HDFC - Annual Report 2010

HDFC Annual Report 2010
THE NATION
HDFC Bank of Sri Lanka
Annual Report 2010
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SHELTERING
Contents
Corporate Information
Name
HDFC Bank of Sri Lanka. ( Housing Development Finance
Corporation Bank of Sri Lanka).
Registered and Head Ofce
Address
P.O. Box 2085, Sir Chitampalam A Gardiner Mawatha,
Colombo 02.
Telephone : 2356800, 2446241, 2446239, 2447354, 2451462, 2446391
Fax : 2446392, 2356829, 2356827, 2432190
Web Site : www.hdfc.lk E-mail : hdfc@hdfc.lk
Legal Form
A licensed specialized bank under the provisions of Housing
Development Finance Corporation, Act No. 07 of 1997,
amended by Act No. 15 of 2003.
Stock Market Listing
The ordinary shares of the Bank are listed in the Colombo
Stock Exchange (CSE)
Board of Directors
Mrs. S. N. Wickramasinghe (Chairman)
Mr. W. A. Terence Fernando
Mr. W.J. L Upali Wiayaweera
Mrs. K. W. Piyaseeli Dayarathne
Dr. D. S. Wiesinghe
Mr. W.D.R. D. Goonaratne
Mrs. Chandanie Wiayawardhana
Mr. S. A. Jayantha Samaraweera
Mr. A. M. Chandrasagara
Company Secretary
Mrs. Dharshani De Silva
Atorney at Law & Notary Public,
Company Secretary, Commissioner of Oaths.
Tel. 2423362
E-mail secretary@hdfc.lk
Registrars
SSP Corporate Services (Pvt.) Limited
101, Inner Flower Road, Colombo 03.
Tel. 2573894 Fax : 2573609
E-mail : sspsec@sltnet.lk
Year of Incorporation originally
1984
Credit Rating
The Bank has been assigned BBB+ ( lka) by Fitch Ratings Lanka
Ltd.,
Bankers
Bank of Ceylon, Corporate Branch, Echelon Square, Colombo 01
Sampath Bank
No.110, Sir James Pieris Mawatha, Colombo 02
Peoples Bank
No. 75, Sir Chitampalam A Gardiner Mawatha, Colombo 02.
Commercial Bank of Ceylon Limited
Commercial House, Union Place Branch, Colombo 02
Pan Asia Banking Corporation Ltd,
Colombo Road, Gampaha
Corporate Management
Mr. Suresh Amerasekera - General manager /CEO
Mr. S. Dissanayake - DGM (Finance)
Mr. D. Vidana Pathirana - AGM (Business Development &
Marketing)
Mr. W. M. A. Bandara - AGM (Information Technology)
Mr. A. J. Atukorala - Chief Internal Auditor
Mr. S. A. Alahakoon - Head of Credit
Mr. L. Edirisinghe - Head of Human Resources
Mr. A. M. D. G. Abeyawardena - Head of Treasury
Mr. M. Y. Piyasena - Senior Manager (Recoveries)
Board Integrated Risk Management Commitee
Mrs. S. N. Wickramasinghe (Chairman of the Commitee)
Mrs. C. Wiayawardhana
Dr. D. S. Wiesinghe
Board Nomination Commitee
Mr. W. J. L. U. Wiayaweera
Mrs. K. W. P. Dayarathne
Board Audit Commitee
Mr. A. M. Chandrasagara (The Chairman of the Commitee)
Mr. W. A. T. Fernando
Board HR and Remuneration Commitee
Investor Information
Deputy General Manager (Finance)
Colombo 02.
T.P 2356800, 2446241, 2446239. D/L 2451464, Fax 2356829
E-mail dgmfnance@hdfc.lk
Auditors
Auditor General - Department of Auditor General,
Torrington Square, Colombo 07
Our Vision 2
Our Mission 2
Our Objectives 3
Values 3
What We Have Achieved in 2010 4
What We Have Gained in 2010 5
Event Calendar 6
Our Products and Services 8
Chairmans Statement 10
General Manager/ Chief Executive
Officers Review 14
Board of Directors 18
Profiles of the Board of Directors 19
Corporate Management 21
Senior Management 24
Regional Managers 26
Managers 27
Branch Managers 27
HDFC Bank of Sri Lanka - Branch Locations 28
Our Branch Network 29
Management Discussion and Analysis 31
Financial Review 41
Risk Management 43
Sustainability Report 53
Assurance Report 98
Global Reporting Initiative (GRI) Index 100
Corporate Governance 109
Attendance for Board Meetings 2010 144
Attendance for Board
Sub Committee Meetings 2010 145
Statement of Internal Control 147
Financial Reports
Report of the Board of Directors 151
Reports of the Board Sub Committees 156
The Board of Directors Responsibilities
for Financial Reporting 161
Auditors Report 162
Consolidated Income Statement 164
Consolidated Balance Sheet 165
Consolidated Cash Flow Statement 166
Consolidated Statement of
Change in Equity 167
Significant Accounting Polices 168
Notes to the Financial Statement 171
Maturity Analysis 180
Statement of Value Added 181
Capital Adequacy - Solo Basis 182
Ten Year Statistical Summary 184
Graphical Review 185
Share Information 186
Notice of the Annual General Meeting 189
Notes 190
Form of Proxy 191
Corporate Information Inner Back Cover
tHe
nAtionS
HAVen
Produced by Copyline (Pvt) Ltd Printed by Graphitec (Pvt) Limited
Shelter is one of the basic requirements for a human being.
It is almost as important as the food we eat and the clean
water we drink. A home is ones castle, a source of pride and
joy and synonymous with the idea of togetherness, peace and
most importantly, family. Here at HDFC, we are commited to
providing afordable housing to the entire country, regardless
of caste or creed, championing the development that has been
aforded to a liberated Sri Lanka. We believe that we are one
nation, one family and mother Lanka, our one home.
HDFC Annual Report 2010 2
Our Vision
To be the premier fnancial service institution for the purpose of
enhancement of lifestyle of Sri Lanka.
Our Mission
To be a dominant player in the fnancial service sector by
delivering innovative solutions to meet the needs of housing
and construction sector with best in industry service excellence
creating superior long-term shareholder value and contributing
to economic development in Sri Lanka through an inspired team.
Values
The foundation of our success story.
Transparency : being honest and candidly accountable.
Fairness : stakeholders viewing as winners.
Openness : respecting each other and showing genuine interest.
Our Objectives
Customer : to provide a caring customer service, anticipating solutions required by our customers and innovatively
satisfying them beyond expectations.
Shareholders : to optimize return on shareholders funds.
Organisation : to commit ourselves to the highest standards in corporate and business ethics whilst maintaining
fnancial stability and growth.
Employees : to motivate, develop, recognise and reward our employees.
Community : to be strongly commited to contribute to the national goal of providing shelter for all.
Industry : seting industry benchmarks of international standard in delivering customer value through out
comprehensive product range and customer service in all our activities.
Ethics : maintaining the highest ethical standards of a leading corporate citizen.
Our deposit and savings customer base improved from 177,000 to 216,000 showing an improvement of 42%.
We granted 10,739 housing loans valued at LKR 3,069 Mn compared to 5,977 facilities in 2009 worth LKR 1,404 Mn.

We enhanced customer access points from 25 branch to 28 branches and 11 ATMs to 225 ATMs with a Strategic alliance with
Sampath Bank island wide.
We gave direct employment opportunities to 61 young men and women increasing the total staf to 425.
We achieved 18% decline in cost per employee while increasing the basic wage by 15%
Achieved yearly targets of becoming carbon neutral.
We invested over LKR 4 Mn for community sustenance.
Goals Ahead- Medium Term
2009 - Actual 2010 - Actual 2011 Budget 2013 - Goal
Return on equity (%) 3.3% 6.9% 15.7% 18.5%
Return on assets .39% .81% 1.80% 2%
Proft Afer Tax (Rs. Mn.) 56 135 318 500
Cost to income ratio (%) 63% 81% .80 % 43%
Customer deposits 6,115 7,975 10,000 17,500
Total Assets (Rs. Mn.) 14,301 15,927 19,031 30,000
Shareholder funds (Rs. Mn.) 1,721 1,809 2,196 2,700
No of branches 25 28 34 50
Staf Strength 364 425 450 500
ATM access 11 225 300 500
We are along the path to sound and stable growth.
What We Have Achieved in 2010
LKR 4 Mn.
LKR 3,069 Mn.
for community sustenance.
for housing loans
4 HDFC Annual Report 2010
Financial Highlights
What We Have Gained in 2010
Bank
2010 2009 Change
Rs.000 Rs.000 %
Results for the year
Gross Income 2,250,286 2,268,698 (0.81)
Proft before Taxation 291,090 168,494 72.76
Provision for Taxation 155,749 112,043 39.01
Proft afer Taxation 135,341 56,450 139.75
Revenue to the Governments 155,786 112,145 38.91
At the year end
Shareholders, Fund (Capital & Reserves) 1,848,658 1,721,196 7.41
Deposits from Customers 7,702,928 6,114,802 25.97
Gross loans & Advance to Customers 13,143,944 12,111,772 8.52
Total Assets 15,373,832 14,301,441 7.50
Information per Ordinary share
Earnings (Basic) (Rs.) 20.91 8.72 139.75
Dividends (Rs.) 5.00 5.00 -
Net Assets Value per Ordinary Share (Rs.) 285.68 265.99 7.41
Market Value at the Year End (Rs.) 550.00 147.75 272.25
Financial Ratios
Return on Average shareholders Fund (%) 7.58 3.28 131.41
Return on Average Assets (%) 0.91 0.39 131.97
Price Earnings (Time) - Ordinary share 26.30 16.94 55.26
Dividend Yield (%) 0.91 3.38 (73.14)
Dividend Cover 4.18 1.74 139.75
Share Holders Equity to Total Assets (%) 12.02 12.04 (0.09)
Earning Yield Ratio (%) 3.80 5.90 (35.59)
Statutory Ratios
Liquid Assets (%) 20.92% 21.19% (1.27)
Capital Adequacy -
Tier I (%) - Minimum Required 5% 21.09% 17.63% 19.65
Tier II (%) - Minimum Required 10% 22.18% 18.66% 18.83
06 07 08 09 10
0
3,000
6,000
9,000
12,000
15,000
Rs. Mn.
Loan Advance & Deposits
Loans & Advances
Total Deposits
06 07 08 09 10
(100)
0
100
200
300
400
Rs. Mn.
Proft growth
Proft (Rs. Mn) Afer Tax
Proft (Rs. Mn) Before Tax
06 07 08 09 10
0
3,000
6,000
9,000
15,000
12,000
Rs. Mn.
Total Assets
06 07 08 09 10
0
500
1,000
1,500
2,500
2,000
Rs. Mn.
Gross Income
06 07 08 09 10
0
200
400
600
800
1,000
Rs. Mn.
Income Growth
Net Interest Income
Non Interest Income
06 07 08 09 10
(10)
(5)
0
5
10
15
%
Return on Assets & Equity
Return on Avg shareholders funds
Return on Avg assets
Event Calendar
ATM sharing with Sampath
Bank -18
th
February 2010
New Chairman Assuming
Duties 26
th
May 2010
Relocation of Awissawella
Branch - 24
th
July 2010
Cycle Race sponsored by
HDFC Bank - 28
th
April 2010
Vavuniya Opening Branch
- 8
th
June 2010
Distribution of glasses
among the eye patients
- 13
th
August 2010
Eye Camp held at Manning
Market - 6
th
May 2010
Relocation of Chilaw Branch
- 14
th
June 2010
Habitat Day Walk
- 4
th
October 2010
Relocation of Tangalle
Branch 25
th
October 2010
Thilna Tharu All Island Art
Competitions Exhibition
- 18
th
November 2010
Relocation of Kegalle Branch
- 08
th
December 2010
HDFC wins Golden MACO
Award - 14
th
September 2010
Tree Planting Ceremony
- 15
th
November 2010
CSR project at Butala
- 15
th
November 2010
HDFC Bank wins NBEA
Award of NCCSL
- 18
th
November 2010.
Colombo Branch opening
afer refurbishment
- 23
rd
December 2010
Trincomalee Branch Opening
- 30
th
December 2010
Our Products and Services
Situ Sevana
Hassle free customised home
loan with value added services on
preparation of loan documents,
focused for Wider Income Group
exceeding Rs.1million (with Tax
relief ).
Kedella
Home loan scheme for low
and middle income families on
primary mortgage of the property
Sirisara Home Loan.
Home improvement loan
A home loan scheme for the
existing customers on the
remortgage of the property to
purchase home accessories , home
improvement , landscaping ,
curtaining etc.
Thilina Home Loan
A mortgage loan for the parent
/ guardian of the Thilina Minor
Account holder and up to 4 times
of the balance in the Thilina
savings Account on concessionary
rates of interest.
Thilina Rekawarana
Its a uniquely designed
investment plan to guarantee
childrens future fnancial security.
Parents/ Guardians are ofered
several optional monthly deposit
plans and the Bank agrees to give
a guaranteed sum to the child
upon reaching the age of 18 years.
Vishrama Udana
A fxed deposit scheme earning
above market interest, focused
exclusively for Senior Citizens for
over 55 years of age.
Vishrama Udana
Hassle free home loan for EPF
members against EPF balance ,
HDFC provides a superior service
by giving within one day.
Guru Sevana
A customised loan scheme for
government, teachers on personal
guarantee and repayable in 5
Years.
Prathilaba
A regular savings account
with special benefts and cash
withdrawals can be made 4 times
a month and the same interest
will be calculated. Customers can
access their accounts 24 x 7 x 365
days of the year through more
than 200 ATMs.
Dhana Nidhana
HDFC Dhana Nidahana Pass-
through Investment Certifcate
is a long term investment plan
spanning 7 14 years with a
guaranteed return on investment
at maturity.
Arumbu
Arumbu is a specially designed
investment plan for Tamil
speaking community of the
country and ofers same benefts
as Thilina Rekawarana.
shcharya
Ascharya investment Certifcates
which was introduced in
November 2010 availing an
opportunity for every Sri Lankan
to be a partner in making Sri
Lanka the emerging wonder in
Asia while assuring a beter
future for themselves.
Chairmans Statement
I believe that you, as a shareholder, could take joy and be
content in being a partner of a business which enables you to
realise your fnancial, social and spiritual aspirations.
Chairman
It is with great pleasure that I present
to you the Annual Report and Audited
Financial Statements of HDFC for
the fnancial year 2010. I take this
opportunity to thank the Board of
Directors for their positive contribution
in steering the Bank towards achieving
its goals on a sustainable basis.
True value of your business
Housing fnance cannot be compared
to any other credit facility. It is an
asset class, backed by long term house
mortgages that generate long term
returns. It is a tangible asset creator and
wealth maximiser. Housing fnance is an
integral part of economic development
as it boosts savings, investments and
household wealth and results in a
benefcial spill-over efect on the entire
fnancial system. Each rupee invested in
the housing sector triggers a multiplier
increase in other sectors of the economy
and indirectly impacts employment,
fscal returns and consumption. A
decent house creates a harmonious
environment for the physical health,
education and well being of a family.
I believe that you, as a shareholder,
could take joy and be content in being
a partner of a business which enables
you to realise your fnancial, social and
spiritual aspirations.

Need of the hour
Human setlement is a prime factor in
assessing the physical quality of life and
economic growth of a country. Over
the last two decades there has been a
surge in the National Housing Stock and
homeownership in Sri Lanka, paving the
way to a signifcant improvement in the
quality of life of its people. The National
Housing Stock rose from 3.9 Million to
4.9 Million recording a 26% YoY increase,
with 78% of the households owning a
radio, 70% a television and 75% having
access to electricity facilities. Hence the
development that has taken place in
the housing industry has enabled Sri
Lanka to achieve several Millennium
Development Goals (MDGs) at an
early stage of its development process
compared to high income countries. Sri
Lanka has been successful in achieving
MDGs in the areas of health and
education and also made great strides in
poverty alleviation, infant and maternal
mortality and gender equality. Much of
the development has been fuelled by
the banking sector. Housing mortgage
market has a signifcant presence in the
fnancial sector of our economy. As per
the information released by the Central
Bank, the housing mortgage sector has
grown to a staggering LKR 172 Billion
accounting for 14% of total lendings of
the banking sector in March 2010.
However, in todays context it is
pertinent to assess whether the
housing fnance industry including
HDFC has contributed to a sustainable
development in the housing industry
and responded speedily to meet the
aspirations of the nation.
Accelerated growth
Sri Lankas housing needs are
signifcantly larger than the efective
demand. The housing shortage in our
country is estimated to be 350,000 units,
with an annual increase of 100,000 units.
Approximately one third of the existing
units are semi permanent while 0.7%
are slum dwellers. This clearly indicates
that there is no congruence between the
growth of the housing industry and the
demographic transition. In this context,
I believe that the banking industry has
a great responsibility to be an active
partner in addressing this pressing
national need. As per my analysis, the
main reasons for this gap are inadequate
access to housing fnance, high lending
rates, low penetration of banks to the
low income segment and the high cost
of housing. Poor credit information
also precludes low and middle income
earners from having access to afordable
housing. In order to accelerate the
HDFC Refocuses.
growth of the housing industry of our
country, we as bankers need to strike
a balance between banking practices
and the interest of the masses and align
our strategies with the governments
accelerated development road map.
Sustainable development
Countries around the world wrestle
with the challenge of sustainability;
promoting development that is equitable
and sustainable both socially and
environmentally. Sustainability should
be a core determinant of economic
and social development that brings
lasting social and economic benefts.
The governments vision for economic
development laid down in the Mahinda
Chinthana- A 10 year development
framework, aims to achieve an
accelerated growth, with particular
emphasis on achieving an equitable
development, both among sectors and
geographic regions. It also focuses on the
need to balance the overriding objectives
of economic growth and environmental
conservation. Acting within the
principles of economic, environmental
and social sustainability will be a great
challenge when meeting the Banks
objective of promoting national housing
stock and homeownership.
Mainstreaming national
development
The housing fnance industry has
continued to assist the growth of the
housing sector in Sri Lanka. However,
the housing industry needs to broaden
its spectrum to position itself as
a poverty alleviator, employment
generator, wealth creator and a social
stabilizer.
Commercial banking sector has created a
dynamic scenario in the housing fnance
market, ofering several on the shelf
fnancial products and options to expand
the industry. However, it is pertinent to
assess whether the dynamism has been
focused to atain long term economic
gains rather than short term benefts.
Although there has been a substantial
improvement in housing conditions,
lifestyles and quality of life of the
people during the last two decades,
in my assessment, the growth has not
translated into a poverty reduction. This
was in spite of the several concerted
eforts made by the government to
reduce concentration in Colombo and
suburbs. These eforts needs to be
further strengthened and supported.
As specialists in the industry, we
need to evaluate the proportion of
the population who have access to
afordable housing fnance. Sri Lankas
efective demand for housing fnance is
largely generated by the high income
population of the country who constitute
two thirds of the countrys mortgage
market. As per the industry analysis
30% of the population is outside the
perimeters of afordable housing. For
a majority, housing fnance is a luxury
and is rationed in favour of high income
salaried employees and those who could
ofer land as collateral.
Our nations economic sustainability
largely depends on improving the
quality of life of the balance 70% of
the population. Facilitating access
to housing fnance to this segment
would prevent slum proliferation,
promote savings, boost construction
and generate employment. Thus HDFC
could play a vital role in boosting an
equitable economic growth and enabling
households to build assets and improve
their living conditions and thereby
achieve poverty reduction.
While focusing on sustainable economic
development, housing fnance market
should also focus on the sustainability
of the industry. We could learn much
from the subprime mortgage market
crisis which hit the Western world. The
ideal loan facility for a housing loan
borrower is a facility which is simple
and straightforward with monthly
installments that complement the
repayment capacity of the borrower.
Complex interest calculation, balloon
payments or loans with exotic structures
where interest is kept artifcially low
and then increased to high foating
rates during times of volatility are not
favorable to the housing industry.
At HDFC, we remain commited to
our mandate of providing afordable
housing to the low and middle income
segment of our nation, whose well being
justifes our existence. HDFC along with
the other participants in the housing
fnance industry should prioritise the
provision of afordable housing to
the masses which would propel the
sustainability of the industry.
Sustainable living and
environment
The process of house construction
requires a large amount of capital,
natural resources, earthmoving and
management of substantial amount
of solid waste. Homes are not just
houses; but environments which project
aspirations of individual families. A
cluster of homes form neighborhoods
and a cluster of neighborhoods form
towns and cities. Thus the manner
in which houses are planned, built
and developed has an impact on the
environment and ecosystem of the
country
Afordability also plays a vital role in
building a home. If the house is not
cost efective, it would not ofer cost
saving technologies and will not suit the
modern lifestyles of its dwellers.
HDFC re-focuses
Over the last 25 years, HDFC has made a
signifcant contribution to the economy
of our nation as a Building Society, State
Corporation and a Bank. HDFC has
provided afordable housing fnancing
solutions to the masses and gained wide
acceptance from the low and middle
income segment of our society. Over the
last two decades, HDFC has granted 80%
of its facilities to the low and middle
income segment which represent 70% of
the countrys population.
Refocused strategies during the year,
fostered HDFC to record the highest
market capitalization of LKR2.7billion at
the Colombo Stock Exchange, refecting
the confdence placed by the public and
private investors in the bank. It also
highlights the positive perception and
trust placed by the public in HDFC as a
sound institution with promising growth
prospects, steered by a management
team of high caliber and a strong Board
of Directors.
Refocusing HDFC as a bank providing
a speedy service, whilst balancing
economic, social and environmental
objectives and working actively
alongside the governments initiatives
in achieving the development goals
laid out in Mahinda Chinthanaya was a
challenging task, since assuming duties
as chairman of HDFC.
Chairmans Statement contd.
In accordance with my vision sus-
tainability promotion and sustain-
able development should be the
core determinants of HDFC Bank,
the kind of development that
HDFC was created to foster.
Stakeholder engagements
As mentioned earlier, our shareholders
can take pride that HDFC listing
recorded the highest market
capitalisation in the CSE in 2010.
During the period under review, HDFC
recorded a 140% increase in proft afer
tax and 8% growth in total assets. The
number of housing loans granted rose to
10739 families compared to 5977 families
in 2009. The Savings fund, which was
a strategic priority in 2010 , achieved a
remarkable growth of 76% YoY to reach
the LKR one billion benchmark.
We continued to remain commited to
our valued customers, by expanding
our loans and savings facilities.
During the year, we increased our
geographical presence by opening two
branches in Vavniya and Trincomalee
thus increasing our branch network to
28. We also continued to expand our
customer reach using the network of 225
Automated Teller Machines with the
strategic alliance entered with Sampath
Bank PLC.
As a just and fair employer we recruited
61 young men and women during the
year and made upward revisions to our
emolument packages. Environmental
and community policies were
introduced during the year to cement
our commitment to environmental and
social accountability.
We achieved two awards during the year
bringing together our performance and
sustainability review. This year we have
taken another step towards integrating
fnancial and non-fnancial reporting
aligned with GRI guidelines.
This commendable performance of
HDFC is atributed to the favorable
macroeconomic environment and
strategic refocusing which took place
midyear.
Macroeconomic environment
and outlook
Year 2010, will be remembered as the
frst fscal year afer terrorism was
defeated and the proclamation of an
end to a war that took its toll on the
countrys physical and social fabric for
nearly years. Sri Lanka is now enjoying
the long awaited peace. South Asias
GDP has posted the second fastest pace
of growth among the developing regions
afer East Asia and the Pacifc. The
peaceful environment , strong political
stability and leadership coupled with the
economic recovery of the South Asian
Region enabled Sri Lanka to achieve a
positive contribution from all sectors of
the economy and recorded a grow th
rate of above 8%.
During the year under review, the
annual average infation and market
interest rates registered single digits,
creating a conducive environment for
credit growth. Triggered by the positive
outlook of the economy there was a
healthy infow of capital in terms of
Foreign Direct Investments (FDIs).
Supported by these developments, Sri
Lanka is geared to achieve a high growth
forecast during the next six years, thus
creating a promising future for the
housing market in Sri Lanka in the
medium term.
I believe that the banking industry has
a special role to play in transforming
the benefts of these developments
equally among the various income
groups and in the geographical regions
particularly in the North and East. While
acknowledging this responsibility our
current focus is to spread our service
into a wider rural base to grow both
our savings and lending portfolios. Our
future strategy therefore will be based
on a paradigm of capturing the non-
inclusive fnancial sector through the
mobile banking service enabling them
access to formal housing fnance. and
innovative marketing tools.
At the same time we will strengthen our
branch network, adding new customer
centers and expand our ATMs presence
throughout the island strategically.
Current backlog of the housing stock
is substantially due to inadequate
dwelling in the North and East. We see
this as an opportunity in the North and
East especially in the agriculture sector
housing.
While we are poised to atract the right
customers with tailor made products
to suit the diverse customer segments
located in diferent parts of the island,
HDFC will have to face the challenge
of possible negative consequences due
to the relaxation of parate execution
rights adopted by the government since
the loan amounts of the majority of our
customers are below LKR 5Million.
Acknowledgement
I wish to take this opportunity to extend
my appreciation to His Excellency the
President Mahinda Rajapakse for his
support and vision which has taken
Sri Lanka to new heights, Hon Wimal
Weerawansa Minister of Construction,
Engineering Services, Housing and
Common Amenities for his constant
encouragement, Secretary to the
Treasury, Dr.P.B. Jayasundera, the
Governor of the Central Bank of Sri
Lanka, Mr. Ajith Nivard Cabraal and
other regulators for their guidance and
assistance extended to us.
I also wish to express my sincere
appreciation to my fellow Directors
for their unstinting support since their
appointment. My strategy to strengthen
the Banks Board of Directors with
professionals has paid much dividends.
A special thank you to Mr Ajith
Fernando who resigned from the Board
on 1st January 2011, for his valuable
support and contribution to the Bank
during the past six and a half years.
I also take this opportunity to thank the
General Manager/CEO, Corporate and
Executive Management and all other
members of the staf for their dedicated
service.
Finally I wish to extend my deep
appreciation to our valued shareholders,
customers and business partners for the
confdence and trust placed in us.
Mrs. Siromi Wickramasinghe
Chairman
HDFC Bank of Sri Lanka.
General Manager/Chief Executive Ofcers Review
The Bank continued to implement and embarked on several
strategies and initiatives which enabled us to meet the desired
objectives that we had set out to meet.
CEO/General Manager
Macro and micro economic
conditions
The year 2010 was a year of turnaround
for Sri Lanka with the end of the ethnic
confict which ravaged the nation for
3 decades and the establishment of a
strong political Government which
paved the way for a stable economic
growth. The Sri Lankan economy
recovered strongly and moved onto
a higher plateau of growth recording
an impressive GDP growth of 7.8
percent during the frst half of 2010.
The restoration of peace, a strong
macroeconomic environment, improved
business confdence and the gradual
recovery of the global economy from
its economic recession triggered the
above growth. Infation continued to
remain at a single digit throughout
the year. The annual average rate of
infation, was 5.9 per cent in 2010 and
was the second lowest annual average
(end year) infation rate recorded since
1999. The year-on-year infation stood
at 6.9 per cent in December 2010. The
low infation outlook enabled the
Central Bank to relax its monetary
policy resulting in lower interest rates
in all market segments supporting the
recovery of domestic economic activity.
The exchange rate too remained stable
throughout the year with the recovery of
the external trade and increase in export
earnings. Both exports and imports
recovered rapidly during the frst eight
months of 2010. Increased remitances
assisted to of-set the widening
trade defcit partly. The Balance of
Payments (BOP) recorded a surplus
by mid October 2010, with higher
foreign fnancial infows, including
disbursements under the IMF-Stand-
By Arrangement (SBA) facility and
proceeds from the third international
sovereign bond issue in October 2010,
thus raising the external reserves to the
highest ever level recorded.
The above favorable economic
conditions supported the countrys
growth potential by paving the way
to expand the investments made in all
sectors of the economy including new
growth areas. The end of the prolonged
ethnic confict and the improved
macroeconomic environment presented
Sri Lanka with a great opportunity
to achieve a sustainable growth and
development. The need for housing
grew tremendously. In this context we
remained commited to our primary
mandate of providing housing fnance
for the citizens of our county and
contributed positively to the Mahinda
Chinthanaya development goals during
the year.
Strategies implemented and
outcome
The bank continued to implement and
embarked on several strategies and
initiatives which enabled us to meet the
desired objectives that we had set out to
meet.
During the year we continued with our
repositioning strategy aggressively to
create more public awareness. In this
context we continued to execute our
image building and expansion strategy
which was launched in 2009. We
relocated fve of our existing branches
in Chilaw, Awissawella, Tangalle,
Badulla, and Kegalle which were not
in customer convenient locations to
strategic locations, to enhance customer
accessibility and convenience. Our
main branch at the National Housing
Development Authority too was
refurbished to ofer industry standard
facilities to customers and staf while
we also revamped and remodeled some
of our other branches to improve their
outlook and create a customer friendly
ambiance. A conducive environment was
created within the branches to motivate
our staf to provide a proactive and
excellent service to our customers.
HDFC was the frst specialised bank in
housing to move into the North and East
during 2010 with the opening of two
branches in Vavuniya and Trincomalee
thus increasing our branch network to
28. As a result of the strategic alliance
with Sampath Bank, we were able to
expand our customer reach with the
network of 225 ATMs spread across the
country. This strategy was adopted to
enhance our customer reach in a cost
efective manner and obtain a beter
return from the capital simultaneously.
Consequently, we were able to provide
our customers with the added beneft of
opening a savings account from any part
of the county. This had a positive impact
on our savings base which reached the
LKR One Billion mark during 2010. We
have the necessary infrastructure to
further develop our savings base.
During the year we focused on
upgrading our IT security standards
especially of the Palm Top Banking
operation which literally takes our
banking to the doorstep of the customer.
We launched a new minor savings
product named Arambu (meaning
fower bud) customised for the Tamil
speaking population. This product was
introduced as an investment plan for
the children to bloom when they reach
adulthood, identifying the vacuum in
the market for this type of a product.
We see an immense potential for this
product in the North, East and the
plantation sector of our county.
In order to stay ahead of competition
we need to maintain a high standard of
customer care. Since HDFCs conversion
from a state corporation to a licensed
specialised bank 7 year ago, we had to
create a paradigm shif in the mindset
of our employees to be more customer
oriented, productive, proactive and
quality conscious. In this context we
continued to provide comprehensive
training and development specifcally
in the area of customer care to our
staf, thus increasing the training man
hours by 130% during the year. We
also formulated a career development
and promotion plan to identify the
hidden talents of our staf members and
extend promotions. Approximately 72
employees were promoted during the
year while we recruited 76 men and
women from all provinces of Sri Lanka.
Five area managers were appointed
to strengthen the operations of the
bank with each manager overseeing
cluster of branches. This strategy was
implemented to provide a speedy and
proactive service to our customers.
In order to improve the efciency of
the bank, the Operations Division
was strengthened to oversee and
manage the operational risk factor.
This strategy enabled us to minimise
manual operations, eliminate non value
adding processes and the quality of
the operation manuals, and various
operational guidelines of the Bank
The share price of HDFC stood at LKR
550 as at 31 December 2010. During
the year HDFC achieved the highest
recorded share price since its listing in
the Colombo Stock Exchange (CSE). This
is atributed to the enhanced investor
confdence and boom in the CSE. The
capital adequacy ratio which amounted
to 21.09% in 2010, is almost double
the industry norm. Our shareholders
perceive that we have the capacity to
double our portfolio without raising
capital from the market which is an
added advantage,
Remarkable performance
The above strategies enabled The Bank
to record a stable performance during
the year, despite providing LKR 120
Million for our subsidiary, HDFC RED,
the Bank recorded a Net Proft Afer Tax
(NPAT) of LKR 133 Million recording
a Year on Year (YoY) growth of 132 per
cent. The proft was achieved despite
a downward interest rate revision in
advances. The net income escalated from
LKR 634 Million to LKR 825 Million in
2010, recording an YoY increase of 30
percent. Favourable micro and macro
economic conditions caused the cost of
funds to declined sharply during the
year. As a result we were able to improve
our low cost funding base which grew
From LKR 592 Million in 2009 to LKR
1,042 Million in the year under review.
We also succeeded in bringing down the
Non Performing Loan ratio net of EPF
and provision to 9 per cent during the
year, which is below the industry norm
applicable to housing loan segment. Net
NPL declined by 15 per cent YoY from
LKR939 Million to LKR794 Million in
the year under review. Consequent to
the branch expansion and repositioning
strategy, our deposit base increased by
26 percent YoY to reach LKR 7.7 Billion.
The new advances grew by a staggering
118 per cent YoY; from LKR 1.4 Billion
to LKR 3 Billion in 2010. The liquidity
ratio of the Bank was managed to
maintain a balance between the statutory
requirement and proftability.
Recognition of our service
In recognition of HDFCs performance
during 2009, we were awarded the
prestigious MACO Award, for the
contribution made to the housing
development in Sri Lanka. We were
also the runner up for the National
Business Excellence Award organised
by the National Chamber of Commerce
of Sri Lanka for the specialised banks
category. Further we were also presented
with the ACCA Award for sustainability
for small income category and for the
frst time entry.
Challenges ahead
The greatest challenge faced by HDFC
is managing the interest rate risk. Being
a long term lender, the bank is exposed
to the interest rate risk when the long
term advances are not matched with
long term funds. In the absence of a
long term money market, a dearth in
long term funds exists. Even though
we have succeeded in reducing the
maturity gaps to a certain extent, further
measures have to taken to stabilise our
future proftability. In this context, we
strive to achieve a sustainable growth
by accessing long term funding lines to
match the planned growth in advances.
Another challenge for the bank is to ofer
more atractive fxed rates to increase the
market share and utilise the available
capital to provide atractive returns to
the share holders. In order to minimise
the impact of any adverse efect due to
unfavorable macro and micro economic
indicators, proper matching of assets
and liabilities is crucial.
Strategic direction
Though we have the capacity and the
infrastructure to grow our advances
aggressively, we will adopt a prudent
approach in growing our loan portfolio.
We aim to achieve a sustainable growth
in our loan portfolio while managing
the inherent interest rate risk. Our new
corporate plan which was rolled out
this year addresses this factor. We will
also expand our lending to atract the
middle and upper income segment
without restricting ourselves to servicing
General Manager/Chief Executive ofcers Review contd.
the low and middle income segment
of our country. We have the expertise
to process a loan within a short time
span of two weeks. We are confdent
that the expertise and competencies
we have gained in the area of housing
fnance will give us a competitive edge
in atracting the middle and high income
segment of our country.
We will also increase our low cost fund
base by developing new products and
striving to improve the share holder
returns while concentrating on internal
processes to develop risk management
techniques. We will also continue with
our image building and expansion
strategy which has enabled us to atract
borrowers from all income groups of the
country. We have strategised to increase
our branch network to 50 within the next
3 years.
Appreciation
I take this opportunity to extend my
appreciation to the Governor of the
Central Bank of Sri Lanka and the
Ministry of Finance and Planning
for their cooperation and guidance
throughout the year. I also wish to thank
the Chairman and the Board of Directors
for their continuous support and
encouragement. A special thank you to
my team who gave their best at all times
to produce these results.
Suresh Amerasekera
CEO/General Manager
HDFC Bank of Sri Lanka.
From lef to right (Standing)
Mr. W. D. R. D. Goonaratne
Dr. D. S. Wiesinghe
From lef to right (Seated)
Mr. S. A. J. Samaraweera
Board of Directors
Profles of the Board of Directors
Mrs. S. N. Wickramasinghe
Chairman (Non executive,
Independent Director)
Mrs. Siromi Wickramasinghe was
appointed as the Chairman of HDFC
Bank in May 2010.
She held many senior managerial
positions in various fnancial institutions
including the post of DGM, Haton
National Bank PLC, GM /CEO,
Lankaputhra Development Bank,
Director Commercial Bank of Ceylon
PLC, and Director Sri Lanka Banks
Association (Guarantee) Ltd.

She was also a Commission Member of
the Securities and Exchange Commission
of Sri Lanka (SEC) and the Chairman of
Ceybank Asset Management (Pvt.) Ltd
an associate company of Bank of Ceylon.
She is also an Atorney at Law of
the Supreme Court of Sri Lanka and
Commissioner of Oaths, and is a Fellow
of the Chartered Management Institute
U.K.
(Non executive, Independent Director)
Mr. Ajith Fernando was appointed as a
Director of the HDFC Bank in June 2004
and he had resigned from the Board in
January 2011. He is a Fellow Member of
the Chartered Institute of Management
Accountants, United Kingdom and holds
a MA in Financial Economics from the
University of Colombo. He counts over
20 years experience in capital markets
of Sri Lanka. In 2000 he founded Capital
Alliance and is currently the group CEO
of the Capital Alliance Group which
includes Capital Alliance Ltd, a Primary
Dealer for Government Securities,
appointed by the Central Bank of Sri
Lanka and Capital Alliance Securities
(Pvt.) Ltd, a trading member of the
Colombo Stock Exchange. In addition
he also serves on the boards of Ceylon
Tea Brokers PLC and Senkadagala
Finance Ltd in addition to many private
companies. He is Deputy Chairman of
the Financial Ombudsmans ofce and a
Director of the Lanka Financial Services
Bureau.
Mr. Upali Wiayaweera was appointed
as a Director of the HDFC Bank in June
2006 and is also functioning as the
Secretary to the Ministry of Labour and
Labour Relations. He is a Director of
National Institute of Occupational safety
and Health, Srama Vasana Fund and
National Institute of Labour Studies.
He has been posted to the Sri Lanka
Administrative Service in 1984. He has
joined the Department of Labour in
1985 and has held several important
posts; Assistant Commissioner of
Labour, Senior Assistant Commissioner
of Labour, Deputy Commissioner of
Labour, Commissioner of Labour,
Commissioner General of Labour. In
1997, he was posted as the Consular in
the Sri Lankan Embassy in the State of
Kuwait followed by the posting in the
Sri Lankan Embassy in the Kingdom of
Saudi Arabia as the Consular in 1999.
In year 2000 he was appointed as the
Commissioner of Labour Standards.
He was also a director of National
Child protection Authority. He holds a
B.Com (special) Degree from University
of Kelaniya and PGD in Public
Administration from SLIDA (Sri Lanka).
Mrs. Dayarathne was appointed
as a Director of the HDFC Bank in
June 2009 and also functions as the
Additional Secretary of the Ministry
of Construction, Engineering Services,
Housing and Common Amenities. She
belongs to the Sri Lanka Administrative
Service and began her career as an
Assistant Controller of the Department
of Immigration and Emigration in 1985.
She has served as an Assistant Director
of the Department of Social Service,
Assistant Commissioner and a Deputy
Commissioner of the Department of
Poor Relief, Deputy Commissioner of the
Samurdhi Commissioners Department,
Deputy Director of the Ministry of Youth
Afairs, Senior Assistant Secretary of
the Ministry of Housing Development
and Senior Assistant Secretary of the
Ministry of Housing and Constructions.
She holds a B.Sc Public Administration
(special) Degree from the University
of Sri Jayewardenepura, Master in
Public Management, PGD in Public
Administration and MS.c in Public
Administration in SLIDA (Sri Lanka)
and PGD in Social Development from
the University of Massy in New Zealand.
Dr. D. S. Wiesinghe
Dr. Wiesinghe, former Deputy Governor
of the Central Bank of Sri Lanka joined
the Board on June 2010. He has more
than 35 years experience in central
banking particularly in monetary
policy, exchange rate policy, operations
of the Bank in fnancial markets and
economic research. He was the Deputy
Governor in charge of Economic and
Price Stability, one of the two key
objectives of the Bank. In his capacity
as the Deputy Governor, he served as
the Chairman of the Monetary Policy
Commitee and member of Financial
System Stability Commitee. He was
heavily involved in policy formulation
and implementation and advising the
Governor and the Monetary Board on
the same.
During his tenure at the Central Bank,
Dr. Wiesinghe held the posts of Asst.
Governor in charge of Economic and
Price Stability, Director of Domestic
Operations Department; Additional
Director of Centre for Banking Studies;
Additional Director, Deputy Director
and Senior Economist of the Department
of Economic Research; Additional
Director, Deputy Director and Assistant
Director of the Department of Statistics;
Research Economist of the South
East Asian Central Banks (SEACEN)
Research and Training Centre, Malaysia.
He has several publications to his credit
and has represented the Bank at several
international seminars.
Dr. Wiesinghe is a graduate of the
University of Colombo with BA (First
class) and B Phil. (Second class) in
Economics and had a brief tenure at the
same University as an Asst. Lecturer in
Economics. He had his graduate studies
at the University of Warwick, UK. where
he earned his PhD and MA in the same
feld of studies.
Mr. W. D. R. D. Goonaratne
(Non executive, Non Independent
Director)
Mr. Raja Goonaratne was appointed
as Director of the HDFC Bank in June
2010, and is an elected director of HDFC
representing the National Housing
Development Authority which is the
major shareholder of the Bank. He is a
senior lecturer in law in the academic
staf of the Department of Legal Studies,
Faculty of Humanities and Social
Sciences of the Open University of Sri
Lanka. At present, he works as the
National Housing Commissioner. He is
academically qualifed with LL.B (Hon)
Colombo, LL. M (Monash Australia),
Diploma in Forensic Medicine and also
of he is professionally qualifed as an
Atorney-at-Law of Supreme Court of Sri
Lanka. He is also a member of the Board
of the National Housing Developer
Authority.
Mrs. Chandanie Wiewardhana holds
a Bachelor of Arts (Hons.) Degree from
the University of Ruhuna (1992) and
Master of Arts in Development Studies
from the Institute of Social Studies, the
Netherlands (2000). She was appointed
as a Director of the HDFC Bank in June
2010. Currently she is a Director in
the Department of Fiscal Policy of the
Ministry of Finance & Planning. She
joined the Sri Lanka Planning Service
as an Assistant Director in 1994 and has
previously worked at the Department
of National Planning for 10 years and
at the Department of National Budget
for 6 years. In addition to her duties
at the Department of Fiscal Policy,
she represents the Treasury on the
Director Boards of National Housing
Development Authority, Condominium
Management Authority and Waters
Edge Ltd. She was a Director of State
Mortgage and Investment Bank.
Mr. S. A. J. Samaraweera
(Non executive, Non Independent
Director)
Mr. Jayantha Samaraweera was
appointed as a Director of the HDFC
Bank in June 2010. Currently he is
the Chairman of National Housing
Development Authority, Board Director
of Tea, Rubber & Coconut Estates
Control of Fragmentation Board, Urban
Setlement Development Authority and
Urban Development Authority.
He was a member of Parliament of the
Democratic Socialist Republic of Sri
Lanka during years 2004 2010. In 1999
he was elected to the Western Provincial
Council as a member.
Mr. Samaraweera holds a Diploma in
Journalism from the University of Sri
Jayawardenapura, Sri Lanka.
Mr. A.M. Chandrasagara was appointed
as a Director of HDFC Bank in June
2010 and functions as the Chairman
of the Board Audit Commitee. He
is also a Director of CRIB. He has 40
years of experience in the Peoples
Bank in the felds of General Banking,
Accounting, Finance, Inspection and
Internal Auditing. He is a Fellow of
the Institute of Bankers of Sri Lanka
(FIBSL) and an Associate Member of the
Institute of Chartered Accountants of Sri
Lanka (ACASL). He holds a Diploma in
Information Systems, Security, Control
and Audit conducted by the Institute of
Chartered Accountants of Sri Lanka and
a Diploma in Accountancy.
Profles of the Board of Directors contd.
Suresh Amerasekera
General Manager/CEO
S. Dissanayake
D. V. Pathirana
Assistant General Manager (Business
Development & Marketing)
W. M. A. Bandara
Assistant General Manager -
Information Technology
A. J. Atukorala
Chief Internal Auditor/Compliance Ofcer
S. A. Alahakoon
Head of Credit
A. M. D. G. Abeyawardena
Head of Treasury
L. Edirisinghe
Head of Human Resourses
M. Y. Piyasena
Senior Manager (Recoveries)
acts as the Chief Operations Ofcer and
the Credit Division, Recovery Division,
Administration division, Technical
& Premises Maintenance, Valuation
Division and Branch Operations were
under his supervision until end of the
year
D. V. Pathirana
Assistant General Manager (Business
Development & Marketing)
Mr. D.V.Pathirana is an Associate
Member of the Institute of Charted
Accounts of Sri Lanka (ACA) and a
Fellow a Member of the Institute of
Certifed Management Accountants
of Sri Lanka (FCMA). He holds a
Bachelor of Science (Special Public
Administration) Degree from the
University of Sri Jayawardanapura, He
has over 25 years experience in the felds
of Auditing, Accounting, Financing,
Management, Management Accounting,
Banking, Projects and Investment
Promotion both in Sri Lanka and
overseas. He is currently responsible for
Business Development and Marketing.
W. M. A. Bandara
Assistant General Manager -
Information Technology
Mr.W.M.A.Bandara is the Assistant
General Manager- Information
Technology of the HDFC Bank. He holds
a Bachelor of Science Degree from the
University of Colombo followed by a
Post Graduate Diploma in Information
Technology from University of Stirling,
Scotland. He has over 20 years of
experience as an IT professional with
over 5 years experience in senior
managerial capacity. He has extensive
experience in installing, confguring
and maintaining a wide range of UNIX
based system, specialised in confguring
and maintaining Informix Database,
Network administrative activities and
Project Management. He has atended
key training course relevant IT industry
at international organizations such as
CICC-Japan and IBM-Malaysia. He had
also worked in NEC Corporation in
Japan for one year.
A. J. Atukorala
Chief Internal Auditor/Compliance Ofcer
Mr. Atukorala joined the bank as the
Chief Internal Auditor in July 2009. He
was also appointed as the Compliance
Ofcer from July 2010. He possesses
extensive experience for more than
23 years in General and Information
Systems auditing in both public and
private sector banks. He is an Associate
Member of Chartered Institute of
Management Accountants, UK and a
BSc graduate of University of Colombo.
Also he holds the titles of the Certifed
Information Systems Auditor and
Certifed Information Security Manager
awarded by the Information Systems
Audit and Control Association , USA
and is a Diploma holder in Computer
Systems Design awarded by the National
Institute of Business Management, Sri
Lanka. Further he has multi-disciplinary
exposure in both manufacturing and
service industries.
S. A. Alahakoon
Head of Credit
Mr. S.A. Alahakoon is a Senior Banker
with over 32 years of experience. He
holds a B.com (Special) Degree from the
University of Sri jayawardanapura. He
held many senior managerial positions
in various fnancial institutions including
the CEO/General Manager Global Trust
Suresh Amerasekera
General Manager/CEO
Mr. Suresh Amerasekara a senior banker
with nearly 30 years of experience
in Commercial Banking has being
appointed as the CEO/GM at HDFC
Bank with efect from October 2008. He
had his initial training from the Colombo
branches of State Bank of India, Bank of
America and Citi Bank He was atached
to Seylan Bank as an Assistant General
Manager in charge of Colombo suburban
region with 15 Branches, till he joined
HDFC Bank.
He holds a MBA (International)
from Edith Cowan University, Perth,
Australia. An Advanced Diploma in
Management Accounting awarded by
the Chartered Institute of Management
Accountants UK. He also has completed
a Postgraduate Certifcate in Asset
Liability Management from the Post
Graduate Institute of Management.
S. Dissanayake
Mr. S. Dissanayake is an Associate
Member of the Institute of Chartered
Accountants of Sri Lanka (ICASL). He
holds a Bachelor of Science (special-
Business Administration) degree, from
the University of Sri Jayewardenepura.
He counts more than 24 years experience
in public and private sector where
he headed the fnance section of the
state sector institutions for several
years. He joined HDFC in December
1995 as Assistant General Manager
(Finance) and has been heading the
Finance division since the assumption
of the new portfolio as Deputy General
Manager (Finance) for over 10 years.
In addition to the Head of Finance he
Corporate Management contd.
Financial Services Ltd, General Manager
Abans Financial Services Limited,
Asstant General Manager (Credit) L.B.
Finance Ltd., Senior Manager Leasing/
Finance, Manager, Sanasa Development
Bank, has 17 years work experience in
the peoples Bank. he is an Associate
member of the Institute of Chartered
Accountants of Sri Lanka & Associate
Member of the Institute of Bankers of Sri
Lanka.
L. Edirisinghe
Head of Human Resourses
Mr. Leslie Edirisinghe holds a
B Sc Special Degree in Business
Administration at the University of Sri
Jayewardenepura and has obtained a
national Diploma in Human Resource
Management of the Institute of
Personnel Management of Sri Lanka.
He is also an Associate Member of the
Institute of Personnel Management of Sri
Lanka (AMIPM) and his main forte lies
in Human Resource Management and
Training and Development.
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.
A. M. D. G. Abeyawardena
Head of Treasury
Mr.A.M.D.G. Abeywardena possesses
experience for more than 28 years of
which nearly 21 years have been in
Treasury Management. He has worked
in Several Leading Commercial and
Specialised Banks for 23 years of which
16 years in the Senior Managerial
capacity. Before joining HDFC, he was
atached to a leading Conglomerate in
the country as the Asst. Group Treasurer.
He has atended several Key Training
Programmes relevant to Treasury
Management both locally and overseas.
M. Y. Piyasena
Senior Manager (Recoveries)
Mr.M.Y. Piyasena holds a Bachelor
of Science (Business Administration)
Special Degree with second upper
merit division from University of Sri
Jayawardenapura in 1981. He has
over 27 years experience in the feld of
Auditing, Financial Management and
Loan Recoveries. He Joint HDFC in 1998
as a Chief Internal Auditor and has being
heading as a Chief Internal Auditor up
to 2004. Presently, he is heading the Loan
Recoveries Department in the capacity of
Senior Manager (Recoveries).
Senior Management
Mrs. W. W. D. S. C. Perera
Manager - Legal
Mrs. H. S. Gunathilake
Manager - Business Development &
Marketing
Mrs. K. T. D. D. De Silva
Company Secretary
Mr. C. R. P. Balasooriya
Manager - Treasury
Mr. H. A. Anura
Accountant - Finance
Mrs. W. N. D. Botheju
Accountant - Payment
Mr. M. S. Mohamed Rila
Manager - Technical
Mr. I. Nishantha
Manager - Project & Credit
Administration
Mrs. C. P. K. Hewage
Manger - Human Resource
Mr. P. S. Pitawela
Manager - Administration
Mr. W. M. Chandrasena
Manager - Valuation
Regional Managers
Mr. R. M. Sugathapala
Area Manager - Badulla
Mr. K.Wiesiri
Area Manager - Chilaw
Mrs. R. R. Gunewardena
Area Manager - Colombo
Mr. H. M. Thilakarathne
Area Manager - Kegalle
Mr. N. C. Ranjith
Area Manager - Galle
A. M. Neelachndra
Data Base Administrator
Mrs. L. A. S. C. Ariyaratna
Manager Business Development
K. R. M. A. Bandara
Manager - Internal Audit
Manager - Property
Ms. G. L. Pandigama
G. D. K. H. Perera
Manager - Mobile Banking
Mrs. K. H. D. Priyanka
Manager - Public Relations & Publicity
Mr. B W M C Kumarasiri
Rathnapura
Mr. E. D. D. Sampath
Hyde Park
Mr. G. W. A. N. Kalinda
Tangalle
Mr. L. S. B. Ratnayake
Nuwara Eliya
Mr. M. L. R. Kumara
Galle
Mr. N. M. Jayawardena
Piliyandala
Mr. R. A. J. N. Ranasinghe
Ja Ela
Mr. T. B. Karunabandu
Gampaha
Mr. T. Kandiah
Baticaloa
Mr. W. D. K. Senewirathne
Kurunegala
Mr. W. Gunasinghe
Homagama
Mr. T. Jegadeepan
Vauvniya
Mr. K. D. Ruwansiri
Badulla
Mr. N. S. Meegastenna
Awissawella
Mr. S. H. K. Gamage
Anuradhapura
Mr. W. B. Rajasinghe
Embilipitiya
Mrs. N. A. A. N. S. Nissanka
Kandy
Mrs. D. T. A. Jayasinghe
Horana
Ms. K. W. Y. Indira
Matara
Ms. L. Gunethilake
Colombo
Ms. M. G. D. P. Senevirathne
Ampara
Ms. S. A. K. Abeykoon
Kegalle
Ms. J. Samantha
Nugegoda
Mr. H.M.U. Samaraweera
Chilaw

