HDFC Bank - Annual Report - 2008-2009

HDFC BANK LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Your Directors have great pleasure in presenting the Fifteenth Annual
Report on the business and operations of your Bank together with the
audited accounts for the year ended March 31, 2009.

Financial Performance:

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

Deposits and Other Borrowings 145,497.4 105,363.5*

Advances 98,883.0 63,426.9

Total Income 19,622.9 12,398.2

Profit before Depreciation and Tax 3,659.2 2,552.4

Net Profit 2,245.0 1,590.2

Profit brought forward 2,574.6 1,932.0

Total Profit available for Appropriation 4,819.6 3,522.2

Appropriations

Transfer to Statutory Reserve 561.2 397.5

Transfer to General Reserve 224.5 159.0

Transfer to Capital Reserve 93.9 -

Transfer to Investment Fluctuation Reserve (13.9) 38.5

Proposed Dividend 425.4 301.3

Tax including Surcharge and Education
Cess on Dividend 72.3 51.2

Education Cess on Dividend paid for
Prior Year 0.6 0.1

Balance carried over to Balance Sheet 3,455.6 2,574.6

* Change pursuant to reclassification

The Bank posted total income and net profit of Rs. 19,622.9 crores and
Rs.2,245.0 crores respectively for the financial year ended March 31, 2009
as against Rs. 12,398.2 crores and Rs. 1,590.2 crores respectively in the
previous year. Appropriations from the net profit have been effected as per
the table given above.

Dividend:

Your Bank has had a consistent dividend policy of balancing the dual
objectives of appropriately rewarding shareholders through dividends and
retaining capital to maintain a healthy capital adequacy ratio to support
future growth. It has had a consistent track record of moderate but steady
increases in dividend declarations over its history with the dividend
payout ratio ranging between 20% and 25%. Consistent with this policy, and
in recognition of the overall performance To the Members, during 2008-09,
your directors are pleased to recommend a dividend of 100% for the year
ended March 31, 2009, as against 85% for the year ended March 31, 2008.
This dividend shall be subject to tax on dividend to be paid by the Bank.

Awards:

Your Bank continued to receive awards and gain recognition from leading
domestic and international organizations during the fiscal 2008-09. Some of
them are:

* Euromoney Annual Survey : The Best local Bank. Also Ranked 1st in
Relationship Management and 2nd in private banking services overall.

* Business India : Best Bank 2008.

* Forbes Asia : One of the Fab 50 Companies in Asia Pacific.

* Nasscom IT User Award 2008 : Best IT Adoption in the Banking Sector.

* Asian Banker Excellence in Retail Financial Services : Best Retail Bank
2008.

* Asiamoney : Best Local Cash Management Bank Award.

* Microsoft & Indian Express Group : Security Strategist Award 2008.

* World Trade Center Award of Honour : For outstanding contribution to
international trade services.

Ratings:

The Bank has its deposit programs rated by two rating agencies - Credit
Analysis & Research Limited (CARE) and Fitch Ratings India Private Limited.
The Bank's Fixed Deposit programme has been rated CARE AAA (FD)' [Triple
A] by CARE, which represents instruments considered to be 'of the best
quality, carrying negligible investment risk'. CARE has also rated the
bank's Certificate of Deposit (CD) programme 'PR 1+' which represents
'superior capacity for repayment of short term promissory obligations'.
Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned
the 'tAAA ( ind )' rating to the Bank's deposit programme, with the outlook
on the rating as 'stable'. This rating indicates 'highest credit quality'
where 'protection factors are very high'.

The Bank also has its long term unsecured, subordinated (Tier II) Bonds
rated by CARE and Fitch Ratings India Private Limited and its Tier I
perpetual Bonds and Upper Tier II Bonds rated by CARE and CRISIL Ltd. CARE
has assigned the rating of 'CARE AAA' for the subordinated Tier II Bonds
while Fitch Ratings India Pvt. Ltd. has assigned the rating 'AAA(ind)' with
the outlook on the rating as 'stable'. CARE has also assigned 'CARE AAA
[Triple A] for the Banks Perpetual bond and Upper Tier II bond issues.
CRISIL has assigned the rating 'AAA/Stable' for the Bank's perpetual Debt
programme and Upper Tier II Bond issue. In each of the cases referred to
above, the ratings awarded were the highest assigned by the rating agency
for those instruments.

Issuance of Equity Shares and Warrants:

The Reserve Bank of India (RBI) approved the scheme of amalgamation of
Centurion Bank of Punjab with your Bank effective May 23, 2008.
Consequently, the shareholders of the erstwhile Centurion Bank of Punjab
were allotted 69,883,956 equity shares of Rs. 10 each pursuant to the share
swap ratio of one equity share of Rs. 10 each of HDFC Bank for every twenty
nine equity shares of Re. 1 each held in Centurion Bank of Punjab by them
as on June 16, 2008. To enable the promoter group to restore its
shareholding percentage in the Bank to the pre-merger level and in line
with shareholder and regulatory approvals, during the quarter ended June
30, 2008 your Bank issued 26,200,220 warrants convertible into an
equivalent number of equity shares to HDFC Limited on a preferential basis
at a rate of Rs. 1,530.13 each. HDFC Limited can exercise the said options
until December, 2009.

During the year under review, 10.67 lakh shares were allotted to the
employees of your Bank pursuant to the exercise of options under the
employee stock option scheme of the Bank. These include the shares allotted
under the employee stock option scheme of Centurion Bank of Punjab.

Other Capital Raising:

During the Fiscal year 2008-2009 your bank issued Lower and Upper Tier II
bonds aggregating to Rs. 2,875 crores. The proceeds from these bond
issuances have been included as Tier II capital.

Employee Stock Options:

The information pertaining to Employee Stock Options is given in an
annexure to this report.

Capital Adequacy Ratio:

Your Bank's total Capital Adequacy Ratio (CAR) calculated in line with the
Basel II framework stood at 15.7%, well above the regulatory minimum of
9.0%. Of this, Tier I CAR was 10.6%. During the year under consideration
the Bank raised Tier II capital to maintain a healthy CAR. In the Fiscal
year 2008-2009 the Reserve Bank of India revised the risk weights accorded
to various asset classes which had a net positive impact on the Capital
Adequacy Ratio of your Bank.

