Note 43].

13.1.1 The information as required to be disclosed under the Micro, Small and Medium Enterprises Development Act, 2006 has been determined to the extent such parties have been identified on the basis of Information available with the Corporation. The amount of principal and interest outstanding during the year is given below.

13.1.2 Trade Payables includes Rs. 62.21 crore (As at March 31, 2018 Rs. 92.96 crore and As at April 1, 2017 Rs. 52.83 crore) due to related parties [Refer Note 43].

14.1 All secured debts are secured by negative lien on the assets of the Corporation and/or mortgage of property as the case may be, subject to the charge created in favour of its depositors pursuant to the regulatory requirements under section 29B of the National Housing Bank Act, 1987.

14.2 Non-Convertible Debentures includes Rs. 1,901.80 crore (As at March 31, 2018 Rs. 2,995 crore and As at April 1, 2017 Rs. 1,257 crore) from related parties [Refer Note.43].

14.3 The Corporation has raised Rs. 11,100 crore through Rupee Denominated Bonds to overseas investors till date. The Corporation was the first Indian corporate issuer of such bonds.

The Corporation had established a Medium Term Note Programme (MTN Programme) for USD 2,800 mn so as to enable the Corporation to issue debt instruments in the international capital markets, subject to regulatory approval.

During the year, the Corporation raised Rs. 1,500 crore through issue of Rupee Denominated Bonds under the MTN Programme through the approval route. The Corporation shall finance eligible projects and borrowers as permitted by the external commercial borrowing guidelines issued by Reserve Bank of India (RBI) regulations.

The Corporation has raised Rs. 6,100 crore till date under the MTN Programme in accordance with the RBI guidelines.

The bonds are listed on the London Stock Exchange. These bonds are unsecured and the currency risk is borne by the investor.

15.1 All secured borrowings are secured by negative lien on the assets of the Corporation, subject to the charge created in favour of its depositors pursuant to the regulatory requirement under section 29B of the National Housing Bank Act, 1987.

15.2 The Corporation has availed a loan of USD 100 million from the Asian Development Bank (Loan II). In respect of tranches 1 and 2 aggregating to USD 60 million, as per the agreements with a scheduled bank, the Corporation has handed over the dollar funds to the bank overseas and has obtained rupee funds in India amounting to Rs. 200 crore by way of a term loan and Rs. 100 crore through the issue of bonds which have been subscribed by the bank.

In respect of tranche 3 of USD 40 million, as per the agreement with a financial institution, the Corporation has handed over the dollars to the Bank of India, Cayman Island and under a back-to-back arrangement obtained rupee funds in India. All payments in foreign currency are the responsibility of the financial institution. In terms of the agreements, the Corporation’s foreign exchange liability is protected.

The loan availed from Asian Development Bank and the deposit placed with Bank of India, Cayman Island are revalued at the closing rate of exchange and are shown separately in the financial statement.

15.3 The Corporation had availed External Commercial Borrowing (ECBs) of USD 1,625 million and JPY 53,200 million for financing prospective owners of low cost affordable housing units as per the ECB guidelines issued by Reserve Bank of India (“RBI”) from time to time. The borrowing has a maturity of five years. In terms of the RBI guidelines, part of the borrowings have been swapped into rupees for the entire maturity by way of principal only swaps and balance borrowing has been hedged through forward contracts for shorter tenor. The currency exposure on the interest has been hedged by way of forward contracts for part of foreign currency borrowings.

The charges for raising of the aforesaid ECB has been amortised over the tenure of the ECB.

15.4 As on March 31, 2019, the Corporation has foreign currency borrowings of USD 2,797.36 million and JPY 53,200 million (Previous Year USD 3,029.15 million and JPY Nil). The Corporation has undertaken currency swaps, forward contracts and option contracts of a notional amount of USD 2,670.00 million and JPY 53,200 million (Previous Year USD 2,325 million and JPY Nil) and dollar denominated assets and foreign currency arrangements of USD 111.12 million (PY USD 367.39 million) to hedge the foreign currency risk. As on March 31, 2019, the Corporation’s net foreign currency exposure on borrowings net of risk management arrangements is USD 16.24 million (Previous Year USD 336.76 million).

As a part of asset liability management on account of the Corporation’s Adjustable Rate Home Loan product as well as to reduce the overall cost of borrowings, the Corporation has entered into INR interest rate swaps of a notional amount of Rs. 55,650 crore (Previous Year Rs. 48,270 crore) and Cross Currency Interest rate swaps of a notional amount of Rs. Nil (Previous Year Rs. 100 crore) as on March 31, 2019 for varying maturities into floating rate liabilities linked to various benchmarks.

16.1 Deposits includes Rs. 220 crore (As at March 31, 2018 Rs. 156.51 crore and As at April 1, 2017 Rs. 118.55 crore) from related parties [Refer Note 43].

16.2 Public deposits as defined in paragraph 2(1)(y) of the Housing Finance Companies (NHB) Directions, 2010, are secured by floating charge and Lien in favour of the Trustee’s for Depositors on the Statutory Liquid Assets maintained in terms of sub-sections (1) & (2) of Section 29B of the National Housing Bank Act, 1987.

17.1 These debentures are subordinated to present and future senior indebtedness of the Corporation and qualify as Tier II capital under National Housing Bank (NHB) guidelines for assessing capital adequacy. Based on the balance term to maturity as at March 31, 2019, 65.45% (Previous Year 74.55%) of the book value of the subordinated debt is considered as Tier II capital for the purpose of capital adequacy computation.

18.1 As required under Section 125 of the Companies Act 2013, the Corporation has transferred Rs. 3.18 crore (Previous Year Rs. 2.76 crore) to the Investor Education and Protection Fund (IEPF) during the year. As of March 31, 2019, no amount was due for transfer to the IEPF. Further, in compliance with the said section, during the year the Corporation transferred 73,237 equity shares of Rs. 2 each (Previous Year 14,15,471) Corresponding to the said unclaimed dividend in the name of IEPF. However, 12 equity shares could not be transferred as the depositories informed that the aforesaid shares were not available in the demat accounts of the respective shareholders.