Mr. D.K.P. De Silva
Kalutara

Ms. J.A.L.K. Jayalath
Trincomalee
Mr. I.K. Dawatanga
Matale
Mr. K.M.S.W. Bandara
Monaragala
Managers Branch Managers
Branch Network
Vavuniya
Northern
North
Central
Central
Uva
Southern
S
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a
g
a
m
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a
W
e
s
t
e
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n
Eastern
North
Western
Trincomalee
Anuradhapura
Matale
Kandy
Baticaloa
Chilaw
Kurunegala
Colombo
Hyde-park
Gampaha
Badulla
Ampara
Monaragala
Tangalle
Matara
Galle
Jaela
Embilipitiya
Ratnapura
Kegalle
Awissawella
Homagama
Kaluthara
Horana
Piliyandala
Nuwara Eliya
Nugegoda
Our Branch Network
Colombo
P.O. Box 2085
Sir Chitampalam A Gardiner
Mawatha, Colombo 2.
Nugegoda
1st Floor Railway Station
Nugegoda
Hyde Park Corner
No. 63, Hide Park Corner
Colombo 02

Kandy
NHDA Building
Yatinuwara Veediya
Kandy
Kegalle
1st Floor ,
Royal Shopping Complex
Main Street, Kegalle
Matale
26 1/1, City Plaza Building,
Main Street, Matale

Kalutara
13, Gnanodaya Mw
Kalutara South

Gampaha
101/1, Colombo Road
Gampaha

Matara
9, HGPM Building
Kotuwegoda, Matara

Galle
No 4, Sri Dewamiththa Mawatha
Galle
Baticaloa
58/1.Baily Road,
Baticaloa
Trincomalee
N.C. Road
Trincomalee

Badulla
71 / 1 LG
New Passara Road
Badulla
Chilaw
2nd Floor, Sky Line Building
Colombo Road
Chilaw
Ratnapura
No. 51 1/1
Main Street
Ratnapura
Tangalle
150,
Matara road,
Tangalle
Ja-Ela
No 38/1,Old Negambo Road,
Main Street, Ja Ela

Kurunegala
No 12/B,
1st Floor
Dambulla Road
Kurunegala
Anuradhapura
No 396/14 , Court Place
Bandaranayaka Mawatha
Anuradhapura
Vavuniya
No. 68, Station Road
Vavuniya
Monaragala
No 310/A
Kachcheriya Junction
Wellavaya Road,
Monaragala
Homagama
No 94, 1st Floor,
High-level Road
Homagama
Nuwara - Eliya
No.72, Park Road
Nuwara - Eliya

Ampara
Uhana Road Ampara

Avissawella
90/B, 1st Floor,
Yatiyantota Road, Awissawella

Horana
No.231, Panadura Road,
Horana
Piliyandala
No.21,Vidyala Mawatha,
Piliyandala
Embilipitiya
No. 93 B, Malwata Building
New Town Road,
Embilipitiya
Responding to the changing
landscape
Management Discussion and Analysis
Business and operating
environment.
Corporate Profle.
HDFC was originally established as a
Building Society in 1984 and converted
to a Public Corporation under the
provision of Housing Development
Finance Corporation Act No 07 of
1997 and obtained the status of a
Licensed Specialised Bank (LSB) under
the Housing Development Finance
Corporation amended Act No. 15 of
2003. HDFC marked its 26th year in
2010 since incorporation as a Building
Society and seventh milestone as a
licensed specialised bank. The year
2010 also marked the completion of fve
years since listing at the Colombo Stock
Exchange(CSE).
The Government of Sri Lanka holds
approximately 51% of HDFC, largely
through the National Housing
Development Authority, which is a State
Corporation tasked with formulating
and implementing the states overall
housing policy. The Bank Board
of Directors are representatives of
various governmental institutions and
ministries, several of which are involved
in housing and development. Three
directors represent the private investors.
Business Overview.
Over this period HDFC has achieved a
steady growth in assets, shareholders
funds and proftability while sustaining
internal processes , capacities and
strength. Bank also has gained wide
recognition from the society as a leading
player in housing fnance particularly
in the low and middle income market
and as an award winning responsible
corporate citizen.
Corporate Milestones
1984 Incorporated as a Building
Society
2000 Converted to a public
corporation.
2003 Obtained the status of a
Licensed Specialised Bank
2004 Winner NCCSL Business
Excellence Award Financial
Service Sector.
2005 Listed at Colombo Stock
Exchange.
2005 Winner- NCCSL Business
Service Sector.
2006 Runner up- NCCSL Business
Service Sector
2007 HDFC ranked as 14th best
brand among the 20 largest
state enterprises.
2010 Runner up- NCCSL Business
Service Sector
2010 Winner- ACCA Sustainability
Reporting Award 2010- Small
scale Category.
2010 Winner- ACCA Sustainability
Reporting Award 2010- First
time entry group.
2010 Winner Golden Maco Award
2010.
During the year whilst achieving
substantial improvement in fnancial
performance and growth the Bank
was also able to win prestigious social
awards as tabulated in the corporate
milestones. HDFC was able to record a
substantial improvement in the volume
and value of its market share in the low
and middle income housing fnance
market and also savings and deposit
markets with innovative products ,
services and processes.
With these achievements we believe that
our corporation has taken robust steps
ahead with the direction of the strategic
vision and mission to be the premier
fnancial service institution for the
purpose of enhancement of lifestyles of
Sri Lanka and to be a dominant player in
the fnancial service sector by delivering
innovative solutions to meet the needs of
housing.
Highlights - 2010
Proft afer tax. LKR -M 135
Shareholders fund LKR -M 1,848
Total Assets LKR -M 15,373
Branches 28
Staf 425
ATM access 225
Total customer base 346,243
HDFC, in our daily operation we
respect our values and also paid
particular emphasis to quantify and
communicate our performance towards
the interest of the diferent important
stakeholders groups annually through
the Sustainability Report prepared in
compliance with the globally accepted
guidelines of GRI.
Macro Economic Environment.
The housing and housing fnance
industry largely depends on locally
and globally sourced raw materials and
savings, hence inherently sensitive to
global and domestic macroeconomic
environment and changes in related
policies. Thus in the process of
evaluating the Bank performance, it is to
be emphasized in particular the existing
and projected economic outlook and to
the variables such as infation, interest
and fscal policies etc
Economic Analysis.
World economy is expected to record
an approximate growth of 4.8% in
accordance with IMF world economic
outlook report , October 2010. Economic
recovery continued to strengthen
worldwide but the strong growth in
emerging and developing countries
anchored world economic growth
while advanced economies indicated
a moderate but sustained recovery.
Emerging and developing economies
are expected to grow by 7.1 per cent
strongly supported by China and
India while advanced economies are
projected to expand at 2.7 per cent in
2010. Developing Asia is expecting
higher price levels in 2011 alongside its
robust economic recovery. This regional
economies would efect very positive
infuence on the Sri Lanka economic in
medium term.
Domestic Economy.
The Sri Lankan economy rebound
was aided by the post-war confdence,
expansionary fscal policy, declining
interest rates and a large infow of
foreign capital as global fnancial
markets thawed. The economic growth
reached approximately 8 per cent
during the year 2010 more than double
2009s 3.5% GDP growth rate, triggered
by the growth in key sectors of the
economy according to the Central Bank
(CBSL). From 2003 to 2008, the country
experienced impressive average annual
GDP growth of 6.3%. In the frst nine
months in 2010, the Agriculture sector
grew by 7.2 per cent, mainly driven
by the higher growth in production
of paddy, tea and minor export crops
and beter performance in the fsheries
sector. The Industry sector grew by 8.0
per cent with improved performance in
mining and quarrying, manufacturing,
gas, electricity, water, and construction
sectors. The Services sector recorded a
growth of 7.8 per cent in the frst half of
2010, supported by higher contribution
from domestic and foreign trade,
transportation, tourism and fnancial
services.
Infation, Fiscal Policies and
Interest Rate.
The continued absence of signifcant
upward demand management policies,
improved domestic supply conditions
and supportive fscal policies enabled
to maintain infation at subdued levels
which was 6.6 per cent in October 2010.
The favourable outlook for infation
enabled the Central Bank to ease its
monetary policy stance by reducing
the Repurchase rate and the Reverse
Repurchase rate, by 25 basis points each,
in July 2010. The Reverse Repurchase
rate was reduced by a further 50 basis
points in August with the aim of further
supporting the recovery of domestic
economic activity. The fscal situation
improved signifcantly as refected in the
rise in government revenue supported
by the recovery of international trade
and expansion in domestic economic
activity.
In the face of signifcant improvement
in infows, the exchange rate policy
continued to focus on maintaining
stability in the Sri Lankan Rupee. This
overall stability of the monitory system
is infuenced by overall liquidity in the
banking system, distribution of liquidity
among banks created a favorable
environment to a moderate interest rate
encouraging credit growth. Mortgage
loans which were priced above 16% per
annum and being currently priced at
moderate rates below 15%, favouring for
the expansion of the mortgage market in
the medium term.
Housing and Housing
Finance Industry.
-Impacts, Trends, Challenges
and Opportunities.
According to the Ministry of Housing
overall shortage of housing is
approximately 650,000 units. Including
the North and East that has been
untapped for nearly three decades, this
shortage would be much higher than
this estimate. Other than this existing
backlog, natural growth is estimated
to be between 50,000 to 75,000 units.
Also a substantial percentage of existing
units are substandard and requires
improvements or rehabilitation as
well as beter public services. This gap
indicates that efective demand, has
been much lesser than housing needs
as it is determined by the ability and
willingness of households to pay for
a home. In consideration of mortgage
fnance market this is an ever increasing
opportunity and should commit to the
nascent development of the market as a
means to increase housing investment to
levels necessary to close the gap between
the housing need and the housing stock.
According to a publication on Housing
Finance in South Asia by The World
Bank, the size of the Sri Lankas housing
fnance sector is 6 per cent of GDP,
much lower than the world average of
30%, but highest in the region is a clear
indication of the vacuum of demand in
the mortgage market..
Housing Cost and Afordability.
Housing fnance market which is
mainly driven by the commercial bank
sector has grown from LKR 142 Billion
in March 2007 to LKR 172.5 Billion
by March 2010 refecting an annual
average growth of 7% even in the
challenging economic environment.
However commercial banks advances
into housing sector as a percentage of
Management Discussion and Analysis contd.
total lending has declined from 16.1%
to 13.8% over the same period. In the
second half of the year , with favourable
change of the macro economic
environment dividend by peace and
faster recovery of the south Asian region,
banking sector geared more on the
housing industry with more dynamic
products in shelves.

labour 19% , cement 27% , thus cost of
housing has become unafordable for
many, particularly to the low and middle
income segment.
Sri Lanka populations growth is about
1% per annum whereas the countrys
urban population is growing at
threefold higher rate than the country
average, making urban housing the
mostly afected challenge. Other than
the cost of construction , high cost of
lands has further mounted pressure
on urban housing. This has resulted
dissemination of slumps , encroachment
of valuable government properties also
increasing urban poverty. Drastic decline
of greater Colombo housing approval
index, from 132.7 in 2007 to 74 in 2009
is a clear indication of this pressure.
Particularly, approval index of middle
income housing units, in sizes of 1000
-2000.sq:fs has declined 140.7 to 76 over
the same period. The government has
initiated several programs to develop
underutilized valuable urban properties
to provide up market urban housing
and afordable housing for the middle
income segments. The government also
plans to build social housing schemes
to accommodate encroachers of those
lands while clearing for development.
Following this market opportunity
HDFC granted 20% of its facilities in
Colombo district in 2010.
The commercial banking sector that
has invested only 14% of their advance
portfolio in housing sector strategically
focuses more dynamic products with
adjustable interest rates , fexible and
over 20 years repayment terms making
facilities more afordable to customers
in the challenging environment. Thus,
as per the CBSL information, over the
period of three years ended 31st March
2010, share of the short term housing
loans has declined from 13.37% to 5.8%
while long term loan market increased
from 60.3% to 67.4%.
Cost Efective and Sustainable
Housing.
Sri Lankas housing industry also is
experiencing a transformating into more
cost efective, resources efciency and
sustainable design and building focusing
on afordability in construction and
maintenance.. As per the CBSL statistics,
housing approval index of above 2000
Sq:f houses in greater Colombo has
recorded a remarkable decline from 207
in 2007 to 112 in 2010.
Weak Accessibility.
Commercial banking sector that caters
mainly to the wider and upper middle
income groups with more dynamic
products and services, represents the
largest share of the countrys efective
demand for housing fnance. Lower
middle and low income groups that
accounts 70 of the population represents
only 30 of the efective demand and
ofen face the challenge of inadequate
collaterals, regular income and income
documents in obtaining formal housing
loan facilities. HDFC Bank that focuses
above 70% of its facilities to this
segments, strives to enhance accessibility
and afordability with new customised
This spark is also lined with the
government policy focus on agriculture
and infrastructure development as
the priority sectors for reaching the
target of USD 4,000/ per capital income
envisaged by the country in 2015..
Housing and infrastructure development
generates multiple economic impacts
in other sectors and creates enabling
environment to boost the rate of growth.
Inadequacy of infrastructure has been
one of the reasons that the country is
not fully realising the dividend of peace.
Meanwhile, factors , such as high cost
of fnance, construction material , lands
and labour also substantially precluded
the envisaged expansion of the industry.
As per the CBSL statistics , cost of
construction has increased more than
20% since 2007 with an annual average
of around 6.5%. Building material that
registered substantial price increase
since 2007 includes timber 17% , skilled
0
1,000,000
1,600,000
Rs. Billion
Quarter
Banking Sector total advances
and Housing Finance
800,000
1,400,000
600,000
1,200,000
400,000
200,000
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Rs. Billion
Quarter
Short -term and Loan Term
Housing Finance
800,000
600,000
1,200,000
400,000
200,000
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Short-term loans
Long-term loans
products and services. HDFC mobile
banking service, which is operation
since 2007 has opened doors for many
unprivileged families for formal housing
fnance.
Poor Governance.
Poor emphasise in governance is one
of the main issues that stakeholders in
the housing fnance industry should
address. Real estate forms perhaps the
largest assets class in any country and
is also the largest source of wealth for
families. Therefore, it requires high level
of governance in planning , designing,
approval and construction etc to protect
the rights of residents. Mortgage lenders
who invest over 75% of the cost of
construction for over 10 years, also do
not possess a warranty as to quality of
property. This has largely precluded
new cost efective and sustainable
construction technologies penetrating
local market, which have been successful
in other countries. These are the
fundamental issues which will ensure
long term sustainability of the industry
rather than short-term gains.
Most of the condominium projects in
Colombo have not obtained necessary
approvals from required statutory
bodies and this has prevented buyers
from seeking credit from fnancial
institutions due to lack of legal title.
This also restricted the multiple efects
of funds which otherwise would have
occurred by investing these funds
in purchasing apartments , in other
economic sectors.
Another area that needs more
regulation is upfront payment sought
by the developers even before plans
are approved. Advertising and sale of
projects prior to fnalising plans and
building approvals is not only unfair to
the public also prevent the growth of the
sector in the long run.
Operational Review.
Banking Industry and HDFC.
As per the CBSL, banking sector
accounting for 52 per cent of the
fnancial systems total assets. The
number of banks decreased from 36 to
31 comprising 22 licensed commercial
banks (LCBs) and 9 licensed specialised
banks (LSBs) including HDFC, due to
the merging of the business of the fve
regional banks. The banking sector
had remained stable in 2010 and key
indicators of fnancial soundness have
improved or maintained at healthy
levels. Total assets base of the sector has
increased from LKR 2,942 Billion to LKR
3362 Billion from September 2009 to
September 2010. In the frst nine months,
the customer outreach has expanded
with 29 branches and 34 other outlets,
thus increasing the total number of
banking outlets in the country to nearly
6,000. In addition, there were 1,972
ATMs in operation by end September
2010.
Market Share.
As per the calculation based on the CBSL
information , HDFC share in the total
assets market of the Banking sector is
0.45% as at September 2010 and that of
LSBs market was 2.71% as indicated in
the following table.
HDFC Market share in total assets -
September 2010
Market-
Rs B
HDFC
Rs B
HDFC
Share
Total banking
Sector
3,362 15.3 0.45%
LSBs 553 15.3 2.71%
State owned
LSBs
470 15.3 3.19%
Composition of Assets.
HDFCs the main income generating
assets housing loan portfolio represents
83% of the total assets as against 54%
in the industry. Big players in the
industry maintain high percentage of
short and medium term investments
with above average returns. In the case
of HDFC, investment opportunities
available are highly restricted because
of the statutory limitations enforced by
the Act. However we strive to enhance
investment portfolio within the statutory
scope, thus abled record 10% in 2010 as
against 6% in 2008.
Composition of Assets
Industry HDFC
Loans &
Advances
54% 83%
Investments 32% 10%
Other 14% 7%
As per CBSL records
Loans & Advances
Investments
Other
Composition of Assets - Industry
14%
54%
32%
Composition of Liabilities.
HDFC maintains a healthy capital fund
ratio 12% compared to the industry
average of 8.5%. There is a decline in
borrowings and steps would be taken
to reduce this further to match with
the industry norms, while managing
the maturity gaps. However, as shown
in the following analysis, deposits has
continued to be the main source of
funding in the banking sector accounting
for 74% of total liabilities. HDFC has
fnanced 50% of its liabilities from time
deposits and savings. Meanwhile, in
terms of deposit types, time deposits has
accounted for the major portion of 55%
of the total deposit based in the industry,
whereas at HDFC 86% of deposits
represented by time deposits. We
strategically strive to reduce this to 75%
by the year 2012 and also change the
deposit mix to reduce the cost of funds.
Assets and Liability Growth.
Total assets based of the banking sector
recorded a year on year growth of 14.3 %
September 2009 to 2010 , in comparison
to the lower growth of 8.8% in 2009. This
is mainly atributable to the signifcant
year on year growth of 25.7 per cent
in investments including investments
in subsidiaries and associates which
accounted for around 32% of the total
banking sector assets by end September
2010. Over the same period HDFC
recorded a 13.2% growth in investment
which is mainly because of held to
maturity investment in government
securities. HDFC has recorded a 1.5%
growth in the loans and advances as
against the 12.9% growth in the industry.
The slow growth was mainly due to the
risk management strategies followed
up to June 2010. Meanwhile investment
in short-term income generating assets
and property, plant and equipments has
increased by 4.5% as against the negative
growth of 1.6% in the industry.
Assets Growth September 2009 - 2010
Industry
%
HDFC
%
Loans and Advances 12.9 1.5
Investments 25.7 13.2
Others -1.6 4.2
Total Assets 14.3 5.4
Based on CBSL records.
Deposits, savings and time deposits,
continued to be the main source of
funding in the banking sector accounting
for 74% of total liabilities. During the
period September 2009 to September
2010 HDFC has recorded an impressive
26.8% growth of deposits as against the
industry average growth rate of 12.5%.
Deposits growth at HDFC is mainly
atributable to the growth in savings
Loan & Advances
Investment
Other
Composition of Assets- HDFC
7%
83%
10%
Capital Fund
Borrowings
Deposits
OtherOther
Composition of Liabilities - Industry
5%
9%
13%
73%
Capital Fund
Borrowings
Deposits
Other
Composition of Liabilities - HDFC
7%
12%
31%
50%
that has recorded an impressive growth
of 76% in 2010. While the industry has
recorded a healthy 15.9% growth of
capital fund HDFC has been able to
maintain only 4.7 % growth. Over the
period of September 2009 to September
2010 HDFC has been able to reduce
borrowings and other liabilities 12.8
% and 13.3% respectively whereas the
industrys dependence on borrowed
funds and other liabilities as enhanced
substantially from 22.6% and 16%
respectively. Declined borrowings and
increase of capital fund at HDFC has
entirely been funded by the increased
time deposits, savings and proft.
Liability Growth September 2009 -
2010

Industry HDFC
% %
Capital Funds 15.9 4.7
Deposits 12.5 26.8
Borrowings 22.6 -12.8
Others 16 -13.3
Total Liabilities 14.3 5.4
Based on CBSL records.
Soundness Indicators - Industry
and HDFC.
As per the CBSL statistics , fnancial
soundness review indicators of LSBs
sector and HDFC as at September
2010, are tabulated in the following
schedule for comparative information.
HDFC Banks tier 1 and total capital
adequacy ratios are comfortably above
the regulator minimum of 5% and 10%
respectively. This is due to the Banks
relatively high capital fund and the low
risk-weights assigned to housing loans
backed by mortgages over residential
properties and EPF balances.
Banks gross non-performing loans
(NPL) ratio in total loan portfolio is
fairly higher than the average of LSB
sector, and is largely atributable to the
week economic environment during the
early part of the year. The Banks total
gross NPL ratio is 23% (30
th
September
2010), due to the high level of non-
performing in loans granted against EPF
balance. This is in turn due to willful
defaults by borrowers who use this loan
products as a mechanism for drawing
down their provident fund balance
prematurely and arrears is reimbursed
by the Central Bank. Although the NPL
ratio stood at a high 23%, the NPL ratio
excluding EPF backed loans (as they
are reimbursable) clocked in at 14.25% as
at 30
th
September 2010.
Licensed Specialized Banks - Soundness Indicators as at 30th September 2010
Industry HDFC Statutory
Minimum
Sep-08 Sep-09 Sep-10
Capital Adequacy Ratio
Tier 1 Capital Ratio
25.6 23.6 23.8 16.25 5
Capital Adequacy Ratio
Total Capital .
21 22 22.1 17.24 10
Gross NPL as a % Total Loans. 8.9 10.4 9.9 23.09 *
Return on Assets -Before Tax. 7.1 2.4 4.1 0.9
Return on Equity (Afer Tax) 6.9 15.1 32 7.4
Liquidity Ratio 61.9 71.1 73.6 22.23 20
* Gross NPL ratio excluding EPF is 14.25%. Industry information is based on CBSL
reports. Net NPL excluding EPF as at 31/12/2010 is 9%, below the housing fnance
industry average
HDFC maintains statutory liquid assets
ratio comfortably above the minimum
requirement of 20%. In general, a
surplus liquidity position was recorded
in the market throughout the year 2010.
As per the CBSL reports an analysis of
the composition of the liquid assets of
banks as at September 2010 indicated
that about 78 per cent of the liquid assets
comprised of investments in Treasury
Bonds (36 per cent), Treasury Bills and
Government Securities (32 per cent) and
investment in Sri Lanka Development
Bonds (10 per cent). In these
circumstances, the overall liquidity ratio
of the banking industry was well above
the stipulated minimum requirement.
New directions during 2010.
The growing complexity and
interconnectedness of systems, fnancial
products, information technology
solutions Central Bank issued
several new directions to strengthen
management process of operational risk
and Corporate Governance for Licensed
Specialised Banks. HDFC has promptly
complied with these directions and the
level of compliance is reported under
the Corporate Governance section of the
Annual Report.
Challenges in Maintaining
Industry standards.
HDFC is the only bank in the LSBs
sector, its scope of operation is restricted
to housing fnance. Thus opportunities
available to other banks in the sector
in managing growth, proftability
and risk are not equally available to
HDFC. With these inherent restrictions,
managing HDFC to the industry
norms is a challenge. Comparison of
HDFC performance with the Licensed
Specialised Bank sector is realistic only
with reasonable adjustments to sector
averages.
Business Operation and
Developments.
Market Environment and
quality of service.
While the year saw an extremely
competitive banking environment
come into play for housing fnance with
more dynamic products ofered by the
commercial bank sector given impressive
choices to work with, underpinned
the favourable economic and fnance
market conditions. Mortgage interest
rates ofered by the big players were
more atractive. Nevertheless , HDFC
Bank held its own position in the low
and middle income market , due to the
social license that has been gained over
the years as the afordable home loan
provider.
During the two new branches were
opened in Vauniya and Trincomalee.
This year the focus has been in
streamlining our processes and infusion
of more customer conveniences into
our operation. Our concerted eforts in
amering and enticing more customers
into HDFC portfolio saw considerable
results with our deposits portfolio.
Average loan processing period reduced
substantially. Processing period of
EPF loans was further reduced to
one working day becoming the most
efcient player in the industry. Improved
customer satisfaction index and
reafrmation of ISO 2001: 2000 quality
certifcation.
Strategic priorities.
Accelerated growth of lending,
deposits mobilisation , management
of non-performing loans (NPL) , IT
development, mobile banking, HR
development , capacity building,
Risk Management and inculcating
sustainability practices were the strategic
priorities in 2010.
Strategic Priorities and Achievements
Actual Budget Variance
Priority 2007 2008 2009 2010 2010 2010
Loan Value LKR M 2,622 1,418 1,404 3,069 3,500 (431)
No of Loans 9,561 5,559 5,977 10,739 8,000 2,739
Deposits LKR M 4,934 4,975 6,114 7,703 7,975 (272)
NPL Value LKR M 2,460 2,501 2,743 2,840 2500 (340)
Gross NPL ratio % 17 22 23 22 14 (8)
No of Mobile Customers 1201 5,630 38,289 59,689 50,000 9,689
No of Branches 21 21 26 28 32 (40
No of staf 286 289 384 425 435 (10)
Accelerated growth of lending.
Favorable macroeconomic, political
and low interest environment created a
conductive environment enabling HDFC
to record a robust growth of lending
from LKR 1,404 million in 2009 to LKR
3,069 Million in 2010 refecting a yearly
increase of 118% while the number of
loans grew by 80 per cent YoY to 10,442
loans. Whereas the industry has grown
only 2% over the year up to 30th June
2010. Most of the branches achieved
their lending targets.
Security wise the portfolio mix was
enhanced by concentrating loans against
property mortgages, EPF balances , cash
margin and guarantor schemes. State
sector and North Central Provinces high
percentage of advances were against
EPF balances because of the problem
of ownership of properties. Majority of
house repair, up grading and furniture
loans too granted against EPF balance.
Provincial average size of loans s
calculated as follows.
Average size of loans 2010.
- Provincial
Western 350,000
Central 190,000
Southern 320,000
N-Eastern 200,000
Uwa 210,000
North-Central 210,000
Sabaragamuwa 240,000
N-Western 340,000
Bank 290,000
Although the loan volume exceeded
the annual target of 8,000 loan ,
disbursements fell below the target
by LKR 431 million. The loan advance
expects to grow by 40 per cent in 2011.
Savings and Deposits
Mobilisation.
Long term, low cost risk pooled fund
base is essential for sustainable growth
of the Bank by addressing the challenges
of maturity mismatch and interest
margin.
HDFC commenced aggressive
promotion of deposits in 2007 and
during the year 2010, Bank achieved
a growth of 51% in savings fund
because of the branch wise promotional
strategies followed particularly through
the mobile banking operation ( Palm
Top). Over the same period minor
savings has grown by 97%. Although
the deposit growth outperformed the
industry average, it was below the target
for the year by LKR 272 million.
Savings growth
2007 2008 2009 2010
Minor savings LKR.M 12.7 20.4 39.3 77.5
General savings LKR M 126.4 347.8 652.3 964.5
Total savings LKR M 139.1 368.1 691.6 1,042.0
Time Deposits LKR M 4,795.5 4,607.7 5,423.1 6,660.9
Total Deposits LKR M 4,934.6 4,975.9 6,114..7 7,702.9
NPL Management.
Given the non-conductive economic
climate and aggressive loan expansion
, the Banks NPLs increased from
LKR 2,743 Million as at 31 December
2009 to LKR 2,840 Million as at end of
December 2010. It should be noted that
NPLs from EPF loans accounted for a
bulk of this; these loans are backed by
the EPF contributions of the borrowers.
Although, capital of NPL was increased
, Bank was able to manage gross NPL
ratio from 22.65% to 21.61% and net
NPL ratio from 19.3% to 21.01% with
initiatives to enhance assets quality. NPL
ratio , excluding EPF declined to 9% ,
which is below the industry average
applicable to the housing fnance
sector. However, the Banks NPL ratio
is also a refective of HDFCs target
IT Development.
In 2010, HDFC recorded several
achievements through developments
of information technology (IT) which
took place under the IT strategic plan.
The strategic alliance with Sampath
Bank which expanded our customer
reach through 225 new ATMs was a
signifcant achievement in 2010 through
IT innovations.
Mobile Banking Operation.
Our mobile banking operation (
palm top) which was introduced in
2007, further strengthened in 2010 by
recruiting 23 new operators to the group.
The operation was expanded to all
branches including Vauniya and Trinco,
and successful, as a strategy to promote
savings, customer reach and brand
building. During the year 2010, over
21,000 new customers were captured
refecting a YOY growth 56% while
customer reach and brand promotion
improved 96% and 111% respectively as
estimated.
New Products and Services
During the year HDFC introduced an
atractive minors savings plan named
ARUMBU targeting the Tamil speaking
community in the North, East and the
Plantation Sector. Another general
investment plan named Ashcharya
with atractive returns for the customers
seeking reasonably atractive returns
was launched during the year.
market, i.e low and middle income
customers. Meanwhile, HDFC s loan
loss provisioning levels remained
low compared to the industry, as all
NPLs are backed by home mortgages.
Furthermore, the Bank is also not
required to provide for non-performing
EPF loans as they are backed by the
Central Bank. Going forward, HDFC
expects improve NPL ratio to 5% in 2011,
underpinned by the Banks concerted
recovery eforts and quality of loans.
07 08 09 10
0
600
800
1,000
1,200
Rs. Milion
Savings Growth
200
400
Minor savings
General savings
Total savings
Developer Financing.
Real estate developers who play a
signifcant role in the housing industry
faces the challenge of easy access to
project fnancing. With the strengthened
regulatory framework rooms which
were available to accepts preconstruction
advances is scaring. HDFC as a policy,
does not encourage developers to
mobilize presales advances without
compliance with the planning approval
requirements of relevant authorities
to strengthen the sustainability of the
industry. Particularly in the apartment
industry, we encourage developers
to obtain provisional condominium
plan approval from the Condominium
Management Authority. Therefore,
there is a need to fgure out the modus
operandi for fnancing arrangements
for builders and developers through the
formal banking system that is viable,
acceptable, and sustainable. At present,
there is litle external bank fnancing for
property
development. In this regard, HDFC
plans to strengthen the project fnance
operation to penetrate this lucrative
market ,also as a strategy of managing
assets and liability maturity gap.
Human Resources
During the year the staf strength of
HDFC was increased to 425, from
364 in 2009. The workforce is mainly
concentrated in the Western Province
as 32 per cent of the total staf is based
in the Head Ofce in Colombo. In an
efort to promote an equitable regional
staf distribution HDFC reduced the
work force in the Western Province
from 64 per cent in 2008 to 57 per cent
in 2009 while 50 per cent of the new
recruitments in 2010 were mainly
from the North- Central and Northern
Provinces.
Further, HDFC reduced the average
cost per employee from LKR 57,371
in 2009 to LKR 47,266 in 2010, while
maintaining a substantial increase in the
average basic salary, mainly as a result
of new recruitments. Employee turnover
declined from 4.67 per cent in 2009 to
2.58 per cent in 2010 while the staf
happiness index improved from 68 per
cent to 88 percent in 2010.

Recognising the teams needs to be
geared for the challenges ahead, a
knowledge gaining culture was inclucate
into the everyday operations of the Bank.
The number of training hours given
to the sales staf and junior executives
increased substantially by 147 per cent in
2010 compared to 2009.
From the inception HDFC has employed
a high percentage of women in the
organisation which amounted to 46 per
cent in 2009. The recruitments during
2010 have changed this composition
to 45 per cent. In 2009, 99 per cent of
the workforce comprised of Sinhalese
which was a constraint for sustainable
regional expansion of the Bank. This
representation was reduced to 93% with
new recruitments to facilitate opening
branches in Northern and Eastern
regions .
Going forward, the Bank has taken
several steps to improve, work life
balance, welfare and productivity of the
staf as explained in the Sustainability
report.,
Capacity Building
During the year under review, the bank
entered the Northern Province with the
opening of the Vavunia branch in June
and Eastern Province with the opening
of the Trincomalee branch in December.
With these two branches the network
increased to 28. The bank expanded
its ATM network by entering into a
strategic alliance with Sampath bank
for providing greater accessibility to its
customers. This strategy was adopted
as a cost efective measure to improve
customer service simultaneously aiming
to obtain beter return from the capital.
This strategy has given the customers
access to 225 ATMs spread across the
country. At the same time the bank
expanded its palm top operators to
81 to fulfll the growing demand for
convenient banking.
Meanwhile staf strength increased to
425 by appointing 61 new members
while concentrating geographical and
age wise diversity. The Bank appointed
an experienced and qualifed ofcer as
the Head of HR to strengthen the human
resources to meet the challenges of HR
in a competitive market. Meanwhile,
Head of Credit position which was
vacant for more than 3 years was flled
with a qualifed and experienced ofcer
in the capacity of an Assistant General
06 07 08 09 10
0
100
200
300
500
400
Staf Growth
Manager. Five Senior Managers were
promoted as regional managers to
strengthen the supervision of branches
and their productivity. Further , average
computer usage capacity increased from
69% to 71%.
The bank continued its reposition
strategy by relocating 5 branches in
Chilaw, Avisawella, Tangalle, Badulla,
and Kegalle. Furthermore the main
branch at the National Housing
Development Authority was refurbished
to ofer industry standard facilities
to customers as well as the staf. The
Bank has already planned to relocate
Homagama, Gampaha, Kurunegala and
Matale branches in the frst half of 2011.
Loan Processing time and
quality of service.
The loan application process usually
takes three to four weeks, in the
industry. HDFC has achieved signifcant
improvement in loan processing. We
have managed to reduce average
mortgage loan processing time to
one week and EPF loan to one day.
Regular staf training on customer care,
awareness in processes, regulations
and procedures, regular reengineering
of processes has contributed to this
improvement.
We are commited to our quality policy,
and drastic improvement in customer
satisfaction index, from 48% in 2008 to
80% in 2010 is a clear indication of our
commitment to satisfy customers beyond
heir expectation in home and lifestyle
need. During the year, our ISO 9001-
2000 quality certifcation was reafrmed
by the Sri Lanka Institution of Standards
(SLIS).
Sustainability Development and
Reporting.
During the year , HDFC paid a priority
to align sustainability practices with the
core business and internal activities of
the bank. Several strategies were taken
to develop internal indexes to monitor
and manage economic, social and
environmental impacts of the housing,
housing fnance and internal operation
of the Bank inculcating sustainability
habits among the staf and community.
Society paid dividends for our efort
of promoting these ethical practices
and appreciated with two awards
at prestigious ACCA sustainability
reporting awards 2010.
Future Outlook
Being a long term lender the Bank is
exposed to the interest rate and liquidity
risk, if long term assets are not matched
appropriately with long term funding.
Considering the weakness of long term
money market the funding is always
a challenge for a long term lender.
Although, the Bank has taken measures
to reduce the maturity gaps to a certain
extent, further improvement needs to be
taken to stabilize the future proftability.
Keeping in this mind HDFC will strive
to achieve a sustainable growth by
having long term funding lines to match
the planned growth in advances.
The planned image building and the
expansion of the branch network has
paved the way to atract borrowers
from all income groups in the country.
The Bank has already developed the
infrastructure required to expand and
aggressively promote the low cost fund
base and thereby reduce the cost of
funds by changing the composition of
the deposit base. The strategies adopted
by the Bank has paid dividends to
improve the savings base by 51% to
exceed the one billion mark and the
same time increasing the savings base to
14% of the total deposit base from 10% in
2009. Our target is to increase this to 25%
in 2011and to 40% by 2013. The Bank
has also strategise to expand the branch
network to 50 within next 3 years.
HDFC has a role to play in,
implementation of the governments
1 million housing program
JANASEVANA- housing for all , which
has focused mainly to the pressure of
low and middle income housing need
of the country. This is about 30% of the
house holds who have willingness and
afordability for low cost housing but
fails to access formal housing fnance,
due to lack of income documents,
adequate collaterals, lack of banking
and savings habits and high cost of
construction etc. We strive to deepen
our service to this segment, by capturing
them as valued customers through the
mobile banking operation.
New Head of Credit together with
the Regional Managers appointed
during the year , will be working with
the branch managers to enhance the
performance of the branches and achieve
the set targets for the regions/branches..
This would also quicken the decision
making process to beneft the customers.
In the short term, HDFC will develop
new products to increase the low
cost fund base, strive to improve the
share holder returns and concentrate
on internal processes for beter risk
management.
Non Interest Income
HDFC recorded a non interest income
of LKR 85 Million for the fnancial
year 2010 refecting an YoY increased
of 63% compared to LKR 52 Million in
2009. This is largely atributed to the
increase in loan processing, valuation,
technical and legal fees consequent to
the substantial increase in the number
of loans granted in 2010. The loan
approvals amounted to 10,739 in 2010,
compared to 5,977 in 2009.
Financial Review
The Performance of the Banking
Industry was extremely progressive
in 2010, underpinned by enhanced
political stability, improved investor
confdence and a stable macroeconomic
environment. The fnancial system
retained its liquidity consequent to
the decline in the interest rates which
was largely driven by increased capital
infows, with the easing of monetary
policy and moderate infationary
pressure.
In the backdrop of the favorable market
conditions, HDFC Bank achieved
a remarkable performance in 2010,
as refected by the key performance
indicators such as proftability, assets
growth, capital adequacy, liquidity and
quality of asset.
Interest Income and
Proftability
HDFC Bank recorded a proft afer tax
of LKR 135 million refecting a YoY
increase of 140%. This was largely due
to a sharp declined in the cost of funds
coupled with accelerated lending which
took place in the second half of the year
as refected by the gross interest margin
of 38% as against 29% in 2009. Further,
the Bank changed the composition of
its fund base by increasing the share
Operating Expenses
Operating expenses, excluding the loan
loss provision, increased by 16.59%
during the year, fuelled by the rise in
staf cost and premises equipment and
establishment expenses. The rise in staf
cost is atributed to new recruitments
while the opening of two new branches
and the refurbishment and relocation
of six existing branches caused
establishment and operating cost of the
Bank to soar during the year.
The specifc provision for non
performing assets increased by LKR 72
Million in 2010 primarily as a result of
Operating Summary 2006 -2010
Year 2010 2009 2008 2007 2006
Interest Income 2164 2216 1941 1695 1203
Interest Ex -1339 -1582 -1602 -1246 -699
Net Interest Income 825 634 339 449 504
Non Interest Income 85 52 33 45 82
Net income 910 686 372 494 586
Non Interest Expenses 619 518 439 401 277
Operating proft before tax 291 168 -67 93 309
Proft Afer Tax 135 56 -92 21 172
of savings deposits which resulted in a
reduction of the Banks cost of funds.
HDFC reduced its interest rates twice
during the year, keeping in line with the
market rates. The revisions were made
in adherence to the Governments fscal
policy changes made from time to time
during the year. The negative efects of
the downward revision in the interest
rates were partly set of by accelerated
lending, increased savings, and the
general decline of cost of funds.
06 07 08 09 10
0
10,000
20,000
30,000
40,000
50,000
60,000
80,000
70,000
90,000
Rs. Mn
Non interest Income 2006 -2010
06 07 08 09 10
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
45,000
Rs. Mn
Gross Interest Margin 2006 -2010
the LKR 123 Million provision made
against the LKR 243 Millin loan granted
to HDFC Real Estate Development
(Pvt) Ltd. The Bank has provided full
coverage for the risk exposure of the
particular loan with this provision.

Deposits
The deposit base of the Bank, reached
LKR7,702 Billion and constituted 50%
of the total assets base by end 2010.
The increase during the year was 26%,
amounting to LKR 1587 Million over the
previous year. Savings fund amounted
to 13.5% of the total deposit base and
recorded a YoY growth of 76% during
the year. For the frst time in the history
of HDFC, the saving base surpassed the
one billion rupee mark and reached to
LKR1042 Million. The balance 86.5%
of the deposit base consisted of term
deposits which increased by 20% YoY to
reach LKR6,660 Million in 2010.
Assets Growth
HDFCs total assets value increased by
7% to LKR 15.37 Billion compared to
LKR 14.30 Billion in 2009. Despite the
negative growth of 2% recorded last
year, the housing loan portfolio grew
by 8.5% during 2010. Consequent to
the aggressive promotional strategies
implemented during the later part of the
year, the home loan granted increased to
LKR3, 069 Millions compared to LKR
1,400 Million in 2009. To ensure high
quality of the asset base, the loan
portfolio was strategically diversifed
against collaterals such as property
mortgages, EPF balance, personal
guarantees and cash backed securities.
The investments in government
securities and commercial papers rose
by LKR 266 Million in 2010, refecting an
increase of 21% YoY.
Shareholders Fund.
Shareholders fund grew by 7% during
the fnancial year, primarily due to
retained profts. The fund based grew
from LKR 1, 721 Million in 2009 to LKR
1,848 Million in 2010. HDFC declared a
dividend of LKR 5 per share, which will
amount to a total dividend payout of
LKR32 Million.
Return on Average Assets
(ROAA)
Return on average assets in 2010
increased to 0.91% from 0.39% in 2009,
while the return on average equity grew
to 7.58% from 3.28% in 2009.
Statutory Ratios
Capital Adequacy
The Capital adequacy ratio of HDFC
is well above the statutory level
stipulated by the Central Bank. Tier
1 and Tier 11 ratios were 21.09% and
22.18% respectively, while the statutory
minimum levels were 5% and 10%
respectively. Tier 1 and Tier 11 ratios
for 2009, were 17.63% and 18.66%
respectively.
Liquidity Ratio
HDFC maintained a healthy liquidity
ratio above the statutory requirement of
20%, throughout the year. Liquid assets
are maintained in the form of deposits
in commercial banks, treasury bills,
treasury bonds and commercial papers.
Future Focus
As the only specialised Housing Finance
Bank, in the country, HDFC plays a vital
role in facilitating human setlement, in
the post confict development scenario
through the provision of afordable
housing fnance. HDFC plans to extend
over LKR 4,800 million home loans to
approximately 15, 000 borrowers in 2011.

06 07 08 09 10
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Rs. Mn
Operating Expenses 2006 -2010
06 07 08 09 10
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Rs. Mn
Growth of Deposits 2006 -2010
06 07 08 09 10
0
2,500
5,000
7,500
10,000
15,000
17,500
12,500
20,000
Total Assets
Rs. Bn
Growth of Total Assets 2006 -2010
Financial Review contd.
HDFCs Risk Profle
Risk is an integral component of any
business, especially in the banking
industry. Risk can be defned as
the occurrence or the probability of
occurrence of an event which could
impair corporate earnings or cash
fows over short/medium/long-term
horizon. Corporate earnings or cash
fows have a bearing, on the wealth of
the shareholders, through the valuation
of a corporation. Being a long term
lender where long term advances are
funded by short term funds and the
diversity of the market and geographical
regions in which the Bank operates
in, the implementation of an efcient
risk management structure is a critical
undertaking for HDFC. Housing sector
is an important facet in the social
economic development of a country and
is an area of priority in the Governments
policy formulation. Thus HDFCs risk
profle includes the Banks sensitivity
to changes in policies, and is given
continuous strategic focus. The impact
of unforeseen changes in the macro
economic conditions and environment
such as the global fnancial crisis,
tsunami, food etc, are another areas
of focus in HDFCs risk management.
HDFC emphasies on being compliant
with the regulatory requirements of the
Central Bank of Sri Lanka to ensure the
sustainability of the banking industry
and Bank.
Objectives of Risk Management
Overall objectives of the Banks risk
management are:
to contribute to the development of
the Banks business by optimising the
overall risk-adjusted proftability
to guarantee Banks sustainability
as a going concern, through the
implementation of a high quality
infrastructure for risk measurement
and monitoring
to ensure HDFC functions as a
responsible corporate citizen in
compliance with applicable laws ,
regulations and external codes of
best practices
to contribute to the sustainability of
the banking industry
Challenges in Managing Risk
In the process of risk management,
HDFC faces the following challenges
which are not confronted by the
competitors in the industry:
1. Scope of the business operation
of HDFC Bank is restricted to the
powers constituted by the HDFC
Act No 07 of 1997 and amended
Act No 15 of 2003. However in the
process of mobilising market funds,
it is inevitable that bank has to face
an equal competition with other
Banks. Thus product and service
diversifcation as an important
strategy of risk management, is a
challenge.
2. The core business of HDFC is
entirely focused to assist people in
achieving one of the basic needs;
housing. This is a pressing issue
for a majority of the population.
Thus maintaining afordability
and accessibility of service to
masses should be the paramount
phenomenon in our business.
Balancing this philanthropy with
open market competition is a crucial
challenge in the risk management
process at HDFC.
3. Housing loans should be inarguably
long term and reasonably priced
to be afordable to the customers.
However funds available in the
market always look for short-term
destinations with high return.
Therefore managing these interest
of borrowers and depositors is a
signifcant challenge for HDFC.
Our Precautionary Approach
on Risk Management
Risk Identifcation and
Grouping
In defning the Banks overall risk
appetite, the management takes into
consideration various factors including:
The risk/reward structure of the
banks activities
Sensitivity of earnings to diverse
economic scenarios and market
conditions
Macro-economic risks in emerging
markets
Risk from unforeseen events such as
natural disasters, food , tsunami etc
Ensuring earning streams by
maintaining a well-balanced
portfolio
Housing Finance Industry is exposed to
a multitude of risks, broadly classifed
as credit, market, operational, legal/
compliance, and reputational risk. The
details are given below:
Credit Risk: risk of loss, arising from a
borrowers or counterpartys inability to
meet its obligations in accordance with
the agreed terms. Credit risk would
further increase by concentration risk
which is the risk arising from inadequate
portfolio diversifcation and sovereign
risk; through Governments reluctance or
delay in meeting its dues or obligations.