From the current Financial year the Bank has complied with the standards
set out for the standardised approach for credit risk and the Basic
Indicator approach for operational risk under Basel II as directed by the
Reserve Bank of India. The implementation of the Basel II framework is in
harmony with the Bank's objective of adopting international best practices
in risk management. The Bank's CAR as per Basel II is 15.7% as compared to
15.09% calculated as per Basel I.

Amalgamation of Centurion Bank of Punjab Limited with the Bank:

During the year ended March 31, 2009, the Reserve Bank of India accorded
its consent to the Scheme of Amalgamation of Centurion Bank of Punjab
Limited with your Bank. Pursuant to the order of amalgamation the
operations of both Banks were merged with effect from May 23, 2008. The
appointed date for the merger was April 01, 2008. During the fiscal year
various facets of integration including systems, human resources, branches,
operating processes and business plans have been integrated. With the
result both banks currently operate as one seamlessly integrated entity.

SUBSIDIARY COMPANIES:

In terms of the approval granted by the Government of India, the provisions
contained under Section 212(1) of the Companies Act, 1956 shall not apply
in respect of the Bank's subsidiaries namely, HDFC Securities Limited (HSL)
and HDB Financial Services Limited (HDBFSL). Accordingly, a copy of the
Balance Sheet, Profit and Loss Account, Report of the Board of Directors
and Report of the Auditors of HSL and HDBFSL have not been attached to the
accounts of the Bank for the year ended March 31, 2009.

Investors who wish to have a copy of the annual accounts and detailed
information on HSL and HDBFSL may write to the Bank for the same. Further,
the said documents shall also be available for inspection by the investors
at the registered offices of the Bank, HSL and HDBFSL.

MANAGEMENT'S DISCUSSIONS AND ANALYSIS:

Macro-economic and Industry Developments:

The Indian economy faced significant slowdown in growth momentum in 2008-
09, driven by a severe downturn in the global economy on the back of
sustained pressure on the global financial system. For India, estimates of
2008-09 GDP growth range from 6.0%-7.0% against an average growth rate of
8.8% per annum over the period 2003-2008.

The key shock to India's growth has come from external sources, largely by
way of lower exports and a marked reduction in inflow of foreign capital.
While export growth entered into negative territory in the third quarter of
the financial year 2008-2009 against a growth rate of around 27% during the
same period last year, foreign inflows are likely to have contracted to USD
16 billion in 2008-09 from almost USD 100 billion in 2007-08. This has
dampened domestic investment momentum which was earlier a key growth driver
of the Indian economy. Growth in gross capital formation in the last
quarter of the financial year 2008-2009 fell to 5.3% from 13.7% a year ago.

The industrial sector has been the largest casualty of the marked slowdown
in both investment and imports, slowing from a growth rate of 8.9% in the
year ended March 31, 2008 to possibly 4-4.5% in the year ended March 31,
2009. Services, particularly financial services and trade & transport -
have also been impacted by the cyclical downturn in industry and the
external pressure from a tough global financial environment. We expect
growth in services to slow down from 10.8% in the fiscal year 2007-2008 to
9.4% in the financial year ended March 31, 2009.

In response to the severe pressure on global liquidity in the aftermath of
the collapse of Lehman Brothers in October, 2008, liquidity within the
domestic Indian banking system also came under substantial pressure. As
international credit lines froze, pressure on the domestic banking system
intensified. Since then, a series of moves by the Reserve Bank of India to
slash the Cash Reserve Ratio (CRR) and the key domestic policy rates have
improved the liquidity situation within the banking system. The central
bank cut the reverse repo and repo rate by a total of 250 bps and 400 bps
respectively since September 2008, and addressed liquidity pressures by
cutting the CRR and the Statutory Liquidity Ratio by a total of 400 bps and
100 bps respectively, leading to a liquidity surplus in the Indian banking
system since November 2008.

Interest rates too have mirrored the broad-based uncertainty in the global
economy and markets and have been very volatile since the global crisis
intensified last year. The overnight interbank call money rate as well as
deposit and lending rates spiked up sharply during the October 2008
liquidity shortage spell, impacting domestic growth prospects. Since
January 2009, however, inter-bank rates have eased substantially with the
overnight call money rate ruling around 3-4%, while longertenor yields have
moved higher by an average of 160 basis points (bps) in response to
concerns over a widening fiscal deficit spurred by an expansionary fiscal
policy. Effective lending and deposit rates have broadly tracked the down-
trend in policy rates, albeit at a much slower pace. While policy rates
have declined by an average of 250-400 bps, the lending rates of banks have
broadly scaled lower by 150-225 bps and deposit rates have come down by
100-150 bps.

Despite some easing of effective lending rates, credit growth has moderated
over the year, spiking up to a high of 29% in the October-November, 2008
period but falling steadily thereafter to a growth rate of 18.1% in March
2009. While the spike in credit growth in the third quarter of 2008-09 was
largely fuelled by demand from oil marketing and fertilizer companies
reeling under losses accumulated on the back of firm commodity prices as
well as some substitution of foreign sources of funding with domestic bank
credit, the decline in economy-wide credit demand in the fourth quarter of
2008-09 was broadly in sync with lower domestic growth. Retail consumer
borrowing slipped lower as consumer demand slowed down; pushing growth in
the retail loans lower to 14.8% in the financial year ended March 31, 2009
from 18-20% a year ago. Additionally, banks have been more cautious in
incremental retail lending in the face of rising delinquencies and higher
credit risk perception with the economic slowdown.

On the foreign trade side, merchandise exports plummeted over the course of
the year driven primarily by sharp deterioration in global growth.
Manufacturing export orders, in particular, have felt the brunt of the
slowdown in the global economy. In February 2009, domestic exports fell by
21.3% on the back of 15% contraction in January 2009 and export growth is
expected to slow down from 9% in 2008-2009 to around 3% in 2009-2010.

Both oil and non-oil imports have declined in response to a reduction in
commodity prices and deceleration in the domestic growth cycle. However,
the full impact of this reduction in domestic oil imports is likely to be
felt of the financial year 2009-2010. Thus, the trade deficit position
should improve significantly going forward with slower export performance
being more than offset by sharp reductions in non-oil and oil imports. We
therefore expect a reduction in the trade balance deficit from USD 119
billion in 2008-2009 to around USD 105 billion in 2009-2010. Net invisibles
(software exports and private transfers) are another category that could
remain flat or decrease marginally in response to slackness in global
growth. However, a lower trade balance should act as the main driver in
reducing the current account deficit from USD 30.9 billion in the financial
year ended March 31, 2009 to USD 14.5 billion for the same period next
year.

