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Macroeconomic Overview During the year under review, the Indian economy continued to be resilient with anestimated GDP growth rate of 8.6%. This growth has been on the back of an above normalmonsoon and a robust services sector that continued to be the bedrock of the Indianeconomy. As at March 31, 2011, year-on-year bank credit growth was strong at 21% whileyear-on-year deposit growth was lower at 16%. In FY 2010-11, foreign institutionalinvestor (FII) inflows remained buoyant at USD 30 billion. Inflation continued to be one of the key concerns for the economy, particularly foodinflation, which remained in the double digit range during the year. The rising price ofcrude oil prices and other commodities also contributed to higher inflation. During FY2010-11, Indias central bank, the Reserve Bank of India, increased the repo rate by175 basis points to 6.75% and the reverse repo by 225 basis points to 5.75% to anchorinflationary expectations. Market Scenario Strong economic growth and rising consumer confidence during the year had a positiveimpact on the housing sector. Despite the increase in interest rates on home loans duringthe year, the demand for housing remained strong across the country. However, residentialreal estate prices in a few pockets of the country had risen to unrealistic levels,resulting in a slight slowdown in the volume of sales in these locations. There has been a pick-up in commercial real estate as compared to the previous year,with demand coming particularly from the professional services industry, financialservices, telecom and IT & ITES which have absorbed large spaces. The commercialrental market also saw a pickup in demand, resulting in an increase in commercial rents. Measures on the housing sector in the Union Budget 2011-12 predominantly focused onenhancing affordable housing. The 1% Interest Subvention Scheme was further liberalisedwherein housing loans up to Rs. 15 lakhs with property cost up to Rs. 25 lakhs wouldqualify under the scheme. There was also a commitment to create a Mortgage Risk GuaranteeFund under Rajiv Awas Yojana to enhance credit worthiness of housing loans given to theeconomically weaker sections and low income group. Interest Rate Scenario In line with the interest rate movements in the economy, HDFC increased its CorporatePrime Lending Rate (CPLR) for non-individual loans by 175 basis points during the yearunder review. The CPLR is a dynamic benchmark based on an index of money marketinstruments. HDFC also increased its Retail Prime Lending Rate (RPLR) by 175 basis pointsduring the year. Lending Operations

Loan approvals during the year were Rs. 75,185 crores as compared to Rs. 60,611 crores inthe previous year, representing a growth of 24%. Loan disbursements during the year wereRs 60,314 crores as against Rs. 50,413 crores in the previous year, representing a growthof 20%. Cumulative loan approvals and disbursements as at March 31, 2011 were Rs. 3,73,246crores and Rs. 3,02,533 crores respectively. This is in respect of approximately 3.8million housing units. The demand for individual home loans continued to be robust, despite rising interestrates. Other enabling factors included rising disposable incomes and continued fiscalincentives on housing loans. During the year, individual approvals grew at 25% anddisbursements grew by 27% as compared to the previous year. The average size of individualloans stood at Rs. 18.6 lakhs. Sale of Loans During the year, the Corporation, under the loan assignment route sold individual loansof Rs. 4,379 crores to HDFC Bank pursuant to the buyback option embedded in the home loanarrangement between the Corporation and HDFC Bank. Out of the total loans assigned, Rs4,053 crores qualify as priority sector advances for the bank. As at March 31, 2011, total loans outstanding in respect of loans sold stood at Rs12,147 crores. HDFC continues to service the loans sold under these transactions and isentitled to the residual interest on the loans sold. The residual interest on theindividual loans sold is 1.57% per annum. The residual income on the loans sold is being recognised over the life of theunderlying loans, and not on an upfront basis. Issues through which loans have been soldhave been rated by external agencies and carry a rating indicating the highest degree ofsafety. Loan Portfolio The loan approval process of HDFC is decentralised, with varying approval limits.Approval of lending proposals beyond certain limits is referred to the committee ofmanagement (COM). Larger proposals, as appropriate, are referred to the Board ofDirectors. During the year, HDFCs loan book increased to Rs. 1,17,127 crores from Rs. 97,967crores in the previous year. In addition to this, loans securitised and/or assigned by theCorporation and outstanding as at March 31, 2011 amounted to Rs. 12,147 crores. The net increase in the loan book of Rs. 19,160 crores has been determined after takinginto account loan repayments of Rs. 36,756 crores (previous year Rs. 31,872 crores) and netloans written off during the year amounting to Rs. 19.75 crores (previous year Rs. 16.38crores). The loan book, net of loans sold has grown by 20% during the year. The growth in theloan book would have been higher at 24% had the Corporation not sold any loans during theyear. Dual Rate Home Loans (DRHL)

