927685-hdfc bank annual report 2014

HDFC BANK OF SRI LANKA | Annual Report 2014

WinningFormula

Milestones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Financial Highlights of the Year . . . . . . . . . . . . . . . . . . . . . . 4Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Our Vision / Our Mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Our Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Our OrganisationChairman’s Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12General Manager/ CEO’s Review . . . . . . . . . . . . . . . . . . . . 16

Our Approach to BusinessOur Business Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Our Business Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Building social capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Creating Economic Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 28Mobile Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Management Discussion & AnalysisManagement Discussion & Analysis . . . . . . . . . . . . . . . . . 34Branch Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39HR Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Community Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . 47IT Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Organisational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Profile of the Board of Directors . . . . . . . . . . . . . . . . . . . . . 56Corporate Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 59Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66Regional Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Governance and Risk ManagementRisk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75The Report of the Directors . . . . . . . . . . . . . . . . . . . . . . 107The Report of the Board Audit Committee . . . . . . . . . . 112The Report of the Board Human Resource and

Remuneration Committee . . . . . . . . . . . . . . . . . . . . . . 114

The Report of the Board Nomination Committee . . . . . 116The Report of the Board Integrated

Risk Management Committee . . . . . . . . . . . . . . . . . . . 117The Report of the Board Related Party

Transaction Monitoring Committee . . . . . . . . . . . . . . 118Assurance Report of the Auditor General on

Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Directors’ Statement on Internal Control . . . . . . . . . . . . 121Attendance for Board and Other Sub Committee

Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

Financial InformationDirectors’ Responsibility for Financial Reporting . . . . . . 128Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137Statement of Comprehensive Income . . . . . . . . . . . . . . 138Statement of Financial Position . . . . . . . . . . . . . . . . . . . 139Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . 140Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 141Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142Notes to the Financial Statement . . . . . . . . . . . . . . . . . . 146Measurement of Financial Instruments . . . . . . . . . . . . . 164Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166Risk Adjusted on - Balance Sheet Exposure . . . . . . . . . 167Share Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168Value Added Statement . . . . . . . . . . . . . . . . . . . . . . . . . 171Ten Year Statistical Summary . . . . . . . . . . . . . . . . . . . . . 172Debt Securities Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . 173Notice of the Annual General Meeting . . . . . . . . . . . . . 174Form of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Contents

1 HDFC BANK OF SRI LANKA | Annual Report 2014

Our sustainable business strategies and team of dedicated people, have created the perfect winning formula. We ensure a win-win situation for all our stakeholders by learning from the past and planning not only for today, but also for tomorrow. We are confident our winning formula will see more families achieve their dream of a permanent home as we enhance our services into the future.

WinningFormula

= Idea Generation

1984Incorporated as a Building Society

2000Converted to a Public Corporation

2003Obtained the status of a Licensed

Specialised Bank2011

Achieved LKR 2,000 Mn capital requirement

Reached LKR 20 Bn Balance Sheet.

Amendments to HDFC Act for new phase of growth

2005Listed at the Colombo Stock

Exchange.

2013Business Expansion, new Product Development and a new 3-year

Strategy for 2014-2016 Phase of Growth

2012Initiated Business

Diversification Plans beyond Housing Finance

Reached LKR 2,500 Mn Capital

2014Reached LKR 34 Bn Balance

Sheet

2010• NBEA Award by NCCSL

• Golden MACO Award

2011• ACCA Sustainability Reporting Award 2010

Winner Small Scale Category

• ACCA Sustainability Reporting Award 2010

First Time Report

• National Business Excellence Award by NCCSL

Merit Award

• Annual Report Awards by The Institute of Chartered Accountants of Sri Lanka

Certificate of Compliance

2012• National Business Excellence Awards 2012

Merit Award

• Chartered Accountants Annual Report Awards 2012

Bronze Award for Financial Institutions

• Corporate Accountability Rating by STING Consultants

SILVER


Small Scale Category

2013• Corporate Accountability Rating by STING

Consultants

SILVER


Runner-up Award Banking, Finance & Insurance sector

2014• Association of Development Financing

Institutions in Asia and the Pacific (ADFIAP),

Best Annual Report Award

The Institute of Chartered Accountants of Sri Lanka Certified


Microfinance

Business Finance

2

1984Incorporated as a Building Society

2000Converted to a Public Corporation

2003Obtained the status of a Licensed

Specialised Bank2011

Achieved LKR 2,000 Mn capital requirement

Reached LKR 20 Bn Balance Sheet.

Amendments to HDFC Act for new phase of growth

2005Listed at the Colombo Stock

Exchange.

2013Business Expansion, new Product Development and a new 3-year

Strategy for 2014-2016 Phase of Growth

2012Initiated Business

Diversification Plans beyond Housing Finance

Reached LKR 2,500 Mn Capital

2014Reached LKR 34 Bn Balance

Sheet

2010• NBEA Award by NCCSL

• Golden MACO Award

2011• ACCA Sustainability Reporting Award 2010

Winner Small Scale Category


First Time Report

• National Business Excellence Award by NCCSL

Merit Award

• Annual Report Awards by The Institute of Chartered Accountants of Sri Lanka


2012• National Business Excellence Awards 2012

Merit Award

• Chartered Accountants Annual Report Awards 2012

Bronze Award for Financial Institutions

• Corporate Accountability Rating by STING Consultants

SILVER


Small Scale Category

2013• Corporate Accountability Rating by STING

Consultants

SILVER


Runner-up Award Banking, Finance & Insurance sector

2014• Association of Development Financing

Institutions in Asia and the Pacific (ADFIAP),

Best Annual Report Award

The Institute of Chartered Accountants of Sri Lanka Certified


Microfinance

Business Finance


Milestones

4

Income (Rs. Mn)

0

1,000

2,000

3,000

4,000

5,000

Interest IncomeGross Income

2014201320122011201020092008

1,97

4

1,94

1

2,26

9

2,21

6

2,25

0

2,16

5

2,38

6

2,26

1 2,74

4

2,63

5

3,80

3

3,52

8

4,56

6

4,37

8

Profit Growth (Rs. Mn)

-1000

100200300400500600700800

Profit Before Tax Profit After Tax

2014201320122011201020092008

(67)

(92)

168

56

291

135

402

216

176

56

309

158

777

375

Total Assets (Rs. Mn)

0 10,000 20,000 30,000 40,0002014

2013

2012

2011

2010

2009

2008 14,181

14,301

15,387

19,927

20,801

27,567

34,418

Reached a network of 36 Branches

Enhanced the customer reach through 775 ATM points

BBBRated

+Stableby Lanka Rating Agency

Rolled out our new business model for long term financial sustainability

Reached the assets base of Rs. 34 Billion

Granted historically the highest value of Rs. 9 Billion loans

Loan book marked the value of LKR

23.4 BnGrew our profit before taxes to LKR

777 Mn


Financial Highlights of the Year

2014 2013 ChangeLKR. Mn LKR. Mn %

Results for the yearIncome 4,566 3,803 20Profit before Taxation 777 309 151Provision for Taxation 402 151 166Profit after Taxation 375 158 137Revenue to the Government 438 155 183Gross Dividends

At the year endShareholders’ Fund 2,886 2,575 12Deposits from Customers 24,479 18,902 30Gross Loans & Advances to Customers 23,899 20,112 19Total Assets 34,418 27,567 25

Information per Ordinary shareEarnings ( Basic ) ( Rs. ) 5.79 2.44 137

Financial RatiosReturn on Average Shareholders' Fund ( % ) 13.72 6.36 116Return on Average Assets ( % ) 1.21 0.65 85Share Holders Equity to Total Assets ( % ) 8.38 9.34 (10)

Statutory RatiosLiquid Assets ( % ) 28.90 28.74 1Capital Adequacy -Tier I ( % ) - Minimum Required 5 % 13.78% 17.74% (22)Tier II ( % ) - Minimum Required 10 % 12.92% 18.29% (29)

Other InformationBranches 36 33 9Employees ( No Of Staff ) 477 488 (2)Credit Rating - Lanka Rating BBB+ Stable BBB Stable

ROA & ROE

-6

-3

0

3

6

9

12

15

ROAROE

2014201320122011201020092008

(0.67)

0.39 0.91 1.22

0.27

0.65 1.21

(5.28)

3.28

7.58

10.32

2.35

6.36

13.72

Loans Advances & Deposits (Rs. Mn)

0

5,000

10,000

15,000

20,000

25,000

DepositsLoans Advances2014201320122011201020092008

12,1

49

5777

11,9

13

6929

12,5

19

8526

14,8

88

12,3

36 15,9

66

14,6

95

19,7

01

18,9

02

23,3

57

24,4

79

Name And Address :HDFC Bank of Sri Lanka (Housing Development Finance Corporation

Bank of Sri Lanka).

Registered Head Office :Address: P.O. Box 2085, Sir Chittampalam A Gardiner Mawatha,

Colombo 02.

Telephone : 2356800, 244624, 2446239, 2447354

Fax : 2446392, 2356829, 2356827

Web Site : www.hdfc.lk

E-mail : [email protected]

Legal Form :A Licensed Specialised Bank under the provisions of Housing

Development Finance Corporation, Act No. 07 of 1997, amended by Act

No. 15 of 2003 and No. 45 of 2011.

Stock Market Listing :The ordinary shares of the Bank are listed in the main board of the

Colombo Stock Exchange (CSE)

Board of Directors :Mr. R. J. De Silva (Chairman)

Mr. L. E. Susantha Silva (Director)

Mr. M. Surendran (Director)

Mr. Prasad Galhena (Director)

Mrs. B. G. S. Gunathilaka (Director)

Mr. R. M. J. Rasnayaka (Director)

Mr. D. H. U. J. Kurukularatne (Director)

Company Secretary :Mrs. Dharshani De Silva

Attorney – at – Law & Notary Public,

MBA & LLM

Company Secretary,

Tel. 2423362

E-mail [email protected]

Registrars :SSP Corporate Services (Pvt.) Limited

Address: 101, Inner Flower Road, Colombo 03.

Telephone : 2573894

Fax : 2573609

E-Mail : [email protected]

Year of Incorporation as a Building Society :1984

As a Licensed Specialised Bank :2003

Auditors :Auditor General’s Department

Credit Rating :The Bank has been assigned BBB + Stable (lka) by Lanka Rating Agency Ltd

Bankers :Bank of Ceylon Corporate Branch, Echelon Square, Colombo 01.

Sampath Bank No.110, Sir James Pieris Mawatha, Colombo 02.

People’s Bank No. 75, Sir Chittampalam A Gardiner Mawatha, Colombo 02.

Commercial Bank of Ceylon Limited Commercial House, Union Place Branch, Colombo 02.

Corporate ManagementMr. Nimal J. B. Mamaduwa - Chief Executive Officer/General Manager

Mr. S. Dissanayake - Chief Operations Officer

Mr. W. M. A. Bandara - Chief Information Officer

Mr. D. V. Pathirana - Chief Financial Officer

Mr. A. J. Athukorala - Chief Internal Auditor

Mr. L. Edirisinghe - AGM (HR & Admin)

Mrs. W. W. D. S. C. Perera - AGM (Legal)

Mrs. H. S. Gunathilake - AGM (Business Development & Marketing)

Mr. C. R. P. Balasooriya - AGM - Treasury

Mr. D. M. D. M. K. Dissanayake - Chief Manager (Credit)

Ms. K. T. Dharshani De Silva - Bank /Board Secretary /Chief Manager

Mr. H. A. Anura - Chief Manager (Finance)

Ms. W. N. D. Botheju - Chief Manager (HR)

Mr. K. R. M. Aruna Bandara - Compliance Officer

Investor InformationMr. D. Vidana Pathirana

Chief Financial Officer

T.P. 2356800, 244624, 2446239

D/L 4717864 Fax : 2356829

E-mail - [email protected]

6

Corporate Information


Service

Market Leader in Housing Finance

MarketShare

CustomerChoice

“Become the undisputed market leader in providing housing related finances; to realize the dream of shelter for all in Sri Lanka.”

We define the term market leader in the context of market share and customer choice. Market share is measured through share of disbursements every year and share of total portfolio. Customer choice is measured as being the preferred bank or financial services institution to work with, and through the level of service offered to customers.

Our Vision

We define our mission in the broader context of our shareholders, customers, staff, the national economy, regulators, and the natural environment.

Our Mission• Toourshareholders,ourmissionistooptimisereturns.

• Toourcustomers,ourmissionistoprovideacaringservicebyanticipating their requirements and innovatively satisfying them beyond their expectations.

• Toourstaff,ourmissionistoidentifytheirmulti-facetedtalents, develop, motivate, recognize and reward them towards fulfilment of the institutional and national housing vision.

• Tothenationaleconomyandtheindustryregulator,wearethe key driver and thought leader, shaping and financing the national housing policy.

• Toournaturalenvironment,weenforcesustainablepracticesacross all our activities.

8

Our Values• Honestyinalltransactionsatalltimes

• Flexibilityandabilitytomeetmarketchanges

• Friendlyandhelpfulservicesalways

• Buildskills,knowledgeandexperiencetoachieveourvision

Our values are what feeds our organisation culture and shapes the attitudes and behaviour of our employees. Therefore, we consider it important that our values are communicated clearly to all employees and are upheld when developing strategy, at times of decision making, daily operations and when dealing with external stakeholders.

Honesty

Dynamism

Friendliness

Competence

HDFC

OwnershipThe Government of Sri Lanka holds approximately 51% of HDFC shares through National Housing Development Authority, the Urban Development Authority and the Condominium Management Authority.

The 5 largest shareholders hold 86.11% of HDFC Bank. These are the NHDA 49.73%, Lanka Orix Leasing Company PLC (LOLC) 15 % and

Thurston Investments Ltd 14.15%, AIA Insurance PLC 1.77% and Dr. Thirugnanasambandar Senthilverl 5.46%, as at 31st December 2014. Other shareholders held 13.89% of the Bank.

We are also proud to be the first state bank in Sri Lanka to have instituted an Employee Share Ownership Programme, which divested 5.40% of the Bank’s ownership to the staff, where Legalinc Trustee Services Private Ltd acted as the trustee.

FiveLargestShareholders 2014 2013

No. of Shares % No. of Shares %

Nominal Value Nominal Value

National Housing Development Authority 32,180,000 49.73% 32,180,000 49.73%

Lanka Orix Leasing Company PLC 9,707,740 15.00% 9,707,740 15.00%

Thurston Investments Limited 9,155,000 14.15% 9,155,000 14.15%

Legalinc Trustee Services (Private) Ltd - - 3,485,520 5.39%

Dr. Thirugnanasambandar Senthilverl* 3,533,096 5.46% 1,376,926 2.13%

AIA Insurance Lanka PLC 1,143,148 1.77% - -

Others 8,775,856 13.89% 8,805,334 13.60%

Total 64,710,520 100.00% 64,710,520 100%

*The total of the accounts held in the names of “Sampath Bank PLC/ Dr. T. Senthilverl, Seylan Bank PLC/ T. Senthilverl and Dr. Senthilverl”.


HDFC holds the distinction of being engaged in a business which is as much a public service as it is a commercial enterprise, chiefly by virtue of majority government ownership and the objectives of its incorporation. Our primary business is the provision of housing finance to the people of Sri Lanka, which includes physical development of houses such as construction, renovation, extension, purchase of built houses and purchase of land for housing construction. HDFC’s business credentials

have been further strengthened due to amendments made to the Housing Development Finance Corporation Act in 2011, which empower HDFC to diversify into new business domains so as to vastly expand its product portfolio. Our business is in line with the overall national housing vision and complies with the national housing policy.

RelatedProducts

A House for Every Sri Lankan Family

National Housing Policy

HousingFinance Related

Products

HDFC’s Sustainable Business Model

Our Business

Our Organisation

HDFCInvestment plan

On behalf of the Board of Directors, I am pleased to present our annual report for the financial year 2014. Your Bank has been successful in attaining its highest-ever profit during the year under review by pursuing an aggressive product diversification, while simultaneously expanding the Bank’s reach to the underserved segments of society. During 2014, we extended the highest number of loans ever - 27,000 - to reach Rs.9 Bn. in loans as against 23,000 loans in 2013 which amounted to Rs.6.7 Bn. HDFC has now carved out a share of 8% in the housing finance market and a 20% market share in the low to mid income housing finance segment in Sri Lanka.

The passing of the new Act No. 45 in 2011 enabled the Bank to diversify into other financial solutions, whilst keeping housing finance as our core business. The new flexibility enabled us to grow housing finance business further by linking it to other products. As a result, during the financial year 2014, we devised innovative ideas to fashion products and solutions and made inroads into other financial segments, which helped our profitability during the year. Your Bank is now aligned with the government’s vision to extend varied financial assistance to the bottom of the pyramid.

Sri Lanka’s total housing finance outstanding is around Rs.340 Bn which represents about 10% of the GDP. Researchers project that it may reach over 20% by 2020. Therefore, our future outlook is entirely focused on reaching a higher market share in housing development finance. For this, even more diversified customer-friendly products, technological advancements to keep pace with the anticipated growth and an efficient service by our staff, is essential. We are increasingly delivering and processing towards realising targets determined to provide this to the people in the future.

Increasing the access of the non-banking segment to our Palm top mobile banking services was a key endeavour during the year under review and will be so in the future. While we made tremendous headway to reach 15,000 people daily through this service, we have started drawing plans to substantially increase our reach to groups of people in the country side, so that our operations from Palm top banking can benefit communities that don’t patronise formal banking. This mobile banking service will enable us to reach the uninitiated in their places of work, on farms, in factories, in workshops, at their homes, or even by the roadside.

“Sri Lanka’s total housing finance outstanding is around Rs.340

billion which represents about 10% of the GDP. Researchers

project that it may reach over 20% by 2020. Therefore, our

future outlook is entirely focused at reaching a higher market

share in housing development finance. For this, even more

diversified customer friendly products, technological

advancements to keep pace with the anticipated growth and an efficient service by our staff, is essential. We are increasingly

delivering and processing towards realising targets

determined to provide this to the people in the future.”


Chairman’s Review

14

“The national economy has grown over 7.7%. The Per Capita Income has risen to US$ 3,624, affirming Sri Lanka’s potential to reach the USD 7,000 plus target by 2020. Widely benefiting from the committed development in the area of good governance and democratic processes, we expect a more favorable climate for improved investor confidence and a friendly environment for doing business.”

Chairman’s Review

WinningFormula

We hold the view that many people in the bottom rung of the economy are overawed by the prospect of entering a bank, leave alone conducting a transaction. Having one of our field staff approach them in their comfort zones, will make such people much more amenable to engaging in mainstream banking. Our Bank has been directly responsible for inculcating the savings habit amongst this segment of people due to the concept of Palm top banking and the outreach through a wide network.

One of our main target groups in the future will be farmers who face several hardships since subsequent generations subdivide the original tract of land. Smaller land tracts do not yield sufficient output to sustain adequate income for farmers to support their family. As a result, more people are moving away from farming in order to become a daily wage earner. More often than not, this segment does not have the inclination or the habit of visiting banks. Your Bank will extend a helping hand to such farmer needs by helping them to save even a small portion of their income. Our contribution to empowering the poorest of the poor is your Bank’s contribution to nation building.

We have also continued our efforts to improve financial literacy amongst our customers. For example, because EPF monies are left untouched, we raise awareness of how employees can avail themselves of loans against their EPF balances to upgrade, improve the home or purchase a house.

In the Bank’s attempt to empower the lower and middle income groups

in Sri Lanka, an important area of development that the bank will

undertake in the future will be a “Research and Development Unit”

to analyse the way forward for the Bank to achieve its goals. We are

a housing development bank. While profitability is a key driver, we

are committed to delivering the Bank’s objective with new products

and strategies, in order to diversify our customer base and target the

inclusion of low to mid income segments in the bank’s future growth.

Towards this end, we will aggressively market our products amongst this

segment and enhance our corporate image further to widen our appeal.

In this endeavour, we intend empowering floundering cottage industries,

organic farming and fruit production, encourage housing micro finance

loans amongst such enterprise groups and individuals. There will be

a clear focus on improving both the quality and volumes of business.

I must admit that HDFC Bank has miles to go before it reaches its full

potential. Judging by our recent growth, the Bank is poised to achieve

ambitious targets in the near future.

Going ahead, we hope that the new government will consider the fact

that as a development bank, we are unable to borrow from the open

market at commercial rates like commercial banks. Our mandate is

to offer low interest loans to the under privileged segments and we

cannot do this without access to low cost finance in order for us to pass

the benefits on to the poor. Housing loans are considered affordable if

the monthly instalment is less than 40% of the householder’s monthly

income. We are hopeful that the government will offer us affordable

funding options sooner rather than later. As Sri Lanka moves rapidly

towards achieving per capita income of US$ 4,000, we expect the

housing finance market to grow in tandem-merging economic growth

with sustainability.

The country has achieved many economic goals despite the associated hidden economic and socio cost elements. The national economy has grown over 7.7%. The Per Capita Income has risen to US$ 3,624, affirming Sri Lanka’s potential to reach the USD 7,000 plus target by 2020. Widely benefiting from the committed development in the area of good governance and democratic processes, we expect a more favorable climate for improved investor confidence and a friendly environment for doing business. With inflation at 0.6% in February 2015 as opposed to 3.2% in January, we can expect a more favorable movement in the interest rates in the months to come. While leveraging on the macro economic development, I strongly believe that housing finance industry can contribute largely to the country’s desired economic growth targets.

I would like to take this opportunity to thank the former Chairperson Mrs. Siromi Wickramasinghe for her valuable contribution in steering the Bank to profitability over the last four and a half years, supported by her eminent colleagues on the Board. I am aware that all members of the Board have worked collectively and participated diligently in all sub committee meetings according to Central Bank guidelines. I am equally grateful to the management and staff who welcomed me and my colleagues onboard this year. I also acknowledge the dedicated services of the GM/CEO of the Bank and rest of the management and staff of the Bank, as their hard work has made the year a success. I thank the HDFC Bank Trade Union for its commitment towards the well-being of the Bank. My sincere thanks go out to all our customers for their support and loyalty over the years, and also to our valued shareholders, for their constant support to the Bank.

R. J. De SilvaChairman

ColomboMay 20, 2015


WinningFormula

“As a development bank with the aim of reaching out to the

grassroots, we realize that advanced technology will provide

the fastest route to achieve our aim and we remain committed

to providing technology-backed solutions for our customers. The

migration to an advanced core baking solution during 2014 was

the first decisive step towards this goal.”

It gives me great pleasure to report on what has been a most successful financial year in our history. The new business model - or the ‘winning formula’ that we have been perfecting over the last two years to strengthen our balance sheet-gained fruition this year, enabling the Bank to post its highest-ever profit before taxes of Rs. 777 Mn.

Our PerformanceThe Bank’s interest income reached Rs. 4.377 Mn in 2014 from Rs. 3.528 Mn, marking an increase of 24%. The net interest income has rose to Rs. 1.843 Mn from Rs. 1.058 Mn, indicating an increase of 74%. Further, the fee-based income increased upto Rs. 211.4 Mn from Rs. 189.9 Mn reflecting an increase of 11%. The Bank’s loan book has grown to Rs. 23.4 Bn from Rs. 19.7 Bn, marking an increase of 18.6%. The deposit base stands at Rs. 24.5 Bn as against Rs. 18.9 Mn in 2013, which reflects an increase of 30%. The Bank was able to record a steady growth in its asset base with total assets of Rs. 34.4 Bn in 2014, as compared to Rs. 27.5 Bn in the previous year, marking a growth of 25%.

Despite our unique credit evaluation process, we experienced a slight increase in gross Non-Performing Loans (NPL’s) from 7.26% in 2013 to 9.81% in 2014, mainly due to certain internal classification issues, which are being addressed with the aid of stringent controls to bring this figure down to more acceptable levels.

The Return on Assets (ROA) stood at 2.51% as against 1.28% in the corresponding period in 2014, an increase of 51%, and the Return on Equity (ROE) rose from 6.36% to 13.72%, reflecting an increase of 46%. Meanwhile, HDFC Bank met the Capital Adequacy Requirement stipulated by the Central Bank of Sri Lanka. T1 and T2 Capital Adequacy Ratios stand at 13.78% and 12.92%, as against 5% and 10% regulatory requirements respectively. The Bank also maintains a statutory liquid ratio of 28.9% as against the regulatory requirement of 20%. With these performances, the Bank was able to record profit before taxes of Rs. 777 Mn as against Rs. 309 Mn in 2013 an increased of 151%. The profit after tax was Rs. 374.6 Mn as against Rs. 158.1 Mn in the previous year, an increase of 137.1%.

Besides recording the most attractive financial performance, the year was marked by increasing evidence of the far-reaching impact that our presence is having in fulfilling the hopes and dreams of the people of the country. Affordable housing is becoming increasingly difficult for low


General Manager/ CEO’s Review

to middle income earners, but we are committed to bridge this widening gap between individuals’ capacity and their dreams to own a home, by extending unique housing loans to turn their dreams into reality. Consumer demands are expanding and diversifying and our wide range of financial solutions address all the aspiring needs of our customers under one roof. HDFC Bank is playing a growing role in transforming lives of people for the better.

Expanding Product PortfolioOur strategy of diversifying the product portfolio, initiated in the year 2013, accrued rich returns for us in the period under review by way of improved profitability. However, despite the extensive diversification exercise, we sustained our core business of housing, further enhancing our reach and opening our loan books for aspiring home owners.

We consider our Gold Loan product as a solution that offers secure and hassle-free instant cash-in-hand for our customers. Although the fluctuating price of gold was a source of concern during the period under review, we continued to promote the Gold Loans product for the benefit of customers. Now that gold prices are relatively stable, we intend to improve our product further and expand its reach to the grassroots level, so that it remains the best option for customers in need of emergency cash.

The product diversification during the year witnessed the launch of several micro finance solutions. We believe in extending micro housing loans mainly because although the low income category may own a shelter, it is often an ‘unfinished’, basic house. Our micro loans assist the beneficiaries to improve and upgrade their shelter into a comfortable home by making home improvements, thereby improving their standard of living. Well over 27,000 loans were given for construction of housing, purchase of housing and repairs and upgrading of housing during 2014. The Bank extends loans to repair and upgrade homes, which is the growing need of housing finance. Since the large percentage of houses in the country are over 30 years old.

Further, we observed that when lower income customers applied for housing loans, very often they were also in need of funding for their small scale businesses. Taking cognizance of this customer requirement, we have devised products that will address both the housing and the business loan needs of customers, thereby truly helping uplift their standard of living and encouraging self-employment and wealth creation.

Another unique initiative during the year was our remittance product, HDFC entered into a partnership with DFCC Vardhana Bank during 2014 to offer its customers the facility to remit money to Sri Lanka directly into their HDFC savings accounts, via the Lanka Money Transfer Remittance System. Sri Lanka has significant migrant workers in far-flung countries such as Middle East, Italy, Japan, and so on, and this tie-up for easy

remittance directly to their bank accounts is expected to appeal both to existing and potential customers. We are expecting substantial addition of new customers as a result of the launch of this product in our diversification strategy and are confident of cross-selling other products to this customer segment.

HDFC has also introduced another micro product, the Commercial Scale Diary Development Scheme for dairy farmers, in agreement with the Central Bank of Sri Lanka. The objectives of this refinance scheme is to uplift the dairy sector to improve the yield of fresh milk producing industry, while helping conserve valuable foreign exchange spent on imported milk powder. As a development bank at the grassroots level, we have an obligation and responsibility to uplift the livelihoods of grassroots customers and this dairy refinance scheme is yet another initiative taken by the Bank to deliver its promise of changing lives for the better.

HDFC Bank is one of the few banks which have received approval to facilitate loans against EPF balances as securities, which are guaranteed by the Central Bank of Sri Lanka. We are proactively supporting the government’s vision to improve the lives of the disadvantaged, by extending development loans in affordable monthly payment.

Reaching Out to CustomersDuring the period under review, our branch network stood at 36 well spread across the country, I am happy to report that the Central Bank granted us approval to establish 6 more branches, of which we have already opened 3, one each in Nittambuwa, Nikaweratiya and Ambalangoda respectively during the year. The expansion has enabled us to establish our presence in different districts. We plan to establish branches in Kiribathgoda, Polonnaruwa and Deniyaya before the end of the year, enabling greater outreach to the grassroots level, thereby facilitating access to finance for the rural populace. There are still many unbanked people in rural areas and we believe that we are playing a vital role in bringing them into the formal banking channels and weaning them away from unscrupulous moneylenders.

Creating a Knowledge-based Work CultureThe focused dedication and hard work of the staff has contributed in no small measure to driving the exceptional performance witnessed during the year. Our team undergoes regular and rigorous training and development programmes to keep them abreast of expected levels of service, while ensuring that they are attuned to compliance with rules and regulations as mandated by the Central Bank. Senior staff members were sent for overseas training during the year, to gain knowledge and insights into the latest systems and processes employed by global financial entities. We are confident that they will be able to cascade their experiences to the rest of the staff to drive incremental gains in

18 General Manager/ CEO’s Review

our business model. We continued to avail of both internal and external training resources to fill any training gaps amongst staff.

Our endeavour is to build a knowledge-based institution and towards this end, we encourage staff to acquire greater technical skills through enhanced professional qualifications. Our policy to incentivize further professional study by reimbursing part of the cost has drawn a good response from our employees, with several of them going on to build their professional educational qualifications, thereby helping them to add value to their job roles and eventually to the company. We have secured approval from the Board of Directors to commence recruitment of management trainees hereon, which opens a new chapter in professionalism in the bank. We are confident that this step will elevate our staff profile and be a strong first step in infusing higher levels of dynamism in the bank’s operations.

During the period under review, I was privileged to attend the annual session of the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP), in Malaysia, Kuala Lumpur. HDFC Bank is a member of ADFIAP, the focal point of all development banks and other financial institutions engaged in the financing of development in the Asia-Pacific region. Its mission is to advance sustainable development through its members. Founded in 1976, ADFIAP has currently 131 member-institutions in 45 countries.

Improving Delivery ChannelsOur field force was empowered with the provision of electronic Palmtop devices, which enables them to facilitate banking transactions for customers in rural areas where they have no access to bank branches. The transaction is updated in real-time and is proving to be a useful mechanism for customers who are located in far-flung remote areas in the rural hinterland. During the year, our field officers were able to facilitate nearly 2.7 Mn banking transactions with customers.

Meanwhile, we continued to focus on driving greater automation and building our IT capability to be in a position to deliver improved products and services to our customers. The core banking solution which we had embarked on in 2013 received Board approval during the year under review, and I am pleased to announce that we are in the early stages of implementing the new core banking platform which, when complete, will offer significant process improvements to elevate our operations to the next level.

Challenges AheadGoing ahead, we expect the banking industry to remain a highly competitive arena, thereby putting a further squeeze on margins. The Bank remains alert and focused on this, and is already bracing for the challenge by generating fee-based income avenues with growth potential.

Future OutlookDuring the latter part of the year, the country was preparing for the presidential election in January 2015, and now that the new government has taken oath, we are hopeful that it will work towards establishing good governance in all spheres of society. The government has expressed its intention to drive housing and developmental initiatives and we are looking forward to the plans of the new government with regards to the housing development sector. The Bank actively supports the government’s 100-day programme.

Our newly-introduced remittance product should provide robust returns, although remittances remain a strongly contested product platform. The Bank intends to provide easy payment of utility bills through the Palmtop banking services offered by our mobile sales teams. We believe this service will offer major relief for the beneficiaries. As a development bank with the aim of reaching out to the grassroots, we realize that advanced technology will provide the fastest route to achieve our aim and we remain committed to providing technology-backed solutions for our customers. The migration to an advanced core banking solution during 2014 was the first decisive step towards this goal. Lastly, the Bank remains focused on meeting the capital augmentation requirements as mandated by the Central Bank of Sri Lanka, which stipulates that core capital needs to increase to Rs. 5 Bn by 2016.

AcknowledgementsI would like to place on record my sincere gratitude to the Chairman and the Board of Directors for their support and for placing their confidence in my abilities. A special thanks to the outgoing Chairperson Mrs. Siromi Wickramasinghe, for her outstanding contribution to the institution during the last four-and-a-half years. Her advice and counsel during the year under review is much appreciated. I would like to welcome the new Chairman Mr. R. J. De Silva who brings with him a wealth of experience, which will be invaluable in steering the bank to the next level. My sincere thanks to the Governor and staff of the Central Bank of Sri Lanka; the Minister of Finance, the Minister of Housing, and officials of the National Housing Development Authority for working closely with us through the year. I would like to thank our valuable shareholders and customers for the confidence they continue to place in us. I commend the entire HDFC staff for extending their fullest cooperation during 2014 and look forward to achieving greater milestones with our combined synergies in the year 2015.

Nimal J. B. MamaduwaGeneral Manager/ CEO

ColomboMay 20, 2015


20

Our Approach to Business

Our Business GrowthOur journey to sustainability was further strengthened in 2014, following amendments to the HDFC Act 2011, which empowered us to diversify into financial services. Our dynamic product diversification beyond housing finance has achieved strong results for us in 2014 as shown below:

Criteria 2014 2013 2012 2011 2010

Income LKR Mn 4,566 3,803 2,744 2,386 2,250

Shareholder funds LKR Mn 2,886 2,575 2,391 2,337 1,849

Assets LKR Mn 34,418 27,567 20,801 19,927 15,387

Deposits LKR Mn 24,479 18,902 14,695 12,336 8,526

Value of new loans LKR Mn 8,722 6,780 3,599 4,659 3,065

Number of new loans 27,112 23,414 12,404 14,224 10,739

Our Business ModelDuring the period under review, we successfully sustained the previous year’s strategy of product diversification to deliver exceptional financial results. In 2014, we introduced several micro finance products to encourage housing/business loan customers to become self-employed and improve their standard of living. Savings and other products in our portfolio continued to expand, although housing finance was upheld as our core business. We continued to add economic value by responding to customer needs for micro finance loans which will enable them to engage in small scale businesses. The Bank focused on enhancing financial literacy of its micro finance customer base, which primarily consists of women who have the drive to become self-employed, small-scale entrepreneurs. By helping these women become successful, in turn, we help them to uplift the standard of living for their family.