The total balance of payments position in the fiscal year ended March 31,
2009 was in deficit due to strong portfolio outflows and a sharp reduction
in foreign currency inflows in categories such as net Foreign Direct
Investment (FDI) and External Commercial Borrowing (ECB) flows. In fact,
for the first time in 10 years, the capital account showed a negative
balance of USD 3.7 billion. The capital account balance is likely to remain
under pressure in the next financial year. However, the sharp deficit seen
over the last fiscal year is unlikely to be repeated. Shortterm trade
credit flows could revive from the lows witnessed in the October-December
2008 period and provide some cushion to the capital account. FDI flows
could pick up towards the latter half of the financial year ending March
31, 2010 as global investors look for high yielding destinations such as
India. Thus, the capital account position is expected to improve next year
resulting in a much more comfortable position in the total balance of
payments.

Indian equity markets have fallen significantly over the course of the last
financial year due to a sharp pull out by portfolio flows and risk aversion
buying in the global markets. However, the domestic equity markets could
improve towards the latter half of the next financial year once global
investors start pricing in a global recession as Indian economic
fundamentals still remain strong and attractive in absolute terms. (Sources
: Ministry of Finance, RBI, CSO)

Risks and Concerns:

While adequate capital provisioning and stringent prudential regulations
have largely shielded the domestic banking system from the global crisis,
some cyclical deterioration in asset quality remains a concern for the
banking system. Bank credit, particularly in the retail segment, has been
an important driver of the consumption boom in India and has played a
significant role in pushing up the trend of the growth rate of the Indian
economy in the last few years. Recent stress tests have revealed that the
banking system as a whole remains robust enough to withstand a sharp
increase in asset quality slippage. An increase in delinquencies and non-
performing assets will nevertheless restrict the ability of the banks to
grow rapidly and both the economy and the banking system will have to align
themselves to a less buoyant growth outlook in the year ahead.

An increase in Investments has been a crucial anchor of growth in recent
years; buoyant global growth conditions have aided fresh investment
initiatives in recent years. Foreign capital has had a crucial role to play
in providing ready capital specifically streamlined to cater to financing
investment initiatives. A lack of such funds is likely to constrain a
sustained recovery in investment and capital growth in the year ahead.

Another risk that is likely to impact domestic growth conditions is the
possible de-stabilizing impact of a sharp fall in exports on industry.
India's export to GDP ratio rose from 12.5% in 2000-01 to 22% in 2007-08.
As industry scales back growth expectations, runs down inventories and
builds in a lower growth outlook, it is likely to undergo significant re-
adjustments and pose as a significant area of concern for both the banking
system and the economy at large.

At present, a recovery in consumption holds the key to a more stable growth
outlook for the Indian economy. High inflation and a tight monetary
environment acted as primary dampeners for consumption in the first half of
2008-09, with growth in consumption declining much before the financial
crisis acquired global proportion. Growth in private final consumption
expenditure fell to 5.3% in Q2FY09 as compared to 7.6% a year ago. Recent
monetary easing alongside a sharp fall in inflation is likely to provide
some support to consumption in the financial year 2009-10. However, the
possibility of contracting personal disposable incomes that may dilute the
positives of lower interest rates and prices remains a concern in the year
ahead.

Opportunities:

The problems of the international financial system are likely to persist in
2009-10 and this will impinge on India's ability to attract external
capital. The implication is that the domestic recovery will have to be
funded largely by the domestic financial system, particularly banks. This
substitution of global funding sources by domestic sources is likely to
create a number of opportunities for domestic finance. The Indian corporate
sector will, for a while to come, depend more on domestic funding both for
operating needs as well as for capacity expansion.

Infrastructure spending, for one, will continue to be used as a key
countercyclical policy tool. This creates opportunities for banks either
directly in project finance or in providing short term funds for companies
involved in these projects. Second, the rural sector has fared better than
the urban segment in the downturn - rural markets for goods and services
(including credit) appear to have been robust. This is partly due to the
fact that a number of the countercyclical policy initiatives have had a
rural bias (rural roads and irrigation projects for some). Given the
dependence of a large fraction of the population on the rural economy and
the fact that a number of product markets are under-penetrated, it provides
opportunities for sustained growth for a number of sectors.

Although growth in retail credit has moderated in the last year, the low
penetration levels of retail credit (estimated at less than 12% of GDP),
the shift in demographics towards a higher proportion of younger working
population, the changing attitudes towards borrowings, higher income levels
amongst the growing middle class, and the large pent-up demand for housing,
cars etc., all augur well for the long-term, sustainable growth of retail
lending in the Indian market.

Outlook:

The Indian economy is likely to continue to see further pressure in the
year ahead. Growth is likely to slowdown further from 6.7% in the year
ending March 31, 2009 to around 5.8% next year as industrial growth
continues to decelerate. Investment momentum is likely to remain subdued
amidst flat local demand even as an accommodative monetary policy alongside
receding inflationary risks, provide some support to growth. Demand for
credit is unlikely to recover till domestic growth conditions improve.
However, India will remain one of the fastest growing economies in the
world and if risk appetite and global stability were to stage a come-back
by the end of 2009-10, India will remain an attractive foreign investment
destination.

Mission and Business Strategy:

Our mission is to be 'a World Class Indian Bank', benchmarking ourselves
against international standards and best practices in terms of product
offerings, technology, service levels, risk management and audit &
compliance. The objective is to continue building sound customer franchises
across distinct businesses so as to be a preferred provider of banking
services for target retail and wholesale customer segments, and to achieve
a healthy growth in profitability, consistent with the Bank's risk
appetite. We are committed to do this while ensuring the highest levels of
ethical standards, professional integrity, corporate governance and
regulatory compliance.

Our business strategy emphasizes the following:

* Increase our market share in India's expanding banking and financial
services industry by following a disciplined growth strategy focusing on
balancing quality and volume growth while delivering high quality customer
service;

* Leverage our technology platform and open scaleable systems to deliver
more products to more customers and to control operating costs;

* Maintain high standards for asset quality through disciplined credit risk
management;

* Develop innovative products and services that attract our targeted
customers and address inefficiencies in the Indian financial sector;

* Continue to develop products and services that reduce our cost of funds;
and

* Focus on healthy earnings growth with low volatility.

