Annual Report - HDFC - 2009

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

TO
THE MEMBERS

Your directors are pleased to present the Thirty-second Annual Report of
your Corporation with the audited accounts for the year ended March 31,
2009.

Financial Results:

For the For the
year ended year ended
March 31, 2009 March 31, 2008
(Rs. in crores) (Rs. in crores)

Pre Tax Profit Before Profit on Sale 3,193.81 2,603.98
of Investments and Exceptional Items

Add: Profit on Sale of Investments 25.23 133.26

Add: Exceptional Items - 636.26

Profit before Tax 3,219.04 3,373.50

Provision for Tax 934.00 935.00

Provision for Fringe Benefit Tax 2.50 2.25

Profit after Tax 2,282.54 2,436.25

Appropriations have been made as under:

Special Reserve No. II 400.00 355.00

General Reserve 553.04 999.47

Additional Reserve (under Section 29 C of 342.00 245.00
the National Housing Bank Act, 1987)

Shelter Assistance Reserve 7.00 6.00

Proposed Dividend (at Rs. 30 per share) 853.36 710.10

Additional Tax on Proposed Dividend 140.69 120.68

Additional Tax on Dividend 2007-08 - (14.05) -
Credit taken

Dividend pertaining to Previous Year 0.50 -
paid during the year

2,282.54 2,436.25

Analysis of Profit After Tax:

Profit After Tax as Reported above 2,282.54 2,436.25

Less: Profit on Sale of Investments 23.71 108.22
(net of tax)

Less: Exceptional Income (net of tax) - 493.48

Profit Before Exceptional Income and 2,258.83 1,834.55
Sale of Investments

Dividend:

Your directors recommend payment of dividend for the year ended March 31,
2009 of Rs. 30 per equity share as against Rs. 25 per equity share for the
previous year.

The dividend payout ratio for the current year, inclusive of additional tax
on dividend will be 43% as compared to 34% for the previous year.

Lending Operations:

Loan approvals during the year were Rs. 49,166 crores as compared to
Rs.42,520 crores in the previous year, representing a growth of 16%. Loan
disbursements during the year were Rs. 39,650 crores as against Rs. 32,875
crores in the previous year, representing a growth of 21%.

Cumulative loan approvals and disbursements as at March 31, 2009 were
Rs.2,37,450 crores and Rs. 1,91,806 crores respectively. This is in respect
of over 3.3 million housing units.

The demand for individual home loans continued despite the overall economic
slowdown and uncertainty. The average size of individual loans stood at
Rs.15.40 lacs.

Sale of Loans:

During the year, the Corporation under the loan assignment route sold
Rs.4,245 crores of loans to HDFC Bank, which qualified as priority sector
advances for the bank. Out of the total loans assigned to HDFC Bank,
approximately half of this amount was pursuant to the exercise of the buy
back option embedded in the home loan arrangement between the Corporation
and HDFC Bank.

The loans outstanding in respect of loans sold under the Mortgage Backed
Securities (MBS) and loan assignment route as at March 31, 2009 stood at
Rs. 6,180 crores. HDFC continues to service the loans sold. The residual
income on loans sold is being recognised at the time of actual collections,
(i.e. over the life of the underlying loans) and not upfront on a net
present value basis. Where individual loans have been sold, the issues
carry a rating indicating the highest degree of safety. To date, loans
aggregating to Rs. 8,885 crores have been sold by the Corporation through
the issue of MBS and loan assignment route.

Approvals & Disbursements (cumulative):

(Rs. in crores)
Year Approvals Disbursements

2005 86,798 72,424
2006 112,432 93,103
2007 145,764 119,281
2008 188,284 152,156
2009 237,450 191,806

Repayments:

During the year under review, Rs. 23,525 crores were received by way of
scheduled repayment of principal through monthly instalments as well as
redemptions ahead of schedule, as compared to Rs. 15,819 crores received
last year.

Loan Book:

As at March 31, 2009, the loan book stood at Rs. 85,198 crores as against
Rs. 73,328 crores in the previous year - an increase of 16%. The growth in
the loan book would have been higher at 22% if the loans sold were included
in the loan book.

Foreign Currency Convertible Bonds (FCCB):

In September 2005, the Corporation concluded the issue of USD 500 million
zero coupon FCCB. The bonds are convertible into equity shares of the
Corporation of the face value of Rs. 10 each up to July 29, 2010 at the
option of the holders, at Rs. 1,399 per equity share, representing a
conversion premium of 50% over the initial reference share price. The
premium payable on redemption of the bonds is charged to the Securities
Premium Account over the life of the bonds.

Up to March 31, 2009, the Corporation had allotted 1,21,67,765 equity
shares of Rs. 10 each pursuant to the conversion of the FCCB, representing
77.9% of the bonds.

If the balance bonds are not converted within the abovementioned conversion
period, the remaining bondholders would have the right to redeem the
outstanding bonds on September 27, 2010 at a yield to maturity of 4.62% per
annum.

Subscription to Warrants of HDFC Bank Limited (HDFC Bank):

In order for HDFC as a promoter to retain its current shareholding in HDFC
Bank pursuant to the merger of Centurion Bank of Punjab with HDFC Bank and
having obtained the requisite approvals, HDFC Bank made a preferential
offer to the Corporation to subscribe to 2,62,00,220 warrants, convertible
into 2,62,00,220 equity shares of Rs. 10 each, at a price of Rs. 1,530.13
per share, in accordance with Chapter XIII of the Securities and Exchange
Board of India (Disclosure and Investor Protection) Guidelines, 2000.

Under the terms and conditions of the said warrants, the Corporation paid a
sum of 10% of the price of the equity shares to be issued upon exercise of
such warrants at the time of allotment. The warrants were allotted to the
Corporation on June 3, 2008. The warrants can be converted into equity
shares of HDFC Bank within a period of 18 months from the date of the said
allotment i.e. on or before December 2, 2009.

Resource Mobilisation:

Subordinated Debt:

The Corporation did not issue any subordinated debt during the year. As at
March 31, 2009, the Corporation's outstanding subordinated debt stood at
Rs. 1,375 crores. The debt is subordinated to present and future senior
indebtedness of the Corporation and has been assigned the highest rating by
CRISIL and ICRA. Based on the balance term to maturity, as at March 31,
2009, Rs. 1,135 crores of the book value of subordinated debt is considered
as Tier II under the guidelines issued by the National Housing Bank (NHB)
for the purpose of capital adequacy computation.

Funds Employed:

(Rs. in crores)
Year Net Worth Term Borrowings Deposits

2005 3,883 28,087 7,840
2006 4,468 37,980 8,741
2007 5,551 46,809 10,384
2008 11,947 57,855 11,296
2009 13,137 64,481 19,375

Non-Convertible Debentures (NCD):

During the year, the Corporation issued NCDs amounting to Rs. 8,567 crores
on a private placement basis. The Corporation's NCD issues have been listed
on the Wholesale Debt Market segment of the National Stock Exchange of
India Limited (NSE). The Corporation's NCDs have been assigned the highest
rating of AAA by both CRISIL and ICRA. As at March 31, 2009, NCDs
outstanding stood at Rs. 32,395 crores.

Loans from Banks:

During the year, the Corporation raised loans amounting to Rs. 16,197
crores from commercial banks, of which Rs. 9,084 crores were under the
priority sector category of commercial banks. The Corporation further
raised Rs. 2,676 crores from the banking sector as FCNR (B) loans.

HDFC's long-term and short-term bank loan facilities have been assigned the
highest rating of AAA and PR1+' respectively by CARE, signifying highest
safety for timely servicing of debt obligations.

Refinance from National Housing Bank (NHB):

NHB has an internal rating mechanism for Housing Finance Companies (HFCs)
and the Corporation has been assigned the highest rating for its refinance
schemes by NHB. During the year, the Corporation has drawn refinance
amounting to Rs. 831 crores under various schemes of NHB such as Refinance
Scheme to Housing Finance Companies, 2003, Rural Housing Fund, 2008 and
Special Refinance Scheme.

Deposits:

Growth in deposits picked up during the financial year under review despite
strong competition from banks. During the year, deposits accounted for
559/o of the incremental borrowing of the Corporation. As at March 31,
2009, outstanding deposits stood at Rs. 19,375 crores as against Rs. 11,296
crores in the previous year - an increase of 72%. The depositor base stood
at approximately 10 lac depositors.

CRISIL and ICRA have for the fourteenth consecutive year, reaffirmed their
AAA rating for HDFC's deposits. This rating represents highest safety' as
regards timely repayment of principal and interest.

The support of the agents and their commitment to the Corporation has been
instrumental in HDFC's deposit products continuing to be a preferred
investment for households and trusts.

Unclaimed Deposits:

As of March 31, 2009, public deposits amounting to Rs. 119.15 crores had
not been claimed by 24,954 depositors. Since then, 4,457 depositors have
claimed or renewed deposits of Rs. 33.47 crores. Depositors were intimated
regarding the maturity of deposits with a request to either renew or claim
their deposits.

As per the provisions of Section 205C of the Companies Act, 1956, deposits
remaining unclaimed for a period of seven years from the date they became
due for payment have to be transferred to the Investor Education and
Protection Fund (IEPF) established by the Central Government. Accordingly,
during the year, an amount of Rs. 43.12 lacs has been transferred to the
IEPF.

KfW Lines/Grant:

During the year, the Corporation approved 12 new schemes under the KfW
Entwicklungsbank (KfW) lines in the area of low-income housing and micro-
finance by way of bulk loans to partner Non-Government Organisations (NGOs)
and micro-finance institutions across India. The projects are administered
as group or individual loans designed for the Economically Weaker Sections
(EWS) of society to improve their access to institutional credit. The total
disbursements towards such schemes for the year under review stood at
Rs.28.56 crores.

These schemes have been approved out of the third line from KfW of Euro
15.3 million and partly by way of redeployment of the microfinance
component of Euro 6 million, which now stands fully utilised. Against the
cumulative loan approvals of Rs. 84.52 crores, the Corporation has
disbursed Rs. 82.39 crores as at March 31, 2009.

Non-Performing Loans:

Gross non-performing loans as at March 31, 2009 amounted to Rs. 701.55
crores. This is equivalent to 0.81% of the portfolio (as against 0.84% in
the previous year) comprising loans as well as debentures issued by
corporates and corporate deposits placed for financing their real estate
projects.

Loan Quality & Provision for Contingencies (%):

Year Provision for Six Month Gross Gross NPLs as a
Contingencies NPLs as a % of % of Portfolio
as a % of Portfolio
Profits

2005 1.01 0.84 1.10
2006 0.82 0.79 0.96
2007 0.71 0.77 0.92
2008 0.63 0.68 0.84
2009 0.72 0.56 0.81

Portfolio includes loans and investments in debentures and corporate
deposits for financing real estate projects.

