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Company Information

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HDFC Bank Ltd.

Sep 21
1549.85 -9.50 ( -0.61 %)
 
VOLUME : 113920
Prev. Close 1559.35
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TODAY'S LOW / HIGH
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1568.35
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52 WK LOW / HIGH
1025.15
 
 
 
1650.00
Sep 21
1551.95 -7.90 ( -0.51 %)
 
VOLUME : 7387498
Prev. Close 1559.85
Open Price 1562.00
TODAY'S LOW / HIGH
1528.95
 
 
 
1568.65
Bid PRICE (QTY.) 0.00 (0)
Offer PRICE (Qty.) 0.00 (0)
52 WK LOW / HIGH
1025.00
 
 
 
1641.00
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Market Cap. ( ₹ ) 859384.85 Cr. P/BV 4.10 Book Value ( ₹ ) 378.90
52 Week High/Low ( ₹ ) 1641/1025 FV/ML 1/1 P/E(X) 27.00
Bookclosure 30/06/2021 TTM EPS ( ₹ ) 59.29 Div Yield (%) 0.42
AUDITOR'S REPORT
You can view full text of the latest Director's Report for the company.
Year End :2021-03 

TO THE MEMBERS OF

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

the information required by the Companies Act, 2013 (the 'Act') in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Corporation as at 31 March 2021, and profit and other comprehensive income, changes in equity and its cash flows for the year ended on that date.

Basis for opinion

We conducted our audit in accordance with the Standards on Auditing ('SAs') specified under Section 143 (10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the audit of the standalone financial statements section of our report. We are independent of the Corporation in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India ('ICAI') together


Report on the audit of the standalone financial statements

Opinion

We have audited the standalone financial statements of Housing Development Finance Corporation Limited (the 'Corporation'), which comprise the Standalone Balance Sheet as at 31 March 2021, the Standalone Statement of Profit and Loss (including Other Comprehensive Income), the Standalone Statement of Changes in Equity and the Standalone Statement of Cash Flows for the year then ended, and notes to the standalone financial statements including a summary of the significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give

with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the standalone financial statements.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the standalone financial statements of the current period. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Description of Key Audit Matters

Key audit matter

How the matter was addressed in our audit

Impairment of loans to customers, including off balance sheet elements

Refer to the accounting policies in Note 3.2.5 the standalone financial statements: Impairment and write off; Note 3.2.6 to the standalone financial statements: Determination of Expected Credit Loss; and Note 9 to the standalone financial statements: Loans

Subjective estimate

Our key audit procedures included:

Recognition and measurement of impairment of loans involve significant management judgement.

The Corporation has recorded an impairment loss allowance of ' 13,003.77 Crores as at 31 March 2021 (' 10,959.48 Crores as at 31 March 2020) and has recognized a charge of ' 2,948.26 Crores for the year ended 31 March 2021 (charge of ' 5,907.67 Crores for the year ended 31 March 2020) in its statement of profit and loss.

Design / controls

We performed end to end process walkthroughs to identify the key systems, applications and controls used in the ECL processes. We tested the relevant manual (including spreadsheet controls), general IT and application controls over key systems used in the ECL process.

Key audit matter

How the matter was addressed in our audit

Under Ind AS 109, Financial Instruments, allowance for loan losses are determined using expected credit loss (ECL) estimation model. The estimation of ECL on financial instruments involves significant judgement and estimates. The key areas where we identified greater levels of management judgement and therefore increased levels of audit focus in the Corporation's estimation of ECL are:

• Data inputs - The application of ECL model requires several data inputs. This increases the risk that the data that has been used to derive assumptions in the model, which are used for ECL calculations, may not be complete and accurate.

• Model estimations - Inherently judgmental models are used to estimate ECL which involves determining Exposures at Default (“EAD”), Probabilities of Default (“PD”) and Loss Given Default. The PD and the LGD are the key drivers of estimation complexity in the ECL and as a result are considered as a significant judgmental aspect of the Corporation's modelling approach.

• Economic scenarios - Ind AS 109 requires the Corporation to measure ECLs on an unbiased forwardlooking basis reflecting a range of future economic conditions. Significant management judgement is applied in determining the economic scenarios used and the probability weights applied to them especially when considering the current uncertain economic environment arising from COVID-19.

• Restructuring - the determination of whether any rescheduling of principal / interest to a borrower (including under regulations / a regulatory directive) results in a 'restructuring' conclusion under Ind AS is subject to interpretation / judgment. The outcome of this assessment impacts the staging conclusion of the loans, which in turn determines the amount of ECL provision which needs to be recorded.

• Determination of ECL on non-homogeneous loans involves assessment of borrower specific cash flows/ collateral value determination, which requires significant management estimation and judgment.

Key aspects of our controls testing involved the following:

• Testing the design and operating effectiveness of the key controls over the completeness and accuracy of the key inputs, data and assumptions into the Ind AS 109 impairment model.

• Testing the design and operating effectiveness of the key controls over the application of the staging criteria.