Financial Performance:

The merger of Centurion Bank of Punjab Limited (CBoP) with HDFC Bank was
effected during the year with April 1, 2008 as the appointed date. The
financial results for the year ended March 2009 are therefore for the
merged entity, whilst the results for the year ended March 2008 are on a
standalone basis for HDFC Bank and are therefore not comparable.

The financial performance during the fiscal year 2008-09 remained healthy
with total net revenues (net interest income plus other income) increasing
by 42.6% to Rs. 10,711.8 crores from Rs. 7,511.0 crores in 2007-08. The
revenue growth was driven both by an increase in net interest income and
other income. Net interest income grew by 42.0% primarily due to increase
in the average balance sheet size by 46.5% (including the impact of the
merger of CBOP) and a net interest margin of 4.2%.

Other income registered a growth of 44.1% over that in the previous year to
Rs. 3,290.6 crores in the current year, primarily due to fees and
commissions, profit/loss on revaluation and sale of investments and income
from foreign exchange and derivatives. In 2008-09, commission income
increased by 43.3% to Rs. 2,457.3 crores with the main drivers being
commission from distribution of third party insurance and mutual funds,
fees on debit/credit cards, transactional charges and fees on deposit
accounts, processing fees of retail assets and cards, and fees from cash
management and trade products. With bond yields having fallen over 100 bps
to 150 bps across tenors, the Bank made a profit on sale / revaluation of
investments of Rs. 382.6 crores during the year. Foreign exchange and
derivatives revenues grew from Rs. 319.8 crores to Rs. 440.5 crores of
which, over 80% came from customer foreign exchange transactions. The Bank
incurred a loss of Rs. 158.2 crores on account of derivative transactions
during the year ended March 31, 2009. The said loss is primarily
attributable to the unwinding of certain trading positions and due to
contrary positions taken against bond trading positions as a part of risk
strategy.

Operating (non-interest) expenses increased from Rs. 3,745.6 crores in
2007-08 to Rs. 5,532.8 crores in 2008-09, due to the organic expansion in
the Branch network and the amalgamation of Centurion Bank of Punjab (which
had a significantly higher cost-income ratio than HDFC Bank) with your
Bank. The Bank now has a significantly larger network and reach across the
country as compared to that at the end of the previous financial year. This
has resulted in higher infrastructure and staffing expenses. Operating cost
to net revenues increased to 51.7%, from 49.9% in the corresponding year.
Staff expenses accounted for 40.5% of non-interest expenses in 2008-09, due
to an increase in staff strength and increase in average salary levels.
Loan loss provisions and provision for standard assets increased from Rs.
1,216.0 crores to Rs. 1,726.3 crores in 2008-09 in line with the increase
in nonperforming assets and the Bank's policy of providing aggressively in
excess of the regulatory requirements. The Bank also provided Rs. 152.8
crores as contingent provisions for tax, legal and other contingencies.

Net profit increased by 41.2% from Rs. 1,590.2 crores in 2007-08 to
Rs.2,245.0 crores in 2008-09. Return on average net worth was constant at
16.1% even on an enhanced equity base (due to merger with CBoP). The Bank's
basic earning per share increased from Rs. 46.2 to Rs. 52.9 per equity
share.

During 2008-09, the Bank's total balance sheet increased by 37.6% over that
on March 31, 2008 to Rs. 183,270.8 crores. Total Deposits increased from
Rs. 100,768.6 crores (as of March 31, 2008) to Rs. 142,811.6 crores (as of
March 31, 2009). With Savings account deposits at Rs. 34,914.7 crores and
current account deposits at Rs. 28,444.9 crores, demand (CASA) deposits
were around 44.4% of total deposits as of March 31, 2009. During 2008-09,
gross advances grew by 48.3% to Rs. 100,239.3 crores. This was driven by a
growth of 38.3% in wholesale advances to Rs. 39,085.8 crores, and an
increase of 55.5% in retail advances to Rs. 61,153.5 crores.

Business Segments' Update:

Consistent with its performance in the past, this year too the bank has
achieved healthy growth across various operating and financial parameters.
The performance reflects the strength and diversity of the bank's three
primary business franchises - retail banking, wholesale banking and
treasury, and of its disciplined approach to risk - reward management.

Retail Banking:

The growth in your Bank's retail banking business was robust during the
current financial year. The Bank's retail deposits grew by over 63.7% to
Rs. 99,276.5 crores at the end of the financial year ended March 31, 2009,
while its retail assets grew by 55.5% to Rs. 61,153.5 crores during the
same period. The Bank caters to various customer segments with a wide range
of products and services. HDFC Bank is a one stop shop financial services
provider of deposit products of virtually all types, of retail loans (auto
loans, personal loans, commercial vehicle loans, etc.), credit cards, debit
cards, depository (custody services), investment advisory, bill payments
and several transactional services. Apart from its own products, the Bank
sells third party financial products like mutual funds and insurance.

Branch Banking:

This year the Bank significantly expanded its distribution network - from
761 branches in 327 cities in March 2008 to 1,412 branches in 528 Indian
cities in March 2009. The Bank's ATMs increased from 1,977 to 3,295 during
the same period. The expansion of the network was due to a combination of
organic growth and the amalgamation of Centurion Bank of Punjab. Today your
Bank's branch network is deeply entrenched across the country with
significant density in areas conducive to the growth of its businesses. The
Bank's focus on semi-urban and under-banked markets continued, with 64% of
the Bank's branches now outside the top nine Indian cities. The Bank's
customer base grew in line with the growth in its network and currently
stands at over 18 million customers. The number of savings accounts grew
almost 70% to approximately 10 million and savings balances which is a good
indicator of the Banks retail liability franchise grew 33.5% to Rs.34,914.7
crores at the end of the current financial year. The Bank continues to
provide unique products and services with customer centricity a key
objective. The Bank's Imperia premium, preferred and classic banking
services seeks to address the diverse needs of different customer segments
in the personal banking space, with specifically trained personnel and
customized products.