In November 2009, the Corporation introduced a flexible home loan product with dualinterest rates. The DRHL product comprises two components an initial fixed rateperiod up to March 31, 2012 and thereafter the loan switches to a floating rate linked tothe RPLR. All the DRHL loans will convert to floating rates linked to the RPLR on April 1,2012. The outstanding individual loans under DRHL as at March 31, 2011 was Rs. 22,334crores. This loan product was launched as a result of the steep yield curve where the shortterm interest rates were significantly lower than the medium to long term rates. Theproduct was extremely well received by customers. With the flattening of the yield curveand the hardening of interest rates in the economy, the product was withdrawn with effectfrom December 1, 2010. The Corporation adopted a cautious approach to appraise such loans wherein therepayment capacity and credit worthiness is determined on the basis of the instalment thatthe customer is expected to pay with effect from the commencement of the subsequent periodon a variable rate basis. The Corporation accounts only for the lower rate of interest until March 31, 2012 andwith effect from April 1, 2012 will start accounting for income at the higher rates thatwill be applicable. During the year, the National Housing Bank (NHB) has stipulated a provisioning of 2% onstandard assets in respect of housing loans granted under the DRHL scheme which theCorporation has fully provided for. Marketing and Distribution HDFCs distribution network spans 289 outlets, which include 71 offices of thewholly owned distribution company, HDFC Sales Private Limited (HSPL). In addition, HDFCcovers over 90 locations through outreach programmes. To ensure a wider geographic reach, third party channels form an integral part of thedistribution network. Distribution channels sourcing loans for HDFC include HSPL, whichprovides HDFC with a dedicated sales force, HDFC Bank and a few third party direct sellingassociates (DSAs). Distribution channels only source loans, while HDFC continues to retaincontrol over the credit, legal and technical appraisal, ensuring no compromise on thequality of loans disbursed and is consistent across all distribution channels. Total loans sourced from distribution channels during the year accounted for 83% ofindividual loans disbursed by HDFC in value terms. The total commission payable todistribution channels amounted to Rs. 199.45 crores. The entire amount has been charged tothe Profit and Loss Account against fee income. HDFC organises property fairs across major cities in the country. The aim of thesefairs is to provide a wide spectrum of approved projects under a single roof. These fairsin turn help customers in making their decision to buy a home. Under India HomesFair, HDFC brings together eminent builders who showcase their properties for theIndian Diaspora. During the year, HDFC organised India Homes Fair in London,Singapore, Kuwait, Saudi Arabia and Qatar.

Cross-selling of financial products and services continued to form the cornerstone ofHDFCs marketing strategy, thereby providing a wide range of financial services andproducts under the HDFC umbrella. HDFC distributes insurance products under areferral fee programme with HDFC Standard Life Insurance Company Limited (HDFC Life) andHDFC ERGO General Insurance Company Limited (HDFC-ERGO). In addition, the distributionnetworks of HDFC and HSPL are used by Credila Financial Services Private Limited, whichoffers education loans. Investments The Investment Committee constituted by the Board of Directors is responsible forapproving investment proposals in line with the limits as set out by the Board ofDirectors. The Executive Directors are members of the Committee. The investment function supports the core business of housing finance. The investmentmandate includes ensuring adequate levels of liquidity to support core businessrequirements, maintaining a high degree of safety and optimising the level of returns,consistent with acceptable levels of risk. As at March 31, 2011, the investment portfolio stood at Rs. 11,832 crores as against Rs10,727 crores last year. The proportion of investments to total assets was 9%. Housing Finance Companies (HFCs) are required to maintain a statutory liquidity ratio(SLR) in respect of public deposits raised. Currently the SLR requirement is 12.5% ofpublic deposits. As at March 31, 2011, HDFC had Rs. 1,516 crores in bonds of the NationalHousing Bank (NHB) and bank deposits and Rs. 1,278 crores in government securities. As at March 31, 2011, the treasury portfolio (excluding investments in equity shares)had an average balance period to maturity of 15 months. The average yield on thenon-equity portfolio for the year was 8.71% per annum. HDFC has classified its investments into current and long-term investments. The currentinvestments have been entirely marked to market. In respect of long-terminvestments, provisions have been made to reflect any permanent diminution in the value ofinvestments. The aggregate provision on account of such current and long-term investmentsamounts to Rs. 56.85 crores. After considering the opening balance of Rs. 36.41 crores inthe diminution in the value of Investments account, and the write back of provisions onaccount of investments sold, a provision of Rs. 20.44 crores has been made for diminutionin value of investments through the Provision for Contingencies account. As at March 31,2011, the market value of quoted investments was higher by Rs. 21,392 crores as compared tothe value at which these investments are reflected in the balance sheet. This unrealisedgain includes appreciation in the market value of investments held by HDFCs whollyowned subsidiaries, HDFC Investments Limited and HDFC Holdings Limited. Subsidiaries and Associates