In order to support our product diversification drive, we have consolidated our resources - investing in training and development of our employees, enhancement of our IT platform and strengthening other systems and processes to ensure optimal functioning. The HDFC Bank business model today is agile and responsive to market needs.

Long Term Financial SustainabilityDuring the year, we remained focused on enhancing our long term financial sustainability by further reducing the mismatch between long term lending and short term funding, thereby strengthening our balance sheet. Housing credit is traditionally a long term product, offered at affordable interest rates. However, the Bank did not have adequate access to long term funding, and was forced to borrow short term funding at higher market rates. Therefore, we believe the diversification is having the right effect of empowering the Bank to address the funding and lending mismatch to reduce and spread operational risks.


Our ProductsThe bank currently offer investment products savings & deposits, lifestyle loans, education loans, leasing, SME credit, microfinance and gold loans, in addition to our traditional housing finance products. The current HDFC product portfolio is shown below:

Loan Products

Kedella

Home loan scheme on primary mortgage of the property.

Shrama Udana

Home loan for EPF members against EPF balance.

Lifestyle Loan

To purchase home appliances through nominated suppliers.

SituSevana

A Value added Home Loan to fit your lifestyle. Complete and comprehensive Service in, Legal matters including searches, title reports, transfer deeds and mortgage bonds, Technical details of construction from bills of quantity, to inspections for conformity street – line, building line & non-vesting certificates. Arranging insurance for mortgage protection, title (if necessary) & fire or damage to property.

GuruSevana

Customized loan scheme for government teachers on personal guarantee payable in 5 years.

Sirisara Home Loan

A upgraded home loan for existing customers to improve the living standards.

Educational Loan

A loan for educational requirements backed by a mortgage.

Project Loan

Loans to facilitate various kinds of projects back by a mortgage, issued upon successful project proposals.

Micro Finance

Financial facilities are granted for groups of self-employees on mutual guarantees starting from LKR 25,000/ to LKR 200,000/- for a repayment period of 3 years.

Gold Loan

Loans are granted against the value of gold with a repayment over one year.

Business Loan

Business improvement loan backed by a mortgage for a period of 5 years disbursed upon the proof of repayment capacity.

22

Dairy Loan

A loan up to LKR 5 Million from small scale to commercial scale dairy business.

Savings

Prathilaba

Regular savings account with special benefits and cash withdrawals via island-wide ATM network and with online banking facilities, with access to mobile banking service.

Thilina

Minor Savings account with attractive benefits and guaranteed home loan at the age of 18 and attractive gifts on increasing savings balance.

ThilinaRekewarana

Unique investment plan to guarantee children’s future financial security. Parent / guardians are offered several optional monthly deposit plans and bank agree to grant a guaranteed sum to child upon reaching the age of 18.

Arumbu

First ever financial product exclusively designed by a Bank for Tamil speaking community with similar features of Thilina Rekewarana.

VishramaRekewarana

A Pension plan designed with unbeatable benefits with a flexible deposit option and highest possible interest rate in the market.

HDFC

Vishrama Udana

A fixed deposit scheme for Senior Citizens to earn an interest above the market rates.

Our MarketHDFC Bank operates only within Sri Lanka. Its housing finance facilities are accessible to all socio-economic groups in the country. Over 70% of its loan portfolio has been channelled to the low and middle income segment that represent 60% to 70% of the population. As a result, HDFC’s core target market is the low and mid-income segment, which includes rural and urban populations.

Service Delivery StrategyAt HDFC, we have innovated and devised a unique service delivery model that combines the synergies of different delivery channels to maximise market reach and customer convenience, while ensuring prudent cost management.

The main delivery channels include physical branches, shared ATM machines and mobile banking units. HDFC also leverages new technologies to assist in distribution, such as equipping its field sales force with palm-top devices to enable people in remote areas to transact banking services in real-time. This includes the HDFC website, which allows customers to conduct a wide range of internet banking activities.

Delivery ChannelsBranchnetwork: As at the end of the financial year 2014, HDFC had

36 dedicated branches spread across the country.

Our branch network is clustered into 5 regions – Uva, North Western,

Southern, Western and Central. The new structure allows the Bank

to focus its growth strategy according to regional requirements and

enhances monitoring and supervision controls.

ATMnetwork: HDFC customers enjoy the convenience of an ATM

network with over 600 ATM machines across the country via ATM

sharing agreements with other banks.

MobileBanking: HDFC introduced a unique mobile banking concept

to the country in 2008, which has expanded our operational scope to

far-flung areas, enabling us to directly access thousands of customers

located in the hinterland. The mobile units that are manned by

Business Development Assistants target the SME and micro business

sectors to deliver highly personalised value added services directly

to their doorstep, gaining a competitive advantage. At the end of the

financial year, we had 135 Business Development Assistants. They visit

customers doorstep in every working day. In addition mobile banking

provides the customers the opportunity to pay utility bills (electricity,

water, telephone) without physically visiting a service provider.

Our Approach to Business

HDFC Bank’s partnership with DFCC Vardhana Bank to operate the Lanka Money Transfer Remittance System will facilitate existing and prospective customers who are employed abroad to transact business with the bank.

Stakeholder EngagementFor HDFC Bank, Stakeholder Engagement is the process by which we involve people who may be affected by the decisions we make or can influence the implementation of our decisions. We engage our stakeholders to gauge what social and environmental issues matter most to them about our performance in order to improve decision-making and accountability. To achieve this, we engage with many external organisations and associations.

Some of these public and private entities are listed below.

• TheCentralBankofSriLanka

• TheColomboStockExchange

• TheGeneralTreasury/TheMinistryofFinanceandPlanning

• MinistryofConstruction,EngineeringServices,HousingandCommon Amenities

• TheNationalHousingDevelopmentAuthority

• TheInstituteofBankersofSriLanka

• TheCondominiumManagementAuthority

• TheInstituteofCharteredAccountantsofSriLanka

• TheAssociationofProfessionalBankersofSriLanka

• TheAsiaPacificUnionofHousingFinance

• TheAssociationofDevelopmentFinanceInstitutionsAsiaPacific.

• TheNationalChamberofCommerce

• TheCeylonChamberofCommerce

• FederationofChambersofCommerce

• RamRatingLankaLtd

• TheCreditInformationBureau

• TheUrbanDevelopmentAuthority

• UNHabitatSriLanka

• TheSriLankaBanksAssociationGteLtd

• ACCA

• CreditCounselingCentre

We believe that a robust stakeholder engagement framework will strengthen our business philosophy for value creation for our stakeholders and enable us to align our business practices along stakeholder expectations. We have identified key drivers for each category of our stakeholders and our operations are based on these drivers.

StakeholderGroup KeyDrivers HDFC response

Investors/ Shareholders

• Enhancesustainablebusinessmodel

• Ensurewealthcreationforshareholders

• Structuredriskandgovernanceframework to secure shareholder interests

• Strengthentransparencyinourdealings

• Balanceriskwhileexpandingproductportfoliotorecordconsistentprofitability

• Implementsoundriskmanagement,goodgovernanceandinternalcontrols

• Complywithmandatorynationalandinternationalcodesofbestpractices,standards and norms

• Ongoingdialogueandcontinuouscommunicationthroughquarterlyandannual reports, financial statements and press releases

• Providingabalanced,comprehensibleassessmentofthestateofaffairsofthe Bank, its performance, and prospects.

• ConductAGMsinatimelymanner

• Beproactiveinthoughtleadershipbyensuringcompanyparticipationinindustry related national and international organizations

• Benchmarkourbestpracticesbywinningnationalandinternationalawards.



Government and regulators

• Generateeconomicvalueforthenation by growing investments, consumption and savings

• Drivingdemandforhousingloanstoexpand the housing market

• Upliftandupgradehouseownershipfor citizens

• Supportfinancialsystemstability

• Contributingtoeconomicgrowthbyoptimisingreturns

• Practiceinclusivepolicyofextendingaffordablehousingloanstolowandmiddle income groups to promote social equity

• Enablingpeopletoupholdtheirfundamentalrighttoliveadignifiedlife

• Promoteequalaccesstohousingandenablingself-employmentthroughmicro finance products

• Engenderingfinancialliteracyandbringingtheunbankedintothefoldofmainstream banking

• Helpingthegovernmentachieveitsvisiontoprovidehousingforallitscitizens

• Participatinginworkinggroupsandforums

• Increasehousingstockinthecountry

Employees • Rewardperformancewithawardsand recognition

• Definecareerprospectsandcareerenhancement

• Ensureanoptimalwork-lifebalance

• Equalopportunityemployer

• Strengthenrelationshipthroughcontinuousdialoguebetweenemployees,trade union and management,

• Upholdhumanrightsandadoptinclusiveapproachwithnodiscriminationonany grounds whatsoever

• Ensureimplementationofperformancereviews,remunerations,benefits,rewards, recognition and employe feedback tools

• Incentivizeacquisitionoffurtherprofessionalqualificationsthroughindustryexams and by conducting training and development, providing job enrichment and career progression opportunities

• Ensurework-lifebalancebyprovidingopportunitiesfornetworking,recreationand welfare

• Ensuringoccupationalhealthandsafety

Customers • Affordableservices

• Offerspeedandconvenience

• Enhanceaccesstocredit

• Highcustomerservicelevels

• Retainfocusonlowandmiddleincomesgroupsandensureaffordablepricing of products

• Enablecustomerstoaccessourproductsandservicesbyofferingflexibleand speedy customised solutions to fit customer requirements

• Extendingourservicestoalldistrictsandprovincesforimprovedreachandaccess for customers

• Sustainedfocusonenhancingqualityofourservicesandprocessesdeliveredon advanced technology platform for greater efficiency

• Seekregularcustomerfeedbackandaddressanygapstoensurecustomersatisfaction

24 Our Approach to Business


Suppliers Ensure transparency and ethical practices

• Regularreviewofsupplierstoensurethatourqualityandstandardsarebeingmet

• Transparentprocurementprocedureswhileensuringaffordablepricing

• Buildinglong-lastingrelationshipsbyensuringdialogue,communicationandtimely payments

Community Build sustainable relationships • Alongwithimprovinghousingopportunities,alsoimprovequalityoflifebyfacilitating access to clean water by providing credit for water provision services through home improvement loans and financial facilities for solar energy by entering into an agreement with Mackwoods.

• Supportingunderprivilegedchildrenineducationandsports

• Closelyengagewithcommunityorganizationstoimprovewell-being

• Provideassistanceintheeventofnaturaldisasters

• EducatecommunityinlinewiththeUNHabitatprogram

• Empoweringcommunitiesbyinculcatingbankingandsavingshabits

Environment • Sustainablehousingsolutionswithaminimum impact on environment

• ManagingHDFC’scarbonFootprint

• Raisingawarenessamongstcustomersaboutcompliancewithenvironmentaland development regulations

• Promotingsustainablehousingandlivingthroughresourceefficientaffordable construction and maintenance

• MinimisingD2emissionfromdirectbusinessoperationsandstafftransport

• Savingelectricity,fuelandwater.

• Reducingpaperconsumption


Building social capitalOur approach to social sustainability is based on the five pillars of building human capital, improving quality of life, good governance, improving accessibility to financial services and increasing financial literacy and inclusiveness. HDFC strives to strengthen these pillars on a daily basis.

Building Human Capital Our sustainable business model requires a nurturing employee base and this is exactly what we have been striving to build. Our investments in training and development lead us towards our vision of developing a skilled, empathetic, cutting edge team that recognizes the bank’s social responsibility towards all stakeholders. Talent acquisition and talent management form vital components of our winning formula when it comes to our competent employees. Our employees offer the best in personalized customer care, whether the customer is a sophisticated urban customer or a simple rural farmer.

Our Human Resource PolicyOur approach to human resources is based on the UN Human rights principles, the ILO conventions and the Establishments Code on labour rights. We do not condone child labour or under-age labour and we are an equal opportunity employer.

We recognize the Ceylon Bank Employee’s Union (CBEU), which comprise almost 81% of our staff across all grades. Our Collective Agreement, which was renewed in 2012 for three years with effect from 2009, is available at our corporate web site www.hdfc.lk for public reference.

Minimum Notice Period

HDFC conducts discussions on significant operational changes, such as transfers, promotions and disciplinary actions etc with employees and representatives of the Trade Union (TU). For this purpose, 1 month’s notice is given, where practicable, to help minimise any adverse impacts stemming from operating changes. However, it is not defined in the collective agreement.

Governance

The highest governing body of the Bank is involved in our HR management as all material HR matters are referred to the Board HR subcommittee for approval. Procedural manuals have been developed

for all products and services and are reviewed regularly. Operational policies are periodically reviewed and updated and the effectiveness of this process is annually inspected by the Bank Supervision Department of the Central Bank. Grievance mechanism and other communications channels have been created to facilitate both top down and bottom up communications.

New recruitments and promotions are effected in accordance with the HR policy on recruitment and promotion and based on the cadre plan approved under the corporate plan of the Bank. Recruitment is based on transparent, established procedures on the basis of merit and capabilities. Priority is given to internal candidates when filling vacancies. We encourage geographically diversified and multi-ethnic participation.

A staff appraisal system has been formulated to recommend annual salary increments and identify employee attitudes and training and development needs. Performance appraisals are held for all categories of employees annually. Operational targets are given to all members of the staff where appropriate. Branch-wise loan, recovery and fund mobilisation targets are reviewed periodically to monitor performance. Best annual performers are recognised at branch level.

Occupational Health and Safety

Apart from a Health Plan, a range of health and safety measures have been introduced to maintain a hazard free office environment.

• Promotinghealthyhousekeepingpractices

• Providingcashiersandmanagersriskallowancesanddifficultareaallowances

• ImplementationofaBusinessContinuityPlantoaddressemergencysituations

• Providesafedrinkingwater

• Implementingastandardlightingsystemtoallbranches

Social WelfareWe ensure our social obligations are met by integrating these obligations into our business model and service delivery systems. This process is explained below.

1. Improving Quality of Life

Improving quality of life of the people is our ultimate objective. Therefore, one aspect of HDFC’s community policy is to empower these people to access formal housing finance, which would in turn improve quality of life.


Although they have the capacity and willingness to pay for low cost housing, they have difficulty in proving income when accessing housing finance. Our Palmtop banking facility is finally enabling disadvantaged people to save their earnings and improving their ability to pay back loans and go on to access higher value loans in the future.

Community Welfare Programmes

As part of improving quality of life, HDFC conducts many community welfare programmes that support underserved communities across the country. These programmes also act as a means of building community goodwill and enhancing the HDFC brand name. These community programmes focus mainly on the four areas of:

•Cleanwaterandhealth

•Educationandsports

•Donationandsponsorships

•Voluntarismindisastermanagement

Governance of CSR Programmes

Our community investments that are made in the four areas listed above, are governed by the CSR Steering Committee headed by the Chief Executive Officer/ General Manager represented by COO, CFO, AGM (BDM), Manager Technical, AGM Treasury and a representative of the Trade Union. CSR projects and activities are proposed, identified, screened and evaluated based on social cost benefits and are submitted for Board approval. Project implementation is assigned to the CSR Project Committee represented by a member from each functional department. The outcome of each project is reported to the Board on the completion of a project.

2. Good Governance: Managing Conflict of Interest and Corruption

The Bank follows a zero tolerance policy with regard to corruption within the Bank or in relation to its partners, which might threaten the well-being of our wider society and wider public interests. Instead, we encourage customers to be compliant with all applicable laws and regulations and we have taken all steps to manage conflict of interest between the Bank, employees and customers. In addition, the Bank has an active trade union that keeps a watchful eye on all transactions. To entrench this mindset further, we have a whistle blower mechanism and have appointed Chief Internal Auditor and Chief

Information Officer to enforce the Bank’s policies with regard to ensuring full compliance.

3. Improving Accessibility to Financial Services

HDFC has deployed innovative distribution channels such as mobile banking units to reach the maximum number of people at the grassroots level. The Bank strives to improve its operational efficiencies by leveraging on new technology to reduce operating costs, which in turn renders our products more affordable to people.

4. Promoting Financial Literacy and Inclusiveness

We attempt to enhance financial literacy by educating our customers and through our mobile banking units. A large portion of our customer base which avails of micro finance loans are women and our financial literacy programmes empower them to set up their small scale businesses and improve savings habits. We believe this process creates social wealth by helping people make more educated financial decisions that contribute towards wealth creation.

Customer and Product ResponsibilityThe customer is at the heart of our business operations, as our prime objective is to facilitate quality of life improvements within Sri Lankan society. Therefore, HDFC views customer care as part of our wider social responsibility.

Customer Policy

HDFC Bank operates as a fair banker under a framework of internal governance policies and national regulations. Several internal Management Committees and the Board of Directors and several Board subcommittees are involved in product and service development, such as the Recovery Subcommittee, Integrated Risk Management Committee, Valuation Committee, Audit Committee etc.

Our customer approach is also governed by the regulatory directions issued by the Central Bank of Sri Lanka , Colombo Stock Exchange(CSE), policy directives issued by the Ministry of Finance and Planning of the Government of Sri Lanka and industry codes of best practices. These policies and directives guide the Bank to carry out the business within the statutory scope of the HDFC Act.


RighttoFairInformationandInformationSecurity

We ensure the customer is well informed regarding any transaction. Our communications of the Bank’s products and services are always based on principles of ethical and responsible advertising. We also take precautions to ensure confidentiality and information security of customer information, through investments in system security, internal controls, policies, procedures and training of Bank staff regarding customer confidentiality.

FlexibilityandCustomisedSolutions

Our products and services have been designed and delivered according to the needs and capabilities of our diverse socio-economic customer base. All our products and services are made accessible to rural and urban customers, including high end, middle and low income earners. In a bid to facilitate customer convenience further, we have mobilised a growing mobile banking system. The palmtop banking services provided by our field staff takes banking to remote regions in Sri Lanka, where the unbanked live or where people live far away to access banks on a regular basis. By enabling these disadvantaged people to enjoy the benefits of the formal banking mainstream, the bank is providing a valuable service in uplifting communities by offering micro finance schemes while encouraging the savings habit.

Customer Satisfaction

Customer satisfaction is measured through diverse mechanisms, such as periodic customer satisfaction surveys (including customer focus groups) to gain a deeper understanding of customer needs and customer assessments of the Bank’s service standards); suggestion boxes for customers to leave feedback; Bank website; facebook page and other external parties to contact our top management; and a Call Centre for customers to contact Bank personnel.

Creating Economic CapitalEstablished to serve sections of society that need economic empowerment, we make a direct contribution to build national economic capital by facilitating affordable housing loans to low and middle incomes who are generally marginalised by lending institutions due to lack of adequate collateral. Our strategies to ensure economic value creation are:

• Directeconomicvaluecreationthroughourservices

• Promotingsocialandeconomicequitybyimprovingaccessibilitytohousing finance

• Minimisingdevelopmentdisparitiesviaequitableregionaldistribution of service and through our special focus on the less privileged groups

• Contributingtofinancialliteracybyinstillingbankinghabitsandfinancial inclusion

• ContributingtotheGovernment’sspecialdevelopmentinitiativesatnational and regional level

• GeneratingfinancialreturnstotheGovernment

• Growingthenationalhousingstock

Conserving Economic ValueWe consider the environment to be a vital stakeholder in our sustainable operations as it ties in with out long-term goals to provide housing finance and dignity of life to our customers. The primary objective of the Bank is to establish environmental sustainability as a Policy that drives our business strategy and inspires all our stakeholders.

Environmental Policy, Governance and GoalsA clear Environment Policy instituted in 2010 has laid out the path for our efforts in this area, suitably dictating our standards for lending operations, and helping us manage our carbon footprint, utilization of resources and improve our supply chain management. The Bank conducts programmes to enhance knowledge and awareness of the staff on environmental aspects of our business operations in an ongoing manner. Our environmental policy is built on four pillars:


1. Environmentally Responsible Lending

HDFC ensures that its policies and actions adhere to statutory environmental and development regulations in line with the law of the land when it comes to extending credit for housing construction. We ensure that all plans are prepared by adequately qualified planners and approved by relevant local authorities. In a case of a purchase loan, we ensure that the property is properly approved and street line and non - vesting certificates are obtained, and that allocation of infrastructure such as road ways, smooth flow of water, assurance of uninterrupted power supply, solid waste disposal and rain water drainage systems, are addressed.

2. Promoting Sustainable Housing and Living

We support environmentally friendly housing construction in compliance with relevant environmental regulations, in our lending policy. We also encourage employees to support staff driven voluntary programmes for promoting in-house greening and raise awareness about the same amongst local communities. The Bank celebrates Habitat day with unique initiatives. An awareness program was conducted among school children in a less privileged area of the Colombo city with the collaboration of UN Habitat Colombo.

3. Conservation of Biodiversity

Development of housing and the need for land leads to undesirable practices such as deforestation, which in turn harm the rich bio diversity of the country. At HDFC Bank, we take on the responsibility of raising awareness about this issue amongst all our stakeholders and regularly encourage customers, communities and schools to plant trees and support bio conservation projects.

4. Being Sustainable in Daily Operations

Our contribution to conserving the environment is tracked via unique, in-house indices that measure the environmental impact of our operations. Monitoring and controlling our carbon footprint has become much easier due to the indices. We have identified fossil fuel consumption caused by business and staff travelling, consumption of electricity and water wastage as the main areas that add to our carbon footprint. By mapping these factors with our indices, we are better able to set mitigating solutions in place to reduce consumption of these resources.

Mobile BankingIn a bid to build strategic competitive edge in the marketplace and expand outreach and increase access to its services, HDFC Bank invested heavily in IT-backed solutions to reach the grassroots level. The use of hand-held devices was initiated with ‘Palm top’ technology to offer a unique mobile banking solution , which was ably supported by a team of business Promotional Assistants attached to the various bank branches.

HDFC Mobile Bankers

HDFC Mobile Bankers


Objectives• Tocapturetheunbankedsegmentintheformalbankingsystemand

to promote banking and inculcate the savings habit

• TousetheBank’sresourcesandexpertisetoenhanceskillsandconfidence in communities, thereby enabling them to access formal housing finance

• Topenetratemarketsnotaccessedbycompetitors,suchastheself-employed, professionals, merchants and pavement hawkers

• Toinitiateaneffectivedeliverychannel

The mobile banking solution was initiated in 2007 and was further strengthened by recruiting new operators. The operation was eventually expanded to all branches, including Northern Provincial branches, and is operating successfully throughout the branch network, with over 130 Palm Top machines and operators. The Bank’s promotional assistants visit approximately 15,000 customers daily, island-wide. A majority of these customers are pavement hawkers, boutique/shop-keepers, daily wage labourers and so on, having no permanent income. For over 80% of these customers, their average daily deposit is less than LKR 250 per day. Many of these customers were exposed to formal banking channels through HDFC’s Mobile Bankers for the first-time ever.

Efficient ServiceThis palm-top solution enables the bank to deliver an effective door-to-door solution to customers, bringing HDFC closer to them. Further, it delivers efficiencies that are unparalleled, not only because they are enabled by technology, but because through this measure HDFC is integrating the country’s informal financial segment into the formal banking sector. This solution offers wider reach and more personalized solutions. The Bank has successfully introduced prudent financial practices and discipline into this segment.

Progress in Micro FinanceIn addition, this innovative concept is making progress in enhancing self-employment and micro business segments. Most of the labourers in the Colombo Manning Market and Central Fish Market are now HDFC’s valued customers. (Manning Market is an open market in the suburb of Pettah, Colombo.) The Bank has made use of Mobile banking Business Development Assistants across the country to expand its Micro Finance activities further.

By establishing this operation, the bank aims to create wealth for this segment and provide documentary proof of income for consideration of formal loan facilities. The bank also encourages them to save part of their daily wage in a long term investment plan to secure their life in the twilight years, since the bank has introduced a pension scheme with many benefits for retirement and the future well-being of their children.

HDFC finances small milk producers

HDFC finances Banana cultivators


Women EmpowermentHDFC Bank has paid special attention to empower women who are involved in small businesses through housing related micro finance solutions via mobile banking. Over 500 women in small townships have availed of HDFC loans.

HDFC helping domestic mushroom growers


Management Discussion & Analysis

HDFCMobileBanking

34


HDFC was incorporated by the Government of Sri Lanka with the primary

objective of providing housing finance and ancillary services to the

people. The Bank was originally established as a Building Society in

1984 and was converted into a Public Corporation under the provisions

of the Housing Development Finance Corporation Act No 07 of 1997,

and obtained the status of a Licensed Specialised Bank (LSB) in 2003,

under the Housing Development Finance Corporation (Amended) Act No.

15 of 2003 and No 45 of 2011. The ordinary shares of the Bank were

listed on the Colombo Stock Exchange (CSE) in 2005.

Housing Development Finance Corporation Bank of Sri Lanka provides

financing for housing and housing development projects. The Bank

provides various Deposit schemes, including regular savings accounts,

children’s savings accounts, and general fixed deposit schemes and

fixed Deposit schemes for senior citizens. The products also include

home loans, loans for members of Employee Provident Fund, lifestyle

loans, loans on personal guarantees, and housing loans against fixed

deposits, as well as special loan schemes for pensioners.

Macro Economic ConditionsSri Lanka recorded a GDP growth of 7.4% during 2014 on the back

of expansion in Industry, a steady Services sector and favourable

performance by the Construction and Apparel export sectors. An

improvement in the global economy during the year resulted in higher

number of inbound tourists into the island, although contribution from

agriculture was weaker due to droughts and floods during the period.

Meanwhile, inflationary pressure eased in 2014, reflecting annual

average inflation of 3.3% in 2014, the lowest recorded since 1985. In

the context of low inflation and benign inflation outlook, the Central Bank

maintained a relatively eased monetary policy stance to provide further

stimulus to economic activity and reduced the Standing Lending Facility

Rate (SLFR) by 50 basic points in January 2014. Bank lending rates

declined from 9.7% in January 2014 to 6.4% in January 2015 while

fiscal consolidation measures were sustained during the year.

The budget deficit was estimated to drop to 5.2% of GDP in 2014,

compared with 5.9% in 2013. The Sri Lankan rupee held steady against

the US dollar in 2014, depreciating marginally by less than 1%. It

appreciated, however, in nominal and real effective terms by nearly 6%

over the year. In a positive development, total government debt declined

to 74.4% of GDP in 2014 from 78.3% in 2013. As a result, the Balance

of Payments recorded a surplus of US$ 1,954 million by end June

2014. Consequently, gross official reserves reached a historically high

level of US$ 9.2 billion at end August 2014.

The export sector grew by 7.0% in 2014 and amounted to US$11.1

billion, following growth recovery in the second half of 2013. Imports

grew by 7.9% to reach US$19.4 billion in 2014, recovering from a 6.2%

drop in the previous year. Oil imports, which account for about a quarter

of total imports, started to decline in the second half of 2014 in line

with the decline in global prices. An upsurge was witnessed in Service

exports in 2014, as a buoyant tourism industry increased its earnings by

28.6% and worker remittances expanded by 9.5%.

In terms of the performance of the housing sectors in 2014, the

‘National Housing Policy’ was unveiled in October 2014. The broad

objective of the policy is to ensure the right to live in adequate, stable,

qualitative, affordable, sustainable, environmentally-friendly and secure

houses with services for creating a high living standard for the people.

Two key projects that target improving housing facilities are the Urban

Regeneration Project (URP) spearheaded by the Urban Development

Authority (UDA) and the Janasevana National Housing and Settlement

Development Operation under the Ministry of Construction, Engineering

Services, Housing and Common Amenities. These projects aim to raise

the living standard of city dwellers through added facilities such as

proper access roads with paving, proper toilet facilities, elevator services

and sports arenas. In addition to the government led projects, some high

value large scale housing projects were embarked upon during the year.

OutlookforSriLankain2015

Sri Lanka’s economic growth in 2015 will be determined by the revised priorities of the new government. However, consumption is poised to rise as a result of lower food and fuel prices. Exports are expected to perform well in 2015 as a result of economic rejuvenation of Sri Lanka’s export markets. Inbound tourism too will benefit as a result of the improvement in the global economy. A GDP growth of 8% is forecast for Sri Lanka in 2015 by the Central Bank of Sri Lanka while other institutions such as the Asian Development Bank are forecasting a more moderate growth of 7% in the coming year.


Inflation is expected to ebb to 2.0% in 2015, and with inflation

remaining low, the Central Bank has signaled that monetary policy will

maintain its current accommodative stance. Policy rates are likely to

be kept low in 2015, supporting higher private sector credit. Exports

will continue to improve in 2015 and 2016 as Sri Lanka’s partner

economies will likely pick up pace. Imports are expected to rise,

though imports of investment goods will likely slow on more moderate

investment.

Overall, the Sri Lankan economy is expected to move along a higher,

non-inflationary growth path in the medium term, with vastly improved

physical infrastructure, improving social infrastructure, efforts to

enhance overall productivity of the economy and the recovery of the

global economy.

Local Housing MarketAlthough Sri Lanka’s housing market is considered to be superior in

comparison to its regional neighbours, it holds vast potential for further

development and expansion. Total housing units in the country is about

5.2 Mn. The number of shelters which are unfinished is 7,000 while the

number of homeless people stands at about 3,000. A demand exists

for approximately 500,000 units annually to cater to the population

growth. The government plans its housing targets and strategies taking

into account the population growth and the basic need of providing

permanent shelter to the homeless and those living in semi-permanent

houses.

Some 84% housing units are single storey while 7.2% are two storey

houses. There are about 185,000 line houses and 77,000 shanties.

HDFC’s core mandate is to increase the national housing stock with a

qualitative improvement. Although the existing conditions in rural and

estate housing have seen a quantitative and qualitative improvement,

they are still at a relatively lower level in quality and sanitation facilities.

The housing need of the majority of rural and estate communities is to

upgrade or renovate their existing abodes. A significant portion of the

urban population is also living in underserved environments, without

standard facilities. Although urban populations are somewhat better able

to pay for housing in comparison to rural people, due to the inadequacy

of house supply, this segment is facing difficulty in accessing housing.

While commercial banks hold a major share of the housing finance market in the mid to high segment, growth in the mid to high segment has been slow due to high interest rates. Growth in real terms has emanated from the low to mid segment during the year under review. HDFC, as a licensed specialised bank, holds a market share of 20% in the low to mid segment. Presently, total housing finance outstanding in the country represent about 10% of GDP, and whereas the world average is around 30%.HDFC’s share in the total housing finance market is 8% as compared to 6% in 2013 and in low to mid segment its market share is 20%, which reflects a significant upward growth. In the years ahead, HDFC aims to bring this share to 25%.

The level of competition in Sri Lanka’s housing market varies according to market segment. The high end market is highly competitive and crowded, with many financial institutions fighting for a share of the market. Meanwhile, the middle and low end markets that represent the major share of Sri Lanka’s population, are very much less competitive as most banks and large scale financial institutions do not find this segment attractive. However, HDFC is strong in this end of the market, where HDFC has developed specialised products to cater to the needs and capacities of this market.

Our Product Strategy

ProductDiversification

Our strategy of diversifying our product portfolio, initiated in the year

2013, delivered significant gains for the Bank in the period under

review by way of record profitability. Our loan products, leasing solutions

and gold loans products performed well through 2014. The product

diversification during the year was focused on the launch of several

micro finance solutions to extend micro housing loans. Our micro loans

assist the beneficiaries to improve and upgrade their shelter into a

livable home by making home improvements, thereby improving their

standard of living. A number of loans were given for construction of

housing, purchase of housing, and repairs and upgrading of housing

during 2014.

Although worries about the fluctuating price of gold prevailed through

2014, we continued to promote the Gold Loan product for the benefit of

customers. We consider our Gold Loan product as a solution that offers

secure and hassle-free instant cash-in-hand for our customers. Since

36

gold prices stabilized towards the latter part of the year, we intend to

forge ahead our product further and expand its reach to the grassroots

level.

Further, we observed that when lower income customers applied for housing loans, very often they were also in need of funding for their small scale businesses. Taking cognizance of this requirement, we have devised products that will address both the housing and the business loan needs of customers, thereby truly helping them to uplift their standard of living and encouraging self-employment and a better standard of living.

Another unique initiative during the year was our remittance product. HDFC entered into a partnership with DFCC Vardhana Bank during the year 2014 to offer its customers facility to remit money to Sri Lanka directly into their HDFC savings accounts, through the Lanka Money Transfer Remittance System. We are receiving an overwhelming response to this service and we are confident of cross-selling other products to the segment.

HDFC also introduced another micro product, the Commercial Scale Dairy Development Scheme for dairy farmers in agreement with the Central Bank of Sri Lanka, during the year. The objective of this refinance scheme is to uplift the dairy sector to improve the yield of fresh milk producing industry while helping conserve valuable foreign exchange spent on imported milk powder. As a development bank at the grassroots level, we have an obligation and responsibility to uplift the livelihoods of grassroot level customers and this dairy refinance scheme is yet another initiative taken by the Bank to deliver its promise of changing lives for the better.

HDFC Bank is one of the few banks granted approval to facilitate loans against EPF balances as securities, which are guaranteed by the Central Bank of Sri Lanka. New loans schemes have been devised and are in the approval stage. The Visrama Rekaven pension product is a flexible product keping in mind the fast ageing population of Sri Lanka. This product has captured the imagination of customers because it has no fixed payment plan and the customer can withdraw the full amount at age 55. The product offers a higher interest rate than treasury bill rates or fixed deposit interest rates. HDFC Bank is in a position to offer higher interest rates because these are long term products. Inorder to offer greater flexibility to our customers, we intend to increase loan terms from 15 to 25 years. By advancing loans against EPF balances we will be in a better position to open our loan books further for guarantor loans. We are proactively supporting the government’s vision to extend development loans to improve the lives of the disadvantaged.