In order to provide its customers increased choices, flexibility and
convenience the Bank continued to make significant headway in its multi
channel servicing strategy. The Bank offered its customers the use of ATMs,
internet banking, phone banking and mobile banking in addition to its
expanded branch network to serve their banking needs. The Bank increased
its debit card base by 57.8% this year which translated to increased usage
at its ATMs, providing greater convenience to customers while easing the
load at the Bank's branches and reducing servicing costs. The Bank also

made strong inroads in its internet banking with around 20% of its
registered customers now using net banking facilities for their banking
requirements. Your bank now offers phone banking in over 500 locations in
addition to giving its customers the ease of accessing their bank accounts
over their mobile phones. The success of the Bank's multi-channel strategy
is evidenced in the fact that almost 80% of customer initiated transactions
are serviced through the non-branch channels.

Retail Assets:

Your Bank continued to grow at a healthy pace in almost all the retail loan
products in which it operates and remains amongst the top lenders in retail
assets products in India. The Bank grew its retail asset portfolio in a
well balanced manner by focusing on both returns as well as risk. The
Bank's auto finance business remained a key business driver for its retail
asset portfolio. Additionally other key retail loan products exhibited
robust growth rates and asset quality.

The Bank continued its focus on internal customers for its credit cards
portfolio. Although there was an increase in delinquencies for certain
segments, credit card losses were lower than industry figures. Overall
credit cards remained a profitable business for your Bank with over 4.3
million cards in force as at March 2009.

The Bank also has a significant presence in the 'merchant acquiring'
business with the total number of point-of-sale (POS) terminals installed
at over 70,000.

In addition to the above products the Bank originates home loans under its
arrangement with HDFC Limited, the Bank originated approximately an average
Rs. 3,500 crores of these products every month in the financial year ended
March 31, 2009. During the year the bank also purchased from HDFC Ltd.
under the 'loan assignment' route approximately Rs. 4,000 crores of AAA
credit enhanced home loans which qualified as priority sector advances. Of
these, approximately Rs. 2,000 crores were originated by the Bank.

The Bank also distributes life and general insurance products through its
tie-ups with insurance companies and mutual fund houses in the country. The
success in the distribution of the above products has been demonstrated
with the growth in the Bank's fee income.

The Bank's data warehouse, Customer Relationship Management (CRM) and
analytics solutions have helped it target existing and potential customers
more effectively and cost effectively and offer them products appropriate
to their profile and needs. Reduced costs of acquisition apart, this has
also led to deepening of customer relationships and greater efficiency in
fraud control and collections resulting in lower credit losses.

Wholesale Banking:

The wholesale banking business registered a healthy growth in 2008-09. In
this business, the Bank provides its corporate and institutional clients a
wide range of commercial and transactional banking products, backed by high
quality service and relationship management. The Bank's commercial banking
business covers not only the top end of the corporate sector but also the
emerging corporate segments and some small and medium enterprises (SMEs).
The Bank has a number of business groups catering to various segments of
its wholesale banking customers with a wide range of banking services
covering their working capital and term finance, trade services, cash
management, foreign exchange and electronic banking requirements.

During financial year 2008-09, growth in the wholesale banking business
continued to be driven by new customer acquisition and higher cross-sell
with a focus on optimizing yields and increasing product penetration. Your
Bank's cash management and vendor & distributor (supply chain) finance
products continued to be an important contributor to growth in the
corporate banking business. Your Bank further consolidated its position as
a leading player in the cash management business (covering all outstation
collection, disbursement and electronic fund transfer products across the
Bank's various customer segments) with volumes growing to over Rs. 22
trillion. Your Bank also strengthened its market leadership in cash
settlement services for major stock exchanges and commodity exchanges in
the country. The Bank met the overall priority sector lending requirement
of 40% of net bank credit.

The Bank's financial institutions and government business group (FIG)
offers commercial and transaction banking products to financial
institutions, public sector undertakings, central and state government
departments. The main focus for this segment remained offering various
deposit and transaction banking products to this segment besides deepening
these relationships by offering funded, non-funded treasury and foreign
exchange products.

International Operations:

In October 2008, your bank opened its first overseas commercial branch in
Bahrain. The branch offers the bank's suite of banking services including
treasury and trade finance products for corporate clients and wealth
management products for Non-resident Indians. The Bahrain branch will serve
as your bank's gateway into the middle-east tapping the growth potential in
this region.

Treasury:

The treasury group is responsible for compliance with reserve requirements
and management of liquidity and interest rate risk on the Bank's balance
sheet. On the foreign exchange and derivatives front, revenues are driven
primarily by spreads on customer transactions based on trade flows and
customers' hedging needs. During 2008-09, revenues from foreign exchange
and derivative transactions grew by 37.7% to Rs. 440.5 crores where the
revenues were distributed across large corporate, emerging corporate,
business banking and retail customer segments for plain vanilla forex
products and across primarily large corporate and emerging corporate
segments for derivatives. The Bank offers Indian rupee and foreign exchange
derivative products to its customers, who use them to hedge their market
risks. The Bank enters into forex and derivative deals with counterparties
after it has set up appropriate counterparty credit limits based on its
evaluation of the ability of the counterparty to meet its obligations in
the event of crystallization of the exposure. Appropriate credit covenants
are stipulated where required as trigger events to call for collaterals or
terminate a transaction and contain the risk. Where the Bank enters into
foreign currency derivative contracts with its customers it lays them off
in the inter-bank market on a matched basis. For such foreign currency
derivatives, the Bank does not have any open positions or assume any market
risks but carries only the counterparty credit risk (where the customer has
crystallized or mark-tomarket losses). The Bank also deals in Indian rupee
derivatives on its own account including for the purpose of its own balance
sheet risk management. The Bank recognizes changes in the market value of
all rupee derivative instruments (other than those designated as hedges) in
the profit and loss account in the period of change. Rupee derivative
contracts classified as hedge are recorded on an accrual basis.

Given the regulatory requirement of holding government securities to meet
the statutory liquidity ratio (SLR) requirement, your Bank has to
necessarily maintain a portfolio of government securities. While a
significant portion of these SLR securities are held in the 'Held-to-
Maturity' (HTM) category, some of these are held in the 'Available for
Sale' (AFS) category. In the current year the Bank realized gains on its
bond portfolio in a declining interest rate environment.

Service Quality Initiatives:

Your Bank continued to improve customer service in various spheres of its
business through Service Quality Initiatives and Quality Projects using
Lean Sigma Tool-kit, 5S and other business excellence initiatives. Over
1,500 projects were executed during the year that resulted in a significant
reduction of turn around times for various processes, process efficiency
improvements, cost reduction, enhanced productivity and ultimately improved
customer service.