19.1 Terms and rights attached to equity shares:

The Corporation has only one class of shares referred to as equity shares having Face Value of Rs. 2 each. Each holder of equity share is entitled to one vote per share.

The holders of equity shares are entitled to dividends, if any, proposed by the Board of Directors and approved by Shareholders at the Annual General Meeting.

As at March 31, 2019 6,48,95,193 shares (As at March 31, 2018 11,04,53,219 shares and As at April 1, 2017 12,29,51,224 shares) were reserved for issuance as follows:

a) 6,48,95,193 shares of Rs. 2 each (As at March 31, 2018 7,44,67,819 and As at April 1, 2017 8,64,51,224 shares of Rs. 2 each) towards outstanding Employees Stock Options granted / available for grant, including lapsed options [Refer Note 42].

b) Nil shares of Rs. 2 each (As at March 31, 2018 3,59,85,400 and As at April 1, 2017 365,00,000 shares of Rs. 2 each) towards outstanding share warrants [Refer Note 26.5].

19.2 Dividend

The Board of Directors of the Corporation at its meeting held on March 6, 2019, inter alia, has approved the payment of an interim dividend of Rs. 3.50 per equity share (Previous Year Rs. 3.50 per equity share) of face value of Rs. 2 each of the Corporation, for the financial year 2018-19.

The Corporation has not remitted any amount in foreign currencies on account of dividends during the year and does not have information as to the extent to which remittances, if any, in foreign currencies on account of dividends have been made by/on behalf of non-resident shareholders. The particulars of dividends payable to non-resident shareholders (including Foreign Portfolio Investors) are as under:

19.3 The Corporation had on October 5, 2015 issued 3,65,00,000 warrants, convertible into 3,65,00,000 equity share of Rs. 2 each at an exercise price of Rs. 1,475.00 each, simultaneously with the issue of 5,000 secured redeemable non-convertible debentures of face value of Rs. 1,00,00,000 each, to eligible qualified institutional buyers by way of a qualified institutions placement in accordance with Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, and Sections 42 and 71 of the Companies Act, 2013 and the rules made thereunder. An amount of Rs. 51.10 crore was received towards subscription of warrants. The said warrants were exercisable at any time on or before October 5, 2018. During the year, 3,59,84,871 warrants were exchanged with 3,59,84,871 equity shares of Rs. 2 each and realised an amount of Rs. 5,307.77 crore. 529 warrants were not submitted for exchange with equity shares of the Corporation and the said warrants has lapsed and ceased to be valid. The amount of Rs. 14 per Warrant paid on 529 warrants stands forfeited.

19.4 The Corporation has not allotted any share pursuant to contracts without payment being received in cash or as bonus shares nor has it bought back any shares during the preceding period of 5 financial years.

20.1 Capital Reserve: It has been created during the Business Combinations in earlier periods.

20.2 Securities Premium: Securities premium is credited when shares are issued at premium. It can be used to issue bonus shares, to provide for premium on redemption of shares or debentures, write-off equity related expenses like underwriting costs, etc.

20.3 General Reserve: It is a free reserve which is created by appropriation from profits of the current year and/or undistributed profits of previous years, before declaration of dividend duly complying with any regulations in this regard.

20.4 Special Reserve has been created over the years in terms of Section 36(1)(viii) of the Income-tax Act, 1961 out of the distributable profits of the Corporation.

Special Reserve No. I relates to the amounts transferred upto the Financial Year 1996-97 Special Reserve No. II relates to the amounts transferred thereafter.

20.5 Statutory Reserve: As per Section 29C of The National Housing Bank Act, 1987 (the “NHB Act”), the Corporation is required to transfer at least 20% of its net profits every year to a reserve before any dividend is declared. For this purpose any Special Reserve created by the Corporation under Section 36(1)(viii) of the Income-tax Act, 1961 is considered to be an eligible transfer. The Corporation has transferred an amount of Rs. 1,850 crore (Previous Year Rs. 1,355 crore) to Special Reserve No. II in terms of Section 36(1)(viii) of the Income-tax Act, 1961 and an amount of Rs. 100 crore (Previous Year Rs. 1,078 crore) to “Statutory Reserve (As per Section 29C of The NHB Act)”.

20.6 Shelter Assistance Reserve: It represents funding various development and grassroot level organisations for the purposes as mentioned in Schedule VI to the Companies Act, 2013 and in accordance with the Corporation’s Policy.

20.7 Other Comprehensive Income:

Effective portion of Cash Flow Hedge: It represents the cumulative gains/(losses) arising on revaluation of the derivative instruments designated as cash flow hedges through OCI.

Cost of Hedge: It represent the cumulative charge for the derivative instrument, in the form of premium amortisation and changes in time value on option contracts, designated as cash flow hedges through OCI.

20.8 Employee Share Option Outstanding:

The Corporation has stock option schemes under which options to subscribe for the Corporation’s shares have been granted to eligible employees and key management personnel. The share-based payment reserve is used to recognise the value of equity-settled share-based payments.

20.9 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. Further the Corporation has availed the exemption as per para D13AA of Ind AS 101 and has continued the policy adopted for recognising exchange differences arising from translation of long-term foreign currency monetary items recognised in the financial statements for the period ending immediately before the effective date as per the previous GAAP. Consequently, an amount of Rs. 7.43 crore (without considering future tax benefit of Rs. Nil) [(Previous Year net debit of Rs. 50.71 crore) (without considering future tax benefits of Rs. 17.72 crore)] is carried forward in the Foreign Currency Monetary Items Translation Difference Account as on March 31, 2019. This amount is to be amortised over the period of the monetary assets/liabilities ranging upto 1 year.

During the year, there was a net reduction of Rs. 58.14 crore (Previous Year net addition of Rs. 412.84 crore) in the Foreign Currency Monetary Items Translation Difference Account.

21.1 Dividend Income includes Rs. 603.35 crore (Previous Year Rs. 625.04 crore) received from subsidiary companies and Rs. 0.05 crore (Previous year Rs. 0.05 crore) received from Investment in Equity shares classified as fair value through other comprehensive income.