In a bid to enhance customer convenience, HDFC had initiated agreements with a number of utility services providers to allow utility bill payments through HDFC in 2013 and we rolled out this service to customers islandwide. Our field force was empowered with the provision

of electronic palmtop devices which enables them to facilitate banking transactions for customers in rural areas where they have no access to bank branches. The transaction is updated in real-time and is proving to be a useful mechanism for customers who are located in far-flung remote areas in the rural hinterland. During the year 2014, our field officers were able to facilitate banking transactions for 2,766,892 customers.

Performance of Our Product PortfolioOur housing loans showed strong growth during the year with the value of LKR 17,976, increasing by 18.9% and the EPF backed ShramaUdana loans rising by over 5.75%, against the value of disbursements in 2013. Our mortgage schemes Kedella, for low income groups, and Situsevana for the wider income segments, grew by 1.87% compared to 2013.

HousingLoan 2013 2014 %changeMortgage schemes (Kedella & Situsevana) (LKR Mn) 4,557 4,642 1.87%Sirisara loans scheme (LKR Mn) 835 883 5.75%ShramaUdana EPF backed loans (LKR Mn) 7,098 8,281 16.67%Personal Guarantee (LKR Mn) 2,627 4,170 58.74%

Our new products, HDFC Education Loans, HDFC Micro Finance Scheme and HDFC Gold Loans, recorded impressive growth in 2014.

Product 2013 2014 %changeEducation loan scheme (LKR Mn) 5 12 140%Lifestyle loan scheme (LKR Mn ) 101 144 42.57%Gold Loans (LKR Mn ) 112 176 57.14%Micro Finance (LKR Mn ) 98 249 154.08%Leasing (LKR Mn ) - 105 -

Our range of investment and deposit products performed fairly well during the year.

Amount:-Rs.Mn

Product 2013 2014 %changeThilina Rekawarana 26.87 31.82 18%Arumbu 1.94 2.40 24%Vishrama Rekawarana 273.42 565.28 107%Dhana Nidhana 86.99 81.97 -6%Ashcharya 10.67 8.23 -23%Prathilaba 1,524.76 1,970.47 29%Fixed Deposit & Vishrama Udana 15,302.19 19,853.66 30%



Strategic Partnerships

Tie-UpwithHNBAssurancetoFacilitatePremiumPayments at Policyholders’ Doorsteps

HNB Assurance PLC, one of the fastest-growing insurance companies in Sri Lanka, entered into an agreement with the HDFC Bank to enhance customer convenience by facilitating premium payments at the customer’s own doorstep.

MoUwithSanasaInsuranceforAgroLivestockInsurance

HDFC Bank of Sri Lanka signed a Memorandum of Understanding (MoU) with the Leading Agro Livestock Insurance provider in the market, Sanasa Insurance Company Limited (SICL). HDFC Bank has embarked on a new product diversification aimed towards development banking products and among them, “HDFC Dirimaga” Microfinance Loan scheme and Commercial Scale Dairy Development Loan Scheme (CSDDLS). The CSDDLS facilitates an individual, a group or a registered company in the sector and under this scheme, maximum loan facility available is Rs. 25 million. Loans could be obtained from the 36 branches of the HDFC Bank located island wide. Dairy farmers who are involved under CSDDLS could obtain insurance cover under the SICL insurance shield with lowest premium, with suitable and affordable schemes of risk coverage for the pastoral industry.

PartnershipwithDFCCVardhanaforLankaMoneyTransferServices

HDFC Bank partnered with the DFCC Vardhana Bank (DVB), for their ground-breaking Lanka Money Transfer (LMT) service. This new offering is a remittance service which allows customers, to transfer money with ease, using the banks that they trust. Many individuals are uncomfortable with remitting money to banks they are unfamiliar with and in order to address this concern, DVB has partnered with an extensive network of leading banks, which customers trust. Customers of HDFC Bank will also be able to use the lanka money transfer service to remit funds to their bank accounts.

PartneredwiththeCentralBanktopromoteDairyDevelopmentLoanScheme

During year the Bank signed an agreement with the Central Bank of Sri Lanka to promote dedicated SME loan scheme to promote commercial scale dairy farming industry.

Partnering with the Central Bank to promote milk producers’ loan scheme

Business Diversification

HDFCCommencesLeasingandHirePurchaseOperations

HDFC Bank commenced Leasing and Hire Purchase operations which will mainly focus on small and medium scale entrepreneurs, employees of government and private sector institutions and the farming community with a view of uplifting their standard of living. The Bank’s immense experience and insight gained through three decades of providing the Sri Lankan consumer with superior housing solutions will be used effectively to provide highly customer-focused Leasing and Hire purchase solutions to potential customers.

HDFCEmbarkedontheProvisionofPawningServices.

Launching Pawning at Nuwara Eliya

38

Launching Leasing finance at Awissawella Branch

Enhancing Customer Reach

HDFC Bank Relocates Trincomalee Branch

HDFC Bank relocated its Trincomalee branch to a new building at No.28, North Coast Road, Trincomalee. This is a more spacious location and linked to other 35 HDFC Bank branches island wide.

HDFC Opens New Branch in Nittambuwa

HDFC Bank opened a new branch at Nittambuwa as the 34th branch of the Bank. The opening of this branch, located at No: 48/1, Kandy Rd, Nittambuwa is in line with the Bank’s objective to offer a wide portfolio of products and services to the people, in the area such as Housing Loans, Education Loans, Personal Loans, Leasing facilities. Savings Accounts, Children’s Savings Accounts with an exciting gift scheme, Fixed Deposits and SME and Micro Finance.

HDFC Bank Opens two Branches in Ambalangoda and Nikaweratiya.

HDFC Bank opened two new branches in Ambalangoda and Nikaweratiya recently as their 35th and 36th Branches respectively.

FutureOur intention is to increase our branch network to cover the entire country and explore potential to expand outstation. The new government has expressed its vision for banks to expand outreach in rural areas and this should enable us to add further urgency to our outreach efforts. We expect this to result in greater volumes of unbanked being ushered into the formal sector. The Bank is working closely with divisional secretariats and branch managers to identify new growth areas and reach communities which are underserved in terms of formal financial solutions. We will increase proliferation of technology backed solutions such as ATMs and palmtop mobile banking. Going forward, the Bank will continue to create linkages for future growth stemming from proactive strategy development and enhanced operations in direct alignment with the nation’s developmental strategy.



Branch Network

VavuniyaJaffna

Northern

North Central

Central

Uva

Southern

Sabaragamuwa

Western

EasternNorth Western

Trincomalee

Anuradhapura

MataleKandy

Batticaloa

ChilawKurunegalaKuliyapitiyaNikaweratiya

Badulla

Ampara

Monaragala

TangalleMataraGalleAmbalangodaTissamaharama

Embilipitiya

Gampola

RatnapuraKegalleAwissawella

Nuwara Eliya

PaliyagodaNittambuwa

ColomboHyde-park

Gampaha

Ja-Ela

HomagamaKaluthara

Horana

Piliyandala

Nugegoda

40

Our Island-Wide Branch Network

BranchOffice AddressesofBranchOffices Tele No. FaxNos.

Colombo P.O. Box 2085, Sir Chittampalam A Gardiner Mawatha, Colombo 2. 011-2446241011-5743777011-2446239

011-4714113011-4740110011-2432190

Kandy NHDA Building, Yatinuwara Veediya, Kandy. 081-2234268081-2200670071-5881710

081-2222717

Kegalle 371, Main Street, Kegalle. 035-2222265035-2222870071-5881712

035-2222265

Matale No. 11,Kandy Road,Mathale. 066-2223055066-2234400071-5881714

066-2223055

Kalutara 13, Gnanodaya Mw, Kalutara South. 034-2222985034-2227700071-5881711

034-2222985

Gampaha 27, Sisira Building, Ranathunga Mw., Gampaha. 033-2234370033-5623700071-5881707

033-2222506

Matara 9, HGPM Building Kotuwegoda, Matara. 041-2224790041-2225780071-5881715

041-2224790

Galle No. 4, Sri Dewamiththa Mawatha Galle. 091-2234163091-2227060071-5881706

091-2234163

Batticaloa 58/1.Baily Road, Batticaloa. 065-2222792065-2227573071-5881704

065-2222792

Badulla 69/1/2, New Passara Road, Badulla. 055-2223530055-2223131071-5881703

055-2223530

Chilaw 17, Fort Road, Chilaw. 032-2222594032-2222666071-5881705

032-2222594

Ratnapura No. 51, Main Street, Ratnapura. 045-2223174045-2226954071-5881718

045-2223174

Tangalle 31, Beach Road, Tangalle. 047-2240592047-2241774071-5881719

047-2241774

Ja-Ela No. 170/A/1, Colombo Road, Ja' Ela. 011-2247750011-2228844071-5881809

011-2247750

Kurunegala No. 42, Kandy Road, Kurunegala. 037-2224201037-5625493037-2221656071-5881713

037-2224201



BranchOffice AddressesofBranchOffices Tele No. FaxNos.

Anuradhapura No 396/14, Court Place, Bandaranayaka Mawatha, Anuradhapura. 025-2223289025-2235018071-5881700

025-2223289

Monaragala No 310/A, Kachcheriya Junction, Wellavaya Road, Monaragala. 055-2277047O55-2276814071-5881716

055-2277047

Homagama No. 99,Station Rd, Homagama. 011-2748218O60-2154131071-5881708

011-2857722

Nuwara-Eliya No. 72, Park Road, Nuwara - Eliya. 052-2235752052-2223369071-5881717

052-2235752

Ampara Uhana Road, Ampara. 063-2224318063-2223762071-5881701

063-2224318

Avissawella 79, Rathnapura Rd, Awissawella. 036-5670615036-2233622071-5881702

036-2233622

Horana No.125, Panadura Road, Horana. 034-2260155034-2260156

034-2260156

Piliyandala No. 21, Vidyala Mawatha, Piliyandala. 011-2604843011-2604876

011-2604876

Embilipitiya No. 93 B, Malwatta Building, New Town Road, Embilipitiya. 047-2230068047-2230069

047-2230069

HydeParkCorner 63, Hyde Park Corner, Colombo 02. 011-2699639011-2699638071-4000994

011-2699638

Nugegoda 1st Floor, Rail Way Station, Nugegoda. 011-2826161011-2826162

011-2826162

Vavuniya No. 113, Kandy Rd, Vavuniya. 024-2225770024-2225771

024-2225771

Paliyagoda 1st Floor, shop no.03, RMU 06, Paliyagoda fish market, Paliyagoda. 011-2981698 011-2981005

Trincomalee No. 28 North Coast Rd. Trincomalee. 026-2226405026-2226406

026-22226406

Gampola 134, Kandy Rd, Gampola. 081-2353394 081-2353374

Kuliyapitiya No. 22 A, Parakrama Mw., Kuliyapitiya. 037-2281406 / 7 037-228140 7

Jaffna No.127, KKS Road, Jaffna. 021-2219283 / 4 021-2219284

Thissamaharama No 71, Main street Tissamaharama. 047-2237774 047-2237776

Nittambuwa No. 48/1, Kandy Road, Nittambuwa. 033-246495033-2246465

033-2246465

Ambalangoda No. 205/6, Galle Road, Ambalangoda. 091-2254803091-2254804

091-2254804

Nikaweratiya No. 58, Puttalam Rd., Nikaweratiya. 037-2260644037-2260646

037-2260646

42

Awards and Recognition

HDFCBankwinstheBestAnnualReportAward-2013atADFIAPinMoscow,Russia

Chief Manager Credit receving the ADFIAP award

HDFC Bank of Sri Lanka dominated the 2013 Annual Report Awards of the Association of Development Financing Institutions Asia Pacific (ADFIAP), winning the topmost award for the Best Annual Report across all the member institutions in the Asia Pacific region at the award ceremony held in Moscow, Russia.

HR ReviewOur people are our greatest asset and serve to deliver access to our financial products and services to the remotest regions in the country. In turn, the Bank strives to provide a conducive working environment for employees, which nurtures their talent and offers professional development opportunities. HDFC Bank invests in its people to lay a strong foundation for the proliferation of our services to reach each and every citizen in the country.

Our PhilosophyOur management approach to people development engenders strong work ethics, innovation and a thirst for knowledge. We strive to shape a vibrant workplace that attracts and retains the right people and provides scope for individual development by making our people feel valued. The Bank has in place formal Human Resource Development systems and policies to ensure professional interaction for mutual benefit. As an equal opportunity employer who values diversity and inclusiveness, HDFC enjoys a strong employee loyalty quotient, with employees reporting high levels of job satisfaction and opportunities for career progression.

BuildingCapacityIn 2014 we continued to invest heavily in capacity building and development of our people through training and development efforts. We continued to organize programmes aimed at enhancing employee skills and knowledge. In a bid to create a knowledge workforce, our training and development programmes were sustained through the period under review to bridge skills gaps and enhance technical knowledge. Tailor-made to match job requirements, these programmes are customized for greater impact.

We maintained our human resource base as last year during the current year, but focused on greater training of existing resources in catering for the Bank’s newly adopted products and services. The micro finance and leasing specialists recruited in the previous year to build capacity in these two financial services have proved advantageous. They were able to build internal capacity amongst employees in relation to leasing and micro finance to gear them to meet the expectations of our customers

Annual award ceremony of star performers 2014 - Best Branch and Regions



and to remain competitive. The opening of 3 new branches during the period under review necessitated the recruitment of fresh talent of 15 employees from the surrounding communities.

NurturingFutureLeadersThe Bank fulfills an important role as a mentor for university and technical training college students who are preparing to enter the workforce after higher education. HDFC offers undergraduates the opportunity to train at its head office as interns to fulfil their work experience requirement. We have had students from prominent institutions.

During 2014, the HR department succeeded in getting the approval for its proposal to hire management trainees for the first time in the bank’s history. This marks a new era of professional in the bank, as we expect these management trainees to be future leaders of the banking and financial fields. During the year there was a minimal attrition rate and we remain committed to examining and improving the internal structuring of the bank so as to gain optimum efficiencies.

PuttingCustomersFirstThe Bank conducts its business in an ethical manner, guided by its core values of professionalism and commitment. The Bank is extremely conscious of the need to safeguard the interests of its depositors and has put in place a robust governance and risk management framework to safeguard customers’ wealth. Our relationships with our customers depend upon trust and our employees are trained to put customers’ interests first while ensuring that all our customers are treated according to the highest standards of responsibility.

StaffTrainingTraining and re-training remained a priority in 2014. Our large scale training programmes to train staff in handling leasing and micro finance products and services have proved to be useful judging by the performance of these new product categories. We continued to close any skills gaps during the year.

Engage in a group exercise during a motivational training session

We constantly encourage employees to strive for greater professional qualifications to boost the existing culture of knowledge and learning that defines the HDFC employee culture. The Bank has an important role to play in the nation’s financial landscape and the development of a competitive and professional team of employees will help us to forge ahead to the forefront.

Colombo Fire Brigade training officer in a session to the HDFC team

Capacity building through outdoor training

Capacity building through outdoor training

44

Recreation for Staff

StaffGetTogether

GM/ CEO being well come with a garland.

Presenting the Awurudu Kumariya/ Kumariya Awards -2014.

InterBranchCricketTournament

Chairperson Presenting the Trophy to the Winning Captain

Badminton Tournament

GM/ CEO Presenting the Trophy to the Winner at the Badminton Tournament.



Our Employee Profile

Diversity by Gender

0

50

100

150

200

250

300Female, 207

Male, 270

2014

By Employment Contract type

0

100

200

300

400

500Permanent, 457

Contract, 20

2014

Average Age of Workforce (Years)

05

10152025303540

Years, 37.43

2014

By Educational Qualifications

0

50

100

150

200

250Other, 127

ProfessionallyQualified, 230

Graduates, 120

2014

Average Service Period (Years)

0

2

4

6

8

10

12Years, 11.13

2014

Average Absenteeism

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%AbsenteeismRatio, 0.12%

2014

Average Medical Cost (Rs)

0

10000

20000

30000

40000

50000

600002014, 58002.25

2013, 45005.35

20142013

Staff Turnover Index

0.00

0.05

0.10

0.15

0.20

0.25Turnover Ratio 0.21

2014

46

Local Recruitment

As a rule, HDFC recruits Business Development Assistants or HDFC mobile bankers hailing from local areas in close vicinity to the respective branches. This policy has not only helped create regional employment but works in favour of the Bank, as the local staff are better able to connect with customers from the same area, apart from leveraging on their local knowledge and contact base to benefit the Bank’s operations. Of the total new recruitments effected during the year, including temporary recruitments, 59 or 12.09% were from local areas .

Performance Appraisals

Employee appraisals are powerful tools for encouraging productivity and efficiency amongst employees. Annual performance appraisals were conducted for all staff grades as a means of identifying employee training and development needs. HDFC recorded almost zero turnover of staff during the year. Absenteeism and lost days were negligible. Any employee grievance is swiftly handled and settled to ensure the employee feels heard and valued.

Four ongoing employee litigation suits were carried over to the year under review from previous years. The cases are under due judicial process.

SuccessionPlanning

The succession planning exercise initiated in the previous year was sustained through the current year as well. This effort has helped us identify and train talent in-house who will serve as leaders to steer the Bank into the future. We are proud to have now established a pipeline of succession which will ensure the sustainability of the Bank. The succession plan is accompanied by suitable training and development programmes to ensure an adequate selection of candidates to fill sudden vacancies.

EmployeeHealth&Well-being

All permanent cadre of the Bank are entitled to a wide range of medical benefits. HDFC has extended a Staff Health Plan to cover 67.30 % of the workforce. Health facilities under the Health Plan and other benefits are covered by the collective agreement.

Employee Health and Safety Indicators

Health and safety indicator 2014 2013

Staff covered by the health plan 457 458

Average medical claim per employee - LKR 58,002 45,005

Occupational injuries Nil Nil

No. of occupational diseases Nil Nil

No. of lost days - Nil

Absenteeism 0.12 0.87

Fatalities Nil Nil

HDFC staff is entitled to a retinue of other perks and incentives which are in line with industry norms, such as reimbursement of travel expenses, subsidized housing loans and revised salary levels and increments.

HDFC remains concerned about providing security for both its customers and employees across its branch network and in response to recent instances of bank heists, the Bank has stepped up security arrangements at al its branches. Security cameras were installed as a security measure. This effort to secure our business locations will be an ongoing endeavour. As a part of our annual security plan, staff at the HDFC head-office staff were provided with fire safety training by the Colombo Fire Brigade to educate them on how to react in case of a fire.

No occupational injury was reported in the year under review.

MaintaininganOptimumWork-LifeBalance

The Bank ensures an optimal work-life balance for its employees and provides a number of opportunities for recreation and fellowship. The HDFC Welfare Society organises employee events for staff to socialise and get to know each other better. These events also serve as team building exercises that generate goodwill among staff.

Further, an engaging health education programme was held where a qualified physician educated employees on maintaining a healthy work-life balance. The session was aimed at helping staff deal with work pressure. Over 350 employees participated in the event which was held at the HDFC head office.



Community InvolvementHDFC’s core business is extending housing finance amongst the unprivileged, and towards this end, the Bank has succeeded in touching Over Million lives, helping them to uplift their livelihoods and living spaces, inculcating the savings habit, improving financial literacy and elevating them into mainstream banking. The Bank’s mandate is steeped in CSR as it is our duty to uplift housing development in the country and offer financial assistance to people to enhance their standard of living. Our micro finance services not only help them fulfil their dreams of housing, but also serve to encouraging self-employment in small scale businesses.

EmpoweringPeoplethroughTechnology

Our mobile palmtop banking team travels far and wide across the island to bring the benefits of banking to the unbanked. Reaching 15,000 customers daily, the palmtop service provided by HDFC Bank is doing yeoman service for the upliftment of the economically disadvantaged people. Apart from encouraging them to use formal banking facilities extended in real-time by the palmtop technology, they are also facilitated to pay their utility bills through this service. We discovered that many small scale traders and like are unable to get away from their usually one-man businesses to travel to a utility company and pay bills. By reaching the doorstep of these people, our mobile team is able to ease their burden. 297 townships are currently being covered by our mobile banking service.

Promoting Financial Inclusion

WorkshopswithCBSL

HDFC Bank organized few workshops on Financial Literacy with the support of the Central Bank of Sri Lanka. This effort is in line with the banks objectives of improving the financial literacy in rural areas through the branch network and this initiative complements HDFC Bank’s efforts to support inclusive growth and take formal banking services to the remote corners of the country.

Under these programmes the following workshop was codified.

• WorkshopsonfinancialliteracyforthewomenentrepreneursofTangalle area was conducted by the Southern Regional office of the Central Bank.

• FinancialliteracyworkshopatEmbilipitiya

• FinancialliteracyworkshopatTissamaharama

• WorkshopforDairyfarmersatMatara

Financial Literacy Workshop for Women Entrepreneurs

MarkingUNHabitatDay

As a housing finance development bank, we have a special event to mark the UN Habitat Day every year. In 2014, our Housing Finance team selected Seevali Maha Vidyalaya, a low income school in the slum relocation area in Wanathumulla, and in collaboration with the UN office in Colombo, distributed books to students from the school. The objective was to raise awareness amongst the children about the importance of protecting the environment in towns and cities; and the basis human right of adequate shelter for all to mark the UN Habitat Day. Alongside this event, gift packs containing exercise books and other stationery items were provided to the school children. The staff of the Bank organized a drive to collect books, which were donated to the school library on the occasion.

Habitat Day Event in October 2014.

48

ReachingouttoCommunities

• The Bank engages closely with surrounding communities and lends a helping hand for numerous social and religious activities. Our branches in Batticaloa, Tissamaharama, Colombo, Kalutara and Piliyandala organized Wesak and Poson dansalas to benefit people from these areas.

• The Bank also made a sizeable donation to the flood victims of Anuradhapura, in order for them to meet their immediate needs.

• The Anuradhapura branch donated computers to the army during the year.

• HDFC Bank sponsored a book, Honda Mudalali, in 2014.

The Anuradhapura Branch Donated Computers

IT ReviewThe Bank views IT as a core enabler of its future business strategy. The bank is forging ahead with a rejuvenated vision and envisions technology to be a key conduit in expanding the quality, and quantity of our business, whilst simultaneously empowering us to reach a wider swathe from our target group, thereby widening our footprint. Technology has the power to bridge divides and our palmtop banking service delivery is helping transform the lives of hundreds in the poorest of the poor segment across the country.

In 2012, the Bank’s technology initiatives were focused fundamentally on driving the Board approved core banking platform to take shape. By the end of the period under review, we were poised to select vendors. Apart from supporting the setting up of the core banking solution, we continued to enhance functionality of the existing technology platform by ensuring seamless integration of diverse functions, the development of new product offerings as well as strengthening systems to augment security and compliance. Improved internal processes and proactive monitoring mechanisms have contributed to the creation of a secure environment that supports safety and compliance across all operational functions.

Meanwhile, we continued to focus on driving greater automation and building our IT capability to be in a position to deliver improved products and services to our customers. The core banking solution which we had embarked on in 2013 received Board approval during the year under review, and I am pleased to announce that we are in the early stages of implementing the new core banking platform which, when complete, will offer process improvements to elevate our operations to the next level.



Financial Review2014 has been a year of record profitability for HDFC Bank. The company recorded its highest-ever profitability, surpassing industry growth by a wide margin. HDFC Bank ended the financial year under review with total assets of Rs. 34.4 Bn, up from Rs. 27.6 Bn in the previous year. This increase indicates that our total asset base has grown by as much as 24%. The phenomenal financial results recorded during this period can be attributed to expansion in loans and advances, which escalated by 18% during this period. Favourable market conditions, a low interest regime and strict cost control measures combined well to deliver a historic profit for the company. The company’s profit before taxes reached Rs. 777 Mn as compared to Rs. 309 Mn in 2013.

Profit Before VAT and Corporate Tax (Rs Mn)

0100200300400500600700800

20142013201220112010

Loans&Advances

Our loan books were expanded to Rs. 23.35 Bn in 2014 by approving Rs. 9 Bn new loans as compared to Rs. 19.7 Bn in 2013. The loan portfolio was mainly driven by the core business of housing finance, which accounts for 96% of the loan book as at 31st December 2014. The loan book is concentrated throughout the island and backed by diverse collaterals.

Loans and Advances (Rs Mn)

0

5,000

10,000

15,000

20,000

25,000

20142013201220112010

Security Wise Loan Portfolio

Leasing and other

Guarantor

Mortgage Backed

EPF Backed

Gold Backed

Cash Backed

ProductDiversificationandInvestmentIncome

The record financial performance was further supported by other strategic investments, which expanded by as much as 53%. The company took a strategic decision to diversify its investment portfolio via investing in trading instruments such as corporate debentures. A sum of Rs. 800 Mn was invested in listed debentures to increase short term investment gains. HDFC has, historically, been burdened with a mismatch between its long term lending and short term liabilities. Realizing the need to increase short term assets to manage the asset and liability maturity gap, we accelerated prudent short term investments during the period under review. The gains accrued from our short term investments thus far have gone a long way in helping us address and manage the hitherto negative maturity gap in asset and liabilities. Further, we diversified investments into commercial papers and increased yields on our total investment portfolio.

Investment Portfolio (Rs Mn)

0

2,000

4,000

6,000

8,000

10,000

20142013201220112010

In a bid to increase profitability and growth, we have moved on with the prudent diversification plan, which was kicked off in 2012/13. We introduced new products to maintain profitability and alleviate the asset/liability mismatch. Our micro finance operations, which commenced in 2013, completed a successful year with an year-end balance of Rs. 249 Mn. The business loan portfolio, which was Rs. 107 Mn in 2013, has grown up to Rs. 323 Mn, representing 1.45% of the loan portfolio. Further, the Bank has achieved a Rs. 105 Mn assets book on leasing, which commenced in 2014. The endeavor is to keep on maintaining our focus on this diversification.

50

ProductDiversification

LoanPortfolioMix 2013 2014

Housing Loans 18984 98.10% 22,444 96.00%

Micro Finance 98 0.50% 249 1.10%

Business Loans 107 0.60% 323 1.40%

Vehicles - staff 16 0.10% 28 0.10%

Gold Loan 112 0.60% 176 0.80%

Leasing 0 105 0.50%

Project 38 2% 31 0.10%

Total 19,355 100% 23,356 100%

Deposit Mobilization

The company successfully expanded its deposit base by as much as 29% by maintaining a strong focus on attracting fixed deposits. As a result, our deposit base grew from Rs. 18.9 Bn in 2013 to Rs. 24.5 Bn in 2014. We also extended mobile banking options to customers for greater access while mobilizing low cost funds from peripheral regions by targeting the lower and middle income group.

Deposits (Rs Mn)

0

5,000

10,000

15,000

20,000

25,000

20142013201220112010

Borrowingandcorporatedebentures

The company floated a successful debenture in 2013 and once again was poised for another debenture this year amounting to Rs. 4 Bn, however, due to prevailing unfavourable economic conditions, a decision was taken to hold the debenture until the macro situation stabilizes. The possibility of floating the debenture will be reviewed at a future date. In order to meet the budgeted grown, the borrowing base was further enhanced by 17% during the year from the borrowings from other Banks.

Equity and minimum capital requirement

Value creation for our shareholders was our uppermost priority and shareholder funds increased by 12% in the period under review. Earnings per share increased from Rs. 2.4 in 2013 to Rs. 6.4 in 2014. Asset value per share grew from Rs. 39.80 to Rs. 44.60 in 2014, which

marks a 12% increase. This positive improvement has propelled our share price upwards to reach Rs. 72 per share.

The Bank comfortably met the minimum capital requirement of Rs. 2,500 Mn by the 31st December 2013 deadline as directed by the Central Bank of Sri Lanka (CBSL) and is confident of reaching the Rs. 3,000 Mn core capital requirement at the end of 2015, from internally generated funds.

However, as per the Central Bank direction No. 02/17/402/0073/002 issued in conjunction with the Masterplan on Consolidation of the Financial Sector, dated 17th January 2014, the Bank should maintain Rs. 5,000 Mn core capital balance as on 1st January 2016. Considering this challenge, the Bank is focusing on a organic growth and while struggling other options for capital enhancement. Meanwhile, optimizing the return of shareholders in the form of appreciation of share price and dividend remains foremost in the Bank’s agenda in the years to come.

Equity (Rs Mn)

0

500

1,000

1,500

2,000

2,500

3,000

20142013201220112010

Liquidity

The Bank’s liquidity is measured and evaluated by the Assets and Liability Committee regularly in order to identify its adequacy in line with the prudential limits imposed by the CBSL and on the stress tests in order to identify its adequacy under extreme scenarios. The Bank maintained a healthy Statutory Liquid Assets Ratio (SLAR) of above 25% throughout the year, as against the regulatory requirement of 20%. In addition, the Bank maintains over Rs. 1 Bn unutilized approved credit lines from other banking institutions as additional cushioning.

Capital Adequacy Ratio

Core Capital Ratio (Tier 1) and Total Capital Ratio (Tier 2) remains above the minimum requirement at 11.76% and 10.92% respectively, as against the regulatory requirements of 5% and 10%. The core capital of the Bank stood at Rs. 2,611 while the Total capital was Rs. 2,885 Mn in absolute terms as at 31st December 2014. However, enhanced capital levels are essential to cushion and achieve our ambitious growth expectations and product diversification, and also to meet the regulatory limit of Rs. 5,000 Mn by the beginning of 2016.



Assets Quality

The basis of classifying Non-Performing Loans (NPLs) was revised in line with the CBSL directions in September 2014, which resulted in approximately 3% deterioration than the reported level. However, with additional efforts, the Bank made progress and recorded an improvement from 11.33% to 9.2% from September to December in the loan portfolio other than the EPF-backed loans. The Management is highly committed towards reducing the NPLs going forward, and tackling NPLs was democratized rather than concentrated in a single department.

Interest Income

Total income escalated by 21%, reaching Rs. 4.6 Bn in 2014 from Rs. 3.8 Bn in the previous financial year. This sharp increase was mainly due to a rise in interest income, which rose by 20%. Interest income for 2013 was Rs. 3.5 Bn and accelerated to Rs. 4.4 Bn in the period under review. Net interest income increased by 74% during 2014, rising from Rs. 1.1 Bn in 2013 to reach Rs. 1.8 Bn in 2014.

Interest Income (Rs Mn)

0

1,000

2,000

3,000

4,000

5,000

20142013201220112010

OtherIncome&Expenses

Other income sources contributed to the total income. In 2013, the company introduced new sources of other income and as a result Rs. 274 Mn was realized as other income during the year. The main contributor to the non interest income came from loan documentation, legal fees, valuation, annual review fees etc. Meanwhile, Total expenses went up by 19% with provisioning for losses. In 2014, total expenditure stood at Rs. 1.28 Bn..

EnhancingOperationalEfficiency

Also, brand access and service reach were further enhanced with the addition of 3 more strategically located branches. Our ATM network was also expanded by entering into partnership with Sampath Bank’s extensive islandwide ATM network. We were successful in improving our return on assets and today are on par with the industry levels.

52

Legend

GM/CEO

COOCIOCIA

AGM - BDM AGM - TREASURY AGM - LEGAL

TREASURYFRONT OFFICE

CM CREDIT

SNR.MGRS-IT (02)

MGR-ACT.CONT. &TREASURY BACK OFFICE

REGIONALMGRS (05) COMP. OFFICER

MGRS-IT (02)MGR-AUDITMGR -

TECHNICAL

CM - MGR-HR

MGR-BUS. DEV. &MOBILE BANKING

MGR -VALUATION

SNR MGR-RECOVERY RISK OFFICER

MGR-OPERATION

BOARD SECRETARY

SNR MGR -PROPERTY

MGR-LEGAL(04)MGR. PUB.RELATIONS,MEDIA &

BUS. PROMOTION

MGR -GOLD LOANS

AUDITCOMMITTEE

MGR-MICRO LOAN

SNR MGR -LEASING

MGR -PAYMENT

MGR- CREDIT TREASURY MIDDLE OFFICE &MGR - CREDIT ADMINISTRATION

IRMC

FILLED

SNR MGR -LEGAL(7)

CENTRALREGIONAL OFFICE -

BRANCHES[07]

UVAREGIONAL OFFICE -

BRANCHES[06]

NORTH WESTERNREGIONAL OFFICE -

BRANCHES[07]

WESTERNREGIONAL OFFICE -

BRANCHES[09]

SOUTHERNREGIONAL OFFICE -

BRANCHES[07]

CFO

AGM - HR & ADMIN

SNR MGR -ADMIN

CM MGR-FINANCE

CHAIRMAN

BOARD OFDIRECTORS

VACANT


Organisational Structure

Legend

GM/CEO

COOCIOCIA

AGM - BDM AGM - TREASURY AGM - LEGAL

TREASURYFRONT OFFICE

CM CREDIT

SNR.MGRS-IT (02)

MGR-ACT.CONT. &TREASURY BACK OFFICE

REGIONALMGRS (05) COMP. OFFICER

MGRS-IT (02)MGR-AUDITMGR -

TECHNICAL

CM - MGR-HR

MGR-BUS. DEV. &MOBILE BANKING

MGR -VALUATION

SNR MGR-RECOVERY RISK OFFICER

MGR-OPERATION

BOARD SECRETARY

SNR MGR -PROPERTY

MGR-LEGAL(04)MGR. PUB.RELATIONS,MEDIA &

BUS. PROMOTION

MGR -GOLD LOANS

AUDITCOMMITTEE

MGR-MICRO LOAN

SNR MGR -LEASING

MGR -PAYMENT

MGR- CREDIT TREASURY MIDDLE OFFICE &MGR - CREDIT ADMINISTRATION

IRMC

FILLED

SNR MGR -LEGAL(7)

CENTRALREGIONAL OFFICE -

BRANCHES[07]

UVAREGIONAL OFFICE -

BRANCHES[06]

NORTH WESTERNREGIONAL OFFICE -

BRANCHES[07]

WESTERNREGIONAL OFFICE -

BRANCHES[09]

SOUTHERNREGIONAL OFFICE -

BRANCHES[07]

CFO

AGM - HR & ADMIN

SNR MGR -ADMIN

CM MGR-FINANCE

CHAIRMAN

BOARD OFDIRECTORS

VACANT

54

Mr. R. J. De SilvaChairman

(Non – Executive, Independent Director)

Mr. L. E. Susantha Silva(Non – Executive, Independent Director)

Mr. R. M. J. Rasnayaka(Non – Executive, Independent Director)

Mr. M. Surendran(Non – Executive,

Non-Independent Director)


Board of Directors

Mr. Prasad Galhena(Non – Executive, Independent Director)

Mrs. B. G. S. Gunathilaka(Non – Executive, Independent Director)

Mr. Udyama J. Kurukularatne(Non – Executive, Independent Director)

56

Profile of the Board of Directors

The Board of Directors is the highest decision making body of the Bank and comprises Independent, Non-Independent and Non-Executive Directors, as mandated by the Central Bank of Sri Lanka. The Board members represent various governmental institutions and ministries and have many years of experience in the public and private sectors. The Board is made up of eight non executive, Independent Directors including one woman director.