Your Bank has integrated the customer complaints management processes with
the existing service quality initiatives to achieve greater synergies
towards driving service excellence. Service quality initiatives include the
audit of services and improvement on the areas identified on the basis of
customer feedback on experiences at various touch-points. Your Bank also
integrated service quality objectives with the Business Objectives of the
Bank to bring a coordinated approach towards improving business by
delighting customers. New elements were added and renewed improvement
schemes were installed using technology to ensure customer convenience,
security of transactions and reduce transaction cost. The service quality
improvement drive was implemented for business units of the bank as well as
key support departments.

The Bank plans to use this platform to drive systemic changes and process
re-engineering using technology and Service Quality Initiatives to further
enhance customer experience and business value.

Risk Management & Portfolio Quality:

The Bank in the course of its business is exposed to various risks, of
which the most important are credit risk, market risk (including liquidity
risk and price risk) and operational risk. The identification, measurement,
monitoring and control of risks remain key aspects of the Bank's risk
management system. Sound risk management supported by a balanced risk-
reward trade-off is critical to achieving the Bank's business strategy for
business and revenue growth. Specific to credit risk, the Bank has distinct
policies and processes in place for the retail and wholesale businesses.
The credit cycle in the retail assets business is managed through
appropriate front-end credit, operational and collection processes. There
are programs for each product, which define the target customer segments,
underwriting standards, security structure etc., to ensure consistency of
credit origination patterns. Given its granularity, the retail credit
portfolio is managed largely on a portfolio basis, across various products
and customer segments. During the year the Bank obtained an ISO 9001:2008
certification for its retail asset underwriting. Credit risk in the
wholesale business is managed through target market definition,
comprehensive credit assessment, appropriate approval process, ongoing
post-disbursement monitoring and remedial management procedures. The risk
in the portfolio is managed and mitigated by periodic reviews and
diversification across individual borrowers, related borrowers, industries,
sectors etc.

As of March 31, 2009, the Bank's ratio of gross Non-Performing Assets
(NPAs) to total customer assets was 1.98%. The Bank's ratio of gross NPAs

was 1.3% on March 31, 2008, which moved to 1.7% immediately after the
merger of CBOP. Of the total gross NPAs on March 31, 2009 around 42% were
on account of the merger. Net non-performing assets (gross non-performing
assets less specific loan loss provisions, interest in suspense and ECGC
claims received) were 0.6% of customer assets as of March 31, 2009. The
specific loan loss provisions that the Bank has made for its nonperforming
assets continue to be more conservative than the regulatory requirement.

In accordance with the guidelines issued by Reserve Bank of India on the
New Capital Adequacy Framework (Basel II), the Bank has migrated to the
Standardised Approach for Credit Risk and the Basic Indicator Approach for
Operational Risk effective March 31, 2009. The Bank, simultaneously,
progresses on its initiatives towards meeting the standards set out for the
more advanced capital approaches under Basel II. These initiatives cover

enhancement of the Bank's risk management architecture, capabilities,
processes, systems and technology in areas such as ratings systems,
borrower segmentation, exposure aggregation, risk mapping, risk estimation
and capital computation.

INTERNAL AUDIT & COMPLIANCE:

The Bank has Internal Audit & Compliance functions which are responsible
for independently evaluating the adequacy of all internal controls and
ensuring operating and business units adhere to internal processes and
procedures as well as to regulatory and legal requirements. The audit
function also proactively recommends improvements in operational processes
and service quality. To ensure independence, the Audit department has a
reporting line to the Chairman of the Board of Directors and the Audit &
Compliance Committee of the Board and only indirectly to the Managing
Director. To mitigate operational risks, the Bank has put in place
extensive internal controls including restricted access to the Bank's
computer systems, appropriate segregation of front and back office
operations and strong audit trails. The Audit & Compliance Committee of the
Board also reviews the performance of the Audit & Compliance functions and
reviews the effectiveness of controls and compliance with regulatory
guidelines.

CORPORATE SOCIAL RESPONSIBILITY:

Corporate Social Responsibility:

As its operations have grown your bank has retained its focus on various
areas of corporate sustainability that impact the socio economic ecosystem
that we are part of. HDFC Bank's focus in the area of corporate
sustainability includes social sustainability & social welfare and
financial inclusion.

Social Sustainability & Social Welfare:

Your Bank is committed to making a positive impact across the local
communities it is present in and the society at large. The bank has
initiated a number of programs to encourage economic, social and
educational development within the communities that it operates; while at
the same time contributing to several grass root level development programs
across these geographies. The foundation of social sustainability is based
on creating employment opportunities. Your bank directly employs 52,687
people across the nation while at the same time generating opportunities
for thousands of others through its vast network of agents, suppliers and
contractors.

Your Bank believes that the benefits of economic growth should percolate to
all sections of society and the best means to action this is to use
education and skills training as the means of intervention to impact its
objectives for the overall development of society. In the year 2008-2009
towards its aim of quality education the Bank has supported a variety of
educational programs ranging from educational sponsorships for girls,
adoption of state-run schools, running of academic support classes and
reading classes. Apart from these initiatives the Bank also provide skills
training to school dropouts, youth, women and other disadvantaged groups.

The Bank's social development programs have so far touched the lives of
around 17,000 children and 3,000 youth. The Bank has also initiated a
'Social and Financial literacy Program' for school children to educate them
on the importance of savings, to enable them differentiate between healthy
and unhealthy spending, cultivate financial best practices and to take
financial decisions based on real needs.

Financial Inclusion:

Microfinance has, in recent times come to be recognized as one of the key
developmental tools that can be harnessed for alleviating poverty through
social and economic empowerment of the poor. Your bank was one of the early
movers to enter into the microfinance sector five years ago. Considering
the huge impact on the livelihoods and empowerment of the rural poor, the
bank has adopted different business models in order to reach segments of
the rural poor. The Bank's microfinance program provides access to
financial services such as credit, savings, insurance, money transfers etc.
to the poor in a sustainaible and commercially viable manner.

Bulk lending to Microfinance Institutions:

The Bank has successfully implemented the bulk bank linkage model. Under
this program which has been growing rapidly the bank extends bulk loans to
micro finance institutions for onward lending to women enabling them to
undertake income generation activities. The bank in partnership with 104
Microfinance institutions and 203 NGOs has extended credit facilities
exceeding Rs. 700 crores in 17 states and has financially included over 2
million rural households creating inroads to alleviate poverty that is
prevalent in certain sections of the country.