Based on a six months overdue basis, the non-performing loans as at March
31, 2009 stood at 0.56% of the loan portfolio as against 0.68% in the
previous year.

In terms of the prudential norms as stipulated by NHB, the Corporation is
required to carry a provision of Rs. 319.40 crores in respect of non-
performing assets and general provision on outstanding standard non-housing
loans.

The balance in the provision for contingencies account as at March 31, 2009
stood at Rs. 621.53 crores, which is equivalent to 0.72% of the portfolio.

The Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI) has proved to be a useful
recovery tool and the Corporation has been able to successfully initiate
recovery action under this Act in the case of wilful individual and
corporate defaulters.

Regulatory Guidelines/Amendments:

HDFC has complied with the Housing Finance Companies (NHB) Directions, 2001
prescribed by NHB regarding accounting standards, prudential norms for
asset classification, income recognition, provisioning, capital adequacy,
concentration of credit, credit rating and capital market exposure other
than on its investment in HDFC Bank wherein NHB has granted the Corporation
time for such compliance as the Corporation is a promoter of HDFC Bank.

During the year under review, NHB revised the risk weights on individual
housing loans from 75% to between 50% to 100% based on the loan amount and
the loan-to-value ratio. The risk weight on commercial real estate loans is
now 100% as against 150% earlier.

The Reserve Bank of India (RBI) permits loans granted by banks to HFCs for
on lending to individuals to be classified as priority sector. In order to
give a boost to the housing sector, loans granted by banks to HFCs for on
lending for housing up to Rs. 20 lacs (as against Rs. 5 lacs earlier) per
dwelling unit now classifies under priority sector.

NHB has also introduced guidelines for HFCs to augment their capital funds
through the issue of debt instruments eligible for inclusion as Upper Tier
II capital.

HDFC's capital adequacy ratio stood at 15.1% of the risk weighted assets,
as against the minimum requirement of 12%. Tier I capital was 13.2% against
a minimum requirement of 6%.

Codes and Standards:

NHB has issued comprehensive Know Your Customer (KYC) Guidelines and Anti
Money Laundering Standards in the context of recommendations made by the
Financial Action Task Force on Anti Money Laundering Standards and on
Combating Financing of Terrorism Standards. The Corporation's KYC and
Prevention of Money Laundering Policy has been reviewed and approved by the
board. The Corporation has adhered to the compliance requirements in terms
of the said policy as approved by the board for monitoring and reporting
cash/suspicious transactions.

The Fair Practices Code framed by NHB seeks to promote good and fair
practices by setting minimum standards in dealing with customers, increase
transparency so customers have a better understanding of what they can
reasonably expect of the services being offered, encourage market forces
through competition to achieve higher operating standards, promote fair and
cordial relationship between customers and the housing finance company and
foster confidence in the housing finance system. During the year, the
Corporation has adhered to the Fair Practices Code as approved by the Board
of Directors.

During the year, NHB introduced a Model Code of Conduct for Direct Selling
Agents and Guidelines for Recovery Agents engaged by HFCs, both of which
have been adopted by the Corporation after being approved by the Board of
Directors.

Risk Management Framework:

The Corporation has a Risk Management Framework, which lays the procedures
for risk assessment and mitigation. The Risk Management Committee (RMC) of
the Corporation comprises the joint Managing Director as the chairperson
and members include senior management heading key functions of the
Corporation. During the year, the RMC reviewed key risks associated with
the business of the Corporation, its root causes and the efficacy of the
measures in place to mitigate the same. The Board of Directors also
reviewed the procedures adopted by the Corporation to assess risks and the
mitigation mechanisms.

Marketing and Distribution:

It has always been the endeavour of the Corporation to reach out to as many
individuals, enabling them to realise the dream of owning a home. With this
guiding vision, the Corporation has expanded its distribution network
across the country and abroad, where there is a concentration of Indian
Diaspora. HDFC's distribution network now spans 267 outlets, which include
56 offices of the Corporation's wholly owned distribution company, HDFC
Sales Private Limited (HSPL). In addition, HDFC covers over 2,400 locations
through outreach programmes. HDFC has an office in London and Dubai and
service associates in Kuwait, Qatar, Sharjah, Abu Dhabi and Saudi Arabia -
Al-Khobar, Jeddah and Riyadh. During the year, HDFC's global presence was
further strengthened by commencement of operations in Singapore.

Composition of Loans Outstanding (%) (Inclusive of loans sold) (As at March
31, 2009):

Individuals - 66%
Corporates - 32%
Others - 2%


In addition to HDFC's existing office network, its reach and presence is
augmented through distribution channels, which include HSPL, HDFC Bank and
a few third party direct selling associates (DSAs). These channels only
source loans, while HDFC continues to retain control over the credit, legal
and technical appraisal, thereby ensuring that the quality of loans
disbursed is not compromised in any way and is consistent across all
distribution channels.

HDFC ran a few key brand campaigns during the year. The aim of these
campaigns was to educate, counsel and guide the customer using HDFC's legal
and technical expertise and to help them make the right and prudent
decision while purchasing a property.

Keeping in mind the demand and purchasing pattern of customers, property
shows and fairs with a local flavour were organised by the Corporation
across several cities in India. In addition, properties of various renowned
and eminent builders, brought together by HDFC were displayed in three
major cities in Saudi Arabia namely - Riyadh, Jeddah and Al-Khobar. 'India
Homes Fair' was organised in London where developers from across India
showcased their properties, marking HDFC's first mega property show in UK.

Cross Selling and Distribution of Financial Products and Services:

HDFC's subsidiary companies have strong synergies with HDFC and hence
efforts are channelled into cross selling so as to offer customers a wide
range of financial products and services under the HDFC' brand.

HDFC is a Composite Corporate Agent for HDFC Standard Life Insurance
Company Limited (HDFC-SL) and HDFC ERGO General Insurance Company Limited
(HDFC-ERGO).

International Housing Finance Initiatives:

HDFC's expertise in housing finance is well regarded and therefore a number
of existing and new housing finance companies in various parts of the world
are keen to tap HDFC for training, strategic input and technical assistance
in housing finance.

The Corporation has entered into a Technical Services Agreement with
Housing Development Finance Corporation, Plc., Maldives to assist them in
key mortgage functions, thereby strengthening the company's mortgage
operations.

During the year, senior executives of the Corporation were invited to
Germany, Indonesia, Maldives, South Africa, Sweden, Tanzania and USA for
seminars, consultancy or training assignments in housing finance.

In July 2008, the Frankfurt School of Finance & Management and HDFC jointly
organised Housing Finance Summer Academy' in Germany, which is a course
that aims to provide housing finance solutions for emerging markets through
a combination of academic knowledge and practical experience.

In November 2008, HDFC conducted its own international training programme
Housing Finance Management' at its training centre, Centre for Housing
Finance, located at Lonavla, India. Participants from different countries
across Asia and Africa attended a week-long residential training programme.
HDFC also conducted a customised programme on housing finance for a
delegation of senior executives from Indonesia at its training centre.

Delegates from Egypt, Ghana and Nigeria visited the Corporation to study
key mortgage finance operations.

Shelter Assistance Reserve:

During the year under review, the Corporation continued to draw upon the
Shelter Assistance Reserve (SAR) for the purpose of supporting a wide array
of social activities spread across the country. The utilisation of the SAR
stood at Rs. 5.22 crores by way of grants administered to over 140
voluntary agencies and charitable institutions.

HDFC extended assistance towards outreach programmes on reproductive health
in Chennai through the Family Planning Association of India. Assistance was
given to the Naz Foundation in New Delhi towards the educational,
nutritional and medical needs of orphans infected with HIV and towards a
skills development workshop for visually challenged young adults through a
school in Pune. HDFC made corpus contributions from the SAR to Mobile
Creches - New Delhi, Vision Research Foundation - Chennai, Concern India
Foundation Hyderabad, The Asiatic Society of Mumbai and Dream A Dream
Bangalore, amongst others.

The SAR was further utilised towards providing relief assistance to victims
in the flood-affected areas of Bihar in August 2008 and Orissa in September
2008. HDFC employees also made voluntary contributions from their salaries
in the aftermath of these disasters.

Training and Human Resource Management:

At HDFC, training and development initiatives are designed and implemented
based on the needs of the Corporation. During the year, a large number of
programmes conducted were built around upgradation of competencies and
skills required to manage the unprecedented change in the economic
environment. Programmes for frontline staff in operations, recoveries and
resources were conducted to improve operational efficiencies and soft
skills. Training was also imparted to back-office staff members to enhance
productivity through process improvements.

Other new training initiatives were in lead management, rural housing and
cross selling of financial products. Capacity building through leadership
development programmes and Train the Trainer' programmes were other key
focus areas during the year.

Staff members were nominated to a variety of external programmes on
International Financial Reporting Standards, business continuity and
corporate security, credit risk modelling, financial and currency markets,
green buildings and valuation of assets.

Awards and Recognitions:

During the year, some of the awards and recognitions received by the
Corporation include:

* Best Indian Company under the Financial Institutions/NonBanking
Financial Companies/ Financial Services' category at the Dun & Bradstreet-
Rolta Corporate Awards, 2008. The Corporation has won this award for three
consecutive years.

* Goldman Sachs listed HDFC among the world's seven best companies in
financial services to sustain a competitive advantage in the long-term.

* HDFC along with three other companies topped the Karmayog Corporate
Social Responsibility Ratings.

Subsidiary Companies:

In terms of Section 212(8) of the Companies Act, 1956, the Central
Government has granted its approval, exempting the

Profits:

(Rs. in crores)
Year Profit after Profit before
tax tax

2005 1,037 1,257
2006 1,257 1,557
2007 1,570 1,968
2008 1,943* 2,737*
2009 2,283 3,219

* Excludes exceptional income.

Corporation from the requirement of attaching to its annual report, the
balance sheet, profit and loss account and the report of the directors and
auditors thereon, in respect of all its thirteen subsidiary companies and
two step-down subsidiary companies. Accordingly, a copy of the balance
sheet, profit and loss account, Report of the Board of Directors and Report
of the Auditors of the following subsidiary companies of the Corporation -
HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited,
HDFC Asset Management Company Limited, HDFC Trustee Company Limited, HDFC
Realty Limited, HDFC Standard Life Insurance Company Limited, HDFC ERGO
General Insurance Company Limited, GRUH Finance Limited, HDFC Sales Private
Limited, HDFC Ventures Trustee Company Limited, HDFC Venture Capital
Limited, HDFC Property Ventures Limited, and the following step-down
subsidiary companies HDFC Asset Management company (Singapore) Pte. Limited
and Griha Investments,

Mauritius have not been attached to the balance sheet of the Corporation
for the financial year ended March 31, 2009.