21.2 Income from lease rental includes Rs. 39.69 crore (previous year Rs. 35.35 crore) from Investment properties.

21.3 Fees and Commission Income includes brokerage of Rs. 0.06 crore (Previous Year Rs. 0.05 crore) received in respect of insurance/agency business undertaken by the Corporation.

21.4 Fees and Commission Income includes Rs. 155.04 crore (Previous Year Rs. 102.61 crore) received from related parties.

21.5 Interest Income on Stage 3 Assets is recognised on the net carrying value (the gross carrying value as reduced by the impairment allowance). Accordingly the total Interest Income is net of such interest on Credit Impaired Assets amounting to Rs. 154 crore (Previous Year Rs. 113 crore).

22.1 Profit on sale of Investment in subsidiaries

22.1.1 Profit on Sale of Investments during the year ended 31 March 2019 include profit of Rs. 895.71 crore on offering of up to 85,92,970 equity shares of Rs. 5 each of equity shares of its subsidiary, HDFC Asset Management Company Limited (HDFC AMC) by way of offer for sale in the Initial Public Offering (IPO) of HDFC AMC.

22.1.2 Profit on Sale of Investments during the year ended 31 March 2019 include profit of Rs. 314.27 crore on sale of investment in GRUH Finance Ltd (subsidiary).

22.1.3 Previous year Profit on Sale of Investments includes Rs. 265.46 crore on account of sale of equity shares of HDFC Developers Limited and HDFC Realty Limited (Subsidiary Companies).

22.1.4 During the previous year, the Corporation has offered 19,12,46,050 equity shares of Rs. 10 each of HDFC Standard Life Insurance Company Limited (HDFC Life), a material subsidiary representing 9.52% of its issued and paidup share capital in the initial public offering of HDFC Life, resulting in a profit of Rs. 5,256.59 crore (Net of expenses).

22.2 The Corporation has derecognised loans on account of assignment transactions resulting in a gains of Rs. 859.99 crore (Previous year Rs. 533.71 crore)

23.1 The Finance cost for the year include foreign currency exchange loss of Rs. 445.99 crore (Previous year Rs. 310.26 crore)

24.1 The details relating to movement in Impairment on Loans (Expected credit loss) is disclosed in note 9.4

24.2 The above amounts are net of the interest on Credit Impaired Assets mentioned in Note 28.5.

25.1 There has been a Supreme Court (SC) judgement dated 28 February 2019, relating to components of salary structure that need to be taken into account while computing the contribution to provident fund under the EPF Act. There are interpretative aspects related to the Judgement including the effective date of application. The Corporation will continue to assess any further developments in this matter for the implications on financial statements, if any.

25.2 Operating Leases

In accordance with the Indian Accounting Standard (Ind AS) 17 on ‘Leases’, the following disclosures in respect of Operating Leases are made:

The Corporation has acquired properties under non-cancellable operating leases for periods ranging from 12 months to 36 months. The total minimum lease payments for the current year, in respect thereof, included under Rent, amounts to Rs. 0.33 crore (Previous Year Rs. 0.29 crore).

Auditors’ Remuneration for the year ended March 31, 2018 comprises of remuneration of Rs. 1.00 crore paid to the previous auditor.

Audit Fees in the previous year include Rs. 0.04 crore paid to Branch Auditors.

Auditors’ Remuneration above is excluding Goods and Service Tax.

25.2 Expenditure incurred for corporate social responsibility is Rs. 173.52 crore. The amount required to be spend is Rs. 166.81 crore

26.1 During the year, the Corporation has sold Investment in Equity share classified as fair value through other comprehensive income amounting to Rs. 78.44 crore (Previous year Rs. 7.27 Crore) and incurred a loss of Rs. 10.17 crore (Previous year profit of Rs. 2.41 crore).

27. Earnings Per Share

In accordance with the Indian Accounting Standard (Ind AS) 33 on ‘Earnings Per Share’:

In calculating the Basic Earnings Per Share, the Profit After Tax of Rs. 9,632.46 crore (Previous Year Rs. 10,959.34 crore) has been adjusted for amounts utilised out of Shelter Assistance Reserve of Rs. 14.94 crore (Previous Year Rs. 175.05 crore).

The Basic Earnings Per Share has been computed by dividing the adjusted Profit After Tax by the weighted average number of equity shares for the respective periods; whereas the Diluted Earnings Per Share has been computed by dividing the adjusted Profit After Tax by the weighted average number of equity shares, after giving dilutive effect of the outstanding Stock Options for the respective periods. The relevant details as described above are as follows :

28. 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 Indian Accounting Standard (Ind AS) 108 on ‘Segment Reporting’. Segment reporting is done in the Consolidated financial statements as prescribed by Ind AS 108.

29. Employee Benefit Plan

29.1 Defined Contribution Plans

The Corporation recognised Rs. 14.35 crore (Previous Year Rs. 13.54 crore) for superannuation contributions in the Statement of Profit and Loss. The contributions payable to these plans by the Corporation are at rates specified in the rules of the schemes.

29.2 Defined Benefit Plans

Provident Fund

The fair value of the assets of the provident fund and the accumulated members’ corpus is Rs. 441.38 crore and Rs. 440.06 crore respectively (Previous Year Rs. 382.06 crore and Rs. 379.49 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 7.77% (Previous Year 7.73%) and an average expected future period of 14 years (Previous Year 14 years). Expected guaranteed interest rate (weighted average yield) is 8.80% (Previous Year 8.77%).

The Corporation recognised Rs. 21.49 crore (Previous Year Rs. 18.29 crore) for provident fund contributions in the statement of profit and loss. The contributions payable to these plans by the Corporation are at rates specified in the rules of the schemes.

Characteristics of defined benefit plan

The Corporation has a defined benefit gratuity plan in India for its employees (funded). The Corporation’s gratuity plan requires contributions to be made to a separately administered fund. The fund is managed by a trust which is governed by the Board of Trustees. The Board of Trustees are responsible for the administration of the plan assets and for the definition of the investment strategy.

