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$ 62,480.9 million) based on the Bank’s closing price of Rs. 1,701.4 (US$ 19.9) per share on the National Stock Exchange (“NSE”) as of June 30, 2023. The Bank allotted 3,110,396,492 common equity shares on completing the transaction. Share based compensation held by eHDFC’s employees were converted into equity share based compensation of the Bank with the 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 common equity shares of the Bank with the 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 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.

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$ 1,211.5 million) [includes goodwill amounting to Rs.73,576.1 million (US$ 861.2 million)] and Rs.1,976.0 million (US$ 23.1 million), respectively.

The recorded goodwill of Rs. 1,628,148.5 million (US$ 19,058.3

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:

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

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.

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.

The Bank has assigned Rs. 1,434,818.1 million (US$ 16,795.2 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-

Above intangible assets includes Brand amounting to

Rs. 8,527.5

million (US $ 99.9

million)

and Distribution network amounting t

o Rs. 8,972.4 million (US $

105.0

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.

(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 2

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.

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.

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$ 22.2 million), and amortization expense from the intangible assets, advances and debt including its related tax effects amounting to Rs. 41,204.20 million (US$ 482.3 million) and Rs. 36,984.3 million (US$ 432.9 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.

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.

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$

129.5 million).

The

pre-existing

relationship between the Bank and eHDFC has been legally extinguished upon the business combination and is effectively settled as part of the acquisition. As of the effective date, the

pre-existing

relationship between the Bank group and eHDFC subsidiaries is an intercompany relationship and was subsequently eliminated during the consolidation process.

Acquisition related costs amounting to Rs. 1,900.0 million (US$ 22.2 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.