The Annual Report of the Corporation, the annual accounts and the related
documents of the aforesaid subsidiary companies are posted on the website
of the Corporation, www.hdfc.com. Shareholders who wish to have a copy of
the annual accounts and detailed information on any subsidiary company can
download the same from the website or may write to the Corporation for the
same. Further, the said documents shall be available for inspection by the
shareholders at the registered office of the Corporation and at the office
of the respective subsidiary company.

The Corporation has not made any loans or advances in the nature of loans
to any of its subsidiary or associate company or companies in which its
directors are interested, other than in the ordinary course of business.

Review of Key Subsidiary and Associate Companies:

HDFC Bank Limited (HDFC Bank):

HDFC and HDFC Bank continue to maintain an arm's length relationship in
accordance with the regulatory framework. Both organisations, however,
capitalise on the strong synergies through a system of referrals, special
arrangements and cross selling in order to effectively provide a wide range
of products and services under the HDFC brand name.

Centurion Bank of Punjab Limited merged with HDFC Bank with effect from May
23, 2008.

As at March 31, 2009, gross advances of HDFC Bank stood at Rs. 1,00,239
crores - an increase of 48% over the previous year. Retail loans stood at
Rs. 61,154 crores, representing an increase of 56% over the previous year.
As at March 31, 2009, HDFC Bank's distribution network included 1,412
branches (including extension counters) and 3,295 ATMs in 528 cities as
against 761 branches and 1,977 ATMs in 327 cities as of March 31, 2008.

For the year ended March 31, 2009, HDFC Bank reported a profit after tax of
Rs. 2,245 crores as against Rs. 1,590 crores in the previous year,
representing an increase of 41%. HDFC Bank recommended a dividend of Rs. 10
per share as against Rs. 8.50 per share in the previous year.

Inclusive of the warrants, HDFC together with its wholly owned
subsidiaries, HDFC Investments Limited and HDFC Holdings Limited holds
22.7% of the equity share capital of HDFC Bank.

HDFC Standard Life Insurance Company Limited (HDFC-SL):

Gross premium income of HDFCSL for the year ended March 31, 2009 stood at
Rs. 5,565 crores as compared to Rs. 4,859 crores in the previous year. The
sum assured in force for the current year was Rs. 57,158 crores as compared
to Rs. 45, 743 crores in the previous year.

The company has a portfolio of 25 retail products and 4 group products
covering saving, investment, protection and retirement needs of the
customers, along with five optional rider benefits.

HDFC-SL covers over 720 cities and towns in India through its 595
distribution points in the country with over 2,00,000 financial consultants
appointed by the company. HDFC-SL also has a strong association with its
bancassurance partners, which has contributed significantly to the growth
of the company during the year.

HDFC-SL has reported a loss of Rs. 503 crores for the year ended March 31,
2009. Like most life insurance companies in the initial phase, HDFC-SL has
reported losses. This is essentially due to the accounting norms applicable
to insurance companies wherein the commission expenses are charged upfront
in the year in which they are incurred while the corresponding income is
recognised over the entire life of the policies issued. The mismatch
between expenses and income has the effect of magnifying the initial losses
of HDFC-SL.

HDFC holds 72.4% of the equity share capital in HDFC-SL.

HDFC Asset Management Company Limited (HDFC-AMC):

HDFC and Standard Life Investment Limited are the cosponsors of HDFC Mutual
Fund.

As at March 31, 2009, HDFC-AMC managed 37 debt and equity oriented schemes
of HDFC Mutual Fund. During the year, the average assets under management
was Rs. 65,258 crores (which is inclusive of average assets under
discretionary portfolio management / advisory services). The number of
investor accounts increased to over 34 lacs as at March 31, 2009 as
compared to 30 lacs in the previous year.

As at March 31, 2009, HDFC-AMC has points of acceptances in 181 locations
across the country.

For the year ended March 31, 2009, HDFC-AMC reported a profit after tax of
Rs. 129.11 crores as against Rs. 117.74 crores in the previous year. HDFC-
AMC paid an interim dividend of Rs. 15 per share for the financial year
ended March 31, 2009.

HDFC holds 60% of the equity share capital of HDFC-AMC.

HDFC ERGO General Insurance Company Limited (HDFC-ERGO):

The year under review marked the first year of operations of the company
with the new joint venture partner, ERGO International AG. HDFC-ERGO offers
a complete range of insurance products like motor, health, travel, home and
personal accident in the retail segment and customised products like
property, marine and liability insurance in the corporate segment. While
continuing to develop its retail business, the company increased its
presence in the corporate business, which accounted for 49% of company's
total business during the year.

The growth in the non-life insurance sector during the year has slowed down
to 9%. However, HDFC-ERGO recorded a growth of 56%o during the year with a
Gross Written Premium of Rs. 374 crores as against Rs. 240 crores in the
previous year.

During the year, the company developed its distribution and product
capabilities. The company distributes its products through 50 branches
across India as compared to 15 branches in the previous year. The company
has also made considerable progress in the development of its agency force
and direct sales teams. In addition, the company continues to leverage on
HDFC's distribution capability to drive growth.

During the year, the company made a loss of Rs. 26 crores. The loss for the
year under review was primarily on account of continued reduction in the
premium rates due to de-tariffing, cost of expansion and higher share of
loss arising on the Indian Motor Third Party Insurance Pool.

HDFC holds 74% of the equity share capital of HDFC-ERGO.

HDFC Property Funds:

HDFC Venture Capital Limited (HVCL) is the investment manager to HDFC
Property Fund, a registered venture capital fund with the Securities and
Exchange Board of India (SEBI).

HDFC Property Fund currently has two schemes. The first scheme is HDFC
India Real Estate Fund (HIREF), with a corpus of Rs. 1,000 crores, which
has been fully invested. Exits are being explored for some of the
investments of the scheme.

The second scheme, HDFC IT Corridor Fund has a corpus of Rs. 446.40 crores.
This scheme has disbursed the entire corpus in rental income yielding
commercial properties in major cities in India and exits are being explored
for some of the investments of the scheme.

During the year, HVCL made a profit after tax of Rs. 13.02 crores as
compared to Rs. 12.46 crores in the previous year. The directors of HVCL
approved the payment of an interim dividend of Rs. 320 per equity share and
no final dividend was declared.

HDFC holds 80.5% of the equity share capital of HVCL.

HDFC Property Ventures Limited (HPVL) provides investment advisory services
to Indian and overseas asset management companies (AMCs). Such AMCs in turn
manage and advise Indian and offshore private equity funds. During the
year, HPVL approved a maiden interim dividend of Rs. 90 per equity share.

HDFC holds 100% of the equity share capital of HPVL.

GRUH Finance Limited (GRUH):

GRUH is a housing finance company with operations primarily in the states
of Gujarat and Maharashtra and is now expanding its network to other states
like Karnataka, Madhya Pradesh Rajasthan, Chhatisgarh and Tamil Nadu.
During the year, GRUH disbursed loans amounting to Rs. 655.52 crores.

For the year ended March 31, 2009, GRUH reported a profit after tax of
Rs.50.28 crores as compared to Rs. 42.34 crores in the previous year - an
increase of 19%. The company recommended a dividend of Rs. 4.80 per share
as compared to Rs. 4 per share in the previous year.

HDFC's holding in GRUH currently stands at 61.5%.

HDFC Sales Private Limited (HSPL):

HSPL continues to strengthen the Corporation's marketing and sales efforts
by providing a dedicated sales force to sell home loans and other financial
products.

HSPL has a presence in 56 locations. During the year under review, HSPL
sourced loans accounting for 44% of individual loans disbursed by HDFC.

HSPL is a wholly owned subsidiary of HDFC.

Particulars of Employees:

HDFC had 1,490 employees as of March 31, 2009. During the year, 36
employees employed throughout the year and 2 employees employed for part of
the year were in receipt of remuneration of Rs. 24 lacs or more per annum.

The statement containing particulars of employees in accordance with the
provisions of Section 217(2A) of the Companies Act, 1956 and the rules made
thereunder, is given in an annex to this report. However, in terms of the
provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the
Directors' Report and Accounts are being sent to the shareholders of the
Corporation excluding the said annex. Any shareholder interested in
obtaining a copy of the said annex may write to the Corporation.

Employees Stock Option Scheme (ESOS):

Presently, stock options granted to the employees operate under the
following schemes: ESOS-02, ESOS-05, ESOS-07 and ESOS-08.

ESOS-02, ESOS-05 and ESOS-07 (Schemes):

During the year, no options were granted under these Schemes. During the
year, under these Schemes, options vested aggregated to 53,67,931 and
options exercised aggregated to 1,81,570. The money realised due to
exercise of the said options was Rs. 16.32 crores and consequently,
1,81,570 equity shares of Rs. 10 each have been allotted to the concerned
employees.

During the year, under these Schemes, 85,735 options were lapsed and
options in force as on March 31, 2009 stood at 82,43,535. During the
financial year under review, there has been no variation in the terms of
the options granted earlier.

ESOS-08:

At the thirty-first AGM held on July 16, 2008, you had approved the issue
of 56,90,000 stock options representing 56,90,000 equity shares of Rs. 10
each to the employees and directors of the Corporation. The Compensation
Committee of the Corporation at its meeting held on November 25, 2008,
granted the said options along with 1,00,000 options lapsed under ESOS-07,
aggregating to 57,90,000 stock options, at an exercise price of Rs.
1,350.60 per option under ESOS-08. The said price was determined in
accordance with the pricing formula approved by you i.e. at the latest
available closing price of the share on the NSE, prior to the date of the
meeting of the Compensation Committee at which the options are granted. The
options granted under ESOS-08 will vest over a period of 1 to 3 years from
the date of grant, depending upon the option grantee completing a
continuous service of three years with the Corporation. The options are
exercisable over a period of five years from the date of respective
vesting. None of the options granted under ESOS-08 have vested during the
year (and consequently, no options have been exercised). Under ESOS-08, as
at March 31, 2009, 350 options have lapsed and 57,89,650 options are in
force. Under ESOS-08, 13, 74,125 options have been granted to 71 senior
management employees, then in the grades of deputy general manager, general
manager and senior general manager. The minimum number of options granted
to any of these employees was 7,000.

The following employees were granted options in excess of 5% of the total
grant: Mr. Deepak S. Parekh - Chairman was granted 4,50,000 options (7.77%)
and Mr. Keki M. Mistry - Vice Chairman & Managing Director and Ms. Renu Sud
Karnad - Joint Managing Director were each granted 3,68,480 options (6.36%
each). These options were granted at Rs. 1,350.60 per option and in the
aggregate represented 0.42% of the total issued and paid up share capital
of the Corporation as on the date of the grant.

No employee was granted options equal to or in excess of 1% of the total
issued and paid up share capital of the Corporation as on the date of
grant. There has been no variation made during the year in the terms of the
options granted earlier.

