Exhibit I

INDEX TO FINANCIAL STATEMENTS

 

		Page
Condensed Consolidated Financial Statements of HDFC Bank Limited and Subsidiaries:
Condensed consolidated balance sheets as of March  31, 2024 and September 30, 2024			F-2
Condensed consolidated statements of income for the six-month periods ended September 30, 2023 and 2024			F-3
Condensed consolidated statements of comprehensive income for the six-month periods ended September 30, 2023 and 2024			F-4
Condensed consolidated statements of cash flows for the six-month periods ended September 30, 2023 and 2024			F-5
Condensed consolidated statements of shareholders’ equity for the six-month periods ended September 30, 2023 and 2024			F-7
Notes to the condensed consolidated financial statements			F-8

 

F-1

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		As of
		March 31, 2024				September 30, 2024 (Unaudited)				September 30, 2024 (Unaudited)
		(In millions, except number of shares)
ASSETS:
Cash and due from banks, and restricted cash		Rs.	2,086,031.4			Rs.	2,137,887.3			US$	25,524.0
Investments held for trading, at fair value			461,245.3				400,276.2				4,778.8
Investments available for sale debt securities, at fair value [includes restricted investments of Rs. 1,792,147.6 and Rs. 2,969,094.3 (US$ 35,447.6), as of March 31, 2024 and September 30, 2024, respectively]			8,295,487.1				8,813,611.0				105,224.6
Securities purchased under agreements to resell			34,178.3				327,602.8				3,911.2
Loans [net of allowance of Rs. 457,346.5 and Rs. 493,269.8 (US$ 5,889.1), as of March 31, 2024 and September 30, 2024, respectively]			26,335,700.9				26,760,427.3				319,489.3
Accrued interest receivable			249,644.5				264,226.3				3,154.6
Property and equipment, net			147,030.4				158,791.6				1,895.8
Intangible assets, net			1,396,117.2				1,382,961.1				16,511.0
Goodwill			1,629,510.3				1,629,510.3				19,454.5
Other assets			2,528,211.3				2,736,209.7				32,667.2
Separate account assets			955,416.3				1,092,020.8				13,037.5
Total assets		Rs.	44,118,573.0			Rs.	45,703,524.4			US$	545,648.5
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Liabilities:
Interest-bearing deposits		Rs.	20,688,406.2			Rs.	22,238,979.6			US$	265,508.4
Non-interest-bearing deposits			3,079,829.4				2,725,799.8				32,543.0
Total deposits			23,768,235.6				24,964,779.4				298,051.4
Securities sold under repurchase agreements			56,541.0				—				—
Short-term borrowings			1,313,737.1				1,509,711.6				18,024.3
Accrued interest payable			238,638.8				299,302.3				3,573.3
Long-term debt			6,648,772.0				6,071,297.4				72,484.4
Accrued expenses and other liabilities			1,295,002.8				1,343,829.0				16,043.8
Separate account liabilities			955,416.3				1,092,020.8				13,037.5
Liabilities on policies in force			1,763,979.1				1,957,943.1				23,375.6
Undistributed policy holders earnings account			192,067.5				260,191.7				3,106.4
Total liabilities		Rs.	36,232,390.2			Rs.	37,499,075.3			US$	447,696.7
Shareholders’ equity:
Equity shares: par value Rs. 1.0 each; authorized 11,906,100,000 shares and 11,906,100,000 shares; issued and outstanding 7,596,910,662 shares and 7,630,778,309 shares, as of March 31, 2024 and September 30, 2024, respectively		Rs.	7,596.9			Rs.	7,630.8			US$	91.1
Additional paid-in capital			4,344,576.8				4,398,655.5				52,515.0
Retained earnings			1,746,416.9				1,934,294.2				23,093.3
Statutory reserve			881,143.2				883,330.9				10,546.0
Accumulated other comprehensive income/ (loss)			(15,540.4	)			57,235.4				683.3
Treasury stock, at cost			(16,866.0	)			(16,866.0	)			(201.4	)
Total HDFC Bank Limited shareholders’ equity			6,947,327.4				7,264,280.8				86,727.3
Noncontrolling interest in subsidiaries			938,855.4				940,168.3				11,224.5
Total shareholders’ equity			7,886,182.8				8,204,449.1				97,951.8
Total liabilities and shareholders’ equity		Rs.	44,118,573.0			Rs.	45,703,524.4			US$	545,648.5

See accompanying notes to condensed consolidated financial statements

 

 

F-2

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

		Six-month period ended September 30,
		2023				2024				2024
		(In millions, except share and per share amounts)
Interest and dividend revenue:
Loans		Rs.	975,932.0			Rs.	1,238,645.3			US$	14,788.0
Trading securities			3,164.7				6,250.9				74.6
Available for sale debt securities			226,607.5				300,291.3				3,585.1
Other			32,604.4				40,077.1				478.5
Total interest and dividend revenue			1,238,308.6				1,585,264.6				18,926.2
Interest expense:
Deposits			454,995.2				599,726.3				7,160.1
Short-term borrowings			46,153.2				43,100.7				514.6
Long-term debt			165,712.1				244,692.6				2,921.4
Other			610.4				2,939.1				35.1
Total interest expense			667,470.9				890,458.7				10,631.2
Net interest revenue			570,837.7				694,805.9				8,295.0
Provision for credit losses			76,443.8				83,055.2				991.6
Net interest revenue after provision for credit losses			494,393.9				611,750.7				7,303.4
Non-interest revenue, net:
Fees and commissions			131,893.7				157,039.6				1,874.9
Trading securities gain, net			12,398.5				48,500.8				579.0
Realized gain on sales of available for sale debt securities, net			1,243.1				475.7				5.7
Allowance on available for sale debt securities			57.2				(8.7	)			(0.1	)
Foreign exchange transactions			(4,237.8	)			25,792.5				307.9
Derivatives gain, net			3,855.9				23,962.9				286.1
Premium and other operating income from the insurance business			117,048.2				211,568.5				2,525.9
Other, net			7,494.7				21,921.9				261.7
Total non-interest revenue, net			269,753.5				489,253.2				5,841.1
Total revenue, net			764,147.4				1,101,003.9				13,144.5
Non-interest expense:
Salaries and staff benefits			128,382.6				149,500.6				1,784.9
Premises and equipment			29,664.7				37,742.7				450.6
Depreciation and amortization			15,235.9				18,719.9				223.5
Administrative and other			131,768.5				111,521.0				1,331.4
Amortization of intangible assets			8,031.6				13,156.1				157.1
Claims and benefits paid pertaining to insurance business			121,579.6				264,334.7				3,155.9
Total non-interest expense			434,662.9				594,975.0				7,103.4
(Surplus) / Deficit in P&L transferred to undistributed policyholders earnings account			(19,438.6	)			(71,056.0	)			(848.3	)
Income before income tax expense			310,045.9				434,972.9				5,192.8
Income tax expense			59,045.0				88,098.8				1,051.8
Net income before noncontrolling interest		Rs.	251,000.9			Rs.	346,874.1			US$	4,141.0
Less: Net income attributable to shareholders of noncontrolling interest			(205.0	)			8,315.1				99.3
Net income attributable to HDFC Bank Limited		Rs.	251,205.9			Rs.	338,559.0			US$	4,041.7
Per share information: (see note 21)
Earnings per equity share—basic		Rs.	38.22			Rs.	45.58			US$	0.54
Earnings per equity share—diluted		Rs.	38.05			Rs.	45.40			US$	0.53
Per ADS information (where 1 ADS represents 3 shares): (see note 21)
Earnings per ADS—basic		Rs.	114.66			Rs.	136.74			US$	1.62
Earnings per ADS—diluted		Rs.	114.15			Rs.	136.20			US$	1.59

See accompanying notes to condensed consolidated financial statements

 

 