Mr.R.J.DeSilva

POSITION Chairman & Non – Executive, Independent Director

DATE OF APPOINTMENT Appointed Chairman of HDFC Bank in February 2015.

QUALIFICATIONS A law graduate. Passed out as an Attorney-at-law with First Class Honours in 1977.

PREVIOUS POSITIONS Held several key positions earlier such as Chairman, National Lotteries Board (1982 - 1989), Chairman of the National Insurance Corporation (1989 - 1990) and the State Distilleries Corporation (1990 - 1992). Was the Director General, Public Investment Management Board (1992 - 1994) with a mandate on behalf of the Secretary to the Treasury to oversee management and instill private sector practices in 37 corporations converted to fully government-owned companies prior to eventual privatization. Served as a Legal Advisor to the Treasury in 1994. Instrumental in setting up the first Life Insurance Company in Sri Lanka in 1994 and worked as the Company’s first Managing Director till end 1998. After successfully navigating Janashakthi Life Insurance Company Ltd, worked as a Consultant for Legal and HR Development at Hutchison Telecom from 1999 to 2001. Also served as the Chairman of Geological Survey & Mines Bureau (GSMB) and Chairman GSMB Technical Services (Pvt.) Ltd. from 2002 to 2004.

Mr.L.E.SusanthaSilva

POSITION Non – Executive, Independent Director

DATE OF APPOINTMENT Appointed Director of HDFC Bank in May 2012.

QUALIFICATIONS B.Com (SP) Degree with a Second Class (Upper division) from the University of Kelaniya.

Fellow of the Institute of Chartered Accountants of Sri Lanka, a Fellow of the Institute of Certified Management Accountants, a Fellow of the Institute of Certified Professional Managers, and Associate Member of the Association of Public Finance Accountants of Sri Lanka.

OTHER POSITIONS Presently, the Regional Director for African Operation of Limje Industrial Limited, UK.


Mr. Prasad Galhena


DATE OF APPOINTMENT Appointed Board Member of HDFC Bank in June 2013.

QUALIFICATIONS Graduated from University of Colombo (BBA Honors) and possesses an MBA (Merit) from the same University.

Fellow member of the Chartered Institute of Management Accountants (CIMA) of UK, and a Passed finalist of the Chartered Institute of Marketing in UK.

OTHER POSITIONS Presently, Chairman of the Sri Lanka Sustainable Energy Authority and Commission Member of Public Utilities Commission of Sri Lanka.

PREVIOUS POSITIONS Previously, Chairman for National Gem & Jewellery Authority, Ceylon Shipping Corporation Limited and Sri Lanka Handicraft Board – Laksala. Possesses wide overseas exposure in renewable energy areas and has worked as a team member in several foreign funded consultancy projects

Mr. Muthurajah Surendran(AlsoknownasSurenMuthurajah)

POSITION Non – Executive, Non Independent Director

DATE OF APPOINTMENT Appointed Director of the HDFC Bank in June 2013.

QUALIFICATIONS Diploma in Marketing and a Masters Degree in Finance. A wealth of experience in Operations and IT and in restructuring companies.

OTHER POSITIONS Also functions as an Investment Analyst of the Free Lanka Group with vast exposure to various business and finance functions and had been with the company since 1993.

Mrs.B.G.S.Gunathilake


DATE OF APPOINTMENT Appointed Director of HDFC Bank in April 2014. Resigned 21/01/2015. Re-appointed 20/02/2015

QUALIFICATIONS Bachelor of Science (Special) Degree from the University of Kelaniya and a Master of Arts Degree (Sociology) from the University of Kelaniya.

OTHER POSITIONS Presently, the Additional Secretary (Admin & Finance) to the Ministry of Housing and Samurdhi. (Special Grade SLAS Officer).

PREVIOUS POSITIONS Commenced career as Assistant Commissioner of Labour in 1987.

Held various posts - Assistant Commissioner of Motor Traffic, Assistant Director and Deputy Director of Rubber Development Department, Divisional Secretary of the Divisional Secretariat Kalutara, and Additional District Secretary of the District Secretariat, Kalutara.

58 Profile of the Board of Directors

Mr.R.M.J.Rasnayake


DATE OF APPOINTMENT Appointed Director of HDFC Bank in March 2015.

QUALIFICATIONS BSc Management (Accountancy & Finance) Special Degree from the Rajarata University, Postgraduate Diploma in Business Management from Wayamba University and Higher National Diploma in Accountancy from Technical College, Kurunegala and Diploma in Management Accountancy from Society of Certified Management Accountants of Sri Lanka.

OTHER POSITIONS Accountant at the Ministry of Finance since 7th January 2013.

PREVIOUS POSITIONS Served as the Financial Accountant to Department of Small Industries-NWP and as the Development Coordinator to Divisional Secretariat, Kurunegala.

Mr.UdyamaJ.Kurukularatne


DATE OF APPOINTMENT Appointed Director of HDFC Bank in April 2015.

QUALIFICATIONS Bachelor’s Degree in Business Administration with a Major in Finance and a Minor in Economics from the Eastern Connecticut State University, USA.

OTHER POSITIONS Founded Granada Suppliers (Pvt.) Ltd in 1994, a company which specializes in export and import of food items and was instrumental in making it a recognized food service provider in Sri Lanka and the Republic of Maldives. Diversified the company to include international trading in food items and the import of motor vehicles.

The Government of the Islamic Republic of Pakistan in recognition of his services in advancing bilateral trade, recently appointed him as an Honorary Consul General, and his acceptance of this appointment is expected shortly following the consent of the Ministry of External Affairs of Sri Lanka. A keen advocate good governance and anti-corruption, he contributes articles to mainstream newspapers in Sri Lanka.


Corporate Management

Mr. Nimal J.B. MamaduwaChief Executive Officer / GM

Mr. S. DissanayakeChief Operations Officer / DGM

Mr. W.M.A. BandaraChief Information Officer / DGM

Mr. D.V. PathiranaChief Financial Officer / DGM

Mr. A.J. AthukoralaChief Internal Auditor / DGM

60

Ms. W.W.D.S.C. PereraAssistant General Manager - Legal

Mr. C.R.P. BalasooriyaAssistant General Manager - Treasury

Ms. H.S. GunathilakeAssistant General Manager - Business Development & Marketing

Mr. L. EdirisingheAssistant General Manager - HR & Admn.



Mr. D.M.D.M.K. DissanayakeChief Manager - Credit

Ms. K.T.D.D. De SilvaChief Manager - Secretary Bank / Board

Mr. H.A. AnuraChief Manager - Finance

Ms. W.N.D. BothejuChief Manager - HR

Mr. K.R.M. Aruna BandaraChief Manager - Compliance Officer

62

Our Corporate management team is made up of highly qualified and experienced personnel with many years of experience in their respective fields. The profiles of our Corporate management team is given below.

Mr.NimalJ.B.Mamaduwa

Position GM / Chief Executive Officer

Date of appointment 01st January 2013

Qualification AICM, Dip in Bank Mgt, FCMI (UK)

Other positions & Experience

A Senior Professional Banker with 39 years’ experience in commercial and development banking. He started his banking career at HNB PLC and during his 29 years’ service at HNB he has held many senior positions in the areas of Credit, Development Banking and Operations. He left HNB in 2003 and joined Sanasa Development Bank PLC in the capacity of Asst. General Manager (Credit) and was elevated to Deputy General Manager in the year 2005 and in June 2006 he assumed duties as Chief Executive Officer/General Manager at Sanasa Development Bank PLC, which position he held until October 2012.

He is also a Director of Sri Lanka Banks’ Association (Guarantee) Limited and the Financial Ombudsman Sri Lanka (Guarantee)Limited

Mr.S.Dissanayake

Position Chief Operating Officer

Date of appointment 01st December1995

Qualification ACA, Bsc.(Management)


He counts more than 27 years experience in the field of accounting and finance in organisations where public and private sector. He had been the head of the Finance

Section of the state sector institutions for several years. He joined HDFC as Assistant General Manager

(Finance) and had been the head of the Finance since the assumption of the portfolio as Deputy General Manager (Finance) for over 11 years. He was appointed as Chief Operating Officer with effect from 01st January 2013.

Mr. W. M. A. Bandara

Position Chief Information Officer

Date of appointment 15th August 1997

Qualification BSc, PGDIP-IT (UK)


He has over 20 years of experience as an IT professional with over 10 years’ experience in senior managerial capacity. He has extensive experience in installing, configuring and maintaining a wide range of UNIX based system, specialised in configuring and maintaining Databases , Network administration , Project Management and IT Governance . He had also worked in NEC Corporation in Japan.



Mr. D. Vidana Pathirana

Position Chief Finance Officer

Date of appointment 15th September 2004

Qualification BSc, MBA, FCA, FCMA, FCPM


He has over 30years experience in the fields of Auditing, Accounting, Financial Management, Projects and Investment Promotion, Management Accounting, Project Finance, Business Development and Marketing, Banking, Treasury Management both in Sri Lanka and overseas. He is currently responsible for Finance and Planning Department of the Bank.

Mr.A.J.Atukorala

Position Chief Internal Auditor

Date of appointment 01st July 2009

Qualification BSc, ACMA, CISA, CISM, Dip in Computer System Design (NIBM)


He counts over 26 years of executive experience in the banking sector. Specialising in the auditing function he has the exposure to both private and public sector banks.

Mr.L.Edirisinghe

Position Assistant General Manager - HR & Administration

Date of appointment 10th January 2011

Qualification MBA, BSc.(Business Administration(Special), AMIPM


He has over two decades of professional career experience in Human Resource Management and Training and Development in both public and private sectors, locally and overseas.

Mrs. W. W. D. S. C. Perera

Position Assistant General Manager – Legal

Date of appointment 16th November 1992

Qualification Attorney at Law and Notary Public


She began her carrier at HDFC Bank as a Legal Officer and was promoted to the post of Manager Legal, in 2001. She counts over 20 years of professional experience in the field of law, specialising in housing finance, banking and litigation.

Mrs.H.S.Gunathilake

Position Assistant General Manager (Business Development & Marketing)

Date of appointment 20th June1991

Qualification MBA, PGD in Marketing, PGD in Urban Management (IHS Netherlands) , BA (Sri Lanka)


She counts over 30 years experience in the field of housing both in public and private sector.

64

Mr. C. R. P. Balasooriya

Position Assistant General Manager – Treasury

Date of appointment 22nd March 2004.

Qualification Master in Financial and Economics, B Com (Special), MAAT


He has over two decades of professional career experience in merchant & specialised Banking sector.

Mr.ManjulaKithsiriDissanayake

Position Chief Manger – Credit

Date of appointment 18th June 2012

Qualification ACA


He has over 16 years experience in the field of Credit and Finance. Prior to joining HDFC Bank he served as Credit Officer, Account Manager, Senior Account Manager, Accountant and Senior Manager Credit and Operations in major private sector financial institutions. He has experience in the field of Auditing, Financial Management, Taxation, Operations and Credit Management.

Ms.K.T.Dharshani.D.DeSilva

Position Chief Manager - Secretary Bank / Board

Date of appointment Appointed as the secretary to the Bank/ Board in Year 2006

Qualification Attorney at law. Having two masters ; business administration (MBA ) and law (LLM- Master of laws with a distinction and awarded performance excellence award ) In addition, possess post Attorneys higher diploma in Banking Finance and insurance.


Attorney at law and counts over 20 years experience in Banking & Finance Sector Institutions.

Mr. H. A. Anura

Position Chief Manager - Finance

Date of appointment 1st Oct 2004

Qualification MBA (RJT), B.Sc. Accy& Fin. MGT (Sp) Degree (USJ), MIPA (Aus.), MAAT, Intermediate of CA Sri Lanka,


He has two decades of work experience in banking, credit, recovery, fund mobilization, branch operation, accounting, financial management, taxation, auditing, treasury management, compliance, corporate financial reporting and annual reports, budgeting and financial planning.

He began his career in accounting at BMC and Ceylon Fisheries Corporation in 1996 and joined Regional Development Bank in 1998 in the capacity of Audit/Executive Officer, Assistant Manager and joined HDFC in 2004 in the capacity of Branch Manager Gampaha and from 2007, he served in the capacity of Accountant treasury, Accountant Finance, Senior Manager Finance.



Ms. W. N. D. Botheju

Position Chief Manager – HR

Date of appointment 01st July 1995

Qualification B.sc.Business Administration (special), CBA(CA Sri Lanka) ,CBF


She counts over 20 years experience in private and banking sector in the field of management, finance, HR and other disciplines.

Mr. K. R. M. Aruna Bandara

Position Chief Manager- Compliance Officer

Date of appointment 03rd May 1999

Qualification B.Com(Special) ,CBA (CA Sri Lanka) ,SAT( AAT Sri Lanka), CBF


He counts more than 25 years’ experience in the field of Auditing, Accounting in organisations in the public & private sectors. Prior to joining HDFC bank he served as specialising in auditing in public corporations and forging funded projects. He was appointed Head of Compliance with effect from 02nd January 2012.

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Senior Management

Mr. A.M. NeelachandraSenior Manager - IT / Application Systems & Development Core Banking

Mr. T.H.K.P. De SilvaSenior Manager - IT (Operation , Technical Support and System Security)

Ms. L. GunathilakeSenior Manager - Recoveries

Mr. D.M. DharmaratneSenior Manager - Leasing

Ms. L.A.S.C. WijethungeSenior Manager - Property

Mr. P.S. PitawelaSenior Manager - Administration


Ms. M.R.S. FernandoSenior Manager (Legal)

Ms. K.W.Y. IndiraSenior Manager (Legal - Recoveries)

Ms. E.R.L.K. PereraSenior Manager (Legal)

Ms. K.W. IreshaSenior Manager (Legal)

Ms. K. DissanayakeSenior Manager (Legal)

Ms. K.L.S. MalkanthieSenior Manager (Legal)

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Ms. D.W.W. KodithuwakkuSenior Manager (Legal)

Mr. I. NishanthaSenior Manager - Risk Officer

Senior Management


Regional Managers

Mr. N.C. RanjithRegional Manager - Southern / Chief Manager

Ms. R.R. GunawardenaRegional Manager - Western / Chief Manager

Mr. H.M. ThilakerathneRegional Manager - Central / Senior Manager

Mr. R.M. SugathapalaRegional Manager - Uva / Chief Manager

Mr. W.D.K. SenevirathneRegional Manager - North Western

Governance and Risk Management

Chairman’s Statements on GovernanceGood governance continued to be of paramount importance to us during the financial year under review. The Bank continued to uphold effective and efficient oversight and risk management combined with greater attention to the needs of all stakeholders. Responsible business practices supported by a long term vision defined this financial year in which we succeeded in creating sustainable value for all our stakeholders.

During the year, we conformed to the regulatory framework of the Banking Act, CBSL Corporate Governance directives and the continuing listing requirements under section 7.10 of the listing rules issued by the Colombo Stock Exchange. We also complied with the Code of Best Practice on Corporate Governance, developed by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka. The risk management framework of the Bank was further strengthened during the year with a clear risk identification and risk monitoring process by the Board and management.

We remain unwavering in our pursuit of stakeholder engagement to cement our positioning as a Bank that is close to all its stakeholders. The Board welcomes engagement with stakeholders to identify areas where we can enhance governance, policies and sound business practices. We actively engaged with investors, customers, regulators, suppliers and communities to obtain their feedback.

The External Auditor’s carried out a review of the Bank’s compliance with Corporate Governance directions of CBSL and the Board of directors confirms that all the findings of the factual findings reports” of the auditors issued under “Sri Lanka Related Services Practices Statement 4400” have been incorporated in our Annual Corporate Governance Report.


May 20, 2015Colombo Sri Lanka


Risk ManagementAt HDFC, we approach risk management in an informed manner to understand relevant risks and assess their priority and adopt a rigorous approach to monitoring and controlling them. After identifying different types of risks relevant to the Bank, we have assigned risk levels through a process of consultation between management and Board subcommittees. These risks are regularly updated according to external

Sub committee Mandate

Board Integrated Risk Management Committee Chaired by the Chairperson of the Bank. Defines the framework to manage risk, reviews changes in the characteristics and risks of the Bank portfolio and decides on changes.

Board Audit Committee Examines the adequacy and effectiveness of internal control systems, reviews the financial statements, assess compliance with regulatory requirements and considers contents of the internal audit reports.

Management Level Committee Coordinates different business processes with different risk owners. These risk owners are the Internal Audit Function, the Operational Division, the Treasury Division and the Finance Division.

Risk Working Committee Coordinates with the Board Integrated Risk Management Committee and operational level risk management. Monitors effective implementation of risk management policies, and procedures.

Assets and Liability Committee (ALCO) Manages liquidity, maturity gap of assets and liabilities, pricing of loans and deposits, sensitivity to other market variables etc according to guidelines on a regular basis.

Credit Committee The committee comprises the General Manager, Deputy General Manager (Finance), Assistant General Manager (Business Development & Marketing), Senior Manager (Recoveries). The committee has authority to approve credit within its limit, or make recommendations to the Board of Directors if the facilities exceed delegated authority limits. The committee also issues guidelines on credit evaluation, administration and recovery processes to mitigate credit risk.

Investment Committee Comprises members of the corporate management team and evaluates and screens investments by the Treasury Department.

IT Steering Committee Comprises the Assistant General Manager-IT and members from the corporate management. It oversees IT developments in line with the IT Corporate Plan and industry developments.

Sustainability Committee Oversees the process of integration of sustainability practices into the operation of the Bank and its engagement and communication.

Risk Management Division Conducts risk identification, analysis and presents timely risk evaluation reports to the Risk Working Committee and Integrated Risk Management Committee and ensures implementation of their recommendations effectively.

environmental changes and also changes to the Bank’s business activities. The Bank has further developed risk mitigation measures to ensure any risks are controlled at all times. Risk levels are constantly monitored by the Board subcommittees for any subtle changes across the enterprise.

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Given below is the Bank’s risk monitoring framework for 2014 and perceived level of risk.

KeytoRiskChart:

No risk Marginal risk

Significant risk Critical

Typeofrisk Risklevel Riskmitigation

CreditRisk

Credit Concentration Risk 1. Credit Policy and maximum credit exposure limits.

2. Compliance with guidelines of CBSL on single borrower limits.

3. Management of portfolio mix with particular attention to sector, scheme, income group, provincial and security wise diversity.

4. Strategic profit management through budgetary controls.

Risk of Climate Change 1. Diversification of loan portfolio; income sector, income group and geographical region basis.

2. Alternative collaterally and institutional guarantee schemes.

3. Compulsory mortgage insurance cover.

4. Maintain average size of loan below LKR 1M.

5. Promoting sustainability practices.

Risk of less effectiveness of credit policy and recovery

1. Standardised credit evaluation.

2. Regular review of credit policy and procedures.

3. Regular strengthening of recovery department.

5. Compliance with CRIB requirements.

6. Risk officers review of loan above LKR 1.5M

7. An internal credit rating system was introduced and loan review systems have been initiated.

InterestRateandLiquidityRisk

Liquidity Risk 1. Assets and Liability Committee (ALCO) that ensures managing Maturity Gap and Net Interest Margin.

2. Management of liabilities with adequate mix of deposits, savings and contractual liabilities.

3. Aggressively promoting risk pooled fund base (savings & deposit) to enhance value and spread.

4. Maintain adequate Loan to Deposit ratio.

5. Maintain Statutory Liquid Assets Ratio on or above the Central Bank’s Direction.

Interest Rate Risk 1. Regular Maturity Gap analysis and management.

2. Ensure prompt re-pricing of loans.

3. Aggressively promoting Minor Savings and long term funds.

4. Promoting institutional loan scheme with refinance funding.

Risk Management



OperationalRisk

Processing or behaviour Risk

1. Compliance review of transactions, new products and procedures.

2. Continuous training on system and procedures.

3. Interdepartmental internal controls.

4. Business continuity plan.

System Risk 1. Structured IT division headed by an experienced and qualified AGM.

2. Regular developments in line with regulatory compliances and market developments following a Board approved IT strategic plan.

3. IT policies.

4. IT steering committee.

Human Resources Risk 1. HR policies and procedures.

2. Collective agreement with Trade Union.

3. Regular capacity maximising through training and development, rewards and recognition ,work life balancing etc.

Risk of inadequate risk control & management.

1. Internal Audit.

2. Review by Board Risk Management committee.

3. Middle office independent risk evaluation on Treasury Department transactions have been strengthened.

Geopolitical risk 1. Training and Development.

2. Regular engagements with stakeholders.

3. CSR and Environmental Policy.

4. Sustainability development and reporting.

Risk involved in Management Information.

1. System audit and developments undertaken by Internal Audit.

2. Reconciliation and day to day balancing process.

3. Information Security Policy.

4. Regular system generated MIS for management review.

Health and Safety Risk. 1. Environmental Policy.

2. Labour practice and decent work.

3. Life and fire Insurance .

4. Staff health plan.

5. Business continuity plan.

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Risk of lacking Corporate Governance.

1. Governance policies and procedures.

2. Compliance and risk management functions.

3. Company Secretarial function.

Risk of Criminal and illicit act

1. Training.

2. Insurance.

3. Physical security service.

Ethics risk 1. Policies and procedures.

2. Development of Sustainability practices and reporting.

3. Compliance review.

4. Customer and staff satisfaction surveys.

5. Voluntary compliance with external codes of ethics, best practices etc.

ReputationalRisk

Reputational Risk 1. Regular training on customer care.

2. Business policies and procedures.

3. Stakeholder engagement policy.

4. Independent yearly rating from Fitch Rating Lanka Ltd.

CSR Risk 1. CSR Policy.

2. CSR and Sustainability Executive committees.

3. Compliance with GRI guidelines in sustainability reporting.

ComplianceRisk

Legal and regulatory compliance Risk

1. Compliance officer who reviews adherence to regulatory requirements and reports quarterly to Board Audit Committee, CBSL and CSE.

2. Existence of Separate legal department with 15 qualified lawyers headed by the Legal Manager.

3. Qualified Company secretary.

4. Policies and procedures.

5. Finance division headed by a qualified Chartered Accountant as a DGM.

Risk Management


Corporate GovernanceCorporate governance involves balancing the interests of all the stakeholders of the bank. Since a sound governance framework sets the stage for achieving business goals, it encompasses every aspect of our operations. We believe that HDFC Bank should establish a benchmark governance framework that offers transparency and sound governance practices.

HDFC compliance report HDFC, being committed to the highest standards of governance in the country, has ensured that it remains fully compliant with the Code of Corporate Governance and other regulatory requirements and industry codes. Our Compliance report delineates the strong governance framework established to underpin our claims about optimal internal governance structure and assurance. In this report, applicable governance frameworks are assessed separately in 3 sections for the year 2014.

SECTION ONEHDFC’s compliance with Corporate Governance Directions for Licensed Specialized Banks, as per the CBSL Directives.

Guideline Complied Status Not a

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FactualFindingsofAuditor

3(1)TheResponsibilitiesoftheBoardBoard Function

3 (1) (i) The Board shall strengthen the safety and soundness of the Bank by ensuring implementation of the following:

a) Approve and oversee the Bank’s strategic objectives and corporate values and ensure that these are communicated throughout the bank;

Complied with None

b) Approve the overall business strategy of the bank, including the overall risk policy and risk management procedures and mechanisms with measurable goals.

Please refer the factual finding of Auditor in this regard.

The risk policies have been reviewed and are in the process of being modifying. It will be submitted to the IRMC in June 2015.

c) Identify the principal risks and ensure implementation of appropriate systems to manage the risks prudently;

Complied with None

d) Approve implementation of a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied with None

e) Review the adequacy and the integrity of the Bank’s internal control systems and management information systems;

Complied with

This area will be further strengthened.

None

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f) Identify and designate key management personnel, as defined in the International Accounting Standards, who are in a position to: (i) significantly influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and risk management;

Complied with None

g) Define the areas of authority and key responsibilities for the Board of Directors themselves and for the key management personnel;

Complied with None

h) Ensure that there is appropriate oversight of the affairs of the Bank by key management personnel, that is consistent with Board policy;

Complied with None

i) Periodically assess the effectiveness of the Board Directors’ own governance practices, including: (i) the selection, nomination and election of Directors and key management personnel; (ii) the management of conflicts of interests; and (iii) the determination of weaknesses and implementation of changes where necessary;

Complied with None

j) Ensure that the Bank has an appropriate succession plan for key management personnel;

Complied with

This will be further reviewed and updated.

None

k) Meet regularly, on a need basis, with the key management personnel to review policies, establish communication lines and monitor progress towards corporate objectives;

Complied with None

l) Understand the regulatory environment and ensure that the Bank maintains an effective relationship with regulators;

Complied with None

m) Exercise due diligence in the hiring and oversight of external auditors.

Complied with None

3 (1) (ii) The Board shall appoint the Chairman and the Chief Executive Officer and define and approve the functions and responsibilities of the Chairman and the Chief Executive Officer in line with Direction 3(5) of CBSL.

Complied with None

BoardMeetings

3 (1) (iii) The Board shall meet regularly and Board Meetings shall be held at least twelve times a year at approximately monthly intervals. Obtaining the Board’s consent through the circulation of written resolutions/papers shall be avoided as far as possible.

Complied with None

Corporate Governance



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3(1) (iv) That arrangements shall be in place to enable all Directors to include matters and proposals in the agenda for regular Board Meetings.

Complied with None

3(1) (v) That notice of at least 7 days is given of regular Board Meetings. For all other Board Meetings, reasonable notice may be given.

Complied with None

3(1) (vi) That a Director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a Director. Participation at the Directors’ Meetings through an alternate Director shall, however, be acceptable as attendance.

Complied with None

3(1) (vii) Shall appoint a Company Secretary who has satisfied the provisions of section 43 of Banking Act No. 30 of 1988, whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings, and to carry out other functions specified in the statutes and other regulations.

Complied with None

3(1) (viii) All Directors shall have access to advice and services of the Company Secretary with a view to ensuring that Board procedures and all applicable rules and regulations are followed.

Complied with None

3(1) (ix) The Company Secretary shall maintain the minutes of Board Meetings and such minutes shall be open for inspection or reasonable time on reasonable notice by any Director.

Complied with None

3(1) (x) Minutes of Board Meetings shall be recorded in sufficient detail as required under the Banking Act directions on Corporate Governance.

Complied with None

3(1) (xi) There shall be a procedure to enable Directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the Bank’s expense. The Board shall resolve to provide separate independent professional advice to Directors to assist the relevant Director or Directors to discharge his/ her/ their duties to the Bank.

Complied with None

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3(1) (xii) Directors shall avoid conflicts of interests, or the appearance of conflicts of interest, in their activities with, and commitments to, other organizations or related parties. If a Director has a conflict of interest in a matter to be considered by the Board, which the Board has determined to be material, the matter should be dealt with at a Board Meeting, where Independent Non-Executive Directors [refer to Direction 3(2)(iv) of these Directions] who have no material interest in the transaction, are present. Further, a Director shall abstain from voting on any Board resolution in relation to which he/she or any of his/her close relation or a concern in which a Director has substantial interest, is interested and he/she shall not be counted in the quorum for the relevant agenda item at the Board Meeting.

Complied with None

3(1) (xiii) The Board shall have a formal schedule of matters specifically reserved for its decision to ensure that the direction and control of the bank is firmly under its authority.

Complied with None

3(1) (xiv) The Board shall, if it considers that the Bank is or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of Bank Supervision of the situation of the Bank prior to taking any decision or action.

N/A

3(1) (xv) The Board shall, ensure that the Bank shall capitalize at levels as required by the Monetary Board in terms of the capital adequacy ratio and other prudential grounds.

Complied with

Please refer Page No 166 for Capital Adequacy as at 31/12/2014.

None

3(1) (xvi) Shall publish in the Bank’s Annual Report, an annual corporate governance report setting out the compliance with Direction 3 of these Directions.

Complied with None

3(1) (xvii) The Board shall adopt a scheme of self-assessment to be undertaken by each Director annually, and maintain records of such assessments

Complied with None




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3(2)TheBoard’sComposition3(2) (i) The number of Directors on the Board shall

not be less than 7 and not more than 13.(a) There are three categories of Directors in the

Board, as in accordance with HDFC Act. as follows;

(i) Ex-officio Directors representing the Secretary to the Treasury and Ministry of Housing.

(ii) Nominated Directors, representing the Ministry of Finance, Labour and Minister of Housing.

(iii) Shareholding Directors

(b) During the period under review there were 11 Directors in the Board as given below.

01. Mrs. Siromi N. Wickramasinghe (resigned-21/01/2015)

02. Mr. W.J.L.U. Wijayaweera (resigned - 21/01/2015)

03. Mr. S.A.J. Samaraweera (resigned - 21/01/2015)

04. Mr. W.D.R.D. Goonaratne (resigned - 21/01/2015)

05. Mr. L.E.S. Silva

06. Mr. M. Surendran

07. Mr. P. Galhena

08. Mrs. B.G.S. Gunathilake (resigned - 21/01/2015)

09. Mrs. M.F.K. Nissa (resigned - 21/01/2015)

10. Mrs. C. Wijayawardhane(resigned – April 2014)

11. Mr. G.L.S. Senadeera(resigned – 14/03/2014)

However, in year 2015, the Board was reconstituted as directed by the Ministry of Finance after the Presidential elections and the director profiles of the present Board is given on Page 56 to 58 of the Annual Report.

None

3(2) (ii) The total period of service of a Director other than a Director who holds the position of Chief Executive Officer shall not exceed nine years

Complied with None

3(2) (iii) An employee of a Bank may be appointed, elected or nominated as a Director of the Bank (Executive Directors)

Complied with

The Board of the HDFC Bank comprises only of Non-Executive Directors, in compliance with the HDFC Act.

None

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3(2) (iv) The Board shall have at least three Independent Non-Executive Directors or one-third of the total number of Directors, whichever is higher.

Complied with

During the period under review, the constitution of the Director Board with regard to independency of Directors, were as follows;

(a) Independent/Non-ExecutiveDirectors

01. Mrs. Siromi N. Wickramasinghe (Chairperson)

02. Mr. W.J.L.U. Wijayaweera


04. Mr. P. Galhena

05. Mrs. B.G.S. Gunathilake

06. Mrs. M.F.K. Nissa

07. Mrs. C. Wijayawardhane (resigned – April 2014)

08. Mr. G.L.S. Senadeera (resigned – 14/03/2014)

(b) Non-Independent/Non-ExecutiveDirectors.

01. Mr. S.A.J. Samaraweera

02. Mr. W.D.R.D. Goonaratne


None

3(2) (v) In the event an alternate Director is appointed to represent an Independent Director, the person so appointed shall also meet the criteria that apply to the Independent Director.

Complied with

No appointments

None

3(2) (vi) Non-Executive Directors shall be persons with credible track records and/or have necessary skills and experience to bring an independent judgment to bear on issues of strategy, performance and resources.

Complied with None

3(2) (vii) A meeting of the Board shall not be duly constituted, although the number of Directors required to constitute the quorum at such meeting is present, unless more than one half of the number of Directors present at such meeting are Non-Executive Directors. This sub-direction shall be applicable from 01st January 2011 onwards.

Complied with None




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3(2) (viii) The Independent Non-Executive Directors shall be expressly identified as such in all corporate communications that disclose the names of Directors of the Bank. The Bank shall disclose the composition of the Board, by category of Directors, including the names of the Chairman, Executive Directors, Non-Executive Directors and Independent Non-Executive Directors in the Annual Corporate Governance Report.

Complied with None

3(2) (ix) There shall be a formal, considered and transparent procedure for the appointment of new Directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

Complied with

(In accordance with HDFC Act)

None

3(2) (x) All Directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

N/A

3(2) (xi) If a Director resigns or is removed from office, the Board shall: (a) announce the Director’s resignation or removal and the reasons for such removal or resignation including but not limited to information relating to the relevant Director’s disagreement with the Bank, if any; and (b) issue a statement confirming whether or not there are any matters that need to be brought to the attention of shareholders.