Listed below are disclosures in accordance with the SEBI (Employee Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, as
amended, in respect of options granted after June 30, 2003, i.e. under
ESOS-05, ESOS-07 and ESOS-08:

Since options were granted at the market price, the intrinsic value of the
option is nil. Consequently the accounting value of the option
(compensation cost) was also nil. However, if the fair value of the options
using the Black-Scholes model was used, considering the assumptions as of
the date of grant, the compensation cost (net) would have been Rs. 79.60
crores, the profit after tax would have been lesser by Rs. 79.60 crores and
basic and diluted Earnings Per Share (EPS) would have been Rs. 77.30 and
Rs. 75.97 respectively.

The key assumptions used in Black Scholes model for calculating the fair
value under ESOS-08, as on the date of grant, are (a) risk-free interest
rate: 6.94% (b) expected life: up to 2 years (c) expected volatility of
share price: 29% and (d) expected growth in dividend: 20%. The market price
of the equity share on the date of grant ranged from Rs. 1,342 to Rs.1,448.

All the options under ESOS-08 were granted at an exercise price of
Rs.1,350.60 per option and hence the weighted average exercise price is
Rs.1,350.60 per option. The weighted average fair value of the option
granted under ESOS-08 (using the Black Scholes model) works out to
Rs.238.79.

The diluted EPS is Rs. 78.72 against a basic EPS of Rs. 80.10.

Unclaimed Dividend:

As at March 31, 2009, dividend amounting to Rs. 6.52 crores has not been
claimed by shareholders of the Corporation. The Corporation has been
periodically intimating the concerned shareholders to encash their dividend
before it becomes due for transfer to the IEPF.

As per the provisions of Section 205C of the Companies Act, 1956, unclaimed
dividend amounting to Rs. 20.95 lacs for the financial year 2000-01 was
transferred to the IEPF on September 5, 2008. Unclaimed dividend amounting
to Rs. 38.51 lacs in respect of the financial year 2001-02 is due for
transfer to the IEPF in August 2009. In terms of said section, no claim
would lie against the Corporation or the said Fund after the said transfer.

Particulars Regarding Conservation of Energy, Technology Absorption and
Foreign Exchange Earnings and Outgo:

The particulars regarding foreign exchange earnings and expenditure appear
as Item No. 13 in the Notes to the Accounts. Since HDFC does not own any
manufacturing facility the other particulars relating to conservation of
energy and technology absorption as stipulated in the Companies (Disclosure
of Particulars in the Report of the Board of Directors) Rules, 1988 are not
applicable.

Directors:

Mr. S. Venkitaramanan resigned as a director of the Corporation with effect
from July 17, 2008 due to ill health. Mr. Venkitaramanan had joined the
board in 1994. The Board of Directors places on record its appreciation for
the contribution made by Mr. S. Venkitaramanan during his tenure as a
director of the Corporation.

On February 25, 2009, the Board of Directors vide circular resolution
unanimously approved the reappointment of Mr. Deepak S. Parekh as the
Managing Director of the Corporation (designated as Chairman') with effect
from March 1, 2009 up to the close of business hours on December 31, 2009,
subject to the approval of the shareholders at the ensuing AGM.

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Corporation, Mr. Shirish B. Patel, Mr. B. S.
Mehta and Dr. S. A. Dave are liable to retire by rotation at the ensuing
AGM. They are eligible for re-appointment.

Necessary resolutions for the re-appointment of the aforesaid directors
have been included in the notice convening the ensuing AGM.

None of the directors of the Corporation are disqualified from being
appointed as directors as specified in terms of Section 274 (1)(g) of the
Companies Act, 1956.

Auditors:

Messrs. Deloitte Haskins & Sells, Chartered Accountants, statutory auditors
of the Corporation and the branch auditors to audit the accounts at the
Corporation's branches in India and offices in London and Singapore hold
office until the conclusion of the ensuing AGM and are eligible for
reappointment.

The Corporation has received a confirmation from Messrs. Deloitte Haskins &
Sells, to the effect that their appointment, if made, would be within the
limits prescribed under Section 224(1B) of the Companies Act, 1956.

Messrs. Pannell Kerr Forster, Chartered Accountants, was appointed as the
branch auditors to audit the accounts of the Corporation's branch office in
Dubai. Their term expires at the end of the ensuing AGM and they are
eligible for re-appointment.

Directors' Responsibility Statement:

In accordance with the provisions of Section 217(2AA) of the Companies Act,
1956 and based on the information provided by the management, your
directors state that:

i. In the preparation of annual accounts, the applicable accounting
standards have been followed;

ii. Accounting policies selected were applied consistently. Reasonable and
prudent judgements and estimates were made so as to give a true and fair
view of the state of affairs of the Corporation as at the end of March 31,
2009 and of the profit of the Corporation for the year ended on that date;

iii. Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Corporation and for
preventing and detecting frauds and other irregularities; and

iv. The annual accounts of the Corporation have been prepared on a going
concern basis.

Management Discussion and Analysis Report and Report of the Directors on
Corporate Governance:

In accordance with Clause 49 of the listing agreements, the Management
Discussion and Analysis Report and the Report of the Directors on Corporate
Governance form part of this report.

Acknowledgements:

The Corporation would like to acknowledge all its stakeholders
shareholders, borrowers, depositors, key partners and lenders for their
support in a year that has undoubtedly been one of the most challenging and
difficult periods, particularly for the global financial sector.

The directors appreciate the continued guidance received from various
regulatory authorities including NH13, RBI, SEBI, Ministry of Corporate
Affairs, Registrar of Companies, Financial Intelligence Unit-India, the
Stock Exchanges and the Depositories.

Your directors value the professionalism of all the employees of the
Corporation who have relentlessly worked in this challenging environment
and whose efforts have stood the Corporation in good stead.

On behalf of the Board of Directors

Place: MUMBAI DEEPAK S. PAREKH
Dated: May 4, 2009 Chairman

Management Discussion and Analysis Report:

Macroeconomic Overview:

The global financial crisis continues to affect world economies with
several advanced countries having slipped into recession. Latest forecasts
from the International Monetary Fund suggest that global write-downs of
toxic debt could spiral to USD 4.1 trillion. Emerging countries such as
China and India, initially thought to be decoupled from the financial
crisis have also felt the impact. India's GDP growth rate is projected to
slowdown to 6.5 to 6.7% in FY 2009 as compared to 9% in the previous year.
The key concerns are volatile agricultural growth coupled with a sharp
slowdown in the manufacturing sector. The growth in the services sector,
however, continues to remain buoyant.

The stock market volatility during the year was in large part due to the
withdrawal of funds by Foreign Institutional Investors (FIIs). In a bid to
meet redemption pressures, FIN have been offloading their stocks in the
Indian markets, resulting in a net outflow of USD 15 billion in FY 2008-09
as against a net inflow of USD 20 billion in the previous year. Foreign
Direct Investment (FDI) inflows, which is a better measure for long-term
investments has so far remained robust, estimated at over USD 30 billion.

The effects of the financial crisis in India became visible when crude oil
prices started to increase, reaching a high of USD 147 a barrel in July
2008. Domestic food and commodity prices increased and inflation measured
on the basis of the Wholesale Price Index reached a peak of 12.91% in
August 2008.

The Reserve Bank of India (RBI), in a bid to combat inflation undertook
various monetary tightening measures. However, the protracted global
slowdown and its contagion effects, combined with a tight monetary policy
resulted in a severe liquidity crunch in October 2008. From then onwards,
RBI has adopted monetary easing measures and the government has announced
various fiscal stimulus packages to revive the economy.

Market Scenario:

India was not directly affected by the sub-prime crisis, as most of the
banks and housing finance companies in India are conservative and offer
plain vanilla, amortising home loans. The structured finance and
securitisation market is still at nascent stage. Besides, Indian borrowers
are cautious and averse to high leverage. A typical home borrower is a
first-time buyer, acquiring a property for self-occupation and is neither
an investor nor a speculator. The loan to value ratios are conservative and
prepayments are common.

During the year under review, one of the many sectors affected by the
economic slowdown was commercial real estate. Over the past few years,
several real estate companies began to increasingly rely on equity
financing for their funding requirements. Real estate companies received
high valuations, returns were attractive and property prices spiralled. But
given the sharp erosion of the equity markets combined with a tightening of
liquidity conditions during the third quarter of the financial year, some
developers who had over-stretched themselves, particularly in exorbitant
land deals found themselves cash-strapped.

In the residential market, given the uncertainty in the property markets,
some prospective buyers preferred to adopt a wait and watch approach. It
should be noted that the demand for housing has not come down. The right
home price propels consumers back into the market. Property prices have now
reduced in most parts of the country. Till recently, many developers
catered to the luxury residential segment. The changing market dynamics
have forced developers to rethink their strategy as they recognise the
immense demand for affordable housing.

Affordable housing is one of the formidable challenges that the country
faces. The 11th Five Year Plan (2007-2012) estimates the urban housing
shortage to be 26.53 million units. To address the acute housing shortage
in India, the Ministry of Housing and Urban Poverty Alleviation set up a
High Level Task Force on Affordable Housing for All.' Some of key
recommendations were to bring additional lands into urban usage on a
regular basis, upward revision in the floor space index (FSI), encourage
in-situ development, revamp the role of State Housing Boards and introduce
real estate regulators.

Interest Rate Scenario:

In line with global trends, the interest rate scenario has been volatile.
HDFC revised its Corporate Prime Lending Rate (CPLR) for non-individual
loans 4 times during the year under review. The CPLR is a dynamic benchmark
based on an index of money market instruments. HDFC also revised its Retail
Prime Lending Rate (RPLR) 4 times during the year.

Approvals and Disbursements:

Total approvals during the year stood at Rs. 49,166 crores as against
Rs.42,520 crores in the previous year, representing a growth of 16%.
Disbursements during the year were Rs. 39,650 crores against Rs. 32,875
crores in the previous year representing a growth of 21%.

The demand for individual home loans continued despite the overall economic
slowdown and uncertainty. The average size of individual loans increased to
Rs. 15.4 lacs during the year.

Loan Portfolio:

The loan approval process of HDFC is decentralised, with varying approval
limits. Approval of lending proposals beyond certain limits is referred to
the committee of management (COM). Larger proposals, as appropriate, are
referred to the Board of Directors.

During the year, HDFC's loan book increased to Rs. 85,198 crores from
Rs.73,328 crores in the previous year. The net increase in the loan book of
Rs. 11,870 crores has been determined after taking into account loan
repayments of Rs. 23,525 crores (previous year Rs. 15,819 crores) and net
loans written off during the year amounting to Rs. 10.15 crores (previous
year Rs. 18.40 crores). The loan book, net of loans sold has grown by 16%
during the year. The growth in the loan book would have been higher at 22%
if the loans sold were included in the loan book.