Risk Management
Market Risk: risk of loss arising due to
market volatility and change in infation
and market prices of foreign exchange,
equity, commodity prices and interest
rates. This also includes the liquidity
risk which is the risk of banks inability
to meet its fnancial obligations and
commitments as they fall due, owing to
the inability to liquidate assets, obtain
adequate funding or inability to ofset
specifc exposures without signifcantly
lowering market prices resulting in a
market disruption.
Operational Risks: (including legal,
accounting, environmental and
reputational risks) Risk of loss arising
due to failure of internal processes,
procedures, compliance requirements
or corporate governance practices
which result in human error or fraud.
Operational risk also includes the
potential loss arising from a major
failure in IT systems and both natural
and man-made disasters.
Reputation/Strategic Risk: Potential
damage to the Bank through
deterioration of its reputation or
standing due to a negative publicity
about the Banks business practices,
whether true or not, would result in a
decline in the customer base, unexpected
withdrawals of deposits, costly
litigations or deterioration of income.
This could arise out of poor management
decisions, strategic planning and
dissatisfed stakeholders.
Legal/Compliance Risk: the risk
arising from potential enforceable
contracts, lawsuits, adverse judgments
or non compliance with statutory or
regulatory requirements that could
disrupt or otherwise negatively afect the
operations of the Bank.
Prudential Measures
Introduced by Central Bank
Central Bank of Sri Lanka introduced
several prudent measures to strengthen
the risk management and resilience of
banking system. These includes,
Specifc provisioning requirement,
Mandatory Corporate Governance
requirements,
General Provisioning requirements,
Revised single borrower limits,
Guidelines integrated Risk
Management.
Central Bank Regulatory
Compliance,
In addition to the above compliance
requirements, the Central Bank
requires Banks to migrate to Basel
11 adequacy framework applying a
standard approach for market, credit
and operational risk from January
2008. HDFC Banks risk management
framework was further strengthened
through compliance with these
regulatory requirements.
External Codes/Initiatives of
best practices
HDFC also respects externally developed
economic, environmental and social
charters, principles and other initiatives,
which are directly or indirectly relevant
to the core business or operations of
the Bank. As a precautionary approach
for economic, environmental and social
risk controls/management, these codes,
initiatives or best practices are used
as points of reference in developing
internal policies and new products
and services of the Bank. HDFC
Bank has also taken membership in
several, economic, environmental and
social organisations, and therefore is
compelled to comply with their policies,
best practices, ethics, membership
rules etc . Voluntary compliance has
won HDFC the reputation of being
a responsible corporate citizen in
the housing fnance industry while
mitigating environmental, social and
economic risk factors over the last
25 years. The charters and initiatives
used by HDFC as points of references
and the organisations with which
regular interactions are maintained are
enumerated in the Sustainability Report
under HDFCs sustainability approach.
Statutory Protections Against
Insolvency
HDFC Act, Banking Act and the
Companies Act has provided several
protective measures to HDFC against
possible insolvency. As per the Banking
Act, HDFC should transfer 5% of the
proft afer tax to the statutory reserve
fund before declaration of dividends.
In accordance with the Section 25 of
the HDFC Act No 07 of 1997, HDFC
should transfer an additional amount
not exceeding 10% of the proft afer
tax, afer transferring for the statutory
reserve as aforesaid, to a special reserve
fund, before declaration of dividends
for any fnancial year. However, the
Act does not prohibit the Bank from
voluntarily transferring a higher
percentage of its proft to the special
Reserve Fund. As per the section 57 of
the Companies Act No 07 of 2007, Bank
is to conduct a sound Solvency Test, to
ensure that HDFC has adequate capacity
to pay its debts in the normal course of
business afer the proposed dividend is
paid. These provisions have provided
a sound statutory safeguard for the
sustainable growth of HDFC Bank.
Risk Management contd.
Risk management
governance, control and
organisation
The HDFC Banks risk management
governance is based on:
strong managerial involvement,
throughout the entire organisation
from the Board of Directors
cascading down to operational
management teams
a tight framework of internal
procedures and guidelines
continuous supervision by an
independent body in monitoring
risks, enforcing rules and introducing
procedures
Board Sub Commitees
The Board sub-commitees escalate
the identifed risks to the Board for
necessary action.
Risk Management Commitee
The Risk Management Commitee is
chaired by the Chairman of the Bank
and meets at least once a quarter.
The mandate of the Commitee
is to defne the risk management
framework, review changes in risks
and salient features of the Banks
portfolio and decide on any strategic
changes of the bank.
The Audit Commitee
Within the Board of Directors, the
Audit Commitee plays a crucial role
in assessing the quality of internal
controls of the Bank. In particular,
the Audit Commitee is empowered
to examine the adequacy and
efectiveness of the internal control
systems, review fnancial statements,
assess compliance with regulatory
requirements and decide the contents
of the internal audit reports.
Management Commitees
The Management Commitee coordinate
diferent business processes and their
risk owners.

Assets and Liability Commitee
(ALCO)
Asset and Liability Commitee (ALCO)
meets once a month to monitor, control
and set guidelines in managing market
and liquidity risks.
Credit Commitee
The Commitee comprises of the General
Manager, Deputy General Manager
(Finance), Assistant General Manager
(Business Development & Marketing)
and Senior Manager (Recoveries).
The Commitee has been delegated
with authority limits to approve
credit facilities within its purview and
make recommendations to the Board
of Directors when facilities exceed
the delegated authority limit. The
Commitee also issues guidelines on
credit evaluations, administration and
recovery processes with the objective of
mitigating credit risk.
Business Processes and Risk
owners
Finance Division
Finance Division is responsible for
managing the interest rate risk and
liquidity risk, implementing the Banks
long-term fnancing strategy and
managing capital requirements and
equity structure of the bank.
The Division is also responsible for
assessing and managing other types
of risks such as strategic, and business
risks, validating the methods used to
analyse and measure risks and provide
advice to business divisions.
Treasury Division
The Treasury Division is responsible for
monitoring and analysing Banks credit
portfolio into various segments based
on sectors and maturity etc. The division
also monitors the market indicators,
daily and makes decisions to maximize
profts and maintain optimal liquidity
positions to meet customer demands,
redemptions and capital requirements
even under adverse market conditions.
Operational Division
Over the recent years, the Bank has
developed management tools, process
and implemented the necessary
infrastructure to optimise the
management of the operational risk
inherent to the bank. The Operations
Division is responsible for identifying,
assessing, measuring, monitoring,
managing and reporting the operational
risks to the management.
I
n
t
e
r
n
a
l

A
u
d
i
t
Board
Sub
Commitees
Management
Commitees
Business Process and
Risk Owners
Risk Management Framework of the Bank
The Board of Directors
The Board of Directors defnes the Banks
strategic direction and supervises the
risk control procedures. In particular,
the Board determines the required
infrastructure to implement a sound
and adequate risk management system
in the bank and also, monitors the risk
exposure of its activities. Presentations
are made on a regular basis by the
General Management to the Board of
Directors on key aspects and signifcant
changes to the Banks risk management
strategy.
Managing Concentration on 10
top Depositors
Diversifying the deposits fund is vital
to mitigate the liquidity risk that could
arise from unexpected withdrawal
of deposits. The Bank was heavily
dependent on the ten large corporate
customers, who constituted 61% of
the deposit base of the bank as at 31st
December 2009. By the end of 2010,
HDFC succeeded in reducing the
exposure to 47%, through efcient
management of the concentration risk.
Spread and Growth of Savings
Savings funds are vital to HDFC as it
provides an atractive low cost and long
term fund base to provide afordable
housing fnance. The saving fund base
which constituted 10% of total deposits
in 2009 was increased to 14% by the end
of 2010, refecting an annual growth of
76%. The spread of the saving fund was
enhanced by the addition of over 38,000
new customers refecting a YoY increase
of 23%.
Internal Audit Function.
Internal Audit function provides
assurance to the management by
undertaking independent assessments
on the efectiveness of the risk
management activities of the bank.

Risk Management Strategic
Priorities and Achievements
-2010
Considering the negative efects of the
global fnancial crisis and consequent
macroeconomic changes experienced by
the fnancial market, HDFC emphasised
on managing the risks of the following
areas in 2010:
Strategic Priority Target Achievement - 2010
Reducing Maturity Gap (one year
cumulative)
30% within 3 years Reduced to 56.6%
Minimising Concentration Risk of the
top 10 depositors
Minimise dependency Reduced dependency from 61% to 47%
Enhancing Savings fund base Enhance spread and growth Enhanced the proportion of savings
deposits funds from 10% to 14% and
achieved YoY growth of 76%
Diversifying of loan portfolio Limiting sector wise exposure Achieved signifcant enhancement of
portfolio spread/diversity as detailed
below.
Promoting sustainability development
and reporting practices
To be complied with GRI reporting
framework
Sustainability Report was aligned with
GRI index, to a substantial extent
Management of Maturity Gap
Liquidity management is a crucial factor
in the Housing Finance industry due
to the difculty of sourcing long term
low cost funds from the market. Home
loans with a tenure of over 10 years
are generally fnanced by short-term
funds, exposing the Bank to maturity
Risk. Therefore, continuous analysis
and management of the Maturity Gap
is a critical undertaking for the Bank.
During the year, the Bank achieved a
substantial improvement in Maturity
Gap management.

LIG
LIG
WIG
Income Group wise Distribution of Loan
54%
18%
28%
Service
Agriculture
Other
Industries
Sector wise spread of loans
70%
7%
23%
0%
Diversity of Loan Portfolio
HDFC strives to enhance the diversity of
the loan portfolio based on geographic
regions, income groups, income
sources, collaterals and sectors, on a
continues basis as a priority to mitigate
concentration risk. Out of the total value
of loans approved during the year,
54% was extended to the high income
group while the balance 46% was
granted to the low and middle income
group. Value of loans granted against
EPF balance was LKR 1,564 Million
amounting to 51% of loans approved
in 2010, while 29% was granted against
property mortgages and 31% against
other securities. The value of loans
extended to service sector accounted
to 70% while 23% was granted to the
industrial sector in 2010.
Up to
3 Mth
5 Ys > 3 to
5Ys
1 to 3
Ys
3 to 12
Mth
0
2,000
4,000
6,000
8,000
Rs. Mn.
Maturity Analysis
Assets
Liabilities
Western
Central
Southern
Eastern
Wayamba
North-Central
Uva
Sabaragamuwa
Nothern
Geographical Distribution of Advances
46.5%
11.0%
7.5%
2.7%
10.3%
3.2%
3.9%
14.3%
0.5%
Risk Analysis and Mitigating strategies in place
Risk Category Risk Description Risk Rating Controls in Place to Mitigate
Credit Risk
1. Risk of default Risk of losses arising from the
inability of the customer/guarantor
or other counterparties to meet
loan commitment
Signifcant 1. Standardised credit evaluation.
2. Took minimum two guarantors for guarantor
loans.
3. Compulsory mortgage insurance cover.
4. Compliance with CRIB requirements.
5. Maintained average size of loan below LKR
1 Miilion, encouraging smaller loans by charging
comparatively low interest, to enhance the loan
spread.
6. Structured Recovery Department and policy and
procedures.
2. Credit
Concentration
Risk
Risk arising due to inadequate
diversity of loan portfolio based
on income group, sector, industry,
geography, product, type of
collaterals etc.
Signifcant 1. Credit Policy and maximum credit exposure
limits.
2. Compliance with guidelines of CBSL on single
borrower limits.
3. Portfolio monitoring and management with
particular atention to sector, scheme, income
group, provincial and security wise diversity.
4. Strategic proft management through Budgetary
controls.
3. Sovereign Risk Risk of delaying payment of
loan obligations as a borrower
or guarantor of home loan
commitments by the government
Marginal 1. Compliance with directives and guidelines of
General Treasury.
Market Risk
1. Liquidity Risk Risk arising from inability to meet
maturity liabilities of deposits,
savings or contractual obligations
as they fall due.
Signifcant 1. Assets and Liability Commitee (ALCO) that
ensure 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 Banks Direction.
2. Interest Rate
Risk
Possible adverse efects on net
interest margin and advances due
to interest rate changes in fnance
market.
Signifcant 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
refnance funding.
3. Risk of Climate
Change
Possible adverse efects on loan
repayments and enforcement of
collaterals due to natural disasters
such as food, tsunami, drought etc.
Marginal 1. Geographical diversifcation of portfolio.
2. Efcient portfolio management.
3. Inculcating sustainability development practices.
4. Acceptance of alternative collaterals .
Operational Risk
1. Processing or
Behavior Risk
Problems with products or services
due to failed internal controls,
IT system, employee integrity,
errors and mistakes, negligence,
accident, fraud or other weakness
in operating system
Signifcant 1. Compliance review of transactions, new products
and procedures.
2. Continuous training on system and procedures.
3. Interdepartmental internal controls.
4. Business continuity plan.
2. System Risk Risk of fnancial losses due to
failure to deploy and maintain
adequate IT system, frequent
shutdowns, malfunction,
hacking and disruptions and
failure of development with the
requirements of competitive
market developments and delivery
channels.
Signifcant 1. Structured IT division headed by an experienced
and qualifed 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 commitee.
3. Human
Resources Risk
Risk arising from failure to recruit
, develop or retain employees
with the appropriate skills and
knowledge, in appropriate time
and manage employee relation,
Signifcant 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.
4. Risk of
Inadequate
Risk Control &
Management
Inadequate design or performance
of the existing risk management
framework, risk identifcation and
risk management planning etc.
Signifcant 1. Internal Audit.
2. Review by Board Risk Management commitee.
5. Environmental
and Social Risk
Loss or damages caused by
community , ethnic issue and
unusual climate conditions,
Tsunami, food, drought etc.
Marginal 1. Insurance.
2. Business Continuity Plan.
6. Geopolitical Risk Possibility of fnancial loss or
damage caused by political
issues, poor quality of internal
infrastructure, cultural diferences,
misunderstanding etc.
Marginal 1. Training and Development.
2. Regular engagements with stakeholders.
3. CSR and Environmental Policy.
4. Sustainability development and reporting.
7. Risk involves
with
Management
Information.
Inadequate, inaccurate, incomplete
or untimely MIS to support the
management in decisions making
process.
Signifcant 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.
8. Health and
Safety Risk
Health and safety risk of staf and
customers and public.
Marginal 1. Environmental Policy.
2. Labor practice and decent work.
3. Life and fre Insurance.
4. Staf health plan.
5. Business continuity Plan.
9. Risk of lacking
Corporate
Governance
Incompetence of Directors to fulfll
their personal statutory obligations
in controlling Bank.
Marginal. 1. Governance policies and procedures.
2. Compliance and risk management functions.
3. Company Secretarial function.
10. Risk of Criminal
and Illicit Act
Possibility of fnancial or
reputation risk due to fraud,
thef, gross or willful negligence,
sabotage, vandalism etc.
Marginal 1. Training.
2. Insurance.
3. Physical security service.
11. Ethics risk Unethical business practices,
including those of business
partners, racial and religious
discrimination, child labor,
environmental issue , pollution etc.
Marginal 1. Policies and procedures.
2. Development of Sustainability practices and
reporting.
3. Compliance review.
4. Customer and staf satisfaction surveys.
5. Voluntary compliance with external codes of
ethics, best practices etc.
Reputational Risk
1. Reputational
Risk
Negative efects on public and
customer opinion and market
reputation
Marginal 1. Regular training on customer care.
2. Business policies and procedures.
3. Stakeholder engagement policy.
4. Independent yearly rating from Fitch Rating
Lanka Ltd.
2. CSR Risk Risk to brand reputation from
inadequate/lack of Corporate
Social Responsibility practices.
Marginal 1. CSR Policy.
2. CSR and Sustainability Executive Commitees.
3. Compliance with GRI guideline in sustainability
reporting.
Compliance Risk
1. Legal and
regulatory
compliance Risk
Risk arising from non compliance
with statutory and regulatory
requirements.
Signifcant 1. Compliance ofcer who review adherence to
regulatory requirements and report quarterly to
Board Audit Commitee, CBSL and CSE.
2. Existing of Separate legal department with 15
qualifed lawyers headed by the Legal Manager.
3. Qualifed Company secretary.
4. Policies and procedures.
5. Finance division headed by a qualifed Chartered
accountant as a DGM.
Risk Management Initiatives -2010
Credit Risk Recruited an experienced professional as Head of Credit for beter management of credit risk.
Reorganised the management structure by appointing fve Area Managers in order to strengthen the credit
evaluation, follow up and recovery processes.
Functionalities were added in the IT system to monitor credit risks efciently and compute credit risks accurately.
Fully provided for the Subsidiary exposure
Recovery drive was undertaken with the participation of all the staf of the Bank to bring down the NPL position.
Market Risk Performed sensitivity analysis to assess the impact on profts due to changing market conditions.
Identifed gaps and measured the re-pricing risk of Banks assets & liabilities in order to assess the impact from
interest rate changes.
Liquidity
Risk
Reduced the maturity mismatch to a greater extent by adopting appropriate funding and lending strategies
Broaden the Palmtop Banking operations and commenced using Sampath Banks ATM network to facilitate
atraction of less volatile savings deposits
Maintained standby facilities over LKR 2 billion.
Liquid Asset Ratio was maintained over 20% throughout the year.
Diversifed and broad based the funding sources
Operational
Risk
Network security was strengthened to ensure the continuity of business operations.
Automated all accounting records to ensure accuracy and consistency.
Introduced procedural changes and revised documentation to prevent certain legal risks.
Strengthened the relationship with the Trade Union.
The staf was given continuous training on operational procedures.
Compliance
Risk
Board of Directors and Senior Management participated in a number of training programs on Risk Management
and Compliance.
Actions initiated to appoint a Chief Risk Ofcer.
Improved the data quality of CRIB reporting to a greater extent which was recognized by CRIB by awarding A
rating to HDFC.
Loans to Agriculture sector was increased to comply with CBSL targets.
Independent verifcations were performed on CBSL & SEC compliance requirements.
Financial inclusion, opening doors
for housing fnance
Approximately 50 per cent of the house holds who have the ability and willingness
to purchase a low cost house, is precluded from formal housing fnance due to
the challenge of income evaluation, adequate collaterals, savings habit , high cost
of fnance, and emerging issues in the growing urbanisation environment in Sri
Lanka.
HDFC considers it an opportunity and are commited to serve the uplifment
of this section of our people, whose silent contribution is invaluable for the
development of the nation.
Sustainability Report
Reporting Period
This sustainability report atempts to
ofer an integrated view of the HDFCs
commitment and performance on
economic, environmental and social
aspects of the Banks operations for
the period 1st January 2010 to 31st
December 2010. This is our fourth
atempt in sustainability reporting. The
frst comprehensive sustainability review
was published in 2006 and thereafer,
each year we have strived to improve
our analysis and be more inclusive in
our approach to our stakeholders. The
most recent report was published in
June 2010, covering the performance of
fnancial year 2009. On a yearly basis we
atempt to demonstrate our commitment
to sustainability as an integral part of the
Annual Report.
Sustainability Reporting
Framework and Guidelines
This review is based on the Global
Reporting Initiative (GRI) Reporting
Framework which is the generally
accepted guideline for sustainability
reporting. The report has been
reinforced with G-3 sustainability
indicators which defne the contents,
quality and the boundaries as outlined
by the GRI Reporting Principles.
Defning Report Boundary
Materiality: As outlined in the GRI
guidelines, the Bank acknowledges
the importance of the materiality
concept, in the process of reporting the
sustainability performance. Materiality
is defned in relation to the fnancial
performance, balance sheet values and
impact on the stakeholders interest.
Thus the report outlines economic,
environmental and social performance
that would substantially infuence
the assessment and decisions of our
stakeholders.
Stakeholder Inclusiveness: The Bank
recognises that it is compelled to defne
strategic and key stakeholder groups to
ensure materiality in engagement and
reporting. Therefore, the Government,
the economy, customers, suppliers,
employees, environment and community
are recognised as key stakeholders.
Sustainability Content: The report
atempts to ofer an integrated view of
the companys performance from the
triple botom line precept of economic,
social and environmental facets,
where stakeholders from employees
to community, customers to valued
business partners, shareholders to the
nation at large become a part of the
HDFC journey. Our primary sustainable
development platform is in housing, and
we strive to drive our core business to
contribute towards the United Nations
Millennium Development Goals. The
report atempts to present an integrated
analysis of both positive and negative
performances of the Bank in a manner,
our stakeholders are able to gain a
comprehensive view of our policies,
interactions and processes. The report
also enables us to critically look at
ourselves, analyse the gaps and atempt
to bridge them for a more holistic
approach to sustainability.
Comparative Information: Sustainability
Report for the fnancial year 2009 has
been formated with reference, but not
strictly adhering to the guidelines of
the GRI. However, this report strictly
conforms to the requirement of the
Global Reporting Initiative. The report
presents key performance indicators
with comparative information for the
last two years and includes a summary
of sustainable indices which we have
developed to monitor our performance
in relation to diverse stakeholder
interests.
Specifc Limitations and
Reporting on the Subsidiary
HDFC is a service providing
organization; hence some of the GRI
indicators are not applicable. The report
is not extended to cover the operation
of its subsidiary. (There were no trans-
actions in the Subsidiary during the
reporting period.)
Data measurement and
Standards Disclosure.
Information pertaining to economic,
social and environmental performance
has been extracted from the audited
fnancial statements while other internal
information has been obtained from the
Bank.
Independent Assurance.
HDFC as a policy recognises the im-
portance of obtaining an independent
assurance on the Sustainability Report
from a competent professional frm.
Accordingly, the Bank appointed M/S
BDO partners as independent assurer to
the sustainability Report of 2010, whose
assurance report is enclosed in Pages 98
and 99 of the annual report.
Contact Persons for Editorial
Information
Mr.D. Vidana Pathirana
Assistant General Manager
E-mail: agmproject@hdfc.lk
Tel: 4717864
Fax: 2423364.
Mrs. H.S.Gunathilake
Manager
E-mail: recover@hdfc.lk
Tel: 2543096
Fax: 2423364
About this Report
Sustainability Report contd.
Ecosystems and natural resources
are critical to achieve sustainable
development of a country. Development
of human setlements, especially
the construction of towns and cities
continues to pose a negative impact on
the environment and bio-system. With
towns and cities made up of homes
and communities, the impact on eco
systems due to congestion, increasing
waste and also unmanaged use of
natural resources can be devastating,
leaving litle hope for future generations.
Today the whole world is fghting
against the negative consequences of
unsustainable development such as
climate change, increasing prevalence of
natural disasters, scarcity of resources
and loss of biodiversity. As a responsible
corporate citizen, HDFC strongly
believes that current pricing should
take adequate consideration of these
externalities, without transferring them
to future generations and do our utmost
to achieve an equitable development in
our country through housing fnance.
Sustainability to HDFC means
promoting housing development fnance
in an equitable and sustainable milieu,
where the interests of our stakeholders
are fulflled both in a social and an
environmental context. It is a concept
that gives the Bank a framework
that enables the development of the
nation at large through sustainable
sheltering and poverty reduction, while
assisting in managing climate change.
At HDFC, we believe, the pursuit of
sustainability poses both a challenge
and an opportunity for the Bank. To take
advantage of this opportunity, we must
craf new business strategies, processes,
products and practices that integrate our
heightened awareness of environment
concerns and social well being. We
emphasise that sustainable construction,
built on strong principles and best
practices must be inculcated into
construction of housing, while ensuring
equality and afordability remains as
core objectives.
The emphasis on sustainability gave
us the opportunity to make a series of
commitments, as profled in the
The sustainability Report, which
integrates sustainability as a core
value and a point of reference for our
operational and corporate structure.
In 2010, we worked consistently
to meet those commitments. The
Board of Directors approved a policy
framework for community engagement
while in tandem, appointed a CSR
steering commitee to identify, plan
and implement CSR projects. Several
programmes were developed among
our team to improve awareness on
saving natural resources and reducing
emissions, while efectively engaging
with other stakeholders such as the
Government, customers, investors,
employees, suppliers and community.
For the second consecutive year two
community awareness programmes
were launched to promote sustainable
city planning and environmental
protection in collaboration with the
UN Habitat Sri Lanka Ofce and the
Ministry of Education. During the
last twelve months we have achieved
a commendable improvement on
efciency in managing our carbon
footprint and in the volume and regional
and sectoral distribution of housing
fnance. Tremendous improvement in
customer satisfaction was recorded due
to the continuous eforts carried out to
enhance customer reach and service
excellence.
Our nation is marching towards a robust
economic growth afer a 30 year civil
war. We strongly believe that corporates
must be more aware of its responsibility
and thereby be accountable and
responsible to convert this growth
in to an equitable development. Our
plans for the year ahead therefore,
will be on strengthening sustainable
business practices, in conjunction with
minimising the impact of our core
business on challenging issues of global
climate change, waste and energy usage
through an open dialog with all our
stakeholders.
Suresh Amerasekera
CEO/General Manager
Message from the CEO
Many Small people, in many small places, doing many small
things will alter the face of the world
African proverb.
What Sustainability means to
HDFC
Our primary business objective is
assisting people to own a decent house
by providing afordable housing
fnance, the foundation upon which our
economic and social sustainability ethos
has been constructed. Housing not only
provides physical shelter but also has
signifcant impact on the lives of the
dwellers in terms of skill enhancement,
education, health, income generation,
security, self confdence and human
dignity. In a social context it reduces
domestic violence and addresses many
other social issues. More broadly,
housing fnance development therefore
plays a crucial role in boosting economic
growth and reducing poverty, improving
living conditions and empowering low
and middle income groups.
However, housing begins with
construction which involves the input of
a large amount of capital, energy, water,
other natural resources and making of
substantial amounts of solid and liquid
waste. It permeates an adverse impact
on the environment and prevalent eco-
systems if resources are not managed
properly. At HDFC we believe that
sustainable housing practices could
mitigate the negative impact of housing
on the environment while delivering
long lasting economic and social
benefts.
We believe that sustainability should
be a core focus of our business. Hence
we strive to promote a culture where
the end result of the house must be the
fruition of sustainable construction,
which delivers long lasting economic,
environmental and social benefts to
our stakeholders. Therefore, for HDFC
sustainability management means
minimizing ecological and social
risks and thereby seising economic
impact, opportunities and ensuring the
Bank's continued growth. At the same
time, we want to be a role model and
contribute to an economically stable,
ecologically responsible and socially fair
development of our society. Therefore,
we strive to ensure that our business
fundamentals are within the principles
of sustainability while achieving HDFCs
overriding objective of expanding
national housing stock and home
ownership.
Sustainability Development and
Strategic Focus
Development of the broad based
sustainability Policy framework is in
process. The Bank is commited to
implement an integrated sustainability
management approach that combines
sustainability and business strategies in
the best possible way. HDFCs strategic
focus for 2010 - 2013 covers the following
7 key areas to which we will continue to
gear our sustainability development.
Economic prosperity- accelerated
growth with more socio economic
focus
Resource efciency- cut costs and
save resources.
Emission Control- focus on
strategies, products, services and
relationships that transit to a low
carbon society
Going mainstream - making
sustainability a core dialog of the
staf and customers
People & places - working together
to support our community
Solid foundations - sustainable
business practices through
governance & risk management
Speaking out - advocating on behalf
of sustainable business practices and
continuous communication with key
stakeholders
Sustainability Governance
Our Corporate Governance structure
is discussed in detail under the
Corporate Governance section of this
annual report. HDFC recognizes that
in-house sustainability as well as the
sustainability in general should be a
core determinant of the housing fnance
operation. For this purpose, the Bank
has appointed Sustainability and CSR
Steering Commitees, comprising of
Board nominated members from the
Corporate and Senior Management.
These commitees create a forum to
discuss the importance of aligning
business strategies with sustainability
development practices. The commitee
is also responsible for policy
development, planning, steering and
controlling all sustainability activities
and reporting to the Board. The Board
along with the commitees and senior
management reviews the performance
and compliance periodically. Bank
also appoints executive/operational
commitees project wise where necessary
to implement sustainability related
activities and CSR projects.
Sustainability Steering Commitee
CEO/ General Manager
DGM (Finance)
AGM (Business Development &
Marketing)
Manger (Business Development &
Marketing)
One member from Internal Audit
Manager Human Resource
One representative from Trade Union
Our Sustainability Approach
Precautionary Approach and
Risk Management
We believe sustainability management
is an important precautionary approach
to economic, social and environmental
risk management. HDFC applies the
precautionary principles mainly from
two angles:
Compliance Review with the
applicable laws and regulatory
requirements
Operational Policies and Procedures
Compliance Review with
Applicable Laws and
Regulations:
A specially appointed compliance ofcer
reviews operational compliance with
the HDFC Act under which HDFC Bank
is established. HDFC also adheres to
the requirements of the Finance Act,
directions issued by the Central Bank
of Sri Lanka(CBSL), listing Rules of the
Colombo Stock Exchange (CSE), and the
code of best governance practices issued
jointly by the CSE and the Institute of
Chartered Accountants of Sri Lanka.
Level of compliance is periodically
reported to the relevant regulatory
authorities and to the stakeholders
through the annual report.
Operational Policies and Procedures:
The Bank regularly develops reviews
and adheres to operational policies and
procedures in the day to day operations.
These policies are developed on the basis
of past experience and in line with the
industry and environmental standards
with the prime objectives of managing
Operational Risk, Market Risk,
Environmental and Social Risk, which
infuence the growth and sustainability
of the Bank. The policies are formulated
by the senior management/ management
commitees and approved by the
Board of Directors, and reviewed in
conjunction with current developments.
During the year 2010, social and
community participation policy was
approved and formulated and the
human resources and staf promotion
policies were reviewed.
Association to External
Voluntary Codes, Principles and
Initiatives
An organisation cannot achieve
sustainability by mere compliance with
statutory requirements and internal
policies; it should also respect social
ethics and codes of conduct. Numerous
scientifc studies have proved a statistical
correlation between a companys social
and environmental performance and
its fnancial success. HDFC voluntarily
adheres to the principles , initiatives
and codes of conduct of the banking
and housing industries, standards
of the national and international
institutions and comply with
several areas of social responsibility,
including labor, health, safety, and
environmental aspects thus indicting
its commitment to respecting codes of
best practices. HDFC also recognizes
the Sri Lankan and International
Accounting standards, Guidelines of
Global Reporting Initiatives (GRI),
Universal Declaration of Human Rights
(UDHR), Standards and initiatives of the
Ministry of Finance, Ministry of Housing
Construction and Common Amenities,
Urban Development Authority, Local
Authorities, Road Development
Authority (RDA) and The Central
Environment Authority etc. HDFC is
also mindful of its responsibility towards
the Achievement of the Millennium
Development Goals of Sri Lanka
by the year 2015. These standards,
initiatives and principles are used as
points of reference in preparing the
internal policies, codes of conduct and
operational targets of the Bank.
Associations with Organizations
Companies that constantly interact
with society produce opportunities.
We actively participate, contribute and
share our knowledge with a number of
organisations and initiatives, a selection
of which is shown below:
Central Bank of Sri Lanka
Institute of Bankers of Sri Lanka
Association of Professional Bankers of
Sri Lanka
The Ministry of Housing and
Construction
General Treasury/ The Ministry of
Finance and Planning
Colombo Stock Exchange
The National Chamber of Commerce
Ceylon Chamber of Commerce
Federation of Chambers of Commerce
Fitch Rating Lanka Ltd
Credit Information Bureau
Housing Development Authority
Urban Development Authority
Association of Development Finance
Institutions Asia Pacifc.
UN Habitat Sri Lanka
Basis of recognising important
stakeholder groups and
engagement
Statutory and fnancial obligations
and equitable partnership are the basic
principles of identifcation used by
HDFC in selecting the stakeholders
with whom it engages. The prime
stakeholder, the Bank is statutorily
obliged to engage with, is the
Government; who is the founder of
the Bank by an Act of Parliament and
the major shareholder. The secondary
priority of the bank is its fnancial and
statutory obligation to the shareholders
/ investors who ensures the existence
of the Bank. HDFC also maintains
an equitable partnership with other
stakeholders who directly and indirectly
Our Sustainability Approach contd.
interact and are infuenced by the banks
operations.
HDFC recognises the conficting interest
of each stakeholder group and strives to
maintain an open and straightforward
communication on its sustainability
strategy , signifcant impacts,
challenges, opportunities and the Banks
performance, achievements , to their
reasonable expectations with our regular
reports on this feld.
This exchange with our stakeholders
provides us with valuable feedback on
our activities, plans and strategies. Our
stakeholders provide us with important
assessments concerning opportunities
and risks in our business and we are
convinced that these close cooperation
ofers all parties added values.
I really surprised when i
was informed by HDFC bank
that a loan of Rs. 1.5 Mn.
was approved to buy a land
to construct a house for a
person like me, who runs a
pavement business at Bastian
Road, Colombo.
Dr. Asoka I. Kamaladasa
Loan Customer
High-end Market
G. Thushara Samantha
Palmtop Customer
Low-end Market
Stakeholder Group and their Goals
Our Commitment
Stakeholder Goal
Government Improve quality of life of
people through enhancing
national housing stock
and homeownership
Assisting people to construct, own and upgrade homes or meet ancillary
needs by providing afordable housing fnance under the power vested by the
Act and in conjunction with the national housing policy, with particular focus
on the low and middle income groups and promotion of equitable human
setlement.
Economic prosperity Maximising direct value creation to the economy
Assisting to minimise development disparities through promoting equal
access to housing fnance and resource mobilisation - sector and regional basis
and through enabling employment generation
Contributing to economic empowerment through inculcating banking habits,
fnancial literacy and inclusion
Contributing to the governments special development initiatives -national
and regional, through promoting housing fnance and inculcating Banking
habits
Shareholders Sustainable growth and
enhance shareholder
value
Managing business to deliver consistent growth and satisfactory return
Implementing an efcient risk management, internal control system and good
governance practices
Complying with all statutory and regulatory requirements
Protect and facilitate the
rights and ensure fairness
and transparency
Ensuring adequate and timely communication
Providing a balanced, comprehendible assessment of the state of afairs of the
Bank, its performance, and prospects
Customers Provide viable fnancial
solution to satisfy housing
needs in a convenient
manner.
Maintaining afordability of our service to masses with special focus on low
and middle income groups
Extending fexible and customised solutions collating customers need, level
and patern of income and available collaterals
Enhancing accessibility to our services equally to all segments in the society in
all districts and provinces
Satisfaction Continuous improvement of the quality of our services and processes with
proven technology and innovations to delight our customers
Regular assessment of customer satisfaction and follow up
Suppliers Ensure rights and fairness Implementation of a procurement procedure with internal controls and make
decisions based on market information in an transparent and fair manner for
all qualifed and registered suppliers
Ensuring and respecting their rights through timely payments and long
lasting relationships
Environment Promote Sustainable
Housing
Promoting compliance with environmental and development regulations
Promoting the importance of sustainable housing and living resource
efcient afordable construction and maintenance
Manage Carbon footprint Minimising emission from direct business and staf transport
Saving electricity, fuel and water.
Reducing paper consumption and thereby saving trees, bio-system and
climate
Key Stakeholder Groups and Our Commitment
Stakeholder Group and their Goals
Our Commitment
Stakeholder Goal
Employees Rewarding career and job
security
Maintaining an efcient staf performance through performance reviews,
remunerations, benefts, rewards, recognition and regular surveys on staf
satisfaction
Maintaining smooth relationships through open and honest dialogue between
employees, trade union and management and respecting human rights
Maximising capacity through encouraging further education, conducting
training and development, providing job enrichment and career progression
opportunities
Maintaining diversity and providing equal opportunity
Healthy work life balance Maintaining a balance between personal and professional life by ensuring
health and safety, encouraging extracurricular and recreational activities
Community Long lasting relationship Striving to improve quality of life by facilitating accessibility to clean water
and healthcare
Supporting needy children in education and sports
Interacting with community organisations to improve the well being of the
people
Providing assistance in the event of natural disasters
Empowering through inculcating banking habits and proliferating savings
Key Stakeholder Groups and Our Commitment contd.
Team Sprite
Strategic Priorities Strategic Action Achievement
G
o
v
e
r
n
m
e
n
t
Accelerate lending
Promoting fnancial inclusion
Agricultural sector housing
No of loan compared to 2009 , increased by 4,762 +79%
Loan value compared to 2009, increased by LKR 1,665 Million +118%
Palm Top customers YoY increased by 238%
Palm Top operated account balance YoY grown by 239%
No of loans granted to customers in the agricultural sector * 1,507
Value of loans granted to customers in the agricultural sector * 231
S
h
a
r
e
h
o
l
d
e
r
s
Proftability.
Risk management.
Market capitalisation
Return on average assets increased by 132%
Return on equity increased by 131%
Proft afer Tax increased by 139%
Gross Non Performing Loan Ratio (NPL) Reduced
Maturity Gaps Reduced
Reduce dependence of 10 largest depositors- reduced from 61% to 47%
Enhance composition of savings fund base. Improved from 10% to 14%
Share price YOY increased by 272%
C
u
s
t
o
m
e
r
Enhancing customer reach
Enhance customer base
Satisfaction
No of branches increased by 2 new customer centers- YoY increased 8%
No. of ATM access increased to 225 refecting a growth of 1945%
No of Mobil Bankers increased to 81 persons, YoY increase 35%
Loan customers increased by 10739 ,YoY growth in customers 9%
No. of deposits customers increased by 460, YoY growth 7%
Loan portfolio increased LKR 927M, YoY growth 8%
No of savings customers increased by38,504 refecting a growth of 22%
Strategic Priorities and Achievements 2010
Empowering through fnancial inclusion Empowering through fnancial inclusion
Strategic Priorities Strategic Action Achievement
E
n
v
i
r
o
n
m
e
n
t
Minimise fuel consumption
Minimize electricity consumption
Reduce paper consumption
Fuel consumed per LKR 1 Million loan approved reduced by 55%
Fuel consumed per loan approved reduced by 45%
Electricity per Sq:f occupied Units ( no comparative fgures available) 13
Electricity per head reduced by 4%
Paper consumed per LKR 1 Million loan approved reduced 18%
Paper consumed per loan approved increased by 1%
E
m
p
l
o
y
e
e
Strengthening
Capacity maximising
Satisfaction
Total staf increased by 61 employees , YoY growth 17%
Created regional managers positions by promoting seniors managers 5 positions
Appointed head of HR and Credit 2 positions
Training man days YoY increased 141%
Training man days per head increased by 100%
Overall satisfaction index improved 29%
C
o
m
m
u
n
i
t
y
Promoting education, clean water,
health care and fnancial inclusion
Investment on promoting education LKR 2,108,000 benefted 13,879
persons
Investment on promoting health LKR 315,400 and benefted 525 persons
Investment on promoting fnancial inclusion LKR 830,000 and
benefted
580 persons
Strategic Priorities and Achievements 2010 contd.
Empowering through fnancial inclusion Empowering through fnancial inclusion
Our Approach
The primary objective of HDFC Bank,
as constituted by the Act of Parliament
under which the Bank is incorporated,
is to provide fnancial facilities to
construct, own, upgrade homes or
provide ancillary needs. Our approach
to economic responsibility is directed
through these broad based corporate
objectives set out by the government
who is our principal stakeholder. Access
to safe and healthy shelter is essential to
a person's physical, psychological, social
and economic well-being. The right
to adequate housing is a basic human
right and is emphasised in the Universal
Declaration of Human Rights and the
International Covenant on Economic,
Social and Cultural Rights. Decent
housing therefore, is one of the several
dimensions used to assess the physical
quality of life and economic growth
of a country, in meeting the United
Nations Millennium Development
Goals (MDGs). The country is marching
towards achieving these MDGs by year
2015. HDFC recognises this national
responsibility and is fully commited
in its capacity to achieve Millennium
Development Goals, through promoting
equitable housing fnance. In this
context, our strategic approach on
economic performance is demonstrated
in the following directions.
Direct economic value creation
Promote equitable human setlement
through enhancing the national
housing stock and homeownership
with special focus on the less
privileged groups.
Contribute to economic
empowerment through instilling
Banking habits and fnancial
inclusion
Assist to minimise development
disparities
Contribute to the governments
special development initiatives-
national and regional
Our economic responsibility is directed
by the above policies and statutory
directives upon which we have
established our social license over the
last 25 year as a leading player in the
afordable housing fnance market in the
country.
Policies & Governance
Our core economic responsibility
is constituted by the Housing
Development Finance Corporation Act
No. 07 of 1997, amended by Act No.
15 of 2003. Activities of HDFC Bank
are further directed by the economic
directives issued by the General Treasury
and the Central Bank of Sri Lanka in line
with the Government Housing Policy
and national and regional development
initiatives. Internal policy guidelines
are developed and approved by the
Board of Directors. Management of
operational risk and the above policies
are executed by the several management
commitees. As the founder and the
principal shareholder we recognise
our accountability to the Government.
The annual fnancial statements are
submited to the parliament on an yearly
basis, in three languages. HDFC Act
and other important policies could be
browsed at our website on www.hdfc.lk.
Economic Performance
Direct Economic Value Creation
During the year HDFC Bank has created
an economic value addition of LKR 2,250
Million. This value has been distributed
among the suppliers, employees,
Government and shareholders while
LKR 241.68 Million was retained by the
Bank to strengthen its sustainability. We
have contributed LKR 155.78 Million to
the Government as direct and indirect
taxes in 2010.

Stakeholder Engagements
Highlight 2010
Our Strategic Priorities
Accelerate Lending
Enhance Customer reach
Promotion of Savings and Financial Inclusion
Agricultural Sector Housing
+ 80%
No of loans
+ 119%
Value of Loans
+ 78%
New Construction Loans
Economic Responsibility
In Managing Human Setlement
Other than the direct economic value
creation from the business operations,
we assess that the indirect impact of
HDFCs core business is signifcant in the
context of socio economic development
of the country. Housing requires large
quantities of resources including labour
and substantial capital infusions. Hence,
while creating dwellings, housing
also acts as an employment generator,
poverty alleviator, wealth creator and
most importantly a social stabiliser.
An active system of housing fnance
provides real economic benefts and
positively afects savings, investment
and household wealth. It provides an
investment option for long term funds
in the economy as an alternative to
investment in treasury bonds. Each
Rupee invested in housing sector
catalyses multiple economic activities
in other sectors of the economy.
Housing fnance development boosts
equitable economic growth, reduce
poverty, improve living conditions and
strengthen communities. In this context,
HDFC is a vibrant contributor to the
management of human setlements
around the country since its inception
two and half decades ago.
Aggregate Service
HDFC has assisted over 130,000
families to obtain homeownerships,
improve existing dwellings and acquire
household equipments and accessories
The total value of the facilities granted
since year 2000 is over LKR 23.5 Billion,
while over 90% of these advances were
extended to the low and middle income
groups making their dream of owning a
house a reality.

Promoting Home Ownership
During 2010 HDFC recorded a robust
increase in lending activities registering
an impressive growth of 80% in loan
volume and 119% increase in the
value of loans granted. In 2010, we
extended 10,739 facilities, totaling LKR3,
069Million, compared to 5,977 loans
granted in 2009 to the tune of LKR 1,404
Million. These facilities were extended
for house construction, purchasing,
redeeming of housing loan obtained at
high interest rates, renovations, repairs
and extensions to existing structures and
purchasing of household accessories
etc. We estimate that, these facilities
have assisted over 10, 000 families and
over 45,000 people to fulfll their need of
shelter.
Enhancing National Housing
Stock
During the year under review, HDFC
contributed to increase Sri Lankas
national housing stock by approximately
9,000 new houses. HDFC fnanced
approximately LKR 2.3 Billion of the
construction value of these houses,
with LKR 177 Million being extended
to purchase constructed dwellings
and LKR 559 Million for other housing
related fnancial commitments.
Assisting to Minimize
Development Disparities
Prioritized Services to the Low
and Middle Income Segments
HDFCs primary objective has always
been to serve the lower and middle
income groups to meet their needs of
housing fnance and allied services.
With the majority of the population in
Sri Lanka coming under these income
categories, theres a signifcant lack of
supply to meet the demand for housing.
55 per cent of the rural population and
8 per cent of the urban population live
below the poverty line and on average,
06 07 08 09 10
0
5
10
15
25
20
Rs. Mn.
Aggregate Service - Value of Loans
06 07 08 09 10
0
30,000
60,000
90,000
150,000
120,000
Rs.
Aggregate Service - No of Loans.
Stakeholder Engagements contd.
To Goods & Services Providers
To Employees
To the Government
To the Shareholders (Dividends)
Retaining (Depreciation, Loan Loss
Provision, Retained Proft)
Economic Value Distribution 2010
69%
7%
14%
1%
9%
15 per cent of the total population
survive below the universal poverty
line, with an income thats totally
insufcient to meet the cost of housing
(Sri Lanka Poverty Assessment 2007,
World Bank). Majority of the people
belonging to this category has to contend
with restricted access to credit facilities
ofered by commercial banks or fnancial
institutions due to inadequate collateral,
proof of income and lack of fnancial
inclusion.
During the year, more than 71 per cent
of the approved facilities were granted
to low and middle income group who
represented 46 percent of the value
of loans approved. Out of approved
facilities, 37 percent of the loans were
less than LKR 200,000. Loans between
LKR 200,000 and LKR 500,000 accounted
for 34 per cent. The increase in average
size of our loan from LKR 235,000 in
2009 to LKR 285,000 in 2010, refects
our broadened view of our social
responsibility toward serving the needy
groups of the country.
Provincial Distribution of
Service
Increasing urbanisation has seen the
burgeoning of urban dwellers, rising
sharply at 3 per cent per annum. This
trend is signifcantly refected in the
western province due to the large
number of immigrant families which has
triggered land and construction labour
prices within the province to rise to
unafordable proportions. Given these
emerging trends, in 2010 HDFC granted
a total of 4504 loans representing 42 per
cent in volume and 51 per cent in value
respectively. Of these, 71 per cent of
the loans were granted to the middle
income group, with loans for new
constructions representing 86 per cent,
home purchases 5.5 per cent and other
housing related loans 9 per cent.
Of the total disbursements, 8 per
cent was disbursed in the southern
province while 12 per cent was
disbursed in the central province. The
balance disbursements were made
in the Wayamba, North Central,
Sabaragamuwa, Eastern and Northern
provinces. The, Bank opened two
branches in Vavuniya and Trincomalee
to contribute to the post war
development in the North and East. It is
pertinent to mention that 37 per cent of
our disbursements were made to the low
income group which has resulted in a
considerable improvement in the living
standards of the segment.

District wise disbursements of
service
With the price of land and housing
spiraling upwards in the Colombo
district and an increasing population
in the district fnding it a challenge
to meet their housing needs, HDFC
concentrated on disbursing 29 per cent
of the loan value and 21 per cent of the
loan volume, to the Colombo district.
HDFC has an all island branch network
of 28 with presence in every district. The
second highest disbursement was made
in the Gampaha district and special
programme launched in the Districts of
Vavuniya and Trincomalee for lending
and resource mobilization.
Employment Generation and
Poverty Alleviation
While our team has 425 members within
its permanent cadre, we are proud to be
the enabler in generating approximately
10,266 indirect employment
opportunities around the country as a
result of construction related activities
initiated by our housing loans. These
opportunities are generated in carpentry,
masonry and other related activities.
(Estimates based on the statistics of the
CBSL).
The construction industry is a primary
employment generator and according to
the Central Bank of Sri Lanka has created
a total of 562,000 job opportunities
island wide representing 7.4 per cent of
the total employment market in 2009.
Total advances granted to the housing
industry by commercial banks stood at
LKR167.8 Billion. HDFC contributed
LKR 3.069 Billion for personal housing
needs in over nine provinces.