Complied with None

3(2) (xii) A Director or an employee of a bank shall not be appointed, elected or nominated as a Director of another Bank.

Complied with None

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3(3)CriteriatoAssesstheFitnessandProprietyofDirectors(Inadditiontoprovisionofsection42readwithsection76HoftheBankingAct,No.30of1988thecriteriasetoutbelowshallapplytodeterminethefitnessandproprietyofapersonwhoservesorwishestoserveasaDirectorofaBank.)

3(3) (i) The age of a person who serves as Director shall not exceed 70 years.

Complied with None

3(3) (ii) A person shall not hold office as a Director of more than 20 companies/entities/institutions inclusive of subsidiaries or associate companies of the Bank of such 20 companies / entities / institutions, not more than 10 companies shall be those classified as Specified Business Entities in terms of the Sri Lanka Accounting and Auditing Standards Act, No. 15 of 1995.

Complied with None

3(4)ManagementFunctionsDelegatedbytheBoard

3(4) (i) The Directors shall carefully study and clearly understand the delegation arrangements are in place.

Complied with None

3(4) (ii) The Board shall not delegate any matters to a Board Committee, Chief Executive Officer, Executive Directors or Key Management Personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied with None

3(4) (iii) The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the Bank.

Complied with None

3(5)TheChairmanandChiefExecutiveOfficer

3(5) (i) The roles of Chairman and Chief Executive Officer shall be separate and shall not be performed by the same individual.

Complied with

The Chairman and GM/CEO positions are separately defined in HDFC Act.

None

3(5) (ii) The Chairman shall be a Non-Executive Director and preferably an Independent Director as well.

Complied with None




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3(5) (iii) The Board shall disclose in its Corporate Governance report, the identity of the Chairman and the Chief Executive Officer and the nature of any relationship [including financial, business, family or other material/relevant relationship(s)], if any, between the Chairman and the Chief Executive Officer and the relationships among members of the Board.

Complied with

No relationship whatsoever

None

3(5) (iv) The Chairman shall: (a) provide leadership to the Board; (b) ensure that the Board works effectively and discharges its responsibilities; and (c) ensure that all key and appropriate issues are discussed by the Board in a timely manner.

Complied with None

3(5) (v) The Chairman shall be primarily responsible for drawing up and approving the agenda for each Board Meeting, taking into account where appropriate, any matters proposed by the other Directors for inclusion in the agenda. The Chairman may delegate the drawing up of the agenda to the Company Secretary.

Complied with The agenda is prepared based on the instructions of the Chairman, and it is circulated among the Directors by the Company Secretary once the Chairman’s verbal approval is received.

3(5) (vi) The Chairman shall ensure that all Directors are properly briefed on issues arising at Board meetings and also ensure that Directors receive adequate information in a timely manner.

Complied with None

3(5) (vii) The Chairman shall encourage all Directors to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the Bank.

Complied with None

3(5) (viii) The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relations between executive and Non-Executive Directors.

Complied with None

3(5) (ix) The Chairman, shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied with None

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3(5) (x) The Chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

Complied with

(a) The Board appreciates the presence and participation of its shareholders at the Annual General Meeting.

(b) The Board uses multiple channels to keep its shareholders informed of the performance and operations of the Bank. The annual report is the main document the Company uses to inform its shareholders about the affairs of the Company, apart from relevant circulars whenever deemed necessary.

None

3(5) (xi) The Chief Executive Officer shall function as the apex executive-in-charge of the day-to-day management of the Bank’s operations and business.

Complied with None

3(6)BoardAppointedCommittees

3(6) (i) Each Bank shall have at least five Board Committees as defined in CBSL Directions 3(6)(ii), 3(6)(iii), 3(6)(iv) and 3(6)(v) each Committee shall report directly to the Board. All Committees shall appoint a Secretary to arrange the Meetings and maintain minutes, records, etc., under the supervision of the Chairman of the Committee. The Board shall present a report of the performance on each Committee, on their duties and roles at the Annual General Meeting.

Complied with

Following Committees are functioning.

(i) Board Nomination Committee

(ii) Board Audit Committee

(iii) Board Human Resource and Remuneration Committee

(iv) Board Integrated Risk Management Committee

(v) Board Related Party Transaction Monitoring Committee

(vi) Board Recovery Sub Committee

None




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Board Audit Committee

3(6) (ii) The relevant responsibilities related to Board Audit Committee, is separately defined under 3(6)(ii) of the Directions.

Complied with

During the period under review, the Audit Committee comprised of following Directors.

01. Mr. L.E. S. Silva (Chairman of the Committee)

02. Mr. W.D.R.D. Goonaratne

03. Mr. P. Galhena





For further details please refer Board Audit Committee report on Page 112,113.

None

Board Human Resource and Remuneration Committee

3(6) (iii) The relevant responsibilities related to Board Human Resource and Remuneration Committee, is separately defined under 3(6)(iii) of the Directions.

Complied with

During the period under review, the Human Resource and Remuneration Committee comprised of following Directors;

01. Mrs. Siromi N. Wickramasinghe (Chairperson of the Committee)


03. Mr. W.D.R. D. Goonaratne




The existing policies of the Bank for evaluation of KMPS and CEO will be further improved.

For further details please, refer to the Board Human Resource and Remuneration Committee Report, on Page 114,115.

None

86


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Board Nomination Committee

3(6) (iv) The relevant responsibilities related to Board Nomination Committee, is separately defined under 3(6)(iv) of the directions.

Complied with

During the period under review, the Nomination Committee comprised of the following Directors.



03. Mrs .B.G.S. Gunathilake



The existing policies of the Bank for evaluation, selection and eligibility criteria for KMPS and CEO will be further improved.

For further details please refer the Board Nomination Committee report on Page 116.

None

BoardIntegratedRiskManagementCommittee

3(6) (v) The relevant responsibilities related to Board Integrated Risk Management Committee, is separately defined under 3(6)(v) of the Directions.

Complied with

During the period under review, the Integrated Risk Management Committee comprised of following directors;



03. Mr. P. Galhena





08. GM/ DGM/ AGM/ CIA/ CM (Treasury) / Head of Credit / Compliance Officer / Risk Officer

Reporting frequency of the relevant risk factors to the Board Integrated Risk Management Committee will be further increased.

For further details, please refer the Integrated Risk Management report on Page 117.

None




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BoardRelatedPartyTransactionMonitoringCommittee

During the period under review, the Related Party Transaction Monitoring Committee comprised of following directors;

01. Mrs. Siromi N. Wickramasinghe(Chairperson of the Committee)



04. Mrs B.G.S. Gunathilake

For further details, please refer to the Board Related Party Transaction Monitoring Committee report on Page 118.

3(7)RelatedPartyTransactions

3(7) (i) and 3(7) (ii) The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction (defined under 3(7)(ii) of the directions) of the Bank with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:

a) Any of the bank’s subsidiary companies;

b) Any of the bank’s associate companies;

c) Any of the directors of the bank;

d) Any of the bank’s key management personnel;

e) A close relation of any of the bank’s directors or key management personnel;

f) A shareholder owning a material interest in the bank;

g) A concern in which any of the bank’s directors or a close relation of any of the bank’s directors or any of its material shareholders has a substantial interest.

Complied with

Related party transactions taken place in the normal course of business are disclosed in note 32 and 32.1 of the financial statement on Page 162.

None

88


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able


3(7) (iii) The Board shall ensure that the Bank does not engage in transactions with related parties as defined in Direction 3(7)(i) above, in a manner that would grant such parties “more favourable treatment” than that accorded to other constituents of the Bank carrying on the same business.

Complied with None

3(7) (iv) A Bank shall not grant any accommodation to any of its Directors or to a close relation of such Director unless such accommodation is sanctioned at a meeting of its Board of Directors, with not less than two-thirds of the number of Directors other than the Director concerned, voting in favour of such accommodation. This accommodation shall be secured by such security as may from time to time be determined by the Monetary Board as well.

N/A

None

3(7) (v)

a) Where any accommodation has been granted by a Bank to a person or a close relation of a person or to any concern in which the person has a substantial interest, and such person is subsequently appointed as a Director of the bank, steps shall be taken by the bank to obtain the necessary security as may be approved for that purpose by the Monetary Board, within one year from the date of appointment of the person as a Director.

N/A

b) Where such security is not provided by the period as provided in Direction 3(7)(v)(a) above, the Bank shall take steps to recover any amount due on account of any accommodation, together with interest, if any, within the period specified at the time of the grant of accommodation or at the expiry of a period of eighteen months from the date of appointment of such director, whichever is earlier.

N/A

None

c) Any Director who fails to comply with the above sub-directions shall be deemed to have vacated the office of director and the Bank shall disclose such fact to the public.

N/A

None




pplic

able


d) This sub-direction, however, shall not apply to a Director who at the time of the grant of the accommodation was an employee of the Bank and the accommodation was granted under a scheme applicable to all employees of such Bank.

N/A

None

3(7) (vi) A Bank shall not grant any accommodation or “more favourable treatment” relating to the waiver of fees and/or commissions to any employee or a close relation of such employee or to any concern in which the employee or close relation has a substantial interest other than on the basis of a scheme applicable to the employees of such bank or when secured by security as may be approved by the Monetary Board in respect of accommodation granted as per Direction 3(7)(v) above.

N/A

None

3(7) (vii) No accommodation granted by a Bank under Direction 3(7)(v) and 3(7)(vi) above, nor any part of such accommodation, nor any interest due thereon shall be remitted without the prior approval of the Monetary Board and any remission without such approval shall be void and of no effect.

N/A

None

3(8)Disclosures3(8) (i) The Board shall ensure that:

(a) annual audited financial statements and quarterly financial statements are prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable accounting standards, and that

Complied with None

(b) Such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied with None

3(8) (ii) The Board shall ensure that the minimum disclosures are made in the Annual Report:

a) A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied with

Please refer to Directors Responsibility Statement for Financial Reporting on Page 128, 129 of the Annual Report.

None

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b) A report by the Board on the bank’s internal control mechanism that confirms that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.

Complied with

Please refer to Page 121, 122 of the Annual Report

None

c) The External Auditor’s certification on the effectiveness of the internal control mechanism referred to in Direction 3(8)(ii)(b) above, in respect of any statements prepared or published after 31 December 2008.

Complied with None

d) Details of Directors, including names, fitness and propriety, transactions with the bank and the total of fees/remuneration paid by the bank.

Complied with None

e) Total net accommodation as defined in 3(7)(iii) granted to each category of related parties. The net accommodation granted to each category of related parties shall also be disclosed as a percentage of the bank’s regulatory capital.

N/A

None

f) The aggregate values of remuneration paid by the bank to its key management personnel and the aggregate values of the transactions of the bank with its key management personnel, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the bank.

Complied with

Please refer Note 7.1 of the Financial Statements given on Page 148 of the Annual Report

None

g) The external auditor’s certification of compliance with these directions in the annual corporate governance reports published after 01st January 2014.

Complied with None

h) A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any material non-compliance.

Complied with

Please refer to the Report of the Directors, Statement on the Board of director’s responsibility for financial reporting and statement on internal controls published on Pages 107 to 111, 128 to 129 and 121,122 respectively, of this Annual Report

None




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able


i) A statement of the regulatory and supervisory concerns on lapses in the bank’s risk management, or non-compliance with these directions that have been pointed out by the Director of Bank Supervision, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the bank to address such concerns.

N/A

None

SECTION TWOHDFC Bank’s compliance with the Code of Best Practice on Corporate Governance by the Securities and Exchange Commission of Sri Lanka and the Institute of Charted Accountants of Sri Lanka.

Guideline Full compliance Part

ial

com

plia

nce

Non

com

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nce

Not applicable

A. Directors

A.1 The Board Complied with

Directors exercise their authority at Board meetings. The Board comprises of Non-Executive Directors holding a balance of financial/banking and business management skills and expertise. They are individuals of repute who have demonstrated a good track record of ethical leadership and will act in good faith.

A 1.11. Meeting

Complied with

Please refer status of compliance for 3(1)(iii) of CBSL Rules

92


ial

com

plia

nce

Non

com

plia

nce

Not applicable

A 1.22. Board Responsibilities

Complied with

The Board drives the Bank’s commitment to uphold the highest standards of governance and takes on overall responsibility for the good governance of the Bank. It takes the following actions in the best interests of the Bank:

Creation and execution of a sustainable business strategy.

Employing effective internal control systems to secure integrity of information, and risk management

The Board ensures that:

The Bank cooperates and that the senior management team possesses professional and expertise for implementation of the strategic and Corporate Plan of the Bank.

The Bank is In possession of an effective CEO and Senior Management succession plan which will be further improved and updated.

Compliance with laws, regulations and ethical standards;

Transparent mechanism to address stakeholder interests in corporate decisions;

Company’s values and standards are set with emphasis on adopting appropriate accounting policies and in compliance with financial regulations.

A 1.33. Access to Independent Professional

Advice

Complied with




ial

com

plia

nce

Non

com

plia

nce

Not applicable

A 1.44. Board Secretary

Complied with

The Board Secretary also plays a critical role in maintaining the relationship between the Company and its shareholders and regulators, including assisting the Board in discharging its obligations to shareholders.

The Company Secretary is an Attorney-at-Law with relevant qualifications as defined in her profile.

Advice and services of the Company Secretary is available for all directors for ensuring that Board procedures are correctly adhered to in line with applicable laws of the Bank.

A 1.55. Independent Judgment

Complied with

Each Board member has a responsibility to determine whether he/she has potential or actual conflict of interests arising from external associations, interest in material matters and personal relationships which may influence his or her judgement to avoid potential conflict or bias.

Directors adhere to a process where reviews take place prior to their appointment in Board,once appointed and during Board meetings.

A 1.66. Dedication of adequate time and effort

by the Board and Board Committee

Complied with

A 1.77. Training for new Directors

Complied with

94


ial

com

plia

nce

Non

com

plia

nce

Not applicable

A.2Chairman&ChiefExecutiveOfficer

A 2.18. Division of Responsibilities of the

Chairman & GM/CEO

Complied with

The roles of Chairman and Chief Executive Officer are separate and not performed by the same individual, as defined in the HDFC Act, outlining clear division of responsibilities, with regard to banking operations and facilitating executive responsibility for management. This will ensure a balance of power and authority, as such that no one individual has unfettered powers of decision.

A.3 Chairman’s Role

A 3.19. Role of the Chairman

Complied with

The Chairman is responsible for chairing the board and shareholder meetings; ensuring that the operations of the board are managed effectively; ensuring that all key and relevant issues are discussed by the Board in a timely and constructive manner; that appropriate steps are taken to provide effective communication with shareholders and to ensure that shareholders’ views are communicated to the Board as a whole, whilst ensuring that good governance practices are followed.

A 4. Financial Acumen

A 410. Availability of sufficient financial acumen

and knowledge

Complied with

Adequate financial acumen and knowledge to offer guidance on matters on finance is available within the Bank

A 5. Board Balance

A 5.111. Presence of a strong independent

element on the Board

Complied with

A 5.2A 5.3

12. Independent Directors

Complied with

A 5.413. Signed declaration of independence by

the Non-executive Directors

Complied with

According to the independency criteria formulated by the Bank, all Non-Executive Directors made their declarations as to their status.




ial

com

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nce

Non

com

plia

nce

Not applicable

A 5.514. Determination of independence of the

Directors by the Board

Complied with

During the period under review, Independent Non-Executive Directors are as follows.

01. Mrs. Siromi N. Wickramasinghe




05. Mr. P. Galhena


A 5.615. Senior Independent Director

N/A

A 5.716. Confidential discussion with the Senior

Independent Director

N/A

A 5.817. Meeting of Non-executive Directors

Complied with

On need basis, the Chairman and other Non-Executive Directors meet independently, without the GM/ CEO as a participant.

A 5.918. Recording of concerns in Board Minutes

Complied with

A 6. Supply of InformationA 6.1

19. Information to the Board by the management

Complied with

The management ensures that a set of timely,accurate, relevant and comprehensive information is provided to the Directors before the Board meeting every month, with adequate time for them to review the same and prepare for discussions. All significant financial and non - financial information for the period is included in these analyses.

In addition, the Board requests additional information with respect to areas such as the Bank’s operations, industry and competitors, risk management, laws and regulations and corporate governance, as the need arises.

A 6.220. Adequate time for Board meeting

Complied with

In advance, a fixed schedule and thereafter, separate individual notices are given to each Director on time.

96


ial

com

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nce

Non

com

plia

nce

Not applicable

Appointment to the Board

Appointment to the Board Complied with

All new shareholder director appointments to the Board are made following a formal and transparent procedure through the Nomination Committee.

A 7.121. Nomination Committee

Complied with

During the period under review, the Nomination Committee of HDFC Bank comprised of the following Directors;





05. Mrs. C. Wijayawardhana (resigned - April 2014)

For further details Please refer the Board Nomination Committee report on Page 116.

A 7.222. Assessment of Board composition

Complied with

The Board consists of three categories of Directors as explained in section 01 of the Annual report: Ex-Officio, Nominated Directors and Shareholding Directors. All directors are non-executive.

With the recommendations of the Board Nomination Committee, respective shareholder Director appointments are being made subject to election at a Shareholder Meeting.

The Nomination Committee reviews the composition of the Board and makes necessary recommendations pertaining to new appointments to the Board.




ial

com

plia

nce

Non

com

plia

nce

Not applicable

A 7.323. Disclosure of details of new Directors to

Shareholders

Complied with

Director resignations and removals are duly communicated to the relevant regulatory authorities, such as the Central Bank and the Colombo Stock Exchange. Relevant details of new Directors are disclosed to the Shareholders by way of public announcements. All Director profiles are published in the Annual Report.

Re-election

A 8 Re-election Complied with

A 8.124. Appointment of Non- Executive Directors

Complied with

All new appointments to the Board of Director should be in accordance with the HDFC Act No. 07 of 1997(amendment Act No. 15 of 2003 and Act No. 45 of 2011).

A 8.225. Election of Directors by the Shareholders

Complied with

According to the HDFC Act, each Shareholding Director retires by rotation once in every three years and is required to stand for re-election by the shareholders at the Annual General Meeting.

Further, Ex-Officio Directors and Nominated Directors are also appointed to the Board for a fixed term period and subject to re-appointment on completion of the relevant period.

Appraisal of Board performance

A 9 Appraisal of Board performance Complied with

The Board adopted an annual appraisal criteria for their own governance.

A 9.126. Appraisal of Board performance

Complied with

The Chairman, with the assistance of the other members of the Board conducts the evaluation of Board performance.

The Sub Committees have adopted an assessment process, which conducts annually to ensure efficacy and efficiency, of the committees.

98


ial

com

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nce

Non

com

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nce

Not applicable

A 9.227. Annual self-evaluation of the Board and

its Committees

Complied with

Please refer comments mentioned under A 9.1, above.

A 9.328. Disclosure of the appraisal of Board and

Board Sub Committee Performance

Complied with

Please refer comments mentioned under A 9.1, above.

Disclosure of information in respect of DirectorsA 10 Disclosure of information in respect of Directors

Complied with

A 10.129. Details in respect of Directors

Complied with

The relevant details of the Directors are given under the Director’s Profile of the Annual Report, on Page 56 to 58.

AppraisaloftheGM/CEO

A.11 Appraisal of the GM/CEO Complied with

Annual Performance evaluation policy of the Bank covers the performance evaluation of the CEO.

A 11.130. Financial targets for GM/ CEO

Complied with

The financial and other performance targets for the GM / CEO are set, in line with Corporate Plan of the bank.

A 11.231. Evaluation of the performance of the

GM/CEO

Complied with

The GM/CEO provides the relevant leadership and guidance to achieve the financial and non-financial targets of the Bank and the performance evaluation Is conducted on the basis of achievement of respective targets.

B. Directors RemunerationB 1 Remuneration Procedures Complied with

The Bank has a proper policy with regard to executive remuneration. The Directors of the Bank are not entitled for remuneration but get an allowance as directed by the Ministry of Finance.

B 1.132. Remuneration / Human Resources

Committee

Complied with

The Human Resource and Remuneration Committee is responsible for assisting the Board with regard to the remuneration policy.




ial

com

plia

nce

Non

com

plia

nce

Not applicable

B 1.233. Composition of the Remuneration

Committee

Complied with

Please refer to the Board Human Resource and Remuneration Committee Report on Page 114, 115 of the Annual Report for details.

B 1.434. Remuneration of the Non-executive

Directors

N/A

Please refer B.1

B 1.535. Consultation of the Chairman and

access to professional advice

Complied with

External professional advice is sought, on need basis.

Levelandmake-upoftheRemunerationB 2 Level and make-up of the RemunerationB 2.1

36. Level and make-up of the remuneration of both Executive and Non-Executive Directors

B 2.237. Comparison of remuneration with other

companiesB 2.3

38. Comparison of remuneration with other companies in the group

B 2.439. Performance related payment to

Executive and Non-executive DirectorsB 2.5

40. Executive share option for DirectorsB 2.6

41. Designing the Executive Directors remuneration

B 2.742. Early termination benefits of Directors

B 2.843. Early termination benefits of Directors

(not included in the initial contract)B 2.9

44. Level of remuneration of the Non-Executive Directors.

N/A

Please refer comments for B 1.

B 3. Disclosure of RemunerationB 3.1

45. Disclosure of remunerationComplied with

Please refer comments for B 1.

100


ial

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Non

com

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Not applicable

C Relations with Shareholders

C 1 Constructive use of the Annual General Meeting and conduct of General Meetings.

Complied with

Bank use the AGM to communicate with shareholders and encourages their participation.

C 1.146. Use of proxy votes

Complied with

The bank has a method of recording all proxy votes and proxy votes lodged by the shareholders on each resolution.

C 1.247. Separate resolution for all separate

issues

Complied with

A separate resolution must be adopted at the AGM on each substantially separate issues whereas shareholders are provided with the opportunity to vote on each such resolution.

C 1.348. Availability of all Board Sub Committee

Chairman at the AGM

Complied with

C 1.449. Adequate notice of the AGM

Complied with

Adequate Notice of the Meeting being given to shareholders, whereas minimum 15 working days prior notice to the date of the AGM.

C 1.550. Procedures of voting at General Meeting

Complied with

Major transactions

C 2 Major transactions Complied with

C 2.151. Major transactions

Complied with

During 2014, there were no major transactions as defined by section 185 of Companies Act No. 07 of 2007 which materially affected the HDFC’s net asset base.

D. Audit and Accountability

D 1 Financial Reporting. Complied with

The HDFC reports a balanced and understandable assessment of Bank’s, financial position, performance and prospects.




ial

com

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nce

Non

com

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nce

Not applicable

D 1.152. Statutory and regulatory reporting

Complied with

HDFC reports a balanced and fair assessment of its financial position for the year ended 31st December and at the end of each quarter of 2014.

The financial statements for the year ended 31st December 2014 and for the respective quarters ended have been published in newspapers as required.

The Auditor General of Sri Lanka is the external Auditor of HDFC.

D 1.253. Directors’ report in the Annual Report

Complied with

The Director’s Report is given on Page 107 to 111 of this Annual Report.

D 1.354. Statement of Directors’ responsibility for

the financial statement

Complied with

The Statement of Directors’ Responsibility for Financial Reporting is given on Page 128, 129of the Annual Report.

D 1.455. Management discussions and analysis

Complied with

Please refer 16 to 19 (General Manager / CEO’s review)

D 1.556. Declaration by the Board that the

business is a going concern

Complied with

This is given on the Directors’ Reports on Page 107 to 111 of the Annual Report.

D 1.657. Summoning an EGM to notify serious

loss of capital

N/A

Internal Control

D.2 Internal Control Complied with

Please refer page No. 121, 122 for report on Directors’ Statement on Internal Control.

D 2.158. Annual evaluation of the internal control

system

Complied with

Please refer page No. 121, 122 for report on Directors’ Statement on Internal Control.

102


ial

com

plia

nce

Non

com

plia

nce

Not applicable

D 2.259. Need for internal audit function

Complied with

The Internal Audit Department of the Bank is responsible for auditing functions independently. Please refer Page No. 112, 113 for Audit committee Report and Organizational Chart on page No. 52, 53 for reporting lines of CIA.

Audit Committee

D 3 Audit Committee Complied with

Please refer page No. 112, 113 for Audit Committee Report.

D 3.160. Composition and terms & conditions of

the Audit Committee

Complied with

Please refer page No. 112, 113 for Audit Committee Report.

D 3.261. Duties of the Audit Committee

Complied with

Please refer page No. 112, 113 for Audit Committee Report..

D 3.362. Terms and reference of the Audit

Committee

Complied with

Please refer the Report of Audit Committee, on Page 112, 113

D 3.463. Disclosures of the Audit Committee

Complied with

Please refer the Board Audit Committee Report on Page 112, 113 for membership.

Code of business conduct & ethics

D 4 Code of business conduct & ethics Complied with

The Bank had adopted many policies which cover the conduct of Business and ethics.

D 4.164. Code of business conduct and ethics

Complied with

D 4.265. Affirmation of the code of conduct &

ethics

Complied with




ial

com

plia

nce

Non

com

plia

nce

Not applicable

E Institutional Shareholders

E1 Shareholding voting Complied with

Institutional shareholders are required to make use of their votes and translate their voting intentions into practice.

E 1.166. Institutional Shareholders

Complied with

Institutional shareholders are encouraged to use their votes.

Further, they are encouraged to execute their votes and also seek independent advice on investing or divesting decisions

E 2 Evaluation of Corporate Governance initiatives

Complied with

F.OtherInvestors

F1 Investing / Divesting Decision

Advising caution to individual shareholders, the Bank recommends that if they are investing directly in shares of companies, they should conduct exhaustive analysis or seek independent advice in investing or divesting decisions.

Complied with

F 2 Shareholder Voting Complied with

The Bank appreciates participation of individual customers in General Meetings and they are exercising their voting rights.

F 2.167. Individual Shareholder Voting

Complied with

104

SECTION THREEHDFC’s compliance with the continuing listing requirements under section 7.10 on Corporate Governance Rules for listed companies, issued by the Colombo Stock Exchange.

DisclosuresregardingtheBoardofDirectors Full compliance Part

ial c

ompl

ianc

e

Non

com

plia

nce

Not applicable

7.10.1 (a) to (c)(i) Confirmation to the correct number of

Non-Executive Directors In the Board

Complied with

7.10.2 (a)(ii) Confirmation to correct number of

Independent Non-Executive Directors in the Board

Complied with

7.10.2 (b)(iiii) Directors Annual Declaration of his / her

Independence or Non- Independence to the Board of Directors.

Complied with

7.10.3 (a)(iv) Annual determination of the Board as to

the Independence or Non-Independence of the Directors.

Complied with

7.10.3 (b)(v) The qualifications not met by the

Directors

Complied with N/A

7.10.3 (c)(vi) Brief resume of each Director

Complied with

Please refer Directors’ profiles on Pages 56 to 58.

DisclosuresrelatingRemuneration&theRemunerationCommittee7.10.5 (a)

(vii) The correct number of Independent Non-Executive Directors in the Remuneration Committee

Complied with

Please refer to HR and Remuneration Committee Report on Pages 114 to 115.

7.10.5 (a)(viii) Separate Remuneration Committee

Complied with

7.10.5 (c)(ix) Names of the Directors in the

Remuneration Committee

Complied with

Please refer to the Board Human Resource and Remuneration Committee Report on Page 114, 115.




ial c

ompl

ianc

e

Non

com

plia

nce

Not applicable

7.10.5 (b)(x) Functions of the Remuneration

Committee

Complied with

Please refer the Board Human Resource and Remuneration Committee Report on Page 114, 115. .

7.10.5.(a)(xi) Chairman of the Remuneration

Committee

Complied with

Mrs.Siromi N. Wickramasinghe (a Non-Executive Independent Director) was appointed as the Chairman of the Committee by the Board of Directors in accordance with (Rules 7.10.5(a))

7.10.5 (c)(xii) Remuneration Policy

Complied with

Please refer to the report of the Human Resource and Remuneration Committee on Page 114, 115.

7.10.5 (c)(xiii) Aggregate Remuneration paid to the

Executive and Non-Executive Directors (including cash and all non-cash benefits)

Complied with

Please refer the note No. 8 of the Financial Statement on Page 148

Contents under the Audit Committee Report

7.10.6 (a)(xiv) The correct number of Independent

Non-Executive Directors

Complied with

HDFC confirms that,

Audit Committee comprises of the required number of Independent Non-Executive Directors in accordance with Rule 7.10.6(a).

7.10.6 (a) and 7.10.6 (c)(xv) Separate Audit Committee

A separate Audit Committee was formed for HDFC Bank.

7.10.6 (c)(xvi) Names of the Directors in the Audit

Committee

Complied with

Please refer the Board Audit Committee report on Page 112, 113.

7.10.6 (b)(xvii) Functions of the Audit Committee

Complied with

In addition, HDFC Bank, being a license specialized bank functioning under the Ministry of Finance, the Audit Committee engages in the functions mandated under Rule 3(6) of the CBSL and Finance Circulars

106


ial c

ompl

ianc

e

Non

com

plia

nce

Not applicable

7.10.6.(a) and 7.10.6 (c)(xviii) Chairman of the Audit Committee

Complied with

Mr. L. E. S. Silva (a Non-Executive Independent Director) was appointed as the Chairman of the Committee by the Board of Directors in accordance with (Rules 7.10.6(a) and 7.10.6.(c))

7.10.6 (a) and 7.10.6 (c)(xix) Chairman’s qualifications

Complied with

Please refer Directors profiles on page 56 to 58.

7.10.6 (a) and 7.10.6 (c)(xx) Attendance of CEO and CFO for the

Committee Meetings

Complied with

7.10.6 (c)(xxi) External Auditors’ independence

N/A

The External Auditor of the Bank is the Auditor General of Sri Lanka.



The Report of the Directors 01. GeneralThe Board of Directors is pleased to present the Annual Report and the State of Affairs of the Housing Development Finance Corporation Bank (HDFC BANK) together with the Audited Financial Statements of the Bank for the year ended 31st December 2014 in compliance with Companies Act No. 7 of 2007 and Listing Rules of The Colombo Stock Exchange. Completion and the Contents of this report are in accordance with the statutory requirements, and the requirements of relevant regulatory authorities for listed companies in the financial services industry and best accounting practices, which have been brought to the attention of the Shareholders and other Stakeholders. The Board of Directors has disclosed information of the Bank which they believe is material and in the best interest of the Shareholders and the Bank.

02. Principal ActivitiesThe HDFC Bank is a public quoted licensed specialized bank, incorporated in Sri Lanka by the Housing Development Finance Corporation Act No. 07 of 1997(amended by Act Nos.15 of 2003 and 45 of 2011). The principal activities of the Bank are financing for housing and housing development projects whilest engage in schedule IV activities of the Banking Act. There are no significant changes during the period under review in the nature of its principal activities.

03. Review of BusinessAn overall assessment of the financial position, performance, state of affairs and significant events that took place in the Bank during the corresponding period is given in the General Manager / Chief Executive Officer’s Review on pages 16 to 19.

04. Vision, Mission and Corporate ConductThe Vision and Mission of the bank are given on Page 7 of this report. The Bank conducts its operations ethically and is led by an abiding Vision and Mission that helps define and achieve its corporate goals. The Bank pursues good governance and maintains high standards in financial and operational activities.

05. Future DevelopmentsThe future strategies of the Bank will be aligned with its Act of Incorporation (and amendments), as explained in the General Manager / Chief Executive Officer’s Review on pages 16 to 19 of this Annual Report.

06. Financial StatementsDuly signed, certified and approved Financial Statements of the HDFC Bank for the period under review are given on pages 127 to 165 of this Annual Report.

07. Significant Accounting PoliciesThe significant accounting policies adopted in preparation of Financial Statements during the year are given on pages 142 to 145 of the Annual Report. The impact of changes in equity is given on page no 140 of the Annual Report.

08. Auditors’ ReportThe Auditor General of Sri Lanka, who is the auditor of HDFC Bank, performed the audit on the Financial Statement of HDFC Bank for the respective financial year and the relevant Auditors Report is contained in page 130 to 136 of the Annual Report. This year the Auditors’ Report has been issued in line with the Section 14(2) (c) of the Finance Act which require to publish other comments and observations that the Auditor may consider necessary.

09. Going ConcernThe Board of Directors have reviewed and is satisfied that the HDFC Bank has adequate resources to continue its operations in the foreseeable future. Therefore, we continue to adopt the going concern basis in preparing the Financial Statements in compliance with Sri Lanka Accounting Standards.

10. IncomeThe income of the Bank for the year ended 31st December 2014 was LKR. 4,566 million. An analysis of the income is given in Notes 01 to 03 to the Financial Statements.

108

11. Profit and AppropriationThe profit before income tax of the Bank for the year ended 31st December 2014 was LKR. 635 million and the profit after tax for the year ended 31st December 2014 was LKR. 375 million.

The details of profit of the HDFC Bank, is given in the table below:

For the year ended 31st December 2014 2014Rs. Mn

2013Rs. Mn

Operating profit on ordinary activities before VAT 777 309

VAT on financial services 142 78

Provision for taxation 260 73

Profit on ordinary activities after tax 375 158

Retained profit /(accumulated losses) b/f 1,269 1,192

Profit available for appropriation 1,644 1,349

Appropriation First & Final Dividend proposed 39 16

Transfer to Reserve Funds 56 81

Retained Profit carried forward 1,549 1,253

12. ReservesThe Bank’s total Reserves as at 31st December 2014, amounted to LKR 2,886 million. The details are given on the statement on Changes in Equity on page 140 of the Financial Statement.

13. DonationsDuring the year the Bank made donations amounting to LKR. 225,000/-

14. Statutory PaymentsThe Board of Directors are satisfied that all statutory payments in relation to the Government, other regulatory institutions and employees have been paid up to-date, to the best of their knowledge and belief.