Loans Outstanding:

(Rs. in crores)
Year Loans Outstanding

2005 36,012
2006 44,990
2007 56,512
2008 73,328
2009 85,198

Marketing and Distribution:

HDFC's distribution network spans 267 outlets, which include 56 offices of
the wholly owned distribution company, HDFC Sales Private Limited (HSPL).
In addition, HDFC covers over 2,400 locations through outreach programmes.

To ensure a wider geographic reach, third party channels form an integral
part of the distribution network. Distribution channels sourcing loans for
HDFC include HSPL, which provides HDFC with a dedicated sales force, HDFC
Bank and a few third party direct selling associates (DSAs). Distribution
channels only source loans, while HDFC continues to retain control over the
credit, legal and technical appraisal, ensuring no compromise on the
quality of loans disbursed and is consistent across all distribution
channels.

Total loans sourced from distribution channels during the year accounted
for 79% of individual loans disbursed by HDFC in value terms. The total
commission payable to distribution channels amounted to Rs. 107.45 crores.
The entire amount has been charged to the profit and loss account against
fee income.

In order to cater to various segments of customers having unique
requirements, HDFC organised several thematic exhibitions and property
fairs both in India and abroad for nonresident Indians.

Cross-selling of financial products and services continued to form the
cornerstone of HDFC's marketing strategy, thereby providing a wide range of
financial services and products under the HDFC umbrella'. HDFC distributes
insurance products under a referral fee programme with HDFC Standard Life
Insurance Company Limited (HDFC-SL) and HDFC ERGO General Insurance Company
Limited (HDFC-ERGO).

Investments:

The Investment Committee constituted by the Board of Directors is
responsible for approving investment proposals in line with the limits as
set out by the Board of Directors. The Executive Directors are members of
the Committee.

The investment function supports the core business of housing finance. The
investment mandate includes ensuring adequate levels of liquidity to
support core business requirements, maintaining a high degree of safety and
optimising the level of returns, consistent with acceptable levels of risk.
As at March 31, 2009, the investment portfolio stood at Rs. 10,469 crores
as against Rs. 6,915 crores last year. Investments in liquid funds stood at
Rs. 3,659 crores, representing overnight deployment of surplus funds. The
proportion of investments to total assets was 10%.

Housing Finance Companies (HFCs) are required to maintain a statutory
liquidity ratio (SLR) in respect of public deposits raised. Currently the
SLR requirement is 12.5% of public deposits. As at March 31, 2009, HDFC has
invested Rs. 738 crores in bonds issued by National Housing Bank (NHB) and
bank deposits and Rs. 881 crores in approved securities comprising
government securities and government guaranteed bonds.

As at March 31, 2009, the treasury portfolio (excluding investments in
equity shares) had an average balance period to maturity of 29 months. The
average yield on the non-equity portfolio for the year was 13.18% per
annum.

HDFC has classified its investments into current and long-term investments.
The current investments have been entirely marked to market'. In respect
of long-term investments, provisions have been made to reflect any
permanent diminution in the value of investments. After considering the
opening balance of Rs. 54.76 crores in the diminution in the value of
investments account and the write back of provisions on account of
investments sold, a net amount of Rs. 30.57 crores has been charged to the
Provision for Contingencies account.

As at March 31, 2009, the market value of quoted investments was higher by
Rs. 6,558 crores as compared to the value at which these investments are
reflected in the balance sheet. This unrealised gain includes appreciation
in the market value of investments held by HDFC's wholly owned
subsidiaries, HDFC Investments Limited and HDFC Holdings Limited. The
corresponding figure for unrealised gains as at April 30, 2009 stood at
Rs.7,877 crores.

Subsidiaries and Associates:

Though housing remains the core business, HDFC has continued to make
investments in its subsidiary companies. These investments are made in
companies where there are strong synergies with HDFC. HDFC will continue to
explore avenues for such investments with the objective of providing a wide
range of financial services and products under the HDFC brand name.

During the year, HDFC made gross investments in the equity capital of its
subsidiary companies, HDFCSL (Rs. 378.50 crores) and HDFCERGO (Rs. 37
crores).

Pursuant to the merger of Centurion Bank of Punjab with HDFC Bank, in order
for HDFC as a promoter to retain its current shareholding in HDFC Bank, in
June 2008, HDFC subscribed to 2,62,00,220 warrants, convertible into
2,62,00,220 equity shares of Rs. 10 each, at a price of Rs. 1,530.13 per
share. Under the terms and conditions of the said warrants, HDFC paid a sum
of 10% of the price of the equity shares to be issued upon exercise of such
warrants at the time of allotment i.e. Rs. 400.92 crores. The warrants can
be converted into equity shares of HDFC Bank within a period of 18 months
from the date of the said allotment i.e. on or before December 2, 2009.

The shareholding of HDFC (together with its nominees) in its key subsidiary
and associate companies as at March 31, 2009 is as follows:

Company Shareholding %

HDFC Developers Limited 100.0
HDFC Investments Limited 100.0
HDFC Holdings Limited 100.0
HDFC Trustee Company Limited 100.0
HDFC Realty Limited 100.0
HDFC Property Ventures Limited 100.0
HDFC Sales Private Limited 100.0
HDFC Ventures Trustee Company Limited 100.0
HDFC Venture Capital Limited 80.5
HDFC ERGO General Insurance Company Limited 74.0
HDFC Standard Life Insurance Company Limited 72.4
GRUH Finance Limited 61.5
HDFC Asset Management Company Limited 60.0
HDFC Bank Limited* 22.7

* (Inclusive of warrants and shareholdrng of HDFC Investments Limited and
HDFC Holdings Limited)

Recoveries:

With effect from March 31, 2005, an asset is a non-performing asset (NPA)
if the interest or instalment is overdue for 90 days as against the earlier
norm where a loan was a NPA if the account was in arrears for over 6
months.

Gross non-performing loans outstanding (along with debentures and corporate
deposits for financing real estate projects) amounted to Rs. 701.55 crores
as at March 31, 2009, constituting 0.81% of the portfolio. The principal
outstanding in respect of individual loans where the instalments were in
arrears constituted 0.92%o of the individual portfolio and the
corresponding figure was 0.57% in respect of the non-individual portfolio.
HDFC has written off loans aggregating to Rs. 10.9 crores during the year.
This pertains to the housing loans outstanding in respect of 1,184
individual borrowers. These loans have been written off pursuant to one-
time settlements, where HDFC will continue making efforts to recover the
money. During the year, HDFC has written back loans aggregating to Rs. 0.75
crores (these were loans written off in earlier years). The net write off
for the year is Rs. 10.15 crores. With this, HDFC has, since inception,
written off loans (net of subsequent recovery) aggregating to Rs. 76.79
crores. Thus as at March 31, 2009, the total loan write offs stood at 4
basis points of cumulative disbursements since inception of the
Corporation.

Provision for Contingencies:

As per the prudential norms prescribed by NHB, HDFC is required to carry a
provision of Rs. 319.40 crores as at March 31, 2009 in respect of non-
performing assets and provisioning for standard non-housing assets. As a
matter of prudence, however, over the years, HDFC has been transferring
additional amounts to the provision for contingencies account including
transfers from the Additional Reserve (u/s 29C of the National Housing Bank
Act, 1987).

During the year, HDFC has utilised Rs. 78.77 crores (net) out of the
balance in provision for contingencies primarily on account of provision in
diminution of value of investments and loan write-offs. After taking into
account the transfers as well as the net utilisation, the balance in
provision for contingencies as at March 31, 2009 stood at Rs. 621.53
crores.

Number of Outlets:

Year Number of Outlets*

2005 203
2006 219
2007 234
2008 250
2009 267

* Inclusive of outlets of wholly owned distribution company.

Fixed Assets:

Net fixed assets as at March 31, 2009 amounted to Rs. 203.41 crores
(previous year Rs. 208.49 crores).

Subordinated Debt:

During the year, the Corporation did not issue any subordinated debt. As at
March 31, 2009, the Corporation's outstanding subordinated debt was
Rs.1,375 crores. The debt is subordinated to present and future senior
indebtedness of the Corporation. Based on the balance term to maturity, as
at March 31, 2009, Rs. 1,135 crores of the book value of subordinated debt
is considered as Tier II under the guidelines issued by the National
Housing Bank (NHB) for the purpose of capital adequacy computation.

Foreign Currency Convertible Bonds (FCCB):

In September 2005 the Corporation concluded the issue of USD 500 million
zero coupon FCCB. The bonds are convertible into equity shares of the
Corporation of the face value of Rs. 10 each up to July 29, 2010 at the
option of the holders, at Rs.1,399 per equity share, representing a
conversion premium of 50% over the initial reference share price. The
premium payable on redemption of the bonds is charged to the Securities
Premium Account over the life of the bonds.

Up to March 31, 2009, the Corporation had allotted 1,21,67,765 equity
shares of Rs. 10 each pursuant to the conversion of the FCCB, representing
77.9% of the bonds.

If the balance bonds are not converted within the abovementioned conversion
period, the remaining bondholders would have the right to redeem the
outstanding bonds on September 27, 2010 at a yield to maturity of 4.62% per
annum.

Borrowings:

Borrowings as at March 31, 2009 amounted to Rs. 83,856 crores as against
Rs. 69,151 crores in the previous year - an increase of 21%. Borrowings
constituted 86% of funds employed as at March 31, 2009. Of the total
borrowings, bonds and debentures constituted 46%, domestic term loans 28%,
deposits 23%, international borrowings 2% and FCCB 1%.

Foreign Currency Borrowings:

HDFC has in earlier years availed of foreign currency borrowings from ADB
under the Housing Finance Facility Project - ADB II (USD 100 million), from
the KfW (DM 25 million and Euro 15.33 million), from DEG, a member of the
KfW Group of Germany (USD 50 million) and from International Finance
Corporation (IFC), Washington (USD 200 million).

Breakdown of Borrowings (%) (As at March 31, 2009):

Deposits - 23%
FCCB - 1%
International Borrowings - 2%
Domestic Term Loans - 28%
Bonds & Debentures - 46%

Deposits:

As at March 31, 2009, outstanding deposits stood at Rs. 19,375 crores as
against Rs. 11,296 crores in the previous year, representing a growth of
72%. During the year, deposits accounted for 55% of the incremental
borrowing of the Corporation. The depositor base stood at approximately 10
lac depositors.

CRISIL and ICRA have for the fourteenth consecutive year, reaffirmed their
AAA rating for HDFC's deposits. This rating represents highest safety' as
regards timely repayment of principal and interest.

HDFC pays brokerage to agents who mobilise retail deposits. The brokerage
is linked to the amount and the period of deposit and is paid up-front for
the full term of the deposit. In addition, agents who achieve certain
collection targets are paid an incentive every year. In line with
international accounting standards, HDFC has been amortising the brokerage,
proportionately over the term of the deposit. Incentive brokerage is being
fully charged to the profit and loss account in the year of payment.