F-3

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		Six-month period ended September 30,
		2023				2024				2024
		(In millions)
Net income before noncontrolling interest		Rs.	251,000.9			Rs.	346,874.1			US$	4,141.0
Other comprehensive income, net of tax:
Long- duration insurance contract discount rate change			11,726.2				(46,910.8	)			(560.1	)
Foreign currency translation adjustment:
Net unrealized gain (loss) arising during the period [net of tax Rs. (177.0) and Rs. (93.5), as of September 30, 2023 and September 30, 2024, respectively]			561.2				785.5				9.4
Available for sale debt securities:
Net unrealized gain/ (loss) arising during the period [net of tax Rs. 186.0 and Rs. (26,407.7), as of September 30, 2023 and September 30, 2024, respectively]			(557.0	)			109,363.2				1,305.7
Reclassification adjustment for net (gain) loss included in net income [net of tax Rs. (372.4) and Rs. (1,147.0), as of September 30, 2023 and September 30, 2024, respectively]			1,128.3				3,176.8				37.9
Other comprehensive income, net of tax			12,858.7				66,414.7				792.9
(Surplus)/ Deficit in OCI transferred to undistributed policyholders earnings account			(1,922.5	)			7,144.2				85.3
Total comprehensive income			261,937.1				420,433.0				5,019.2
Less: Comprehensive income attributable to shareholders of noncontrolling interest			(428.6	)			9,098.7				108.6
Comprehensive income attributable to HDFC Bank Limited		Rs.	262,365.7			Rs.	411,334.3			US$	4,910.6

See accompanying notes to condensed consolidated financial statements

 

F-4

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six-month period ended September 30,
		2023				2024				2024
						(In millions)
Cash flows from operating activities:
Net income before noncontrolling interest		Rs.	251,000.9			Rs.	346,874.1			US$	4,141.0
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses			76,443.8				83,055.2				991.6
Depreciation and amortization			15,235.9				18,719.9				223.5
Amortization of deferred customer acquisition costs and fees			10,924.4				16,471.3				196.6
Amortization of premium/(discount) on investments			8,712.6				10,823.6				129.2
Amortization of intangible assets			8,031.6				13,156.1				157.1
Allowance on available for sale debt securities			(57.2	)			8.7				0.1
Deferred tax expense/ (benefit)			(17,599.4	)			(16,702.6	)			(199.4	)
Other gains, net			(4,663.0	)			(6,158.2	)			(73.5	)
Share-based compensation expense			9,842.8				13,181.0				157.4
Net realized (gain)/ loss on sale of available for sale debt securities			(1,243.1	)			(475.7	)			(5.7	)
(Gain)/ loss on disposal of property and equipment, net			(359.1	)			(101.0	)			(1.2	)
Unrealized exchange (gain)/ loss			1,724.1				3,455.7				41.3
Net change in:
Investments held for trading			126,971.8				48,486.2				578.9
Accrued interest receivable			(15,321.3	)			(14,526.1	)			(173.4	)
Other assets			(10,841.0	)			(128,706.1	)			(1,536.3	)
Accrued interest payable			48,283.9				60,605.7				723.6
Accrued expense and other liabilities			(5,814.0	)			18,138.4				216.6
Policyholder’s Fund			90,058.5				262,088.2				3,129.0
Net cash provided by operating activities			591,332.2				728,394.4				8,696.4
Cash flows from investing activities:
Term placements, net			(101,416.5	)			(15,995.7	)			(191.0	)
Activity in available for sale debt securities:
Purchases			(2,974,774.9	)			(1,874,153.9	)			(22,375.3	)
Proceeds from sales			1,432,506.5				595,407.2				7,108.5
Maturities, prepayments and calls			620,373.4				867,964.7				10,362.5
Net change in repurchase agreements and reverse repurchase agreements			1,138,162.9				(349,965.5	)			(4,178.2	)
Proceeds from loans securitised							246,466.1				2,942.5
Loans purchased			(116,976.0	)			—				—
Repayments on loans purchased			52,750.2				763.1				9.1
Increase in loans originated, net of principal collections			(1,549,371.2	)			(764,762.0	)			(9,130.4	)
Additions to property and equipment			(24,879.4	)			(30,771.8	)			(367.4	)
Proceeds from sale or disposal of property and equipment			483.9				408.2				4.9
Net cash received on acquisition of HDFC Limited			54,793.7				—				—
Activity in equity securities, net			58,529.7				(42,086.5	)			(502.5	)
Net cash used in investing activities			(1,409,817.7	)			(1,366,726.1	)			(16,317.3	)

See accompanying notes to condensed consolidated financial statements

 

F-5

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Unaudited)

 

		Six-month period ended September 30,
		2023				2024				2024
		(In millions)
Cash flows from financing activities:
Net increase in deposits			1,316,230.9				1,192,009.2				14,231.2
Net increase/(decrease) in short-term borrowings			37,646.1				194,839.3				2,326.2
Proceeds from issue of shares by a subsidiary to noncontrolling interests			1,196.7				3,235.7				38.6
Proceeds from issuance of long-term debt			569,672.8				256,460.9				3,061.9
Repayment of long-term debt			(670,966.0	)			(837,438.3	)			(9,998.1	)
Proceeds from issuance of equity shares for options and warrants exercised			67,274.5				39,184.1				467.8
Payment of dividends			(86,315.0	)			(157,767.6	)			(1,883.6	)
Net cash provided by financing activities			1,234,740.0				690,523.3				8,244.0
Effect of exchange rate changes on cash and due from banks, and restricted cash			2,659.3				(335.7	)			(4.0	)
Net change in cash and due from banks, and restricted cash			418,913.8				51,855.9				619.1
Cash and due from banks, and restricted cash, beginning of year			1,387,395.2				2,086,031.4				24,904.9
Cash and due from banks, and restricted cash, end of year		Rs.	1,806,309.0				2,137,887.3			US$	25,524.0
Supplementary cash flow information:
Interest paid		Rs.	506,003.6				829,795.2			US$	9,906.8
Income taxes paid, net of refunds		Rs.	78,216.8				120,917.9			US$	1,443.6
Non-cash investment activities
i) Payable for purchase of property and equipment		Rs.	6,216.8				8,484.9			US$	101.3
ii) Trade date sale receivable of available for sale debt securities		Rs.	2,184.3				918.3			US$	11.0
iii) Operating lease right-of-use assets			Refer to note 20—“Commitments and contingencies— Lease commitments” for more information and balances as of September 30, 2024.

See accompanying notes to condensed consolidated financial statements

 

 

F-6

HDFC BANK LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

		Number of Equity Shares				Equity Share Capital				Additional Paid in Capital				Retained Earnings				Statutory Reserve (*)				Accumulated Other Comprehensive Income/(Loss)				Treasury stock at cost				Total HDFC Bank Limited Shareholders’ Equity				Noncontrolling Interest				Total Shareholders’ Equity
		(In millions, except for number of equity shares)
Balance at March 31, 2023			5,579,742,786			Rs.	5,579.7			Rs.	883,371.9			Rs.	1,447,784.1			Rs.	643,738.7			Rs.	(68,273.7	)		Rs.				Rs.	2,912,200.7			Rs.	5,637.2			Rs.	2,917,837.9
Shares issued upon exercise of options			31,526,962				31.5				35,314.9																				35,346.4				—				35,346.4
Shares issued on account of Business Combination (net)(**)			1,945,770,658				1,945.8				3,308,588.4																				3,310,534.2				926,787.1				4,237,321.3
Purchase consideration towards warrants & options eHDFC											45,712.9																				45,712.9								45,712.9
Shares issued upon exercise of equity warrant			24,775,632				24.8				31,903.3																				31,928.1				—				31,928.1
Share-based compensation											9,842.8																				9,842.8								9,842.8
Dividends															(86,315.0	)															(86,315.0	)							(86,315.0	)
Change in ownership interest in subsidiary											848.5																				848.5				(848.5	)			—
Shares issued to noncontrolling interest																															—				1,196.7				1,196.7
Treasury stock															—												(16,868.0	)			(16,868.0	)							(16,868.0	)
Transfer to statutory reserve															(82,744.5	)			82,744.5												—								—
Net income															251,205.9																251,205.9				(205.0	)			251,000.9
Net change in accumulated other comprehensive income																							11,159.8								11,159.8				(223.6	)			10,936.2
Balance at September 30, 2023			7,581,816,038			Rs.	7,581.8			Rs.	4,315,582.7			Rs.	1,529,930.5			Rs.	726,483.2			Rs.	(57,113.9	)		Rs.	(16,868.0	)		Rs.	6,505,596.3			Rs.	932,343.9			Rs.	7,437,940.2