15. Provision For TaxationIncome tax for 2014 has been provided at 28% on the taxable income arising from the operations of the Bank and has been disclosed in Note 10 to the Financial Statements on pages 146 to 163 of this Annual Report.

16. DividendThe Directors recommended a dividend payment (final) of LKR Cents Sixty (0.60) per share for the year 2014. Subject to satisfaction of Solvency test.

The Board of Directors was satisfied that the Bank would meet the solvency test as per the provisions of the Companies Act No. 07 of 2007, immediately after the payment of the proposed final dividend with the approval of the shareholders at the AGM. The Board provided the statement of solvency to the Auditor General and obtained the certificate of solvency, in respect of final dividend payment confirming to the statutory provision.

17. Property, Plant and Equipment, Freehold PropertyCapital expenditure on property, plant and equipment amounts to LKR 86 million, the details of which are given in Note 18 of the Financial Statements.

Details of freehold properties are given on Note 18 of the Financial Statements on page 153 to 155

18. Market Value of Freehold PropertiesDetails of the market value of freehold properties are given on Note 18 of the Financial Statements on page 153 to 155.

19. Events After the Date of the Statement of Financial PositionThere have been no material events occurring after the date of the statement of financial position that would require adjustments or disclosure in the financial statements.

20. Stated CapitalThe stated capital of the Bank as at 31st of December 2014 was LKR 962 million consisting of 64,710,520 ordinary shares.

21. Share InformationDetails of share related information (earnings, dividends, net assets and market value per share) are given on pages 168 to 170 of this Annual Report.

The Report of the Directors


22. Issue of Listed Secured Redeemable DebenturesThe Bank had issued listed secured redeemable debentures at face value amounting to LKR 2,000 million as at 31st December 2014. The proceeds of these debentures were utilized, to bridge the maturity gaps and strengthen the financial position of the Bank. The Bank had listed these debentures on the main board of Colombo Stock Exchange (CSE). The details of debentures outstanding as at the date of statement of financial position are given in Note 24 of the Financial Statements on pages of 146 to 163.

23. Equitable Treatment to all StakeholdersAll shareholders have been treated equitably in accordance with the original terms issued to them. While appreciating the contribution of all stakeholders towards the progress of HDFC, Bank has made all endeavors to ensure equitable treatment to all our shareholders. Stakeholder engagements in 2014 are described in pages 23 to 25 of this Report.

24. The Board of DirectorsThe Director Board of the HDFC Bank consists of well qualified and, experienced professionals. They possess the relevant skills and experience to provide leadership for the Bank.

The Directors of the Bank during the period under review are as follows.

01. Mrs. S. N. Wickramasinghe (Chairman) re-appointed in May 2013 - Non-executive/ independent

02. Mr. W. J. L. U. Wijayaweera re-appointed in June 2010 - Non-executive/ independent

03. Mrs. C. Wijayawardhane appointed in June 2010 - Non-executive/ independent

04. Mr. S. A. J. Samaraweera re-elected in June 2013 - Non-executive/ Non-independent

05. Mr. W. D. R. D. Goonaratne re-elected in June 2013 - Non-executive/ Non-independent

06. Mr. L. E. Susantha Silva elected in May 2012- Non-executive/ independent

07. Mr. G.L.S. Senadeera appointed in January 2013 - Non-executive/ independent

08. Mr. Prasad Galhena elected in June 2013 - Non-executive/ independent

09. Mr. M. Surendran elected in June 2013 - Non-executive/ Non-independent

10. Mrs. B. G. S. Gunathilake in April 2014 - Non-executive/ independent

11. Mrs. M. F. K. Nissa in July in 2014 - Non-executive/ independent

ResignationsfromtheBoardofHDFCBankduringtheperiodunderreview

01. Mrs. C. Wijayawardhane - with effect from April 2014

02. Mr. G.L.S. Senadeera - with effect from 14/03/2014

AppointmentstotheBoardofHDFCBankduringtheperiodunderreview

01. Ms. B.G.S. Gunathilake - with effect from 25/04/2014

02. Ms. M.F.K. Nissa - with effect from 11/07/2014

ThequalificationsandtheexperienceoftheDirectors

The qualifications and the experience of the present Directors of the Board are given in the Board of Directors profile on pages 56 to 58 of this Annual Report.

25. Board Sub CommitteesIn keeping with the principles of Corporate Governance, Transparency and Accountability, the Board has initiated the formation of the following Board Sub-Committees. There are five Committees for the areas of Audit, Human Resource and Remuneration, Nomination, Integrated Risk Management & Related Party Transaction Monitoring. These Sub-Committees have been formed in keeping with the Corporate Governance Directives of the Central Bank of Sri Lanka, the Institute of Chartered Accountants of Sri Lanka, the Regulation of Colombo Stock Exchange and the Bank’s requirements as envisaged by its Directors. The duties, responsibilities and performance of the above sub-committees are discussed in the respective sub-committee reports in this Annual Report. In complying with the corporate governance directions of CBSL, the Board Sub Committees functioned during the corresponding period and relevant reports of above those Committees are given on pages 112 to 118 of the Annual Report.

110

26. Directors’ MeetingsDuring the period under review 13 Board Meetings were held and attendance schedule is given on page 123 to 125.

Details of Board Sub Committee Meetings are given separately with the reports of Board Sub Committees, on pages 112 to 118 of this Annual Report.

27. Directors’ Responsibility For Financial ReportingThe Directors are responsible for the preparation of financial statements of the Bank in such manner to reflect a true and fair view of the state of affairs of the HDFC Bank. The statement of Directors’ responsibility for Financial Reporting is given on page 128,129 which forms an integral part of the Annual Report of the Board of Directors.

28. Entries in the Interest RegisterThe Interest Register of the HDFC Bank is in place, in compliance with the Companies Act. Relevant Directors have made declarations as required and the related entries were made in the interest register during the period under review.

29. Directors’ Interests in ShareholdingDirectors’ shareholdings are as follows:

31/12/2014 01/01/2014

Mrs. S. N. Wickramasinghe (Chairman) Nil Nil

Mr. W. J. L. U. Wijayaweera 3000 3000

Mr. S. A. J. Samaraweera Nil Nil

Mr. W. D. R. D.Goonaratne Nil Nil

Mr. L. E. Susantha Silva 1000 1000

Mr. Prasad Galhena 1000 1000

Mr. M. Surendran Nil Nil

Mrs. B.G.S. Gunathilake Nil Nil

Mrs. M.F.K. Nissa Nil Nil

30. Directors’ Interests in Contracts and Proposed ContractsDirectors had no direct or indirect interest in any contract or proposed contract entered by the HDFC Bank during the year ended 31st December 2014. Further information is given on pages 162 of this Annual Report.

The Directors disclosed their interest (if any) to ensure that they would refrain from voting on issues they have an interest.

31. Directors’ and CEO’s Interests in DebenturesIndividual debenture holding of Directors were as follows:

As at December 31,

2014

No. ofDebentures

Value(Rs.)

1. Mrs. S.N. Wickramasinghe (Chairman)* 20,000 2,000,000

2. Mr. W.J.L.U. Wijayaweera Nil Nil

3. Mr. S. A. J. Samaraweera Nil Nil

4. Mr. W. D. R. D.Goonaratne Nil Nil

5. Mr. L. E. Susantha Silva Nil Nil

6. Mr. Prasad Galhena Nil Nil

7. Mr. M. Surendran Nil Nil

8. Ms. B.G.S. Gunathilake Nil Nil

9. Ms. M.F.K. Nissa Nil Nil

10.Mr. Nimal J.B. Mamaduwa (CEO/GM) Nil Nil

Total 20,000 2,000,000

* Chairman subscribed 20,000 numbers of Debentures [5 Years – Option 3 Fixed Interest rate of 15.50% p.a. payable annually (AER 15.50%)]

32. Related Party TransactionsRelated party transactions are given in Note 32 of the financial statement of this Annual Report.

33. Directors’ RemunerationDirectors’ remuneration, for the financial year ended 31st December 2014 is given on Note 8 to the financial statement on page 148.

34. Environmental ProtectionThe Bank has taken initiatives to safeguard and enhance the environment which are vital for its sustainable development and growth. The Directors, to the best of their knowledge and belief, are satisfied that the Bank has not engaged in any activities, which have caused adverse effects on the environment and has complied with the relevant environmental regulations.

The Report of the Directors


35. Risk Management and System of Internal ControlsThe Board of Directors assumes overall responsibility for managing risk. For this purpose, the Board of Directors have instituted and implemented an effective and comprehensive system of internal controls and management information systems in the Bank. While the Board Audit Committee reviews the internal control process of the Bank on a regular basis, the Integrated Risk Management committee identifies, evaluates and manages the risk exposure of the HDFC Bank. Both committees forward necessary recommendations directly to the Board to ensure that the Bank has a comprehensive Internal Control and Risk control Framework, in place for smooth functioning of its operations.

More details are given in Board Audit Committee Report on page 112, 113 Integrated Risk management report on page 117.

36. Corporate GovernanceIn the management of the Bank, the Directors have placed emphasis on complying with best practices in corporate governance. Accordingly, systems and structures have been enhanced on a regular basis to strengthen risk management measures and to improve accountability. Please refer Corporate Governance compliance statement in pages 75 to 106 of this Annual Report.

37. Compliance with Applicable Laws and RegulationsThe Board of Directors has continuously communicated with relevant regulatory and supervisory bodies, and has taken decisions in accordance with prevailing rules and regulations of the country. To the best of the knowledge of the Directors, there has been no direct or indirect violation of laws or regulations in any jurisdiction which the Bank is bound to disclose, nor has there been any irregularities involving management of employees that could have been a material financial effect on the Bank.

38. Appointment of AuditorsThe Auditor General continues to be the Auditor of the bank as stipulated in the HDFC Act No.07 of 1997.

39. Auditors Remuneration and Interest in Contract with the BankThe Auditors were paid LKRS. 633,200/- for the year ended 31st of December, 2014 as audit fees by the Bank. The Auditors do not have any other relationship or interest in contracts with the Bank.

40. Audit CommitteeThe composition of the Audit Committee and their report is given on page 112, 113 of this Annual Report.

41. Notice of MeetingThe 30th Annual General Meeting of the Bank will be held on Friday 26th June 2015 at 10.00am at Booker Recreation (Pvt) Ltd. (Gardenia Hall), 1st Floor, No. 10, off Deans Road, Hedges Court, Colombo 10.

The Notice of the meeting is given on page 174 of the Annual Report.

Signed in accordance with a resolution of the Board of Directors


K. T. D. D. De SilvaCompany Secretary

ColomboMay 20, 2015

112

The Report of the Board Audit CommitteeThe audit committee presents its report for the financial year ended 31st December 2014 as per the ‘Listing Rules’ of the Colombo Stock Exchange and ‘Code of best practices on Corporate Governance’ issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

Membership and AttendanceThe Audit Committee consists of five members who are all non-executive directors.

The Board Audit Committee comprised of following Board members:

Mr. L. E. Susantha Silva (Chairman of the Committee, non-executive, independent Director),

Mr. W. D. R.D Goonaratne (non-executive, non-independent Director),

Mr. Prasad Galhena (non-executive, independent Director),

Mr. M. Surendran (non-executive, non-independent Director),

Mrs. M.F.K. Nissa (non-executive, independent Director),

Mrs. C. Wijayawardhana (non-executive, independent Director),

Mr. G. L. S. Senadeera (non-executive, independent Director)

Mr. G. L. S. Senadeera & Mrs. C. Wijayawardhana resigned from the Board and the Committee with effect from March & April 2014 respectively.

The Committee held six meetings during the financial year ended December 31st, 2014. The attendance of the members at meetings are given in the Corporate Governance section of the Annual Report.

The Chief Internal Auditor functioned as the Secretary to the Committee. The Committee also invited members of the Senior Management and the Branch Managers of the Bank to participate in the meetings from time to time based on necessity. The external auditor also attended these meetings by invitation.

Terms of ReferenceThe Charter/ Terms of Reference of the Committee is periodically reviewed and the same was reviewed last in July 2014. This process ensures that new developments and concerns are adequately addressed in a timely manner.

The Committee is responsible to the Board of Directors and reports its activities regularly to the Board. The Committee assists the Board of Directors to effectively carry out its supervisory oversight responsibilities on accounting and financial reporting processes and the audit of the financial statements of the Bank. The Committee is empowered to:

• ReviewtheFinancialStatements(includingQuarterlyInterimStatements) prior to publication to ensure compliance with statutory provisions, accounting standards and accounting policies and consistent application of the same.

• ReporttotheBoardontheacceptabilityoftheBanks’saccounting policies and practices.

• Reviewinternalauditreports,externalauditreportsandfindingsof statutory examinations conducted by the Central Bank of Sri Lanka and liaise with corporate management for taking proactive actions to obviate violations, frauds and errors.

• Assessindependenceandmonitoringperformanceandfunctions of the Internal Audit Department including overseeing the appointment of the Head of Internal Audit.

• RevieweffectivenessoftheBank’ssystemofinternalcontrolover financial reporting to provide reasonable assurance regarding the reliability of Financial Statements.

• Overseecompliancewiththemandatoryrequirementsandthe systems and procedures to ensure fulfilment of such requirements.

• Reviewtheeffectivenessoftheinternalcontrolproceduresinplace to identify and manage all significant risks faced by the Bank.


Ethics and Good GovernanceThe Committee continuously emphasizes on upholding ethical values of the staff members. In this regard, a Code of Conduct was put in place and two Corporate Management members have been appointed to receive information from all members of staff if they suspect wrong doings or other improprieties are taken place. This ensures that highest standards of good governance are maintained and followed by the bank.

Internal Financial Controls, Accounting Practices and Bank Annual Financial StatementsBased on the work of the Bank’s assurance providers, nothing has come to the attention of the committee which indicates that the Bank’s system of internal financial controls and accounting practices provide a basis for unreliable annual financial statements. The committee is satisfied that the Bank’s annual financial statements are in compliance, in all material respects, with the requirements of the Companies Act and Sri Lanka Accounting Standards and recommended the financial statements for approval by the board.

L. E. Susantha SilvaChairman: Board Audit Committee

ColomboMarch 16, 2015

114

The Report of the Board Human Resource and Remuneration CommitteeThe Remuneration Committee is committed to the principles of accountability and transparency, and operates within the agreed terms of reference, while ensuring that rewards and remuneration align with the performance of the organization and its employees. The overall scope of the committee is to provide strategic direction to build an efficient organization for the Bank. Human Resources is the most important strategic asset at HDFC Bank, and the Board Sub Committee on Human Resource and Remuneration plays a vital role in ensuring that organizational policies, employee benefits, employee relations and control mechanisms help the Bank in retaining employees. The main function of the Committee is the determination and establishment of fair, equitable and consistent salary policy relating to all staff, with emphasis on building a conducive work environment that facilitates the Bank to achieve its strategic objectives. Another significant focus of the Committee has been to create a vibrant corporate culture based on the Bank’s corporate values in order to achieve a competitive advantage.

The Composition of the HR & Remuneration CommitteeThe Board Human Resources and Remuneration Committee comprised of following Board members, during the period under review.

Mrs. S. N. Wickramasinghe (Chairman of the Committee, non-executive, independent Director),

Mr. W. J. L. U. Wijayaweera (non-executive, independent Director),

Mr. W. D. R.D Goonaratne (non-executive, non-independent Director),

Mr. G. L. S. Senadeera (non-executive, independent Director),

Mr. M. Surendran (non-executive, non-independent Director),

Mrs. B. G. S. Gunathilake (non-executive, independent Director).

Mr. G. L. S. Senadeera resigned with effect from March 2014.

The Responsibilities of the CommitteeIn addition, the Committee is tasked with accomplishing the following main objectives of the Bank:

(a) Implementation of a Remuneration Policy relating to the Chief Executive Officer (CEO) and other Key Management Personnel of the Bank.

(b) Setting up goals and targets for the CEO and other Key Management Personnel.

(c) Evaluating the performance of the CEO and other Key Management Personnel against the set targets and goals periodically and determining the basis for revising remuneration benefits and other payments of performance based incentives.

(d) Making necessary recommendations to the Board pertaining to Salary revisions, Pre-requisites, Recruitments, Cadre Determination, Promotions , Change of Designation, Creation of new Posts or positions, Placements, Cadre and Cadre Budget, Training and attending to overseas seminars by the Staff Members of the Bank.

The Committee Meetings and How it Discharges its DutiesThe Committee, which is appointed by the Board, reports directly to

the Board of Directors, and has held 06 Committee Meetings during

the period under review. The attendance of the Committee members

at the meeting is given on page no. 123 to 125 The General Manager/

CEO attended the meetings by invitation, except in relation to matters

connected to his position. The members of the Corporate Management

team were invited to participate at Committee meetings as and when

required by the committee.

During the period under review, the Committee had taken many

initiatives for capacity building of the staff members and also to improve

quality and the productivity of the staff. Accordingly, the Bank provides

continuous training for all employee categories, as per the Training

Calendar of the Bank. These training sessions are conducted in a

manner to enhance the knowledge and upgrade the skills of employees,

with the assistance of a selected panel of trainers which consists of


internal and external experts in the respective areas of Banking, Finance,

IT, Law etc.

The Committee approved overseas training for employees, in line with the training policy of the Bank in considering the importance of foreign exposure in certain cases.

The Committee, in 2014, adopted a new policy to ensure a safe working environment free from any sexual harassment or gender discrimination.

The Committee, in 2014, effected the promotion policy of the Bank by promoting 152 staff members in the cadre who were below the managerial level.

Also, it took measures to adopt a promotion policy for Corporate and Senior Managerial grades. These relevant promotions were effected in 2015.


Dharshani De SilvaCompany Secretary

April 06, 2015At Colombo

116

The Report of the Board Nomination CommitteeThe Composition of the Nomination CommitteeThe Nomination Committee comprises of the following Directors, during the period under review.

Mrs. S. N. Wickramasinghe (Chairman of the Committee, non-executive, independent Director)

Mr. W. J. L. U. Wijayaweera (non-executive, independent Director)

Mrs. C. Wijayawardhana (non-executive, independent Director)

Mrs. B.G.S. Gunathilake (non-executive, independent Director) - with effect from 26th June 2014

Mrs. M.F.K. Nissa (non-executive, independent Director) Appointed - with effect from 26th June 2014

Mrs. C. Wijayawardhana resigned with effect from April 2014.

The Responsibilities of the CommitteeThe Committee’s main focus is on achieving a range of objectives:

(a) Selection and appointment of new Directors, CEO and Key Management Personnel, keeping in line with the HDFC Act.

(b) Making necessary recommendations for re-election of Directors and considering the contribution of Directors towards the overall Board responsibilities.

(c) Defining the criteria, such as qualifications, experience and key attributes required for eligibility to be considered for appointment or promotion to the post of CEO and the key management positions.

(d) Ensuring that Directors, CEO and Key Management Personnel are fit and proper persons to hold office as specified in the criteria given in the Central Bank directions and as set out in the relevant statutes.

(e) Making necessary recommendations from time to time, pertaining to the requirements of additional new expertise and succession arrangements for retiring Directors and Key Management Personnel.

The Committee Meetings and How it Discharge its DutiesThe Committee, which is appointed by the Board, reports directly to the Board of Directors and has held 01 Committee Meeting during the period under review.

The following were the main areas considered by the Nomination Committee during the period under review.

(a) The Committee reviewed the contribution of the shareholder directors in order to make appropriate recommendations pertaining to their continuation with the Board.

(b) In order to further strengthen the transparency of selection / recruitment process of GM/CEO, the Committee suggested necessary amendments to the existing Recruitment Policy of the Bank.

(c) The Committee made relevant suggestions to strengthen the HDFC’s Human resource policies applicable to the Key Managerial Positions, including CEO.

The attendance of the Committee members at the meeting is given on page No. 123 to 125.





The Report of the Board Integrated Risk Management CommitteeThe purpose of the Committee is to assist the Board in fulfilling its responsibility with respect to oversight of risk management framework, including significant policies and practices. The Committee is established as per directions of the regulator. The functions of the Committee also fall within the risk management framework of the Bank’s overall risk management responsibilities, which are addressed through the above Board Sub Committee on a regular basis, in addition to the risk management framework set up by the Bank through the Risk Working Committee and Risk department, which is headed by a skilled Risk Officer.

The Bank has taken effective actions to improve its management information system, existing IT applications, system securities and, established of controls to create a better environment for risk management. This is in order to discharge duties and responsibilities efficiently, the Committee has been empowered to have direct access, receive regular reports from management, and be provided with any information it requests relating to its responsibilities. The Committee has the authority to obtain independent professional advice on matters within its purview.

The Integrated Risk Management Committee comprises of the following Board members:During the period under review, Mrs. S. N. Wickramasinghe (Chairman of the Committee, non-executive, independent Director), Mrs. C. Wijayawardhana (non-executive, independent Director), Mr. L. E. Susantha Silva (non-executive, independent Director), Mr. G. L. S. Senadeera (non-executive, independent Director) Mr. M. Surendran (non-executive, non- independent Director), Mr. Prasad Galhena (non-executive, independent Director) and Mrs. M. F. K. Nissa attend as Board members Mr. Nimal J. B. Mamaduwa (General Manager/ CEO) Mr. S. Dissanayeke (Chief Operations Officer DGM), Mr. D. V. Pathirana (Chief Financial Officer), Mr. A. J. Athukorala (Chief Internal Auditor), Mr. D. M. D. M. K. Dissanayake (Chief Manager Credit), Mr. C. R. P. Balasooriya (Chief Manager Treasury), Mr. K. R. M. K. A. Bandara (Compliance Officer) and Mr. I. Nishantha (Risk Officer) are the Committee members for the period under review.

Mrs. C. Wijayawardhana & Mr. G. L. S. Senadeera resigned with effect from April & March 2014.

The appointments to the above Committee are made by the Board of Directors. The Committee held 04 Committee Meetings during the period under review. The attendance of the Committee members at the meeting is given on page No. 123 to 125.

The Risk Management Committee clearly sets out the purpose, membership, authority, and duties and responsibilities of the Committee. The following main responsibilities have been set out:

(a) Assessing of Credit, Market, Liquidity, Operational and Strategic Risk through appropriate risk indicators and management information received.

(b) Reviewing the adequacy and effectiveness of all management level Committees.

(c) Taking prompt corrective action to mitigate the specific risks which are at levels beyond the prudent level decided by the Committee, on the basis of the Bank’s policies and regulatory and supervisory requirements. The Committee overseas the compliance function to ensure that the Bank is aligned with statutory laws, regulations, guidelines by the regulator, internal controls and approved policies.

(d) Taking appropriate action against the officers responsible for failure to identify specific risk and take necessary corrective action as recommended by the Committee and or directed by the Director Bank Supervision of the Central Bank of Sri Lanka.

(e) Establishing a compliance function to assess the Bank’s compliance on all areas of business operations by appointing a Compliance Officer who shall carry out such functions.

The Committee confirms that there are no regulatory or supervisory concerns or any lapses in the Bank’s risk management or non-compliance with the CBSL directions, which have been pointed out by the Director of Bank supervision and the Monetary Board that should be disclosed to the public, together with the measures taken by the Bank to address such concerns.

Prasad GalhenaChairman



118

The Report of the Board Related Party Transaction Monitoring CommitteeIn compliance with the ‘Code of Best Practices on Related Party Transactions’ issued by the Securities and Exchange Commission of Sri Lanka in 2013 and CBSL directions and guidelines pertaining to the related party transactions, the Related Party Transaction Review Committee of the HDFC Bank was formed in October 2014.

The Composition of the Related Party Transaction Monitoring CommitteeThe Committee comprises of following Board members, during the period under review.

Mrs. S. N. Wickramasinghe (Chairman of the committee, non-executive, independent Director)

Mr. L. E. Susantha Silva (non-executive, independent Director)

Mr. M. Surendran (non-executive, non- independent Director)

Mrs. B. G. S. Gunathilake (non-executive, independent Director)

The Responsibilities of the CommitteeThe core objective of the committee is to review all related party transactions of the HDFC Bank to ensure that the bank complies with the rules set out in the code of best practices on related party transactions given by the relevant regulatory authorities, which covers the following areas:

(a) To examine the compliance status of the Bank pertaining to the rules set out in the Code of Best Practices on Related Party Transactions issued by the SEC, CBSL or any other regulatory authority and to ensure that the Bank is in compliance with the relevant laws, rules and directions issued by said regulatory authorities, periodically.

(b) To review in advance all proposed Related Party Transactions.

(c) To receive regular reports from the Management, and be provided with any information it requests relating to its responsibilities.

(d) To review and to evaluate the terms and conditions, and to determine the advisability of any Related Party Transaction.

(e) To determine whether the relevant Related Party Transaction is fair, and in the best interests of the bank and its stakeholders as a whole.

(f) To recommend to the Board what action, if any, should be taken by the Board with respect to any Related Party Transaction.

(g) Review and assess the adequacy of this RPT Charter periodically and recommend any proposed changes to the Board for approval.

(h) To recommend to the Board what action, if any, should be taken by the Board with respect to any Related Party Transaction.

(i) To obtain the advice and assistance from inside or outside legal, technical, financial and other advisors as the Committee deems necessary to carry out its duties.

The Committee Meetings and How it Discharge its DutiesThe Committee reports directly to the Board of Directors. During the period under review, the Committee held 01 meeting and adopted its charter, as an initiative to regularize related party transactions. The attendance of the Committee members at the meeting is given on page no. 123 to 125.





Assurance Report of the Auditor General on Internal Controls

120 Assurance Report of the Auditor General on Internal Controls


Directors’ Statement on Internal ControlIntroductionInternal Control is a process for assuring the achievement of the HDFC Bank’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. In broad concept, internal control involves everything that controls risks to the Bank.

ResponsibilityIn line with the section 3 (8) (ii) (b) of the Banking Act Direction No 11 of 2007, the Board of Directors presents this report on the HDFC Bank’s internal control system.

The Board is responsible for the adequacy and effectiveness of the Bank’s system of internal controls. However, such a system is designed to manage the Bank’s key areas of risk within an acceptable risk profile, rather than eliminate the risk of failure to achieve the business objectives of the Bank. Accordingly, the system of internal controls can only provide reasonable but not absolute assurance against material misstatement of management and financial information and records or against financial losses or frauds. The Board has established an ongoing process for identifying, evaluating, and managing the significant risks faced by the Bank and this process includes enhancing the system of internal controls as and when there are changes to business environment or regulatory guidelines.

The process is regularly reviewed by the Board and is aligned with the guidance for Directors of Banks on the Directors’ Statement on Internal Control issued by the Institute of Chartered Accountants of Sri Lanka. The Board is of the view that the system of internal controls in place is sound and adequate to provide reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The management assists the Board in the implementation of the Board’s policies and procedures on risk and control by identifying and assessing the risks faced and in the design, operation and monitoring of suitable internal controls to mitigate and control those risks.

KEY FEATURES OF THE PROCESS ADOPTED IN APPLYING AND REVIEWING THE DESIGN AND EFFECTIVENESS OF THE INTERNAL CONTROL SYSTEM ON FINANCIAL REPORTING

The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following:

• TheBoardSub–CommitteesnamelyBoardAuditCommittee,Integrated Risk Management Committee, Nomination Committee, Human Resources and Remuneration Committee and Recovery Committee have been established to assist the Board in ensuring the effectiveness of Bank’s daily operations and that the Bank’s operations are in accordance with the corporate objectives, strategies and Bank policies. The Board appointed Related Party Transaction Review Committee during the financial year 2014 with the main objective of reviewing all of the related party transactions.

• TheBoardAuditCommitteeoftheBankreviewsinternalcontrolissues identified by the Internal Audit Division, regulatory authorities and management, and evaluates the actions taken to mitigate the identified issues. They also review the internal control functions with particular emphasis on the scope of audits and quality of internal audits. The minutes of the Board Audit Committee meetings are tabled at the meetings of the Board of Directors of the Bank on regular basis.

• VariousoperationalCommitteesincludingtheAssetandLiabilityCommittee, the Credit Committee, the Investment Management Committee, Information Technology Steering Committee and Risk Working Committee have been established with appropriate empowerment to ensure effective management and supervision of the Bank’s core areas of business operations.

122

• TheinternalAuditDivisionoftheBankchecksforcompliancewith policies and procedures and the effectiveness of the internal control systems on ongoing basis using samples and rotational procedures. Audits are carried out on all departments and branches in accordance with the annual audit plan approved by the Board Audit Committee. The frequency of audits of departments and branches is determined by the level of risk assessed. Findings of the internal audit are submitted to the Board Audit Committee for review at their periodic meetings.

• ThecommentsmadebyExternalAuditorsinconnectionwiththe internal control system during the financial year 2014 were taken into consideration and appropriate steps have been taken to incorporate them where necessary.

ConfirmationBased on the above processes, the Board of Directors confirms that the financial reporting system of the Bank has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Financial Statements for external purposes has been done in accordance with the Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

Review of the Statement by External AuditorsThe External Auditors have reviewed the above Directors’ Statement on

Internal Control included in this Annual Report of the Bank for the year ended 31st December 2014 and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board, in the review of the design and effectiveness of the internal control system over financial reporting of the Bank. Their report to the Board is disclosed on page 119, 120 to this Annual Report.

By order of the Board,

Nimal J. B. MamaduwaGeneral Manager / CEO

L. E. Susantha SilvaChairman – Audit Committee


ColomboMay 18, 2015

Directors’ Statement on Internal Control


Attendance for Board and Other Sub Committee Meetings Attendance for Board Meetings - 2014

NamesDirectorship Statusasat31/12/2014

Number of Meetingsheld2014

Number of MeetingsEntitled

NumberofMeetingsparticipated

Mrs. S. N. Wickramasinghe Non - executive / Independent Director (Chairman)

13 13 13

Mr. W.J.L.U. Wijayaweera Non - executive / Independent Director 13 13 11

Mr. S. A. J. Samaraweera Non - executive / Non- independent Director 13 13 9

Mr. W. D. R.D. Goonaratne Non - executive / Non-independent Director 13 13 10

Mr. L. E. Susantha Silva Non - executive / Independent Director 13 13 12

Mr. M. Surendran Non - executive /Non Independent Director 13 13 13

Mr. Prasad Galhena Non - executive / Independent Director 13 13 12

Mrs. B.G.S. Gunathilake Non - executive / Independent Director 13 09 09

Mrs. M.F.K. Nissa Non - executive / Independent Director 13 07 07

Mr. G. L. S. Senadeera(Resigned on March 2014)

Non - executive / Independent Director 13 02 02

Mrs. C. Wijayawardhana(Resigned on April 2014)


Board Audit Committee Meeting - 2014





Mr. L. E. Susantha Silva Non- executive / Independent Director(Chairman)

06 06 06

Mr. W. D. R. D. Goonaratne Non - executive / Non- Independent Director 06 06 03


Mr. M. Surendran Non - executive / Non - Independent Director 06 06 06






124

Human Resource and Remuneration Committee Meetings - 2014





Mrs. S. N. Wickramasinghe Non - executive / Independent Director (Chairman)

06 06 06

Mr. W. J. L. U. Wijayaweera Non - executive / Independent Director 06 06 02

Mr. W.D.R.D. Goonaratne Non - executive/ Non Independent Director 06 06 05

Mr. M. Surendran Non - executive/ Non Independent Director 06 06 05




Nomination Committee Meetings - 2014





Mrs. S. N. Wickramasinghe Non- executive / Independent Director (Chairman)

01 01 01

Mr. W. J. L. U. Wijayaweera Non - executive / Independent Director 01 01 01


Mr. M.F.K. Nissa Non - executive / Independent Director 01 00 00



Integrated Risk Management Committee Meeting – 2014





Mrs. S.N. Wickramasinghe Non-executive / Independent Director(Chairman)

04 04 04


Mr. M. Surendran Non - executive/ Non Independent Director 04 04 03



Mr. G.L.S. Senadeera(Resigned on March 2014)




Attendance for Board and Other Sub Committee Meetings


Related Party Transaction Monitoring Committee Meeting - 2014





Mrs. S.N. Wickramasinghe Non - executive / Independent Director(Chairman)

01 01 01


Mr. M. Surendran Non - executive / Non - Independent Director 01 01 01


HDFCInvestment plan

FinancialInformation

128Directors’ Responsibility for Financial ReportingThe responsibility of the Directors in relation to the Financial Statements

of the HDFC Bank is prepared in accordance with the provisions of

the Companies Act No 7 of 2007 is set out in the following statement.

The responsibilities of the External Auditors in relation to the Financial

Statements are set out in the Report of the Auditors given on page 130

to 136 of the Annual Report.

Your Directors are aware that in addition to being a guardian of the

shareholders, they also have a duty towards the depositors and other

customers of the Bank, especially as the depositors’ funds are far in

excess of the shareholders’ funds. The Directors are personally liable if

they have not performed their expected role. As per the provisions of the

Companies Act No. 07 of 2007, the Directors are required to prepare

Financial Statements for each financial year and place them before a

general meeting.

The Financial Statements comprise the Statement of Financial Position

as at 31st December 2014, Income Statement of Comprehensive

Income, Statement of Changes in Equity and Statement of Cash Flow for

the year then ended and notes thereto.

The Financial Statements of the Company give a true and fair view of:

1. The state of affairs of the Company as at the date of the Statement of Financial Position.

2. The Financial Performance of the Company for the financial year ended 31st December 2014.

In preparing these Financial Statements, the Directors are required to ensure that:

1. Appropriate accounting policies have been selected and applied in a consistent manner and material departures, if any, have been disclosed and explained;

2. Judgments and estimates have been made and that they are reasonable and prudent;

3. All applicable accounting standards as relevant have been followed; and

4. Information required by and otherwise comply with the Companies Act, No. 07 of 2007, Regulation of and subsequent amendments thereto and the Listing Rules of the Colombo Stock Exchange (CSE) or requirements of any other regulatory authority are provided in full. The Directors are also required to ensure that the Company has adequate resources to continue in operation to justify applying the going concern basis in preparation of these Financial Statements.