During the year, there were no plan amendments, curtailments and settlements.

A separate trust fund is created to manage the Gratuity plan and the contributions towards the trust fund is done as guided by rule 103 of Income Tax Rules, 1962.

Risks associated with defined benefit plan

Gratuity is a defined benefit plan and Corporation is exposed to the following risks:

Interest rate risk: A fall in the discount rate, which is linked to the Government Securities Rate, will increase the present value of the liability requiring higher provision. A fall in the discount rate generally increases the mark to market value of the assets depending on the duration of asset.

Salary Risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of members. As such, an increase in the salary of the members more than assumed level may increase the plan’s liability.

Investment Risk: The present value of the defined benefit plan liability is calculated using a discount rate which is determined by reference to market yields at the end of the reporting period on government bonds. If the return on plan asset is below this rate, it will create a plan deficit. Currently, for the plan in India, it has a relatively balanced mix of investments in government securities, and other debt instruments.

Asset Liability Matching (ALM) Risk: The plan faces the ALM risk as to the matching cash flow.

Mortality Risk: Since the benefits under the plan is not payable for life time and payable till retirement age only, plan does not have any longevity risk.

Other Post Retirement Benefit Plan

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:

The Principal Assumptions used for the purpose of the actuarial valuation were as follows.

The estimate of future salary increase, considered in the actuarial valuation takes account of inflation, seniority, promotion and other relevant factors.

The current service cost and the net interest expense for the year are included in the ‘Employee Benefits Expenses’ line item in the statement of profit and loss.

The remeasurement of the net defined benefit liability is included in other comprehensive income.

Compensated absences

The actuarial liability of compensated absences of privilege leave of the employees of the Corporation is Rs. 115.87 crore (Previous Year Rs. 104.80 crore).

The sensitivity analysis have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the projected benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the projected benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same method as applied in calculating the projected benefit obligation as recognised in the balance sheet.

30. Maturity Analysis of Assets and Liabilities

The table below shows an analysis of assets and liabilities according to when they are expected to be recovered or settled after factoring in rollover and prepayment assumptions.

31. Contingent Liabilities and Commitments

31.1 The Corporation is involved in certain appellate, judicial and arbitration proceedings (including those described below) concerning matters arising in the normal course of business including claims from revenue authorities, customers, contingencies arising from having issued guarantees to lenders or to other entities. The proceedings in respect of these matters are in various stages. Management has assessed the possible obligations arising from such claims against the Corporation, in accordance with the requirements of Indian Accounting Standard (Ind AS) 37 and based on judicial precedents, consultation with lawyers or based on its historical experiences. Accordingly, management is of the view that based on currently available information no provision in addition to that already recognised in its financial statements is considered necessary in respect of the above.

31.2 Given below are amounts in respect of claims asserted by revenue authorities and others:

Contingent liability in respect of income-tax demands, net of amounts provided for and disputed by the Corporation, amounts to Rs. 1,806.08 crore (As at 31 March 2018 Rs. 1,528.78 crore and As at 1 April 2017 Rs. 1,241.88 crore). The said amount has been paid/adjusted and will be received as refund if the matters are decided in favour of the Corporation.

Contingent liability in respect of disputed dues towards wealth tax, interest on lease tax, and payment towards employer’s contribution to ESIC not provided for by the Corporation amounts to Rs. 0.13 crore (As at 31 March 2018 Rs. 0.15 crore and As at 1 April 2017 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.

31.3 Contingent liability in respect of guarantees and undertakings comprise of the following:

a) Guarantees Rs. 534.98 crore (As at 31 March 2018 Rs. 511.88 crore and As at 1 April 2017 Rs. 628.09 crore).

b) Corporate undertakings for securitisation of receivables aggregated to Rs. 1,838.13 crore (As at 31 March 2018 Rs. 1,838.21 crore and As at 1 April 2017 Rs. 1,838.21 crore). The outflows would arise in the event of a shortfall, if any, in the cash flows of the pool of the securitised 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 Corporation’s financial condition.

31.4 Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) is Rs. 890.45 crore (As at 31 March 2018 Rs. 1,066.99 crore and as at 1 April 2017 Rs. 580.63 crore).

31.5 Proposed Dividend

The Board of Directors have proposed dividend on equity shares at Rs. 17.50 per share at their meeting held on 13 May 2019. As per the Companies (Accounting Standard) Amendment Rules, 2016, the dividend will be recorded after the approval in the ensuing Annual General Meeting.

32. Share-Based Payments

32.1 Under Employees Stock Option Scheme - 2017 (ESOS - 17), the Corporation had granted 4,28,45,977 options at an exercise price ranging between Rs. 1,569.85 and Rs. 1908.30 per option representing 4,28,45,977 equity shares of Rs. 2 each to the employees and directors of the Corporation. The options were granted at an excercise price ranging between Rs. 1,569.85 and Rs. 1908.30 per option being the latest available closing price of the equity shares of the Corporation on the stock exchange on which the shares are listed and having higher trading volume, prior to the meeting of the NRC at which the options were granted.

In terms of ESOS-17, the options would vest over a period of 1-3 years from the date of grant, but not later than March 16, 2021, depending upon options grantee completing continuous service of three years with the Corporation. Accordingly, 4,04,56,804 options (Previous Year Nil options) were vested. In the current year 1,55,680 options (Previous Year 4,03,871 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.

Under Employees Stock Option Scheme - 2014 (ESOS - 14), the Corporation had on October 8, 2014, granted 62,73,064 options at an exercise price of Rs. 5,073.25 per option representing 3,13,65,320 equity shares of Rs. 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.

I n terms of ESOS-14, the options would vest over a period of 1-3 years from the date of grant, but not later than October 7, 2017, depending upon options grantee completing continuous service of three years with the Corporation. Accordingly, during the year Nil options (Previous Year 49,902 options) were vested. In the current year 150 options (Previous Year 1,799 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.

Under Employees Stock Option Scheme - 2011 (ESOS - 11), the Corporation had on May 23, 2012, granted 61,02,475 options at an exercise price of Rs. 3,177.50 per option representing 3,05,12,375 equity shares of Rs. 2 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.