Lending to Self Help Groups:

As part of its commitment towards social banking and facilitating community
development, the Bank has played an active role in providing financial
services through Self Help Groups (SHGs) under the business correspondent
model and considers it as a potential initiative for delivering financial
services to the rural poor in a sustainable manner. Under the SHG bank
linkage programme, the bank has financed around 43,000 SHGs with an amount
of over Rs. 200 crores and has brought in approximately 6 lakh households
under financial inclusion through business correspondent partners. These
SHGs are provided with No Frill Savings Account, Closed User Group ATM
cards and Point of Sale terminals for delivering financial services using
low cost technology at their doorsteps. The bank has also facilitated a
platform through online market linkage facility for SHGs undertaking micro
entrepreneurial activity.

With the view to imparting financial literacy, bank has published financial
literacy booklet in regional language and has devised a short film for
financial counselling.

Health and Hygiene:

Under its health care project, the bank has provided financial assistance
to a number of villages for the construction of basic sanitation
facilities. The society formed through this initiative motivated and
educated people on the importance of basic sanitation. Villagers were
convinced to come together to form federations and manage the funds and
their deployment. These village level committees undertook the sanitation
project with the support of the Bank.

Water security and the provision of safe drinking water is a fundamental
requirement for sustainable development. The Bank provides financial
support to village level SHG federations comprising 800 families in
Sivanarpuram and Keerapalayam part of the Cuddalore district that lack
potable water due to iron chlorosis, turbity, microbial contamination etc.
This federation along with its technology partner plans to set up a safe
drinking water' plant. This grass roots approach of introducing applicable
technology achieves the twin objectives of providing drinking water a basic
right, and also serves as an income generation program.

The employees of your Bank form the core of all its CSR programs and
continue to contribute actively, through corporate volunteering. Under the
bank's payroll contribution program amounts donated by the employees are
matched by the bank. In response to the Bihar floods the employees of the
bank donated a day's basic salary to the prime ministers relief fund.

Your Bank continues to focus in designing financially sustainable models
that encourage community participation, ownership and wide outreach. The
Bank has opened 12 specialised microfinance branches in the states of
Tamilnadu, Andhra Pradesh and Orissa to cater to the needs of the above
initiatives.

HUMAN RESOURCES:

The total number of employees of your bank increased from 37,836 as on
March 31, 2008 to 52,687 as of March 31, 2009. The growth in the employee
base was in line with the growth in the banks businesses and distribution
both inorganically as well as organically. The Bank continues to focus on
training its employees on a continuing basis, both on the job and through
training programs conducted by internal and external faculty. The Bank has
consistently believed that broader employee ownership of its shares has a
positive impact on its performance and employee motivation.

HDFC Bank lists 'people' as one of its stated values. The Bank believes in
empowering its employees and constantly takes various measures to achieve
this.

STATUTORY DISCLOSURES:

The information required under Section 217(2A) of the Companies Act, 1956
and the rules made thereunder, are given in the annexure appended hereto
and forms part of this report. In terms of section 219(1)(iv) of the Act,
the Report and Accounts are being sent to the shareholders excluding the
aforesaid annexure. Any shareholder interested in obtaining a copy of the
said annexure may write to the Company Secretary at the Registered Office
of the Bank. The Bank had 52,687 employees as on March 31, 2009. 515
employed throughout the year were in receipt of remuneration of more than
Rs. 24.0 lakhs per annum and 54 employees employed for part of the year
were in receipt of remuneration of more than Rs. 2.0 lakhs per month.

The provisions of Section 217(1)(e) of the Act relating to conservation of
energy and technology absorption do not apply to your Bank. The Bank has,
however, used information technology extensively in its operations.

The report on the Corporate Governance is annexed herewith and forms part
of this report.

RESPONSIBILITY STATEMENT:

The Board of Directors hereby state that:

i) in the preparation of the annual accounts, the applicable accounting
standards have been followed along with proper explanation relating to
material departures;

ii) we have selected such accounting policies and applied them consistently
and made judgments and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of the Bank as on March
31, 2009 and of the profit of the Bank for the year ended on that date;

iii) we have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Bank and for
preventing and detecting frauds and other irregularities;

iv) we have prepared the annual accounts on a going concern basis.

DIRECTORS:

Mr. Vineet Jain resigned as a Director of the Bank with effect from
December 27, 2008. Your Directors wish to place on record their sincere
appreciation of the contribution made by Mr. Jain during his tenure as a
Director.

Mr. Arvind Pande and Mr. Ashim Samanta retire by rotation at the ensuing
Annual General Meeting and being eligible offer themselves for re-
appointment.

The brief resume/details relating to the Directors who are to be re-
appointed are furnished in the report on Corporate Governance.

AUDITORS:

The Auditors M/s. Haribhakti & Co., Chartered Accountants will retire at
the conclusion of the forthcoming Annual General Meeting and are eligible
for re-appointment. Members are requested to consider their re-appointment
on remuneration to be decided by the Audit and Compliance Committee of the
Board. The re-appointment of Auditors is subject to the approval of the
Reserve Bank of India.

ACKNOWLEDGEMENT:

Your Directors would like to place on record their gratitude for all the
guidance and co-operation received from the Reserve Bank of India and other
Government and Regulatory Agencies. Your Directors would also like to take
this opportunity to express their appreciation for the hard work and
dedicated efforts put in by the Bank's employees and look forward to their
continued contribution in building a World Class Indian Bank.