The Directors are also required to ensure that the Bank has adequate

resources to continue in operation to justify applying the going concern

basis in preparing these Financial Statements.

The Directors also have a responsibility to ensure that the Company

maintains sufficient accounting records to disclose with reasonable

accuracy the financial position of the Company. Directors’ Responsibility

for Financial Reporting These Financial Statements which have

been prepared and presented in the Annual Report are consistent

with the underlying books of accounts and are in conformity with

the requirements of Sri Lanka Accounting Standards (SLFRS/LKAS),

Companies Act, No. 7 of 2007, Sri Lanka Accounting and Auditing

Standards Act, No. 15 of 1995, and the Listing Rules of the Colombo

Stock Exchange.

The Directors have also taken reasonable steps to establish and

maintain appropriate systems of internal controls to safeguard the

assets of the Company, prevent and detect fraud and other irregularities,

and to secure as far as practicable the accuracy and reliability of

records.

Directors are required to prepare the Financial Statements and to

provide the Company’s External Auditors, with every opportunity to carry

out whatever reviews and sample checks on the system of internal

control they may consider appropriate and necessary to express their

independent audit report on the Financial Statements.

Compliance Report

The Directors confirm that to the best of their knowledge, all taxes,

duties and levies payable by the Company , all contributions, levies and

taxes on behalf of and in respect of its Staff Members, and all other


known statutory dues as were due and payable by the Company at

Balance Sheet date have been paid or where relevant, provided for. The

Directors also confirm that based on its assessment the accounting

controls are adequate and nothing has come to the attention of the

directors to indicate that any breakdown in the functioning of these

controls, resulting in material loss to the Bank, and also the Bank will

have adequate resources to continue in operational existence and as a

going concern for the foreseeable future. The Directors are of the view

that they have discharged their responsibilities as set out in the above.

By Order of the Board


April 06, 2015Colombo

130Auditor’s Report

132 Auditor’s Report


Income StatementFor the Year Ended 31st December 2014 Bank

Figures in LKR Notes 2014 2013

INCOME 4,566,125,682 3,802,864,578

Interest Income 1 4,377,844,809 3,528,217,218

Interest Expenses 2 (2,534,685,012) (2,469,268,259)

Net Interest Income 1,843,159,796 1,058,948,959

Fee and Commission Income 3 211,424,163 189,946,905

Fee and Commission expenses - -

Net fee and commission Income 211,424,163 189,946,905

Net Trading income/(expense) - -

Net gain/(loss) from financial instruments designated at fair value through Profit or Loss 4 (9,871,302) -

Net gain/(loss) from financial investments - -

Other operating income(net) 5 (13,271,987) 84,700,454

TotalOperatingIncome 2,031,440,670 1,333,596,318

Impairment Charges for Loans and Other Losses 6 131,139,965 86,608,211

NetOperatingincome 1,900,300,704 1,246,988,107

Staff Costs 7 671,192,234 586,159,242

Amortization and impairment of intangible assets - -

Other Expenses 8 452,031,165 351,536,588

TotalExpenses 1,123,223,399 937,695,830

OperatingProfit/(loss)beforeValueAddedTax(VAT) 777,077,306 309,292,277

Less : VAT On Financial Services 9 142,492,347 77,917,978

OperatingProfit/(loss)afterValueAddedTax(VAT) 634,584,959 231,374,299

Share of Profits of associates and joint ventures - -

Profit/(Loss)beforetax 634,584,959 231,374,299

Tax expenses 10 259,989,639 73,366,108

Profit/(Loss)fortheyear 374,595,320 158,008,190

EarningsPerShareonProfits

Basic Earning per Share Rs. 11 5.79 2.44

Diluted earnings per ordinary share - -

138

Statement of Comprehensive IncomeFor the Year Ended 31st December 2014 Bank

Figures in LKR Notes 2014 2013

ProfitfortheYear 374,595,320 158,008,190

OtherComprehensiveincome/(expenses)

Changes in revaluation reserve of Property, Plant and equipment (If fair value option adopted) - -

Actuarial gains and losses on defined benefit plans (20,015,666) 26,881,713

Gains and losses (arising from translating the financial statements of a foreign operation) - -

Gains and Losses on re-measuring available-for-sale financial assets - -

Gains and Losses on cash flow hedges Others - -

Othercomprehensiveincomefortheyear,netoftax (20,015,666) 26,881,713

TotalComprehensiveIncomefortheYear 354,579,654 184,889,903

Attributableto:

Shareholders 354,579,654 184,889,903

Non-Controlling Interest - -

Total 354,579,654 184,889,903


Statement of Financial PositionBank

For the Year Ended 31st December 2014Figures in LKR Notes 2014

(Restated)2013

AssetsCash and balances with central banks 12 123,224,003 101,866,952Sri Lanka government securities 13 425,456,328 275,283,764Balances with banks 14 164,301,732 382,847,152Financial Assets designated at fair value through profit or loss 15 850,381,869 -Loans and Receivables to other customers 16 23,356,508,363 19,701,338,734Financial Investments - Held-to-Maturity 17 8,283,551,776 5,841,394,243Property, Plant and equipment 18 295,889,942 289,536,996Investment properties 19 777,648,500 807,755,000Differed tax assets 20 8,889,129 12,521,930Other assets 21 131,878,083 154,935,939Total assets 34,417,729,726 27,567,480,711LiabilitiesDue to banks and Other Institutes 22 4,225,673,914 3,274,178,471Due to other customers 23 24,479,322,303 18,901,975,178Debt securities issued 24 1,987,287,821 1,982,358,158Current Tax liabilities 25 271,035,110 63,344,493Other liabilities 26 568,544,008 770,402,789Total liabilities 31,531,863,156 24,992,259,088EquityStated capital 27 962,092,936 962,092,936Statutory reserve fund 28 89,968,266 71,238,500Retained earnings 29 1,571,195,097 1,268,966,705Other reserves 30 262,610,270 272,923,481Total shareholders’ equity 2,885,866,570 2,575,221,623Non-controlling interests - -Total equity 2,885,866,570 2,575,221,623Total equity and liabilities 34,417,729,726 27,567,480,711Contingentliabilitiesandcommitments

BookValuePerShare(Rs.) 44.60 39.80

The significant accounting policies and notes on pages 142 to 165 form an integral part of these financial statements. These financial statements have been prepared in accordance with the Sri Lanka Accounting Standards (LKAS/SLFRS).

D. V. Pathirana Nimal J. B. MamaduwaChief Financial Officer/ DGM CEO/General Manager

The Board of Directors are responsible for the preparation and presentation of these Financial Statements which were approved by the Board of Directors and signed on their behalf,

R. J. De Silva Prasad GalhenaChairman Director

April 20, 2015Colombo

140

Statement of Changes in Equity

For T

he Y

ear E

nded

31-

12-2

014

Bank

(000

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Num

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64,

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093

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451

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1,19

1,88

22,

391,

207

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207

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82Totalcom

prehensiveincomefortheyear

64,

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962,

093

50,3

9034

,139

61,9

943,

451

87,2

5926

,882

1,34

9,89

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-53

,190

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--

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Totaltransactionswithequityholders

--

18,4

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244

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26,8

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0,92

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-875

Bala

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962,

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,264

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2,57

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Totalcom

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64,

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962,

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68,8

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140,

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-20,

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--

37,4

60-8

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,730

--

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-72,

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4 6

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-2,

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Statement of Cash FlowsFor the Year Ended 31st December 2014 BankFigures in LKR 2014 2013

CashFlowsFromOperatingActivitiesInterest Received 4,234,095,719 3,320,032,832

Interest payments (2,385,694,895) (3,187,649,403)

Receipt from other operating activities 175,016,873 129,679,162

Cash payments to employees & suppliers (680,785,257) (615,537,693)

Payments on other operating activities (393,491,211) (278,761,236)

Operating profit before changes in operating assets 949,141,229 (632,236,337)

(Increase)/DecreaseInOperatingAssets:Funds Recovered from customers 5,017,648,368 3,171,099,579

Funds advanced to customers (8,693,617,023) (6,818,831,356)

Other Assets 52,560,306 26,876,730

(3,623,408,349) (3,620,855,047)

Increase/(Decrease)InOperatingLiabilitiesDeposits from customers 5,427,052,591 4,935,916,914

Others (417,201,629) 300,788,095

5,009,850,961 5,236,705,009

Net cash from operating activities before income tax 2,335,583,841 983,613,624

Income Tax & Deemed Dividend Tax Paid (54,389,187) (34,590,653)

Net cash from operating activities 2,281,194,654 949,022,972

CashFlowsFromInvestingActivitiesDividends received 40,000 17,857

(Purchase)/Sale of Investment Securities (3,240,522,472) (2,855,729,677)

Purchase of property, plant and equipment (85,556,848) (65,989,823)

Disposal of property, Plant and equipment 107,689,849 800,815

Net cash from Investing activities (3,218,349,471) (2,920,900,827)

CashFlowsFromFinancingActivitiesIssue/(Redemption) of Shares - -

Redemption of Contribution towards Share Capital - -

Repayment of Borrowings (1,008,163,848) (2,492,491,361)

Proceeds from Borrowings 1,966,497,420 4,531,085,814

Dividends paid (16,177,630) -

Net cash from financing activities 942,155,943 2,038,594,453

Net increase in cash & cash Equivalents 5,001,126 66,716,597

Cash & cash equivalents at beginning of the period 268,090,261 201,373,664

Cash & cash equivalents at the end of the period 273,091,387 268,090,261

ReconciliationofCashandCashEquivalentsCash In Hand 123,224,003 101,866,952

Cash at Bank 149,867,384 166,223,309

273,091,387 268,090,261

142

Accounting PoliciesCorporate Information

1. Reporting Entity.

HDFC Bank of Sri Lanka has been incorporated in Sri Lanka as a Building Society in 1984 under section 11 of the National Housing Act of 1956. Subsequently converted to a corporation under the Housing Development Finance Corporation of Sri Lanka Act.No.7 Of 1997 and obtained the status of a specialized Bank under Housing Development Finance Corporation of Sri Lanka (Amendment) Act No 15 of 2003 and amended act No 45 of 2011 which authorized to apply the all activities of the schedule iv of Banking Act No 30 of 1988 with amendments thereafter. HDFC bank’s Head office is located at NHDA Secretariat Colombo-02, Sri Lanka.

2. Principal Activities and Nature of Operations.

The principal business activities of HDFC Bank during the year were granting loans and accepting deposits with other forms of financial assistances for development of the economy.

3. Basis of Preparation

3.1. The Statement of Compliance

The Statement of Financial position, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity and the Statement of Cash Flows are drawn up in conformity with the accounting standards laid down by the Institute of Chartered Accountants of Sri Lanka applied consistently on a historical cost basis and fair value accounting wherever it is necessary. The financial statements are presented in Sri Lanka Rupees.

Sri Lanka Accounting Standards which are introduced by the Institute of Chartered Accountants of Sri Lanka mandated for all specified business enterprises were used to prepare these financial statements. The comparative figures were also restated as per the above standards.

Rounding

The amounts in the Financial Statements have been rounded-off to the nearest Rupees, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard (LKAS) No – 1 “Presentation of Financial Statements”

Format of Accounts and Prior year Figures.

Financial statements are presented in accordance with the format of accounts prescribed by the Central Bank of Sri Lanka and the Accounting Policies adopted by the bank is consistent with those of the previous financial year as permitted by the Sri Lanka Accounting Standard No .01 “Presentation of Financial Statements” However, when the presentation or classification of items in the Financial Statements is amended, comparative amounts are also re-classified to conform with the current year in order to provide a better presentation.

4. Valuation of Assets

4.1 Loans and Advances to Customers:

Loans and Advances to customers are stated in the Statement of Financial Position net of impairment for possible future loan losses.

4.1.1 Provision for Impairment Losses.

Provision for possible impairment losses is made on the basis of a continuous review of all loans and advances to customers in accordance with the Sri Lanka Accounting Standard (LKAS) No.-39 ‘Financial Instruments : Recognition and measurement in the Financial Statements of the Banks. The following valuation techniques were used to calculate fair value of loans as it is necessary which are as follows

1. Collective Impairment Method.

2. Individual Impairment Method.

4.1.1.1 Collective Impairment Provisions

Collective impairment provisions for possible loan losses are made in accordance with the Sri Lanka Accounting Standard (LKAS) No.-39 ‘Financial Instruments : Recognition and measurement in the Financial Statements of the Bank. The Bank used to make the collective impairment provision at rolling rate method where the individual impairment is not material.

4.1.1.1.1 Mortgage & Guarantor Loans

The default rolling rate for a reasonable period is used for impairment adjustment and no provision is made for Zero defaulters.


4.1.1.1.2 Cash Margin Loans

No provisions made for the loans granted against the cash deposit Balances as cash backed loans can be recovered at the bank’s discretion.

4.1.1.1.3 EPF Loans

The collective impairment method is used for valuation of EPF back loans and no provisions made for Zero defaulters. The bank uses the rolling rate applicable to the range 0-3 to 3-18 month arrears loans. If the default category was greater than 18 months, the bank used rolling rate applicable to relevant category.

4.1.1.2 Individual Impairment Provisions

4.1.1.2.1 Acquired Properties for Sale

Properties mortgaged to HDFC Bank are auctioned if the customers default for a reasonable time and the properties which are not disposed at such auctions are recognized as acquired properties which are presented under the loans & advances.

The valuations of such properties are as follows.

- If the Cash flow is predicted with reasonable assurance individual impairment is calculated.

- If there is no reasonable assurance for cash flows 100% impairment is made for loans against the acquired property.

4.1.1.2.2 Project Loans

- No impairment provision made for Zero defaulters and Individual. Impairment is made for defaulted loans with reasonable assurance for cash recoveries.

4.2. Financial Investments

Investment in treasury bills, Bonds and Held-to-maturity investments are stated at cost plus interest receivable and Held for sale investments are stated at cost plus interest receivable with Impairment gain (loss) adjustments.

4.3 Property, Plant & Equipment.

These are recorded initially at cost plus other expenses which are necessary for the assets bringing to its useable condition or at fair value by using the latest valuation report which is not more than 3 years as per the Sri Lanka Accounting Standard (LKAS) No.-16 Property, Plant and equipment, if the value of property has significantly changed.

4.3.1 Basis of Recognition

Property, Plant & Equipment are recognized, if it is probable that future economic benefits associated with the asset will flow to the bank and cost of the asset can be reliably measured.

4.3.2 Basis of Measurement

Fixed Assets are recorded at cost or at valuation together with any directly attributable cost of bringing the assets to its working condition. The property and equipment are stated at cost less accumulated depreciation, which is provided for on the basis specified as below.

4.3.3 Depreciation Policy

Depreciation is provided at the following rates on a straight-line basis over the estimated lives of different types of assets.

Class of Assets % per Annum

Buildings 6 2/3Office Equipment 12.50Furniture & Fittings 10.00Motor Vehicles & Bicycles 20.00Plant and Machinery 25.00Tools & Equipment 12.50Computer Equipment & ATM 12.50Computer software - Foreign 25.00Computer software – Local 25.00

Total annual depreciation is provided on the assets which is purchased during the year and used for the year and no depreciation is provided for the year of disposal. However If the Assets Value is more than 15Mn and Significant to the operation of the Bank, depreciation policy is from the date of actual use. Further depreciation is not provided for the freehold lands.

05. Investment Property

Investment properties are recorded at current market value and the different between carrying value and market value presented under other income in the income statement and group it under Financial Position.

06. Liabilities and Provisions

6.1 Due to other Customers

These include interest bearing deposits, savings deposits, term deposits, deposits payable at call and certificates of deposit. They are stated in the Statement of Financial Position

144

at amounts payable. The interest payable on these deposits is charged to the Income Statement on amortized cost basis and presented under respective liabilities.

6.2 Borrowings.

Borrowings which include refinance borrowings, call money borrowings, and borrowings from financial institutions are shown at the gross value of the outstanding balance. They are stated in the Statement of Financial Position at amounts payable. Interests payable on these borrowings are charged to the Income Statement using amortized cost method.

6.3 Retirement Benefits –Defined benefit plans

Provision is made in the Accounts for retirement gratuities payable under the payment of Gratuities Act No.12 of 1983 for employees from the time of joining the bank and provision for special gratuity as per CBEU collective agreement for special employees who have completed more than 15 years using Actuarial valuation. The item is grouped under other liabilities in the Statement of Financial Position.

6.4 Retirement Benefits –Defined Contribution plans

6.4.1 Employee provident fund

The Bank and employees contribute to the Employee’s Provident Fund at 12% and 8% on the salaries of each employee, respectively to the Provident Fund managed by the Central Bank of Sri Lanka.

6.4.2 Employees’ Trust Fund

The Bank contributes at the rate of 3.0% of the salaries of each employee to the Employees Trust Fund managed by Employee Trust Fund Board

6.5 Other Liabilities

Other liabilities include fees, expenses and amounts payable for gratuity/pensions and other provisions. These liabilities are recorded at amounts expected to be payable at the Financial Position date.

07. Revenue Recognition.

7.1 Interest Income on Loans and Advances

Interest income is recognized on an accrual basis for all Loans using the effective interest rate method.

7.2 Over due Interest Income.

Over due interest for late payment of loan instalment is recognized on a cash basis for the loans except EPF Loans.

7.3 Income from Government Securities and

Investments.

Discounts/premiums on Treasury Bills and Treasury Bonds are amortized over the period of investment.

7.4 Other Income

Commission income is recorded on accrual basis for current loans and other incomes are recognized on a cash basis.

08. Expenses

8.1 Interest on Deposits, Borrowings

In terms of the provisions of the Sri Lanka Accounting Standard (LKAS) No.-39 ‘Financial Instruments: Recognition and measurement, the interest cost on deposits and borrowings are recognized on effective interest rate method and charged to the income statement.

8.2 Other Expenses

All expenditures incurred in operations and in maintaining the Properties, Plants and Equipment in a state of efficiency are charged to Income statement in arriving at the profit or loss for the year and recognized on accrual basis.

09. Taxation

Income tax expense comprises net of current year tax and deferred tax. Income tax expense is recognized in the Income Statement except to the extent it relates to items recognized directly in Equity in which case it is recognized in Equity

9.1 Current Taxation

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the taxation authorities in respect of the current as well as prior years. The tax rates and tax laws used to compute the amounts are those that are enacted or substantially enacted by the Statement of Financial Position date. Accordingly, provision for taxation is made on the basis of the profit for the year as adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto, the note also includes the major components of tax expense, the effective tax rates and a reconciliation between the profit before tax and tax expense as required by the Sri Lanka Accounting Standard (LKAS) No.-12 ‘Income Taxes

ACCOUNTING POLICIES


9.2 Deferred Taxation

Deferred taxation is provided on the liability method. The tax effect of timing differences which occur where items are allowed for income tax purposes in a period different from that when they are recognized in financial statements is included in the provision for deferred tax at current rate of taxation.

9.3 Value Added Tax on Financial Services

The base for the computation of Value Added Tax on Financial Services is the accounting profit before emoluments paid to employees and income tax, which is adjusted for the depreciation computed on prescribed rates. The amount of Value Added Tax charged in determining the profit for the period is given in the Financial Statements.

10. The Statement of Cash Flows

The Cash Flow Statement has been prepared by using the ‘Direct Method’ of preparing cash flows in accordance with the Sri Lanka Accounting Standard (LKAS) No.-7 Statements of Cash Flows, whereby gross cash receipts and gross cash payments on operating activities, investing activities and financing activities are recognized. Cash and Cash Equivalents comprise of short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

11. Statutory Reserve Fund

5% of the net profit after tax is transferred to the Statutory Reserve fund before all distributions as per CBSL Direction.

General Reserve Fund

10% of the net profit after tax is transferred to the General Reserve fund before dividend distribution as per the HDFC Act.

12. Dividends on Ordinary Shares

Dividends on Ordinary Shares are recognized as a liability and deducted from equity when they are approved by the Annual General Meeting.

Dividends on Ordinary Shares for the year that are recommended by the Directors after the Statement of Financial Position date for approval of the Shareholders at the Annual General Meeting are disclosed separately to the Financial Statements.

13. Earnings Per Share

Basic EPS is calculated by dividing the profit or loss attributable to Ordinary Shareholders of the Bank by the weighted average number of Ordinary Shares outstanding during the period. Diluted EPS is determined by dividing the profit or loss attributable to the Ordinary Shareholders by the weighted average number of Ordinary Shares outstanding adjusted for the effects of all dilutive potential Ordinary Shares.

14. Inventory Valuation

The consumable stocks are recorded at cost and .the issues of inventory items are based on the first.in first out (FIFO) method.

15. Interest in Other Entities

There is no material interest in any other entities as at Balance sheet date.

16. New Accounting Standards Issued not Yet Adopted

The following Sri Lanka Accounting Standards were issued by The Institute of Chartered Accountants of Sri Lanka and is effective for the periods commencing on or after 1st January 2015.

(i) SLFRS 9 – Financial Instruments

The objective of this SLFRS is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. Effective date of this standard has been deferred till January 01, 2018

(ii) SLFRS 15 – Revenue from contrast with customers. The objective of this SLFRS is to establish a comprehensive frame work for determining whether, how much and when revenue is recognized. This standard is effective for annual reporting periods beginning on or after January 1,2017.

146

Notes to the Financial Statement01 Interest Income

In Rupees 2014 2013

Interest Income

Sri Lanka government securities 77,978,951 28,416,192

Balance With Banks - -

Derivatives - -

Financial assets held-for-trading 10,803,514 -

Financial assets designated at fair value through

Profit or Loss - -

Loans and receivables to banks - -

Loans and receivables to other customers 3,704,718,926 2,922,126,138

Financial investments - Held -to- maturity 584,343,418 577,674,889

Financial investments - Available-for-sale - -

Others - -

Total interest income 4,377,844,809 3,528,217,218

02 Interest Expenses

In Rupees 2014 2013

Due to Banks 64,529,141 144,780,900

Derivatives - -

Financial liabilities at fair value through profit or loss - -

Due to other customers 2,095,079,747 2,160,373,603

Debt securities issued 307,947,362 58,466,955

Other Borrowings 67,128,762 105,646,801

Totalinterestexpenses 2,534,685,012 2,469,268,259

3 Fee and Commission Income

In Rupees 2014 2013

Fee and Commission income 211,424,163 189,946,905

Others - -

Fee and Commission Income 211,424,163 189,946,905

Comprising

Loans 181,931,192 165,739,838

Cards - -

Trade and remittances - -

Investment banking - -

Deposits - -

Guarantees - -

Others 29,492,971 24,207,067

Fee and Commission Income 211,424,163 189,946,905


4 Net gain/(loss) from financial instruments designated at fair value through Profit or Loss

In Rupees 2014 2013

NetLossfromDebentureInvestment (9,871,302) -

Total (9,871,302) -

5 Other Operating Income (net)

In Rupees 2014 2013

Revaluation gain Investment Property (20,196,500) 95,413,312

Revaluation (loss) Investment Property - -

Profit (Loss) on sale of investment properties 6,924,513 (10,712,858)

Others - -

OtherOperatingIncome(net) (13,271,987) 84,700,454

6 Impairment Charges for Loans and Other Losses

In Rupees 2014 2013

Loans and Receivables

To banks - -

To Other Customers 131,139,965 86,608,211

Others - -

Total 131,139,965 86,608,211

6.1 To Other Customers

Individual Impairment 1,995,315 (33,635,984)

Collective Impairment 129,144,650 120,244,196

Total 131,139,965 86,608,211

148

7 Staff Costs

In Rupees 2014 2013

SalaryandRelatedExpenses

Salary and Bonus 438,538,120 413,493,341

Staff Loan Benefits 33,408,152 33,637,428

Staff Medical 27,278,314 19,656,295

Overtime & Officers Allowance 8,824,882 6,058,808

Encashment of Annual Leave 13,320,053 11,546,750

Incentive Payments 9,945,765 5,079,453

Sub total 531,315,286 489,472,074

RetirementBenefits

Contributions to defined contribution plans 53,664,346 48,004,616

Contributions to defined benefit plans 86,212,601 48,682,553

Sub total 139,876,948 96,687,168

Total 671,192,234 586,159,242

7.1 Remuneration of Key Management

Total Salary of Key Management 23,173,261 22,437,628

Provision for Retirement Benefits (Refer Note 26.1) 1,420,213 1,464,836

Total 24,593,474 23,902,464

8 Other Expenses

In Rupees 2014 2013

Directors’ emoluments 1,818,600 1,720,200

Auditors’ remunerations 633,200 864,727

Professional expenses 4,645,753 1,450,310

Legal expenses 415,722 375,422

Depreciation of Property, Plant and equipment 68,479,115 63,027,724

Amortization of Leasehold property 364,642 364,642

Electricity & Water 26,185,209 22,998,076

Telephone Charges 20,523,949 17,541,738

Computer Maintenance 20,330,591 17,721,259

Rent 53,507,496 49,987,697

Repair & Maintenance 5,285,132 4,690,309

Donation 225,000 1,197,460

Business Dev.& Advertising 41,921,179 31,004,180

Other Office admin and establishment expenses 207,695,578 138,592,844

Total 452,031,165 351,536,588

Notes to the Financial Statement


9 VAT On Financial Services

In Rupees 2014 2013

Total Value Addition 1,259,653,455 718,646,500

Value Addition Attributable for Financial Services 1,207,723,595 664,875,391

Finance VAT % 12% 12%

VAT on Financial Services For Current year 144,926,831 79,785,047

Under ( Over ) Provision in Previous Years (2,434,484) (1,867,070)

Total 142,492,347 77,917,978

10 Tax Expenses

In Rupees 2014 2013

Current Tax Expense - -

Current Year 256,356,837 62,759,526

Prior years’ Provision - -

Differed Tax Expenses 3,632,801 10,606,581

Total 259,989,639 73,366,108

10.1 Reconciliation of tax expensesAccounting Profit 777,077,306 309,292,277

Add :Disallowable Expenses 377,629,082 243,566,597

Less :Allowable Expenses 239,146,254 328,717,708

Adjusted Profit Before Tax 915,560,134 224,141,166

Income Tax 256,356,837 62,759,526

Effective Tax Rate 32.99% 20.29%

10.2 Relationship Between Tax Expense and Accounting IncomeProfit Before Tax as per the Income Statement 777,077,306 309,292,277

Add :Disallowable Expenses 377,629,082 243,566,597

Less :Allowable Expenses 239,146,254 328,717,708

Taxable Income 915,560,134 224,141,166

Tax @ 28% 256,356,837 62,759,526

Under (Over ) Provision - -

Less : Differed Tax Adjustments 3,632,801 10,606,581

Provision for Income Tax 259,989,639 73,366,108

10.3 The deferred tax (credit)/charge in the income statement comprise of the following.

Deferred tax assets 41,689,697 (1,897,144)

Deferred tax Liabilities 45,322,498 8,709,437

Other temporary differences - -

Differedtax(credit)/Chargestoincome

Statement (3,632,801) (10,606,581)

150

11 Earning Per Share

In Rupees 2014 2013

Net profit attributable to ordinary equity holders 374,595,320 158,008,190

Net profit attributable to ordinary equity holders adjust for the effect of dilution 374,595,320 158,008,190

Weighted average number of ordinary shares for basic earnings per share 64,710,520 64,710,520

Basicearningperordinaryshare(Rs.) 5.79 2.44

Dilutedearningspershare - -

12 Cash and Balances with Central Banks

In Rupees 2014 2013

Cash in Hand 123,224,003 101,866,952

Total 123,224,003 101,866,952

13 Sri Lanka Government Securities

In Rupees 2014 2013

Held-to-maturity

Treasury Bonds/ Treasury Bills 35,456,328 35,244,312

Treasury Bills Under Repurchase Agreements 390,000,000 240,039,452

Others - -

Total 425,456,328 275,283,764

14 Balance With Banks

In Rupees 2014 2013

Placements 149,867,384 166,223,309

Others 14,434,349 216,623,842

Total 164,301,732 382,847,152

15 Financial Assets designated at fair value through profit or loss

In Rupees 2014 2013

Investment in Trading Debentures 850,381,869 -

Total 850,381,869 -



16 Loans and receivables to Other Customers

In Rupees 2014 2013

Gross loans and receivable 23,898,578,805 20,112,269,211

(less) : Individual impairment charges (29,805,125) (27,809,810)

Collective impairment charges (512,265,317) (383,120,667)

Of Which: Loans and receivables designated at fair value through profit or loss 23,356,508,363 19,701,338,734

Net loans and Receivables 23,356,508,363 19,701,338,734

a.Analysis

In Rupees 2014 2013

By Product

Overdrafts - -

Trade Finance - -

Credit Cards - -

Gold 175,640,022 121,197,035

Staff Loans 577,934,535 477,639,955

Leasing and Hire Purchase 104,705,328

Term Loans - -

Short-term - -

Long-term 23,040,298,921 19,513,432,221

Reverse repo agreements - -

Others - -

Gross Total 23,898,578,805 20,112,269,211

By Currency

Sri Lankan Rupee 23,898,578,805 20,112,269,211

United State Dollar - -

Great Britain Pound - -

Others - -

Gross Total 23,898,578,805 20,112,269,211

By industry

Agriculture and fishing - -

Manufacturing - -

Tourism - -

Transport - -

Construction - -

Traders - -

New economy 211,558,099 102,678,799

Housing 23,687,020,706 20,009,590,411

Gross Total 23,898,578,805 20,112,269,210

152

b. Movements in Individual and Collective Impairment Charges during the Year

In Rupees 2014 2013

Individual impairment charges

Opening balance at 01-01 27,809,810 61,445,794

Charges/(Write back) to income statement 1,995,315 (33,635,984)

Net write-off during the year - -

Other movements - -

Closingbalance31-12 29,805,125 27,809,810

Collective impairment charges

Opening balance at 01-01 383,120,666 262,876,470

Charges/(Write back) to income statement 129,144,650 120,244,196

Closingbalance31-12 512,265,316 383,120,666

Total 542,070,441 410,930,476

17 Financial Investments -Held-to- Maturity (Excluding Sri Lanka Government Securities)

In Rupees 2014 2013

Equity securities 30,600 30,600

Debt Securities - -

Fixed Deposit 7,619,780,363 5,319,581,333

Overnight Deposit - -

Commercial Paper 498,424,128 433,304,081

Trust Certificates 165,316,685 88,478,230

(Less) Impairment charges - -

Net Total 8,283,551,776 5,841,394,243

Of Which : Held-To-Maturity Investments designated at fair value through profit or loss - -

Held-To-MaturityInvestments 8,283,551,776 5,841,394,243



18 Property, Plant and Equipment

In RupeesLand and Buildings

Leasehold Properties

Computer Hardware and

Software

Office Equipment,

Furniture and Fittings Others Total

2014

Cost/FairValue

Opening Balance at 01-01-2014 23,422,679 51,495,680 188,254,427 203,326,377 85,544,633 552,043,797

Additions - - 31,395,723 34,510,158 19,650,967 85,556,848

Disposals - 875,364 - - 13,224,000 14,099,364

Exchange rate Variance - - - - - -

Adjustments - - (68,317,963) (26,649,517) 501,631 (94,465,849)

Closing Balance at 31-12-2014 23,422,679 50,620,316 151,332,187 211,187,018 92,473,231 529,035,432

(less):Accumulateddepreciation


Charge for the year 908,610 364,642 28,296,027 24,348,063 1,702,489 55,619,831

Additions - - - - - -

Disposals - - - - - -


Adjustments (37) - (64,657,386) (19,832,945) (490,774) (84,981,142)


(less):Impairment charges - - - - - -

NetBookValueat31-12-2014 19,699,578 45,879,973 69,294,567 126,118,167 34,897,657 295,889,942

2013

Cost/Fair Value


Additions - - 23,071,729 29,669,410 13,248,685 65,989,824

Disposals - 875,364 - 800,815 - 1,676,179


Adjustments - - - - -




Charge for the year - - - - - -

Additions 908,537 364,642 25,193,066 20,924,436 16,001,686 63,392,367

Disposals - - - 496,340 - 496,340


Adjustments - - - - - -


(less):Impairment charges - - - - - -

NetBookValueat31-12-2013 20,608,151 47,119,978 69,855,447 122,772,644 29,180,775 289,536,996

154

18.1 Fully Depreciated Property Plant and equipments

The cost of fully depreciated property , Plant & equipment of the Bank which are still in use as at the date of Statement of financial Position is as follows.