 

(*)

Under local regulations, the Bank is required to transfer 25% of its profit after tax (per Indian GAAP) to a non-distributable statutory reserve and to meet certain other conditions in order to pay dividends without prior RBI approval. Of the total transfers to the statutory reserve, Rs. 80,557.3 million pertains to acquisition of eHDFC.

(**)	Net of 1,164,625,834 shares (par value Rs. 1.0 each) cancelled upon business combination.

 

		Number of Equity Shares				Equity Share Capital				Additional Paid in Capital				Retained Earnings				Statutory Reserve (*)				Accumulated Other Comprehensive Income/(Loss)				Treasury stock at cost				Total HDFC Bank Limited Shareholders’ Equity				Noncontrolling Interest				Total Shareholders’ Equity
		(In millions, except for number of equity shares)
Balance at March 31, 2024			7,596,910,662			Rs.	7,596.9			Rs.	4,344,576.8			Rs.	1,746,416.9			Rs.	881,143.2			Rs.	(15,540.4	)		Rs.	(16,866.0	)		Rs.	6,947,327.4			Rs.	938,855.4			Rs.	7,886,182.8
Shares issued upon exercise of options			33,867,647				33.9				39,150.2																				39,184.1				—				39,184.1
Share-based compensation											13,181.0																				13,181.0								13,181.0
Dividends															(148,494.0	)															(148,494.0	)			(9,273.6	)			(157,767.6	)
Change in ownership interest in subsidiary											1,747.5																				1,747.5				(1,747.5	)			—
Shares issued to noncontrolling interest																															—				3,235.7				3,235.7
Transfer to statutory reserve															(2,187.7	)			2,187.7												—								—
Net income															338,559.0																338,559.0				8,315.1				346,874.1
Net change in accumulated other comprehensive income																							72,775.8								72,775.8				783.2				73,559.0
Balance at September 30, 2024			7,630,778,309			Rs.	7,630.8			Rs.	4,398,655.5			Rs.	1,934,294.2			Rs.	883,330.9			Rs.	57,235.4			Rs.	(16,866.0	)		Rs.	7,264,280.8			Rs.	940,168.3			Rs.	8,204,449.1
Balance at September 30, 2024			7,630,778,309			US$	91.1			US$	52,515.0			US$	23,093.3			US$	10,546.0			US$	683.3			US$	(201.4	)		US$	86,727.3			US$	11,224.5			US$	97,951.8

 

(*)	Under local regulations, the Bank is required to transfer 25% of its profit after tax (per Indian GAAP) to a non-distributable statutory reserve and to meet certain other conditions in order to pay dividends without prior RBI approval.

See accompanying notes to condensed consolidated financial statements

 

F-7

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Bank overview

These condensed consolidated financial statements should be read in conjunction with the financial statements of the Bank included in its Form 20-F filed with the Securities and Exchange Commission on July 29, 2024.

2. Summary of significant accounting policies

a. Principles of consolidation

The consolidated financial statements include the accounts of HDFC Bank Limited and its subsidiaries. The Bank consolidates subsidiaries in which, directly or indirectly, it holds more than 50% of the voting rights and/or has control. Entities where the Bank holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence are accounted for under the equity method. These investments are included in Other assets and the Bank’s proportionate share of income or loss is included in “Non-interest revenue, other”. The Bank consolidates Variable Interest Entities (“VIEs”) where the Bank is determined to be the primary beneficiary. All significant inter-company balances and transactions are eliminated on consolidation.

b. Basis of presentation

These consolidated financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”). U.S. GAAP differs in certain material respects from Generally Accepted Accounting Principles in India, the requirements of India’s Banking Regulation Act 1949 and related regulations issued by the Reserve Bank of India (“RBI”), the guidelines issued by the Securities and Exchange Board of India (“SEBI”), and the guidelines issued by the Insurance Regulatory and Development Authority of India (“IRDAI”) (collectively “Indian GAAP”), which form the basis of the statutory general purpose consolidated financial statements of the Bank in India. Principal differences include the determination of the allowance for credit losses, classification and valuation of investments, classification and valuation of insurance contracts, accounting for deferred taxes, stock-based compensation, loan origination fees, derivative financial instruments, business combination, lease accounting and the presentation format and disclosures of the consolidated financial statements and related notes.

c. Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from these estimates. Material estimates included in these consolidated financial statements that are susceptible to change include the allowance for credit losses, the valuation of investments, impairment of securities, valuation of derivatives, valuation of intangible assets acquired on acquisition of eHDFC, valuation of insurance policies liabilities, stock-based compensation, unrecognized tax benefits, valuation of lease liabilities and impairment assessment of recognized intangible assets and goodwill.

d. Investments in securities

Investments consist of securities purchased as part of the Bank’s treasury operations, such as government securities and other debt securities, and investments purchased as part of the Bank’s wholesale banking operations, such as credit substitute securities issued by the Bank’s wholesale banking customers.

Credit substitute securities typically consist of commercial paper and debentures issued by the same customers with whom the Bank has a lending relationship in its wholesale banking business. Investment decisions for credit substitute securities are subject to the same credit approval processes as for loans, and the Bank bears the same customer credit risk as it does for loans extended to those customers. Additionally, the yield and maturity terms are generally directly negotiated by the Bank with the issuer.

All other securities, including mortgage-and asset-backed securities, are actively managed as part of the Bank’s treasury operations. The issuers of such securities are either government, public financial institutions or private issuers. These investments are typically purchased from the market, and debt securities are generally publicly-rated.

Securities that are held principally for resale in the near term are classified as held for trading (“HFT”) and are carried at fair value, with changes in fair value recorded in net income.

 

F-8

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (“HTM”) and are carried at amortized cost.

All debt securities that are not classified as HTM or HFT are classified as available for sale (“AFS”) debt securities and are carried at fair value. Unrealized gains and losses on such securities, net of applicable taxes, are reported in accumulated other comprehensive income/(loss), a separate component of shareholders’ equity.

Equity securities are classified under “Other assets”. Marketable securities are measured at fair value and any change in fair value is recorded in earnings. Non-marketable equity securities under the measurement alternative are carried at cost plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer and impairment, if any. The Bank’s review for impairment for equity method, cost method and measurement alternative securities typically includes an analysis of the facts and circumstances of each security, the intent or requirement to sell the security, and the expectations of cash flows.

Fair values are based on market quotations, where a market quotation is available or otherwise based on present values at current interest rates for such investments.

Transfers between categories are recorded at fair value on the date of the transfer.

For equity investments (“investee”), where control over an investee is typically determined by majority ownership; however, circumstances may arise where a majority-owned investment is not controlled. In such cases, equity method accounting is applied, particularly when the other shareholder(s) of the investee holds substantive participative rights granted by law or contract.