• Testing key controls relating to selection and implementation of material macro-economic variables and the controls over the scenario selection and application of probability weights.

• For specifically assessed non-homogeneous loans, testing controls over the monitoring of the credit watch list, approval of external collateral valuation vendors and review controls over the approval and computation of significant impairments.

• Testing management's controls over authorisation and calculation of post model adjustments and management overlays.

• Testing the 'Governance Framework' controls over validation, implementation and model monitoring.

• Testing management's controls on compliance with Ind AS 109 disclosures related to ECL.

• Testing key controls operating over the information technology system in relation to loan impairment, including system access and system change management, program development and computer operations.

Test of details

Key aspects of our testing included:

• Sample testing over key inputs, data and assumptions impacting ECL calculations to assess the completeness, accuracy and relevance of data and reasonableness of economic forecasts, weights, and model assumptions applied.

• Model calculations testing through re-performance, where possible.

Key audit matter

How the matter was addressed in our audit

• Qualitative adjustments - Adjustments to the model-driven ECL results are recorded by management to address known impairment model limitations or emerging trends as well as risks not captured by models. These adjustments are inherently uncertain and significant management judgement is involved in estimating these amounts, especially in relation to economic uncertainty as a result of COVID-19.

The underlying forecasts and assumptions used in the estimates of impairment loss allowance are subject to uncertainties which are often outside the control of the Corporation. The extent to which the COVID-19 pandemic will impact the Corporation's current estimate of impairment loss allowances is dependent on future developments, which are uncertain at this point. Given the size of loan portfolio relative to the balance sheet and the impact of impairment allowance on the financial statements, we have considered this as a key audit matter.

The effect of these matters is that, as part of our risk assessment, we determined that the impairment of loans to customers, including off balance sheet elements, has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount.

Disclosures

The disclosures regarding the Corporation's application of Ind AS 109 are key to explaining the key judgements and material inputs to the Ind AS 109 ECL results. Further, disclosures to be provided as per circulars issued by the regulator with regards to non-performing assets and provisions will also be an area of focus, particularly as this will be the first year some of these disclosures will be presented and are related to an area of significant estimate.

• Test of details of post model adjustments, considering the size and complexity of management overlays with a focus on COVID-19 related overlays, in order to assess the reasonableness of the adjustments by challenging key assumptions, inspecting the calculation methodology and tracing a sample of the data used back to source data

• Assessing disclosures - assessing whether the disclosures appropriately disclose and address the requirements of Ind AS 109. Testing whether the disclosures are in accordance with the requirements of the circulars issued by the regulators.

Involvement of specialists - we involved financial risk

modelling specialists for the following:

• Evaluating the appropriateness of the Corporation's Ind AS 109 impairment methodologies and reasonableness of assumptions used (including management overlays).

• For models refresh undertaken during the year, evaluating whether the refresh was appropriate by assessing the updated model / methodology.

• The reasonableness of the Corporation's considerations of the impact of the current economic environment due to COVID-19 on the ECL determination.

Valuation of Derivatives Instruments and Hedge Accounting

Refer to the accounting policies in Note 3.2.11 to the standalone financial statements: Derivative financial instruments; Note 7 to the standalone financial statements: Derivative financial instruments and Note 44.6 to the standalone financial statements- Foreign currency risk

(Fair value of ' 2,154 Crores and notional value of ' 118,269 Crores)

Key audit matter

How the matter was addressed in our audit

The Corporation enters into derivative contracts in order to manage and hedge risks such as foreign exchange rate risk and interest rate risk on the borrowings. The Corporation either enters into cash flow hedges or fair value hedges depending on the risk being hedged.

The valuation of derivative instruments and application of hedge accounting and evaluating hedge effectiveness is complex and operationally cumbersome and requires close monitoring from Corporation's management.

Our key audit procedures included:

Design / controls

• Obtained an understanding of the risk management policies and tested key controls on (i) valuation of derivative instruments (ii) at the time of designation of hedging relationship including authorisation by designated authority; documentation prepared by management at the inception of the hedge transaction; (iii) ongoing monitoring and review of the hedge relationship by management including test of hedge effectiveness.

Substantive tests

• Checked that the valuation of derivative instruments, for selected samples, is as per Ind AS 109;

• Examined hedge documentation, for selected samples, to assess the compliance of documentation with Ind AS 109 requirements;

• Tested for a sample, the reconciliation of derivative instruments to independent confirmations obtained from third party;

• Involved specialists to perform independent valuation and compared the same with the valuation undertaken/ determined by the Corporation;

• For selected samples, compared input data used in the Corporation's valuation models to independent sources;

• Tested for a sample, the appropriateness of the hedge accounting entries;

• Considered the appropriateness of disclosures in relation to financial risk management, derivative instruments and hedge accounting in the standalone financial statements.

Information technology (‘IT’)

IT systems and controls

The Corporation's key financial accounting and reporting processes are highly dependent on information systems including automated controls in information systems, such that there exists a risk that, gaps in the IT control environment could result in the financial accounting and reporting records being misstated. The Corporation uses several systems for its overall financial reporting.