LIG
LIG
WIG
Service to Needy Group
30%
37%
34%
Western
Central
Southern
Eastern
Wayamba
North-Central
Uva
Sabaragamuwa
Nothern
Provincial Distribution of Services
46.5%
11.0%
7.5%
2.7%
10.3%
3.2%
3.9%
14.3%
0.5%
Empowering through
Financial Inclusion
Financial Literacy and Inclusion
In Sri Lanka, the housing need is
signifcantly larger than the efective
demand, due to inadequate access to
housing fnance. In order to synchronize
the efective demand with the actual
housing need, it is essential to improve
the accessibility of housing fnance
to low and middle income group.
Majority in this segment qualifes to
obtain a mortgage loan but is restricted
due to inaccessibility. The common
hindrances in extending formal banking
facilities to this segment are the lack
of fnancial literacy, banking habits,
adequate collaterals and proof of
income. Financial literacy is becoming
increasingly important to the long-
term wellbeing of individuals and the
communities. Financial inclusion aims to
address the lack of access to appropriate
low-cost, fair and safe fnancial services
from mainstream providers. Ofen they
are the most vulnerable members of
our community who are most at risk of
fnancial exclusion. HDFC experiences
that a substantial percentage of this
unbanked community loses their wealth
by being associated with informal
fnancers for their housing and day
today fnance needs.
HDFC uses its resources and expertise
to inculcate banking habits, skills and
confdence in this community thus
enabling them to access formal housing
fnance. It is a pleasure to mention that
a majority of our customers are from
this category that constitute 71 per cent
of the total customer base of HDFC in
2010. Of the low and middle income
group 37% of the customers were from
the communities with minimal or zero
fnancial literacy or banking habits.
Mobile Banking Operation
As a strategic approach, HDFC initiated
its mobile banking operation (Palm Top)
to capture this unbanked segment to
formal banking system and promote
banking and savings habits among them.
The operation was initiated in 2007
and is currently operating successfully
throughout the branch network with
over 81 Palm Top machines and
operators. Our promotional assistants,
daily visit approximately 15,000
customers island wide, majority of
whom are pavement hawkers, boutique/
shop keepers, daily waged laborers etc
whose income is not permanent. For
over 80 per cent of these customers,
the average daily deposit is less that
LKR 250 per day. It was the very frst
time that most of these customers were
exposed to formal banking channels
through our Mobile Bankers. Majority
of laborers in the Colombo Manning
Market and Central Fish Market became
our valued customers. With these
operations we aim to create wealth for
this segment and provide documentary
proof of income for consideration of
formal loan facilities. We also encourage
them to save part of their daily wage
for retirement and the future well being
of their children. For this purpose we
educated them to invest monthly LKR
100 500 in an atractive children saving
plan which assures fnancial safety for
their children.
We have understood the value of this
community in the development process
of our nation even though their service
is not counted in the formal economy. In
2010, over 20,810 new customers were
added to HDFC from this segment with
an average monthly increase of 1,735
customers. We have launched a special
lifestyle development loan for them,
secured on a group guarantee scheme.
We have learned that over 60% of this
customer group is from urban sector
and has less saving habits, but earning
substantial income to meet the cost
of low income housing , unspoiled,
scare to credit and god pay masters.
They do not posses retirement plans
and strive to create wealth for the next
generation. Servicing this group would
result signifcant improvement in their
socio economic lives by reducing urban
poverty, domestic crimes and improve
childrens education, health etc.
HDFC Mobile Bankers
Contributing to Development
Initiatives
HDFC is commited to contribute to
the Governments national and regional
special development initiatives, by
providing afordable housing fnance
and other ancillary services. Under the
directions of the Government, HDFC
paid special atention on promoting
housing fnance to the Agriculture sector
and in the Monaragala District, during
the year.
Monaragala Development
Project
The Integrated Rural Development
Project initiated by the Government,
in conjunction with the Dayatakirula
National Exhibition, was scheduled to
be held in Monaragala, in February 2011.
HDFC launched a micro loan scheme
to fnance house repairs and upgrades.
Loans were evaluated at the convenience
of the customer at mobile public
service centers organised under this
development project. The Bank launched
a special program to promote savings
and banking facilities and undertook
a project to upgrade a primary School
in Buththala and constructing two new
buildings.

Agricultural Sector Housing
Rural infrastructure and agriculture
are considered important sectors in the
development policy formulation process.
Therefore HDFC paid special emphasis
on extending loan facilities to the
community in the agricultural sector.
Sector wise distribution of facilities
Sector LKR-M %
Services 2,140 70%
Industrial 693 23%
Agricultural 231 7%
Other 5 0%
Total 3,069 100%
Promoting fnancial inclusion Promoting fnancial inclusion
Key Performance Indicators - Economic Responsibility
2010 2009 2008
Economic Value Creation LKR-M % LKR-M % LHR-M %
Interest Income 2,164.98 96 2,216.37 98 1,941.00 98
Other Income 85.3 4 52.33 2 33.08 2
Total Value Created 2,250.28 100 2,268.70 100 1,974.00 100
Economic Value Distribution
To Goods & Services Providers 1,505.9 69 1,722.09 76 1,737.00 94
To Employees 314.57 18 277.15 12 236.69 13
To the Government 155.78 7 112.14 5 24.40 1
To the Shareholders ( Dividends) 32.35 1 32.35 1 -
Retaining ( Depreciation, Loan Loss Provision, Retained Proft) 241.68 8 124.97 6 -24.00 -9
Total Value Distribution 2,250.28 100 2,268.70 100 1,974.00 100
Contribution to National Housing Stock and Home Ownership
Cumulative No of Loans up to 31/12/10. 129,935 119,196 113,219
Cumulative Value of Loans up to 31/12/10 LKR- M 23,570 20,500 19,278
No of families assisted for house construction during the year 8,993 5,197 4,449
No of families assisted for other housing purposes during the year 1,746 780 1,110
No of families assisted to own a house during the year 10,739 5,977 5,559
Value of the Loans Granted during the year LKR-M 3,069 1,404 1,418
Average size of Loans Granted during the year LKR-M 0.285 0.235 0.255
Assisting to Minimise Development Disparities
Servicing to needy group. Loan % Loans % Loans %
Low Income Group (LIG) 3,930 37 2,600 44 2,345 42
Middle Income Group (MIG) 3,610 34 1,838 31 1,863 34
Wider Income Group (WIG) 3,199 30 1,539 26 1,351 24
Sector wise Distribution of Service - No of Loans
Service Sector 6,924 64
Agriculture 1,507 14 No comparative information available
Industrial 2,300 21
Other 8 1
2010 2009 2008
LKR-M % LKR-M % LHR-M %
Provincial Distribution of Service -No of Loans
Western 4,504 42 2418 40 2339 44
Central 1,997 19 1285 21 991 19
Southern 780 7 456 8 384 7
North- Eastern 464 4 153 3 159 3
Uva 643 6 434 7 385 7
North- Central 500 5 224 4 260 5
Sabaragamuwa 828 8 663 1 487 9
North Western 966 9 344 6 279 5
Northern 57 1 0 0 0 0
Total Loans 10,739 100 5,977 100 5,284 100
Services Provided out of Colombo
% of loan granted out of Colombo District 8,537 79 4,762 80 3,870 74
% of loan granted out of Western Province 6,239 58 3,559 60 2,945 56
% of loan granted out of Colombo and Gampaha District 7,223 62 4,042 54 3,225 43
Employment Generation and Poverty Ellviation
Direct employments 425 364 289
Indirect employments 10,266 4,845 5,118
Promoting Financial Literacy and Inclusion
Cumulative No of Mobile Banking Customers.(MBC) 41,568 20,750 12,360
No of MBCs Promoted During the Year 20,818 7,990 4,850
MBCs with Avg Daily Deposit is Less than Rs 250/ 29,439 18,600 6,560
Key Performance Indicators - Economic Responsibility contd.
Our Approach
The investment commitment displayed
continually by our shareholders has
always added impetus to our macro
vision of providing afordable housing
fnance. Accordingly, we have strived
to balance corporate objectives and
shareholder interests, and ensured
consistent long term returns to our
shareholders while respecting their
rights. We have responded to the
social, economic and environmental
issues inherent in our business. While
creating wealth for our shareholders
remains a priority in the triple botom
line reporting concept, we also remain
cognisant that by creating a sustainable
organisation thats driven on the
three platforms of economic, social
and environmental sustainability, our
shareholders in turn will be proud to
claim ownership in a respected entity
steeped in values, ethics and principles.
Shareholding Structure
Our primary shareholding is with
the National Housing Development
Authority with the minority stakes held
by both individuals and institutions with
Perpetual Capital (Pvt) Ltd and Lanka
Orix Leasing Company PLC holding
14.03 per cent and 13.19 per cent of the
shareholding respectively as at 31st
December 2010. We are also proud to be
the frst state bank in Sri Lanka to have
instituted an Employee Share Ownership
Programme, which divested 5 per cent of
the Banks ownership to the staf.
During the year institutional investors
have displayed a strong discretion
in investing in HDFC shares, thus
increasing the institutional share holder
base from 74 per cent in 2009 to 91 per
cent in 2010. Simultaneously, the stake of
the top 20 shareholders also grew from
57 per cent to 89 per cent during the
year, refecting the confdence placed by
strategic investors in the Bank.
Shareholder Structure
Shareholding
2010 2009 2008
Individual 10.1% 25.6% 21.3%
Institutional 90.9% 74.4% 78.7%
Resident 99.8% 99.7% 99.6%
Non resident 00.2% 00.3% 00.4%
Top 20 89.5% 57.5% 74.7
Shareholders 2,118 3,572 3,697
Financial Performance
HDFC recorded a consolidated proft
afer tax of LKR 135.42 Million compared
to LKR 56.45 Million in 2009 recording
an YoY rise of 140%. The return on
shareholder funds was 7.59 per cent
in 2010 refecting an YoY increase of
131% compared to 3.28 per cent in 2009.
The commendable performance of the
bank has enhanced the shareholder
confdence as refected by the highest
recorded share price since its listing in
the CSE. The table given below indicates
the returns we have presented to our
shareholders during the last six years.

Returns to Shareholders
Year Share
Price Rs
Shareholders
Fund Rs M.
2005 191 1,642.87
2006 174 1,800.48
2007 128 1,789.19
2008 56 1,697.10
2009 147 1,721.19
2020 550 1,848.66
Dividends
The Board of Directors has
recommended a dividend of LKR 5 per
share for approval by the shareholders
at the AGM. The dividend payout
from 2010 proft will amount to LKR 32
Million.
Shareholders Responsibility
Our Strategic Priorities
Botom line and shareholder fund.
Risk management and governance.
Market capitalization.
Highlight 2010
+ 140%
Proft Afer Tax YOY
+ 7%
Shareholders Fund YOY
+ 272%
Share Price
Social Recognitions
National Business Excellence Award 2010- First Runner-up , Financial Service Sector, organised by the National Chamber
of Commerce of Sri Lanka (NCCSL) in consideration of HDFCs overall performance and the contribution made to the socio
economic development of the country
ACCA Sustainability Report Award 2010- Small Scale Category winner for economic, environmental and social impact reporting
ACCA Sustainability Reporting Award 2010- winner of the First Time Reporter on economic, environmental and social impact
HDFC Bank, was awarded the Golden Maco Award 2010, at the Maco Awards organized by Mass Communicators Association
of Sri Lanka
Shareholders Responsibility contd.
Customer Responsibility
Our Approach
We recognise that our responsibility
extends beyond the botom line, to
deliver value to our customers and
business partners with whom we
interact. We strive to exceed expectations
of the customers by providing
customised products and services. We
emphasise that,
Afordability,
Flexibility-customized solutions,
Accessibility-customer reach,
Efcient IT based processes,
Customer satisfaction,
are as the main facets of our customer
responsibility. Since 2006 we have been
improving our operational efciency, by
broad basing the quality of objectives
and targets of our service departments
and branches. We are an ISO certifed
entity and one of the frst in the industry
to obtain quality certifcation for the
entire operations. This emphasizes our
commitment to maintaining quality
standards on customer service tenets
and principles which form the backbone
in creating a sustainable organisation.
Customer Policy and
Governance
Our customer responsibility is governed
by Board and management commitees
within several policies approved by
the Board, namely the credit policy,
recovery policy, IT policy, information
security policy, quality policy, and code
of ethics. Our customer approach is also
governed by regulatory and economic
directives issued by the Central Bank
of Sri Lanka and in conjunction with
the Government housing and economic
policies. We strive to be a fair partner in
housing fnance by respecting customers
rights in the process of loan evaluation,
processing, approving, contracting
granting and recoveries.
Our Quality Policy
HDFC Bank shall constantly strive to
innovate and delivers total fnancial
solution to satisfy customers beyond
their expectation in their home and
lifestyle needs. This will be driven by;
Caring customer service, anticipating
requirements and delivering
proactive solution.
ISO 9001-2000 based quality
management system and enhancing
potential of our staf through
motivation, development and
recognition.
Caring customer service, anticipating
requirements and delivering
proactive solution.
State of the art Information
Technology and Communication
Systems.
Continuous improvement, based
on efective measures and efcient
processes.
Performance on Customer
Responsibility
Afordability
Our mission is to be a dominant
player in the fnancial service sector by
delivering innovative solutions to meet
the needs of housing and construction
sector which holistically encompasses
domestic, social, cultural and economic
facets for a sustainable development,
which in turn permeates prosperity and
value creation for the nation at large.
Our loans therefore aim to convert
an aspiration into a reality, making
impossibility - a possibility. A house is
a fundamental need, achieving which
require a large amount of capital that
cannot be invested within a short period
from average income of a household.
We experienced that for a majority of
the population, a house is the only life
time savings. Our philosophy is that,
a mere brick and mortar structure of
Customer and Supplier Responsibility
Our Strategic Priorities.
Enhance customer reach
Enhance customer base
Customer Satisfaction
Highlight 2010
+ 23%
Savings Customers YOY
+ 7%
Deposit Customers YOY
+ 9%
Loan Customers YOY
a house is not a harmonious place of
living. For a house to become a home,
it should be sustainable and afordable
to households, when it is built and
maintained using resources efciently
to the economy and environment. We
presume that housing costing up to
40% of disposable income is afordable
for any household. Therefore we are
commited to maintain the monthly cost
of our facilities within this benchmark,
through customised solutions and
innovative products and services.
We revised the interest rates of many
loans that had been given when the
market rates were at its peak and
maintained the interest on new facilities
at the best possible rates. Loans targeted
for the low income segment was kept
at the lowest using a specifc pricing
strategy. Tenure of loan which was
curtailed as a risk management strategy
during turbulent market situations
was extended to 15 years and above.
Processing cost was reduced in many
loan categories. Mobilisation of savings
contributed to reduce cost of funds as
a strategy of making facilities more
afordable.
Customised Solutions
HDFCs service tenets are built upon
delivering customised solutions via
service excellence. With a view to
encouraging sustainable development
of the industry and in creating an
afordable housing culture, it is
imperative that HDFC maintains a
product portfolio that encompasses
the diverse mix of customers that we
possess. Our customers have a common
objective of owning a home, however,
the criteria to be eligible for a facility
difers from customer to customer.
Therefore, products and services are
developed and facilities are delivered
collating a customers individual
requirements, levels and paterns of
income, economic activity and available
collateral etc. These facilities are
extended for physical development of
houses such as construction, renovation,
extension and purchase of built houses.
Our services have been further extended
to enable customers to purchase
household appliances, furniture, ftings,
amenities and accessories. HDFC
has also formulated savings, deposit
and investment plans tailor-made to
suite diferent customer groups. We
identifed a dearth in project fnance
facilities for real estate developers and
CUSTOMIZING SERVICES
Customizing of Loan Facilities
Deposits/Savings Plans
Customer Need Loan Products
Construction Kedella Thilina
Purchase of a house/fat Shrama Udana Thilina Rakawarana
Purchase and construction Guru Sevana Prethilaba
Redemption existing high interest loans Sirisara Vishrama Udana
Extension and reconstruction Thilina Home Loan HDFC Dana Nidhana
Renovation, repairs/improvements HDFC Home Loan. HDFC Fixed Deposits
Purchase of residential lands Farmers Loan Scheme HDFC Mobile Savings
Purchase of electrical ftings Teachers Loan Scheme Arumbu Minor Savings Plan
Purchase of household accessories Project Loans
Development loans
Customized Collaterals
Property mortgages
EPF backed loans
Guarantor loans
Group Guarantor loans
Cash backed guarantee loans
Customer and Supplier Responsibility contd.
we have established a dedicated project
loan division to extend facilities to this
segment.
During the year 9,252 facilities were
ofered for new house construction
recording an YoY increase of 78 per cent.
Further, 588 facilities were granted for
house purchasing while 899 facilities
were given for redemption of debts and
house hold equipments. The number
of facilities ofered to EPF members
doubled this year to 6,163 facilities as
against 3,314 ofered in 2009.
Accessibility and Customer
Service
Continuous improvement to customer
service is imperative to achieve customer
satisfaction. This includes continuous
development and upgrading of
delivery channels, operational capacity,
introducing innovative products and
services while motivating our team by
providing a conducive environment to
work.
Customer Reach and Branch
Network
Improving accessibility of our service is
a crucial factor in enhancing customer
relationships. We recognise that all
citizens have an equal right to access our
service. Hence HDFC strives to expand
our reach in all districts and provinces
via fully fedged branches and service
centers. We have made our service
more accessible island wide via Mobile
Banking Units and ATM networks.
During the year we enhanced our
geographical presence in the north
and the east by opening two branches
in Vavniya and Trincomalee. Branch
relocation and refurbishment program
which was initiated in 2007, continued
successfully during the year. Chillaw,
Badulla, Tangalle, Kegalle and Ja-Ela
branches were relocated in customer
convenient locations with improved
facilities. Our main branch in Colombo
and the Monoragala branch were fully
refurbished with contemporary designs
and beter facilities. Accessibility to our
service was increased from 11 ATMs in
2009 to 225 ATMs as a result of strategic
alliance signed with Sampath Bank
PLC. Number of Mobile Banking units
were increased from 55 machines to
81 machines during the year. With the
objective of expanding our geographical
presence and customer service, HDFC
appointed fve regional managers
with overall responsibility of regional
business development.
Customer Care Training
During the year providing staf
development on customer-care was
made a strategic priority. Several indoor
and outdoor training programs were
conducted using professional trainers.
The Mobile Banking team participated in
two special customer oriented training
programs which bore favorable results
through increase in the savings customer
base during the year.
New Product and Services
During the year HDFC introduced an
atractive minors savings plan named
Arumbu targeting the Tamil speaking
community in the north, east and the
plantation sector. Another general
investment plan named Ashcharya
with atractive returns for the customers
seeking reasonably atractive returns was
launched during the year. HDFC also
initiated to sign a strategic alliance with
Mobitel with the intention of increasing
fee based income by providing value
added services to the customers.
Chillaw Branch Relocation
General Mortgaged Customers
EPF Members
Government Teachers
Existing Customers (Home Loan)
Other
Customer wise distribution of service
4.10%
24.70%
10.20%
57.40%
3.60%
Construction
Purchase
Renovation/repair
Redemption
Home Loan
Purpose wise distribution of Products 2010
5%
5%
1%
3%
86%
Initiatives to enhance capacity, customer reach and service - 2010
Customer Reach and capacity
Strategy Objectives Achievements
Opening two new branches Enhance geographical presence and customer
reach in the North East regions
7% growth in Total Assets
Expansion of mobile banking
service to capture non banking
community and increase per capita
savings
Improve customer reach by providing service at
customer door step with special focus on savings
Increased customer base, deposits and
savings portfolio by 51%.
Enhancing ATM network Enhance delivery channels Increased customer base and deposits
Appointment of Regional
Managers
Improve efciency of operations and expansion
of service utilisation
Increased overall growth, proftability
and customer reach
Customer care training Improve quality of service and customer
satisfaction
Growth in loans, savings and deposits
and Satisfaction
Regular branch wise promotion Expanding customer base Enhanced loans, savings and deposits
portfolio
New Products and Services
Initiative Description & Objective Targets & Achievements
Arumbu Minor Savings Plan. A unique, minors savings plan designed to
mobilise low cost long term funds for fnancing
housing loan portfolio. The product is targeted
for children under 12 years with special focus on
Tamil speaking community
Improved savings base and result to be
consolidated in 2011
Ascharya Investment Certifcates General Investment Plan to mobilise medium
term funds. Bank guarantees an atractive return
at maturity
Enhance deposit fund. Result to be
consolidated in 2011
IT Developments
Our user friendly IT initiatives are a
hallmark of HDFC IT developments.
These developments take place on a
continuous basis in conjunction with the
competitive market requirements and
internal management needs as per the
IT Strategic Plan. Integration of Mobitel
and HDFC IT systems for providing
TOP UP solutions for pre-paid Mobitel
customers and bill collection facilities
for post-paid Mobitel customers and
the strategic alliance with Sampath
Bank which expanded our customer
reach through ATMs were signifcant IT
innovations which took place in 2010.
Customer Satisfaction Survey results
Survey Criteria 2010 2009 2008
Sample size 4,000 6,000 6,000
Responded 518 1490 2,540
Response
- Excellent
40% 3% 3%
- Good 35% 36% 29%
- Fair 5% 35% 36%
- Unsatisfactory 0% 23% 30%
- Poor 0% 1% 3%
Overall Rating 80% 53% 46%
Supplier Responsibility
Our Approach
Given our business and operational
profle, HDFCs interaction with
suppliers is limited. Even for that limited
portfolio, we strive to be a strategic
partner in their interaction with the
Bank. We have therefore implemented
a comprehensive system thats built
on the tenets of transparency and
accountability, where controls and
monitoring are built in, to ensure that
suppliers are treated with meritocracy.
HDFC makes a conscious efort to
source suppliers from the vicinity of
branches, especially for work related
to maintenance and repairs. We
allocate resources mainly for stationery
expenses. We are commited to ensure
that our relationships are with service
providers who are registered with
HDFC having scrutinised their fnancial
and past records.
Customer Satisfaction
Considering the positive customer
response and increase in our customer
base it can be construed that HDFC is
placed among the best service providers
in the housing fnance industry. Some
of our branches have the expertise
to process a housing loan facility to
the EPF members within a day. Our
goal is to promote this expertise in
all our branches. The annual survey
on customer perception enabled us
to improve our customer service by
simplifying procedures and ofering
tailor-made products whilst providing
continuous training on customer care,
which in turn has improved our overall
customer satisfaction ratio from 53per
cent in 2009 to 80 per cent in 2010.
Practices and Governance
Standard procurement procedures
and ethical practices such as supplier
segregation, tender and quotations
and evaluation systems are in place.
Diferent commitees are vested with
responsibilities such as the Tender
Boards and the technical evaluation
commitees based on diversity in the
value of supplies. HDFC also follows a
high level of transparency and control
in tender and procurement procedures.
Price negotiations are conducted by
a designated team depending on the
contract value. HDFC thus has not had
any major supplier complaints in the last
two years.

We have maintained a high level
of supplier satisfaction with timely
payments, communication and by
respecting their human rights by
ofering equal opportunities for equally
qualifed partners.
Services
Industrial
Agricultural
Other
Sector Distribution of Sieves 2010.
8%
0%
23%
69%
Key Performance Indicators Customer Responsibility
2010 2009 2008
Purpose wise Service No of Loans % No of Loans % No of Loans %
Construction 9,252 86.2% 5,197 86.7% 4,449 80.0%
Purchase 588 5.5% 350 5.8% 513 9.2%
Renovation/repair 486 4.5% 52 0.9% 246 4.4%
Redemption 67 0.6% 166 2.8% 39 0.7%
Home loan 346 3.2% 212 3.5% 312 5.6%
10,739 100.0% 5,997 100.0% 5,559 100.0%
Customer wise distribution of service
General mortgaged loans 1,100 10.2% 692 11.5% 1,028 18.5%
EPF members 6,163 57.4% 3,134 52.3% 2,110 38.0%
Government teachers 387 3.6% 368 6.1% 889 16.0%
Existing customers (Home Loan) 2,648 24.7% 1,240 20.7% 1,196 21.5%
Other 441 4.1% 563 9.4% 336 6.0%
10,739 100.0% 5,997 100.0% 5,559 100.0%
Customer Reach and Capacity Building
Permanent work force 425 364 289
No of Mobile Bankers 81 58 24
No of Branches 28 26 21
No of ATMs access 225 10 4
No of PCs/staf 71% 69% 63%
Environmental Responsibility
Our Approach
The Banks commitment to environment
sustainability includes an efort to
minimize the environmental impact
of its loan facilities by promoting
sustainable housing and being
sustainable in its daily operations.
Sustainable Housing: HDFC is mindful
that, our core business of facilitating
human setlement has a signifcant
indirect impact on the eco system
and climate change. Housing is a
fundamental need of a human being as it
is the place of dwelling we call a home.
Over the years we have transformed
our focus from housing fnance to home
fnance. Our philosophy is that for a
house to become a home it should:
Be afordable and resource efcient:
House construction and maintenance
requires a substantial amount of
natural resources and energy such as
soil, wood, cement, water, electricity
and gas etc. Hence it involves a
large amount of capital and emits
a substantial amount of waste. We
believe that housing construction and
maintenance should be afordable to
the households and resources should
be utilised efciently.
Create a decent indoor and
outdoor environment: House is the
immediate environment of a family
and exerts infuence on childrens
education, health, domestic peace
and refects the quality of life and
aspirations of the household. In the
process of demographic transition,
clusters of homes form neighborhood
and clusters of neighborhoods
form towns and cities. We believe
that sustainable planning and
construction create a decent indoor
and outdoor environment for the
well being of the family.
Operating Sustainably: We consume a
large amount of natural resources such
as electricity, water and fuel etc and
therefore we are commited to manage
the consumption of these resources and
minimise carbon footprints.
In driving HDFC towards its objectives,
we have been mindful of our
responsibility to balance environmental
needs with human needs and respects
human rights. Corporate goals should
not exert an adverse impact on the
culture, biodiversity and overall
uniqueness of our country. In this
context HDFC has complied strictly
with the environmental regulations,
promoted energy conservation and
efciency, educated customers and
promoted sustainable management of
natural resources. By focusing on these
environmental challenges HDFC also
strives to be an active partner to the
government in achieving Millennium
Development Goals of the county and
ensuring environmental sustainability
by year 2015.
Environmental Policy and
Governance
In 2010, the bank approved the
Environment Safeguard Policy, which
strengthened the Banks mandate to set
more rigorous standards for lending
operation, manage own carbon footprint,
resource utilisation and supply chain
management. The policy is implemented
and followed up by the sustainability
executive and credit commitees.
Programs are being formulated to
enhance knowledge and awareness of
the staf on environmental aspects of
the business operation. The Policy is
available at our website www.hdfc.lk for
stakeholder reference.
Our Strategic Priorities.
Reduce electricity consumption
Minimise fuel consumption
Reduce paper
Our Carbon Footprint
836,488 kwh
Electricity consumed
25,952 Ltr
Fuel consumed
273,921 km
Business travel
3,261 kg
Paper recycled
Environmental Performance
Compliance with Environmental
and Development Regulations
Gathering our pool of knowledge and
experience, it is apparent that regulatory
complied designs and construction
always minimise the negative impact
of development and promote more
resource efcient construction. Hence
for construction loans, we ensure that
all plans are formulated by adequately
qualifed planners and approved, while
for all mortgage loans, relevant authority
approval for allocation of infrastructure
such as road ways, smooth fow of
water, assurance of uninterrupted power
supply, solid waste disposal and rain
water drainage must be obtained. Project
loans must comply with the regulation
of the all the relevant regulatory bodies
such as the UDA, CMC, RDA, LLRB,
local authorities, the Condominium
Management Authority and/or the
Central Environmental Authority.
The level of compliance with these
regulations are as follows
Managing Carbon Footprint
In the process of implementing the
Environmental Policy, in 2010, the
Bank identifed that fuel consumption
caused by business and staf travel,
consumption of electricity, water and
paper as the main areas of focus in
managing the Banks carbon footprint.
Internal indices were further developed
to monitor Green House Gas Emission
and targets were set to quantify carbon
Compliance with Development Regulation 2010 2009 2008
Approved plans / total construction loans 100% 100% 96%
Approved plan/ total of EPF construction loans 97% 97% 93%
Approved site plan/ total mortgage loans 100% 100% 100%
Local authority complaints / total construction loans Nil Nil Nil
Environmental dispute / total construction loans Nil Nil Nil
Contracting an efcient courier
services for delivering documents
and materials
Authorising branches to hire vehicles
locally for business travel
Deploying regional staf for branch
promotions without using staf from
head ofce or other regions
The above initiatives will encourage
efcient utilisation of fuel and thereby
cost savings would cascade to the Banks
botom line, while encouraging the
management of emissions judiciously.
Staf Transport and Emission
control
In addition, the Bank is commited to
reducing average travel per employee
per day from home to ofce and
vice versa. The average travel per
employee per day is 75 kilometers in
2010, compared to 52 Kilometers in
2009. This increase is mainly due to
new recruitments who were deployed
in the North and East. The index will
be monitored to reduce the average
traveling to a substantial level in 2011.
As shown in the following travel index
61 per cent of our staf travels more than
15Kilometers per day. Our goal is to
minimize the percentage of employees
who travel more than 50 Kilometers
per day from 18per cent to 0per cent
within the next two years. Accordingly
recruitments and transfers will be
made based on this travel index. These
initiatives will undoubtedly have the
following benefts:
Reduce emissions generated
by public and private vehicles
infuenced by our operations
Save energy, time and money which
eventually permeate the economy to
its advantage
Environmental Responsibility contd.
dioxide (CO
2
) emission in the entire
operation of the Bank in 2011.
Business Travel and Fuel
consumption
Increase in CO
2
emission is a serious
concern in Sri Lanka, especially in
urban and industrialised areas. Whilst
consuming a substantial amount of
fuel and causing a threat to the supply
of natural resource, the transport
sector is responsible for the highest
percentage of CO
2
emissions. In order
to strengthen our eforts in minimising
carbon emissions, we further developed
the internal indicators established in
2009 to monitor and control carbon
emissions emanating from business
and staf travel. The Bank also focused
on reducing vehicle running mileage
by developing an index to monitor
the mileage per LKR 1 Million loans
approved. During the year Banks feet
of vehicles has run 273,921 kilometers
and consumed 25,952 liters of diesel
and petrol for business purposes. This
translates into ratio of 8.46 Ltr of fuel
per LKR 1 Million loans approved and
mileage of 89 Kilometers per LKR 1
Million loans approved. During the year
the following initiatives were taken to
reduce carbon emissions further:
Disposing vehicles used for over fve
years and replacing them with cost
and fuel efcient new vehicles
Improve staf efciency and
productivity
Geographical spread of employees
Daily Travel index schedule
Travel-Km Employees Composition
0 < 15 160 39%
15.01 < 25 80 19%
25.01 < 35 54 13%
35.01 < 50 41 10%
50.01 < 70 26 6%
70.01 < 90 18 4%
90.01 < 33 8%
412 100%

Electricity and Water
Consumption
Internal indices were established to
monitor efciency in consumption
of water and electricity. Installation
of energy efcient lighting systems
and air conditioners in all branches in
conjunction with the refurbishment
program enabled the bank to conserve
electricity consumption per head further,
from 2062 units in 2009 to 1986 units in
2010. During the year Bank has taken
a step to calculate average electricity
consumption per Sq.f of building
occupied by the Bank which amounted
to 13 units in 2010. Bank was also able
to reduce water consumption per head
from 17 liters to 15 liters in 2010.
Paper Consumption
Waste Management and management of
paper consumption were prioritized this
year. An internal index was formulated
to monitor paper consumption per LKR
1Million loans approved. In 2009, loan
disbursements were made by releasing
funds directly to customer savings
accounts instead of issuing cheques.
Interdepartmental communications
were made via emails and intra net
whenever possible thus reducing the use
of memos. We are also seeking avenues
to simplify loan approval process to
minimize documentations. These eforts
have enabled the bank to reduce average
photocopy paper consumption per
LKR 1Million loan approved, from 176
to 148 during the year. There has been
considerable savings on print cartridges,
maintenance of equipment and the
time spent on distribution, handling
and fling of documents as well. Going
forward, we will continue to improve
this ratio further.
Sustainable Procumbent and
Waste Management
The Bank is commited to procure
recycled products whenever possible
within reasonable cost boundaries.
While the Bank follows a standard
procurement procedure for stationery,
in compliance with the Banks
environmental policy, this year we
promoted procurement of photocopy
paper manufactured under the
international paper principles; paper
produced from planted and renewable
forest with environmental responsibility,
and brought paper consumption under
the 3G concept of reduce, reuse and
recycle.
During the year, HDFC provided
3,261kg of waste papers to Neptune
Papers (Pvt) Ltd, for recycling purpose.
Company has confrmed that our waste
management has saved 55 trees, 103,634
liters of Water, 13,044 Kwh of electricity,
5,723 liters of oil and 9 cubic meters of
land fll.
Conservation of Biodiversity
Environmental sustainability means
managing and protecting our natural
resources to make them available for
future generations. In Sri Lanka, the
natural forest cover has decreased
substantially from 80 per cent in 1881
to 24 per cent in 1990 while it has
further decreased further by 6.6per
cent from 1990 to 2001. HDFC believes
that deforestation has been greatly
infuenced by the human setlements
and recognises its responsibility to safe
guard the natural forest. In this context
HDFC planted 500 trees, around the
play ground of Suboda School , Butala
in line with the Governments 1,100,000
trees program in November 2010.
Promoting Sustainable Housing
and Living
HDFC Environmental Policy specifes
that every employee should comprehend
the importance of incorporating
environmental consideration in their
daily business activities whenever
appropriate. We also encourage
employees to refect their commitment
to the environment by supporting
0 < 15
15.01< 25
25.01< 35
35.01< 50
50.01 < 70
70.01 < 90
90.01 <
Staf Travel distance
39%
19%
13%
10%
6%
4%
8%
Key Performance Indicators - Environmental Responsibility
2010 2009
Save Electricity, Water and reduce Emission
Electricity consumption Units 836,488 750,659
Electricity consumption - Units per employee 1986 2062
Electricity consumption per Sq:f occupied (comparative
fgures not available 2009)
13 -
Water consumption Ltr 6,331 6,218
Water consumption Ltr- Per employee. 15 17
Paper Consumption- Save Trees, Resources and Reduce Emission
No of paper purchased-Pkts 900 500
Weight of Photocopy paper purchased- Kgs 2,375 1,275
No of photocopy papers consumed per LKR 1M loan
approved
146 178
Waste paper disposed for recycling-Kgs 3,261 2,345
Recycling of disposed papers have saved - Tree 55 -
Water- Liters 103,634 -
Electricity- Kwh 13,044 -
Oil Liters 5,723 -
Land fll- cubic Meters 9 -
Business Travels, Energy Consumption and Emission Controls
Diesel and petrol Ltr consumption 25,952 26,405
No of Km run by Bank's vehicles 273,921 214,466
Vehicle mileage per approved loan value LKR 1M 89 153
Fuel Ltr (petrol & diesel) per LKR 1M loan approved. 8 18
Fuel Ltr per loan approved 2.4 4.4
Staf Transport, Energy Consumption and Emission Controls
Total travelling per day-km 31,115 19,508
Avg traveling per employee per day (Home-ofce-home) -
Head Ofce- Km
76 54
Avg traveling per employee per day (home-ofce-home) -
Branch-Km
75 50
Avg traveling per employee per day (home-ofce-home) -
Bank-Km
75 52
staf driven volunteer programs for
promoting in-house greening and
educating local communities to improve
their environment. HDFC as a leader in
housing fnance industry believe that
youth and children of Sri Lanka must
be made aware of the need for these
practices to be imbued now for future
beneft.
To commemorate the World Habitat Day,
the Bank organised a city walk, on the
theme of Beter City Beter Life. The
two kilometer walk with placards and
banners ended up at Galle face Green
with over 200 participants from the head
ofce, pupils of Colombo Grammar
School, Bataramulla, and ofcers of UN
Habitat Sri Lanka ofce. The objective
of the walk was to promote awareness
on the importance of maintaining a
conducive city environment which
is healthy and clean, built around
regulations and compliance and devoid
of unauthorized constructions which
takes its toll on the environment and
communities.
The event was highly recognised by
environmentalist and city developers
and our message was conveyed to city
folk.
Environmental Responsibility contd.
Social Responsibility - Sustaining Our Team
Our Approach
HDFC expects our employees to
actively endorse and support our
corporate values. Simultaneously, we
promote diversity, equal opportunity
and creativity of our staf by creating
an environment they could train and
develop to their full potential. We
endeavor to maintain a high standard
of occupational health and safety and
maintain a cordial labour relationship
with the objective of creating a
motivating and healthy environment to
retain their services and expertise for a
longer period.
Since HDFC was converted from a State
Corporation to a Licensed Specialised
Bank, developing human capital to
reach the high standards maintained
within the competitive banking
environment has been a challenge. A
complete transformation stemming
from atitudinal change, increasing
productivity, emphasis on quality and
aligning vision and mission to customer
service tenets and business strategies
became increasing priorities and areas
that needed rapid and inclusive training
and development. Comprehensive
orientation programs that were
conducted on regular basis has resulted
80 per cent of the staf adjusting
themselves to meet the new challenges
and seting themselves goals aligned
to our vision to create a sustainable
business growth. As depicted in the
profle indicators below, the average
age of our staf is above the industry
average which is a valuable wealth
to our organisation as there is a high
potential for development in line with
the standards of the competitive banking
environment.
Team Profle 2010 2009 2008 2007
No of Staf 425 364 289 286
Percentage of Women 45% 46% 52% 52%
Percentage of Graduate 19% 21% 17% 17%
Percentage of Professionals (Including Banking) 45% 41% 34% 34%
Average Age (Years) 36 37 39 39
Average Service Period (Years) 8.8 9.64 11 11
Average Absenteeism 8.40% 10.60% - -
Average Medical Consultation - LKR 47,024 40,228 22,728 30,104
Percentage of employees covered by Collective Agreement 98% 98% 98% 98%
Turnover Index 2.58% 4.67% 1.70% 1.70%
Average Gross Salary - LKR 47,266 57,371 42,696 39,943
Average Basic Wage - LKR 18,266 15,849 17861 17643
Strategic Priorities
Strengthening
Capacity maximising
Satisfaction
Highlight 2010
+ 17%
Staf Strength
+ 14%
Benefts and emoluments
+ 29%
Satisfaction YoY up
HR Practices and Governance
HDFC is an equal opportunity employer
as discrimination based on religion,
caste, gender or any other profle is
not in our mandate of HR recruitment
and development. We also ensure
that we follow the ILO declaration
on fundamental principles which
aim to achieve both economic growth
and equity through a combination
of social and economic goals. HDFC
also follow other relevant human
resources standards and regulations
very stringently. HDFC refers the
Establishment Code for all labour
related maters where internal policies
and rules are not available. We do not
condone child or underage labour nor
do we exercise any gender biasness
within our organization. Recruitment is
based on transparent procedures such as
newspaper advertisements, writen tests
and interviews. Recruitment decisions
are based on qualifcations, merit and
capabilities. Priority is given to internal
candidates when flling vacancies. We
encourage geographically diversifed
and multiethnic participation and
recognise the right of unionisation.
All material HR maters are referred
to the Board HR subcommitee. New
recruitments and promotions are
efected based on the carder plan
approved under the Corporate Plan of
the Bank.
Performance Review and
Follow up
A staf appraisal system has been
formulated to recommend annual salary
increments and identify employee
atitudes and training and development
needs. Separate appraisal systems are in
place for the following categories.
i) Managerial & Heads of Divisions
ii) Executives, Clerical & Allied Grades
iii) Ofce Assistants & Drivers
Annual appraisals are conducted
for the entire staf of the Bank.
Employee feedback and results of
the staf satisfaction survey enable
the Bank to identify specifc training
and development needs. Branch wise
loan targets, recoveries and fund
mobilisation are some the categories
used in performance appraisal. Fund
mobilisation targets were given to all
the staf members with the objective of
creating a competitive environment for
skill management and development of
human capital.
Training and Awareness
Staf Satisfaction Survey is considered
as the key strategy used to identify staf
atitudes, training and development
needs. 348 employees responded to the
survey conducted in 2010, representing
82 per cent of the total staf of the Bank.
The results of the survey are highlighted
below:
Results of the staf satisfaction survey 2010 2009
% of Yes % of Yes
Are you happy with your job? 88% 68%
Are you satisfed with your work load? 75% 74%
Do you believe the work load is equally distributed? 49% 45%
Are the leaders positive role models? 78% 69%
Supervisor keep you well informed what is happening ? 79% 67%
Are your views and contribution valued? 77% 75%
Receive appropriate recognition for your contribution? 55% 56%
Does your salary match your responsibility? 53% 59%
Satisfed with your understanding of the banks goal? 70% 68%
You recommend your friends to work for HDFC? 79% 75%
Even though the results showcase that
an average of 88 per cent are happy
with their job, while 79 per cent claims
HDFC employee relations are more than
satisfactory and would recommend it
as a preferred workplace, we do realise
that some areas of gap do exist. These
include recognition for contribution
at 77 per cent and being sufciently
remunerated at 53 per cent both of
which have deteriorated compared to
2009. We are now in the process of
addressing these issues through the
introduction of a performance related
rewards and recognition system with
local and overseas training and career
development opportunities. HDFC
also plans to implement an incentive
culture which would add more scope to
individual capabilities while promoting
a team working culture within the
organisation.
Social Responsibility - Sustaining Our Team contd.
Decent Work Performance
Team Strength and Provincial
Distribution
During the year the staf strength was
increased to 425, from 364 in 2009.
Majority of the new recruits were
absorbed into the sales team. This was
in line with Banks strategy that 60
percent of the staf should comprise the
sales team in order to accelerate credit
growth and savings mobilisation. The
new recruits were mainly school leavers
recruited on contract basis and absorbed
to the permanent carder based on their
performance. HDFC conducts regular
training and orientation programs
to improve performance of the staf
and provide a satisfactory career
development.
Our workforce is mainly concentrated
in the Western province as the 32 per
cent of the total staf is based in the
head ofce in Colombo. In an efort
to promote an equitable regional staf
distribution HDFC reduced the work
force in the Western province from
64 per cent in 2008 to 58 per cent in
2010 while 50 per cent of the new
recruitments in 2010 were mainly
from the north - Central and Northern
provinces.
Team Remuneration, Benefts
and Turnover
As indicated in the summary o team
profle HDFC has reduced the average
cost per employee from LKR 57,371
in 2009 to LKR 47,266 in 2010, while
maintaining a substantial increased
in the average basic salary, mainly as
a result of new recruitments. Average
remuneration of HDFC is in par with
other state banks. Consequent to the
collective agreement salary revision and
the cost of new recruitments, the staf
emoluments increased by LKR
38 Million in 2010 compared to LKR 267
Million in 2009. Apart from the basic
salary and emoluments HDFC ofers
the following benefts to the permanent
carder:
Employee Share Ownership Program
(ESOP)
Comprehensive medical scheme
Death donation and funeral
assistance scheme
Special loan scheme for housing,
furniture and other housing related
maters
Vehicles loans at a special interest
rate
A distress loan scheme
Two months bonus per annum
Special risk allowance for cashiers
Holiday bungalow facilities owned
by the Bank
These benefts have a substantial
infuence on the employee turnover
which has declined from 4.67 per
cent in 2009 to 2.58 per cent in 2010.A
noteworthy decline from 4.4 per cent
to 2.17 per cent in staf turnover was
recorded in the category of Banking
Assistants which was a signifcant
improvement during the year. Further
staf happiness index as improved from
68 per cent to 88 percent in 2010.
Western
Central
Southern
Eastern
Wayamba
North-Central
Uva
Sabaragamuwa
Northern
Provincial Distribution of Our Team
58%
3%
8%
9%
6%
4%
8%
3%
Senior Management
Junior Management
Other Staf
Team by Employment Type & Contract
7
16
166
236
06 07 08 09 10
0
100
200
300
500
400
Improving Team Strength
1%
Key Performance Indicators - Decent Work Performance
2010 % 2009 % 2008 %
Team by employment type & contract
Corporate Management 7 2% 8 2% 9 3%
Senior Management 16 4% 13 4% 11 4%
Junior Management 166 39% 1 69 46% 92 32%
Other Staf 236 56% 174 48% 177 61%
Total 425 100% 364 100% 289 100%
New Appointments
Corporate Management 0 1 1% 0
Senior Management 0 0 0
Junior Management 1 2% 0 0
Other 59 98% 75 99% 3 100%
Total 60 100% 76 100% 3 100%
Turnover
Corporate Management -% 0 0% 0 0% -
Senior Management - % 1 0% 0.27 0% -
Junior Management - % 1 23% 0 0% -
Other - % 9 2% 16 4% -
Bank Average - % 22 3% 4.67 5% 3%
Provincial Distribution of our team
Western 246 58% 216 59% 185 64%
Central 37 9% 36 10% 24 8%
Southern 36 8% 31 9% 21 7%
Eastern 12 3% 9 2% 8 3%
Wayamba 25 6% 22 6% 16 6%
North-Central 13 3% 7 2% 5 2%
Uva 18 4% 13 4% 9 3%
Sabaragamuwa 33 8% 30 8% 21 7%
Northern 5 1% 0 0% 0 0%
Total 425 100% 364 100% 289 100%
Team Emoluments : LKR M
Salaries 206 66% 180 65% 160 66%
Overtime 7 2% 2 1% 8 3%
Bonus 35 11% 29 11% 25 10%
Staf Medical 14 4% 12 4% 9 4%
Encasement of leave 8 3% 6 2% 6 2%
Contribution to defned benefts
plans- Gratuity
15 5% 21 8% 12 5%
- EPF 23 7% 21 7% 18 7%
- ETF 6 2% 5 2% 4 2%
Total Rs M 314 100% 276 100% 242 100%
Contributions to Defned
Benefts Plans
As per the Employee Provident Fund
Act and Employee Trust Fund Act ,
HDFC is statutorily liable to contribute
a sum equal to 12% and 3% of monthly
gross salary to the Employee Provident
Fund (EPF) and Employee Trust Fund
(ETF) respectively to fulfll obligation
of the Bank as the employer for the
well - being of the employees at their
retirements. Employees contribution
to the EPF is 8 per cent of the monthly
salary. Further HDFC also liable to make
a statutory provision, a sum equal to
50% of the salary to a gratuity fund
under the Gratuity Act No 12 of 1983
to provide further retirement benefts
to the employees. During the year the
Bank has paid LKR 29 Million EPF and
ETF contributions and made a provision
of LKR 15 Million to employee gratuity
fund.
06 07 08 09 10
0
100
200
300
400
Team Emoluments
Labour Relation and Human
Rights
Freedom of association and collective
bargaining is a human right of the
workers in an organisation, as defned
by the UN Universal Declarations of
Human Rights and ILO conventions.
Collective bargaining is a forum of
stakeholder engagement that helps
to build institutional framework and
is seen by many as contributing to
a stable society. HDFC approach to
industrial relations spans beyond the
collective bargaining mechanism. HDFC
recognizes Ceylon Bank Employees
Union (CBEU), comprising almost 98%
of our staf across all executive grades,
as a consultative and supportive group
that articulate a forum for improved
communication , grievance handling
and, career counseling. Collective
Agreement is available at the corporate
web site www.hdfc.lk for public
reference.
HDFC maintains an organisational
practice of ensuring timely discussion of
signifcant operational changes such as
transfers, promotion, disciplinary actions
etc with employees and representatives
of Trade Union (TU). For this purpose,
one month notice is given as a practice
where practicable to help to minimise
any adverse impacts from operating
changes on employees. Nevertheless it is
not defned in the collective agreement.
Collective Agreement was renewed
during the period and compensations
and other benefts of employees were
renegotiated and enhanced. Board
nominated Management Commitee,
namely Staf Relation Commitee,
comprising of fve members from the
Corporate Management was appointed
for improving efective and timely
engagement with the TU and staf
grievances handling.
There are 4 litigations fled by ex-
employees and existing employees
against the Bank on grounds of human
rights against discrimination. Staf
Relation Commitee appointed in 2010,
was delegated with the responsibility of
engaging with staf and the TU to make
recommendation to the management
to minimize reoccurrence of such
staf grievances and ensure a smooth
relationship.
Staf participation at TU
activities
The Bank encourages voluntary and
active involvement of our staf in
in-house and industrial TU activities.
The Bank congratulated Mr. Kesara
Kotegodage, the president of the HDFC
branch of Ceylon Bank Employees
Union (CBEU), when he was elected as
the Vice President of the CBEU ( parent
body) one of the largest trade union in
the country.
Work life balance
Promoting Wellbeing
We ofer our employees a variety of
facilities and benefts to enable them to
maintain a healthy work life balance and
thereby reduce stress levels and be more
work oriented. Creating a healthy work
life balance is imperative to improve
productivity and commitment of the
staf. HDFC Staf Health Plan was an
important initiative taken by the Bank
to achieve this balance, apart from the
numerous welfare initiatives including
concessionary housing, vehicle and
distress loans, insurance and death
donations. The percentage of workforce
represented by the staf health plan
is 67.30 per cent and majority of them
participate voluntarily in organising
health and safety programs.
Apart from the Health Plan , HDFC
implements a range of health and
safety measures to maintain a hasard
free ofce environment. Some of these
initiatives include, promoting healthy
housekeeping practices, providing
cashiers and managers risk allowance
and a difcult area allowance. Health
facilities under the Health Plan and
other benefts are covered by the
collective agreement. Apart from the
measures above, the following initiatives
were taken by us in 2010 to maintain
health and safety:
Key Performance Indicators - Labour relation and Human Right cases
2010 2009 2008
No of Staf 425 364 289
CEBU membership 419 355 282
Membership % 98% 98% 98%
Employee benefting from full freedom of association % 100 100 100
No of pending HR cases against the Bank 4
Implementation of Business
Continuity Plan to address
emergency situations
To facilitate a healthy and a safe
environment, fve branches were
relocated and two branch were fully
refurbished
Arrangement were made to provide
safe drinking water and standard
lighting systems to all branches
All female members of the staf at
Head Ofce participated in a health
education program.
Security was provided to branches
with ATM facilities for the frst time
Educational seminar on currency
notes was organised for all
promotional assistants to minimise
risk of accepting counterfeit notes.
A Chemical treatment campaign
was conducted in the head ofce for
Dengue prevention and all branches
were encouraged to follow suit.
The HDFC Community Policy
approved by the Board in 2010,
acknowledges Banks commitment
to sponsor a needy person for a
medical, sports or educational need
and encourages voluntary staf
participation.
These initiatives demonstrate HDFCs
commitment to health and safety
and theses strategies has enabled
us to maintain zero-accidents, zero
occupational diseases and lost days
and also achieve a sharp decline in
absenteeism and average medical claims.