The Bank’s consolidated net income incorporates its proportionate share of the net income or loss from equity method investees.

e. Impairment of debt securities

The Bank conducts a review of all AFS debt securities with fair value below their carrying value or with zero loss expectation. The Bank evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If the assessment indicates that a credit loss exists, the present value of cash flows to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through a provision for credit loss expense, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The allowance is increased or decreased if credit conditions subsequently worsen or improve. A reversal of credit losses is recognized in net income. The Bank recognizes the entire difference between amortized cost basis and fair value in net income for impaired AFS debt securities that the Bank has an intent to sell or for which the Bank believes it will more-likely-than-not be required to sell prior to recovery of the amortized cost basis. The Bank does not record an allowance on accrued interest receivables on the balance sheet due to its policy to reverse interest income on debt securities in a timely manner in line with the Bank’s non-accrual and past due policies and on any debt security classified as non-performing. The Bank does not purchase debt securities with credit deterioration.

 

 

F-9

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

f. Loans

The Bank grants retail and wholesale loans to customers.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances adjusted for an allowance for credit losses. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to net income over the lives of the related loans.

Interest is accrued on the unpaid principal balance and is included in interest income. Loans are generally placed on “non-accrual” status when interest or principal payments are ninety days past due or if they are considered non-performing, at which time no further interest is accrued and any unrealized interest recognized in the consolidated statement of income is reversed. Interest income and principal payments on loans placed on non-accrual status are recognized when received. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

g. Allowance for credit losses

The Bank provides an allowance for credit losses based on management’s estimate of losses inherent in the loan portfolio which includes troubled debt restructuring. The allowance for credit losses consists of allowances for retail loans and wholesale loans.

The Bank’s allowance for credit losses comprises of:

 

•

the allowance for credit losses, which covers the Bank’s loan portfolios and is presented separately on the balance sheet in Loans,

 

•

the allowance for lending-related commitments, which is recognized on the balance sheet in Accrued expenses and other liabilities,

 

•

the allowance for credit losses on investment securities, which covers the Bank’s AFS debt securities and is recognized on the balance sheet in Investments AFS debt securities; and

 

•

the allowance for credit losses on other financial assets measured at amortized cost, and other off-balance sheet credit exposures, which is recognized on the balance sheet in Accrued expenses and other liabilities.

All changes in the allowance for credit losses are recognized in the consolidated statement of income.

The Bank’s policies used to determine its allowance for credit losses and its allowance for lending-related commitments are described below:

The Bank’s loan portfolio is bifurcated into Retail and Wholesale portfolios, wherein the Retail portfolio is segmented into homogenous pools using various factors such as nature of product, delinquencies, and other demographic and behavioral variables of the borrowers. The wholesale portfolio is segmented into various risk grades on the basis of a host of quantitative and qualitative factors including financial performance, industry risk, business risk and management quality. The allowance for loan-related losses and allowance for lending-related commitments represents expected credit losses over the remaining expected life of outstanding loans and lending-related commitments that are not unconditionally cancellable. The Bank does not record an allowance for future draws on unconditionally cancellable lending-related commitments (e.g., credit cards). The Bank does not record an allowance on accrued interest receivables on the balance sheet due to its policy to reverse interest income on loans more than 90 days past due and in the case of agricultural loans more than 365 days past due, and also on any loans classified as non-performing. The expected life for retail loans and wholesale loans is determined based on their contractual terms and expected prepayments as applicable. The expected life of funded credit card loans is generally estimated by considering expected future payments on the credit card account. The Bank has an Unconditionally Cancellable Clause (“UCC”) for credit card lines and in accordance with the current expected credit loss (CECL) accounting guidance, the Bank makes an allowance only for debt drawn at the time of expected loss measurement. The Bank applies expected principal payments to the credit card receivable balances existing at the reporting date until the balance is exhausted.

The estimate of expected credit losses includes expected recoveries of amounts previously charged off or expected to be charged off, even if such recoveries result in a negative allowance. The Retail loans are charged off against allowances typically when the account becomes 150 to 1,095 days past due depending on the type of loan. The defined delinquency levels at which major loan types are charged off are 150 days past due for personal loans and credit card receivables, 180 days for auto loans, commercial vehicle and construction equipment finance, 1,095 days past due for housing loans and on a customer by customer basis in respect of retail business banking when management believes that any future cash flows from these loans are remote including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements were not feasible. The Wholesale loans are charged off against the allowance when management believes that the loan balance may not be recovered, including realization of collateral, if applicable, and where any restructuring or any other settlement arrangements were not feasible. Subsequent recoveries, if any, against write-off cases, are adjusted to provision for credit losses in the consolidated statement of income.

 

F-10

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Wholesale loans are considered non-performing when, based on current information and events, it is probable that the Bank will be unable to collect scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining non-performance include payment status, the financial condition of the borrower, the value of collateral held, and the probability of collecting scheduled principal and interest payments when due. Wholesale loans that experienced insignificant payment delays and payment shortfalls are generally not classified as non-performing but are placed on a surveillance watch list and closely monitored for deterioration. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, market information, and the amount of the shortfall in relation to the principal and interest owed. These factors are considered by the Bank for selection of loans for credit reviews and assessment of allowance.

In order to estimate the allowance, the Bank primarily relies on its risk-segmentation models, which are also an integral part of the Bank’s risk management framework. Risk segmentation aims to group homogenous exposures together to allow for collective assessment of expected losses.

Expected Loss estimation under collective assessment, is primarily based on Probability of Default (“PD”), Loss given Default (“LGD”) and Exposure at Default (“EAD”) estimates. The Bank has modeled its PD estimates at the aforementioned granularity for its retail and wholesale portfolios and has also created the remaining expected life structure of the same for computation of credit losses.

The Bank’s off-balance sheet credit exposures include unfunded loan commitments, financial guarantees, including standby letters of credit, and other similar instruments. For off-balance sheet credit exposures, the Bank recognizes an allowance for credit loss (“ACL”) associated with the unfunded amounts. The Bank does not recognize an ACL for commitments that are unconditionally cancellable at the Bank’s discretion. ACL for off-balance sheet credit exposures are reported as a liability in accrued expenses and other liabilities on the consolidated balance sheets. ACL in such cases is measured for the remaining contractual term, adjusted for prepayments, of the financial asset (including off-balance sheet credit exposures) using historical experience, current conditions, and reasonable and supportable forecasts.

Collective and individual assessments

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to historical experience, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current conditions and forecasts.

The methodology for estimating the amount of credit losses reported in the allowance for credit losses has two basic components: first, a pooled component for expected credit losses for pools of loans that share similar risk characteristics and second an asset-specific component involving loans that do not share risk characteristics and the measurement of expected credit losses for such individual loans.

As an integral part of the credit process, the Bank has a pooling and rating model for its retail and wholesale credit portfolio respectively. The Bank monitors credit quality within its segments based on primary credit quality indicators. This internal rating is reviewed at least annually.

The majority of the Bank’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively assessed for allowance (“portfolio-based component”) by grouping them into homogeneous pools of loans. If an exposure does not share risk characteristics with other exposures, the Bank generally estimates expected credit losses on an individual basis, considering expected repayment and conditions impacting that individual exposure (“asset-specific component”). The asset-specific component covers loans modified or reasonably expected to be modified in a troubled debt restructuring (“TDR”), collateral-dependent loans, and borrowers with financial difficulties.

 

F-11

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Portfolio-based component (Pooled Loans)

The portfolio-based component begins with a quantitative calculation that considers the likelihood of the borrower changing delinquency status or moving from one risk rating to another. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying credit loss factors to the Bank’s exposure at default.