In terms of ESOS - 11, the options would vest over a period of 1-3 years from the date of grant, but not later than May 22, 2015, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. In the current year 998 options (Previous Year 27 options) lapsed. The options can be exercised over a period of five years from the date of respective vesting.

Under Employees Stock Option Scheme - 2008 (ESOS - 08), the Corporation had on November 25, 2008, granted 57,90,000 options at an exercise price of Rs. 1,350.60 per option representing 57,90,000 equity shares of Rs. 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.

In terms of ESOS - 08, the options would vest over a period of 1-3 years from the date of grant, but not later than November 24, 2011, depending upon option grantee completing continuous service of three years with the Corporation. Accordingly, all the options have been vested in the earlier years. The options can be exercised over a period of five years from the date of respective vesting.

Under Employees Stock Option Scheme - 2007 (ESOS - 07), the Corporation had on September 12, 2007, granted 54,56,835 options at an exercise price of Rs. 2,149 per option representing 54,56,835 equity shares of Rs. 10 each to the employees and directors of the Corporation. The said price was determined in accordance with the pricing formula approved by the shareholders i.e. at the latest available closing price on the stock exchange having higher trading volume, prior to grant of options.

In terms of ESOS - 07, the options would vest over a period of 1-3 years from the date of grant, but not later than September 11, 2010, depending upon option grantee completing continuous service of three years with the Corporation. All the options have been vested in the earlier years. The options can be exercised over a period of five years from the date of respective vesting.

32.2 Method used for accounting for share based payment plan:

The stock options granted to employees pursuant to the Corporation’s Stock options Schemes, are measured at the fair value of the options at the grant date using Black-Scholes model. The fair value of the options determined at grant date is recognised as employee compensation cost over the vesting period on straight line basis over the period of option, based on the number of grants expected to vest, with corresponding increase in equity.

32.3 Movement during the year in the options under ESOS-17, ESOS-14, ESOS-11, ES0S-08 and ES0S-07:

With effect from August 21, 2010, the nominal face value of equity shares of the Corporation was sub-divided from Rs. 10 per share to Rs. 2 per share. Each option exercised under ESOS-07, ESOS-08, ESOS-11 and ESOS-14 entitles 5 equity shares of Rs. 2 each. An option exercised under ESOS-17 entitles 1 equity share of Rs. 2 each.

32.4 Fair Value Methodology:

The fair value of options have been estimated on the date of grant using Black-Scholes model as under:

The key assumptions used in Black-Scholes model for calculating fair value under ESOS-2017, ESOS-2014, ES0S-2011, ES0S-2008 and ES0S-2007, as on the date of grant, are as follows:

33. Related Party Disclosures Group structure

Subsidiary Companies HDFC Life Insurance Company Ltd.

(erstwhile HDFC Standard Life Insurance Company Ltd.) HDFC Pension Management Company Ltd.

(Subsidiary of HDFC Life Insurance Company Ltd.)

HDFC International Life and Re Company Limited (Subsidiary of HDFC Life Insurance Company Ltd.)

HDFC ERGO General Insurance Company Ltd.

Gruh Finance Ltd.

HDFC Asset Management Company Ltd.

HDFC Credila Financial Services Private Ltd.

HDFC Trustee Company Ltd.

HDFC Capital Advisors Ltd.

HDFC Holdings Ltd.

HDFC Investment Ltd.

HDFC Sales Pvt. Ltd.

HDFC Education & Development Services Pvt. Ltd.

HDFC Property Ventures Ltd.

HDFC Venture Capital Ltd.

HDFC Venture Trustee Company Ltd.

Griha Pte Ltd. (Subsidiary of hDfC Investments Ltd.) Griha Investments (Subsidiary of HDFC Holdings Ltd.) HDFC Developers Ltd. (till January 24, 2018)

HDFC Realty Ltd. (till January 24, 2018)

HDFC Investment Trust (HIT)

HDFC Investment Trust - II (HIT - II)

Associates Companies HDFC Bank Ltd.

True North Ventures Private Ltd.

Good Host Spaces Pvt Ltd (w.e.f. August 24, 2018)

HDB Financial Services Ltd.

(Subsidiary of HDFC Bank Ltd.)

HDFC Securities Ltd.

(Subsidiary of HDFC Bank Ltd.)

Magnum Foundations Private Ltd. (Associate of HDFC Property Ventures Ltd.)

Entities over which control is exercised H T Parekh Foundation

HDFC Employees Welfare Trust HDFC Employees Welfare Trust 2

Key Management Personnel Mr. Keki M. Mistry (Vice Chairman & CEO)

Ms. Renu Sud Karnad (Managing Director)

Mr. V. Srinivasa Rangan (Executive Director)

Mr. Deepak S Parekh Mr. B. S. Mehta

(ceased to be related party effective July 30, 2018)

Mr. Nasser Munjee Dr. Bimal Jalan

(ceased to be related party effective July 30, 2018)

Dr. J. J. Irani Mr. D. N. Ghosh

(ceased to be related party effective April 30, 2018)

Mr. D. M. Sukthankar

(ceased to be related party effective April 30, 2018)

Mr. U. K. Sinha (appointed w.e.f April 30, 2018)

Ms. Ireena Vittal (appointed w.e.f January 30, 2019)

Dr. Bhaskar Ghosh

(appointed w.e.f September 27, 2018)

Mr. Jalaj Dani (appointed w.e.f April 30, 2018)

Relatives of Key Management Personnel (Whole- Mr. Singhal Nikhil time Directors) (where there are transactions) Mr. Ashok Sud

Mr. Bharat Karnad

Relatives of Key Management Personnel Mr. Aditya Parekh

(Non-executive directors) (where there are Mr. Siddharth D. Parekh transactions) Ms. Harsha Shantilal Parekh

Ms. Hasyalata Bansidhar Mehta

(ceased to be related party effective July 30, 2018)

Ms. Tapasi Ghosh

(ceased to be related party effective April 30, 2018)

Chandrakant Mahadev Sukthankar (HUF)

(ceased to be related party effective April 30, 2018)

Ms. Niamat Munjee Ms. Sarita Yeshwant Keni

(ceased to be related party effective April 30, 2018)

Ms. Smita D Parekh Adv Wadhwa Darpan

(ceased to be related party effective July 30, 2018)

Post Employment Benefit Plans Housing Development Finance Corporation Ltd.