Cultural and Sport Events
HDFC encourages the staf to develop
cultural and sporting talents as it creates
camaraderie and promotes a sense of
team spirit among our employees. The
Buddhist society of HDFC conducts a
Pirith and an almsgiving ceremony in
the head ofce annually with fnancial
contribution from the Bank and staf
members. This year the ceremony
was conducted in March with the
participation of a large number of staf
and the former Chairman and CEO/
General Managers as special guests.
The Buddhist and Christian societies
celebrated Wesak and Christmas by
organising a Bhakthi Gee ceremony
and participating in Christmas carols
organized by NHDA respectively.
During the year, HDFC Bank Cricket
team participated in several six-a-side
matches organised by the Central Bank
and Peoples Bank.
Capacity Maximizing
Training and Development
Given the challenges we experienced
due to the Banks profle conversion
and the fact that we were now within
the orbit of a competitive banking
environment, training and development
became a vital tool for our sustainability
as a bank and a business. Recognising
that our team needs to be geared for the
challenges ahead, it became imperative
that a knowledge gaining culture is
imbued into the everyday operations of
the Bank.
With the objectives of developing
knowledge that support the continuity
of our staf and assisting them to
successful career retirement, we have
initiated several programs as mentioned
below.
Granting interest free loans for
professional examinations
Reimbursement of course fees
for examination passed and
qualifcations gathered while in
employment
Encouraging all new recruits to
obtain a banking qualifcation within
a specifed period
Financing industry training and
workshops
Key Performance Indicators - Occupational Health & Safety
2010 2009 2008
Staf covered by the health plan 67.00% 69.00% 70.00%
Average medical claimed per employee LKR 47,024 40,228 22728
Occupational injury 0 0 0
No of occupational diseases 0 0 0
No of lost day rate 0 0 0
Absenteeism rate 8.40% 10.60% 10.80%
Fatality 1 1 0
Staf Covered by Health Plan
67% 33%
Covered
Not Covered
Continuous in-house and external
training and orientation programs
Special programs to improve English
and Tamil literacy
Special recognition is given in the
staf promotion policy for obtaining
additional banking qualifcations
afer joining the bank
As depicted in the table below, we
signifcantly increased the number of
training hours given to the sales staf
and junior executives. Total training
hours in 2010 increased by 147 per cent
compared to 2009.

Special Training on Customer Care
In response to the training needs
identifed through customer and staf
satisfaction surveys and individual
performance appraisals a special three
day training and orientation program
was conducted on customer care for our
staf at all levels. Since conversion into a
licensed specialised bank, the business
environment we have to compete in has
become increasingly competitive. In
this context we have identifed specifc
training needs for our staf especially
Key Performance Indicators - Capacity Maximizing
2010 % 2009 % 2008 %
Training Type - Training man days
Internal 1,474 98% 505 83% 305 75%
External 19 1% 101 17% 101 25%
Foreign 10 1% 3 0% 2 0%
Key Performance Indicators - Diversity
Total Days 1,503 609 408
Average training days per employee 4 2 1
Strengthening with Professionally Qualifcation
No. Staf registered for banking exam 65 15% 54 15% 26 9%
No of staf completed banking exam 5 1% 5 1% 2 1%
No of lawyers qualifed 16 4% 16 4% 16 6%
No of accountants qualifed/partly qualifed 50 12% 49 13% 48 17%
No of IT qualifed/partly qualifed 33 8% 33 9% 32 11%
No of degree qualifed 82 19% 77 21% 51 18%
Other 174 41% 130 36% 114 39%
Total 425 364 289
in the areas of customer care, customer
rights, industry practices, banking
law, governance, anti-corruption, risk
management, development regulations,
organizational policies and procedures
etc. with a focus on customer orientation.
Further Education
The conductive strategies implemented
in the recent years have resulted in a
signifcant qualitative improvement in
our workforce. The numbers registered
with the Institute of Bankers for
professional banking examinations and
banking qualifed increased to 16 per
cent in 2010 compared to 10 per cent
in 2009. The percentage of graduates
qualifed in the areas of commerce,
accounting, economics, arts, geography
and valuation amounted to 19 per cent
of the workforce. These developments
have substantially strengthened the
sustainability of the Bank.
No. Staf registered for banking exam
No of staf completed banking exam
No of lawyers qualifed
No of accountants qualifed/partly qualifed
No of IT qualifed/partly qualifed
No of degree qualifed
Other
Staf Capacity Maximizing
8%
19%
12%
41%
1%
4%
15%
Diversity and Equal
Opportunity
The extent of employee diversity based
on gender, age group, service period
and ethnicity within an organisation
is imperative for the stability of the
human capital. HDFC is an equal
opportunity employer, paying a uniform
remuneration for men and women for
work of equal value. From the inception
we have employed a high percentage
of women in our organisation which
amounted to 46 per cent in 2009. During
2010, we strategically recruited more
males to strengthen our sales team
and thereby reduced the percentage of
women in our workforce to 45 per cent
by the year end.
The average service period of above fve
years indicates the level of stability and
average age of 36 refects a high potential
for development. In 2009, 99 per cent
of our workface comprised of Sinhalese
which was identifed as a constraint for
sustainable regional expansion of the
Bank. In order to expand the ethnic
diversity in 2010, we made a conscious
efort to recruited staf from minority
groups which enabled us to dilute the
majority representation from 99 per cent
to 93 per cent by the year end.
Male
Female
Male & Female Participation
55% 45%
Senior Management
Junior Management
Other Staf
Bank
Diversity - By Age (years)
28%
23%
20%
17%
13%
Key Performance Indicators - Diversity and Equal Opportunity
2010 2009 2008
Diversity- by Gender Participation M F.M M F.M M F.M
Corporate Management 7 0 8 0 0
Senior Management 9 7 7 6
Junior Management 72 98 71 98
Other Staf 143 89 112 62
Total 231 194 198 166 139 150
Gender 55% 45% 54% 46% 48% 52%
Diversity - By Age ( years)
Corporate Management 50 49 51
Junior Management 31 32 41
Other Staf 23 23 38
Bank 36 37 39
Diversity- by average service (years)
Corporate Management 5 4 46
Junior Management 13 13 13
Other Staf 4 9 12
Average Bank 9 10 11
Diversity- by Ethnic Group
Sinhalese 401 93% 357 99%
Tamil 14 4% 4 1%
Moor 10 2% 3 0%
Total 425 100% 364 100%
Our Approach
The community is an important
Stakeholder of HDFC. The ethos of
our bank is focused on sustaining the
community given that our core business
is fulflling a primary need of the
community which is shelter. Over the
past two and half decades we have made
a signifcant contribution to improve the
physical quality of life of the low and
middle income segment of our nation by
facilitating afordable housing fnance in
order to fulfll their dream of owning a
home which itself creates a sustainable
environment for them to built their
future upon. We also acknowledge
our responsibility to involve ourselves
with the community which enables
us to build deep relationships with
customers and promote the reputation
and image of the bank. Investment in
the community is most efective when is
built on a foundation of mutual beneft
and a long term partnership.
Policy and Governance
Our community investment policy
focuses mainly on the following six
strategic directives;
Sustainable housing and living
Financial inclusion
Clean water and health
Education and Sports
Donation and sponsorships
Volunteerism on disaster
management
HDFC Community policy is available
at www.hdfc.lk for public reference.
During the year Bank has invested over
LKR 4.492 Million in the process of
policy implementation representing 2%
of cash earnings before tax.

Our community participation
responsibilities are governed by the CSR
steering Commitee headed by the Chief
Executive Ofcer/ General Manager
represented by DGM (Finance), AGM
(Business Development & Marketing),
AGM (IT), Manager Technical, Manager
Treasury and a representative of the
Trade Union. CSR projects and activities
are proposed, identifed, screened and
evaluated based on social cost benefts
and is submited for Board approval.
Project implementation is assigned to
Social Responsibility - Sustaining Community
Community Policy at a glance
The Bank recognises that it has an inbound responsibility for sustainable
development of the industry, and improvement of physical quality of lives of
people, hence commited;
1. to promote innovative housing technologies that are economical to the
common man and equitable to the country and environment
2. to focus on providing banking facilities to non banking communities and
proliferate banking and saving habits among them
3. to enhance accessibility to clean water and healthcare
4. to contribute and participate in the society to achieve the goal of Universal
Primary Education by the year 2015.
5. to participate in promotion of sports in schools and society
6. to donate and sponsor community organisations and individuals for medical,
sports, education and in times of natural disasters. Also ensure that all
donations and sponsorships are properly recorded, accounted and disclosed
and encourage voluntary staf participation
Highlight 2010
+ 55%
Investment in Community
the CSR Project Commitee represented
by a member from each functional
department. The outcome of each
project is reported to the Board on the
completion of a project.
Community Performance
Promoting Sustainable Living
and Financial Inclusion
THILINA THARU Art Competition
For the second consecutive year we
organized an island wide art competition
to commemorate UN Habitat day 2010,
jointly with the UN Habitat Sri Lanka
ofce and the aesthetic division of the
Ministry of Education. The competition
was launched under the theme Beter
City beter Life in conjunction with the
UN Habitat theme 2010. The program is
opened to children from grade one grade
twelve and organized annually with the
objectives of:
a. Promoting environmental education
and sustainable living
b. Promoting aesthetic talent of children
c. Inculcating savings habits among our
future generation.
The competition was opened from
1st July to 30th October and 13,879
paintings were submited from schools
and preschools island wide. There
was a high level of participation from
the children of North and East which
was commended by all stakeholders.
Awards and certifcates were distributed
at a ceremony held at the John de Silva
Art Center where 176 students from all
provinces participated. Total project
investment was Rs 2.108 Million. Please
refer www.hdfc.lk for more details of the
project.
Recognising diferently able children
Two students from Yasodara Vidyalaya,
Colombo, were awarded with gifs and
certifcates under a special category for
diferently abled children.
Thilina Tharu winners- national level
Part of the gathering at the Thilina Tharu
ceremony
Children performing at the Thilina Tharu
ceremony
Recognising talent of diferently able children
Participation for the Thilina Tharu
Competition
2010 2009
North Central 86 117
Eastern 807 671
Northern 406 106
Southern 1,302 1,788
Uva 649 102
Central 2,728 1,492
North Western 1,520 188
Sabaragamuwa 1,831 1,654
Western 4,552 5,513
Total 13,879 11,631
Children Savings with Banks
Sponsorships
To inculcate savings habits among school
children, HDFC launched a THILINA
minor savings accounts in schools and
preschools with an initial deposit of LKR
Social Responsibility - Sustaining Community contd.
North Central
Eastern
Northern
Southern
Uva
Central
North Western
Sabaragamuwa
Western
Thilina Participation 2010
6%
3%
9%
5%
20%
11%
13%
1%
33%
100/= from the Bank. This was conducted
in all districts via the branches. We
invested LKR 530,600 on this program
in 2010.
THILINA Certifcates for Displaced
Children
To commemorate the opening of HDFC
Vavuniya Branch, the Bank extended an
investment certifcate named THILINA
Rakawarana to 50 deserving children
in the north and east. Our initial
investment was LKR 300,000/- and we
guaranteed a return of LKR 950,000/ on
maturity to these children upon reaching
the age of eighteen.
Promoting Clean Water and
Health
HDFC Eye Camp
Poor eye health is a key health issue
faced by a majority of Sri Lankans. Due
to negligence and lack of knowledge
many are facing this issue especially
among the low income segment of our
country. Recognising the importance
of eye health in promoting the
sustainability of this segment, we
organised an eye camp at the Manning
Market in Colombo in commemoration
of World Health Day 2010. The camp
was organised for the daily waged
shop assistants and labourers with the
cooperation of the traders welfare
associations in Manning Market. More
than 525 blue collar workers who
obtained the services of the camp in
the Manning Market are our valued
customers who use our Palm Top
banking facility for daily deposits.
Majority of them participated for a
vision care program for the frst time
and the summary of the outcome of the
eye camp is given below:
No of benefciaries and testing results No of heads
persons atended the camp 525
persons needed eye glasses 235 45%
persons needed near vision correction 125 53%
persons needed single vision wear 16 7%
persons needed Bifocal for distance. 41 17%
persons needed Bifocal for constant use 53 23%
persons needed reading Glasses 125
persons needed custom made spectacles 110
Bank granted customised glasses for all needy participants and total cost invested on
this project was LKR 315,406.
Promoting Education
Suboda Primary School
Development Project, Buththala
Suboda Vidyalaya is a school situated
in Buththala, facing Kathragama road,
providing education up to grade 10.
There are approximately 100 students
who have undergone many hardships
due to lack of adequate building space,
study material, library facilities, sports,
sanitary and water facilities. The lack of
teachers and the threat of wild elephants
were the other issues faced by the
school. When we initiated this project
the school was virtually neglected with a
steady decline in the number of students
majority of whom were from the low
income families.
HDFC sports club selected to rehabilitate
Suboda Vidyalaya as a CSR project
and Board approval was obtained to
implement the program in conjunction
with the Monaragala Integrated
Rural Development Project organized
under the Dayata Kirula exhibition
scheduled to be held in February 2011 in
Monaragala. An estimated cost of LKR
3.5million is being spent to develop and
rehabilitate the school. Refurbishing
Foundation laying Butala Suboda School
development Project
of existing buildings, construction of
new buildings, repairing the existing
sanitary and water facilities, promoting
commercial cultivation and puting up
a bio fence for protection from wild
elephants are some of the activities
undertaken by the project. Apart from
that 500 teak plants were also planted
around the school premises. This is a
project funded by the Bank and staf
with substantial assistance from villages
by volunteer labour and materials.
During the year Bank has spent Rs
500,000/- towards this project The
program is scheduled to be completed
by February 2011. Pleases refer our web
site www.hdfc.lk for more details of the
program.
Key performance indicators - Community Investments
Event 2010
Amount - Rs. As % of PBT
Promoting sustainable housing & living 665,000 0.23%
Promoting fnancial inclusion 830,600 0.29%
Promoting clean water and health 315,400 0.11%
Promoting educational, cultural and sport activities 2,108,000 0.72%
Donation and sponsorships 535,000 0.18%
Staf voluntarism (paid hours) 38,500 0.01%
Bank contribution towards social well-being 4,492,500 1.54%
Staf voluntarism towards social well-being
Total
Assisting Schools with Study
Materials
This project was initiated last year to
assist rural children of less privileged
families with educational materials.
During the year, we distributed school
bags and books to 85 children in
Buthala at a cost of LKR 40,000.
Donation and Sponsorships
During the year, Bank has spent LKR 1.3
Million as donation and sponsorships
for social events organised in various
organizations, societies and schools,
for the wellbeing of the society and
the industry. Some of the signifcant
donations and sponsorships are as
follows:
Sponsorship of the Samurdhi Staf
welfare societies - LKR 102,000
Sponsorship of the Thunkal Dakma
Fund raising program - LKR 335,000
Dayata Kirula national exhibition -
LKR 305,000.
Staf Voluntarism
HDFC encourages voluntary staf
participation in community projects
and in the event of natural disasters.
Voluntary participation in community
projects is imbued to HDFC employees,
by creating a platform for them to
actively participate in CSR projects and
community development and social
activities initiated by the CSR Commitee
and the Sport Club. Our staf donated
generously towards supporting their
fellow members in need of fnancial
assistance due to hospitalisation,
housing, education, and food etc.
During the year staf has donated over
LKR 1.6 million for this purpose.
Community Investment 2010
as a Percentage of PBT
Promoting sustainable housing & living
Promoting clean water and health
Promoting educational,
cultural and sport activities
Donation and sponsorships
Staf voluntarism ( paid hours)
0.11%
0.72%
0.18%
0.01%
0.29%
0.23%
Impacts and challenges in maintaining the triple botom line
It must be noted that economic, social and environmental sustainability is inextricably linked and in order to create a sustainable
organisation, all three facets must be in place. In general, the housing and housing fnance industries are challenged via
numerous impediments with a housing fnance institution like ours in particular, facing more threats than regular banking
institutions. The impediments detailed below do have a signifcant impact on our botom line and poses immense challenges to
maintaining a sustainable milieu for a going business concern. It is these challenges and other constantly emerging threats that
has spurred HDFC to be pragmatic in our view for the future.
Challenge Our strategies to overcome
Housing fnance in general should
be long-term and low cost to make
it afordable to an average income
household. The difculty in sourcing
long-term matching funds is a challenge
in developing economies such as Sri
Lanka.
Strive to increase risk pooled savings and deposit funds by enhancing customer
reach and with new savings and deposits products
Arrangement of long-term borrowings from other banks and fnancial institutions
through secondary mortgage market operations
Efcient portfolio management in both assets and liabilities
Efcient assets and liability and fnancial risk management operation
Housing fnance should be long term
in nature. But prediction of long-term
macro economic variables is a signifcant
challenge in emerging economies like Sri
Lanka.
Maintain adjustable interest policy
Maintain a diversifed portfolio
Be vigilant on market behavior
Be regulatory complied and sound
Efcient portfolio management in both assets and liabilities
Efcient asset and liability and fnancial risk management operations
Above 75% of our customers are from the
low and middle income group with poor
fnancial literacy, inadequate collaterals
and lack of documentation of proof of
income for credit evaluations.
Expansion of mobile baking operation to promote fnancial inclusion
Acceptance of alternative securities
Exercising a more corporate approach in credit evaluation
Diversifcation of lending based on income
Providing ancillary services such as technical, valuation and legal services
Close monitoring and follow-up
The need for governance as real estate
forms one of the largest asset bases of
the country and is prone to artifcial
pricing, unhealthy competition, lack
of accountability long term vision and
transparency
Establish an in-house valuation , technical and legal department
Comply with the regulation of local authorities and other regulatory bodies
Be compliant with industry standards and good governance practices
Regular credit review and customer relations
Be compliant with external codes and best practices in fnance and construction
industries
Growth in the housing sector is
constrained due to artifcial rise in land
prices, high wages in the construction
industry, high cost of building materials
and lack of skilled labour
Maintain afordability of fnance
Promote low cost afordable housing technologies
Promote awareness on sustainable construction and living
Promote geographical diversity in lending
Knowledge based products and services
Maintaining afordability and
accessibility of service to masses with
open market competition
Efcient risk management
Research and development on new customised products and services
Improve quality of service and customer satisfaction
Development of staf through training and customer orientation
Promote fnancial inclusion and enhance accessibility for housing fnance
Commitment to focused engagements - 2010
Commitments made in 2009 Status
The branch network will be added to with ten more customer service centers, primarily in
the North and East
In progress
The strategic Sampath Bank ATM tie up, which was scheduled for completion in 2010 to
ensure that our ATM network will be accessible islandwide, encompassing a total of 225.
Achieved
IT processes and systems are being enhanced for seamless connectivity and efciency,
especially in loan approval and disbursements.
Partly achieved and in progress.
More ethnic diversity will be seen within the team and a policy to recruit staf
proportionately from all ethnic groups is being established
Partly achieved and in progress
New fnancial instruments, currently being researched, will be introduced to raise
long term matching funds, in addition to structured debt instruments as an atractive
investment option
Partly achieved and in progress.
Investing heavily on the overall improvement of the operational quality of the Bank and in
upping the customer service tenets via surveys, mystery customers and indices
In progress.
Focused Engagements - 2011
Stakeholder Focused Engagements
G
o
v
e
r
n
m
e
n
t
Maximize direct economic value creation
Enhance value and number of housing loans with especial focus on low and middle income groups
Focus on expanding banking services in the north and east
Actively participate in governments special regional development projects
Enhance lending to customers from agriculture and agricultural industries
Enhance strategies to atract unbanked community and empower them through savings and housing loans
S
h
a
r
e
h
o
l
d
e
r
s
Timely and regular publication of quarterly fnancial results and Annual Report 2011
Reconstruction of corporate website to communicate wider range of corporate information including economic,
environmental and social performance
Enhance proftability and shareholders fund with efcient portfolio management
Strengthen strategies for risk management
Maintain above the industry average growth
Enhance brand and corporate image
C
u
s
t
o
m
e
r
Enhance customer reach by opening fve new branches and through ATMs
Diversify the product rage with new customized loan, savings and deposit products
Enhance mobile banking operation with 30 new operators to provide customer convenient and friendly service
Introduce new value added services at customer convenience
Introduce code of ethics and customer relations
Stakeholder Focused Engagements
E
n
v
i
r
o
n
m
e
n
t
Implement a branch wise competition to promote efcient utilisation of energy and resources
Initiate to quantify GHG emission and manage own carbon footprint
Initiate to introduce green products, green operations and cost efective housing technologies
Strive to inculcate sustainable living and construction practices
Implement one tree for one loan project to improve and protect biodiversity
Strive to reduce indirect energy consumption from staf transport
E
m
p
l
o
y
e
e
Continue with career development and training with special focus on foreign training
Introduction of a unique branch performance appraisal system which encompass career training, development,
rewarding star performers
Review HR policies
Appointment of the head of HR- recruit a highly capable qualifed and experienced professional able to face
challenges of development and expansion
Expansion of feld sales through new recruitments for Palm Top operations
More ethnic and geographical diversity within the staf
C
o
m
m
u
n
i
t
y
Complete school development project at Monaragala in February 2011
Implement Computer literacy center project already approved by the Board to promote IT education
Investment on promoting education by assisting schools
Continue with Thilina Tharu Childrens Art exhibition in 2011
Continue with the community awareness program on sustainable living in conjunction with the world Habitat
day 2011
Independent Assurance
Report in Relation to the
Introduction and Scope of the
Engagement
The management of HDFC Bank
(Bank) engaged us to provide an
independent assurance on the following
elements of the Sustainability Report
2010 (the Report).
Reasonable assurance on the
information on fnancial performance
as specifed on page 69 of the Report.
Limited assurance on key
performance indicators and other
information presented in the Report.
Responsibility of the
Management on the Report
The Management of the bank is
responsible for the preparation and
presentation of the Report in accordance
with the Banks sustainability practices
and policies which are derived from
Global Reporting Initiatives (GRI-G3)
Sustainability Reporting Guidelines.
These responsibilities include
among other things, identifcation
of stakeholders and material issues,
determining the sustainable performance
criteria for reporting and establishing
appropriate processes and internal
control systems to measure and report
the sustainability performance criteria.
Assurance Report
Our Responsibility
Our responsibility is to perform a
reasonable and limited assurance
engagement and express conclusions
based on the work performed in
accordance with Sri Lanka Standard
on Assurance Engagements (SLSAE
3000): Assurance Engagements other
than Audits or Reviews of Historical
Financial Information, issued by the
Institute of Chartered Accountants of Sri
Lanka (ICASL).
Reasonable assurance is a high level
of assurance. However, reasonable
assurance is not an absolute level of
assurance because there are inherent
limitations of assurance engagement.
A limited assurance engagement
is substantially less in scope than a
reasonable assurance engagement and
consequently does not enable to obtain
assurance that we would become aware
of all signifcant maters that might be
identifed in a reasonable assurance
engagement.
This Report is made solely to the Bank in
accordance with our engagement leter
dated January 24, 2011. We disclaim
any assumption of responsibility for
any reliance on this Report to any
person other than the Bank or for any
purpose other than that for which
it was prepared. In conducting our
engagement, we have complied with the
independence requirements of the Code
of Ethics for professional Accountants
issued by the ICASL.
Assurance Procedures
Carried Out
Financial Information
We reconciled the information on
fnancial performance as reported on
page 69 of the Report with the audited
fnancial statements of the Bank for the
years ended December 31, 2009 and
2010.
Key Performance Indicators
We reviewed the reliability of the
data/information on Key Performance
Indicators for the year ended December
31, 2010 based on reviews of:
the systems used to generate,
aggregate and report these
information;
the information reported by the
relevant business units to corporate
level;
the information validation processes
at corporate and business level;
the information trends in discussions
with management and
the calculation performed by the
Bank on a sample basis through
recalculation.
Other Information
We planned and performed following
assurance procedures on other
information presented in the Report:
Inquiring relevant Banks personnel
to understand the process for
collection, analysis, aggregation and
presentation of information in the
Report.
Reviewing the system used to
generate, aggregate and report the
information in the Report.
Interviewing the senior management
and relevant staf at corporate
level and selected business unit
level and obtained the evidence
concerning sustainability strategy
and policies for material issues and
implementation of those across
operation of the Bank.
Reviewing and validating the
information contained in the Report.
Reading the information presented
in the Report to determine whether
that information is in line with our
overall knowledge of, and experience
with, sustainability performance of
the Bank.
Conclusion
Based on the procedures performed, as
described above, we conclude that:
The information on fnancial
performance as specifed on page
69 of the Report is properly derived
from the audited fnancial Statements
of the Bank for the years ended
December 31, 2009 and 2010.
Nothing has come to our atention
that causes us to believe that key
performance indicators and other
information presented in the Report
are not presented, in all material
respects, in accordance with the
Banks sustainability practices and
policies which are derived from
GRI (G3) Sustainability Reporting
Guidelines.
Chartered Accountants
March 23, 2011
Colombo
The Global Reporting Initiative (GRI)
G3 reporting framework, has been used
as a guide in the preparation of the
Sustainability Report 2010. This index
provides a comprehensive listing of the
GRI Indicators reported by HDFC Bank,
including the fnancial service sector
supplement on social and environmental
performance.
Indicators that have been addressed
within the Sustainability Report are
marked as SR and indicators that have
been addressed within the Annual
Report are marked as AR in the index
reporting section of the GRI index
schedule.
On the basis of the reported indicators,
disclosure of approaches on sustainable
business practices and independent
assurance HDFC Bank assessed its
Sustainability Report 2010 as a B+ level
report.
Global Reporting Initiative (GRI) Index
C C+ B B+ A A+
Mandatory Self declared
Optional Third party checked.