Our key audit procedures included:

• Understood General IT Control i.e. access controls, program/ system change, program development, computer operations (i.e. job processing, data/ system backup incident management) over key financial accounting and reporting systems, and supporting control systems (referred to as in-scope systems);

• Understood IT infrastructure i.e. operating systems and databases supporting the in-scope systems;

Key audit matter

How the matter was addressed in our audit

In addition, the prevailing COVID 19 situation has caused the required IT systems to be made accessible on a remote basis and at the same time there are ever increasing challenges to protect the integrity of the Corporation's systems and data.

We identified 'IT systems and controls' as key audit matter because of the high level of automation, significant number of systems being used by management and the scale and complexity of the IT architecture.

• Test checked the General IT Controls for design and operating effectiveness for the audit period over the in-scope systems.

• Understood IT application controls covering

- user access and roles, segregation of duties, and

- key interfaces and reports.

• Test checked the IT application controls for design and operating effectiveness for the audit period;

• Performed testing to determine that IT application controls that underwent changes, followed the standard change management process;

• Test checked controls over the IT infrastructure covering user access (including privilege users), data center;

• Performed procedures around Cybersecurity and COVID-19 to determine the impact (if any) on financial statements.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Management’s and Board of Directors’ Responsibility for the Standalone Financial Statements

The Corporation's management and Board of Directors are responsible for the matters stated in Section 134 (5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit/loss and other comprehensive income, changes in equity and cash flows of the Corporation in accordance with the accounting principles generally accepted in India, including the Indian Accounting Standards specified under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the

I nformation Other than the Standalone Financial Statements and Auditors’ Report Thereon

The Corporation's management and Board of Directors are responsible for the other information. The other information comprises the information included in the Director's report and Management Discussion & Analysis (MD&A) report, but does not include the standalone financial statements and our auditors' report thereon.

Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

assets of the Corporation and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the standalone financial statements, management and Board of Directors are responsible for assessing the Corporation's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Corporation

or to cease operations, or has no realistic alternative but to do so. Board of Directors is also responsible for overseeing the Corporation's financial reporting process. Auditor’s responsibilities for the audit of the standalone financial statements

Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Corporation has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures in the Standalone financial statements made by Management and Board of Directors.

• Conclude on the appropriateness of management and Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the

standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

1. As required by the Companies (Auditor's Report) Order, 2016 (the 'Order') issued by the Central Government in terms

such unclaimed dividend could not be transferred as the depository participant confirmed to the Corporation that the aforesaid equity shares were not available in the demat accounts of the respective shareholders; and

iv. the disclosures regarding holdings as well as dealings in specified bank notes during the period from 8 November 2016 to 30 December 2016 have not been made in these standalone financial statements since they do not pertain to the financial year ended 31 March 2021.

C. With respect to the matter to be included in the Auditors' Report under Section 197(16):

In our opinion and according to the information and explanations given to us, the remuneration paid by the Corporation to its Directors during the current year is in accordance with the provisions of Section 197 of the Act. The remuneration paid to any Director is not in excess of the limit laid down under Section 197 of the Act. The Ministry of Corporate Affairs has not prescribed other details under Section 197(16) which are required to be commented upon by us.

For B S R & Co. LLP

Chartered Accountants Firm's Registration No: 101248W/W-100022

SAGAR LAKHANI

Mumbai Partner

07 May 2021 Membership No: 111855 ICAI UDIN: 21111855AAAACQ7395

of Section 143 (11) of the Act, we give in the 'Annexure A', a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. A. As required by Section 143(3) of the Act, we report that:

a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b) in our opinion, proper books of account as required by law have been kept by the Corporation so far as it appears from our examination of those books;

c) the Standalone Balance Sheet, the Standalone Statement of Profit and Loss (including other comprehensive income), the Standalone Statement of Changes in Equity and the Standalone Statement of Cash Flows dealt with by this Report are in agreement with the books of account;

d) in our opinion, the aforesaid sta ndalone financial statements comply with the Ind AS specified under Section 133 of the Act;

e) on the basis of the written representations received from the Directors as on 31 March 2021 and taken on record by the Board of Directors, none of the Directors are disqualified as on 31 March 2021 from being appointed as a Director in terms of Section 164 (2) of the Act; and

f) with respect to the adequacy of the internal financial controls with reference to financial statements of the Corporation and the operating effectiveness of such controls, refer to our separate Report in 'Annexure B'.

B. With respect to the other matters to be included in the Auditors' Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. the Corporation has disclosed the impact of pending litigations as at 31 March 2021 on its financial position in its standalone financial statements - Refer note 40 to the standalone financial statements;

ii. the Corporation has recognised provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer note 7.1 to the standalone financial statements;

iii. there has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Corporation during the year ended 31 March 2021. Whilst the Corporation transferred the unclaimed dividend, 2,148 underlying equity shares relating to