Provident Fund

Superannuation Fund of Housing Development Finance Corporation Ltd.

Gratuity Fund of Housing Development Finance Corporation Ltd.

Gruh Finance Limited Officers Superannation Fund

Compensation of key management personnel of the Corporation

Key management personnel are those individuals who have the authority and responsibility for planning and exercising power to directly or indirectly control the activities of the Corporation and its employees. The Corporation includes the members of the Board of Directors which include independent directors (and its sub-committees) and Executive Committee to be key management personnel for the purposes of Ind AS 24 Related Party Disclosures.

Transactions with key management personnel of the Corporation

The Corporation enters into transactions, arrangements and agreements involving directors, senior management and their business associates, or close family members, in the ordinary course of business under the same commercial and market terms, interest and commission rates that apply to non-related parties.

The Corporations’s related party balances and transactions are summarised as follows:

34. Financial instruments

34.1 Capital Management

The Corporation maintains an actively managed capital base to cover risks inherent in the business and is meeting the capital adequacy requirements of National Housing Bank (NHB). The adequacy of the Corporation’s capital is monitored using, among other measures, the regulations issued by NHB.

The Corporation has complied in full with all its externally imposed capital requirements over the reported period.

Loan covenants

Under the terms of the major borrowing facilities, the Corporation has complied with the covenants throughout the reporting period.

34.2 Financial Risk Management

The Corporation has to manage various risks associated with the lending business. These risks include credit risk, liquidity risk, foreign 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.

Interest rate risks is mitigated by entering into interest rate swaps. The currency risk on the borrowings is actively managed mainly through a combination of principal only swaps, forward contracts, option 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 a portion of its fixed rate rupee liabilities into floating rate linked to various benchmarks.

34.3.1 Fair Value Hierarchy

This section explains the judgements and estimates made in determining the fair values of the financial instruments that are (a) recognised and measured at fair value and (b) measured at amortised cost and for which fair values are disclosed in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Corporation has classified its financial instruments into the three levels prescribed under the accounting standard. An explanation of each level follows underneath the table.

Level 1: Level 1 hierarchy includes financial instruments measured using quoted prices. This includes listed equity instruments, units of mutual funds (open ended) and traded bonds that have quoted price. The fair value of all equity instruments (including bonds) which are traded in the stock exchanges is valued using the closing price as at the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market for example, securities receipts, Mutual Funds (close ended) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity instruments, venture fund units, security receipts, contingent consideration and indemnification asset included in level 3.

There has been no transfers between level 1, level 2 and level 3 for the year ended March 31, 2019, 2018 and April 1, 2017.

34.3.2 Valuation technique used to determine fair value

The fair value of a financial instrument on initial recognition is normally the transaction price (fair value of the consideration given or received). Subsequent to initial recognition, the Corporation determines the fair value of financial instruments that are quoted in active markets using the quoted bid prices (financial assets held) or quoted ask prices (financial liabilities held) and using valuation techniques for other instruments. Valuation techniques include discounted cash flow method, market comparable method, recent transactions happened in the company and other valuation models.

The Corporation measures financial instruments, such as investments (other than equity investments in Subsidiaries, Joint Ventures and Associates) at fair value.

The Corporation uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

34.3.3 Valuation Process - Equity Instrument Level 3

When the fair value of equity investments cannot be measured based on quoted prices in active markets, their fair values are measured using valuation techniques including the Discounted Cash Flow (DCF) model, market comparable method and based on recent transactions happened in respective companies. The inputs to these models are taken from observable market where possible, but where this is not feasible, a degree of judgement is exercised in establishing fair values. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

For certain unquoted equity instruments insufficient more recent information is available to measure fair value and cost represents the best estimate of fair value within that range. These investments in equity instruments are not held for trading. Instead, they are held for medium or long term strategic purpose.

34.3.4 Fair value measurements using significant unobservable inputs (level 3)

The following table presents the changes in level 3 items for the periods 31 March 2019:

34.3.5 Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurements. See (ii) above for the valuation techniques adopted.

Valuation Factor includes Discounted Cash Flows, Equity Multiples such as PE Ratio, Price to Book Value Ratio and EV/EBITDA Ratio.

Sensitivity data are calculated using a number of techniques, including analysing price dispersion of different price sources, adjusting model inputs to reasonable changes within the fair value methodology.

The carrying amounts of trade receivables, trade payables and cash and cash equivalents are considered to be the same as their fair values, due to their short-term nature.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

34.3.6 Fair value of the Financial Assets that are not measured at fair value

Except as detailed in the following table, the carrying amount of financial assets and financial liabilities recognised in the financial statements approximate their fair value.

34.3.6.1 Note: The Fair Value of the financial assets and financial liabilities are considered at the amount, at which the instrument could be exchanged in current transaction between willing parties, other than in forced or liquidation sale.

34.3.6.2 Loans:

Substantially all loans reprice frequently, with interest rates reflecting current market pricing, the carrying value of these loans amounting to Rs. 400,759.63 crore (As at March 31, 2018 Rs. 3,57,380.86 crore and as at April 1, 2017 Rs. 2,95,691.98 crore) approximates their fair value.

34.3.6.3 Other Financial Assets and Liabilities

With respect to Bank Balances and Cash and Cash Equivalents (Refer Note 5 and 6), Trade Receivables (Refer Note 8), Other Financial Assets (Refer Note 11), Trade Payables (Refer Note 17) and Other Financial Liabilities (Refer Note 22), the carrying value approximates the fair value.

34.3.6.4 Non Convertible Debentures fair value has been computed using the Fixed Income Money Market and Derivatives Association of India (‘FIMMDA’) data on corporate bond spreads.