Apart from its historical experience, the Bank seeks to incorporate any reasonable and supportable information regarding the prevalent and future economic and operating conditions, and their impact on credit losses for the Bank into its allowance. The Bank therefore includes in its estimation the use of quantitative statistical models to predict the impact of macro-economic variables, on rating downgrades/ defaults. The Bank uses macro-economic variables that are relevant to the specific product to develop a reasonable and supportable forecast specific to the relevant macro-economic variable for the expected performance of the product. In deploying these models, the Bank has assessed the impact of relevant set of macro-economic variables on its expected losses, and uses macro-economic forecasts published by Centre for Monitoring Indian Economy (CMIE) for this assessment. As the macro- economic forecasts are published for a year the Bank reverts to the historical average default rate beyond this period over a straight-line basis. Any adjustments needed to the modelled expected losses in the quantitative calculations are addressed through a qualitative adjustment. Qualitative adjustment, if any, among other things may include specific portfolio characteristics, expected sectoral performance, expected impact of internal strategies or external events on the product/segment; model limitations; idiosyncratic events; and other relevant criteria. The total ACL is comprised of the quantitative and qualitative components.

The Bank estimates its allowance for credit losses for pooled loans based on its PD and LGD, determined for the respective risk pools. The Bank estimated the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts. The allowance for credit losses for the quantitative component of pooled loans is the product of multiplying the PD, LGD and EAD.

Asset-specific component

To determine the asset-specific component of the allowance, collateral-dependent loans (including those loans for which foreclosure is probable) and larger and non-accrual risk-rated loans in the wholesale portfolio segment are generally evaluated individually, while smaller loans (both scored and risk-rated) are aggregated for evaluation based on factors relevant for the respective class of assets. Loans are identified for individual assessment based on financial difficulty which includes nonperforming loans, labeled loans and loans identified based on management judgment.

The Bank generally measures the asset-specific allowance as the difference between the amortized cost of the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment, including those related to the passage of time, are generally recognized as an adjustment to the allowance for credit losses. For collateral-dependent loans, the fair value of collateral less estimated costs to sell is used to determine the charge-off amount for declines in value (to reduce the amortized cost of the loan to the fair value of collateral) or the amount of the negative allowance that should be recognized (for recoveries of prior charge-offs associated with improvements in the fair value of collateral).

The asset-specific component of the allowance for credit losses that have been or are expected to be modified in TDRs incorporates the effect of the modification on the loan’s expected cash flows (including forgone interest, principal forgiveness, and other concessions), and also the potential for redefault. For wholesale loans modified or expected to be modified in TDRs, expected losses incorporate management’s expectation of the borrower’s ability to repay under the modified terms.

Estimating the timing and amounts of future cash flows is highly subject to judgment as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.

 

F-12

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

h. Income tax

The Bank estimates its income tax expense for the interim periods based on its best estimate of the expected effective income tax rate for a full year.

i. Revenue recognition

Interest income from loans and from investments is recognized on an accrual basis using the effective interest method when earned except in respect of loans or investments placed on non-accrual status, where it is recognized when received.

Fees and commissions from guarantees issued are amortized over the contractual period of the commitment. Commission, Fees, Charges for rendering services such as Investment Management fees are recognized on an accrual basis as per the terms of service / agreement as applicable and where there is reasonable certainty of ultimate collection.

Dividends from investments are recognized when declared.

Realized gains and losses on sale of securities are recorded on the trade date and are determined using the weighted average cost method.

Premiums related to traditional long-duration products are recognized as revenues when due from policyholders. Premiums related to short-duration products are recognized on a pro-rata basis over the applicable contract term. When premiums are due over a significantly shorter period than the period over which benefits are provided, any excess profit is deferred as a DPL. The DPL is also recognized on the premiums received on the business acquired as on the PGAAP date. The DPL is amortized or recognized as earnings based on the amortization basis as mentioned in deferred acquisition cost. Premiums related to short-duration products are recognized on a pro rata basis over the applicable contract term. Unearned premiums, representing the portion of premium written related to the unexpired coverage, are reflected as liabilities until earned. Deposits related to universal life and investment-type products are credited to “Premium and other operating income from insurance business”. Revenues from such contracts consist of fees for mortality, policy administration, fund management charges, surrender charges and other charges as applicable are recorded in universal life and investment-type line of business in the period in which services are provided. All revenues and expenses are presented net of reinsurance, as applicable.

Other fees and income are recognized when earned, which is when the service that results in the income has been provided. The Bank amortizes annual fees on credit cards over the contractual period of the fees.

j. Goodwill

Under applicable accounting guidance, goodwill is reviewed at the reporting unit level for potential impairment at least on an annual basis at the end of the reporting period, or more frequently if events or circumstances indicate a potential impairment. The Bank tests goodwill of each separate reporting unit by initially qualitatively assessing whether events and circumstances indicate that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If such assessment indicates fair value is not less than the carrying value, the reporting unit is deemed not to be impaired and no further analysis is required. If it is more likely than not that fair value of the reporting unit is below its carrying value, a quantitative test is then performed. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis for the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

 

F-13

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

k. Intangible Assets

The Bank’s identifiable intangible assets consists of, Brand, Investment Management Contract, Value of Business Acquired (“VOBA”), Distribution Network, Customer Relationship and Transferable Development Rights acquired in Business Combination. All intangible assets except Brand and Investment Management Contract are definite-lived intangible assets and are recorded at acquisition date fair value.

The Bank’s definite-lived intangible assets are amortized over their estimated useful lives. Indefinite-lived intangible assets are not amortized but are tested for impairment annually, or more frequently, if necessary.

 

Intangible Assets		Useful lives (years)		Amortization method
Brand		Indefinite		Not applicable
Investment Management Contract		Indefinite		Not applicable
Value of Business Acquired (VOBA)		Life of the underlying contracts		Constant level basis(*)
Distribution Network		17		Straight line
Customer Relationship		17		Straight line
Transferable Development Rights		8		Straight line

 

(*)	VOBA is amortized on a constant-level basis that approximates straight-line amortization (Refer note 14)

The Bank reviews intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment is indicated if the sum of undiscounted estimated future net cash flows is less than the carrying value of the asset.

l. Recently adopted accounting standards

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively. The Bank adopted the ASU effective April 1, 2024. The adoption of this guidance did not have a material impact on the Bank’s consolidated financial position or results of operation.

m. Recently issued accounting pronouncements not yet effective

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires enhanced annual disclosures for specific categories in the rate reconciliation and income taxes paid disaggregated by federal, state and foreign taxes. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Bank does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.

n. Convenience translation

The accompanying financial statements have been expressed in Indian Rupees (“Rs.”), the Bank’s functional currency. For the convenience of the reader, the financial statements as of and for the six-month period ended September 30, 2024 have been translated into U.S. dollars at US$1.00 = Rs. 83.76 as published by the Federal Reserve Board of New York on September 30, 2024. Such translation should not be construed as a representation that the rupee amounts have been or could be converted into United States dollars at that or any other rate, or at all.

 

F-14

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

3. Business Combination

On July 01, 2023, the Bank completed the acquisition of 100% equity interest in Housing Development Finance Corporation Limited (“HDFC Limited” or “eHDFC”) a housing finance company in India providing housing loans to individuals as well as corporates, undertaking lease rental discounting and construction finance. The acquisition was achieved by means of a composite scheme for the amalgamation of (i) HDFC Investments Limited and HDFC Holdings Limited, each a subsidiary of HDFC Limited, with and into HDFC Limited and (ii) HDFC Limited with and into the Bank. Post-acquisition, all other subsidiaries and affiliates of HDFC Limited became subsidiaries and affiliates of the Bank.

Pursuant to the Scheme of Amalgamation dated April 04, 2022 (“Scheme”) and as amended, eHDFC shareholders received 42 shares (face value Rs.1 each) of the Bank, as consideration, for every 25 shares (face value Rs.2 each) held in eHDFC. The scheme was approved by the shareholders at the National Company Law Tribunal (“NCLT”) convened meeting of the shareholders of the Bank held on November 25, 2022. The NCLT, vide its order dated March 17, 2023 sanctioned the Scheme. Upon receipt of all requisite approvals, the Bank filed Form INC 28 with Registrar of Companies (“ROC”) on July 01, 2023 and accordingly, the Scheme became effective on July 01, 2023 (“Effective date”), resulting in the Bank obtaining control.