GRI checked
GRI Index - 2010
PROFILE
Index Reporting Section in AR and SR Page
1 Strategy & Analysis
1.1 Chairman and CEOs comments AR- Chairmans statement.
AR- Chairmans statement on Governance
AR- CEOs Review Statement.
SR- CEOs Sustainability Statement
11 - 13
109 - 110
15 - 17
55
1.2 Description of key impacts, risks and
opportunities
AR- Chairmans statement.
AR- CEOs Review Statement.
AR- Management Discussing and Analysis
SR- Key Impacts and Challenges
SR- Sustainability Approach.
AR- Risk Management Report
11 - 13
15 - 17
31 - 40
95
56 - 58
43 - 51
2 Organizational profle
2.1 Name of the organization AR- Corporate Information - Inner Back Cover 192
2.2 Primary brands, products, and services AR- Products and Services.
SR- Customer Responsibility.
8 - 9
73 - 76
2.3 Operational structure of the organisation AR- Corporate Information - Inner Back Cover
AR- Corporate Governance
192
110
2.4 Location of the organisations headquarters AR- Corporate Information - Inner Back Cover 192
2.5 Countries where the organisation is active Sri Lanka. -
2.6 Nature of ownership and legal form AR- Corporate Information - Inner Back Cover
AR- Ten year summary - Profle
192
184
2.7 Markets SR- Economic Responsibility
SR- Customer Responsibility
63 - 70
73 - 78
2.8 Scale of reporting organisation AR- Ten year summary - Profle 184
2.9 Signifcant changes during the period None -
2.10 Awards received during the period SR- Awards and Recognitions 72
3 Report Parameters
Report Profle
3.1 Reporting period SR- Reporting period 54
3.2 Date of most recent previous report SR- Reporting period 54
3.3 Reporting cycle 12 months Period -
3.4 Contact persons for queries on the report SR- Editorial information 54
Report Scope and Boundaries
3.5 Process for defning report content SR- Reporting framework and guide lines 54
3.6 Boundary of the report SR- Defning report boundary
AR- Accounting Policies
54
168 - 170
3.7 Limitations on the scope or boundary of the report SR- Defning report boundary
SR- Specifc limitations
54
54
3.8 Basis for reporting on subsidiaries SR- Specifc limitations 54
3.9 Data measurement /calculation techniques SR- Data measurement 54
3.10 Comparability with previous reports SR- Defning report boundary 54
3.11 Signifcant changes from previous reporting None -
GRI Content Index
3.12 GRI Compliance Index SR- GRI Index 100 - 107
Assurance
3.13 External assurance SR- Independent Assurance.
SR- Assurance Report
54
98 - 99
4 Governance, Commitments & Engagement
4.1 Governance structure of the organisation AR- Corporate Governance
SR- Sustainability Governance.
SR- Precautionary Approach and Risk Mgt.
110
56
57
4.2 Chairman of the Board AR- Chairmans Statement
AR- Corporate Governance.
AR- Chairmans Statement on Governance.
11 - 13
110
109
4.3 Highest governance body AR- Corporate Governance 109 - 143
4.4 Methods for shareholders and employees to
propose recommendations to the Board
SR- Labour relations and HR
AR- Corporate Governance -13
87
109 - 143
4.5 Remuneration of senior executives AR- Corporate Governance 134 - 137
4.6 Proceses for avoiding conficts of interests of the
Board
AR- Corporate Governance,
AR- Directors interests
131
179
4.7 Processes for determining the competence of
Board members
AR- Corporate Governance 111 - 125
4.8 Mission, values, code of conduct, etc. AR-Mission and Vision 2 - 3
4.9 Monitoring of the sustainability work by the
Board
SR- Sustainability Governance.
AR- Corporate Governance
56
109 - 146
4.10 Processes of evaluating the performance of the
Board Commitments to External Initiatives
AR- Corporate Governance 133 - 134
4.11 Application of the precautionary principle AR- Risk Management report.
SR- Precautionary approach and risk mgt.
43 - 51
57
4.12 Compliance to external voluntary codes,
principles or other initiatives
SR- Association to external codes and initiatives
SR- Environmental Performance
AR- Risk Management report
57
80
43 - 44
4.13 Membership in organisations SR- Association with organisations
AR- Risk Management Report
57
43 - 44
4.14 List of stakeholder groups SR- Key stakeholder groups and commitments 59 - 60
4.15 Basis for identifcation and selection of important
stakeholders.
SR- Basis of recognizing stakeholders and
engagement with them. 57
4.16 Approach to stakeholder engagements. SR- Key Stakeholders groups and Commitments
SR- Our approach on each stakeholder group
59 - 60
63, 71, 79,
83, 91,
4.17 Key topics and concerns raised through dialogue
with stakeholders.
AR- Management discussion
SR- Key stakeholders groups and commitments
31 - 42
59 - 60
ECONOMIC PERFORMANCE INDICATORS
Disclosure of Management Approach SR- Our Approach , Policy and Governance 63
EC1 Direct economic value and distribution SR- Direct economic value creation.
SR- Key performance indicators- economic
63 - 64
69 - 70
EC2 Risks to the organisation due to climate change AR- Risk Management and mitigating
strategies in place- Market risk
44,
48 - 49
EC3 Coverage of the organisations defned beneft
plan and obligations
SR- Contribution to defned benefts plan
SR- Key performance indicators- decent work
86
86
EC4 Financial assistance received from the
Government
None -
EC5 Standard entry level wage compared to local
minimum wage
Not reported -
EC6 Purchases from local suppliers SR- Supplier responsibility 77
Global Reporting Initiative (GRI) Index contd.
EC7 Recruitment of senior management from the local
community
Not reported -
EC8 Investment on infrastructure and services
provided to the public
SR- Community participation
SR- Key performance indicators - community
investment
91-94
94
EC9 Signifcant indirect economic impact from
operations
SR- Economic responsibility
SR- Key performance indicators- economic
63-68
69, 70
ENVIRONMENTAL PERFORMANCE INDICATORS
Disclosure of Management Approach SR-Our Approach, Policy and Governance 79
Material
EN1 Materials used by weight or volume SR-Paper consumption , key performance indicators 82, 81
EN2 Recycled input materials SR- Sustainable procurement and waste management
SR- Key performance indicators - environment
81
82
Energy
EN3 Direct energy consumption SR- Business Travels and fuel consumption.
80, 81
82
EN4 Indirect energy consumption SR- Staf transport and emission controls
80, 81
82
EN5 Energy saved due to conservation and efciency
improvement
SR- Managing carbon footprint.
80, 81
82
EN6 Initiatives to provide energy-efcient or renewable
energy based products and services and
consequent reduction in energy requirements
SR- Managing carbon footprint
SR- Promoting sustainable housing.
80, 81
81
82
EN7 Initiatives to reduce indirect energy consumption
and reduction achieved
SR- Managing carbon footprint.
80, 81
82
Water
EN8 Total water withdrawal SR- Electricity and water consumption
81
82
Emission, Efuents and Waste
EN16 Direct and indirect greenhouse gas emissions SR- Managing Carbon Footprint.
80, 81
82
EN17 Other relevant indirect greenhouse gas emissions Not quantifed. -
EN18 Initiatives to reduce greenhouse gas emissions SR- Managing carbon footprint
80, 81
82
EN22 Total weight of waste discharged by type and
disposal method
SR- Paper consumption
SR- Procurement and waste management
81
81
82
EN23 Total number and volume of signifcant spills Not applicable -
Products & Services
EN26 Actions to reduce environmental impact of
products and services
SR- Compliance with environmental and
development regulations
SR- Promoting sustainable housing and living
80
81
82
EN27 Products sold and use of recyclable packaging
materials
Not Applicable -
Compliance
EN28 Fines for non-compliance with applicable
environmental laws
No violation or fnes paid by the Bank -
Transport
EN29 Environmental impact from transport SR- Business travels and fuel consumption.
SR- Staf travel and emission controls.
80
80, 81
82
EN30 Total environmental protection expenditure Not quantifed -
SOCIAL PERFORMANCE INDICATORS
Labour Practices and Decent work
Management approach SR- Our approach, HR Practices and governance
SR- Training awareness
83, 84
84
LA1 Breakdown of total workforce SR- Decent work performance
SR- Key performance indicators - decent work
85
86
LA2 Employee turnover SR Team remuneration, benefts and turnover
85
86
LA3 Benefts provided to employees SR Team remuneration, benefts and turnover
85
86
Labour/Management relations
LA4 Collective agreements covered by employees SR- Labour relations and human rights
SR- Key performance Indicators - labour relation
87
87
LA5 Minimum notice period(s) regarding operational
changes
SR- Labour relations and human rights 87
Occupational Health & Safety
LA6 Total workforce represented in health and safety
commitees
SR- Work life balance
SR- Key performance indicators - occupational health
87
88
LA7 Rates of injury, occupational diseases, lost days SR- Work life balance
87
88
LA8 Programs to assist workforce regarding serious
diseases
87
88
LA9 Health and safety topics covered in union
agreements
87
88
Training & Education
LA10 Average hours of training per year per employee SR- Training and awareness
SR- Capacity maximising
SR- Key performance indicators - capacity max
84
88
89
LA11 Management of lifelong learning SR- Capacity maximising
88
89
LA12 Per centage of employees receiving regular
performance reviews
SR- Performance review and follow up 84
Diversity and Equal Opportunities
LA13 Composition and diversity of workforce SR- Diversity and equal opportunity
SR- Key performance indicators - diversity
90
96
90
LA14 Basic salary ratio of men to women SR- Diversity and equal opportunity
SR- Key performance indicators - diversity
90
90
HUMAN RIGHTS
Management approach SR- Our approach customer, shareholder, suppliers,
employees, environment
63, 71, 73,
79, 83, 84
HR1 Consideration for human rights on investments SR- Our Approach customer 73
HR2 Human rights in the supplier chain SR- Our Approach supplier 77
HR3 Training and education in human rights SR- Capacity maximising
88
89
Non- Discrimination
HR4 Total number of incidents of discrimination and
actions taken
SR- Labour relation and human rights
SR- Key Performance Indicator - Labour Relation & HR
87
87
Freedom of association and collective bargaining
HR5 FOA may be at a signifcant risk and actions taken SR- Labour relation and human rights 87
Child, Forced and Compulsory Labour
HR6 Operations with risk of incidents of child labour SR- HR practice and governance 84
HR7 Incidents of forced or compulsory labour and
actions taken
SR- HR practice and governance 84
Security Practices & Indigenous Rights
HR8 Security personnel trained on human rights Coordinate with head of security -
HR9 Violations involving rights of indigenous persons Not Applicable -
SOCIETY
Management Approach SR - Our approach, policy and governance - Economy
SR - Our approach, policy and governance -
Community
63, 64
91, 92
Community
SO1 Impact of operations on communities SR- Community responsibility
91 - 94
63 - 70
Corruption
SO2 Business units analyzed for risk related to
corruption
AR- Risk Management
SR- Precautionary approach and management
43 - 51
57
SO3 Training on anti-corruption policies and
procedures
SR- Capacity maximising 88 - 89
SO4 Actions taken in response to incidents of corruption No reported incidents -
Public Policy
SO5 Participation in public policy development and
lobbying
Not Reported -
SO6 Total value of fnancial contributions to political
parties, etc.
None -
Ant- Competitive Behavior
SO7 Total number of legal actions for anti-competitive
behavior
No reported incidents -
Compliance
SO8 Monetary value of fnes for non-compliance with laws None -
PRODUCT RESPONSIBILITY
Management Approach SR- Our approach - Customer Responsibility 73
PR2 Non-compliance with regulations Not applicable -
PR3 Type of products and service information Not applicable -
PR4 Non-compliance with regulations on information Not applicable -
PR5 Practices related to customer satisfaction SR- Customer Satisfaction
SR- HDFC Quality Policy
77
73
PR6 Programs on adherence to laws, standards and
voluntary codes for marketing communications
Not reported -
PR7 Non-compliance with regulations and marketing No reported incidents -
PR8 Breach of customer privacy None -
PR9 Monetary value of fnes for non-compliance None -
FINANCIAL SERVICE SECTOR SUPPLEMENT.
Specifc Disclosure on Management Approach
FS1 Policies with specifc environmental and social
components applied to business lines
SR- Environmental policy
SR- Community policy.
SR- Stakeholder communication policy.
SR- HDFC quality policy
79
91
59 - 60
73
FS2 Procedures for assessing and screening
environmental and social risks in business lines
SR- Stakeholder engagement 63 - 94
FS3 Processes for monitoring environmental and social
requirements
SR- Compliance with environmental and
development regulations.
SR- Stakeholder engagement.
SR- Environmental key performance indicators.
80
63 - 94
82
FS4 Process(es) for improving staf competency to
implement environmental and social policies
SR- Capacity maximising 88
FS5 Interactions with clients/investors/ business
partners on environmental and social risks and
opportunities
SR- Environmental responsibility
SR- Environmental key performance indicators.
79 - 82
82
FS6 Analysis of the portfolio based on region and size SR- Economic responsibility
SR- Key performance indicators - Economic.
SR- Customer responsibility
SR- Key performance indicators - Customer.
63 - 70
69, 70
73 - 78
78
FS7 Monetary value of products and services designed
to deliver a specifc social beneft for each business
line analysed based on purpose
SR- Community responsibility
63 - 70
73 - 78
91 - 94
FS8 Monetary value of products and services designed
to deliver a specifc environmental beneft
SR- Environmental responsibility 79 - 82
FS9 Coverage and frequency of audits to assess
implementation of environmental and social
policies
Annual audit of CBSL and, ISO and regular
monitoring by the compliance department on policy
implementation
122, 144,
56, 57
FS 11 Percentage of assets subject to positive and
negative environmental or social screening
Not reported -
FS12 Voting policy(ies) applied on environmental or
social issues for shareholders with voting rights
None -
FS13 Access points to less populated or economically
disadvantaged areas
63 - 70
73 - 78
FS14 Initiatives to improve access to fnancial services
for people who do not have access to formal
banking channels
63 - 70
73 - 78
Indicator Protocol Specifc Commentaries
EC1 SR- Sustaining community
SR- Key performance indicators - community invest
91 - 94
94
EN16 SR- Managing carbon footprint
SR- Key performance indicators
80, 82
82
HR1 The functions of loan processing, approval,
contracting, disbursement, follow up and recoveries
are conducted with due respect to human rights
73 - 74
The ethical foundation and
regulatory framework
Chairmans Statement
on Corporate Governance.
No bank can function as an ethical
corporate citizen without the trust of its
shareholders and other stakeholders. It
is the most valuable capital that a bank
possesses and must be protected at all
costs. Creating this trust requires not
only just a great deal of time, but also
transparency, fairness and openness
above all. Only companies that base their
work on a secure ethical foundation have
the power to build up this trust and to
prove it again and again, every day, over
decades if not centuries. HDFC Bank has
rested these values for over 25 years on
such a frm foundation which provides a
solid basis for its success.
Core Values.
At HDFC our customers place their asset
with the trust and knowledge that they
have found the right Bank. Building this
trust is impossible without conviction
and modes of behavior anchored with
values such as transparency, fairness and
openness.
Transparency means being honestly
and candidly accountable to customers,
employees, shareholders and other
important stakeholder groups in every
situation. While this is easy when times
are good, it is equally difcult when
bad news has to be conveyed. But those
who succeed in stating clearly how
things are , without excuses and without
gloss, even in difcult times, have laid a
substantial foundation for trust.
Trust is impossible without fairness. It
is the basis of any long-term business
relationships and is conditional upon
both parties viewing themselves as
winners. At HDFC, we atach great
importance to customer satisfaction and
all eforts are taken to ensure that they
are treated fairly in the course of the
day-to day business.
At the end of the day, openness is one
of the foundation upon which HDFC
values are built. This includes openness
towards other human beings and
treating them with respect and with
genuine interest. It is necessary to learn
from them and to beter understand
them and their views. Openness is
also an atitude of mind which has
become more necessary today to operate
successfully than ever before. That is
because new problems are emerging ,
and new ways of looking at things have
become essential in many felds. This
applies both to customers as well as to
the employees of the Bank.
Governance Approach.
Corporate Governance at HDFC
refers to this frm foundation which
cements with the laws of governing the
formation and operations of the Bank,
internal policies and procedures and
the management structure. Corporate
Governance structure stipulates the
relations and the distribution of rights
and responsibilities, principally among
four groups of participants; the Board of
Directors, Management, Employees and
the Shareholders.
HDFCs Corporate Governance structure
also adheres to regulatory requirements,
and accepted external codes of best
practices , ethical and industry
standards.
The Board of Directors is commited to
continuous review and improvement
of the governance practices that
respects corporate values and maintains
the highest standard of integrity
and professionalism in a changing
environment.
Corporate Governance
Framework.
HDFC was incorporated by an Act of
Parliament namely the HDFC Act No.
07 of 1997 and converted to a License
Specialised Bank in terms of amendment
Act No. 15 of 2003. In the year 2005 the
Bank was listed at the Colombo Stock
Exchange. HDFC is the only bank under
the purview of the Ministry of Finance,
listed at the Colombo Stock Exchange.
This corporate background warranted
HDFC Bank to comply with several
statutory, regulatory and social codes
of best practices. This Corporate
Governance report enumerates the level
of Banks compliance with the following
laws and social codes of best practices
during the year 2010.
(I) HDFC Act
(II) Corporate Governance directives
issued by the Central Bank of
Sri Lanka, and compliance with
relevant laws under the Banking
Act.
(III) Code of Best Practices on
Corporate Governance issued
jointly by the Institute of Charted
Accountants and Securities &
Exchange Commission of Sri
Lanka.
(IV) Compliance with the continuing
listing requirements under section
7.10 of the listing rules issued by
the Colombo Stock Exchange.
In this direction the Board of Directors
ensure that the activities of the Bank
are at all times conducted in a manner
that respects it values and maintain the
highest ethical standards and in the
best interest of all stakeholder groups
with the guidance and assistance from
the Board sub Commitees and the
Corporate Management team.
The external auditors of the Bank,
the Auditor General have performed
procedures setout in Sri Lanka Related
Services Practice Statement 4400 (SLSRS
4400) on the compliance requirements
of Corporate Governance directives
issued by the Central Bank of Sri Lanka
and assisted us to strengthen our ethical
foundation and regulatory framework.
Chairman 14th of January 2011
Colombo Sri Lanka
Our Governance Approach.
The Central Bank of Sri Lanka in
December 2007, issued a Corporate
Governance Directions for Licensed
Specialised Banks in Sri Lanka, which
the Board of Directors of HDFC Bank
has formally adopted. Section one of our
Corporate Governance report covers the
level of compliance with the Banking Act
Direction No.11 of 2007 and subsequent
amendments thereto on Corporate
Governance for Licensed Specialised
Banks in Sri Lanka issued by the Central
Bank.
The Licensed Specialised Banks were
granted a total exemption from the
requirement to comply with section
7.10 (Corporate Governance) of the
continuing listing requirements under
the CSE listing rules subject to discourser
of rule 7.10(c) of CSE with efect from
01st of January 2010 as the Central Bank
of Sri Lanka too has issued directions
with regard to Corporate Governance
practices of Licensed Specialised Banks.
As such the HDFC Bank complied
with the Corporate Governance rules
applicable to the banking sector as
mandated under the Central Bank
directions and voluntarily complies
with Code of Best Practice on Corporate
Governance issued jointly by the
Securities and Exchange Commission of
Sri Lanka and the Institute of Chartered
Accountants of Sri Lanka in year 2008.
Section two of our Corporate
Governance report covers the level
of compliance with the Code of Best
Practice on Corporate Governance
issued jointly by the Securities and
Exchange Commission of Sri Lanka and
the Institute of Charted Accountants of
Sri Lanka in year 2008.
Section three of our Corporate
Governance report covers the level of
compliance with the continuing listing
requirements under section 7.10 of the
listing rules issued by the Colombo
Stock Exchange.
Audit Commitee
Board of Directors
(Chairman and
8 Non-Executive Directors)
Integrated
Risk Commitee
Human Resource &
Remuneration Commitee
Corporate Management and
Senior Management
Recovery Sub Commitee
General Manager / CEO
Nomination Commitee
Management Commitees
Corporate Governance Framework
Assets &
Liabilities
Commitee
Credit Commitee Debts Setlement
Commitee
Staf Grievance
Commitee
IT Steering
Commitee
Tender /
Purchasing
/ Evaluation
Commitees
Corporate Governance contd.
HDFC Banks compliance statement with the provisions of the Banking Act Direction No. 11 of 2007 and subsequent
amendments there to, of the Central Bank of Sri Lanka on Corporate Governance for Licensed Specialised Bank in Sri Lanka.
Rules of Corporate Governance shall be complied by all licensed specialized banks in Sri Lanka and such compliance shall
be as provided for in Direction 3(g)(i).
Guideline Compliance Status
3. (1) The Responsibilities of the Board
Board Function
3. (1) (i) The Board shall strengthen the safety and soundness of the bank by ensuring the implementation of the following:
a) Approve and oversee the Banks strategic objectives
and corporate values and ensure that these are
communicated throughout the bank.
Complied with.
The HDFC Bank has already commenced formulating
a suitable Strategic plan and a Corporate plan for next
three years as the existing plans will be expired at the
end of 2011. The vision and the mission of the HDFC
Bank will be strengthening further to achieve the
corporate objectives under the novel plans.
b) Approve the overall business strategy of the Bank,
including the overall risk policy and risk management
procedures and mechanisms with measurable goals.
Complied with.
Risk Management area will be strengthened further by
appointing a Risk Management ofcer to manage this
area in a more professional and prudent manner.
c) Identify the principal risks and ensure implementation
of appropriate systems to manage the risks prudently.
d) Approve implementation of a policy of communication
with all stakeholders, including depositors, creditors,
share-holders and borrowers.
Complied with.
The banks sustainability development policy was
developed including a relevant policy framework to
cover this area
e) Review the adequacy and the integrity of the banks
internal control systems and management information
systems.
Complied with.
The Board has in place an on-going process for
identifying, evaluating, monitoring and managing
signifcant risks that may afect the achievement of
business objectives. Please refer the Board of Directors
statement on internal controls, on page 147.
f) Identify and designate key management personnel, as
defned in the International Accounting Standards, who
are in a position to: (i) signifcantly infuence policy; (ii)
direct activities; and (iii) exercise control over business
activities, operations and risk management.
Complied with.
The Board has properly identifed and designated key
management personal as defned in the international
accounting standards and further defned their areas of
authority and the key responsibilities in line with our
business plan and corporate objectives.
Section One
g) Defne the areas of authority and key responsibilities
for the Board of Directors themselves and for the key
management personnel.
Complied with.
The Board has defned the areas of authorities and
responsibilities relevant to the Board of Directors, Board
Sub Commitees and Key Management personnel. An
authority matrix was developed for this purpose and
adopted by the Board, which will be reviewed and
updated periodically, in line with the requirements of the
HDFC Bank.
For further details please refer the comment made to
item No ( f) above.
h) Ensure that there is appropriate oversight of the afairs
of the Bank by key management personnel, that is
consistent with Board policy.
Complied with.
The Board policy is communicated to the management
continuously by the Board, and the Chairman conducts
meetings with the Corporate and Senior Management, in
order to ensure that the afairs of the Bank is consistent
with the Board Policy.
i) Periodically assess the efectiveness of the Board
Directors own governance practices, including: (i) the
selection, nomination and election of directors and key
management personnel; (ii) the management of conficts
of interests; and (iii) the determination of weaknesses
and implementation of changes where necessary.
Complied with.
The Bank has a special evaluation criteria for assessing
the efectiveness of the Board of Directors own
governance practices and the Board takes necessary
measures to improve the relevant are as identifed by
the Board.
j) Ensure that the bank has an appropriate succession plan
for key management personnel.
During the period under review, the HDFC Bank has
initiated developing a Succession Plan and a Policy for
the Key Management personal, and will be completed in
2011
k) Meet regularly, on a needs basis, with the key
management personnel to review policies, establish
communication lines and monitor progress towards
corporate objectives.
Complied with.
The Board review and revised the policies of the HDFC
Bank with the assistance of the Corporate and Senior
Management (during the period under review) and in
process of the monitoring the progress.
l) Understand the regulatory environment and ensure
that the bank maintains an efective relationship with
regulators.
Complied with.
The HDFC Bank being a License Specialized Bank listed
in the Colombo Stock Exchange, it is directly under
the regulatory authority of the Central Bank and the
Securities and Exchange Commission. Further the HDFC
Bank is under the authority of Ministry of Finance and
Planning. The Board of Directors of the HDFC Bank
has taken necessary measures to maintain an efective
relationship with the aforesaid regulatory authorities.
m) Exercise due diligence in the hiring and oversight of
external auditors.
Complied with.
In terms of sec 26 of HDFC Act, the accounts of the
HDFC Bank to be audited by a qualifed auditor
annually appointed at a share holder meeting. Provided
that, so long as the majority of the issued shares of the
Bank are held by the Government, the accounts of the
Bank to be audited by the Auditor General. In terms of
the above section, presently the auditor of the bank is the
Auditor General of Sri Lanka.
3. (1) (ii) The Board shall appoint the Chairman and the Chief
Executive Ofcer and defne and approve the functions
and responsibilities of the Chairman and the Chief
Executive Ofcer in line with Direction 3(5) of CBSL.
Complied with.
The position of the Chairman and GM/CEO are
separately defned in sec 05 and sec 14 of the HDFC Act.
The General Manager / Chief Executive Ofcer of the
Bank is a full time ofcer accountable and answerable to
the Chairman and to the Board of Directors. Presently,
Mrs. S. N. Wickramasinghe is the Chairman and Mr.
Suresh M. Amerasekera is the GM / CEO of the Bank.
Board Meetings
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 Boards consent
through the circulation of writen resolutions/papers
shall be avoided as far as possible.
Complied with.
During the period under review the Board met regularly
having 12 Board meetings (with the correct quorum)
with active participation of majority of Directors entitled
to be present. Obtaining the boards consent through the
circulation of writen resolutions / papers were avoided
as far as possible. If a writen resolution was adopted
by the Board, through circulation, due to urgency or on
any acceptable reason, relevant resolution was always
submited to the immediate following Board meeting to
ensure transparency.
3. (1) (iv) That arrangements shall in place to enable all Directors
to include maters and proposals in the agenda for
regular Board meetings.
Complied with.
3. (1) (v) That notice of at least 7 days is given of a regular Board
meetings. For all other Board meetings, reasonable notice
may be given.
Complied with.
The regular Board meetings and commitee meetings
are fxed annually and the relevant date calendar was
distributed among the Directors. Thereafer, separate
individual notices were being given to each Director
complying with regulatory requirements.
3. (1) (vi) That a Director who has not atended at least two-thirds
of the meetings in the period of 12 months immediately
preceding or has not atended 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 atendance.
The Board has noted this requirement. In absence of
provisions in the HDFC Act for appointment of alternate
Directors strict compliance is practically unwaranted.
Please refer the Board meeting atendance schedule of
Board of Directors.
3. (1) (vii) Shall appoint a Company Secretary whose satisfed
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 specifed in the
statutes and other regulations.
Complied with.
The Company Secretary is an Atorney-at-Law with
relevant required qualifcations and experience and the
Company Secretary is primarily responsible for handling
the secretarial functions to the Board and shareholder
meetings and to carryout other functions specifed in the
statutes and other regulations.
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 follows.
Complied with.
Please refer the comments made to item No. 3(1)(vii) and
3(1)(ix)
3. (1) (ix) The Company Secretary shall maintain the minutes
of Board meetings and such minutes shall be open for
inspection of any reasonable time on reasonable notice
by any Director.
Complied with.
The Company Secretary is responsible to the Board
in ensuring that the Board procedures are followed
correctly and that applicable rules and regulations are
complied with, according to the HDFC Act & other
related legislative Acts & directions applicable to HDFC
Bank, from time of time.
The Board Secretary maintains minutes of the Board
meetings and Board Sub Commitee Meetings with
necessary information and sufcient details.
3. (1) (x) Minutes of Board meetings shall be recorded in sufcient
details as required under the Banking Act directions on
Corporate Governance.
Complied with.
All deliberations taken place at the Board meetings,
relevant reports considered by the Directors and the
views of the Key Management personel are being
recorded, fulflling the Banking Act directions, which
are relevant for preparation of the minutes of the Board
meetings.
3. (1) (xi) There shall be a procedure to enable Directors, upon
reasonable request, to seek independent professional
advice in appropriate circumstances, at the Banks
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.
If the Board of Directors required independent
professional advice, the Bank bears the cost and the
Directors are allowed to obtain independent professional
advice, on case by case basis.
3. (1) (xii) Directors shall avoid conficts of interests, or the
appearance of conficts of interest, in their activities
with, and commitments to, other organisations or
related parties. If a Director has a confict of interest
in a mater to be considered by the Board, which the
Board has determined to be material, the mater 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.
The Directors exercise their independent judgment on
issues of strategy, policy, resources and standards of
conduct, and take necessary steps to avoid any conficts
of interest that may arise from any transaction of the
Bank, with any person who shall be considers as a
related party.
3. (1) (xiii) The Board shall have a formal schedule of maters
specifcally reserved to it for decision to ensure that
the direction and control of the Bank is frmly under its
authority.
Complied with
The Board has specifcally reserved to it the relevant
maters which are necessary for the Board to have a
proper control of the HDFC Bank, under the authority
of the Board. The authority matrix was developed by the
Bank complying with the above requirement.
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.
Not arisen yet.
3. (1) (xv) The Board shall, ensure that the bank shall capitalised 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. 182 for capital adequacy as at
31/12/2010.
3. (1) (xvi) Shall publish in the banks Annual Report, an annual
Corporate Governance report seting out the compliance
with Direction 3 of these Directions.
Complied with.
The Corporate Governance Report of this Annual Report
was prepared and published, complying with this
requirement.
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.
The Board has conducted a self assessment process
during the period under review by each Director of the
HDFC Bank.
3. (2) The Boards Composition
3. (2) (i) The number of Directors on the Board shall not be less
than 7 and not more than 13.
Complied with.
(a) The appointments to the Board were made in
accordance with HDFC Act No. 07 of 1997 amended
by Act No 15 of 2003, under following three
categories.
(i) Ex-ofcio 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 two
Director Boards, hereinafer referred to as the present
Director Board and the former Director Board.
(c) The present Director Board was appointed under
the Chairmanship of Mrs. S. N. Wickramasighe and
former Director Board was appointed under the
Chairmanship of Mr. S. M. M. Yaseen.
(d) The Chairman of the previous Board and all
government nominated Directors / representative
Directors of Government Institutions were resigned
from the Board in accordance with directions issued
to all Director Boards by the Ministry of Finance and
Planning in May 2010.
(e) Thereafer, during the period under review the
present Director Board was appointed as aforesaid
and consisting with 9 Directors as given below.
01. Mrs. S. N. Wickramasighe (Chairman) was
appointed in May 2010
02. Mr. W. J. L. U. Wiayaweera was re-appointed in
June 2010.
03. Mr. W. A. T. Fernando was re-appointed in June
2010.
04. Mrs. K. W. P. Dayarathne was re-appointed in
June 2010.
05. Dr. D. S. Wiesinghe was appointed in June 2010.
06. Mrs. C. Wiayawardhane was appointed in June
2010.
07. Mr. A. M. Chandrasagara was appointed in June
2010.
08. Mr. S. A. J. Samaraweera was appointed in June
2010.
09. Mr. W. D. R. D. Goonarathne was appointed in
June 2010.
(e) Former Director Board consisted of following 8
Directors, as given below.
01. Mr. S. M. M. Yaseen (Chairman) was resigned in
May 2010.
02. Mr. W. J. L. U. Wiayaweera was resigned in May
2010 (Re-appointed again).
03. Mr. P. Sumanapala was resigned in May 2010.
04. Mr. W. A. T. Fernando was retired in June 2010
(Re-elected again).
05. Mr. M. M. Abul Kalam was resigned in May
2010.
06. Mr. A. W. Dayananda was resigned in May 2010.
07. Mrs. K. W. P. Dayarathne was resigned in May
2010. (Re-appointed again).
08. Mr. S. Kannangara was resigned in June 2010.
3. (2) (ii) (A) The total period of service of a Director other than
a Director who holds the position of Chief Executive
Ofcer shall not exceed 9 years.
Complied with.
Mr. W. A. T. Fernando and Mr. W. J. L. U. Wiayaweera
are the most senior Directors of the Board. Mr. W. A.
T. Fernando has completed his 06th year and Mr. W. J.
L. U. Wiayaweera has completed his 04th year, as at
31/12/2010, as a member of the Board. As such all the
Directors of the present Board have a service period less
than 9 years, complying with the requirements.
3. (2) (iii) An employee of a Bank may be appointed, elected or
nominated as a Director of the Bank (executive directors)
N/A
According to section 4(2)(b) of HDFC Act aforesaid,
a person shall be disqualifed from being nominated,
appointed or elected as a Director or continuing in ofce
as a Director, if he / she becomes an ofcer or servant of
the Bank.
Therefore, the Board of the HDFC Bank comprises only
with Non-executive Directors.
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 Board of the HDFC
Bank consisted with the correct number of independent
Non-executive Directors, as mandated by CBSL
direction, as given below.
(a) Out of the 9 Directors in the present Director Board,
7 Directors were considered as Independent and two
Directors were considered as Non- Independent.
(b) Following Directors are Independent / Non-Executive
Directors of the present Director Board.
01. Mrs. S. N. Wickramasighe (Chairman)
02. Mr. W. J. L. U. Wiayaweera
03. Mr. W. A. T. Fernando
04. Mrs. K. W. P. Dayarathne
05. Dr. D. S. Wiesinghe
06. Mrs. C. Wiayawardhane
07. Mr. A. M. Chandrasagara
(c) Mr. S. A. J. Samaraweera and Mr. W. D. R. D.
Goonarathne are the representative Directors of
NHDA, the major shareholder of the Bank and, they
are considered as Non-Executive / Non Independent
Directors of the Board.
(d) Under the Chairmanship of Mr. S. M. M. Yaseen
there were 8 Directors, which 7 were independent.
Mr. A. W. Dayananda considered as the Non-
Executive / Non Independent Director as he was the
representative Director of NHDA.
(e) The profles of the present Director Board is given on
page 19 to 20 of the Annual Report.
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 applies to the
Independent Director.
Complied with.
There were no appointments during the period under
review for appointment of alternate Directors to
represent Independent Directors.
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.
The relevant details of the Directors are given under the
Directors profle of the Annual Report, on page 19 to 20.
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 2010 onwards.
Complied with.
The Board of HDFC Bank consists only with Non-
Executive Directors, as aforesaid.
3. (2) (viii) The independent Non-Executive Directors shall
be expressly identifed 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.
The relevant details of the Directors are given under the
Directors profle of the annual report.
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.
The Director Board of the HDFC Bank consists with Ex-
ofcio Directors, Nominated Directors and Shareholding
directors. The representatives of relevant ministries
defned in the HDFC Act and the representative of
the minister of housing are appointed to the board
as Ex-ofcio Directors and Nominated Directors. The
Shareholding Directors are appointed to the Board
with the recommendations of the Board nomination
commitee on the fnal approval of the Director Board
and fnally at a shareholder meeting.
3. (2) (x) All Directors appointed to fll a casual vacancy shall be
subject to election by shareholders at the frst general
meeting afer their appointment.
Complied with.
There were no appointments during the period under
review to fll casual vacancies of the Board.
3. (2) (xi) If a Director resigns or is removed from ofce, the
Board shall: (a) announce the Directors resignation or
removal and the reasons for such removal or resignation
including but not limited to information relating to
the relevant Directors disagreement with the Bank, if
any; and (b) issue a statement confrming whether or
not there are any maters that need to be brought to the
atention of shareholders.
Complied with.
Relevant details pertaining to resignations are disclosed
to the shareholders by way of public announcements,
through the colombo Stock Exchange. In addition
relevant and resignations are disclosed to the Central
Bank.
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.
No director or an employee of another bank has been
appointed as a director of HDFC.
3. (3) Criteria to Assess the Fitness and Propriety of Directors
(In addition to provision of section 42 read with section 76H of the Banking Act, No. 30 of 1988 the criteria set out
below shall apply to determine the ftness and propriety of a person who serves or whishes to serve as a Director of a
bank.)
3. (3) (i) The age of a person who serves as Director shall not
exceed 70 years.
Complied with.
All the directors of HDFC Bank were under the age of 70,
as at 31st of December 2010.
01. Mrs. S. N. Wickramasinghe (Chairman) (Age - 58)
02. Dr. D. S. Wiesinghe (Age 61)
03. Mrs. C. Wiayawardhane (Age - 45)
04. Mr. A. M. Chandrasagara (Age 61)
05. Mr. S. A. J. Samaraweera (Age 43)
06. Mr. W. D. R. D. Goonarathne (Age 46)
07. Mrs. K. W. P. Dayarathne (Age 53)
08. Mr. W. A. T. Fernando (Age 47)
09. Mr. W. J. L. U. Wiayaweera (Age 53)
3(3)(ii) A person shall not hold ofce 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 classifed as Specifed Business
Entities in terms of the Sri Lanka Accounting and
Auditing Standards Act, No. 15 of 1995.
Complied with.
3. (4) Management Functions Delegated by The Board
3. (4) (i) The Directors shall carefully study and clearly
understand the delegation arrangements are in place.
Complied with.
3. (4) (ii) The Board shall not delegate any maters to a Board
Commitee, Chief Executive Ofcer, Executive Directors
or key management personnel, to an extent that such
delegation would signifcantly hinder or reduce the
ability of the Board as a whole to discharge its functions.
Complied with.
The relevant necessary authority levels which were
delegated by the Board to the Management / or specifc
Commitees were defned in the Board approved
delegated authority policy.
However, this delegation arrangement has not hindered
or reduces the ability of the Board as a whole to
discharge its function.
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.
The Board periodically takes steps to review the
aforesaid delegation processes, in order to ensure that
they remain relevant to the needs of the bank.
3. (5) The Chairman and Chief Executive Ofcer
3. (5) (i) The roles of Chairman and Chief Executive Ofcer shall
be separate and shall not be performed by the same
individual.
Complied with.
The position of the Chairman and GM/CEO are
separately defned in HDFC Act.
3. (5) (ii) The Chairman shall be a Non-executive Director and
preferably an independent director as well.
Complied with.
The Chairman is an independent Non-Executive Director
3. (5) (iii) The Board shall disclose in its Corporate Governance
report, the identity of the Chairman and the Chief
Executive Ofcer and the nature of any relationship
[including fnancial, business, family or other material/
relevant relationship(s)], if any, between the Chairman
and the Chief Executive ofcer and the relationships
among members of the Board.
Complied with.
There is no any material relationship [including
fnancial, business, family or other material/relevant
relationship(s)], between the Chairman and the General
Manager / Chief Executive Ofcer and the relationships
among members of the Board. The Chairman leads and
manages the work of the Board to ensure that it operates
efectively and fully discharges its legal and regulatory
responsibilities.
3. (5) (iv) The Chairman shall: (a) provide leadership to the
Board; (b) ensure that the Board works efectively and
discharges its responsibilities; and (c) ensure that all key
and appropriate issues are discussed by the Board in a
timely manner.
Complied with.
The chairman is providing efective leadership in
formulating Board strategies ensuring that Board functions
are discharge in efective manner addressing all key and
appropriate issues. The Board procedures were setup to
discuss and to take appropriate action by the Board in a
timely manner ensuring the best interest of the Bank.
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
maters 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 for the Board meetings are initially
prepared by the Company Secretary and fnalised by the
Chairman.
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.
The Board papers are prepared by the respective heads
of the each department and submited to the Board
with the recommendation of the respective head of
department and GM/CEO. The Bank ensures that
Directors receive relevant board papers and necessary
information in a timely manner.
3. (5) (vii) The Chairman shall encourage all Directors to make a
full and active contribution to the Boards afairs and
take the lead to ensure that the Board acts in the best
interests of the Bank.
Complied with.
The Chairman acts in a manner to ensure that the Board
acts in the best interests of the organisation.
3. (5) (viii) The Chairman shall facilitate the efective contribution
of non-executive directors in particular and ensure
constructive relations between executive and non-
executive directors.
Complied with.
The Chairman facilitates the efective contribution of all
directors although there are no such Executive Directors
in the board of HDFC.
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.
The Chairman is not assigning any executive duties or
involved with direct supervision of key management
personnel.
3. (5) (x) The Chairman shall ensure that appropriate steps
are taken to maintain efective communication with
shareholders and that the views of shareholders are
communicated to the Board.
Complied with.
(a) The Board appreciates the participation of
shareholders for the Annual General Meeting
as HDFC uses the forum of the AGM to allow
shareholders the opportunity to pose relevant
questions pertaining to the business of the Bank,
either verbally or in writing.
(b) All relevant information is provided to shareholders
through the annual report and wherever necessary,
using relevant circulars.
3. (5) (xi) The Chief Executive Ofcer shall function as the apex
executive-in-charge of the day-to-day management of
the Banks operations and business.
Complied with.
3. (6) Board Appointed Commitees
3. (6) (i) Each Bank shall have at least four Board commitees as
defned in CBSL Directions 3(6)(ii), 3(6)(iii), 3(6)(iv) and
3(6)(v) Each commitee shall report directly to the Board.
All commitees shall appoint a secretary to arrange the
meetings and maintain minutes, records, etc., under
the supervision of the Chairman of the commitee. The
Board shall present a report of the performance on
each commitee, on their duties and roles at the annual
general meeting.
Complied with.
The following sub commitees were appointed by the
Board as per the central bank directions.
(i) Board Nomination Commitee
(ii) Board Audit Commitee
(iii) Board Human Resource and Remuneration
Commitee
(iv) Board Recovery Sub Commitee
(v) Board Integrated Risk Management Commitee.
3. (6) (ii) The relevant responsibilities related to Board audit
commitee, is separately defned under 3(6)(ii) of the
directions.
Complied with.
The Audit Commitee of HDFC Bank comprised of the
following Directors.
01. Mr. A. M. Chandrasagara (Chairman of the
Commitee)
Please refer the Board Audit Commitee report on page
156 of this Annual Report for further details.
Board Human Resource and Remuneration Commitee
3. (6) (iii) The relevant responsibilities related to Board Human
Resource and Remuneration Commitee, is separately
defned under 3(6)(iii) of the directions.
Complied with.
The Human Resource and Remuneration Commitee of
HDFC Bank comprised of the following Directors.
01. Mrs. S. N. Wickramasinghe (Chairman of the
Commitee)
Please refer the Board Human Resource and
Remuneration Commitee on page 157 Report for further
details.
3. (6) (iv) The relevant responsibilities related to Board
Nomination Commitee, is separately defned under 3(6)
(iv) of the directions.
Complied with.
The Nomination Commitee of HDFC Bank comprised of
the following Directors.
Commitee)
Please refer the Board Nomination Commitee report on
page 158 of this Annual Report for further details.
3. (6) (v) The relevant responsibilities related to Board Integrated
Risk Management Commitee, is separately defned
under 3(6)(v) of the directions.
Complied with.
The Integrated Risk Management Commitee of HDFC
Bank comprised of the following Directors.
Commitee)
Please refer the Risk Management report on page 159 of
this Annual Report for further details.
3. (7) RELATED PARTY TRANSACTIONS
3. (7) (i) The Board shall take the necessary steps to avoid any
conficts of interest that may arise from any transaction
(defned 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 Banks subsidiary companies;
b) Any of the Banks associate companies;
c) Any of the Directors of the Bank;
d) Any of the Banks key management personnel;
e) A close relation of any of the Banks Directors or key
management personnel;
f) A shareholder owning a material interest in the Bank;
g) A concern in which any of the Banks Directors or a
close relation of any of the Banks Directors or any of
its material shareholders has a substantial interest.
Complied with.
The Directors exercise their independent judgment
on issues of strategy, policy resources and standards
of conduct, instituting necessary steps to avoid any
conficts of interest that may arise from any transactions
pertaining to HDFC, with any person who shall be
considered a related party (according to defnition of
Banking Act.)
Transactions carried out with related parties in the
normal course of business are disclosed in note 30 of the
fnancial statements on page No. 179.
3. (7) (iii) The Board shall ensure that the Bank does not engage in
transactions with related parties as defned 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.
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.
Complied with.
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.
Not arisen yet.
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 specifed 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.
Not arisen yet.
c) Any Director who fails to comply with the above
sub-directions shall be deemed to have vacated the
ofce of director and the Bank shall disclose such fact
to the public.
Not arisen yet.
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.
Not arisen yet.
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.
Complied with.
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
remited without the prior approval of the Monetary
Board and any remission without such approval shall be
void and of no efect.
Complied with.
3. (8) Disclosures
3. (8) (i) The board shall ensure that:
(a) Annual audited fnancial statements and quarterly
fnancial statements are prepared and published
in accordance with the formats prescribed by the
supervisory and regulatory authorities and applicable
accounting standards, and
Complied with.
(b) Such statements are published in the newspapers in an
abridged form, in Sinhala, Tamil and English.
Complied with.
3. (8) (ii) The board shall ensure that the minimum disclosures are made in the Annual Report:
a) A statement to the efect that the annual audited
fnancial statements have been prepared in line with
applicable accounting standards and regulatory
requirements, inclusive of specifc disclosures.
Complied with.
Compliance Statement pertaining to applicable
accounting standards and regulatory requirements has
been reported in the Directors Responsibility Statement
for Financial Reporting and is given on page 161 of the
Annual Report.
b) A report by the Board on the Banks internal control
mechanism that confrms that the fnancial reporting
system has been designed to provide reasonable assurance
regarding the reliability of fnancial reporting, and that the
preparation of fnancial statements for external purposes
has been done in accordance with relevant accounting
principles and regulatory requirements.
Complied with.
Board of Directors confrmation pertaining to the
efectiveness of the Internal Control Systems over
the Reporting Financial Systems and compliance to
accounting principals and regulatory requirement are
given on page 147 of the Annual Report.
c) The external auditors certifcation on the efectiveness of
the internal control mechanism referred to in Direction
3(8)(ii)(b) above, in respect of any statements prepared
or published afer 31 December 2008.
Complied with.
d) Details of Directors, including names, ftness and
propriety, transactions with the Bank and the total of
fees/remuneration paid by the bank.
Complied with.
e) Total net accommodation as defned 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
banks regulatory capital.
Complied with.
Please refer Note 30 of the Financial Statements given on
page 178 of the Annual Report
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 15 of the Financial Statements given on
page 174 of the Annual Report
g) The external auditors certifcation of the compliance
with these Directions in the annual corporate governance
reports published afer 01 January 2010.
Complied with.
h) A report seting out details of the compliance with
prudential requirements, regulations, laws and internal
controls and measures taken to rectify any material non-
compliances
Complied with.
Please refer the Report of the Directors, Statement on the
Board of directors responsibility for fnancial reporting
and statement on internal controls published on pages 151
to 155, 161 and 147 respectively , of this Annual Report
i) A statement of the regulatory and supervisory concerns
on lapses in the Banks 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.
Not arisen yet
HDFC Banks compliance statement with the Code of Best Practice on Corporate Governance (hereinafer referred to as the
code) issued by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri
Lanka.
Corporate Governance principles SCE & ICASL
code reference
Compliance Status
A. DIRECTORS
A.1The Board
It is required under the code, that every public company to be headed by an efective Board, Complying with that rule, the
Director Board of the HDFC Bank consists with well qualifed and, experienced professionals such as accounting professionals,
legal professionals, senior public servants, and retired high ofcials of the state and private sector commercial banks and the
Central Bank. They possess the relevant skills and experience and knowledge to give the leadership to the strategic intend of the
bank. All Directors are Non-executive Directors.
1. Meeting A 1.1 Complied. Please refer status of compliance for 3(1)(iii) of CBSL
Rules.
2. Board responsibilities A 1.2 Complied.
The Board of Directors discharges their responsibilities taking a
collective responsibility for the success of the bank including the
following.
ensuring the formulation and implementation of a sound
business strategy;
ensuring that the Chief Executive Ofcer (CEO) and
management team possess the skills, experience and knowledge
to implement the strategy;
ensuring the adoption of an efective CEO and senior
management succession strategy;
ensuring efective systems to secure integrity of information,
internal controls and risk management;
ensuring compliance with laws, regulations and ethical
standards;
ensuring all stakeholder interests are considered in corporate
decisions;
ensuring that the companys values and standards are set with
emphasis on adopting appropriate accounting policies and
fostering compliance with fnancial regulations; and
fulflling such other Board functions as are vital, given the scale,
nature and complexity of the business concerned.
3. Access to independent professional
advice
A 1.3 Complied. Please refer status of compliance for 3(1)(xi) of CBSL
Rules.
Section Two
code reference
Compliance Status
4. Board Secretary A 1.4 Complied.
The Company Secretary is an Atorney-at-Law with relevant
required qualifcations and experience.
All Directors 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.
5. Independent judgment A 1.5 Complied.
The Directors exercise their independent judgment on issues of
strategy, policy, resources and standards of conduct, and take
necessary steps to avoid any conficts of interest that may arise
from any transaction of the bank, with any person who shall be
considered as a related party.
6. Dedication of adequate time and efort
by the Board and Board Commitee
A 1.6 Complied.
The Board dedicates adequate time for Board Meetings, while
scheduling regular Board meetings well in advance. In addition to
the Board meetings, relevant Board Sub Commitee meetings are
also held regularly, complying with the regulatory requirement and
needs of the Bank.
7. Training for new Directors A 1.7 Complied.
The Board recognized capacity building is important for the
Directors, as they have to update and enhance their knowledge to
carry out their duties as directors in a diversifying environment.
If and when required, directors propose participation for special
training and skill enhancement programs and the HDFC also make
arrangements to send Directors for such programs. From time to
time, Corporate Management also makes presentations to the Board
on industry related maters.
A.2Chairman & Chief Executive Ofcer
There are two key tasks for the HDFC Bank, namely conducting of the business and facilitating executive responsibility for
management of the banks business. For this purpose it is required under the code to have a clear division of responsibilities
which will ensure a balance of power and authority, as such that no one individual has unfetered powers of decision.
Facilitating this, the relevant roles of the Chairman and General Manager / Chief Executive Ofer are separately defned in the
HDFC Act.
8. Division of responsibilities of the
Chairman GM/CEO
A 2.1 Complied.
The functions of the Chairman and GM/CEO are clearly separated,
and two individuals were appointed for the respective posts.
code reference
Compliance Status
A.3Chairmans Role
The Chairmans main role can be considered as to give leadership in preserving good Corporate Governance culture within the
bank, as while discharging board functions efectively, as the person responsible for running the Board.
9.Role of the Chairman A 3.1 Complied.
The Chairman is a Non-Executive Director. The Chairmans role
includes the following, and relevant measures are being taken for
the best interest of the HDFC Bank while ensuring the following.
efective participation of all Directors are secured;
All Directors are encouraged to make an efective contribution,
within their respective capabilities, for the beneft of the HDFC
Bank;
A balance of power between all Directors are being maintained;
The views of all the Directors on issues under consideration are
ascertained
The Board is in complete control of the Banks afairs and alert
to its obligations to all shareholders and other stakeholders.
A.4Financial Acumen
It is required under the code, the Board to ensure the availability with in the organization of sufcient fnancial acumen and
knowledge to ofer guidance on maters on fnance.
10. Availability of sufcient fnancial
acumen and knowledge
A 4 Complied.
There are two members in the Board with relevant fnancial
qualifcations and fellow memberships as accounting professionals.
In addition 04 members of the corporate management team possess
sufcient fnancial acumen and knowledge to ofer guidance to the
HDFC Bank on maters of fnance.
Further, fnance department of the bank and other relevant
departments are equipped with several accounting professionals to
give the assistance to the corporate management and the board, on
fnancial and related issues.
A.5Board Balance
It is required under the code, to have a balance of Executive and Non - executive Directors of the Board and as such that no
individual or small group of individuals can dominate the Boards decision- taking.
11. Presence of a strong independent
element on the Board
A 5.1 Complied.
According to the HDFC Act the Director Board of the bank consists
only with Non-executive Directors. However, the Board is always
mindful to have proper balance of power, when performing Board
functions.
code reference
Compliance Status
12. Independent Directors A 5.2
A 5.3
Complied.
7 out of 9 Non-executive Directors of the present Director Board are
independent as defned in the code. Please refer Board of Directors
profles for further details.
13. Signed declaration of independence by
the Non-executive Directors
A 5.4 Complied.
All Non-executive Directors of the HDFC made writen declarations
as to the independency criteria setout by the Bank.
14. Determination of independence of the
Directors by the Board
A 5.5 Complied.
The Board has determined that the Independency of Directors upon
submission of the declarations by the Non-executive Directors as
to the independency of them, as a fair representation. Independent
Non-executive Directors of the Board are as follows.
01. Mrs. S. N. Wickramasighe (Chairman)
15. Senior Independent Director A 5.6 N/A
Appointment of Senior Independent Director does not arise as the
roles of Chairman and GM/ CEO are separated, and perform by
two individuals.
16. Confdential discussion with the Senior
Independent Director
A 5.7 N/A
17. Meeting of Non-executive Directors A 5.8 Complied.
Chairman meets with the Non-Executive Directors without the
presence of the GM/ CEO on a need basis.
18. Recording of concerns in Board
Minutes
A 5.9 Complied.
A.6Supply of Information
It is required under the code, to provide timely information in a form and of a quality appropriate to enable the Board to
discharge its duties, and the HDFC complied with the requirement.
In addition the Directors make further inquires where necessary. All the Directors are properly briefed on issued arising at the
Board Meetings by the Chairman.
19. Information to the Board by the
management
A 6.1 Complied.
Please refer status of compliance for 3(5)(vi) of CBSL Rules.
code reference
Compliance Status
20. Adequate time for Board meeting A 6.2 Complied.
The regular Board Meetings and Commitee Meetings are fxed
annually and the relevant date calendar distributed among the
Directors. Thereafer, separate individual notices are being given to
each Director on time, complying with regulatory requirements.
A.7Appointment to the Board
It is required under the code to have formal and transparent procedure for the appointment of new Directors to the Board. The
HDFC Bank complied with the aforesaid requirement. The nomination commitee of the bank has introduced a policy and a
procedure for appointment of Shareholding directors to the Board.
21. Nomination Commitee A 7.1 Complied.
Nomination Commitee of HDFC Bank comprised of the following
Directors.
01. Mrs. S. N. Wickramasinghe (Chairman of the Commitee)
Please refer the Board Nomination Commitee report on page No.
158 of this Annual Report, for further details.
22. Assessment of Board composition A 7.2 Complied.
The Director Board of the HDFC Bank consists only with non-
executive directors, including Ex-Ofcio Directors, Nominated
Directors and Shareholding Directors. The representatives of relevant
ministries defned in the HDFC Act and the representative of the
minister of housing were appointed to the Board as Ex-Ofcio
Directors and Nominated Directors. The Shareholding Directors
were appointed to the Board with the recommendations of the Board
Nomination Commitee on the fnal approval of the Director Board
and fnally at a Shareholder Meeting.
The Nomination Commitee carryout continues review of the
composition of the Board, which includes identifying, evaluating and
making necessary recommendations for appointments to the Board.
23. Disclosure of details of new Directors
to shareholders
A 7.3 Complied.
Relevant necessary details of new Directors were disclosed to
the Shareholders by way of public announcements. Further, the
relevant details with the profles of each Director are published in
the Annual Report. In addition relevant appointments are disclosed
to the Central Bank and the Colombo Stock Exchange, complying
with regulatory requirements.
code reference
Compliance Status
A.8Re- election
It is required under the code, for the Directors to submit themselves for re-election at regular intervals and at least once in every
three years time.
24. Appointment of Non- executive
Directors
A 8.1 Complied.
All new appointments to the Director Board should be in accordance
with the HDFC Act No. 07 of 1997 and amendment Act No. 15 of
2003. Accordingly, Ex-Ofcio Director appointments and Nominated
Director appointments were made through the Ministry of Finance,
complying with the provisions of the HDFC Act. Continuing
directorships of the share holding directors are reviewed by the
Nomination Commitee, periodically. The Nomination Commitee
will examine the facts and circumstance applicable for the relevant
period and make relevant recommendations pertaining to the new
appointments, to the Board.
25. Election of Directors by the
shareholders
A 8.2 According to the HDFC Act aforesaid, each shareholding Director
retires by rotation once in every three years and required to stand
for re-election by the shareholders at the Annual General Meeting.
Further that ex-ofcio directors and nominated directors are also
appointed to the Board for a fxed term period and they are also
subject to re-appointment on completion of the member ship period
on the Director Board and subject to re-appointment in accordance
with the aforesaid HDFC Act.
A.9 Appraisal of Board performance
It is required under the code, for the Board to annually appraise their own performance in order to ensure that Board
responsibilities are satisfactorily discharged.
26. Appraisal of Board performance A 9.1 Complied.
The performance of the Board is evaluated by the Chairman, with
the assistance extended by other members of the Board. The sub
commitees, except for the Audit Commitee implemented a self
assessment process each year to ensure efcacy and efciency, in
order to facilitate continuous improvement.
The Audit Commitee is evaluated by the Chairman of the Audit
Commitee who utilizes the assessments from Commitee Members,
the GM/CEO, Head of Finance, Head of Internal Audit an External
Auditor as is required by international best practices.
27. Annual self evaluation of the Board
and its Commitees
A 9.2 Complied.
Please refer comments mentioned under A 9.1, above.
28. Disclosure of the appraisal of Board
and Board Sub Commitee performance
A 9.3 Complied.
Please refer comments mentioned under A 9.1, above.
code reference
Compliance Status
A.10 Disclosure of information in respect of Directors
It is required that Shareholders should be kept advised of relevant details in respect of each Director for the beneft of
Shareholders.
29. Details in respect of Directors A 10.1 Complied.
The relevant details of the directors are given under the directors
profle of the annual report, on page No. 19.
A.11 Appraisal of the GM/ CEO
It is required under the code, to assess the performance of the CEO, at least annually.
30. Financial targets for GM/ CEO A 11.1 Complied.
The fnancial targets for the GM / CEO are set at the commencement
of every year by the Board, which are in line with medium and long
term objectives of the bank.
31. Evaluation of the performance of the
GM/CEO
A 11.2 Complied.
The GM/CEO is responsible for discharging day to day operational
maters of the bank by giving the leadership and guidance to
achieve the fnancial and non-fnancial targets fx by the Board for
the respective year.
The Board has adopted on going performance evaluation process
of the GM/CEO during year against the targets set out at the
commencement of fnancial year.
B. DIRECTORS REMUNERATION
B. 1 Remuneration Procedures
It is required under the code, to establish a formal and transparent procedure for developing a policy on executive remuneration
and for fxing the remuneration packages of individual Directors. No Director should be involved in deciding his/her own
remuneration.
32. Remuneration / Human Resources
Commitee
B 1.1 Complied.
The Human Resource and Remuneration Commitee is responsible
for assisting the Board with regard to the remuneration policy.
33. Composition of the Remuneration
Commitee
B 1.2 Complied.
The Human Resource and Remuneration Commitee of the HDFC
Bank comprised of the following 3 Non- Executive Independent
Directors.
01. Mrs. S. N. Wickramasinghe (Chairman of the Commitee)
Please refer the board HR and Remuneration Commitee report of
this Annual Report, on page No. 157 for further details.
code reference
Compliance Status
34. Remuneration of the Non-executive
Directors
B 1.4 N/A
The Board of the HDFC Bank comprises only with Non-executive
Directors and they are not entitle for any remuneration package
other than participation fees for the Board Meetings / Commitee
Meetings / Interview Boards.
The Chairman is entitle for the monthly allowance applicable for
Chairmen of all state sector institutions.
35. Consultation of the Chairman and
access to professional advice
B 1.5 Complied.
External professional advice is sought, on need basis.
B.2 Level and make-up of the Remuneration
It is required under the code that the levels of remuneration of both Executive and Non-executive Directors should be sufcient
to atract and retain the Directors needed to run the bank successfully. A proportion of Executive Directors remuneration should
be structured to link rewards to corporate and individual performance.
36. Level and make-up of the
remuneration of both Executive and Non-
executive Directors
B 2.1 N/A
Please refer comments for B 1.4.
37. Comparison of remuneration with
other companies
B 2.2 N/A
38. Comparison of remuneration with
other companies in the group
B 2.3 N/A
39. Performance related payment to
Executive and Non-executive Directors
B 2.4 N/A
40. Executive share option for Directors B 2.5 N/A
41. Designing the Executive Directors
remuneration
B 2.6 N/A
42. Early termination benefts of Directors B 2.7 N/A
43. Early termination benefts of Directors
(not included in the initial contract)
B 2.8 N/A
44. level of remuneration of the Non-
Executive Directors
B 2.9 N/A
code reference
Compliance Status
B. 3 Disclosure of Remuneration
It is required under the code, to contain a Statement of Remuneration Policy of the Bank and details of remuneration of the
Board as a whole in the Annual Report.
The HDFC Bank being a Bank under the Ministry of Finance, the Remuneration Policy of the Bank is preliminarily based on
the collective agreements of other State sector Banks. In terms of Sec 15 of the HDFC Act, the Board may from time to time fx
and vary the salaries and allowances of such ofcers of the HDFC Bank, taking into consideration the salaries and allowances
payable to other State owned banking institutions engaged in similar objectives and operations.
45. Disclosure of remuneration B 3.1 Complied.
The details of the total remuneration/ emoluments of the directors
are disclosed in Note 08 of the Financial Statements on page 172 of
the Annual Report. The remuneration policy of the bank is given in
the report of the Human Resource and Remuneration Commitee.
C. RELATIONS WITH SHAREHOLDERS
C.1 Constructive use of the Annual General Meeting and conduct of General Meetings.
It is required under the code, to use the AGM to communicate with shareholders and should encourage their participation.
46. Use of proxy votes C 1.1 Complied.
The Bank has a method of recording all proxy votes and proxy
votes lodged by the shareholders on each resolution.
47. Separate resolution for all separate
issues
C 1.2 Complied.
HDFC propose a separate resolution at the AGM on each
substantially separate issue, giving shareholders the opportunity
vote on each such resolution.
48. Availability of all Board Sub Commitee
Chairman at the AGM
C 1.3 Complied.
49. Adequate notice of the AGM C 1.4 Complied.
The Annual Report including fnancial statements and the Notice of
the Meeting are circulated to shareholders at least 15 working days
prior to the date of the AGM.
50. Procedures of voting at General
Meeting
C 1.5 Complied.
C.2 Major transactions
Further to compliance with the requirements under the Companies Act, Directors should disclose to shareholders all proposed
corporate transactions, which if entered into, would materially alter/vary the banks net assets base or in the case of a bank with
subsidiaries, the consolidated group net asset base.
51. Major transactions C 2.1 Complied.
During 2010 there were no major transactions as defned by section
185 of Companies Act No. 07 of 2007 which materially afected the
HDFCs net asset base.
Transactions, if any which materially afect the net assets of HDFC are
factored in and disclosed in the quarterly / annual fnancial statements.
code reference
Compliance Status
D. AUDIT AND ACCOUNTABILITY
D. 1 Financial Reporting.
It is required under the code, to present a balanced and understandable assessment of the banks, fnancial position, performance
and prospects.
52. Statutory and regulatory reporting D 1.1 Complied.
HDFC reports a balanced and fair assessment of its fnancial
position for the year ended 31st December and at the end of each
quarter of 2010.
In preparation and presentation of quarterly and annual fnancial
statements, HDFC prepares and presents Financial Reports in
conformity with Sri Lanka Accounting Standards, Sri Lanka
Accounting and Auditing standards Act No 15 of 1995, the Banking
Act No. 30 of 1988 and amendments there to. In addition the
Bank has complied with the reporting requirements prescribed
by the regulatory authorities such as the Securities and Exchange
Commission and the Central Bank under Banking Act No 30 of
1988.
The fnancial statements for the year ended 31st December 2010
and for the respective quarters ended have been published in
newspapers in all three languages.
53. Directors Report in the Annual Report D 1.2 Complied.
The Directors Report is given on page 151 to 155 of this Annual
Report.
54. Statement of Directors responsibility
for the Financial Statement
D 1.3 Complied.
The Statement of Directors Responsibility for Financial Reporting is
given on page 161 of the Annual Report.
55. Management Discussions and Analysis D 1.4 Complied.
The Report is given on page 31 of the Annual Report.
56. Declaration by the Board that the
business as a going concern
D 1.5 Complied.
This is given on the Directors Reports on page 151 of the Annual
Report.
57. Summoning an EGM to notify serious
loss of capital
D 1.6 N/A.
D.2 Internal Control
It is the required under the code, to maintain a sound system of internal control to safeguard shareholders investments and the
banks assets.
code reference
Compliance Status
58. Annual evaluation of the internal
control system
D 2.1 Complied.
The Board is responsible for establishing and maintaining a sound
system of internal control, while monitoring and reviewing their
efectiveness continuously. Through such and efective internal
control system HDFC manages business risks expose to the
industry and ensure the reliability of the fnancial information on
which business decisions are made. The Board of Directors of the
bank are satisfed with the efectiveness of internal control systems.
Please refer the Boards statement on internal control systems
published on page 147 of this Annual Report.
59. Need for internal audit function D 2.2 Complied.
The Bank has separate internal audit department to carry out
relevant auditing functions, independently. The Chief internal
Auditor functions as the head of the particular department and
reports and responsible directly to the Chairman and the Board
Audit Commitee.
D. 3 Audit Commitee
It is required under the code, to have a formal and transparent arrangements for selecting and applying accounting policies,
fnancial reporting and internal control principles and maintaining an appropriate relationship with the banks external
Auditors. The HDFC Bank complied with the said requirements.
60. Composition and terms & conditions of
the Audit Commitee
D 3.1 Complied.
The Audit Commitee of the Bank comprises three Non-executive/
Independent Directors while the Chief Internal Auditor functions as
the Secretary to the Audit Commitee.
61. Duties of the Audit Commitee D 3.2 Complied.
HDFCs External Auditor is the Auditor General. He is bound by
law to display independence, objectivity and efcacy in ensuring
the audit process takes into account all relevant regulatory
requirements.
The relevant details pertaining to the above is discussed in the
Audit Commitee report.
62. Terms and reference of the Audit
Commitee
D 3.3 Complied.
The Audit Commitee has a Commitee charter including relevant
terms of reference of the said Commitee. The Chief Internal
Auditor functions as the head of the Internal Audit Department
and submits relevant necessary reports to the Audit Commitee as
mandated under the Audit charter.
For further details please refer the Report of Audit Commitee, on
page 156
code reference
Compliance Status
63. Disclosures of the Audit Commitee D 3.4 Complied.
The Audit Commitee of the HDFC Bank comprised of the
following 3 Non- Executive Independent Directors.
Mr. A. M. Chandrasagara ( the Chairman of the Commitee)
(ii) Mr. W. A. T. Fernando
(iii) Mrs. C. Wiewardane
The relevant details pertaining to the above is discussed in the
Audit Commitee report.
D. 4 Code of business conduct & ethics
It is required under the code to adopt a Code of Business Conduct & Ethics for directors and members of the senior management
team and must promptly disclose any waivers of the Code for directors or others.
64. Code of business conduct and ethics D 4.1 Drafing of the relevant code of business conduct and ethics for
Directors and employees of the bank by introducing a corporate
culture with in the bank, covering the relevant areas, such as
confict of interest, corporate opportunities, confdentiality
of information, protecting and using of the banks assets, fair
dealing was already commenced under the banks sustainability
development process, and will be completed in 2011.
However, those areas were already covered under diferent policies
adopted by the Bank and these polices will be compiled as a
separate policy, under the sustainability development program.
HDFC being a Licensed Specialised Bank, maintaining a high
confdentiality about its customers and other stakeholders.
Therefore, HDFC has adopted a policy that prevents the disclosure
of confdential customer information to any external party.
65. Afrmation of the code of conduct &
ethics
D 4.2 As mentioned above in D 4.1.
E. INSTITUTIONAL SHAREHOLDERS
E.1 Shareholding voting
Institutional shareholders are required to make considered use of their votes and should be encouraged to ensure their voting
intentions are translated into practice.
66. Institutional Shareholders E 1.1 Complied.
Institutional shareholders are encouraged to use of their votes.
Further they are encouraged to translate their voting exercise and
also seek independent advice on investing or divesting decisions
E.2 Evaluation of Corporate Governance initiatives
When evaluating banks governance arrangements, particularly those relating to Board structure and composition, institutional
investors are encouraged to give due weight to all relevant factors drawn to their atention.
code reference
Compliance Status
F. OTHER INVESTORS
F.1 investing / Divesting decision
Individual shareholders, investing directly in shares of companies are encouraged to carry out adequate analysis or seek
independent advice in investing or divesting decisions.
F.2 Shareholder Voting
It is required under the code that Individual shareholders to be encouraged to participate in General Meetings of companies and
exercise their voting rights.
67. Individual Shareholder Voting F 2.1 Individual shareholders are encouraged to participate and exercise
their voting rights at General Meetings.
HDFC Banks compliance statement with the continuing Listing requirements under section 7.10 on Corporate Governance Rules
for listed companies issued by the Colombo Stock Exchange.
Corporate Governance Principles SCE & ICASL
Code Reference
Compliance Status
Disclosures regarding the Board of Directors
(i) The correct number of Non-executive
Directors
7.10.1 (a) to (c) Complied.
The HDFC confrms that,
The Board of Directors of HDFC Bank comprises with the
mandated number of Non-executive Directors in accordance with
Rule 7.10.1 (a) of the CSE Listing rules.
(ii) The correct number of Independent
Non-executive Directors
7.10.2 (a) Complied.
The Board of Directors of HDFC consists of the correct number
of Independent Non-executive directors in accordance with Rule
7.10.2 (a).
(iiii) Directors Annual Declaration of
his / her independence or Non-
independence to the Board of
Directors
7.10.2 (b) Complied.
Mrs. S. N. Wickramasighe (Chairman), Mr. W. J. L. U.
Wiayaweera, Mr. W. A. T. Fernando, Mrs. K. W. P. Dayarathne,
Dr. D. S. Wiesinghe, Mrs. C. Wiayawardhane and Mr. A. M.
Chandrasagara submited their declarations as Non - Executive /
Independent Directors.
Mr. S. A. J. Samaraweera and Mr. W. D. R. D. Goonarathne
submited their declarations as Non-executive / Non-Independent
Directors, as they were appointed to the Board representing
N.H.D.A, the major shareholder of the HDFC Bank having a
signifcant shareholding of HDFC Bank.
All Non-executive Directors have submited their confrmations
on independence in accordance with the criteria set by the Bank,
which is in line with the regulatory requirements. Rule 7.10.2 (b)
of the CSE Listing Rules.
Note : According to the HDFC Act No. 07 of 1997 amended by
Act No. 15 of 2003, the Director Board comprises only with Non-
executive Directors.
(iv) Annual determination of the Board
as to the independency or non-
independency of the Directors.
(v) The qualifcations not met by the
Directors
7.10.3 (b) N/A
Circumstances did not arise for the Board to specify a Director
as independent beyond the criteria set by CSE, as the Board has
adequate number of Independent Directors.
Section Three
Code Reference
Compliance Status
(vi) Brief resume of each Director 7.10.3 (c) Complied.
Please refer Directors profles.
Disclosures relating Remuneration & the Remuneration Commitee
(vii) The correct number of Independent
Non-executive Directors in the
HDFC Confrms that,
the Remuneration Commitee comprises the correct number of
Independent Non-executive directors in accordance with Rules
7.10.5 (a)
(viii) Separate Remuneration Commitee 7.10.5 (a) Complied.
A separate Remuneration Commitee for the HDFC Bank was
formed.
Note : The HDFC Bank Remuneration Commitee was named
as Human Resource and Remuneration Commitee. In addition
to the CSE Listing Rules this Commitee complies with the
requirements of Corporate Governance Rules of Central Bank of
Sri Lanka.
(ix) Names of the Directors in the
7.10.5 (c) Complied.
The Commitee comprises of three Non-Executive Independent
Directors, namely Mrs. S. N. Wickramasighe (Chairman), Mr. W. J.
L. U. Wiayaweera and Mrs. K. W. P. Dayarathne
(x) Functions of the Remuneration
Commitee
7.10.5 (b) Complied.
One of the core function of the Commitee can be considered
as recommending a suitable remuneration packages applicable
to the CEO/GM and other Corporate Management Members of
HDFC.
(xi) Chairman of the Remuneration
Commitee
7.10.5.(a) Complied.
Mrs. S. N. Wickramasighe (a Non-executive Director) was
appointed as the Chairman of the Commitee by the Board of
Directors in accordance with (Rules 7.10.5(a))
(xii) Remuneration Policy 7.10.5 (c) Complied.
The HDFC Bank being a Bank under the Ministry of Finance, the
Remuneration Policy of the Bank is preliminarily based on the
collective agreements of other State Sector Banks. In terms of Sec
15 of the HDFC Act, the Board may from time to time fx and vary
the salaries and allowances of such ofcers of the HDFC Bank,
taking into consideration the salaries and allowances payable
to other State owned banking institutions engaged in similar
objectives and operations
Code Reference
Compliance Status
(xiii) Aggregate Remuneration paid to
the Executive and Non-executive
Directors (including cash and all
non-cash benefts)
7.10.5 (c) Complied.
Please refer the note No.08 of the Financial Statements, given on
page 172 of this Annual Report.
Contents under the Audit Commitee Report
(xiv) The correct number of Independent
Non-executive Directors
HDFC confrms that,
Audit commitee of HDFC comprises with the correct number of
Independent Non-executive Directors in accordance with Rule
7.10.6(a).
(xv) Separate Audit Commitee 7.10.6 (a) and
7.10.6 (c)
Complied.
A separate Audit Commitee for the HDFC Bank was formed.
(xvi) Names of the Directors in the Audit
Commitee
7.10.6 (c) The Audit commitee comprises of three Non-executive /
Independent Directors namely, Mr. A. M. Chandrasagara
(Chairman), Mr. W. A. T. Fernando and Mrs. C. Wiayawardhane.
(xvii) Functions of the Audit Commitee 7.10.6 (b) Complied.
In addition HDFC Bank, being a License Specialised Bank
functioning under the Ministry of Finance, the Audit Commitee
engages with the functions mandated under Rule 3(6) of the CBSL
and Finance Circular No 1A1/ 2000/1.
(xviii) Chairman of the Audit Commitee 7.10.6.(a) and
7.10.6 (c)
Complied.
Mr. A. M. Chandrasagara (a Non-Executive Independent Director)
was appointed as the Chairman of the Commitee by the Board of
Directors in accordance with (Rules 7.10.6(a) and 7.10.6.(c))
(xix) Chairmans qualifcations 7.10.6 (a) and
7.10.6 (c)
Complied.
Please refer the Chairmans profle, given under Directors profles.
(xx) Atendance of CEO and CFO for the
Audit Commitee Meetings
7.10.6 (a) and
7.10.6 (c)
Complied.
The GM/CEO and DGM (Finance) atended to Commitee
meetings.
(xxi) External Auditors independency 7.10.6 (c) N/A.
The External Auditor of the Bank is the Auditor General of
Sri Lanka.
Names Directorship Status Number of
Meetings held
-2010
Number of
Meeting Entitled
Number of
Meetings
participated
Mrs. S. N. Wickramasinghe Non - executive / Independent
(Chairman)
12 08 08
Mr. W.A.T. Fernando Non - executive / Independent
Director
12 12 09
Mr. W. J. L. U. Wiayaweera Non - executive / Independent
Director
12 12 08
Mrs. K. W. P. Dayarathne Non - executive / Independent
Director
12 12 11
Mrs. C. Wiayawardhana Non - executive / Independent
Director
12 08 05
Dr. D. S. Wiesinghe Non - executive / Independent
Director
12 07 06
Mr. S. A. J. Samaraweera Non - executive / Non -
independent Director
12 07 04
Mr. W. D. R.D. Goonarathne Non - executive / Non
-independent Director
12 07 05
Mr. A. M. Chandrasagara Non - executive / Independent
Director
12 07 07
Mr. S. M. M. Yaseen Non-executive / Independent
(Former Chairman)
12 04 04
Mr. P. Sumanapala Non - executive / Independent
Director (Former)
12 04 04
Mr. M. M. Abul Kalam Non - executive / Independent
Director (Former)
12 04 04
Mr. A. W. Dayananda Non - executive / Non
Independent Director (Former)
12 04 03
Mr. Sunil Kannangara Non - executive / Independent
Director (Former)
12 04 01
Atendance for Board Meetings 2010
Human Resource and Remuneration Commitee Meetings
Names Directorship Status Number of Meetings
held 2010
Number of
Meetings Entitled
Number of Meetings
participated
Mrs. S.N.Wickramasinghe Non- executive / Independent
(Present Chairman)
04 02 02
Mr. W.J.L.U.Wiayaweera Non- executive / Independent
Director
04 04 04
Mrs. K.W.P.Dayarathne Non- executive / Independent
Director
04 02 02
Mr. S.M.M.Yaseen Non- executive/Independent
(Previous Chairman)
04 02 02
Mr. P. Sumanapala Non- executive/Independent
Director
04 02 02
Nomination Commitee Meetings
Meetings held
2010
Number of
Meetings Entitled
Number of
Meetings
participated
Mr. S.M.M.Yaseen Non- executive / Independent
(Previous Chairman)
01 01 01
Mr. W.J.L.U.Wiayaweera Non- executive / Independent
Director
01 01 01
Mr. P. Sumanapala Non- executive/Independent
Director
01 01 01
Integrated Risk Management Commitee Meetings
Meetings held
2010
Number of
Meetings Entitled
Number of
Meetings
participated
Mrs. S.N. Wickramasinghe Non- executive / Independent
(Chairman)
01 01 01
Mrs. C. Wiayawardhana Non- executive/Independent
Director
01 01 00
Mr. A.M. Chandrasagara Non- executive/Independent
Director
01 01 01
Dr. D.S. Wiesinghe Non- executive/Independent
Director
01 01 00
Atendance for Board Sub Commitee Meetings 2010
Recovery Sub Commitee Meetings
held 2010
Number of Meetings
Entitled
Number of Meetings
participated
Mrs. S. N. Wickramasinghe Non- executive /
Independent (Present
Chairman)
04 03 03
Mr. W. J. L. U. Wiayaweera Non- executive/
04 04 04
Mrs. K. W. P. Dayarathne Non- executive/
04 04 03
Mr. S. A. J. Samaraweera Non- executive/ Non
04 03 -
Mr. W. D. R. D. Goonarathne Non- executive/ Non
04 03 03
Mr. S. M. M. Yaseen Non- executive/
Independent (Previous
Chairman)
04 01 01
Mr. A. W. Dayananda Non- executive/ Non
04 01 -
Audit Commitee Meetings
held 2010
Number of Meetings
Entitled
Number of Meetings
participated
Mr. A. M. Chandrasagara Non- executive /
Independent (Present
Chairman)
06 05 05
Mr. W. A. T. Fernando Non- executive/
(Previous Chairman)
06 06 05
Mrs. P. Sumanapla Non- executive/
06 01 01
Mrs. C. Wiewardhana Non- executive/
06 05 04
Atendance for Board Sub Commitee Meetings 2010 contd.
Statement of Internal Control
Responsibility
The Board of Directors (Board) is
responsible for internal control in
HDFC Bank and for reviewing its
efectiveness. Processes have been
designed for safeguarding assets against
unauthorized use or disposition; for
maintaining proper accounting records;
and for the reliability and usefulness
of fnancial information used within
the business or for publication. Such
processes are designed to manage rather
than eliminate the risk of failure to
achieve business objectives and can only
provide reasonable and not absolute
assurance against material misstatement,
errors, losses or fraud.
Internal Control System:
HDFC Banks key internal control
processes include the following:
Board of Directors has appointed
sub commitees to ensure
the efectiveness of internal
control mechanism of the Bank.
Appointment of corporate
management headed by CEO/GM
has enabled to delegate the authority
from Board to other layers. The
management assists the Board in
the implementation of the Boards
policies and procedures on risk
management and control.
Systems and procedures are in place
to identify, control and report on the
major risks including credit, market
and operational risk. Exposure to
these risks is monitored by Board
Integrated Risk Management
Commitee (BIRMC). The Corporate
Management assists the Board in the
implementation of policies advocated
at the BIRMC. The BIRMC also takes
corrective action to mitigate the
efects of specifc risks, where risks
are at levels beyond the prudent
limits decided by the Commitee.
The Board Audit Commitee
monitors the overall efectiveness
of the system of internal control
and reports regularly to the Board
of Directors. The key processes
used by the Commitee include:
regular business and operational risk
assessments; regular reports from
the heads of key risk management
functions including Internal Audit
and Compliance; review and follow
up on internal audit reports; external
audit reports; prudential reviews;
and regulatory reports. The Board
Audit Commitee keeps under
review the status of key risk areas
which impact the Bank and considers
whether the mitigating actions put in
place are appropriate.
The Banks fnancial reporting
process for preparing the annual
accounts is controlled using
documented accounting policies
developed based on Sri Lanka
Accounting Standards and reporting
formats and guidelines issued by
Central Bank of Sri Lanka.
Annual Review
The Board has identifed the importance
of review of design and the efectiveness
of the banks system of internal control
over fnancial reporting in accordance
with the guidelines issued by the ICASL
and has already performed the following
as a part of annual review.
Documentation of internal controls
for signifcant processes by
considering the ICASL illustrative
guidance in relation to compliance
with CBSL direction. However,
due to time constraints, full scale
walkthroughs of such controls
was not performed. The process
of fnalization of such testing is in
progress.
Considered the maters discussed at
the audit commitee meetings related
to the internal control weaknesses
pertaining to above processes. It also
considered the following up actions
taken by internal auditors.
With reference to the guidelines
issued by the ICASL on the Directors
Statement on Internal Control, the Board
has realized that there are additional
procedures to be followed as part of the
review of design and the efectiveness of
the banks system of internal control over
fnancial reporting. The audit commitee
has already discussed regarding
applying a formal process in this regard
and that is to be implemented in year
2011. The following steps have been
considered for further strengthening the
process.
Completion of documentation
and further strengthening the
documentation standards to comply
with the best practices.
Performing much more structured
control testing to ensure that the
implementation of particular controls
were in efect throughout the year
and signifcant defciencies have
been discussed and addressed at
the Board. If there are weaknesses/
additional risks identifed by the
internal auditors/audit commitee
those have to be properly addressed
by providing additional controls
with adequate follow-up procedures.
Confrmation
Subject to the above areas identifed for
further strengthening of the processes,
to the best of our knowledge confrms
that the system of internal control is
sound and has been designed to provide
reasonable assurance regarding the
reliability of fnancial reporting and the
preparation of fnancial statements for
external purpose in accordance with
applicable accounting standards and
regulatory requirements.
Statement by External Auditors:
The external auditors have reviewed
the above Directors Statement on
Internal Control included in the annual
report of the Bank for the year ended
31 December 2010 and reported to the
Board that nothing has come to their
atention 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 efectiveness of the internal control
system of the Bank.
Suresh Amerasekera
Chief Executive Ofcer
A M Chandrasagara
Chairman Audit Commitee
Chairman
Statement of Internal Control contd.
Financial calendar
Financial statements 2009/2010
First quarter released on - 14th May 2010
Second quarter released on - 15th August 2010
Third quarter released on - 15th November 2010
Fourth quarter released on - 15th February 2011
FINANCIAL
REPORTS
Financial Information
Reports of the Board Sub Commitees 156
Auditors Report 162
Consolidated Statement of Change in Equity 167
Signifcant Accounting Polices 168
Report of the Board of Directors
1. General
The Board of Directors of the HDFC Bank have pleasure in
presenting to the members the Annual Report for the fnancial
year 2010 together with the audited Financial Statements and
Audit Report thereon of the Housing Development Finance
Corporation Bank (HDFC BANK) and consolidated Financial
Statement for the group for the relevant year.
Housing Development Finance Corporation Bank of Sri
Lanka, (hereinafer referred to as the HDFC Bank) is a
licensed specialized bank incorporated in Sri Lanka under
the provisions of Housing Development Finance Corporation
Act No. 07 of 1997. The said Act was amended by Act No.15
of 2003, by which the HDFC Bank is empowered to engage in
banking business as a licensed specialized bank. The HDFC
Bank was quoted in the Colombo Stock Exchange in year 2005.
2. Principal Activities
The principal activities of the Bank and the Group, (including
HDFC Real Estate Limited) were generally continued to be
fnancing for housing and housing development projects.
There have been no signifcant changes during the fnancial
year under review in the nature of the principal activities of
HDFC Bank and the group.
3. Review of Business
The General Manager/Chief Executive Ofcers Review
contained on pages 14 to 17 and the Financial Review
contained on pages 41 to 42 provide an overall assessment of
the Banks fnancial position, performance, state of afairs and
signifcant events taken place during the fnancial year. These
Reports form an integral part of the Directors Report.
4. Vision, Mission and Corporate Conduct
The Banks Vision and Mission were aligned with the
Corporate Plan, and is given on page No. 02 to 03 of this
Report. The operations of the Bank are conducted efectively
with the highest level of ethical standards in achieving its
Vision and Mission.
5. Future Developments
The Bank intends to diversify the loan and deposit products
to capture un-reached banking communities, enabling them to
access housing fnance by introducing customer oriented low
cost products and services. An overview of future development
is given on the General Manager/ Chief Executive Ofcers
Review on pages 14 to 17 and on Management Discussion and
Analysis on page No. 31 to 40 of this Annual Report.
6. Financial Statements
The Financial Statements of the Group and the Bank were duly
signed and certifed by the Chief Financial Ofcer and the
General Manager / CEO and approved by the Chairman and a
Director of the HDFC Bank and are given on pages 164 to 167
of this Annual Report.
7. Signifcant Accounting Policies
The signifcant accounting policies adopted in preparation
of Financial Statements and the impact of the changes in Sri
Lanka Accounting Standards during the year are given on
pages 168 to 170 of the Annual Report.
8. Auditors Report
The Auditor General of Sri Lanka is the auditor of HDFC
Bank. The audit is performed on the Consolidated Financial
Statement of HDFC Bank for the year ended 31st of December
2010 and the relevant Auditors Report is contained on page
162 and 163 of the Annual Report.
9. Going Concern
The Board of Directors are satisfed that HDFC Bank has
adequate resources to continue its operations in the foreseeable
future. Accordingly, the Financial Statements are prepared
based on the going concern concept.
10. Income
The income of the Bank for the year ended 31 December 2010
was LKR. 2,250 million. An analysis of the income is given in
Notes 02 and 04 to the Financial Statements.
11. Proft and Appropriation
The proft before income tax of the Bank for the year ended
31st December 2010 was LKR. 189 million and the proft afer
tax for the year ended 31st December 2010 was LKR. 135.30
million.
The details of proft of the HDFC Bank, and the group are
given in the table below:
For the year ended 31
December.
Bank Group
2010
Rs. Mn.
2009
Rs. Mn.
2010
Rs. Mn.
2009
Rs. Mn.
Operating proft on
ordinary activities before
VAT
291.10 168.49 402.48 220.13
VAT on fnancial services 102.18 77.42 102.18 77.42
Provision for taxation 53.57 34.62 53.61 34.62
Proft on ordinary
activities afer tax
135.34 56.45 246.69 108.10
For the year ended 31
December.
Bank Group
2010
Rs. Mn.
2009
Rs. Mn.
2010
Rs. Mn.
2009
Rs. Mn.
Retained proft /
(accumulated losses) b/f
666.62 651.00 510.06 442.80
Proft available for
appropriation
801.96 707.44 756.75 550.90
Appropriation First &
Final Dividend proposed
32.35 32.35 32.35 32.35
Transfer to Reserve
Funds
20.30 8.47 20.30 8.47
Retained Proft carried
forward
749.31 666.62 704.10 510.10
12. Reserves
The Banks total Reserves as at 31 December 2010 amounting to
LKR. 1849 million. The details are given on Note 27 and 28 of
the Financial Statements.
13. Donations
During the year the Bank made donations amounting to LKR.
547,100.00
14. Statutory Payments
The Board of Directors are satisfed 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 Taxation
Income tax for 2010 has been provided at 20% on the taxable
income arising from the operations of the Bank and has been
disclosed in Note 11 to the Financial Statements on page 173 of
this Annual Report.
16. Dividends
The Directors recommended a dividend payment (fnal) of Rs.
5/- Per share for the year 2010.
The Board of Directors was satisfed that the Bank would meet
the solvency test as per the provisions of the Companies Act
No. 07 of 2007, immediately afer the payment of the proposed
fnal dividend with the approval of the shareholders at the
AGM. The Board obtained a certifcate of solvency from the
auditors in respect of the above mentioned dividend payment.
The Board provided the statement of solvency to the Auditor
General and obtained the certifcate of solvency, in respect of
fnal dividend payment confrming to the statutory provision.
17. Property, Plant and Equipment, Leasehold
Property
Capital expenditure on property, plant and equipment
amounts to LKR. 78.41 million, the details of which are given in
Note 22 of the Financial Statements.
Details of leasehold properties are given on Note 22 of the
Financial Statements on page 176.
18. Market Value of Freehold Properties
Details of the market value of freehold properties are given on
Note 22 of the Financial Statements on page 176.
19. Events Afer the Balance Sheet Date
There have been no material events occurring afer the Balance
sheet date that would require adjustments or disclosure in the
fnancial statements.
20. Stated Capital
The stated capital of the Bank as at 31st of December 2010 was
LKR 962,088,646/-, consisting of 6,471,022 ordinary shares.
21. Share Information
Details of share related information (earnings, dividends, net
assets and market value per share) are given on page 186 of
this Annual Report.
All shareholders have been treated equitably in accordance
with the original terms issued to them.
22. Issue of Shares and Debentures
No shares or debentures were issued by the bank during the
year under review.
23. Equitable Treatment to all Stakeholders
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.
24. The Board of Directors
The Director Board of the HDFC Bank consists of well
qualifed and, experienced professionals in the felds of
banking accounting, law and also includes senior public
servants, retired senior ofcials of the state and private sector
commercial banks and the Central Bank of Sri Lanka. They
possess the relevant skills and experience to provide leadership
to steer the Bank in the strategic direction.
Report of the Board of Directors contd.
During the period under review there were two Director
Boards, hereinafer referred to as the Present Director Board
and the former Director Board.
The Present Board of Directors were appointed under the
chairmanship of Mrs. S. N. Wickramasighe and the former
Board of Directors served under the chairmanship of Mr. S. M.
M. Yaseen, up to mid May 2010. (All nominated directors have
resigned from the Former Board in accordance with directions
issued to all institutions under the Ministry of Finance and
Planning in May 2010 following the General Elections and the
appointment of the new Cabinet of Ministers)
Consequently, the Present Board of Directors was appointed as
aforesaid. Given below are the Directors of the Bank as at 31st
of December 2010.
01. Mrs. S. N. Wickramasinghe (Chairman) appointed in May
2010 - Non-executive/ independent
02. Mr. W. J. L. U. Wiayaweera appointed in June 2010
- Non-executive/ independent
03. Mr. W. A. T. Fernando appointed in June 2010
04. Mrs. K. W. P. Dayarathne appointed in June 2010
05. Dr. D. S. Wiesinghe appointed in June 2010
06. Mrs. C. Wiayawardhane appointed in June 2010
07. Mr. A. M. Chandrasagara appointed in June 2010
08. Mr. S. A. J. Samaraweera appointed in June 2010
- Non-executive/ Non-independent
09. Mr. W. D. R. D. Goonarathne appointed in June 2010
- Non-executive/ Non-independent
Former Director Board comprised of Mr. S. M. M. Yaseen
(Chairman), Mr. W. J. L. U. Wiayaweera, Mr. P. Sumanapala,
Mr. W. A. T. Fernando, Mr. M. M. Abul Kalam, Mr. A. W.
Dayananda, Mrs. K. W. P. Dayarathne and Mr. S. Kannangara.
Resignations / retirement from the Board of HDFC Bank
during the period under review
01. Mr. S. M. M. Yaseen - with efect from May 2010
02. Mr. P. Sumanapala - with efect from May 2010
03. Mr. M. M. Abul Kalam - with efect from May 2010
04. Mr. A.W. Dayananda - with efect from May 2010
05. Mr. Sunil Kannangara - with efect from June 2010
06. Mr. W. A. T. Fernando - with efect from June 2010
07. Mrs. K. W. P. Dayarathne - with efect from May 2010
08. Mr. W. J. L. U. Wiayaweera - with efect from May 2010
Appointments and re-appointments to the Board
01. Mrs. S. N. Wickramasinghe (Chairman)
- new appointment (with efect from 21/05/2010)
05. Mr. S. A. J. Samaraweera
06. Mr. W. D. R. D. Goonarathne
- re-appointment (with efect from 03/06/2010)
The qualifcations and the experience of the Directors
The qualifcations and the experience of the Directors are
given in the Board of Directors profle on pages 19 to 20 of this
Annual Report.
The following were the Directors of the HDFC (RED) during
the fnancial year, under review.
01. Mr. Sunil Kannangara
02. Mr. L. P. Andrahennadi
03. Mr. M. I. M. Rafeeek
04. Mr. S. M. Amerasekera
25. BOARD SUB COMMITTEES
The Board while ensuring the overall responsibility and
accountability in the administration and the management
of HDFC Bank has taken necessary measures to appoint
relevant Board sub Commitees, such as Audit Commitee,
Human Resource and Remuneration Commitee, Nomination
Commitee and Integrated Risk Management Commitee. The
relevant reports of the Board Sub Commitees are given on
pages 156 to 160 of the Annual Report.
26. Directors Meeting
During the period under review Board of Directors held 12
Board Meetings. The atendance of Directors at these meetings
is given on page 144. In addition there were Board Sub
Commitee Meetings, the details of which are given separately
with the reports of Board Sub Commitees, on pages 145 to 146
of this Annual Report.
27. Director Responsibility for Financial Reporting
The Directors are responsible for the preparation of fnancial
statements of the Bank in such manner that it will refect a true
and fair view of the state of afairs of the HDFC Bank. The
statement of Directors responsibility for Financial Reporting is
given on page 161 which forms an integral part of the Annual
Report of the Board of Directors.
28. Entries in the Interest Register
The HDFC Bank is regularly maintaining the Interest Register
in accordance with the companies Act. The Directors have
made declarations as required and the related entries were
made in the interest register during the year under review.
29. Directors Interest in Shareholding
Directors shareholdings are as follows:
31/12/2010 01/01/2010
(Chairman)
1000 Nil
Mr. W.A.T.Fernando Nil Nil
Mr. W.J.L.U.Wiayaweera 300 300
Mrs. K.W.P.Dayarathna Nil Nil
Mrs. C. Wiayawardhana Nil Nil
Dr. D. S. Wiesighe 100 Nil
Mr. A. M. Chandrasagara 800 Nil
Mr. W. D. R. D.Goonarathne Nil Nil
Mr. S. A. J. Samaraweera Nil Nil
30. Directors Interests in Contracts and Proposed
Contracts
Directors had no direct or indirect interest in any contract or
proposed contract entered by the HDFC Bank during the year
ended 31 December 2010. Further information is given on page
179 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
in.
31. Directors Interests in Debentures
There were no debentures registered in the name of any
director as at the beginning and at the end of the year.
32. Related Party Transactions
Related party transactions were given in Note 30 of the
fnancial statement of this Annual Report, on page 179.
33. Directors Remuneration
Directors remuneration, for the fnancial year ended 31
December 2010 is given on Note 08 to the fnancial statement
on page 172.
34. Employee Share Option Plan
The Employee Share Ownership Plan was introduced by
the Bank at the time of the Initial Public Ofering (IPO),
with the approval of the shareholders. The total number of
shares issued to the Trustee under the above category was
348,522 shares and the above shares were allocated among the
benefciaries. The above mentioned Share Trust was set up by
the Bank acquiring 5% of the voting ordinary shares.
35. Environmental Protection
The Directors, to the best of their knowledge and belief, are
satisfed that the Bank has not engaged in any activities,
which have caused adverse efects on the environment and
has complied with the relevant environmental regulations.
In addition, the Board has adopted an environmental policy
in year 2009 and the implementation of the aforesaid policy
commenced in year 2010, the relevant details are given in the
sustainability report on pages 53 to 97 of the Annual Report.
36. Risk Management and System of Internal Controls
A continuous process is in place to identify, evaluate and
manage the risk exposure of the HDFC Bank while an efective
and comprehensive system of internal controls are in place to
safeguard the assets of the Bank, to ensure continuity of the
bank in an orderly manner by detecting and preventing frauds
and irregularities (if any) as far as possible and securing the
accuracy and reliability of all records of the Bank.
Report of the Board of Directors contd.
The Board Audit Commitee reviews the internal control
process of the Bank on a regular basis and the commitee
forwards necessary recommendations directly to the Board
to ensure that the Bank has a comprehensive Internal Control
Framework, in place for smooth functioning of its operations.
More details are given in Board Audit Commitee Report on
page 156, Risk management report given on page 159 and
Board statement on Internal Controls on page 147.
37. Corporate Governance
A statement of compliance, pertaining to Corporate
Governance practices of the Bank are set out in pages 109 to
143 of this Annual Report, and a summary is given below.
The Central Bank of Sri Lanka in December 2007, issued
a mandatory code of corporate governance for licensed
specialized banks in Sri Lanka, which the Board of Directors of
HDFC Bank has ofcially adopted.
The Board of Directors of the Colombo Stock Exchange has
granted a total exemption to the licensed specialized banks
from the requirement of complying with section 7.10 (corporate
governance) of the continuing listing requirements under the
CSE listing rules subject to disclosure of rule 7.10(c) of CSE
with efect from 01st of January 2010 and the Central Bank of
Sri Lanka too has issued directions with regard to corporate
governance practices of licensed specialized banks.
As such the HDFC Bank complied with the corporate
governance rules applicable to the banking sector as mandated
by the Central Bank directions and voluntarily complies with
Code of Best Practices on corporate governance issued jointly
by the Securities and Exchange Commission of Sri Lanka and
the Institute of Chartered Accountants of Sri Lanka in the year
2008.
In addition, the HDFC Bank complied with the continuing
listing requirements under section 7.10 of the listing rules
issued by the Colombo Stock Exchange.
38. Compliance With Applicable Laws And
Regulations
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
fnancial efect.
39. Appointment Of Auditors
The Auditor General continues to be the Auditor of the bank
as stipulated in the HDFC Act No.07 of 1997, (amended by Act
No. 15 of 2003)
40. Auditors Remuneration And Interest In Contract
With The Bank
The Auditors were paid Rs. 722,113 for the year ended 31st of
December, 2010 as audit fees by the Bank. The auditors do not
have any other relationship or interest in contracts with the
Bank or the Group.
41. Audit Commitee
The composition of the Audit Commitee and their report is
given on page 156 of this Annual Report.
42. Notice of Meeting
The 26th Annual General Meeting of the Bank will be held at
10.00 a.m. on 9th of May 2011 at Grand Oriental Hotel, No. 02,
York Street, Colombo 01, Sri Lanka.
The Notice of the meeting is given on page 189 of the Annual
Report.
By order of the Board
Chairman
Dharshani De Silva
Company Secretary
Reports of the Board Sub Commitees
The Board Audit Commitee (BAC) functioned under the
charter and the terms of reference adopted by the Board of
Directors for its operation.
The Board Audit Commitee comprised of three (03)
independent directors and the Chairman of the Audit
Commitee is a member of the Institute of Chartered
Accountants of Sri Lanka. The commitee held six (06) meetings
during the year 2010 to review the progress of Internal Audit
function, adequacy, efciency and efectiveness of controls to
manage risks paying special atention to the followings.
Determining the scope and plan for the Internal Audit
function.
Reviewing and evaluating the system of Internal Controls
and the management of Business Risks.
Reviewing the External Audit and Internal Audit Processes,
Reports, External Auditors management leters and
management responses.
Reviewing the fnancial reporting process and procedures
in place for monitoring compliance with Laws, regulations
in particular Central Bank guidelines, standards, fnancial
reporting requirements etc.
Reviewing with senior ofcers of other functions to identify
key accounting and control issues and resolve those with
the primary objectives of establishing an adequate control
environment and ensuring fnancial statements that
provide a true and fair view of the fnancial results of the
Bank.
Reviewing the adequacy of staf and their training and
development for the proper functioning.
Adding value to the business by early correction of
defciencies identifed during the course of audit and
ensuring regular follow-up actions on audit fndings
through the Internal Audit Department.
The commitee took initiatives to further strengthen the
Internal Audit Department by recruiting 3 experienced staf
during year 2010.
We wish to place on record our appreciations of the valuable
comments and observations made in the reports of the Auditor
General.
A M Chandrasagara
Chairman
Audit Commitee Report
Composition of the Human Resource and
The Human Resource and Remuneration Commitee comprises
of three non-executive independent Directors namely, Mrs. S.
N. Wickramasinghe, Mr. W. J. L. U. Wiayaweera and Mrs. K.
W. P. Dayarathne.
Mrs. S. N. Wickramasinghe was appointed as the Chairman
of the Commitee, immediately afer her appointment to the
Board.
Prior to her appointment, Mr. S. M. M. Yaseen was the
Chairman of the Commitee, until his resignation from the
Board in May 2010.
Under the Chairmanship of Mr. S. M. M. Yaseen, the
Commitee consisted of three non-executive independent
Directors, namely Mr. W. J. L. U. Wiayaweera and Mr. P.
Sumanapala.
Mr. P. Sumanapala also resigned from the Board and the
Commitee with efect from May 2010.
The appointment to the above Commitee is made by the
Board, and the Commitee is responsible and report directly to
the Board of Directors.
Human Resource and Remuneration Policy of the Bank
We consider our Human Resources as the most valuable
asset of our organization, which can be utilized to obtain the
maximum productivity for the beterment of our organization.
The Commitee makes the relevant recommendations based
on the above scenario and is always mindful to select the
best option, to improve the quality and the standards of our
employees and motivate them to achieve the desired levels of
performance. We apply equal opportunity approach, without
any discrimination, and encourage all employees of the Bank
to enhance their knowledge and performance and achieve their
career goals and employee benefts.
The core-responsibilities and duties of the Human Resource
and Remuneration Commitee
The Commitee is empowered to recommend to the Board of
Directors any mater related to Human Resource Management
of the Bank and during the period under review the Commitee
has taken necessary measures to strengthen the relevant area
by paying a special atention to the following.