Sale of Loans:

During the year, the Corporation under the loan assignment route sold
Rs.4,245 crores of loans to HDFC Bank, which qualified as priority sector
advances for the bank. Out of the total loans assigned to HDFC Bank,
approximately half of this amount was pursuant to the exercise of the buy
back option embedded in the home loan arrangement between the Corporation
and HDFC Bank.

The loans outstanding in respect of loans sold under the mortgage backed
securities (MBS) and loan assignment route as at March 31, 2009 stood at
Rs. 6,180 crores. HDFC continues to service the loans sold. The residual
income on loans sold is being recognised at the time of actual collections,
(i.e. over the life of the underlying loans) and not upfront on a net
present value basis. Where individual loans have been sold, the issues
carry a rating indicating the highest degree of safety. To date, loans
aggregating to Rs. 8,885 crores have been sold by the Corporation through
the issue of MBS and loan assignment route.

Domestic Term Loans:

During the year, HDFC raised loans from commercial banks aggregating to
Rs.16,197 crores. Out of this, loans amounting to Rs. 9,084 crores qualify
for priority sector allocation. HDFC raised a further Rs. 2,676 crores from
the banking sector as FCNR (B) loans.

As at March 31, 2009, the total loans outstanding from banks, financial
institutions and the National Housing Bank amounted to Rs. 23,175 crores as
compared to Rs. 19,669 crores as at March 31, 2008.

Non-Convertible Debentures (NCDs):

During the year, the Corporation issued NCDs amounting to Rs. 8,567 crores
on a private placement basis. The Corporation's NCD issues have been listed
on the Wholesale Debt Market segment of the National Stock Exchange of
India Limited (NSE). The Corporation's NCDs have the highest rating of AAA
by both CRISIL and ICRA.

Risk Management:

The Financial Risk Management and Hedging Policy as approved by the Audit
Committee sets limits for exposures on currency and interest rates. HDFC
manages its interest rate and currency risk in accordance with the
guidelines prescribed. The risk management strategy has been to protect
against foreign exchange risk, whilst at the same time exploring any
opportunities for an upside, so as to keep the maximum all-in cost on the
borrowing in line with or lower than the cost of a borrowing in the
domestic market for a similar maturity.

HDFC has to manage various risks associated with the mortgage business.
These risks include credit risk, liquidity risk, foreign exchange risk and
interest rate risk. HDFC manages credit risk through stringent credit
norms. Liquidity risk and interest rate risks arising out of maturity
mismatch of assets and liabilities are managed through regular monitoring
of the maturity profiles.

HDFC has from time to time entered into risk management arrangements in
order to hedge its exposure to foreign exchange and interest rate risks.
The currency risk on the borrowings is actively hedged through a
combination of dollar denominated assets, long term forward contracts,
principal only swaps (POS), full currency swaps and currency options.

As at March 31, 2009, the Corporation had foreign currency borrowings of
USD 1,095 million equivalent. The entire principal on the foreign currency
borrowings has been hedged by way of principal only swaps, currency
options, forward contracts and risk management arrangements with financial
institutions. Further, interest rate swaps on a notional amount of USD 215
million equivalent are outstanding and have been undertaken to hedge the
interest rate risk on the foreign currency borrowings. As at March 31,
2009, the Corporation's net foreign currency exposure on borrowings net of
risk management arrangements was nil.

As a part of asset liability management and on account of the predominance
of HDFC's Adjustable Rate Home Loan product as well as to reduce the
overall cost of borrowings, HDFC has entered into interest rate swaps
wherein it has converted its fixed rate rupee liabilities of a notional
amount of Rs. 11,815 crores as at March 31, 2009 for varying maturities
into floating rate liabilities linked to various benchmarks. In addition,
HDFC has entered into cross currency swaps of a notional amount of USD 733
million equivalent wherein it has converted its rupee liabilities into
foreign currency liabilities and the interest rate is linked to benchmarks
of the respective currencies.

The total net foreign currency exposure inclusive of cross currency swaps
is USD 616 million. The open position is at 3.74% of the total borrowings
of HDFC.

Assets and liabilities in foreign currency net of risk management
arrangements are revalued at the rates of exchange prevailing at the end of
the year. Cross currency swaps have been marked to market at the year end.

Asset-Liability Management:

As at March 31, 2009, assets and liabilities with maturity up to 1 year
amounted to Rs. 31,338 crores and Rs. 33,828 crores respectively. Asset and
liabilities with maturity of between 2 years and 5 years amounted to Rs.
41,068 crores and Rs. 39,545 crores respectively and assets and liabilities
with maturity beyond 5 years amounted to Rs. 29,251 crores and Rs. 28,284
crores respectively.

HDFC does not generally take an interest rate mismatch. As at March 31,
2009, 82% of the assets and 80% of the liabilities were on a floating rate
basis.

Internal Audit and Control:

HDFC has instituted adequate internal control systems commensurate with the
nature of its business and the size of its operations. Internal audit is
carried out by independent firms of chartered accountants and cover all the
offices and key areas of business. All significant audit observations and
follow-up actions thereon are reported to the Audit Committee. The Audit
Committee comprises three independent directors. The committee met five
times during the financial year under review.

Profit and Loss Account:

Assets per Employee:

(Rs. in Lacs)
Year Assets per Employee

2005 3,139
2006 3,812
2007 4,520
2008 5,612
2009 6,514

Spread on Loans(%):

Year Spread on Loans

2005 2.17
2006 2.16
2007 2.18
2008 2.32
2009 2.21

Profit per Employee:

(Rs. in Lacs)
Year Profit per Employee

2005 80
2006 94
2007 113
2008 169
2009 153

Cost Income Ratio(%):

Year Cost Income Ratio

2005 12.9
2006 12.2
2007 12.0
2008 9.2
2009 8.8

Key elements of the profit and loss account for the year ended March 31,
2009 are:

* Pre tax profit before sale of investments and exceptional items grew by
23% and profit after tax excluding profit on sale of investments and
exceptional items (net of tax) grew by 23%.

* Income tax provision (net of deferred tax asset of Rs. 8 crores) and
provision for Fringe Benefit Tax for the year amounted to Rs. 936.50 crores
as compared to Rs. 937.25 crores in the previous year. The effective tax
rate is 29.1% as compared to 27.8% in the previous year.

* Pre-tax return on average assets was 3.6% and the post-tax return on
average assets was 2.6%.

* Return on equity is 18.2% in the current year.

* HDFC's cost to income ratio is 8.8% for the year ended March 31, 2009 as
against 9.2% in the previous year. HDFC's cost income ratio continues to be
among the lowest in the financial sector in Asia.

* Administrative expenses, as a percentage of average assets was 0.35% as
at March 31, 2009 as against 0.37% in the previous year.

* For the year ended March 31, 2009, a dividend of Rs. 30 per share is
being recommended as against Rs. 25 per share in the previous year. HDFC
would be paying the distribution tax and education cess on the dividend
declared.

* The dividend payout ratio will be 43% as against 34% in the previous
year.

Spread on Loans:

The average yield on loan assets during the year was 12.20% per annum as
compared to 11.25% per annum in the previous year. The average all-
inclusive cost of funds was 9.9% per annum as compared to 8.93% per annum
in the previous year. The spread on loans over the cost of borrowings for
the year was to 2.21% per annum as against 2.32% per annum in the previous
year.

Prudential Norms for Housing Finance Companies (HFCs):

NHB has issued guidelines to HFCs on prudential norms for income
recognition, provisioning, asset classification, provisioning for bad and
doubtful debts, capital adequacy and concentration of credit/investments.
HDFC's position with respect to the guidelines is as follows:

* HDFC's capital adequacy ratio stood at 15.1% of the risk weighted assets,
(of which Tier 1 capital was 13.2%) as against the minimum requirement of
12%.

* HDFC is in compliance with the limits prescribed by NHB in respect of
concentration of credit, exposure to investment in real estate and capital
market exposure other than on its investment in HDFC Bank wherein NHB has
granted the Corporation time for such compliance as the Corporation is a
promoter of HDFC Bank.

Human Resources:

Human resources are HDFC's most valuable assets. The efficiency of HDFC's
staff is evident from the fact that, the number of offices increased from

41 in 1998 to 211 (excluding offices of HSPL) currently as against the
number of employees which increased from 806 to 1,490 during the same
period.

Total assets per employee as at March 31, 2009 stood at Rs. 65 crores as
compared to Rs. 56 crores in the previous year and net profit per employee
as at March 31, 2009 was Rs. 153 lacs as compared to Rs. 169 lacs in the
previous year.

Audited Consolidated Accounts:

In accordance with the accounting standards prescribed by the Institute of
Chartered Accountants of India, the consolidated financial statements
comprise the individual financial statements of the Corporation together
with its subsidiaries which are consolidated on a line-by-line basis and
its associates which are accounted on the equity method.

Like most life insurance companies in the initial phase, HDFC-SL has
reported losses. This is essentially due to the accounting norms applicable
to insurance companies wherein the commission expenses are charged upfront
in the year in which they are incurred while the corresponding income is
recognised over the entire life of the policies issued. The mismatch
between expenses and income has the effect of magnifying the initial losses
of HDFC-SL.

Administrative Expenses to Average Total Assets(%):

Year Administrative Expenses
to Average Total
Assets(%):

2005 0.45
2006 0.43
2007 0.38
2008 0.37
2009 0.35

Income Comes From (%):

Interest Income - 95%
Fees & Other Charges - 1%
Other Operating Income - 4%

Total Income: Rs.11,018 crores (PY Rs.8,196 crores)

Asset Profile (%)

(As at March 31, 2009)

Portfolio (Loans, including debentures & - 89
corporate deposits for financing housing
and real estate projects)

Investments - 10

Fixed and Net Current Assets - 1

Expenditure Goes Towards(%):

Interest & Other Charges - 95

Staff, Establishment, Other Expenses, - 5
Depreciation and Provision for
Contingencies

Expenditure & Other Charges: Rs. 7,799 crores (PY Rs. 5,459 crores)

On a consolidated basis, the total income for the year ended March 31, 2009
was Rs. 11,706.42 crores as compared to Rs. 8,819.42 crores in the previous
year. Profit before tax was Rs. 2,862.93 crores as compared to Rs. 3,405.89
crores in the previous year. Profit after tax was Rs. 2,310.50 crores as
compared to Rs. 2,713.00 crores in the previous year. Consolidated return
on equity was 17.7%.

Social Initiatives:

Built on the principal values of fairness, kindness, efficiency and
effectiveness, HDFC, from its very inception has injected social awareness
and good governance into its core business practices. In terms of its
social commitment, HDFC's approach has been to make a positive impact on
economic and human development while improving the quality of life of our
surrounding communities. These activities largely constitute an extension
of HDFC's central business encompassing varied social sectors.