Total purchase consideration was Rs. 5,337,741.5 million (US$ 63,726.6 million) based on the Bank’s closing price of Rs. 1,701.4 (US$ 20.3) per share on the National Stock Exchange (“NSE”) as of June 30, 2023. The Bank has allotted 3,110,396,492 common equity shares on completing the transaction. Share based compensation held by eHDFC’s employees were converted into Bank’s equity share based compensation with number of shares underlying such awards adjusted based on the exchange ratio resulting in 48,461,845 shares post acquisition and fair valued using the binomial method. Share warrants issued to qualified institutional buyers were converted into Bank’s common equity share with number of shares underlying such warrants adjusted based on the exchange ratio resulting in 24,792,768 warrants post acquisition and fair valued using the Black and Scholes method. The merger was completed for the purpose of increasing revenue opportunities through cross-selling of products leveraging the extensive customer base, offering a comprehensive suite of financial services, and tapping into operational efficiencies by streamlining back-office functions and benefiting from economies of scale. Additionally, the Bank sought to improve liquidity through access to a wider pool of funds at potentially lower rates and enhance capital adequacy through the combined strong capital base post-merger.

The results of operations acquired from eHDFC group have been included in the Bank’s financial statements since July 01, 2023.

The business combination was completed during fiscal 2024 and has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Accordingly, assets acquired and liabilities assumed were recorded at their estimated fair value on the acquisition date. The determination of estimated fair values required management to exercise judgment and make estimates concerning discount rates, anticipated future cash flows, prevailing market conditions, among others at the time of the merger, and other forthcoming events that are highly sensitive in nature.

The following table provides a purchase price allocation to the identifiable assets acquired and liabilities assumed of eHDFC group and the noncontrolling interest at their estimated fair values as of the acquisition date.

 

Particulars		As of July 1, 2023,
		(In millions)
Consideration
Common equity share issued (3,110,396,492 shares of the Bank)		Rs.	5,292,028.6			US$	63,180.9
Share-based compensation			35,240.7				420.7
Share warrants			10,472.2				125.0
Fair value of total consideration transferred			5,337,741.5				63,726.6
Settlement of pre-existing relationship (refer note below)			(69,312.6	)			(827.5	)
Investment in the Bank by eHDFC (refer note below)			(1,981,494.4	)			(23,656.8	)
Fair value of net purchase consideration transferred			3,286,934.5				39,242.3
Acquisition-related costs			1,900.0				22.7
Less:
A. Recognised amounts of identifiable assets acquired
Cash and due from banks			10,344.1				123.5
Investment securities			2,842,356.2				33,934.5
Loans - Net			6,428,635.4				76,750.7
Accrued interest receivable			37,276.7				445.0
Property and equipment			39,136.2				467.2
Identified intangibles assets			1,434,818.1				17,130.1
Other assets			622,978.8				7,437.7
Separate account assets			857,528.7				10,237.9
Total estimated assets acquired			12,273,074.2				146,526.6
Add:
B. Recognized amounts of identifiable liabilities assumed and Noncontrolling Interests
Deposits			1,571,204.5				18,758.4
Accrued expenses and other liabilities			781,742.3				9,333.1
Borrowings			4,977,276.5				59,423.1
Separate account liabilities			857,528.7				10,237.9
Liabilities on policies in force			1,499,749.1				17,905.3
Noncontrolling Interest in eHDFC subsidiaries			926,787.1				11,064.8
Total estimated liabilities assumed			10,614,288.2				126,722.6
Goodwill			1,628,148.5				19,438.3

Above identifiable net assets includes assets and liabilities of the disposal group classified as held for sale as on date of acquisition i.e., HDFC Credila Financial Services Limited and HDFC Education and Development Services Limited amounting to Rs. 103,500 million (US$ 1,241.9 million) [includes goodwill amounting to Rs. 73,576.1 million (US$ 878.4 million)] and Rs. 1,976.0 million (US$ 23.6 million), respectively.

 

F-15

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Total amount of goodwill is Rs. 1,628,148.5 million (US$ 19,438.3 million). None of the goodwill recognized is expected to be deductible for income tax purpose.

The recorded goodwill of Rs. 1,628,148.5 million (US$ 19,438.3 million) resulting from the acquisition primarily reflects the anticipated synergies and economies of scale derived from the integration of operations between the Bank and eHDFC group. Additionally, a portion of this goodwill is attributable to intangible assets that do not meet the criteria for separate recognition as per ASC 805, Business Combinations.

Goodwill is allocated among the Reporting Units (“RUs”) as per assignment method where goodwill is derived from the residual amount on the relative excess of the fair value of the RUs over the net assets of the RUs. The assignment of Goodwill recorded as a result of the acquisition to the Bank’s reportable segments is as follows:

 

Particulars		As of July 1, 2023,
		(In millions)
Retail Banking		Rs.	368,079.6			US$	4,394.5
Wholesale Banking			71,617.3				855.0
Insurance Services			959,080.0				11,450.3
Others			229,371.6				2,738.5
Total			1,628,148.5				19,438.3

Valuation methodology adopted for estimation of fair values of significant assets acquired and liabilities assumed:

Cash and due from banks: Given the short-term nature of assets, the carrying amount was determined to be reasonable estimate for fair value.

Investment in securities: Includes Investments held for trading, Investments available for sale debt securities and securities purchased under agreements to resell. The carrying amount of these assets is a reasonable estimate of its fair value which are based on market quotations, where market quotations are available or otherwise based on present values at current interest rates for such investments.

Loans: The loan asset was segmented into two categories i.e. retail loans and wholesale loans. The present value of retail loans is determined by considering the exposure at default (“EAD”), weighted average interest rate, and remaining tenure for each segment. This involves calculating the monthly equated monthly instalments (“EMI”), interest, principal payments, and accounting for prepayments. Discount rates are then applied to the projected cash flows to derive the present value. The valuation methodology of wholesale loans involves computing yields using base rates and spreads to derive yield curves. Monthly cash flows are calculated based on the repayment schedule, with present values derived using the yields as discount rates. The total present value is the sum of the discounted cash flows over the loan’s tenure.

Property and Equipment: Property and Equipment includes Building and Other Fixed Assets including computer/IT equipment, electric installations, air conditioners, etc. Fair Valuation of Building has been carried out using the sales comparison method under market approach, which involves comparing the properties being appraised with similar buildings that have recently been sold or rented (comparable buildings) or for which offers to purchase or rent have been made, thereby modelling the behavior of the market. Valuation of Other Fixed Asset is done using depreciated replacement cost method under cost approach. The method considers the remaining useful economic life, age, condition, depreciation, obsolescence, residual value, and other relevant factors to determine the attributable value of the assets.

Other assets: Other assets substantially includes investments in affiliate valued at fair value based on the latest transaction price.

Separate account assets and liabilities: The carrying amount of these assets and liabilities are reasonable estimates of fair value. The assets consist primarily of equity securities, fixed maturities, real estate-related investments, short-term investments and derivative instruments and are reported at fair value.

 

F-16

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The liabilities primarily represent the policyholder’s account balances in separate account assets and will be equal and offsetting to total separate account assets.

Deposits: The fair value of deposits, including public individual, public trust, recurring deposit, and compounding instruments, is estimated using the discounted cash flow method. This approach applies cumulative interest rates from the respective rate cards, which are determined based on a market participant perspective, and considers the remaining tenure for each deposit category.