On behalf of the Board of Directors

Jagdish Capoor
Place: Mumbai, Chairman
Date : April 23, 2009

Annexure to Directors' Report for the year ended March 31, 2009

EMPLOYEES' STOCK OPTIONS:

Details of the stock options granted, vested, exercised and forfeited &
expired during the year under review are as under :

Scheme(s) Exercise Options Options Options
Price (Rs.) Granted Vested Exercised
& Shares
Allotted*

ESOS IV 358.60 - - 55500
ESOS V 366.30 - - 23400
ESOS VI 362.90 - - 23000
ESOS VII 630.60 - 1726800 700200
ESOS VIII 994.85 - 728800 28500
ESOS IX 994.85 - 703400 22200
ESOS X 1098.70 - 327500 -
ESOS XI 1098.70 - 672400 1300
ESOS XII 1098.70 - 3051800 14000
ESOS XIII 1126.45 1253000 - -
eCBOP - Key ESOP 116.00 - - 41380
eCBOP 2004 - Scheme 1 565.50 - - 680
eCBOP 2004 - Scheme 2 442.25 - - 15473
eCBOP 2004 - Scheme 3 442.25 - - 2450
eCBOP 2004 - Scheme 4 442.25 - 26663 17442
eCBOP 2004 - Scheme 5 536.50 - 300207 37831
eCBOP 2004 - Scheme 6 536.50 - 7407 21606
eCBOP 2004 - Scheme 7 593.05 - 46946 62064
eCBOP 2004 - Scheme 8 859.85 - 99925 207
eCBOP 2007 - Scheme 1 1162.90 - 742495 -
eCBOP 2007 - Scheme 2 1258.60 - 214764 -
Total 1253000 8649107 1067233

Scheme(s) Options Options Total Options
Forfeited Lapsed in Force
as on
March 31,2009

ESOS IV - - 202300
ESOS V - - 99700
ESOS VI - - 85200
ESOS VII 38400 75200 2395600
ESOS VIII 163500 4000 2535900
ESOS IX 119600 9600 2299000
ESOS X 41000 29000 585000
ESOS XI 46400 10800 1277000
ESOS XII 147600 3800 5901100
ESOS XIII - - 1253000
eCBOP - Key ESOP - - 122070
eCBOP 2004 - Scheme 1 - 600 3999
eCBOP 2004 - Scheme 2 - 2950 44231
eCBOP 2004 - Scheme 3 - - 15369
eCBOP 2004 - Scheme 4 - 6178 25603
eCBOP 2004 - Scheme 5 31671 14239 391801
eCBOP 2004 - Scheme 6 6706 1112 56400
eCBOP 2004 - Scheme 7 63181 6455 394041
eCBOP 2004 - Scheme 8 10622 16871 224819
eCBOP 2007 - Scheme 1 121239 78017 1285402
eCBOP 2007 - Scheme 2 18534 14243 396492
Total 808453 273065 19594027

* One (1) share would arise on exercise of one (1) stock option.

Other details are as under :

Money realized by exercise of options:

The Bank received Rs. 106.7 lacs towards share capital and Rs. 6,246.4 lacs
towards share premium (net of Fringe Benefit Tax) on account of 1,067,233
stock options exercised and allotted during the year under review.

Pricing Formula for ESOS XIII:

Closing market price on the stock exchange where there is highest trading
volume on the immediately preceding working day of the date of grant.

Details of options granted to:

i. Directors & Senior managerial personnel:

Name Options Granted

Abhay Aima 75000
Aditya Puri 175000
Ashish Parthasarthy 75000
Harish Engineer 100000
Kaizad Bharucha 75000
Mandeep Maitra 75000
Navin Puri 75000
Paresh Sukthankar 175000
Pralay Mondal 75000
Rahul Bhagat 75000
Rajan Ananthanarayan 75000
Sashi Jagdishan 75000

ii. Other employee who receives a grant in any one year of option amounting
to 5% or more of option granted during that year:

None

iii. Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issuedcapital (excluding outstanding
warrants and conversions) of the company at the time of grant:

None

Variation of terms of Options:

The Compensation Committee at its meeting held on 14th January 2009 has
approved the following variations subject to the approval of the members :

1) The exercise period in respect of options granted under Schemes ESOS
VIII to XIII of the Bank was extended from 2 years from the date of vesting
to 4 years from the date of vesting and in the case of options granted
under ESOS VII the exercise period was extended to 4 years from the date of
vesting in respect of the second and third tranches that were vested on
18th July 2007 and 18th July 2008 respectively.

2) In respect of the options granted by the erstwhile Centurion Bank of
Punjab Limited under its various employee stock option schemes and
outstanding as on 14th January 2009, the exercise period was extended to
six months from the last working day of the employee in the Bank in line
with the terms applicable to the other employees of the Bank under the
existing Schemes, in the event of resignation from employment for reasons
other than retirement.

Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of
option calculated in accordance with Accounting Standard (AS) - 20
(Earnings Per Share):

The Diluted EPS of the Bank calculated after considering the effect of
potential equity shares arising on account of exercise of options is Rs.
52.6.

Where the company has calculated the employee compensation cost using the
intrinsic value of the stock options, the difference between the employee
compensation cost so computed and the employee compensation cost that shall
have been recognized if it had used the fair value of the options, shall be
disclosed. The impact of this difference on profits and on EPS of the
company shall also be disclosed:

Had the Bank followed fair value method for accounting the stock option
compensation expense would have been higher Rs. 156.6 crores. Consequently
profit after tax would have been lower by Rs. 103.4 crores and the basic
EPS of the Bank would have been Rs. 50.42 per share (lower by Rs. 2.43 per
share) and Diluted EPS would have been Rs. 50.17 per share (lower Rs. 2.42
per share)

Weighted-average exercise prices and weighted-average fair values of
options shall be disclosed separately for options whose exercise price
either equals or exceeds or is less than the market price of the stock
options:

The weighted average price of the stock options exercised is Rs. 595.29 and
the weighted average fair value is Rs. 333.45

A description of the method and significant assumptions used during the
year to estimate the fair values of options, at the time of grant including
the following weighted-average information:

The Securities Exchange Board of India (SEBI) has prescribed methods to
account for stock grants; (i) the intrinsic value method; (ii) the fair
value method. The Bank adopts the intrinsic value method to account for the
stock options it grants to employees. The Bank also calculates the fair
value of options the time of grant, using internally developed and tested
model with the following assumptions :

i. Risk-free interest rate,

It will remain between 9.2% to 9.3%

ii. Expected life,

1-4 years

iii. Expected volatility,

It will be around 39.71%

iv. Expected dividends, and:

0.8%

v. The price of the underlying share in market at the time of option grant:

The per share market price was Rs. 1,126.45 at the time of grant of options
under ESOS XIII

The compensation committee, at its meeting held on January 14, 2009,
accorded its approval for extending the life of some of the during the year
ended March 31, 2009 are :

March 31, 2009

Dividend Yield 0.9%
Expected volatility 47.13%
Risk-free interest rate 4.5%-5.2%
Expected life of the option 1-6 years

The incremental share based compensation determined under fair value based
method amounts to Rs. 43.2 crores.