The following pages illustrate the diverse projects supported by the
corporation through the Shelter Assistance Reserve and our continued bulk-
lending operations in the area of low-income housing and micro-finance.

SHELTER ASSISTANCE RESERVE:

A wide range of social and development initiatives were supported this
year, involving close to 140 voluntary and non-government organisations
(NGOs) under the Shelter Assistance Reserve. The overall utilisation from
the Reserve stood at Rs. 5.22 crore for the year 2008 - 09. The segment-
wise break-up of the utilisation of the Reserve is illustrated in the chart
below.

Cited below are a few cases, in no specific order, of such NGOs and
institutions, reflecting the general application of the Reserve.

Segment-wise Utilisation of the reserve for 2008-09:

Heritage & Environment 4%
Education 18%
Community Development 16%
Child Welfare 13%
Disaster Response 11%
Health Services 13%
Research & Policy Initiatives 9%
Differently Abled 10%
Arts & Sports Promotion 6%

Sense India:

Living close to the scenic Chilika Lake, for the first seven years of his
life, Soumyakanta remained oblivious to the natural beauty of the forest
and lake surrounding him. Soumyakanta suffers from deaf-blindness and
delayed mental development since birth. Unable to communicate or connect
with his surroundings, his development remained stunted until the age of
seven. However, with adequate support and intervention from a partner of
Sense International (India), today Soumyakanta is able to communicate
effectively with his family and friends using gestures and signs. He has
also been successfully integrated into the local village school.

It is estimated that there are more than half a million deaf-blind children
in India and most of them suffer in total isolation. Further, our existing
schools do not understand the complex needs of deaf-blind children and
hence are inappropriate for development of their skills. Sense India
supports the development of services for deaf-blind people throughout the
country. It works in partnership with local organisations and professionals
catering to deaf-blind children and adults, by involving their families to
ensure that everyone challenged with this disability has access to advice,
opportunities and support.

HDFC has partnered with Sense India to support their project targeting the
deaf-blind population in the state of Orissa. The plan is to reach out to
the children who do not have access to any kind of support services and to
integrate them into local schools with other children who have residual
vision and hearing.

Mobile Creches:

Imagine life on a construction site - no gardens or playgrounds for the
children are here, only gaping foundation pits, piles of bricks, and a dry,
cement dust in the air. And further imagine moving on to another barren
site, yet again, once the grand apartments, gardens and playgrounds are
constructed. This is the life for children of construction workers, moving
from site to site, carrying with them their meager belongings and precious
memories and leaving behind their friends and their childhood.

Mobile Creches was set up to safeguard the interest of these children and
to provide them with a safe, happy and healthy environment for their
overall development. The vision of the organisation is to ensure that
children of marginalised and mobile / migrant populations get the
opportunity to develop into competent and confident individuals. The
organisation runs a holistic development program for the children
encompassing education, health-care and community awareness.

Over 550 such day-care centres have been set up on building sites as well
as slum clusters in Delhi, Mumbai and Pune, reaching out to over 6.5 lac
children. HDFC has been a consistent supporter of Mobile Creches,
particularly in the field of early childhood care and development.

Sahaj:

Sahaj was founded in 1984 with a conscious focus on marginalised and
deprived communities, aiming to make a practical difference in the social
processes affecting them. Much of Sahaj's activities, have been health and
education-related, breaking new ground in strategies of implementation and
service delivery. The organisation is also an active participant in several
networks of NGOs that run campaigns on child rights, housing rights,
health, education and communal harmony.

HDFC partnered with Sahaj for one of its projects titled Shishu Milap'.

The project aims to help poor children gain access to education as their
fundamental right. The project works towards ensuring quality education for
children by making learning and curricula child-centered and child-
friendly. Shishu Milap currently engages more than 2000 school going,
non-school going and dropout children in the age bracket of 3-6 and 6-18
years residing in 14 slums across Uadodara. The focus is on addressing
issues pertaining to their overall development while reducing the
percentage of school dropouts.

Bomhay Community Public Trust:

As the first community foundation in India, the Bombay Community Public
Trust (BCPT) was set up as a model organisation with the primary task of
administering public funds for improving the quality of life of Mumbai's
citizens. Over the years BCPT has acted as a facilitator and a catalyst for
projects and NGOs trying to address various issues that confront the city
of Mumbai. The major beneficiaries of BCPT's activities have been under-
privileged children. Over the years, HDFC has associated with BCPT to
partner on several projects. This year too, HDFC supported BCPT on its
education related projects, highlights of which are mentioned below:

H.T. Parekh Memorial Scholarship Program offers scholarships to
academically bright girl students selected from municipal schools to help
them continue their studies up to graduation or its equivalent for
vocational courses. Students are selected from merit scholarship
examinations held in Std. VII and top rankers in the Secondary School
Certificate (S.S.C.) examinations.

HDFC further provided scholarships to 50 bright and deserving students
studying for their undergraduation or those who have enrolled themselves in
professional courses. Under the scholarship program developmental and
career guidance workshops were also run for the selected students.

The Paragon Charitable Trust initiated its child centered learning'
program in six municipal schools in Mumbai. One school, in South Mumbai was
supported under the BCPT - HDFC partnership reaching out to 1500 students.
The Trust uses its own methodology and learning aids to offer low-cost yet
quality English medium education to the school children. Most of the
teachers are women from the local community, specially trained and
encouraged to teach in an open learning environment. Seeing the positive
impact that this methodology has had on the children, the Municipal
Corporation of Greater Mumbai (MCGM) has approached the Trust to expand its
program to include more municipal schools.

Geeta Educational & Cultural Trust manages the Geeta Secondary School, a
non-aided private school in Central Mumbai from Std. VIII-X. A total of 80
children are enrolled in the school. Although the locality has several
primary and secondary schools, the Geeta Secondary School is the only
Marathi-medium school in the area. BCPT - HDFC have partnered with the
Trust to run the school for a period of one year. The budget included
improvement of existing facilities, suitable academic interventions,
nutritional support and extracurricular activities for the children.

Pragaik Vidyarthi Sangh manages the Chembur Station Municipal School in the
Eastern suburbs of Mumbai. The school runs three Marathi medium and one
Urdu medium section with a total of 1200 children across all four sections.
The school also runs a balwadi (child-care centre) on its premises catering
to over 100 children. BCPT - HDFC have taken up the running of this school
for a period of one year. The budget includes administrative expenses,
extracurricular activities, nutritional support and scholarships.

Society for Service to Voluntary Agencies:

A group of professionals came together to reflect on how to strengthen
numerous NGOs in their efforts to deliver a multitude of social services.
Thus was born the idea of setting up a support organization, which would
help NGOs overcome their constraints so that they could carry on with their
mission of helping others more effectively. Society for Service to
Voluntary Agencies (SOSVA) focuses on development in the fields of health,
family welfare, education, women's development and environment.

SOSVA in association with the Savarkar Trust is running schools for tribal
children in the interiors of Maharashtra, who otherwise have no access to
any form of education. HDFC in association with SOSVA supported two schools

near Dahanu, Maharashtra - The Waki School (10 Km from Dahanu) is a day
school with 60 children and the Dabhon School (33 Km from Dahanu) is a
residential school with 140 children. The schools have recently completed
two years of functioning and over 70% of the students have passed their
exams. HDFC supported the running of both the schools for a period of one
year.

Deep Griha Society:

Deep Griha - meaning Light House' - is an independent charitable
organisation working in the slums of Pune city. Through a range of family
welfare initiatives including education, health and self-help projects, the
Society aims to demonstrate the effectiveness of participatory and
sustainable community development programs designed to empower the
marginalised sections.

The Society's women's empowerment program includes adult education classes,
promotion of self-help groups, women's cooperatives and other miscellaneous
activities that facilitate women to take ownership of their own
empowerment. The program is catering to women belonging to the slum
communities of Tadiwala Road, Ramtekdi and Bibvewadi. HDFC has extended
financial support for running this program in the slum pockets of Pune.

RESPONDING TO NATURAL CALAMITIES:

A sudden breach in the eastern embankment of the Kosi River in North Bihar
on August 18, 2008 resulted in one of the worst flood situations that the
state of Bihar has ever witnessed. Millions of acres of human habitation
and farmlands were submerged in the river waters displacing around 2.5
million people in the six worst affected districts of Bihar.

HDFC partnered with three NGOs viz. Ramakrishna Mission, Plan India and
Childline India Foundation to provide immediate relief and rehabilitation
to the victims of the floods. The Ramakrishna Mission had focused on
providing basic relief in the Madhepura district. Childline India
Foundation set up camps with a special emphasis on providing aid and
support to the vulnerable children in the districts of Purnea and Araria.
Plan India started a focused response operation in Supaul district
concentrating on a population of 40,000 displaced people who were stranded
in an embankment where relief operations had not reached.

HDFC's employees also made a voluntary contribution towards relief and
rehabilitation efforts for the victims of the Bihar floods in August 2008
and Orissa floods in September 2008. HDFC supported two NGOs, Pratham and
Goonj for relief operations in Orissa.

LOW-INCOME HOUSING AND MICROFINANCE:

BWDA Finance Lmited:

BWDA Finance Ltd. is a nonbanking finance company (NBFC) promoted by the
Bullock-cart Workers Development Association (BWDA), a charitable society
headquartered at Vilupuram in Tamil Nadu. BWDA was established in 1986 with
the objective of improving the socioeconomic conditions of the traditional
bullock-cart workers as rapid growth in the transport sector rendered the
bullock-cart service redundant in rural areas. During its formative years,
the society implemented its development programs by raising grants from
donor agencies.

BWDA was considerably influenced by the success of the Self-help Group
(SHG) movement sweeping rural India and the pioneering work done by NGOs
and voluntary agencies. From 1988 onwards the women members belonging to
the bullock cart workers' families were organised into SHGs through a
social mobilisation process. The microfinance program known as BWDA
welfare scheme' started with an initial fund of Rs. 15 lacs.

As part of deepening their SHG activity, BWDA collaborated with the Tamil
Nadu Women Development Corporation to work with economically backward
communities in Mailam and Koliyanur blocks of Vilupuram district. As the
microfinance operations of BWDA started growing rapidly, BWDA realised the
need to have a separate entity for efficient and better management.
Accordingly, BWDA acquired an existing NBFC and after moving the
microfinance portfolio, renamed it as BWDA Finance Limited (BFL), which
became operational in 2003.

HDFC began its association with BWDA in the year 2002 by sanctioning a loan
of Rs. 30 lacs for the purpose of onward lending to its women clients by
way of home improvement loans. The housing loan product was a success as
all the borrowers could close their loan as per their respective repayment
terms. In the year 2008, after its transformation into a for profit entity,
BFL approached HDFC to scale up their home improvement loan product. HDFC
sanctioned a loan of Rs. 200 lacs for housing upgradation of their SHG
clients. BFL has availed Rs. 150 lacs till date catering to the shelter
needs of 500 members.