Borrowings: The fair value of borrowings comprising commercial papers, non-convertible debentures (“NCDs”), subordinate debt issued are estimated by discounting the estimated future cash flows using rates currently available to the Bank for debt with similar remaining maturities. As deemed appropriate proxy discount rates reflecting market yields on commercial papers, zero rates (zero rates are interpolated to map the timing of the interest and notional amounts) of the benchmark curve sourced from Bloomberg for external commercial borrowings (“ECBs”) and bonds, Fixed Income Money Market and Derivatives Association of India (“ FIMMDA”) AAA rate yields for non-banking financial companies for NCDs and other borrowings have been used for the purpose of discounting the cashflows to arrive at the fair value.

Liabilities on policies in force: Liabilities for future policy benefits (LFPBs) for traditional and limited-payment long-duration insurance contracts have been established based on the present value of expected future benefits and expenses, adjusted for net premiums and updated assumptions per U.S. GAAP.

Noncontrolling interest: The fair value of noncontrolling interest was calculated after determination of fair value of the subsidiaries of eHDFC. The noncontrolling interest associated with HDFC Life Insurance Company Limited and HDFC Asset Management Company Limited was determined using the market approach while the portion of noncontrolling interest attributable to HDFC Capital Advisors Limited was recorded at its historical carrying amount.

Intangible assets disclosure

The Bank has assigned Rs. 1,434,818.1 million (US$ 17,130.1 million) of the purchase price to identifiable intangible assets consisting of brand, investment management contract, value of business acquired, distribution network, customer relationship and transferable development rights. The following table summarizes the major class of identifiable acquired intangible assets and estimated period of amortization-

 

		As of July 1, 2023
		Estimated Fair Value (In millions)								Useful lives (in years)
Intangible asset
Brand		Rs.	750,758.2			US$	8,963.2			Indefinite life		Relief from royalty method(a)
Investment management contract			369,785.6				4,414.8			Indefinite life		Multi-period excess earnings method(b)
Value of business acquired			221,738.5				2,647.3			Life of the underlying contracts		Refer below(c)
Distribution network			59,543.2				710.9			17		Multi-period excess earnings method(b)
Customer relationship			29,874.9				356.7			17		Multi-period excess earnings method(b)
Transferable development rights			3,117.7				37.2			8		Comparison method
Total			1,434,818.1				17,130.1

Above intangible assets includes Brand amounting to Rs. 8,527.5 million (US $ 101.8 million) and Distribution network amounting to Rs. 8,972.4 million (US $ 107.1 million) pertaining to HDFC Credila Financial Services Limited which is classified as held for sale as on date of acquisition. These have been derecognized following the divestment of stake on March 19, 2024.

(a) Relief from royalty method: The principle of the relief-from-royalty-method asserts that the value of an intangible asset is what the owner would pay to licence of the asset if he did not own it. In other words, the value equates to the avoided cost of not having to pay a royalty.

(b) Multi-period excess earnings Method (MEEM): The MEEM method is predicted on the basis that the value of the intangible asset is the present value of the earnings it generates, net of a reasonable return on the other assets also contributing to the stream of earnings. Valuation of Investment Management Contract, Distribution Network and Customer Relationship is done under Income Approach.

 

F-17

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

(c) Difference between the estimated Fair Value of liabilities (FVL) and the value of Liabilities (GVL). The FVL is derived as the sum of the best estimate of liabilities (“BEL”) and the risk margin (“RM”). GVL is derived as the liability for future policy benefits (“LFPB”) plus other liability items less reinsurance recoverable (refer note 14).

Brand: Brand value has been estimated using income approach with the relief from royalty method. This method considers the projected revenue for the future periods multiplied by the royalty rate and is discounted using appropriate risk adjusted discount rate and the sum of present value of the above is considered as the value of the brand. As the brand is expected to contribute to cashflows indefinitely, it would be considered to have an indefinite useful life. Significant assumptions in the valuation include royalty rates, projected revenue growth rates and periods, and the risk adjusted discount rate.

Investment management contract (the “Contract”): The fair value of the Contract was estimated using the income approach with the MEEM method. This method considers future earnings generated by the Contract along with the contribution of other relevant assets (tangible and intangible) needed for its operation. A detailed financial projection was used and notional charges (fair value, return and risk associated with such assets) were factored in to take into account for the economic contribution of these supporting assets. The final fair value of the Contract reflects the present value of its projected earnings after considering taxes and the contribution of other assets by discounting using an appropriate risk adjusted discount rate. The Contract is not expected to be terminated and will contribute to cashflows indefinitely and it would be considered to have an indefinite useful life. Significant assumptions included future period post-tax earnings and projection period, rate of return and the risk adjusted discount rate.

Value of business acquired (“VOBA”): VOBA is valued as the difference between the estimated fair value of liabilities (“FVL”) and the carrying value of those same insurance contract liabilities. The FVL for the acquired business is derived as the sum of the best estimate of liabilities (“BEL”) and the risk margin (“RM”) calculated using the same best estimate assumptions as those used in deriving the company’s Indian embedded value (“IEV”) as at 30 June 2023. The carrying value of those same insurance contract liabilities is derived as the liability for future policy benefits (“LFPB”) plus other liability items (reserves for unmodelled products, sales inducement liability, time value of options and guarantees, and additional reserves) less reinsurance recoverable. Cash flow assumptions including mortality, morbidity, persistency, and discount rates for fair value of liabilities were considered.

Distribution network & Customer relationship: The fair value of the distribution network and customer relationship was estimated using the income approach with the MEEM method. The method requires estimating future excess earnings from acquiring new customers through existing channels of distribution and future excess earnings from existing customers. An attrition rate, derived from historical data, was used to derive the annualized premium equivalent (“APE”) corresponding to such channels of distribution existing as on the Effective Date. Projected profits, based on expected value of new business (“VNB”) margins, were considered for new business. Notional charges (fair value, return and risk associated with contributory assets) for the economic contribution of other assets were considered. Finally, a risk-adjusted discount rate was applied to the projected excess earnings to determine the present value, resulting in the fair value of the distribution network and customer relationship.

Transferable development rights (“TDR”): TDR is valued using comparison method, a comparison is made with similar properties that have recently been quoted/sold in the market and thus have a quoting/transaction price. The comparison approach is the preferred approach when comparable instances are available.

Unaudited Pro forma Financial Information:

Following is the unaudited pro forma financial information for the years ended March 31, 2023 and March 31, 2024 as if the acquisition of eHDFC group were completed on the same terms at the beginning i.e. April 01, 2022. The unaudited pro forma information should not be relied upon as being indicative of the historical results of operations that would have occurred had the acquisition taken place on April 01, 2022.

 

As of

Particulars

March 31, 2023

March 31, 2024

(In million)

Revenue (a)

Rs. 2,147,961.5

US$

25,644.2

Rs. 2,303,956.6

US$

27,506.6

Net Income

636,783.4

7,602.5

645,526.0

7,706.9

(a) Revenue includes net interest revenue and non-interest revenue. Acquisition costs are included in the periods where such expenses are incurred

 

F-18

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The unaudited pro forma financial information presented includes the estimated business combination accounting effects resulting from the acquisition, notably acquisition related cost amounting to Rs. 1,900.0 million (US$ 22.7 million), and amortization expense from the intangible assets, advances and debt including its related tax effects amounting to Rs. 41,204.20 million (US$ 491.9 million) and Rs. 36,984.3 million (US$ 441.6 million) for the period ended March 31, 2023 and March 31, 2024 respectively. It does not include any anticipated synergies or other expected benefits of the acquisition. Actual results may differ from the unaudited pro forma information presented below and the differences could be significant.

The Bank’s operating results for the year ended March 31, 2024, includes the operating results of acquired assets and assumed liabilities of eHDFC group subsequent to the merger on July 1, 2023. Due to the various conversions of eHDFC systems during the year ended March 31, 2024, as well as other streamlining and integration of operating activities into those of the Bank, the Bank is unable to report separately eHDFC and its subsidiaries’ operations after July 01, 2023 despite making every reasonable effort to do so and thus disclosures of eHDFC’s revenue and earnings since the merger effective date that are included in the accompanying consolidated statements of income for the reporting period is impracticable.