34.4 Credit Risk

Credit risk is the risk of loss that may occur from the failure of any party to abide by the terms and conditions of any contract, principally the failure to make required payments of amounts due to the Corporation. In its lending operations, the Corporation is principally exposed to credit risk.

The credit risk is governed by various Product Policies. The Product Policy outlines the type of products that can be offered, customer categories, the targeted customer profile and the credit approval process and limits. The Corporation measures, monitors and manages Credit risk at an individual borrower level and at the group exposure level for corporate borrowers. The credit risk for individual borrowers is being managed at portfolio level for both Housing Loans and Non Housing Loans. The Corporation has a structured and standardized credit approval process, which includes a well-established procedure of comprehensive credit appraisal. The Risk Management Policy addresses the recognition, measurement, monitoring and reporting of the Credit risk. The Corporation has additionally taken the following measures:-

- Lower borrower group exposure limits.

- Establishment of a separate Policy Implementation & Process Monitoring (PIPM) team to enhance focus on monitoring of process implementation at the branches and to facilitate proactive action wherever required.

- Enhanced monitoring of retail product portfolios through periodic review.

Credit Approval Authorities

The Board of Directors has delegated credit approval authority to a sanctioning committee with approval limits which is approved by the Managing Director.

Credit Risk Assessment Methodology

34.4.1 Corporate Portfolio

The Corporation has an established credit appraisal procedure leading to appropriate identification of credit risk. Appropriate appraisals have been established for various types of products and businesses. The methodology involves critical assessment of quantitative and qualitative parameters subject to review and approval by Sanctioning Committee of Management (COM).

Corporation carries out a detailed analysis of funding requirements, including normal capital expenses, longterm working capital requirements and temporary imbalances in liquidity. A significant portion of Corporate Finance loans are secured by a lien over appropriate assets of the borrower.

Borrower risk is evaluated by considering:

- The risks and prospects associated with the industry in which the borrower is operating (industry risk);

- The financial position of the borrower by analysing the quality of its financial statements, its past financial performance, its financial flexibility in terms of ability to raise capital and its cash flow adequacy (financial risk);

- The borrower’s relative market position and operating efficiency (business risk);

- The quality of management by analysing their track record, payment record and financial conservatism (management risk); and

- The risks with respect to specific projects, both pre-implementation, such as construction risk and funding risk, as well as post-implementation risks such as industry, business, financial and management risks related to the project (project risk).

For Lease rental discounting, the risk assessment procedure include:

- Carrying out a detailed analysis of lease rental receivables and the timing of the payments based on an exhaustive analysis of Cash flow structure; and

- Conducting due diligence on lessee and lessor and the underlying business systems, including a detailed evaluation of the servicing and collection terms and the underlying contractual arrangements.

34.4.2 Construction Finance

The Corporation has a framework for the appraisal and execution of project finance transactions. The Corporation believes that this framework creates optimal risk identification, allocation and mitigation and helps minimize residual risk.

The project finance approval process begins with a detailed evaluation of technical, commercial, financial, marketing and management factors and the sponsor’s financial strength and experience.

As part of the appraisal process, a risk matrix is generated, which identifies each of the project risks, mitigating factors and residual risks associated with the project. After credit approval, a letter of intent is issued to the borrower, which outlines the principal financial terms of the proposed facility, sponsor obligations, conditions precedent to disbursement, undertakings from and covenants on the borrower.

After completion of all formalities by the borrower, a loan agreement is entered into with the borrower. Project finance loans are generally fully secured and have full recourse against the borrower. In most cases, the Corporation has a security interest and first lien on all the fixed assets. Security interests typically include property, plant and equipment as well as other tangible assets of the borrower, both present and future. The Corporation also takes additional credit comforts such as corporate or personal guarantees from one or more sponsors of the project.

The Corporation requires the borrower to submit periodic reports and continue to monitor the credit exposure until loans are fully repaid.

34.4.3 Individual Loans

Our customers for retail loans are primarily low, middle and high-income, salaried and self-employed individuals. The Corporation’s credit officers evaluate credit proposals on the basis of active credit policies as on the date of approval. The criteria typically include factors such as the borrower’s income & obligations, the loan-to-value ratio and demographic parameters subject to regulatory guidelines. Any deviations need to be approved at the designated levels.

The various process controls such as PAN Number Check, CERSAI database scrubbing, Credit Bureau Report analysis are undertaken prior to approval of a loan. In addition External agencies such as field investigation agencies facilitate a comprehensive due diligence process including visits to offices and homes.

The Corporation analyses the portfolio performance of each product segment regularly, and use these as inputs in revising our product programs, target market definitions and credit assessment criteria to meet our twin objectives of combining volume growth and maintenance of asset quality. Individual loans are secured by the mortgage of the borrowers property.

34.4.4 Risk Management and Portfolio Review

The Corporation ensures effective monitoring of credit facilities through a risk-based asset review framework under which the frequency of asset review is determined depending on the risk associated with the product. For both Corporate and Individual borrowers, the Operations team verifies adherence to the terms of the credit approval prior to the commitment and disbursement of credit facilities.

The Operations team monitors compliance with the terms and conditions for credit facilities prior to disbursement. It also reviews the completeness of documentation, creation of security and compliance with regulatory guidelines.

The Credit Risk Management team of the Corporation, regularly reviews the credit quality of the portfolio and various sub-portfolios. A summary of the reviews carried out by the Credit Risk Management is submitted to the Branches & Management Team for its information.

The Policy Implementation and Process Monitoring team reviews adherence to policies and processes, carries out audit and briefs the Audit Committee and the Board periodically.

34.4.5 Collateral and other credit enhancements

The Corporation holds collateral or other credit enhancements to cover its credit risk associated with its Loans and Inter corporate deposits, credit risk associated are mitigated because the same are secured against the collateral. The main types of collateral obtained are, as follows:

Registered / equitable mortgage of property, Non disposal undertakings in respect of shares, pledge of shares, units, other securities, assignment of life insurance policies, Hypothecation of assets, Bank guarantees, company guarantees or personal guarantees, Negative lien, Assignment of receivables, Liquidity Support Collateral [e.g. DSRA (Debt Service Reserve Account), Lien on Fixed Deposit].