A dream comes true...:

It is very difficult for the rural poor to own a pucca'house owing to
irregularity of their income and lack of access to formal sources of
finance. Most houses in rural areas are built with local materials such as
thatch made from palm and coconut leaves and walls made up of stones with
mud plastering. In reality, these 'kutcha 'houses are more expensive to
maintain and also vulnerable to the vagaries of nature. A small loan to
upgrade the dwelling unit not only helps the borrower to improve or
strengthen the structure by using quality building materials but also gives
them a sense of security and social prestige.

Pathirakali is a member of a SHG promoted by BFL in Alankulum area of
Tirunelveli district. She has been engaged in the beedi-rolling activity
while her husband is a seasonal agricultural labourer Their combined income
was barely sufficient to run the family and meet their routine household
expenses. With their limited savings and borrowings from relatives they
somehow managed to construct a small house. However, the walls could not be
plastered and the Rooring remained unfinished. Pathirakali thought of
borrowing from the local moneylender but had to drop the idea, as the into-
rest rate quoted was very high.

When a BWDA field staff shared about the IIDFC loan facility for home
improvement, she was very keen to avail the loan so as to have her house
completely finished just as her neighbours' house. She applied for a loan
of Rs.25,000 and the same was sanctioned and disbursed by BFL. With this
amount Pathirakali has been able to complete the unfinished works.

Mimoza Enterprises Finance Pvt. Ltd.:

Mimoza Enterprises Finance Pvt. Ltd. (MIMO) is an NBFC in Uttarakhand,
which conducts its microfinance operations under the brand name of Mimo
Finance. The value proposition of MIMO is to provide sustainable access to
microfinance, particularly to poor women, which allows them to generate
income, create jobs and thereby enable their families to access quality
education and healthcare. Basically, empowering them to make choices that
best serve their needs. The operational areas include urban and peri-urban
regions along the major highways and towns in seven districts of
Uttarakhand, Western UP, Haryana and Himachal Pradesh.

MIMO commenced its microfinance operations in November 2006 in Dehradun and
as on date, the company serves over 50,000 clients, with a total
outstanding loan portfolio of Rs. 25 crore. The products offered by MIMO
include joint liability group loans, individual micro-enterprise loans,
home improvement loans and insurance services. By bringing microfinance
services at an affordable cost to clients at their doorstep, MIMO aims to
challenge and reverse the conditions that exclude women, small
entrepreneurs, and other individuals from full participation in the
financial sector. It plans to reach out to over one million clients by
2015.

During mid - 2008, MIMO approached HDFC for financial assistance to launch
a new home-improvement loan product for its existing clients. The
eligibility criteria included completion of at least one loan cycle with
MIMO with regular repayment and ownership of the property intended for
upgradation. MIMO designed the product with some technical inputs from HDFC
and launched it in the third quarter of FY08. HDFC sanctioned a term loan
of Rs. 150 lacs exclusively for this product, of which Rs. 50 lacs stood
disbursed as of March 31, 2009.

Madura Microfinance Ltd.:

Madura Microfinance Ltd. (MMFL) is a microfinance NBFC headquartered in
Chennai, dedicated to bringing a range of financial products and services
to the under-served rural population. Working in association with
commercial banks, MMFL provides credit facilities to the rural poor through
a wide network of branches in rural Tamil Nadu appropriately equipped for
door-to-door delivery and cash management. The primary product of MMFL is
the group loan to women's SHGs for the purpose of setting up micro-
enterprises.

The formation and training of these groups is managed through its partner
organisation called Microcredit Foundation of India, which was promoted by
late Mr. K.M. Thiyagarajan, Chairman of the erstwhile Bank of Madura.
Madura Microfinance caters to over five lac poor families covering the
length and breadth of Tamil Nadu. The financial products offered by MMFL
are need-based with easy repayment installments that suit rural cash flows.

While the SHG-entrepreneur transition loan' is provided to SHGs
collectively for promoting group enterprises, the activity term loan' is
intended as a fixed loan to SHG members for their individual economic
activities. MMFL has always focused on enhancing the livelihood
opportunities of their SHG members. Proper marketing and sourcing
facilities have been made available for the products produced by SHGs by
establishing forward and backward linkages. MMFL has disbursed loans to the
tune of over Rs. 500 crore since its inception.

MMFL approached HDFC in 2008 for a loan to support its micro-credit program
by way of onward lending to the SHGs for various income-generation
activities. HDFC has sanctioned and disbursed a term loan of Rs. 400 lacs
to MMFL under the micro-enterprise finance facility (MFF).

Mat-weaving: a group enterprise:

Janath Mahiliar Mantram is an SHG at Tirunelveli district of Tamil Nadu
comprising five women members. The group was formed in the year 7999. With

the passage of time the group realised that merely availing credit for
consumption purposes would be of no consequence in the long run. They
decided to deploy the loan availed from MMFL Into productive assets and in
income generating activities. The group identified 'Mat-weaving' as the
traditional livelihood opportunity and applied for a loan of Rs. 2.5 lac to
undertake the mat-weaving activity collectively. MMFL sanctioned the loan
and all the five members were involved in weaving and marketing the mats as
a cottage enterprise. Today, each member earns Rs. 3000 - 4000 as a net
Income per month and this has led to recognition of the group members at
the village level and also among other SHGs.

MicroSave India Foundation:

MicroSave is an international consulting organisation that promotes the
development of a market-led and more client responsive approach to
delivering financial services among microfinance institutions (MFIs). While
the microfinance industry has enjoyed a great deal of success in terms of
outreach and sustainability, microfinance has remained primarily a supply
driven endeavour, limited to mainly providing working capital loans to poor
micro-entrepreneurs. However, it is increasingly being recognised that the
poor require a wide range of financial services to manage risk and improve
their welfare.

MicroSave India commenced its operations in the year 2006, when it
registered MicroSave India Foundation as the not-for-profit sister
organisation of MicroSave India Pvt. Ltd. The latter is a company offering
technical assistance to over 60 established and emerging MFIs along with
comprehensive, customized strategies that drive growth and business
profitability. Most of these MFIs operate in the underserved regions of
rural India, predominantly in the north and north-east. The Foundation on
the other hand offers training/ workshops for the MFI staff covering a
variety of technical and business aspects focusing on developing practical
skills that can be applied and internalised with ease.

For capacity building of MFIs, MicroSave has developed and tested a series
of practice based and practitioner focused training curricula in the form
of various toolkits. The integrated microfinance curriculum, complements
the Action Research Programme, which seeks the development of new products
and delivery systems at the partner MFIs and refinement of existing ones.
HDFC has been associated with MicroSave India since its inception when the
foundation requested grant funding towards various operational costs and
budgeted expenses. HDFC has sanctioned an amount of Rs. 140 lacs as grant
support to Microsave India, of which Rs. 105 lac stood disbursed as of
March 31, 2009.

Secretarial Compliance Certificate:

To
The Board of Directors
HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

We have examined the registers, records, books and papers of Housing
Development Finance Corporation Limited (HDFC) (the Company) having its
registered office at 'Ramon House', H.T. Parekh Marg, 169, Backbay
Reclamation, Churchgate, Mumbai 400 020 and having Company Identification
Number (CIN) L70100MH1977PLC019916, as required to be maintained under the
Companies Act, 1956, (the Act) and the rules made thereunder and also the
provisions contained in the Memorandum and Articles of Association of the
Company for the period from April 1, 2008 to March 31, 2009. In our opinion
and to the best of our information and according to the examinations
carried out by us and explanations furnished to us by the Company, its
officers and agents, we certify that in respect of the aforesaid financial
year:

1. The Company has kept and maintained all registers and records as
required under the provisions of the Act and the Rules made thereunder and
the entries therein have been duly recorded.

2. The Company has duly filed the forms, returns and documents with the
Registrar of Companies, Maharashtra / Ministry of Corporate Affairs and
other authorities as required under the Act and Rules made thereunder.

3. All the requirements relating to the meetings of Directors, Committee of
Directors and Shareholders as well as relating to the minutes of the
proceedings thereat have been complied with.

4. The Board of Directors of the Company is duly constituted and during the
financial year, Dr. Bimal Jalan was appointed as an 'Additional Director'
w.e.f. April 30, 2008 and subsequently was appointed as a Director liable
to retire by rotation w.e.f. July 16, 2008 and Mr. S. Venkitaramanan has
ceased to be a director due to resignation w.e.f. July 17, 2008. The Board
vide a circular resolution passed on February 25, 2009, unanimously
approved the re-appointment of Mr. Deepak S. Parekh as the Managing
Director of the Company (designated as Chairman') w.e.f. March 1, 2009 up
to the close of business hours on December 31, 2009, subject to the
approval of the Members of the Company at the ensuing Annual General
Meeting.

5. The Directors of the Company have made all the required disclosures
under Sections 299 and 274(1) (g) of the Act. The Company has also complied
with the requirements in pursuance of the disclosure made by its Directors.

6. The issue of capital and securities is in conformity with the
requirement of the Act. The issues of share certificate and the transfer
and transmission thereof have been registered properly.

7. The Company has obtained all the necessary approvals of Directors,
Shareholders and other authorities as required under the Act.

8. The Company has complied with all the provisions of the listing
agreements with Bombay Stock Exchange Limited and National Stock Exchange
of India Limited.

9. During the financial year Company has not increased its authorized
capital.

10. The Company has transferred the dividend declared on July 16, 2008 to a
separate dividend account on July 17, 2008 and all the unpaid / unclaimed
dividend accounts have been reconciled.

11. During the year under review, the Company has transferred to Investor
Education and Protection Fund, dividend amounting to Rs.20,94,681/- that
have not been claimed by the shareholders for the financial year 2000-01 in
accordance with the provisions of the Act.

12. The Company has framed an insider trading code called HDFC - Share
Dealing Code' strictly on the lines of model code prescribed under the SEBI
(Prohibition of Insider Trading) Regulations, 1992 as amended and the same
has been implemented during the year under review. Mr. Girish V Koliyote,
Company Secretary acts as the Compliance Officer.

13. The Company has complied with the disclosure requirements of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and
SEBI (Prohibition of Insider Trading) Regulations, 1992.

14. The Company is registered with the Securities and Exchange Board of
India (SEBI) as Category II - In House Share Transfer Agent' and has
established connectivity with the National Securities Depository Limited
(NSDL) and the Central Depository Services (India) Limited (CDSL). The
Registration is valid upto April 30, 2011. The Company has complied with
SEBI (Registrars to an issue and Share Transfer Agents) Regulations, 1993.

15. The Company has complied with the provisions of SEBI (Employee Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 during
the year under review.

For N.L. BHATIA & ASSOCIATES
Company Secretaries

N.L. BHATIA
Place: MUMBAI FCS - 1176
Dated: April 25, 2009 CP - 422