Certain acquired receivables:

The Bank identifies purchased financial assets with credit deterioration (“PCD”) loans as those that have experienced a more-than-insignificant deterioration in credit quality since origination. The Bank considers a variety of factors to evaluate and identify whether acquired loans are PCD loans, including but not limited to, nonaccrual status, delinquency, decreases in credit scores and other factors. Upon acquisition, current expected credit losses are added to the fair value of individual PCD loans to determine the amortized cost basis. After initial recognition, any changes to the estimate of expected credit losses, favorable or unfavorable, are recorded as a provision for credit loss during the period of change. Following are the details of PCD of eHDFC acquired.

 

		As of July 1, 2023
Particulars		Wholesale				Retail				Total				Total
		(In millions)
Par value of PCD loans at acquisition			Rs. 72,684.7				Rs. 43,961.6				Rs. 116,646.3				US 1,392.6
Allowance for credit losses on PCD loans at acquisition			36,487.3				2,927.9				39,415.2				470.6
Fair value of receivables at acquisition			36,197.4				41,003.0				77,200.4				921.7
Non-credit discount/(premium) on PCD loans at acquisition			—				30.7				30.7				0.4

Contingencies:

eHDFC group had contingent liabilities on account of disputed dues towards service tax and goods & service tax. The Bank recognizes a loss contingency in accordance with ASC 450 when it is probable that a liability has been incurred and the amount can be reasonably estimated. If both conditions are not met, the Bank discloses the contingency if there is at least a reasonable possibility that a loss may have been incurred. The contingent liabilities are in the nature of statutory demands and liabilities in dispute related to service tax and goods & service tax amounted to Rs. 11,063.0 million (US$ 132.1 million).

Separately accounted for transactions, including pre-existing relationship:

Following are the details of pre-exiting relationship between HDFC Bank group (“the Bank and its subsidiaries”) and eHDFC group:

 

As of July 1, 2023
(In millions)
Financial statement line items
Cash and due from Banks			Rs. 52,875.3			US$	631.3
Investments, available for sale, at market			18,407.5				219.8
Accrued expenses and other liabilities			(5,777.5	)			(69.0	)
Other assets			3,807.3				45.5
Net Assets			Rs. 69,312.6			US$	827.6

The pre-existing relationship between the Bank and eHDFC has been legally extinguished upon the business combination and is effectively settled as part of the acquisition. As of the effective date, pre-existing relationship between the Bank group and eHDFC subsidiaries is an intercompany relationship and was subsequently eliminated during the consolidation process.

 

F-19

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Investment in the Bank by eHDFC

eHDFC held a 20.8% equity interest in the Bank. Upon the acquisition of eHDFC by the Bank, this equity interest was cancelled through a share cancellation process, effectively eliminating the shares that eHDFC held in the Bank.

Acquisition cost

Acquisition related cost amounting to Rs. 1,900.0 million (US$ 22.7 million), comprise of expenses recognized separately from the acquisition of assets and assumptions of liabilities in the business combination, the same is recognized as an expense in “Non-interest expense- Administrative and other” in the consolidated statements of income.

4. Cash and due from banks, and restricted cash

The Bank is required to maintain a specific percentage of its demand and time liabilities by way of a balance in a current account with the RBI. This is to maintain the solvency of the banking system. As prescribed by the RBI, the cash reserve ratio has to be maintained on an average basis for a two-week period. The average balance maintained for such two-week period should not fall below the prescribed threshold limit. Non-maintenance of the requisite balance is subject to levy of penalty. The Bank has classified the cash reserve maintained with the RBI as restricted cash or restricted cash equivalents (restricted cash).

The cash and due from banks, and restricted cash consist of restricted cash of Rs. 1,182,004.6 million and Rs. 1,243,003.7 million (US$ 14,840.1 million) as of March 31, 2024 and September 30, 2024, respectively.

5. Investments, held for trading

The portfolio of trading securities as of March 31, 2024 and September 30, 2024 was as follows:

 

		As of March 31, 2024
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In millions)
Government of India securities		Rs.	71,673.0			Rs.	58.8			Rs.	—			Rs.	71,731.8
Other corporate/financial institution securities			31,833.9				77.3				205.0				31,706.2
Total debt securities		Rs.	103,506.9			Rs.	136.1			Rs.	205.0			Rs.	103,438.0
Other securities (including mutual fund units)			289,321.4				75,918.2				7,432.3				357,807.3
Total		Rs.	392,828.3			Rs.	76,054.3			Rs.	7,637.3			Rs.	461,245.3
		As of September 30, 2024
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In millions)
Government of India securities		Rs.	25,086.8			Rs.	47.6			Rs.	33.7			Rs.	25,100.7
Other corporate/financial institution securities			25,392.5				582.5				197.6				25,777.4
Total debt securities		Rs.	50,479.3			Rs.	630.1			Rs.	231.3			Rs.	50,878.1
Other securities (including mutual fund units)			240,692.7				111,681.4				2,976.0				349,398.1
Total		Rs.	291,172.0			Rs.	112,311.5			Rs.	3,207.3			Rs.	400,276.2
Total		US$	3,476.2			US$	1,340.9			US$	38.3			US$	4,778.8

 

F-20

HDFC BANK LIMITED AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

6. Investments, AFS debt securities

The portfolio of AFS debt securities as of March 31, 2024 and September 30, 2024 was as follows:

 

		As of March 31, 2024
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In millions)
Government of India securities		Rs.	6,105,313.9			Rs.	41,090.5			Rs.	52,213.3			Rs.	6,094,191.1
State government securities			1,188,315.0				7,600.4				12,234.4				1,183,681.0
Government securities outside India			3,556.3				3.9				18.4				3,541.8
Credit substitutes			133,197.8				321.7				2,032.6				131,486.9
Other corporate/financial institution bonds			736,923.7				16,136.6				9,022.2				744,038.1
Debt securities, other than asset and mortgage-backed securities			8,167,306.7				65,153.1				75,520.9				8,156,938.9
Mortgage-backed securities			78.1				2.3				1.2				79.2
Asset-backed securities			138,775.7				335.6				642.3				138,469.0
Total		Rs.	8,306,160.5			Rs.	65,491.0			Rs.	76,164.4			Rs.	8,295,487.1
Securities with gross unrealized losses														Rs.	3,706,475.3
Securities with gross unrealized gains															4,589,011.8
														Rs.	8,295,487.1
		As of September 30, 2024
		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(In millions)
Government of India securities		Rs.	6,380,470.7			Rs.	113,361.7			Rs.	19,514.1			Rs.	6,474,318.3
State government securities			1,244,431.0				24,493.3				4,752.2				1,264,172.1
Government securities outside India			5,239.5				86.6				5.9				5,320.2
Credit substitutes			94,030.9				337.6				1,012.2				93,356.3
Other corporate/financial institution bonds			814,443.6				30,580.3				4,510.5				840,513.4
Debt securities, other than asset and mortgage-backed securities			8,538,615.7				168,859.5				29,794.9				8,677,680.3
Mortgage-backed securities			68.5				1.8				1.0				69.3
Asset-backed securities			135,520.3				622.3				281.2				135,861.4
Total		Rs.	8,674,204.5			Rs.	169,483.6			Rs.	30,077.1			Rs.	8,813,611.0
Total		US$	103,560.2			US$	2,023.5			US$	359.1			US$	105,224.6
Securities with gross unrealized losses														Rs.	1,950,220.6
Securities with gross unrealized gains															6,863,390.4
														Rs.	8,813,611.0
														US$	105,224.6

 

F-21