(a) Implementation of a Remuneration policy relating to Chief
Executive Ofcer and other key management personal of
the Bank.
(b) Seting up goals and targets for the Directors, CEO and
other key management persons.
(c) Evaluating the performance of CEO and other key
management personal against the set targets and
goals periodically and determine the basis for revising
remuneration benefts and other payments of performance
base incentives.
(d) Making necessary recommendation to the Board pertaining
to the salary revisions, Prerequisites, Recruitments, Cadre
Determination, Promotions / Change of Designation /
Creation of new Posts or positions / Placements / Cadre and
Cadre Budget, Training and atending to overseas Seminars
by the Staf Members of the Bank.
Human Resource and Remuneration Commitee
Meetings
During the year under review the Commitee held 04 meetings
and all Directors who were members of the Commitee
participated the relevant meetings. The atendances of the
Directors are given at the end of this report. The General
Manager / CEO atended the meetings by invitation, except in
relation to maters connected to his position. The members of
the Corporate Management team were invited for participation
at the Commitee meetings as and when required by the
commitee.
Chairman
Company Secretary
Board Human Resource and Remuneration Commitee Report
Composition of the Nomination Commitee
The Nomination Commitee comprises of three non-executive
independent Directors namely, Mrs. S. N. Wickramasinghe, Mr.
W. J. L. U. Wiayaweera and Mrs. K. W. P. Dayarathne.
Board.
Board in May 2010.
Directors, namely Mr. W. J. L. U. Wiayaweera and Mr. P.
Sumanapala.
Mr. P. Sumanapala also resigned from the Board and the
The appointments to the above Commitee is made by the
The core-responsibilities and duties of the Nomination
Commitee
During the period under review the Commitee has taken
necessary measures to strengthen the relevant area by paying a
special atention to the following.
(a) Implementation of a procedure for selection / appointment
of new Directors, CEO and key management personal.
(b) Making necessary recommendations for re-election of
Directors taking into account the performance and the
contribution made by the Director concerned towards the
overall discharge of the Boards responsibilities.
(c) Seting up criteria, such as qualifcations, experience and
key atributes required for eligibility to be considered for
appointment or promotion to the post of CEO and the key
management position.
(d) Ensuring the Directors, CEO and key management personal
are ft and proper persons to hold ofce as specifed in the
criteria given in the Central Bank directions and as setout in
the relevant statutes.
(e) Making necessary recommendation from time to time
pertaining to the requirements of additional/new expertise
and succession arrangements for retiring Directors and key
management personals.
Nomination Commitee Meetings
During the year under review the Commitee held 01
commitee meeting.
Chairman
Company Secretary
Nomination Commitee
Reports of the Board Sub Commitees contd.
Composition of the Risk Management Commitee
The Integrated Risk Management Commitee comprises of
04 members all of whom are non-executive independent
directors namely Mrs. S. N. Wickramasinghe (The Chairman
of the Commitee), Mrs. C. Wiayawardhana, Mr. A. M.
Chandrasagara and Dr. D. S. Wiesinghe. The appointments to
the above Commitee are made by the Board.
The core-responsibilities and duties of the Integrated Risk
Management Commitee
During the period under review the Commitee has taken
necessary measures to strengthen the relevant area by paying a
special atention to the following.
(a) Assessing of all risk, ie. Credit, Market, Liquidity,
Operational and Strategic Risk through appropriate risk
indicators and management information received, by the
Commitee, periodically.
(b) Reviewing the adequacy and efectiveness of all
management level commitees.
(c) Taking the prompt corrective action to mitigate the efects
of specifc risk in the case, such risks are at levels beyond
the prudent level decided by the commitee, on the basis
of the Banks policies and regulatory and according to
supervisory requirements.
(d) Taking appropriate action against the ofcers responsible
for failure to identify specifc risk and take necessary
corrective action as recommended by the Commitee and or
directed by the Director of Bank Supervision.
(e) Establishing a compliance function to assess the Banks
compliance on all areas of business operations by
appointing a compliance ofcer who shall carryout the
compliance functions and report to the Commitee,
periodically.
Integrated Risk Management Commitee Meetings
During the year under review the Commitee held 01
commitee meeting. However, most of the subject mentioned
above were atended by the Board itself, during the year under
review. In addition to the above more information were given
under the Risk Management Report of this Annual Report.
Chairman
Company Secretary
Integrated Risk Management Commitee
Composition of the Recovery Sub Commitee
The Recovery Sub Commitee comprises of three non-executive
independent Directors namely, Mrs. S. N. Wickramasinghe, Mr.
W. J. L. U. Wiayaweera and Mrs. K. W. P. Dayarathne and two
non-executive non-independent Directors namely, Mr. S.A.J.
Samaraweera and Mr. W.D.R.D. Goonarathne.
Board.
Board in May 2010.
Directors, namely Mr. W. J. L. U. Wiayaweera and Mrs. K. W.
P. Dayarathne and Mr. A. W. Dayananda non-executive non-
independent Director.
Mr. A. W. Dayananda also resigned from the Board and the
The appointment to the above Commitee is made by the
The core-responsibilities and duties of the Recovery
Sub Commitee
The Commitee is responsible for taking appropriate decision
pertaining to HDFC acquired properties.
Recovery Sub Commitee
Reports of the Board Sub Commitees contd.
Recovery Sub Commitee Meetings
During the year under review the Commitee held 04 meetings.
The General Manager / CEO, Deputy General Manager
(Finance) and Senior Manager (Recoveries) are atending the
meetings by invitation.
Chairman
Company Secretary

The Board of Directors of the HDFC Bank are responsible for
ensuring that the Bank maintains proper books of accounts
of all the transitions and prepares fnancial statements for
each fnancial year which give a true and fair view of the
state of afairs of the Bank and its subsidiary for that period.
Accordingly, the Board of Directors oversees the management
responsibilities for fnancial reporting through their regular
Board meetings and also through the Audit Commitee.
The Auditors Report sets out the respective responsibilities of
the Directors and Auditors relating to the fnancial statements
and this statement provides additional information.
The Board of Directors are satisfed that the HDFC Bank and
the Group have the required resources to continue in operation
for the foreseeable future and therefore, these fnancial
statements are prepared on a going concern basis.
The Board of Directors consider that, these fnancial statements
have been prepared using appropriate accounting policies,
consistently applied, and supported by reasonable and prudent
judgment and estimates and in compliance with Sri Lanka
Accounting Standards. Any change to accounting policies
and reasons for such change, is disclosed in the Notes to the
Financial Statements.
The Board of Directors has a responsibility to ensure that
the HDFC Bank and its subsidiary are maintaining sufcient
accounting policies to ensure the accuracy and reliability
of fnancial statements. The Directors have a general
responsibility to take reasonable steps to safeguard the assets
of the HDFC Bank.
In discharging this responsibility, the Board of Directors has
instituted efective and comprehensive systems of internal
fnancial control. This comprises internal checks, internal
audit and the whole system of fnancial and other controls
required to carry on business of banking in an orderly manner,
safeguarding its assets and secure as far as practicable the
accuracy and reliability of the records.
The Board of Directors consider that they adopted appropriate
accounting policies on a consistent basis and supported by
reasonable and prudent judgment in preparing fnancial
statements for the year 2010, which is published in this Annual
Report.
The HDFC Banks fnancial statement for the year ended 31st of
December 2010 prepared and presented in this annual report
in conformity with the requirements of Sri Lanka Accounting
standard, the Banking Act No. 30 of 1988, amendments there to
and HDFC Act No. 07 of 1997 amended by Act No. 15 of 2003.
The fnancial statement for the year 2010 refects a true and fair
view of the state of afairs of the HDFC Bank and the group as
at the date.
By Order of the Board
Chairman
Dharshani De Silva
Company Secretary
The Board of Directors Responsibilities for Financial
Reporting
Auditors Report
Bank Group
For the year ended 31st December Notes 2010 2009 2010 2009
Rs. Rs. Rs. Rs.
Income 01 2,250,285,534 2,268,697,932 2,239,380,272 2,268,787,492
Interest income 02 2,164,980,599 2,216,371,783 2,164,980,599 2,216,461,343
Interest expenses 03 (1,339,354,916) (1,582,107,422) (1,339,189,916) (1,582,107,422)
Net interest income 825,625,683 634,264,361 825,790,683 634,353,921
Non Interest income 04 85,304,935 52,326,149 74,399,673 52,326,149
Net income 910,930,618 686,590,510 900,190,356 686,680,070
Less :Non Interest expenses
Personnel costs 05 271,032,361 230,240,411 271,032,361 231,130,411
Provision for staf retirement beneft 06 43,534,101 46,913,170 43,534,101 46,979,320
Premises equipment &
establishment expenses 07 102,417,623 79,359,588 102,592,711 79,860,711
Operating expenses 08 95,960,949 82,630,762 96,963,743 84,761,256
Provision for loan losses 09 106,895,284 53,952,870 (16,415,788) 23,819,846
Provision for Fall in value of Dealing
& Investment securities - 25,000,000 - -
619,840,319 518,096,801 497,707,129 466,551,544
Operating Proft on Ordinary
activities before Tax 291,090,299 168,493,709 402,483,228 220,128,526
Less : VAT on fnancial services 10 102,183,159 77,425,100 102,183,159 77,425,100
Operating Proft on Ordinary
activities before Corporate Tax 188,907,140 91,068,609 300,300,068 142,703,426
Less: Provision for taxation 11 53,566,201 34,618,210 53,610,164 34,618,210
Proft for the Year 135,340,939 56,450,399 246,689,905 108,085,216
Earnings per share 12 20.91 8.72 38.12 16.70
Dividend per Share (Rs.) *5.00 5.00 *5.00 5.00
* Proposed dividend ,which is to be approved at the Annual General Meeting.
Consolidated Income Statement
Bank Group
As at 31st December 2010 2009 2010 2009
Notes Rs. Rs. Rs. Rs.
Assets
Cash & Short term funds 13 84,272,236 163,188,742 84,272,695 163,189,988
Investment in Government
Securities & others 14 1,512,767,857 1,246,621,852 1,512,767,857 1,246,621,852
Loans & advances 15 12,839,824,833 11,912,783,350 12,749,824,830 11,702,258,784
Interest receivable 16 54,434,061 73,625,645 54,434,061 73,625,645
Taxation recoverable 17 3,720,559 24,898,653 6,031,973 27,210,067
Investment securities 18 30,600 - 30,600 -
Housing projects 19 - - 188,534,005 182,367,356
Investment in subsidiaries 20 - - - -
Other assets 21 123,115,329 159,662,517 123,115,329 159,662,517
Property, plant & equipment 22 755,666,901 720,659,833 655,761,447 620,898,639
Total assets 15,373,832,375 14,301,440,592 15,374,772,796 14,175,834,849
Liabilities
Deposits from customers 23 7,702,928,102 6,114,802,194 7,701,263,102 6,113,302,194
Borrowings 24 4,781,006,769 5,150,223,956 4,781,006,769 5,150,229,719
Taxation payable 25 - - 4,918,351 4,884,390
Other liabilities 26 1,041,239,119 1,315,218,767 1,084,139,287 1,342,784,935
Total Liabilities 13,525,173,990 12,580,244,917 13,571,327,509 12,611,201,238
Shareholders fund
Share capital 27 962,088,646 962,088,646 962,088,646 962,088,646
Reserves 28 886,569,740 759,107,029 841,356,641 602,544,965
1,848,658,386 1,721,195,675 1,803,445,287 1,564,633,611
Total Liabilities & Shareholders Fund 15,373,832,375 14,301,440,592 15,374,772,796 14,175,834,849
Net assets value per ordinary share Rs. 285.68 265.99 278.70 241.79
The Signifcant Accounting policies and Notes on pages 168 to 179 from an integral part of these Financial Statements.
These fnancial statements have been prepared in accordance with the Sri Lanka accounting standards.
S. Dissanayake Suresh Amerasekera
DGM (Finance) CEO/General Manager
The Board of Directors are responsible for the preparation and presentation of these Financial Statements. These Financial
statements were approved by the Board of Directors and signed on their behalf,
Ms. S N Wickramasinghe A M Chandrasagara
Chairperson Director
15/02/2011
Colombo
Consolidated Balance Sheet
Bank Group
For the year ended 31st December Rs. Rs. Rs. Rs.
2010 2009 2010 2009
Cash fows from operating activities
Interest received 2,184,172,183 2,204,069,416 2,184,172,183 2,204,158,975
Interest payments (1,490,839,784) (1,251,110,758) (1,490,674,784) (1,251,911,100)
Receipt from other operating activities 85,299,935 43,050,216 85,299,935 43,050,216
Cash payments to employees & suppliers (379,413,862) (310,402,267) (379,413,862) (311,358,417)
Payments on other operating activities (199,549,014) (143,606,655) (199,560,843) (145,293,671)
Operating proft before changes in operating assets 199,669,458 541,999,952 199,822,629 538,646,003
(Increase)/Decrease in operating assets
Funds Recovered from customers 1,895,824,198 2,018,765,196 1,895,824,198 2,018,765,196
Funds advanced to customers (2,925,210,203) (1,830,060,230) (2,925,210,203) (1,830,060,230)
Housing Project - - (17,071,911) (119,427)
Subsidiary - HDFC RED Loan (2,786,509) (6,376,314) - -
Other Assets 36,478,225 (22,819,523) 36,478,225 (22,819,523)
(995,694,289) 159,509,129 (1,009,979,691) 165,766,016
Increase / (Decrease) in operating liabilities
Deposits from customers 1,588,125,908 1,138,804,429 1,587,960,908 1,137,304,429
Others (96,372,376) 60,470,412 (82,070,169) 59,323,698
1,491,753,532 1,199,274,841 1,505,890,739 1,196,628,127
Net cash from operating activities before income tax 695,728,701 1,900,783,922 695,733,677 1,901,040,146
Income Tax & Deemed Dividend Tax Paid (29,012,868) (28,864,098) (29,012,868) (28,864,098)
Net cash from operating activities 666,715,833 1,871,919,824 666,720,809 1,872,176,048
Cash fows from investing activities
Dividends received 5,000 16,000 5,000 16,000
(Purchase)/Sale of Investment Securities 94,061,196 (94,091,796) 94,061,196 (94,091,796)
Purchase of property, plant and equipment (78,407,472) (71,282,995) (78,407,472) (71,282,995)
Disposal of property, plant and equipment 573,484 9,259,934 573,484 9,259,934
Net cash from Investing activities 16,232,209 (156,098,857) 16,232,209 (156,098,857)
Cash fows from Financing activities
Repayment of Borrowings (1,052,077,646) (3,019,238,177) (1,052,083,409) (3,019,496,066)
Proceeds from Borrowings 682,860,459 1,527,937,282 682,860,459 1,527,937,282
Dividends paid (32,409,560) 450 (32,409,560) 450
Net cash from fnancing activities (401,626,748) (1,491,300,445) (401,632,511) (1,491,558,334)
Net increase in cash & cash equivalents 281,321,295 224,520,522 281,320,508 224,518,857
Cash & cash equivalents at beginning of the period 1,315,718,798 1,091,198,277 1,315,720,044 1,091,201,188
Cash & cash equivalents at the end of the period 1,597,040,092 1,315,718,798 1,597,040,551 1,315,720,045
Reconciliation of cash and cash equivalents
Cash & short term funds 84,272,236 163,188,742 84,272,695 163,189,989
Government of Sri Lanka treasury bills 1,512,767,857 1,152,530,056 1,512,767,857 1,152,530,056
1,597,040,092 1,315,718,798 1,597,040,551 1,315,720,045
Consolidated Cash Flow Statement
For the year ended 31st December
No of Share Share General Revaluation Statutory Special Proft & Total
Share Capital Premium Reserve Reserve Reserve Reserves Loss
Fund Accounts
Bank
Balance as at 01.01.2009 6,471,022 647,102,200 314,986,446 - 43,767,910 36,799,251 3,451,125 650,993,453 1,697,100,385
Net Proft for the period - - - - - - - 56,450,399 56,450,399
Dividend proposed - - - - - - - (32,355,110) (32,355,110)
Surplus on Revaluation - - - - - - - - -
Issue/(Redemption) of Shares - - - - - - - - -
Transfer to Reserve - 5,645,040 - 2,822,520 (8,467,560) -
Balance as at 31-12-2009 6,471,022 647,102,200 314,986,446 5,645,040 43,767,910 39,621,771 3,451,125 666,621,182 1,721,195,675
Balance as at 01.01.2010 6,471,022 647,102,200 314,986,446 5,645,040 43,767,910 39,621,771 3,451,125 666,621,182 1,721,195,675
Net Proft for the period 135,340,939 135,340,939
Surplus on Revaluation - - - - (7,878,228) - - (7,878,228)
Dividend proposed - - - - - - - - -
Transfer to Reserve 13,534,094 6,767,047 (20,301,141) -
Balance as at 31-12-2010 6,471,022 647,102,200 314,986,446 19,179,134 35,889,682 46,388,818 3,451,125 781,660,980 1,848,658,387
Group
Consolidated Statement of Change in Equity
Balance as at 01.01.2009 6,471,022 647,102,200 314,986,446 - 43,767,910 36,799,251 3,451,125 442,796,573 1,488,903,505
Dividend proposed - - - - - - - (32,355,110) (32,355,110)
Transfer to Reserve - - - 5,645,040 - 2,822,520 - (8,467,560) -
Balance as at 31-12-2009 6,471,022 647,102,200 314,986,446 5,645,040 43,767,910 39,621,771 3,451,125 510,059,119 1,564,633,610
Balance as at 01.01.2010 6,471,022 647,102,200 314,986,446 5,645,040 43,767,910 39,621,771 3,451,125 510,059,119 1,564,633,610
Surplus on Revaluation - - - - (7,878,228) - - - (7,878,228)
Issue/(Redemption) of Shares
Transfer to Reserve - - - 13,534,094 - 6,767,047 - (20,301,141) -
Balance as at 31-12-2010 6,471,022 647,102,200 314,986,446 19,179,134 35,889,682 46,388,818 3,451,125 736,447,882 1,803,445,287
Consolidated Statement of Change in Equity
Signifcant Accounting Polices
GENERAL
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 15of 2003. The principal business
activities of HDFC Bank and the group during the year were
granting loans and other forms of fnancial assistances related
to housing purposes and real estate business. HDFC banks
head ofce is located at NHDA secretarial Colombo-02 Sri
Lanka.
1. ACCOUNTING CONVENTION
The Balance Sheet, Income Statement, Statement of Changes in
Equity and Cash Flow Statement are prepared in conformity
with generally accepted accounting principles and the
accounting standards laid down by the Institute of Chartered
Accountants of Sri Lanka applied consistently on a historical
cost basis, with no adjustments being made for infationary
factors afecting these accounts. The fnancial statements are
presented in Sri Lanka Rupees, rounded to the nearest Rupees.
1.1. 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 previous years fgures have been re-arranged wherever
necessary to conform to the current presentation.
2. BASIS OF CONSOLIDATION
The group fnancial statements comprise the Banks fnancial
statements consolidated with that of its fully owned subsidiary
of HDFC Real Estate Development Ltd in term of Sri Lanka
Accounting Standard No 26, Accounting for investment in
Subsidiaries. The accounting policies have been consistently
applied by Bank and its Subsidiary.
2.1 Subsidiaries
Subsidiaries are those enterprises controlled by the Bank.
Control exists when the Bank has the power, directly or
indirectly to govern the fnancial and operating policies of
the enterprise so as to obtain benefts from its activities. The
fnancial statements of the subsidiary are included in the
consolidated fnancial statements from the date that control
efectively commences until the date that control efectively
ceases. The fnancial statements of the Bank and its subsidiary
are combined on line- by- line basis. The consolidated accounts
are prepared to a common fnancial year end of 31st December,
2.1.1 Intra group balances and intra group transactions
are eliminated in full in the consolidated fnancial
statements in order to eliminate the intra group profts.
2.1.2 The interest incurred in mobilizing fund recognized
at the weighted average cost of interest applicable for
relevant fund for the Bank and relevant projects are
capitalized.