The carrying amount of loans as at March 31, 2019 is Rs. 406,607.06 crore (as at March 31, 2018 Rs. 3,62,811.41 crore; as at April 1, 2017 Rs. 2,98,948.78 crore) which best represent the maximum exposure to credit risk, the related Expected credit loss amount to Rs. 5,847.43 crore (as at March 31, 2018 Rs. 5,430.55 crore, as at April 1, 2017 Rs. 3,256.80 crore). The Corporation has right to sell or pledge the collateral in case borrower defaults.

34.5 Liquidity Risk Maturities of Financial Liabilities

The tables below analyse the Corporation’s financial liabilities into relevant maturity groupings based on their contractual maturities for: all non-derivative financial liabilities, and net and gross settled derivative financial instruments for which the contractual maturities are essential for an understanding of the timing of the cash flows.

34.6 Market Risk

34.6.1 Foreign currency risk

The Corporation operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD and JPY. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the Corporation’s functional currency i.e. INR. The objective of the hedges is to minimise the volatility of the INR cash flows.

The Corporation’s risk management policy allows it to keep the foreign currency risk open upto 5% of the total borrowings.

The Corporation uses a combination of foreign currency option contracts and foreign exchange forward contracts to hedge its exposure in foreign currency risk. The Corporation designates fair value of the forward contracts and intrinsic value of the option contracts as hedging instruments. In case the hedge effectiveness is 100%, the change in the fair value of the forward contracts or change in the intrinsic value of the option contracts and the change in carrying value of the underlying foreign currency liability are compared and the difference is recognised in cash flow hedge reserve. The changes in time value that relate to the option contracts are deferred in the costs of hedging reserve. Amortisation of forward points through cash flow hedge reserve which is pertaining to the forward contracts is recognised in the statement of profit and loss over life of the forward contracts. During the years ended March 31, 2019 and 2018, the Corporation did not have any hedging instruments with terms which were not aligned with those of the hedged items.

The spot component of forward contracts is determined with reference to relevant spot market exchange rates. The differential between the contracted forward rate and the spot market exchange rate is defined as the forward points.

The intrinsic value of foreign exchange option contracts is determined with reference to the relevant spot market exchange rate. The differential between the contracted strike rate and the spot market exchange rate is defined as the intrinsic value. Time value of the option is the difference between fair value of the option and the intrinsic value.

34.6.1.1 Foreign currency risk exposure:

The Corporation’s exposure to foreign currency risk at the end of the reporting period expressed in INR, are as follows

34.6.1.2 Foreign currency sensitivity analysis:

The sensitivity of profit or loss to changes in the exchange rates arises mainly from foreign currency denominated financial instruments and the impact on other components of equity arises from foreign exchange forward contracts, foreign exchange option contracts designated as cash flow hedges.

34.6.1.3 Hedging Policy

The Corporation’s hedging policy only allows for effective hedging relationships to be considered as hedges as per the relevant Ind AS. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The Corporation enters into hedge relationships where the critical terms of the hedging instrument match with the terms of the hedged item, and so a qualitative and quantitative assessment of effectiveness is performed.

Cash Flow Hedge

The impact of the hedging instrument and hedged item on the balance sheet:

34.6.1.4 Hedge Ratio

The foreign exchange forward and option contracts are denominated in the same currency as the highly probable future sales and purchases, therefore the hedge ratio is 1:1. The notional amount of interest rate swap is equal to the portion of variable rate loans that is being hedged, and therefore the hedge ratio for interest rate swap is also 1:1.

34.6.2 Interest rate risk

The Corporation’s core business is doing housing loans. The Corporation raises money from diversified sources like deposits, market borrowings, term Loans and foreign currency borrowings amongst others. In view of the financial nature of the assets and liabilities of the Corporation, changes in market interest rates can adversely affect its financial condition. The fluctuations in interest rates can be due to internal and external factors. Internal factors include the composition of assets and liabilities across maturities, existing rates and re-pricing of various sources of borrowings. External factors include macro economic developments, competitive pressures, regulatory developments and global factors. The rise or fall in interest rates impact the Corporations Net Interest Income depending on whether the Balance sheet is asset sensitive or liability sensitive.

The Corporation uses traditional gap analysis report to determine the Corporation’s vulnerability to movements in interest rates. The Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) for each time bucket. It indicates whether the Corporation is in a position to benefit from rising interest rates by having a positive Gap (RSA > RSL) or whether it is in a position to benefit from declining interest rates by a negative Gap (RSL > RSA). The Corporation also fixes tolerance limits for the same under the ALM Policy.

34.6.2.1 Interest rate risk exposure

The break-up of the Corporation’s borrowings into variable rate and fixed rate at the end of the reporting periods are as below:

34.6.2.2 Sensitivity

The impact of 10 bps change in interest rates on financial asset and liabilities on the Profit after tax for the year ended March 31, 2019 is Rs. 40.99 crore (Previous year: Rs. 46.75 crore).

34.6.3 Price risk

34.6.3.1 Exposure

The Corporation’s exposure to equity securities price risk arises from investments held by the Corporation and classified in the balance sheet either as fair value through OCI or at fair value through profit or loss.

To manage its price risk arising from investments in equity securities, the Corporation diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Corporation.

Some of the Corporation’s equity investments are publicly traded and are included in the NSE Nifty 50 index.

34.6.3.2 Sensitivity

The table below summarises the impact of increases/decreases of the index on the Corporation’s equity and profit for the period. The analysis is based on the assumption that the equity index had increased by 10% or decreased by 10% with all other variables held constant, and that all the Corporation’s equity instruments moved in line with the index.

Profit for the period would increase/decrease as a result of gains/losses on equity securities classified as at fair value through profit or loss. Other components of equity would increase/decrease as a result of gains/ losses on equity securities classified as fair value through other comprehensive income.

35. EVENTS AFTER THE REPORTING PERIOD

There have been no events after the reporting date that require disclosure in these financial statements.

36. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors of the Corporation on May 13, 2019.

Source : Dion Global Solutions Limited
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