2014 Fully depreciated Depreciating Total

Land and Buildings - 23,422,679 23,422,679

Leasehold Properties - 50,620,316 50,620,316

Computer Hardware and Software 28,369,460 122,962,727 151,332,187

Office Equipment, Furniture and Fittings 7,832,506 203,354,512 211,187,018

Plant and Machinery 11,009,210 19,195,210 30,204,420

Tools 57,725 - 57,725

Moter Vehicle 10,978,620 42,216,339 53,194,959

Working Progress - 9,016,127 9,016,127

Total 58,247,521 470,787,910 529,035,432

2013 Fully depreciated Depreciating Total

Land and Buildings - 23,422,679 23,422,679

Leasehold Properties - 51,495,680 51,495,680

Computer Hardware and Software 25,935,901 162,318,526 188,254,427

Office Equipment, Furniture and Fittings 8,087,508 195,238,869 203,326,377

Plant and Machinery 3,781,006 27,768,841 31,549,847

Tools 33,446 - 33,446

Moter Vehicle 8,614,499 45,297,381 53,911,880

Working Progress - 49,461 49,461

Total 46,452,361 505,591,436 552,043,797

18.2 Information on Free hold Land and Building of Bank

Location Extent Building -Square feet Net Book Value Market Value

Kalutara Branch - No. 13, Gnanodaya Mw, Kalutara South, Kalutara. P 7.535 3,420 16,537,610 29,000,000

Date of Valuation 11th November 2014

Name of the Valuer M A Ananda Sarath

Qualification of the Valuer B.Sc. (Special) Estate Management & valuation (Sri Lanka) AIV, Sri Lanka. Incorporated Valuer



18.3 Information on Lease hold Land and Building of Bank

Location Extent Building -Square feet Net Book Value Market Value

Hyde Park Branch - No. 63, Hyde Park Corner, Colombo 02. P 31 1150 57,505,385 116,000,000

Date of Valuation 13th November 2014

Name of the Valuer M A Ananda Sarath

Qualification of the Valuer B.Sc. (Special) Estate Managemnt & valuation (Sri Lanka) AIV, Sri Lanka. Incorporated Valuer

19 Investment Properties

a. Investment Properties at Cost/fair Value

In Rupees 2014 2013

Cost/fairvalue

Opening Balance at 01-01-2014 807,755,000 738,677,165

Additions - -

Disposals (9,910,000) (26,335,477)

Exchange rate Variance - -

Adjustments/Revaluation (20,196,500) 95,413,312

Closing Balance at 31-12-2014 777,648,500 807,755,000


Opening Balance at 01-01-2014 - -

Charge for the year - -

Additions - -

Disposals - -

Exchange rate Variance - -

Adjustments - -

Closing Balance at 31-12-2014 - -

(less):Impairment charges - -

Net Book Value at 31-12-2014 777,648,500 807,755,000

Market Value at 31-12-2014 777,648,500 807,755,000

156

19.1 Investment Properties Valuation details

Location Extent Deed Bank

(Perches ) No 2014 2013

No; 441 Sangarajah Mw, Aluthkade East 59.20 1127 207,000,000 213,120,000

No.192 Srimath Bandaranayake Mw,,Kotahena Colombo 13. 123.20 1124 429,700,000 449,680,000

No.192 (Part) Sri Sangarajah Mawatha,Kotahena Colombo 13. 15.00 1126 52,500,000 54,750,000

Avissawella -Housing Project - - 88,448,500 90,205,000

- - 777,648,500 807,755,000

19.2 Revaluation of Lands

No 192 Srimath Bandaranayake Mw, Kotahena Deed No 1127

No.192 Srimath Bandaranayake Mw,,Kotahena Colombo 13.

No.192 (Part) Sri Sangarajah Mawatha,Kotahena Colombo 13.

Name of the Valuer Department of Valuation

QualificationoftheValuer Chief Valuer -Valuation Department

Valuation Date 13th February 2015

19.3 Revaluation of Avissawella -Housing Project

Name of the Valuer Department of Valuation

QualificationoftheValuer Chief Valuer -Valuation Department

Valuation Date 11th November 2014

19.3 Pending Court Case Investment Property

Two lands (Deed No 1124,1126) in extent of 3 Roods and 18.2 perches was purchased by the HDFC Bank from Building Material Corporation (BMC) in the Years 2005 and 2007. Since the BMC did not handover vacant possession of the above land to HDFC Bank , the Bank filed an ejectment case bearing No 21514/L at the District Court of Colombo against the BMC to obtain possession of the land. The Order in the above case was delivered on 18th October 2012 in favour of the HDFC Bank. The BMC has filed an appeal against this order of the District Court to Civil Appeal of Colombo under Reference No WP/HCCA/COL-180/2012 F against the order given by the District Court of Colombo in favour of the Bank to execute the which has not been listed up to date.

20 Deferred Tax Assets/Liabilities

In Rupees 2014 2013

Deferred tax assets 58,129,916 36,970,091

Deferred tax Liabilities (49,240,787) (24,448,161)

Income Statement - -

Net Total 8,889,129 12,521,930



21 Other Assets

In Rupees 2014 2013

Cost

Receivables 9,414,903 11,376,865

Deposits and Prepayments 45,411,273 33,798,994

Loan Related Receivable 66,069,743 48,736,213

Others 10,982,164 61,023,866

Total 131,878,083 154,935,939

22 Due to Banks and Other institutes

In Rupees 2014 2013

Borrowings from Banks 1,760,904,588 1,018,692,325

Borrowings from Other Institutions 2,464,769,326 2,255,486,146

Total 4,225,673,914 3,274,178,471

23 Due to Other Customers

In Rupees 2014 2013

At amortised cost 24,479,322,303 18,901,975,178

Total 24,479,322,303 18,901,975,178

a. Analysis

In Rupees 2014 2013

By Product

Savings deposits 3,271,144,137 2,377,000,075

Fixed deposits 21,208,178,166 16,524,975,103

Total 24,479,322,303 18,901,975,178

By Currency

Sri Lankan Rupee 24,479,322,303 18,901,975,178

Total 24,479,322,303 18,901,975,178

158

24 Debt Securities Issued

In Rupees 2014 2013

Issued by the bank 1,987,287,821 1,982,358,158

Issued by the Other Subsidiaries - -

Total 1,987,287,821 1,982,358,158

Due within 1 year - -

Due after 1 year 1,987,287,821 1,982,358,158

Total 1,987,287,821 1,982,358,158

a. Details of Debt Securities Issued

Type Face Value In

Rupees Interest Rate and

Repayment Terms Issue Date Maturity Date 2014 2013

IssuedbyBanks

Listed , secured, Redeemable & Rated 3 Year Debenture 476,460,000 14.50% 24th October 2013 23rd Oct 2016 473,831,997 472,336,316

Listed , secured, Redeemable & Rated 4 Year Debenture 443,540,000 15.00% 24th October 2013 23rd Oct 2017 440,658,385 439,615,038

Listed , secured, Redeemable & Rated 5 Year Debenture 1,080,000,000 15.50% 24th October 2013 23rd Oct 2018 1,072,797,438 1,070,406,805

Sub Total 2,000,000,000 1,987,287,821 1,982,358,159

25 Provision For Taxation and Deemed Dividend Tax

In Rupees 2014 2013

Taxation - current 356,002,644 99,645,807

VAT Payable 10,777,753 6,388,596

WHT Received (101,744,540) (45,481,165)

Crop Insurance Levy 3,081,627 2,791,254

NBT Payable 2,917,626 -

271,035,110 63,344,492

26 Other Liabilities

In Rupees 2014 2013

Sundry creditors 108,445,710 432,542,045

Contributions to defined benefit plans (Note 26.1) 280,927,815 156,618,027

Long Term Funds & Deposits 18,956,998 20,132,442

Charges recovered in advance 160,213,485 161,110,276

Total 568,544,008 770,402,789



26.1 Contributions to defined benefit plans

Actuarial Valuation of Gratuity Liabilities as at 31 December 2014Normal Gratuity

Rs. Special Gratuity

Rs. TOTAL

Rs.

AccountingDisclosures:

ChangeinthePresentValueofTheDefinedBenefitObligation(PV-DBO)

Provision for PV-DBO as at 01 January 2014 110,207,948 92,820,161 203,028,109

Interest Cost for the period 11,020,795 9,282,016 20,302,811

Current Service Cost for the period 10,937,107 8,562,601 19,499,708

Gratuity paid/payable for those who left during the period (6,027,938) (2,772,254) (8,800,192)

Actuarial (Gain)/Loss on PV-DBO 26,647,768 20,249,611 46,897,379

Provision for PV-DBO as at 31 December 2014 152,785,680 128,142,135 280,927,815

AMOUNTS RECOGNIZED IN THE BALANCE SHEET AND INCOME STATEMENT

Liabilityrecognisedinthebalancesheet

Provision for Gratuity as at 31 December 2014 152,785,680 128,142,135 280,927,815

Unrecognized actuarial Gains/(Losses) as at 31 December 2014 - - -

Liability recognized in the balance sheet as at 31 December 2014 152,785,680 128,142,135 280,927,815

Expensesrecognisedintheincomestatement

Interest Cost 11,020,795 9,282,016 20,302,811

Current Service Cost 10,937,107 8,562,601 19,499,708

Net Actuarial (Gain)/Loss recognized immediately 26,647,768 20,249,611 46,897,379

Expenses recognized in the Income Statement 48,605,670 38,094,228 86,699,898

MovementsintheNetLiabilityRecognisedinthebalancesheet

Opening Net Liability as at 01 January 2014 110,207,948 92,820,161 203,028,109

Expenses recognized in the Income Statement 48,605,670 38,094,228 86,699,898

Gratuity paid/payable for those who left during the period (6,027,938) (2,772,254) (8,800,192)

Closing Net Liability as at 31 December 2014 152,785,680 128,142,135 280,927,815

Name of the Actuary M Poopalanathan

Date of the Actuarial Computation 17th February 2015

Method of Valuation Projected Unit Credit Method

160

27 Stated Capital /Assigned Capital

In Rupees 2014 2013

Authorized Capital 2,000,000,000 2,000,000,000

Stated Capital /Assigned Capital 962,092,936 962,092,936

Total 962,092,936 962,092,936

28 Statutory Reserve Fund

In Rupees 2014 2013

Opening balance as at 01-01-2014 71,238,500 61,994,005

Transfer During the Period 18,729,766 9,244,495

ClosingBalance31-12-2014 89,968,266 71,238,500

29 Retained Earnings

In Rupees 2014 2013

Opening balance as at 01-01-2014 1,268,966,705 1,191,882,032

Profit for the year 374,595,320 158,008,190

Transfer to other reserves (56,189,298) (80,923,517)

Dividend (16,177,629) -

ClosingBalance31-12-2014 1,571,195,097 1,268,966,705

30 Other Reserves

a. Bank-2014

In RupeesOpening Balance

01-01-2014Movement/

transfersClosing balance

as at 31-12-2014

General reserve 68,878,499 37,459,532 106,338,031

Revaluation Reserve 33,263,590 (875,364) 32,388,226

Investment Fund 140,448,554 - 140,448,554

Avalable-for-sale reserve - - -

Cash flow reserve - - -

Foreign currency translation reserve - - -

Special Reserve 3,451,125 - 3,451,125

Actuarial Gain/Loss 26,881,713 (46,897,379) (20,015,666)

Total 272,923,481 (10,313,211) 262,610,270



a. Bank-2013

In RupeesOpening Balance

01-01-2013Movement/

transfersClosing balance

as at 31-12-2013

General reserve 50,389,508 18,488,990 68,878,499

Revaluation Reserve 34,138,954 (875,364) 33,263,590

Investment Fund 87,258,522 53,190,032 140,448,554

Avalable-for-sale reserve - - -

Cash flow reserve - - -

Foreign currency translation reserve - - -

Special Reserve 3,451,125 - 3,451,125

Actuarial Gain/Loss - 26,881,713 26,881,713

Total 175,238,109 97,685,371 272,923,481

31. Maturity Analysis

An analysis of the interest bearing assets and liabilities based on the remaining period at the Balance sheet date to the respective contractual maturity date is as follows,

As at 31st December 2014 Up to 3 to 12 1 to 3 3 to 5 More than Total

LKR.000’ 3 Months Months Years Years 5 Years

Assets

Cash 123,224 - - - - 123,224

Due from Banks 149,867 - - - - 149,867

Investments 5,604,672 3,895,920 38,927 34,305 - 9,573,824

Loans & Advances 1,838,597 2,029,387 5,560,716 4,902,682 9,025,127 23,356,508

Fixed Assets - - - - 295,890 295,890

Other Assets 34,379 40,977 46,935 8,104 788,020 918,416

Total Assets 7,750,739 5,966,284 5,646,578 4,945,091 10,109,037 34,417,730

Percentage31stDec2014 22.52 17.33 16.41 14.37 29.37 100.00

Percentage 31st Dec 2013 20.73 12.74 17.82 15.08 33.63 100.00

Liabilities

Total Capital Fund - - - - 2,885,867 2,885,867

Deposits 13,409,488 7,428,438 983,865 1,669,745 987,786 24,479,322

Borrowings 1,436,496 342,856 1,583,816 2,067,964 781,830 6,212,962

Other Liabilities 543,840 7,857 24,009 36,941 226,933 839,579

Total Liabilities 15,389,824 7,779,151 2,591,690 3,774,650 4,882,415 34,417,730

Percentage31stDec2014 44.71 22.60 7.53 10.97 14.19 100.00

Percentage 31st Dec 2013 37.79 24.25 9.52 11.97 16.48 100.00

162

32. Directors Interests in Contracts with the Bank

None of the Directors posses any material interest on any transaction or proposed contract involving HDFC Bank of Sri Lanka except for the disclosures in Note 30.1 of the accounts.

32.1 Related Party Transactions

Name Related PartyOffice Holding Transactions

Nature of Transactions

% Regulatory Capital

Mr. S. A. J. Samaraweera(Director HDFC)

National Housing Development Authority Chairman 21.65 Mn Rent for Head Office Building

0.75%

Mrs. S.N. Wickramasinghe(Chairman HDFC)

Chairman HDFC Chairman 1.01 Mn Savings Deposit 0.035%

Mr. W. J. L. U. Wijeeweera(Director HDFC)

Director HDFC Director 0.03 Mn Savings Deposit 0.001%

Mrs. D. G. K. Dilani(Spouse of Director)

Mr. W. J. L. U. Wijeeweera (Director HDFC)

0.17 Mn Savings Deposit & Fixed Deposit

0.0061%

Mr. W. D. R. D. Goonaratne Director HDFC Director 0.001 Mn Savings Deposit 0.00004%

Mr. Wasantha Hewapalihakkara(Spouse of Director)

Mrs. B.G.S. Gunathilaka (Director HDFC) 0.01 Mn Savings Deposit 0.0003%

Directors, Interest in Debentures

Mrs S. N . Wickramasinghe, the chairman of HDFC Bank has purchased listed debentures of HDFC Bank at the initial issue and details as follows as at 31-12-2014

No of Debentures 20,000

Value of Debentures 2,000,000

Tenure 5 years

Interest Rate 15.50%

AER 15.50%

33. Events Occurring After the Date of Statement of Financial Position

There has been no material event after the date of Statement of Financial Position that requires adjustments or disclosure in the financial statement.



34. Assets Pledged

Type of FacilityAmount of facility

Rs. Mn Nature of SecurityValue of security

Rs. MnBalance as at 31-12-2014

Rs. Mn

(1) Overdraft (Sampath Bank) 100 Part of Portfolio 150 -

(2) Borrowing (Term Loan) (Sampath Bank) 1500 Part of Portfolio 1915 924.5

(3) Borrowing (Term Loan) (BOC) 500 Part of Portfolio 1000 500

(4) Nations Trust Bank 350 Part of Portfolio 350 270

Type of FacilityAmount of facility

Rs. Mn Nature of SecurityValue of security

Rs. MnBalance as at 31-12-2014

Rs. Mn

(1) Listed ,Secured ,Redeemable Debenture 2000 Part of Portfolio 3100 2000

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166

Capital AdequacyCAPITAL BASE

As at 31st December2014

(Rs.000’)2013

(Rs.000’)

CoreCapital(Tier1)

Paid-up Ordinary Shares/Common Stock/Assigned Capital 647,105 647,105

Share Premium 314,988 314,988

Statutory Reserve Fund 89,968 71,239

Published Retained Profits/(Accumulated Losses) 1,571,195 1,268,967

General and Other Reserves 250,238 212,778

Sub Total 2,873,494 2,515,076

Deductions/Adjustments-Tier1

Net Deferred Tax Assets 8,889 12,522

Advances granted to employees of the bank for the purchase of shares of the bank under a share ownership plan 3,084 49,843

50% investments in the capital of other banks and financial institutions 249,945 -

TotalCoreCapital(Tier1) 2,611,576 2,452,711

Additions

General Provisions 87,343 75,934

50% investments in the capital of other banks and financial institutions 249,945 -

Total Tier 2 Capital 2,448,974 2,528,645

Totalriskadjustedbalances(creditrisk,marketrisk,operationalrisk) 18,949,558 13,826,323

RiskAdjustedCapitalRatios

Tier 1 (Eligible Tier 1 capital / Total risk adjusted balances) * 13.78% 17.74%

Tier 11(Capital base / Total risk adjusted balances) ** 12.92% 18.29%

* Statutory minimum 5 ** Statutory minimum 10%


Risk Adjusted on - Balance Sheet Exposure

Balance Risk Adjusted Balance

Rs. .000’

As at 31st December 2014 2013

Risk Weights

(%) 2014 2013

Exposures

Cash- Local Currency 123,224 101,867 0% - -

Sri Lanka Govt Treasury Bills & Bonds 425,456 275,284 0% - -

Central Bank of Sri Lanka 14,434 216,624 0% - -

Claims on Public Sector Entities (PSEs) 31 31 100% 31 31

Loan&Advances

Claims Secured by Residential Property

Claims that qualify for regulatory capital purposes 3,189,309 3,877,217 50% 1,594,655 1,938,608

Claims that not qualify for regulatory capital purposes 3,787,062 3,259,652 100% 3,787,062 3,259,652

Housing loans against EPF. 8,884,242 7,560,106 0% - -

Cash Margin Loans 656,102 581,307 0% - -

Gold Loans 182,153 119,050 0% - -

Trading Investment 850,382 - - - -

Retail claims that qualify for regulatory capital purposes 5,031,130 3,191,359 75% 3,773,347 2,393,519

Claims Secured by Real State 21,973 29,524 100% 21,973 29,524

NonPerformingAssets

PastDueResidentialMortgageLoans

Specific provisions are more than 20% 15,979 10,718 50% 7,989 5,359

Specific provisions are less than 20% 956,967 674,717 100% 956,967 674,717

Housing loans on Guarantors & others

Specific provisions are more than 20% 56,652 20,991 100% 56,652 20,991

Specific provisions are less than 20% 162,050 49,861 150% 243,075 74,792

Due From local Commercial Banks Less Than Three Months ( AAA to BBB- ) 149,867 4,130,477 20% 29,973 826,095

Due From local Commercial Banks More than Three Months ( AAA to AA- ) 2,091,441 - 20% 418,288 -

Due From local Commercial Banks More than Three Months ( A+ to BBB- ) 3,344,868 - 50% 1,672,434 -

Due From local Commercial Banks More than Three Months ( BB+ to B- ) 1,242,193 - 100% 1,242,193 -

Claims on Financial Institutions/Primary Dealers/ Finance Companies (AAA to AA-) 165,317 456,804 20% 33,063 -

Claims on Financial Institutions/Primary Dealers/ Finance Companies

(A+ to BBB- and unrated ) 941,278 1,420,306 50% 470,639 228,402

Claims on Financial Institutions/Primary Dealers/ Finance Companies (unrated ) 498,424 - 100% 498,424 1,420,306

Fixed Assets 295,890 289,537 100% 295,890 289,537

Other Assets 909,382 1,018,365 100% 909,382 1,018,365

Retail claims that qualify for regulatory capital purposes - Off Balance Sheet

Total Risk Weighted Assets On Balance Sheet 33,995,805 27,283,796 16,012,038 12,179,898

Retail claims that qualify for regulatory capital purposes - Off Balance Sheet 3,558 100% 3,558

Total Risk Weighted Assets 33,999,363 16,015,595

Total risk adjusted balance for operational risk 2,152,096 1,646,424

Total risk adjusted balance for Market risk 781,867

Totalriskadjustedbalances(creditrisk,marketrisk,operationalrisk) 18,949,558 13,826,323

168

As at 31-12-2014

Distribution and Composition of Shareholders (As per rule No. 7.6 (X) of the Colombo Stock Exchange)

December 31,2014

Resident Non Resident Total

Shareholders

No of Share

holders No of Shares %

No of Share


No of Share


1 - 1,000 1,456 947,000 1.46 4 3,100 0.00 1,460 950,100 1.46

1,001 - 10,000 420 1,514,303 2.34 6 27,750 0.04 426 1,542,053 2.38

10,001 - 100,000 118 2,881,613 4.45 0 0 0.00 118 2,881,613 4.45

100,001 - 1000,000 19 3,963,479 6.13 0 0 0.00 19 3,963,479 6.13

Over 1,000,000 5 46,218,275 71.42 1 9,155,000 14.16 6 55,373,275 85.58

Total 2018 55,524,670 85.80 11 9,185,850 14.20 2,029 64,710,520 100.00

December 31,2013

Resident Non Resident Total

Shareholders

No of Share


No of Share


No of Share


1 - 1,000 1,557 1,016,794 1.57 7 3,562 0.01 1,564 1,020,356 1.58

1,001 - 10,000 450 1,506,337 2.32 8 29,948 0.05 458 1,536,285 2.37

10,001 - 100,000 75 2,349,162 3.63 2 69,845 0.11 77 2,419,007 3.74

100,001 - 1000,000 15 3,829,686 5.92 0 0 0.00 15 3,829,686 5.92

Over 1,000,000 4 46,750,186 72.24 1 9,155,000 14.15 5 55,905,186 86.39

Total 2101 55,452,165 85.68 18 9,258,355 14.32 2,119 64,710,520 100.00

Composition of Shareholders (As per rule No. 7.6 (X) of the Colombo Stock Exchange)

December 31,2014 December 31,2013

No of Share holders

% No of Shares % No of Share holders

% No of Shares %

Individuals 1,923 94.78 5,718,849 8.84 2,017 95.19 6,954,198 10.75

Institution 106 5.22 58,991,671 91.16 102 4.81 57,756,322 89.25

Total 2,029 100.00 64,710,520 100.00 2,119 100.00 64,710,520 100.00

Share Information


Twenty largest Shareholders (As per rule No. 7.6 (III) of the Colombo Stock Exchange)1

Name Of ShareholderNo. of Shares

2014Percentage(%)

2014No. of Shares

2013Percentage (%)

2013

1 National Housing Development Authority 32,180,000 49.73 32,180,000 49.73

2 Lanka ORIX Leasing Company PLC 9,707,740 15.00 9,707,740 15.00

3 Thurston Investments Ltd. 9,155,000 14.15 9,155,000 14.15

5 Sampath Bank PLC/ Dr. T. Senthilverl 1,833,023 2.83 - -

6 Seylan Bank PLC/ T. Senthilverl 1,354,364 2.09 - -

7 AIA Insurance Lanka PLC 1,143,148 1.77 - -

8 Dr. Senthilverl 345,709 0.53 1,376,926 2.13

9 Capital Development and Investment Company PLC 318,818 0.49 - -

10 Condominium Management Authority 300,000 0.46 300,000 0.46

11 Urban Development Authority 300,000 0.46 300,000 0.46

12 Dr. R.R. De Silva 295,126 0.46 304,126 0.47

13 Bank of Ceylon A/C Eagle Growth Fund 269,320 0.42 - -

14 DFCC Vardena Bank Ltd/A, Sithampalam 258,054 0.40 258,054 0.40

15 Legalinc Trustee Services (Pvt) Ltd 215,680 0.33 3,485,520 5.39

16 DFCC Vardena Bank Ltd/Mr C. H. R. De Soysa 193,456 0.30 568,958 0.88

17 Finco Holding (Pvt.) Ltd. 185,000 0.29 185,000 0.29

18 The Associated Newspapers of Ceylon Ltd. 180,000 0.28 180,000 0.28

19 Miss. S.C. Perera 171,000 0.26 - -

20 Mr. D. A. De Soysa 170,000 0.26 170,000 0.26

21 Seylan Bank Ltd/ Govindasamy Ramanan 149,344 0.23 - -

Total 58,724,782 90.75 58,171,324 89.90

Market Prices (As per rule No. 7.6(XI) of the Colombo Stock Exchange)

2014Rs.

2013Rs.

Highest 75.00 52.50

Lowest 29.90 27.50

Year end 66.10 29.90

Information on Ratios (As per rule No. 7.6(XI) of the Colombo Stock Exchange)

2014 2013

Dividend per share (Rs.) 0.60(proposed) 0.25

Dividend pay out ratio (%) 10.36 10.25

Net Assets value per share (Rs.) 44.60 39.80

Earning per Share (Rs.) 5.79 2.44

170

The Board of Directors of the Bank has recommended a final dividend of Cents Sixty (Rupees 0.60) per share, for the year ended 31st December 2014 for approval by the shareholders at the 30th Annual General Meeting of the HDFC Bank.

Directors and General Manager /CEO Shareholding (as at 31st of December)

Name 2014 2013

Mrs. S. N. Wickramasinghe (Chairman) Nil Nil

Mr. W.J.L.U. Wijayaweera 3,000 3,000

Mr. S. A. J. Samaraweera Nil Nil

Mr. W. D. R. D.Goonaratne Nil Nil

Mr. L.E. Susantha Silva 1,000 1,000

Mr. G.P.I. Gnanasena 1,000 1,000

Mr. M. Surendran Nil Nil

Ms. B.G.S. Gunathilake Nil Nil

Ms. M.F.K. Nissa Nil Nil

Mr. N.J.B. Mamaduwa (GM/CEO) 1000 1000

The percentage of public holding as at December 31.2014 was 35.35% (21.11% as at December 31, 2013)

Share Information


Value Added StatementFor the period ended 31st December Bank

LKR “000” % 2014 % 2013

Interest Income 4,377,845 3,528,217

Other Income 188,281 274,647

Gross Income 4,566,126 3,802,865

Cost of Service 2,882,262 2,754,194

Total Value Additions 1,683,864 1,048,671

Value Distributed

To Employees

(Remuneration & Benefits) 39.9 671,192 55.9 586,159

ToGovernment

Income Tax 15.4 259,990 7.0 73,366

Value Added Tax 8.5 142,492 7.4 77,918

Nation Building Tax 1.7 28,716 - -

Crop insurance Levey 0.2 2,719 - -

Stamp Duty 0.3 4,539 0.3 3,584

26.0 14.8

ToShareHolders(Dividend) 2.3 38,826 1.5 16,178

*

Retained in the Business

Retained Income 19.9 335,769 13.5 141,831

Depreciation 4.1 68,479 6.0 63,028

Loan Loss Provision 7.8 131,140 8.3 86,608

Total Value Distributions 100.0 1,683,864 100.0 1,048,671

2014

To Employees 40%To Government 26%

To Share Holders 2%Retained Profit 32%

2014

2014

To Employees 56%

To Government 15%

To Share Holders 1%Retained Profit 28%

2013

* Proposed Dividend 2014

172

Ten Year Statistical SummaryYear ended 31st December (LKR. Mn) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014OPERATING RESULTSIncome 1,056 1,286 1,741 1,974 2,269 2,250 2,386 2,744 3,803 4,566Interest Income 1,024 1,203 1,696 1,941 2,216 2,165 2,261 2,635 3,528 4,378Interest Expense 568 699 1,247 1,602 1,582 1,339 1,354 1,805 2,469 2,535Other Income 32 82 46 33 52 85 82 110 275 188Operating Expenses 253 272 359 385 439 513 620 762 938 1,123Provision for Loss 17 5 43 54 79 107 10 1 87 131Profit Before Tax 217 309 93 (67) 168 291 402 176 309 777Income Tax & Finance VAT 101 136 72 25 112 156 186 120 151 402Profit After Taxation 117 172 21 (92) 56 135 216 56 158 375

LIABILITIES AND SHAREHOLDERS’ FUNDSCustomer Deposits 1,537 2,501 4,960 5,777 6,929 8,526 12,336 14,695 18,902 24,479Borrowings 4,966 5,783 6,067 5,840 4,336 3,629 3,556 3,214 5,257 6,213Other Liabilities 688 621 666 867 1,315 1,383 1,699 500 834 840Shareholders’ Funds 1,643 1,800 1,789 1,697 1,721 1,849 2,337 2,391 2,575 2,886Total 8,834 10,705 13,482 14,181 14,301 15,387 19,927 20,801 27,567 34,418

ASSETSLoans and Advances 8,100 10,134 11,869 12,149 11,913 12,519 14,888 15,966 19,701 23,357Cash, short term funds and statutory 561 352 1280 1091 1410 1,920 3,960 3,679 6,601 8,997Trading Investments - - - - - - - - - 850Property, plant and equipment 85 85 111 671 721 756 250 288 290 296Other assets 88 134 222 270 257 192 830 868 975 918

Total 8,834 10,705 13,482 14,181 14,301 15,387 19,927 20,801 27,567 34,418

RATIOSReturn on Average Shareholders Funds (%) 8.8 10.0 1.2 (5.3) 3.3 7.6 10.3 2.35 6.36 13.72Income Growth (%) 11.5 21.8 35.4 13.4 14.9 (0.8) 6.0 15.0 38.6 20.1Return on Average Assets(%) 1.4 1.8 0.2 (0.7) 0.4 0.9 1.2 0.27 0.65 1.21Advance to Deposits and Borrowings (%) 80.3 81.7 92.9 95.6 94.6 97.1 106.7 112.2 122.6 131.4PPE on Shareholders Funds (%) 5.2 4.7 6.2 39.5 41.9 40.9 10.7 12.0 11.2 10.3Total Assets to shareholders funds (times) 5.38 5.95 7.54 8.36 8.31 8.32 8.53 8.70 10.70 11.93

SHARE INFORMATIONMarket Value per Share (Rs.) For Rs. 100/= Shares For Rs 10/= SharesHigh (Rs.) 401.00 235.30 192.00 135.00 191.80 600.00 1,900.00 119.00 52.50 75.00Lower (Rs.) 165.00 153.00 125.80 54.00 49.50 135.00 546.00 44.00 48.20 29.90Close (Rs.) 191.00 174.80 128.00 56.00 147.80 550.00 1,400.30 50.60 49.60 66.10Earnings per Share (Rs.) 2.67 2.74 0.33 (0.39) 1.69 2.63 3.34 0.86 2.44 5.79Price Earnings Ratio 71.51 63.80 392.64 (142.13) 87.22 209.13 419.47 58.84 20.31 11.42Net Assets per Share(Rs.) ** 26.82 27.82 27.64 26.23 26.60 28.56 36.11 36.95 39.80 44.60

PROFILEOwnership - Government % 56 51 51 51 51 51 51 51 51 51 - Private % 44 49 49 49 49 49 49 49 49 49No of employees 290 300 286 289 364 425 505 488 488 477No of branches 20 20 21 21 26 28 31 32 33 36No of ATM (Access)* - - - 4 10 225 255 360 652 775

* Including Network Linked ATM Machines with Sampath Bank, PABC, DVB, MCB, NDB, NTB, Union Bank


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174

Notice of the Annual General MeetingNotice is hereby given that the Thirtieth (30th) Annual General Meeting of the Housing Development Finance Corporation Bank of Sri Lanka is convened on on Friday the Twenty Sixth (26th) day of June 2015 at Booker Recreation (Pvt) Ltd. (Gardenia Hall), 1st Floor, No. 10, off Deans Road, Hedges Court, Colombo 10, at 10.00am and the following Ordinary Business will be transacted.

Ordinary Business1. To read the notice convening the meeting.

2. To receive, consider and adopt the Annual Report of the Bank and the Audited Accounts of the Bank for the year ended 31st December 2014 together with the Report of the Auditor thereon.

3. To declare a final dividend of cents sixty (Rupees 0.60) per share as recommended by the Board of Directors of the HDFC Bank.

4. To appoint three Shareholding Directors.

5. To re-appoint the Auditor General of Sri Lanka, as Auditor of the HDFC Bank and authorize the Board of Directors to determine and approve their remuneration.

6. To transact any other business of which due notice shall be given.

By order of the Board

Dharshani De SilvaCompany SecretaryHDFC Bank

May 25, 2015Colombo


I/We…………………………………………………………………………………..………………..………………of…..…………

………………………………………………………………………………………………………….Being a member / members of

Housing Development Finance Corporation Bank of Sri Lanka herby appoint.

1. Mr. /Ms. ……………………………………… of …………………………………whom failing

2. Mr./Ms. ……………………………………… of …………………………………whom failing




As my/our proxy to vote for me /us on my / our behalf at the Annual General Meeting of the Bank to be held on 26th of June 2015 at 10.00 am and at

any adjournment thereof, and at every poll which any be taken in consequence thereof.

Signed this ………..… day of …………………… 2015.

………………………...Signature

Note:

1. A shareholder entitled to attend, or attend and vote at the meeting is entitled to appoint a proxy holder to attend, or attend and vote as the case may be, in his / her stead and a shareholder who is entitled only to attend and speak at the meeting is entitled to appoint a proxy holder to attend and speak on his / her behalf.

2. A proxy holder need not be a shareholder of the Bank.

3. The form of proxy should be returned to The Secretary, Housing Development Finance Corporation Bank, P. O. Box 2085, Sir Chittampalam A Gardiner Mawatha, Colombo 02 not less than 48 hours before the time appointed for holding the meeting.

Form of Proxy

176

Instructions for completion01. To be valid, this form must be filled, signed and deposited with the Secretary, HDFC Bank, P.O. Box 2085, Sir Chittampalam A Gardiner

Mawatha, Colombo 02, not less than 48 hours before the time appointed for holding the meeting.

02. The form of proxy must be signed by the appointer or by Attorney duly authorized in writing.

03. In the case of a company or corporation or an incorporated body the form of proxy must be either under its common seal or under the hand of an officer or Attorney duly authorized.

04. In the case of joint holder, only one needs sign. The Votes of the senior holder who renders a vote will only be counted.

05. If you wish to appoint any person other than the chairman as your proxy, please insert the relevant details at 1 to 5.

Form of Proxy

Designed & produced by REDWORKS

Photography by Life Photography

Digital plates & Printed by Printel Private Ltd

HDFC BANK OF SRI LANKAP.O Box 2085, Sir Chittampalam A. Gardiner Mawatha, Colombo 02.

927685-hdfc bank annual report 2014

Documents