3. VALUATION OF ASSETS
3.1 Loans and Advance to Customers:
Loans and Advances to customers are stated in the balance
sheet net of provisions for possible loan losses, and net of
interest which is not accrued to revenue
.
3.1.1 Provision for loan Losses
Specifc Provision for possible loan losses are made on base of
a continuous review of all advance to customers, in accordance
with the applicable accounting standards laid down by the
ICASL and the directions issued by the Central Bank of Sri
Lanka.
3.1.2 Security property Mortgage
Period Classifcation Provision made net of
Outstanding realizable value of
Security (As per Central
Bank directions)

6 - 12 months Substandard 20%
12- 18 Months Doubtful 50%
18 Months and over Loss 100%
3.1.3 EPF & Cash Margin Loans
No Special provision made for the loans granted against the
EPF & cash deposit Balances.
3.2 Acquired Properties for Sale
Properties mortgaged by HDFC Bank are auctioned if the
customers default and the properties which are not disposed at
such auctions are recognized as acquired properties and capital
outstanding of loans with relevant to the acquired properties
are presented under the loans & advances.
3.2.1 General Provision
Bank has maintained at 0.9% as general provision as per a
direction from the Central Bank of Sri Lanka on all performing
and overdue loan portfolio excluding special scheme loans.

3.2.2 Provision for Losses on acquired property
The Bank had been a policy of providing 100% specifc loan
loss provision for the acquired properties which were over
5years .This year the policy was changed to the CBSL direction.
3.2.3 Provision for investment
The full provision has been made for investment in share
capital of HDFC RED on which dividends or interest has not
been received for the last 3 consecutive years. As per SLAS 33.
3.3 Treasury Bills & Bonds
Investment in treasury bills and Bonds are stated at cost plus
interest receivable (Excluding Treasury bond coupon interest)
3.4 Property & Equipment.
a. Fixed Assets are recorded at cost or at valuation
together with any directly atributable cost of bringing
the assets to working condition. The property and
equipments are stated at cost less accumulated
depreciation, which is provided for on the basis
specifed in (b) below. No fresh valuations called during
the year under review.
b. Depreciation is provided at the following rates on a
straight-line basis over the estimated lives of diferent
types of assets.
Buildings 6 2/3% per annum
Ofce Equipment 12.50% per annum
Furniture & Fitings 10.00% per annum
Motor Vehicles & Bicycles 20.00% per annum
Plant and Machinery 25.00% per annum
Tools & Equipment 12.50% per annum
Computer Equipment & ATM 12.50% per annum
Computer sofware -Foreign 25.00% per annum
Total annual depreciation is provided on the assets which
are purchased and used for the year and no depreciation is
provided for the year of disposal. Depreciation is not provided
for the freehold lands.
3.5 Valuation of housing projects.
Cost of real estate properties in work in progress stage
comprise of cost of purchase of land ,cost of developments
including infrastructure facilities and other cost including prior
to bringing such properties for its saleable condition including
borrowing cost capitalized in line with the recognition
criteria under the allowed alternative treatment of Sri Lanka
accounting standard No 20- Borrowing costs. The housing
projects have been shown at the market value or cost which
ever lower.
4 LIABILITIES AND PROVISIONS
Retirement Benefts
1.4.1.1. Gratuity
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. The item is
grouped under other liabilities in the Balance Sheet.
No separate fund is maintained and no actuarial valuation has
been carried out for the purpose.
1.4.1.2. Defned Contribution Plans EPF & ETF
All employees are eligible and covered by Employees
Provident Fund and Employees Trust Fund contributions in
line with the respective statutes.
5. REVENUE RECOGNITION
5.1. Interest Income
Interest income is recognized on an accrual basis. Interest
ceases to be taken to revenue when interest or principal
is in arrears for (3) months. And thereafer such income is
recognized on a cash basis.
5.2 Over due Interest Income
Over due interest for late payment of loan installment is
recognized on an accrual basis on performing loans .Such
income is recognized on a cash basis for the non performing
loans.
5.3 Interest Income from Other Sources
Interest on treasury bills/Bonds and commercial paper is
recognized proportionately over the period of instrument.
5.4 Other Income
Other incomes are recognized on the cash basis.
5.5 Revenue Recognition on Real Estate Project
Proft on real estate projects would be recognized afer the
accomplishment of one or more of the following criteria.
(a) Signing of the Sales Agreement
(b) Acceptance of the down payment of 25% or more
(c) Completion of 80% of the construction of each unit
The ownership of the properties will be transferred once the
sales proceeds are collected in full.
6 EXPENSES
1.6.1 Interest Expenses
Interest Expenses are recognized on an accrual basis,
1.6.2 Other Expenses
All expenditures incurred in operations and in maintaining the
Properties, Plants and Equipments in a state of efciency are
charged to Income statement in arriving at the proft or loss for
the year.
7. TAXATION
7.1 Income Tax
The provision for income tax is based on the elements of
income and expenditure as reported in the fnancial statements
and computed in accordance with the provisions of the Inland
Revenue Act
7.2 Deferred Taxation
Deferred taxation is provided on the liability method. The
tax efect of timing diferences which occur where items are
allowed for income tax purposes in a period diferent from that
when they are recognized in fnancial statements is included in
the provision for deferred taxation at current rate of taxation.
8. CASH FLOW STATEMENTS
The cash fow statement has been prepared by using the
Direct Method of preparing cash fows in accordance
with the Sri Lanka Accounting Standard No 9 on cash Flow
Statements. Cash and Cash equivalents comprise of cash
balance and Short-term funds and placements.
9 STATUTORY RESERVE FUND
5% of the net proft afer tax is transferred to the Statutory
Reserve fund.
Signifcant Accounting Polices contd.
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
01. Income
Interest income (Note 02) 2,164,980,599 2,216,371,783 2,164,980,599 2,216,461,342
Other income (Note 04) 85,304,935 52,326,149 74,399,673 52,326,149
Total income 2,250,285,534 2,268,697,932 2,239,380,272 2,268,787,491
02. Interest Income
Loans & advances 1,971,071,127 2,011,306,286 1,971,071,127 2,011,306,286
Treasury bills ,Bonds & other banks placements 193,909,472 205,065,497 193,909,472 205,155,057
2,164,980,599 2,216,371,783 2,164,980,599 2,216,461,343
03. Interest Expenses
Long- Term borrowing 534,684,623 595,035,307 534,684,623 595,035,307
Debenture 30,872,148 73,860,013 30,872,148 73,860,013
Deposits 773,798,145 907,573,409 773,633,145 907,573,409
Short term borrowing 5,638,693 - 5,638,693
1,339,354,916 1,582,107,422 1,339,189,916 1,582,107,422
04. Non interest Income
Dividend income 5,000 16,000 5,000 16,000
Fee and commissions income 74,974,858 35,129,705 74,974,858 35,129,705
Impairment of Housing project - - (10,905,262) -
Other 10,325,077 17,180,444 10,325,077 17,180,444
85,304,935 52,326,149 74,399,673 52,326,149
05. Personnel Cost
Salaries 206,275,779 180,365,706 206,275,779 181,255,706
Overtime 7,089,920 2,120,198 7,089,920 2,120,198
Bonus 33,809,173 29,240,096 33,809,173 29,240,096
Staf medical 14,218,218 12,234,456 14,218,218 12,234,456
Encashment of annual leave 7,972,149 6,279,956 7,972,149 6,279,956
Incentive Payments 1,667,123 - 1,667,123 -
271,032,361 230,240,411 271,032,361 231,130,411
The total remuneration paid to the banks key management during the year is Rs 12.8 Mns.
Notes to the Financial Statement
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
06. Provision for Staf Retirement Beneft
Gratuity provision 14,699,258 20,980,988 14,699,258 21,047,138
EPF & ETF 28,834,843 25,932,181 28,834,843 25,932,181
43,534,101 46,913,170 43,534,101 46,979,320
07. Premises Equipment &
Establishment Expenses
Electricity & Water 12,599,018 11,630,694 12,629,845 11,721,362
Telephone Charges 14,330,521 12,412,704 14,330,521 12,438,549
Computer maintenance 6,688,201 2,871,696 6,688,201 2,871,696
Rent 34,906,665 28,221,040 34,906,665 28,461,390
Repairs & Maintenance 2,099,484 2,326,477 2,099,484 2,326,477
70,623,890 57,462,611 70,654,717 57,819,475
Depreciations
Building 407,136 217,753 407,136 217,753
Ofce Equipment 5,426,643 3,444,874 5,484,570 3,502,801
Furniture & Fitings 6,199,920 3,885,606 6,286,254 3,971,938
Plant & Machinery 1,468,461 889,622 1,468,461 889,622
Motor Vehicles 5,040,997 4,824,900 5,040,997 4,824,900
Tools - 366 - 366
Automated Teller Machine 2,541,870 1,504,225 2,541,870 1,504,225
Computer S/W - Foreign 3,906,782 - 3,906,782 -
Computer Equipment 6,801,925 7,129,631 6,801,925 7,129,631
31,793,734 21,896,977 31,937,994 22,041,236
102,417,623 79,359,588 102,592,711 79,860,711
08. Operating expenses include
the followings
Chairmans emoluments 510,667 720,000 510,667 720,000
Directors emoluments 563,000 318,000 563,000 318,000
Auditors remuneration 211,312 675,762 340,528 874,808
Donations 547,100 - 547,100 -
Business Dev.& Advertising 18,560,548 14,774,034 18,607,657 14,774,034
Legal expenses 285,431 425,637 285,431 425,637
Professional charges 2,441,320 2,240,379 2,441,320 2,240,379
Others Operating Expenses 72,841,571 63,476,950 73,668,040 65,408,398
95,960,949 82,630,762 96,963,743 84,761,256
Notes to the Financial Statement contd.
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
09. Provision for loan losses
General Provisions (4,823,847) 13,926,195 (4,823,847) 13,926,195
Specifc Provisions 111,719,131 40,026,675 (11,591,941) 9,893,651
106,895,284 53,952,870 (16,415,788) 23,819,846
Due to the change of accounting policy for specifc loan loss provision on aquared properties, there was a gain of Rs.17 Mn which
was adjusted to proft year 2010.
10. VAT on fnancial Services 102,183,159 77,425,100 102,183,159 77,425,100
102,183,159 77,425,100 102,183,159 77,425,100
11. Taxation on Profts on Ordinary Activities
Current year income tax 56,155,585 38,258,202 56,199,548 38,258,202
Transfer to / from Difered taxation (374,684) (5,498,622) (374,684) (5,498,622)
(Over) / Under provision in previous year (2,214,700) 1,858,630 (2,214,700) 1,858,630
53,566,201 34,618,210 53,610,164 34,618,210
11.1 Reconciliation of Efective Tax Rate
Accounting Proft 188,907,140 91,068,609 300,300,068 142,703,426
Add :disallowable expenses 155,138,935 218,004,781 155,340,567 218,149,470
Less : Capital Allowance , Gratuity paid;Input VAT 67,417,579 27,113,874 67,561,840 27,315,506
Adjusted Proft before tax 276,628,496 281,959,515 388,078,795 333,537,390
Income tax 53,566,201 34,618,210 53,610,164 34,618,210
Efective tax rate 28.36% 38.01% 17.85% 24.26%
11.2 Relationship between Tax Expense
and Accounting income
Proft before tax as per the income statement 291,090,299 168,493,709 402,483,228 220,128,526
Add : disallowable expenses 57,779,623 50,300,143 57,923,884 50,444,702
Less : Capital Allowance & Tax excepted Income (72,241,426) (27,502,841) (72,443,057) (27,657,100)
Taxable Income 276,628,496 191,291,011 387,964,054 242,916,128
Tax @ 20% 55,325,699 38,258,202 55,369,662 38,258,202
Social Responsibility levy @ 1.5% 829,885 - 829,885 -
Under (Over ) Provision (2,214,700) 1,858,630 (2,214,700) 1,858,630
Less : Defered Tax Adjustments (374,684) (5,498,622) (374,684) (5,498,622)
Provision for income Tax 53,566,201 34,618,210 53,610,164 34,618,210
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
12. Earnings Per Share
Basic earnings per share is calculated by dividing
the net proft afer tax by the average
number of ordinary shares.
Net proft afer tax 135,340,939 56,450,399 246,689,905 108,085,216
Weighted Average number of ordinary shares 6,471,022 6,471,022 6,471,022 6,471,022
Basic earnings per share (Rs.) 20.91 8.72 38.12 16.70
13. Cash and short term funds
Cash in hand and balances with banks 84,272,236 102,637,941 84,272,695 102,639,187
Money at call and short notice - 60,550,801 - 60,550,801
84,272,236 163,188,742 84,272,695 163,189,988
14. Investment in Government
Securities & others
Treasury bonds/ Treasury Bill /Fixed deposits - 567,157,715 - 567,157,715
Treasury bills under repurchase agreement 1,173,934,598 275,372,341 1,173,934,598 275,372,341
Other investments 338,833,259 310,000,000 338,833,259 310,000,000
Investment in commercial Papers 94,091,796 - 94,091,796
1,512,767,857 1,246,621,852 1,512,767,857 1,246,621,852
15. Loans & Advances
Housing loans secured by primary mortgage
over residential properties 6,745,717,227 6,964,495,640 6,745,717,227 6,964,495,640
Housing loans against EPF. 4,332,516,006 3,287,967,780 4,332,516,006 3,287,967,780
Housing loans on Guarantors & Others 958,569,934 983,786,701 958,569,934 983,786,701
Staf loans 274,137,479 257,383,220 274,137,479 257,383,220
Acquired properties 56,627,423 65,428,620 56,627,423 65,428,620
Loan to NHDA 42,744 164,525 42,744 164,525
HDFC RED Loan 243,444,099 240,657,590 - -
Refnance Fund - Agri. Sector Loan 317,000,000 - 317,000,000 -
Project Loan/Block Loans 215,889,498 311,887,820 215,889,498 311,887,820
13,143,944,410 12,111,771,896 12,900,500,311 11,871,114,306
Less : Loan loss provision - General 89,650,943 94,474,789 89,650,943 94,474,789
- Specifc 214,468,634 104,513,757 61,024,538 74,380,733
12,839,824,833 11,912,783,350 12,749,824,830 11,702,258,784
** The aggregate value of the accommodation granted to banks key management personal for their housing is Rs. 9 Mns.
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
15. Loans & Advances contd.
i.Movements in the Provisions for Loan Losses
General Provision
Balance Brought forward 94,474,789 80,548,594 94,474,789 80,548,594
Additional provision/(Reversal) made (4,823,846) 13,926,195 (4,823,846) 13,926,195
Balance carry forward 89,650,943 94,474,789 89,650,943 94,474,789
Specifc Provision
Balance Brought forward1 104,513,757 64,632,040 74,380,733 64,632,040
Additional provision/(Reversal) made1 109,954,877 39,881,717 (13,356,195) 9,748,693
ii.Non performing assets including loans and advances
Loans and advances 2,840,383,217 2,743,314,572 2,596,939,118 2,502,656,982
Less : Loan loss provision -General 89,650,943 94,474,789 89,650,943 94,474,789
Specifc 214,468,634 104,513,757 61,024,538 74,380,733
2,536,263,640 2,544,326,026 2,446,263,637 2,333,801,460
16. Interest Receivable
Interest receivable 386,172,979 403,888,798 386,172,979 403,888,798
Less : Interest in Suspense (331,738,918) (330,263,153) (331,738,918) (330,263,153)
54,434,061 73,625,645 54,434,061 73,625,645
i.Movements in the Provisions for
Interest in Suspense
Balance brought forward 330,263,153 279,045,716 330,263,153 279,045,716
Interest suspensed - Addition 401,820,421 426,743,899 401,820,421 426,743,899
Recovered 400,344,656 375,526,462 400,344,656 375,526,462
17. Provision for taxation and
deemed dividend tax
Taxation - current (1,480,321) 23,734,489 831,093 26,045,903
VAT Payable (8,988,265) (12,446,627) (8,988,265) (12,446,627)
Debit, WHT and Paye tax (2,717,381) (2,924,611) (2,717,381) (2,924,611)
Deferred tax 16,906,527 16,535,402 16,906,527 16,535,402
3,720,559 24,898,653 6,031,973 27,210,067
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
18. Investment Securities
Credit Information Bureau of Sri Lanka 30,600 - 30,600 -
30,600 - 30,600 -
19. Investment in Subsidiaries
HDFC Real Estate Development Ltd. 25,000,000 - 25,000,000 -
Less : Provision for investment (25,000,000) - (25,000,000) -
20. Housing Projects
Avissawella Project - - 176,500,000 170,336,851
Ampara Project - - 10,832,783 10,829,283
Edmontin Rd project - - 1,201,222 1,201,222
- - 188,534,005 182,367,356
21. Other Assets
Stationery stock 5,883,175 4,568,353 5,883,175 4,568,353
Deposits and prepayments 31,353,409 22,310,415 31,353,409 22,310,415
Others 85,878,744 132,783,749 85,878,744 132,783,749
123,115,329 159,662,517 123,115,329 159,662,517
22 Property , Plant & Equipments
Bank Group
Freehold Leasehold Equipments Motor 2010 2009 2010 2009
Cost/Valuations Lands Lands and Vehicles Rs. Rs. Rs. Rs.
& Building Furniture
Balance at the begin. of the period 549,740,000 65,266,621 165,868,382 37,964,407 818,839,410 756,816,349 719,486,339 657,463,278
Additions for the period - 2,840,187 75,567,284 - 78,407,472 71,282,995 77,743,805 71,282,995
Revaluation - (7,878,228) - - (7,878,228) - (7,878,228) -
Less :-Disposal during the period - - 17,423,632 3,741,778 21,165,409 9,259,934 20,501,743 9,259,934
Balance at the end of the period 549,740,000 60,228,580 224,012,035 34,222,630 868,203,245 818,839,410 768,850,174 719,486,339

Accumulated Depreciations
Balance at the begin. of the period - - 75,154,571 23,025,007 98,179,578 85,542,534 98,587,700 85,806,397
Additions for the period - 3,688,911 26,345,601 5,040,997 35,075,508 21,896,977 35,002,770 22,041,236
Less :-Disposal during the period - - 16,760,865 3,957,878 20,718,742 9,259,934 20,501,743 9,259,934
Balance at the end of the period - 3,688,911 84,739,307 24,108,127 112,536,344 98,179,577 113,088,727 98,587,700

Net book value as at 31-12-2010 549,740,000 56,539,670 139,272,728 10,114,503 755,666,901 720,659,833 655,761,447 620,898,639
** The freehold lands have not been revalued during the year.
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
23. Deposits from customers
Savings deposits 1,042,180,827 591,618,222 1,042,180,827 591,618,222
Fixed deposits 6,659,585,274 5,521,433,154 6,657,920,274 5,519,933,154
Others 1,162,000 1,750,818 1,162,000 1,750,818
7,702,928,102 6,114,802,194 7,701,263,102 6,113,302,194
24. Borrowings
Debentures 24.1 395,000,000 610,000,000 395,000,000 610,000,000
Government of Sri Lanka 977,938,838 1,095,505,474 977,938,838 1,095,505,474
GOSL Loans under Foreign Credit Lines 261,444,425 412,898,145 261,444,425 412,898,145
Borrowing from the market 773,347,499 635,816,570 773,347,499 635,816,570
Re-fnance borrowings 1,163,230,064 1,165,272,372 1,163,230,064 1,165,272,372
Dhananidana Certifcate 1,151,874,326 814,008,769 1,151,874,326 814,008,769
Bank overdraf 58,171,616 416,722,626 58,171,616 416,728,390
4,781,006,769 5,150,223,956 4,781,006,769 5,150,229,719
Due Within One year 1,303,652,945 1,048,703,656 1,303,652,945 1,048,709,419
1-5 years 2,134,087,501 1,727,718,910 2,134,087,501 1,727,718,910
Afer fve years 1,343,266,323 2,373,801,391 1,343,266,323 2,373,801,391
4,781,006,769 5,150,223,956 4,781,006,769 5,150,229,719
24.1 Debenture Categories
Allotment Date Maturity Date Interest Payable Interest Rate Bank
Frequency 2010 2009
Fixed Rate:
May 2006 May 2010 Semi - Annually 13.00% 10,000,000
May 2006 May 2010 Semi - Annually 13.00% 40,000,000
April 2006 April 2010 Semi - Annually 13.00% 25,000,000
December 2005 December 2015 Annually 2.50% 85,000,000 85,000,000
December 2005 December 2010 Annually 2.50% 55,000,000
December 2005 December 2020 Annually 2.50% 110,000,000 110,000,000
195,000,000 325,000,000
June 2006 June 2010 Semi - Annually 6 Month WATB Rate+ 75,000,000
1.85% (Cap 15%)
June 2006 June 2010 Semi - Annually 6 Month WATB Rate+ 10,000,000
1.85% (Cap 15%)
June 2007 June 2011 Semi - Annually WAGTB + 1.75% 200,000,000 200,000,000
200,000,000 285,000,000
395,000,000 610,000,000
Bank Group
2010 2009 2010 2009
Rs. Rs. Rs. Rs.
25. Provision for taxation and deemed
dividend tax
Taxation - current - - 53,197 9,235
ESC Payable 4,865,154 4,875,155
- - 4,918,351 4,884,390
26. Other Liabilities
Provision for gratuity (26.1) 102,707,663 91,045,684 102,707,663 91,045,684
Accrued expenditure 659,588,663 816,448,354 659,590,663 816,448,354
Dividend Payable (34,650) 32,374,910 (34,650) 32,374,910
Other Creditors 278,977,444 375,349,819 321,875,612 402,915,987
1,041,239,119 1,315,218,767 1,084,139,287 1,342,784,935
26.1 Provision for Gratuity
Balance brought forward 91,045,684 72,390,629 91,045,684 72,390,629
Provisions made during the year 14,699,258 20,980,988 14,699,258 20,980,988
Payments made during the year (3,037,279) (2,325,933) (3,037,279) (2,325,933)
27. Share Capital
Authorized capital 2,000,000,000 2,000,000,000 2,000,000,000 2,000,000,000
(20,000,000 ordinary shares of Rs. 100/- each)
State Capital 962,088,646 962,088,646 962,088,646 962,088,646
(6,471,022 ordinary shares of Rs. 100/- each)
28. Reserves
Statutory reserve fund 46,388,818 39,621,771 46,388,818 39,621,771
General Reserve 19,179,134 5,645,040 19,179,134 5,645,040
Special reserve 3,451,125 3,451,125 3,451,125 3,451,125
Revaluation Reserve 35,889,682 43,767,910 35,889,682 43,767,910
Other reserves 781,660,981 666,621,183 736,447,883 510,059,119
886,569,740 759,107,029 841,356,641 602,544,965
29. Directors Interests in Contracts with the bank
None of the Directors possess any material interest on any transaction or proposed contract involving HDFC Bank of Sri Lanka
except for the disclosures in Note 30 of the Accounts. .
30. Related Party Transactions

Name Related Party Ofce Holding Transaction Nature of Transactions % Regulatory
Capital
Mr. Suresh Amarasekara (GM/
CEO)
HDFC RED Ltd. Managing
Director
Rs. 2.8 Mn Accommodation
Granted for housing project
of Rs. 243 Mn as at 31 Dec.
2010
13.41%
Mr. Suil Kannagar - Director
HDFC - Resinged on 21st June
2010
Director
Mr. S A J Samaraweera Director
HDFC
National Housing
Development
Authority
Chirman 01. Rs. 17.6
Mn
01. Rent paid for Head ofce
Building
02. Interest paid for
borrowing of Rs. 100Mn
Mr. WDRD Goonarathne
Director HDFC
Director 02. Rs. 12.5
Mn
31. The events occurring afer the balance sheet date:
There has been no material event afer the balance sheet date, that requires adjustments or disclosure in the fnancial statements.
32. Assets Pledged:
The assets pledged as security for credit facilities obtained are as follows:
Type of Amount of Nature of Value of Balance
facility facility security security as at 31/12/2010
Rs. Mn. Rs. Mn. Rs.Mn.

(1) Overdraf 100.00 Part of Loan portfolio 150.00 18.60
(Sampath Bank)
(2) Overdraf 100.00 Part of Loan portfolio 150.00 0.00
(Peoples Bank)
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 2010 (Rs.000) Up to 3 to 12 1 to 3 3 to 5 More than Total
3 Months Months Years Years 5 Years
Assets
Cash 51,728 - - - - 51,728
Due from Banks 474,377 - - - - 474,377
Investments 1,070,935 - - - 31 1,070,965
Loans & Advances 858,790 1,201,603 2,493,207 2,308,074 6,032,584 12,894,259
Fixed Assets 755,667 755,667
Other Assets 20,272 58,416 20,877 5,186 22,085 126,836
Total Assets 2,476,101 1,260,019 2,514,085 2,313,260 6,810,367 15,373,832
Liabilities
Total Capital Fund - - - - 1,848,658 1,848,658
Deposits 3,405,673 3,260,305 663,300 146,182 227,468 7,702,928
Borrowings 109,137 1,194,516 1,606,480 527,608 1,343,266 4,781,007
Other Liabilities 463,680 175,415 263,134 28,944 110,066 1,041,239
Total Liabilities 3,978,491 4,630,235 2,532,914 702,733 3,529,459 15,373,832
Maturity Analysis
0
2,000
4,000
6,000
8,000
Rs. Mn.
Maturity Analysis
Assets
Liabilities
Up to
3 Mth
3 to 12
Mth
1 to 3
Ys
3 to
5Ys
5 Ys >
For the period ended 31st December Bank Group
% 2010 % 2009 % 2010 % 2009
Interest Income 2,164,980,599 2,216,371,783 2,164,980,599 2,216,461,342
Other Income 85,304,935 52,326,149 74,399,673 52,326,149
Gross Income 2,250,285,534 2,268,697,932 2,239,380,272 2,268,787,491
Cost of Service 1,505,903,459 1,722,099,139 1,506,772,080 1,724,586,497
Total Value Additions 744,382,075 546,598,793 732,608,192 544,200,995
Value Distributed
To Employees
(Remuneration & Benefts) 42.3 314,566,462 50.7 277,153,581 42.9 314,566,462 51.1 278,109,731
To Government
Income Tax 7.2 53,566,201 6.3 34,618,210 7.3 53,610,164 6.4 34,618,210
Value Added Tax 13.7 102,183,159 14.2 77,425,100 13.9 102,183,159 14.2 77,425,100
Debit Tax 0.0 36,296 0.0 101,656 0.0 36,296 0.0 101,656
20.9 20.5 21.3 20.6
To Share Holders (Dividend) 4.3 32,355,110 5.9 32,355,110 4.4 32,355,110 5.9 32,355,110
Retained in the Business
Retained Proft 13.8 102,985,829 4.4 24,095,289 29.3 214,334,795 13.9 75,730,106
Depreciation 4.3 31,793,734 4.0 21,896,977 4.4 31,937,994 4.1 22,041,236
Loan Loss Provision 14.4 106,895,284 14.4 78,952,870 (2.2) (16,415,788) 4.4 23,819,846
Total Value Distribution 100.0 744,382,075 100.0 546,598,793 100.0 732,608,192 100.0 544,200,995
Statement of Value Added
To Employees
To Government
To Share Holders (Dividend)
Retained Proft
Value Distributed 2010
42%
14%
21%
4%
Capital Adequacy - Solo Basis
Capital Base
2010 2009
As at 31st December (Rs.000) (Rs.000)
Core Capital (Tier 1)
Paid-up Ordinary Shares/Common Stock/Assigned Capital 647,102 647,102
Share Premium 314,986 314,986
Statutory Reserve Fund 46,389 39,622
Published Retained Profts/(Accumulated Losses) 781,661 666,621
General and Other Reserves 22,630 9,096
Sub Total 1,812,769 1,677,428
Deductions/Adjustments-Tier 1
Net deferred tax assets 16,907 16,535
Advances granted to employees of the bank for the purchase of shares
of the bank under a share ownership plan 49,839 49,839
Total Core Capital (Tier 1) 1,746,024 1,611,054
General Provisions 89,651 94,475
Total Tier 2 Capital 1,835,674 1,705,529
Risk adjusted capital ratios
Tier 1 (Eligible Tier 1 capital / Total risk adjusted balances) * 21.09% 17.63%
Tier 11(Capital base / Total risk adjusted balances) ** 22.18% 18.66%
* Statutory minimum 5% ** Statutory minimum 10%
Risk Adjusted On - Balance Sheet Exposure - Rs.000
Risk Risk Adjusted
Balance Weights Balance
As at 31st December 2010 2009 (%) 2010 2009
Exposures
Cash - Local Currency 51,728 40,215 0%
Sri Lanka Government Treasury Bills & Bonds 1,070,935 595,503 0%
Central Bank of Sri Lanka 322,639
Claims on Public Sector Entities (PSEs) 31 100% 31
Loan & Advances
Claims Secured by Residential Property
Claims that qualify for regulatory capital purposes 3,015,542 2,312,331 50% 1,507,771 1,156,166
Claims that not qualify for regulatory capital purposes 3,628,783 4,558,893 100% 3,628,783 4,558,893
Housing loans against EPF 4,408,820 3,311,908 0%
Cash Margin Loan 278,331 214,102 0%
Retail claims that qualify for regulatory capital purposes 624,105 705,363 75% 468,079 529,022
Non Performing Assets
Past Due Residential Mortgage Loans
Specifc provisions are more than 20% 14,702 3,410 50% 7,351 1,705
Specifc provisions are less than 20% 606,286 696,800 100% 606,286 696,800
Housing loans on Guarantors & others
Specifc provisions are more than 20% 109,208 20,241 100% 109,208 20,241
Specifc provisions are less than 20% 25,332 257,835 150% 37,998 386,753
Due From local Commercial Banks (AAA to BBB-) 474,377 708,346 20% 94,875 141,669
Claims on Financial Institutions/Primary Dealers/
Finance Companies (A+ to BBB)- 100,543 50% 50,272
Fixed Assets 755,667 720,660 100% 755,667 720,660
Other Assets 76,997 99,927 100% 76,997 99,927
Total Risk Weighted Assets 15,463,483 14,346,077 7,293,046 8,362,107
Total risk adjusted balance for operational risk 984,923 776,825
Total risk adjusted balances (credit risk, market risk,
operational risk) 8,277,969 9,138,932
Year ended 31st December (Rs. Mn.) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Operating Results
Income 449 631 830 947 1,056 1,286 1,741 1,974 2,269 2,250
Interest income 429 620 797 908 1,024 1,203 1,696 1,941 2,216 2,165
Interest expense 190 326 401 444 568 699 1,247 1,602 1,582 1,339
Other income 20 11 33 39 32 82 46 33 52 85
Operating expenses 94 131 168 197 253 272 359 385 439 513
Provision for loss 64 7 14 17 5 43 54 79 107
Proft before tax 189 174 254 291 217 309 93 (67) 168 291
Income Tax & Finance VAT 64 32 56 109 101 136 72 25 112 156
Proft afer taxation 125 142 198 183 117 172 21 (92) 56 135
Liabilities and Shareholders Funds
Customer deposits 195 115 312 1,140 1,537 2,501 4,935 4,976 6,115 7,703
Borrowings 2,256 3,289 4,107 4,314 4,966 5,783 6,092 6,641 5,150 4,781
Other liabilities 534 789 783 909 688 621 666 867 1,315 1,041
Shareholders funds 723 803 885 1,013 1,643 1,800 1,789 1,697 1,721 1,849
Total 3,708 4,996 6,087 7,376 8,834 10,705 13,482 14,181 14,301 15,374
Assets
Loans and advances 3,563 4,766 5,826 7,119 8,100 10,134 11,869 12,149 11,913 12,840
Cash, short term funds and statutory 36 104 85 173 561 352 1280 1091 1410 1,597
Property, plant and equipment 20 29 33 42 85 85 111 671 721 756
Other assets 89 97 143 42 88 134 222 270 257 181
Total 3,708 4,996 6,087 7,376 8,834 10,705 13,482 14,181 14,301 15,374
Ratios
Return on average shareholders funds (%) 19.5% 18.61% 23.46% 19.28% 8.81% 9.99% 1.17% -5.28% 3.28% 7.58%
Income growth (%) 19.7% 40.5% 31.5% 14.1% 11.5% 21.8% 35.4% 13.4% 14.9% -0.8%
Return on average assets(%) 3.73% 3.26% 3.57% 2.72% 1.44% 1.76% 0.17% -0.67% 0.39% 0.91%
Advance to deposits and borrowings (%) 68.8% 71.4% 75.8% 76.6% 80.3% 81.7% 92.9% 95.6% 94.6% 97.2%
Property, plant and equipment to
Shareholders funds (%) 2.8% 3.6% 3.7% 4.1% 5.2% 4.7% 6.2% 39.5% 41.9% 40.9%
Total assets to shareholders funds (times) 5.13 6.22 6.88 7.28 5.38 5.95 7.54 8.36 8.31 8.32
Share Information
Market Value per Share (Rs.)
High (Rs.) - - - - 401.00 235.25 192.00 135.00 191.75 600.00
Lower (Rs.) - - - - 165.00 153.00 125.75 54.00 49.50 135.00
Close (Rs.) - - - - 191.00 174.75 128.00 56.00 147.75 550.00
Earnings per Share (Rs.) 34.51 34.35 48.03 44.39 26.71 27.39 3.26 (14.23) 8.72 20.91
Price Earnings Ratio - - 3.64 4.39 7.15 6.38 39.26 (3.94) 16.94 26.30
Net Assets per Share (Rs.) ** 199.59 194.78 214.68 245.68 268.19 278.16 276.49 262.26 265.99 285.68
Profle
Ownership- Government % - - - - 56 51 51 51 51 51
- Private % - - - - 44 49 49 49 49 49
No of employees 274 277 278 276 290 300 286 289 364 425
No of branches 19 20 20 20 20 20 21 21 26 28
No of ATM (Access) - - - - - - - 4 10 225
Ten Year Statistical Summary
10 06 01 02 03 04 05 07 08 09
0
3,000
6,000
9,000
12,000
15,000
Rs. Mn.
Advances Vs Funding
Advances
Deposits
Deposits & Borrowings
06 01 02 03 04 05 07 08 09 10
(150)
(100)
(50)
50
0
150
100
250
200
Rs. Mn.
Proftability
Proft Afer Taxation
Tax
06 01 02 03 04 05 07 08 09 10
0
100
300
200
400
500
%
Balance Sheet Growth
Total Assets
Loans and advances
Shareholders funds
06 01 02 03 04 05 07 08 09 10
0
100
200
300
400
500
600
Rs.
Share Value and Price
Net Assets per Share
Market Value per Share
Graphical Review
Share Information
As at 31-12-2010
Distribution and Composition of Shareholders (As per rule No. 7.6(X) of the Colombo Stock Exchange)
December 31,2010
Resident Non Resident Total
Shareholders No of
Share
holders
No of
Shares
% No of
Share
holders
No of
Shares
% No of
Share
holders
No. of
Shares
%
1 - 1,000 1,986 334,986 5.18 12 2,501 0.04 1,998 337,487 5.22
1,001 - 10,000 93 290,144 4.48 3 5,400 0.08 96 295,544 4.56
10,001 - 100,000 20 509,700 7.88 0 0 0.00 20 509,700 7.88
100,001 - 1000,000 3 2,110,291 32.61 0 0 0.00 3 2,110,291 32.61
Over 1,000,000 1 3,218,000 49.73 0 0 0.00 1 3,218,000 49.73
Total 2,103 6,463,121 99.88 15 7,901 0.12 2,118 6,471,022 100.00
December 31,2009
Resident Non Resident Total
Shareholders No of
Share
holders
No of
Shares
% No of
Share
holders
No of
Shares
% No of
Share
holders
No. of
Shares
%
1 - 1,000 3,279 630,747 9.75 13 4201 0.06 3292 634,948 9.81
1,001 - 10,000 227 634,152 9.80 3 15,100 0.23 230 649,252 10.03
10,001 - 100,000 45 1,156,000 17.86 0 0 0.00 45 1,156,000 17.86
100,001 - 1000,000 4 812,822 12.56 0 0 0.00 4 812,822 12.56
Over 1,000,000 1 3,218,000 49.73 0 0 0.00 1 3,218,000 49.73
Total 3556 6,451,721 99.71 16 19,301 0.29 3572 6,471,022 100.00
Composition of Shareholders (As per rule No. 7.6(X) of the Colombo Stock Exchange)
December 31,2010 December 31,2009
No of Share
holders
% No of
Shares
% No of Share
holders
% No of
Shares
%
Individuals 2,001 94.48 655,276 10.13 3,412 95.52 1,662,219 25.69
Institution 117 5.52 5,815,746 89.87 160 4.48 4,808,803 74.31
Total 2,118 100.00 6,471,022 100.00 3,572 100.00 6,471,022 100.00
Twenty Five Largest Shareholders (As per rule No. 7.6(III) of the Colombo Stock Exchange)
Name Of Shareholder No. of Shares
2010
Percentage (%)
2010
No. of Shares
2009
Percentage (%)
2009
1 National Housing Development Authority 3,218,000 49.73 3,218,000 49.73
2 Perpetual Capital (Pvt.) Limited 908,000 14.03 - -
3 Lanka Orix Leasing Company PLC 853,769 13.19 - -
4 Legalinc Trustee Services Private Ltd. 348,522 5.39 348,522 5.39
5 Seylan Bank Ltd. / Jayantha Dewage 79,700 1.23 100,000 1.55
6 Mr. D. Soysa 51,000 0.79 - -
7 DFCC Vardhana Bank Ltd./Mr. Chandaka Haren
Ranil De Soysa
49,900 0.77 - -
8 Pan Asia Banking Corporation PLC / Mr. A.
Sithampalm
39,000 0.60 - -
9 Sithlanka (Pvt) Ltd 30,500 0.47 - -
10 Urban Development Authority 30,000 0.46 30,000 0.46
11 Common Amenities Board 30,000 0.46 30,000 0.46
12 Mr. K. C. Vignarajah 24,000 0.37 - -
13 Aruna Enterprises (Pvt.) Ltd 22,100 0.34 - -
14 Mr.Seenivassagam 20,000 0.31 - -
15 Seylan Bank PLC/Liyanage Saliya Ignatious Perera 19,700 0.30 - -
16 Associated Newspapers of Ceylon Ltd 18,000 0.28 - -
17 Dr. Somadasa 15,200 0.23 - -
18 National Water Supply & Drainage Board 12,000 0.19 - -
19 Colombo Commercial Company (Engineering) Ltd 12,000 0.19 - -
20 Road Development Authority 12,000 0.19 - -
21 State Engineering Corporation 12,000 0.19 - -
22. Mr. Munasinghe 11,300 0.17 - -
23. Carson Cumberbatch PLC 11,000 0.17 - -
24. Mr. Rasan Mohamed 10,300 0.16 - -
25. Mr. Eheliyagoda 10,000 0.15 - -
Total 5,847,991 90.37 3,726,522 57.59
Market Prices (As per rule No. 7.6(XI) of the Colombo Stock Exchange)
2010
Rs.
2009
Rs.
Highest 600.00 191.75
Lowest 135.00 49.50
Year end 550.00 147.75
Information on Ratios (As per rule No. 7.6(XI) of the Colombo Stock Exchange)
2010 2009
Dividend per share (Rs.) 5.00 (proposed) 5.00
Dividend pay out ratio (%) 24.99 % 57.32%
Net Assets value per share (Rs.) 284.78% 265.99%
Earning per Share (Rs.) 20.91% 8.72%
The Board of Directors of the Bank has recommended a fnal divided of Rs. 5/- per share, for the year ended 31st December 2010
for approval by the shareholders at the 26
th
Annual General meeting of the HDFC Bank.
Directors and General Manager /CEO Shareholding (as at 31st of December)
2010 2009
Mrs. S. N. Wickramasinghe (Chairman) 1000 Nil
Mr. W.A.T.Fernando Nil Nil
Mr. W.J.L.U.Wiayaweera 300 300
Mrs. K.W.P.Dayarathna Nil Nil
Mrs. C. Wiayawardhana Nil Nil
Dr. D. S. Wiesighe 100 Nil
Mr. A. M. Chandrasagara 800 Nil
Mr. W. D. R. D.Goomarathne Nil Nil
Mr. S. A. J. Samaraweera Nil Nil
Mr. S. M. Amerasekara (GM/CEO) Nil Nil
The percentage of public holding as at December 31.2010 was 23.01% (50.21%as at December 31, 2009 )
Share Information contd.
Notice of the Annual General Meeting
Notice is hereby given that the twenty sixth (26
th
) Annual General Meeting of the Housing Development Finance Corporation
Bank of Sri Lanka is convened on Monday the ninth (09
th
) day of May 2011 at the Grand Oriental Hotel at No 02, York Street,
Colombo 01, Sri Lanka, at 10.00 a. m. in the forenoon when the following Ordinary and Special Business will be transacted.
Ordinary Business
1. To read the notice convening the meeting
2. To receive and consider and adopt the Annual Report of the Bank and the Audited Accounts of the bank for the year ended
31st December 2010 together with the Report of the Auditor thereon.
3. To declare a dividend of Rupees Five (Rs. 5/-) per share as recommended by the Board of Directors of the HDFC Bank.
4. To appoint two 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.
Special Business
Subject to the approval of the Central Bank, to consider and to pass a special resolution, in order to incorporate the following two
paragraphs to the existing Rules of the HDFC Bank, which shall read as;
42 (c). Joint Shareholding
The HDFC Bank shall not register more than three persons as joint holders (including the principal holder) of any shares (except
in the case of executors).
148. Compliance with Rules
Notwithstanding anything to the contrary contained in the Rules of the HDFC Bank, so long as the Bank is listed on the Colombo
Stock Exchange, the Bank shall comply with the Rules of the Colombo Stock Exchange and the Central Depository system, which
shall be in force from time to time.
By Order of the Board
Dharshani De Silva
Company Secretary
HDFC Bank
Colombo
23rd of March 2011
Notes
Form of Proxy
FORM OF PROXY
I/We........
of .......
Being a member / members of Housing Development Finance Corporation Bank of Sri Lanka herby appoint.
1.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 9
th
of May 2011 at
10.00 a.m. and at any adjournment thereof, and at every poll which any be taken in consequence thereof.
Singed this .. day of ... 2011.
Signature
Note :
1. A shareholder entitled to atend, or atend and vote at the meeting is entitled to appoint a proxy holder to atend, or atend
and vote as the case may be, in his / her stead and a shareholder who is entitled only to atend and speak at the meeting is
entitled to appoint a proxy holder to atend 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
Chitampalam A Gardiner Mawatha, Colombo 02, not less than 48 hours before the time appointed for holding the meeting.
Instructions for completion
01. To be valid this form must be flled, signed and deposited with the Secretary,
HDFC Bank, P.O. Box 2085, Sir Chitampalam 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 singed by the appointer or by Atorney 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 ofcer or
Atorney 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 contd.
Contents
Corporate Information
Name
HDFC Bank of Sri Lanka. ( Housing Development Finance
Corporation Bank of Sri Lanka).
Registered and Head Ofce
Address
Colombo 02.
Telephone : 2356800, 2446241, 2446239, 2447354, 2451462, 2446391
Fax : 2446392, 2356829, 2356827, 2432190
Web Site : www.hdfc.lk E-mail : hdfc@hdfc.lk
Legal Form
A licensed specialized bank under the provisions of Housing
Development Finance Corporation, Act No. 07 of 1997,
amended by Act No. 15 of 2003.
Stock Market Listing
The ordinary shares of the Bank are listed in the Colombo
Stock Exchange (CSE)
Board of Directors
Mr. W. A. Terence Fernando
Mr. W.J. L Upali Wiayaweera
Mrs. K. W. Piyaseeli Dayarathne
Dr. D. S. Wiesinghe
Mr. W.D.R. D. Goonaratne
Mrs. Chandanie Wiayawardhana
Mr. S. A. Jayantha Samaraweera
Company Secretary
Atorney at Law & Notary Public,
Company Secretary, Commissioner of Oaths.
Tel. 2423362
E-mail secretary@hdfc.lk
Registrars
SSP Corporate Services (Pvt.) Limited
101, Inner Flower Road, Colombo 03.
Tel. 2573894 Fax : 2573609
E-mail : sspsec@sltnet.lk
Year of Incorporation originally
1984
Credit Rating
The Bank has been assigned BBB+ ( lka) by Fitch Ratings Lanka
Ltd.,
Bankers
Bank of Ceylon, Corporate Branch, Echelon Square, Colombo 01
Sampath Bank
No.110, Sir James Pieris Mawatha, Colombo 02
Peoples Bank
No. 75, Sir Chitampalam A Gardiner Mawatha, Colombo 02.
Commercial Bank of Ceylon Limited
Commercial House, Union Place Branch, Colombo 02
Pan Asia Banking Corporation Ltd,
Colombo Road, Gampaha
Mr. Suresh Amerasekera - General manager /CEO
Mr. S. Dissanayake - DGM (Finance)
Mr. D. Vidana Pathirana - AGM (Business Development &
Marketing)
Mr. W. M. A. Bandara - AGM (Information Technology)
Mr. A. J. Atukorala - Chief Internal Auditor
Mr. S. A. Alahakoon - Head of Credit
Mr. L. Edirisinghe - Head of Human Resources
Mr. A. M. D. G. Abeyawardena - Head of Treasury
Mr. M. Y. Piyasena - Senior Manager (Recoveries)
Dr. D. S. Wiesinghe
Mr. A. M. Chandrasagara (The Chairman of the Commitee)
Board HR and Remuneration Commitee
Investor Information
Colombo 02.
T.P 2356800, 2446241, 2446239. D/L 2451464, Fax 2356829
E-mail dgmfnance@hdfc.lk
Auditors
Auditor General - Department of Auditor General,
Torrington Square, Colombo 07
Our Vision 2
Our Mission 2
Our Objectives 3
Values 3
What We Have Achieved in 2010 4
What We Have Gained in 2010 5
Event Calendar 6
Our Products and Services 8
Chairmans Statement 10
General Manager/ Chief Executive
Officers Review 14
Board of Directors 18
Profiles of the Board of Directors 19
Corporate Management 21
Senior Management 24
Regional Managers 26
Managers 27
Branch Managers 27
HDFC Bank of Sri Lanka - Branch Locations 28
Our Branch Network 29
Management Discussion and Analysis 31
Financial Review 41
Risk Management 43
Assurance Report 98
Global Reporting Initiative (GRI) Index 100
Corporate Governance 109
Attendance for Board Meetings 2010 144
Attendance for Board
Sub Committee Meetings 2010 145
Statement of Internal Control 147
Financial Reports
Reports of the Board Sub Committees 156
Auditors Report 162
Consolidated Statement of
Change in Equity 167
Significant Accounting Polices 168
Notice of the Annual General Meeting 189
Notes 190
Form of Proxy 191
Corporate Information Inner Back Cover
tHe
nAtionS
HAVen
Produced by Copyline (Pvt) Ltd Printed by Graphitec (Pvt) Limited
THE NATION
Annual Report 2010
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