Though housing remains the core business, HDFC has continued to make investments in itssubsidiary and associate companies. These investments are made in companies where thereare strong synergies with HDFC. HDFC will continue to explore avenues for such investmentswith the objective of providing a wide range of financial services and products under theHDFC brand name. During the year, HDFC made gross investments in the equity share capital of itssubsidiary companies, HDFC-ERGO (Rs 129.50 crores), HDFC Life (Rs 117.58 crores) andCredila Financial Services Private Limited (Rs 17 crores). The shareholding of HDFC (together with its nominees) in its key subsidiary andassociate companies as at March 31, 2011 is mentioned below: Recoveries With effect from March 31, 2005, an asset is a non-performing asset (NPA) if theinterest or instalment is overdue for 90 days as against the earlier norm where a loan wasa NPA if the account was in arrears for over 6 months. Gross non-performing loans outstanding (along with debentures and corporate depositsfor financing real estate projects) amounted to Rs. 903.85 crores as at March 31, 2011,constituting 0.77% of the portfolio. The principal outstanding in respect of individualloans Company HDFC Developers Limited HDFC Investments Limited HDFC Holdings Limited HDFC Trustee Company Limited HDFC Realty Limited HDFC Property Ventures Limited HDFC Sales Private Limited HDFC Ventures Trustee Company Limited HDFC Venture Capital Limited HDFC ERGO General Insurance Company Limited HDFC Standard Life Insurance Company Limited Credila Financial Services Private Limited GRUH Finance Limited HDFC Asset Management Company Limited HDFC Bank Limited* Shareholding % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 80.5 74.0 72.4 62.3 60.7 60.0 23.4

*(Inclusive of shareholding of HDFC Investments Limited and HDFC Holdings Limited)where the instalments were in arrears constituted 0.72% of the individual portfolio andthe corresponding figure was 0.84% in respect of the non-individual portfolio. HDFC haswritten off

loans aggregating to Rs. 20.62 crores during the year. This pertains to thehousing loans outstanding in respect of 1,091 individual borrowers. These loans have beenwritten off pursuant to onetime settlements, where HDFC will continue making efforts torecover the money. During the year, HDFC has written back loans aggregating to Rs. 0.87crores (these were loans written off in earlier years). The net write off for the year isRs 19.75 crores. With this, HDFC has, since inception, written off loans (net ofsubsequent recovery) aggregating to Rs. 112.92 crores. Thus as at March 31, 2011, the totalloan write-offs stood at 4 basis points of cumulative disbursements since inception of theCorporation. Provision for Contingencies In terms of the prudential norms as stipulated by NHB, HDFC is required to carry aprovision in respect of non-performing assets and a general provision on outstandingstandard non-housing loans. In addition, during the year, NHB further stipulated a generalprovision of 0.40% on standard assets under housing loans to non-individuals and a 2%provision on standard assets in respect of housing loans granted under the Dual Rate HomeLoan scheme. This requirement has been partly met by utilisation of Rs. 298.59 crores (net)from Additional Reserve under Section 29 C of the National Housing Bank Act, 1987. Basedon the aforesaid as per NHB norms, the Corporation is required to carry a total provisionof Rs. 813.53 crores. During the year, HDFC has utilised Rs. 43.20 crores out of the balance in provision forcontingencies primarily on account of provision in diminution of value of investments andloan write-offs. After taking into account the transfers as well as the net utilisation,the balance in provision for contingencies as at March 31, 2011 stood at Rs. 1,124.37crores. Fixed Assets Net fixed assets as at March 31, 2011 amounted to Rs. 233.95 crores (previous year Rs222.11 crores). Subordinated Debt During the year, the Corporation raised Rs. 1,000 crores through the issue of longtermUnsecured Redeemable Non-Convertible Subordinated Debentures. The subordinated debt wasassigned a AAA rating from both CRISIL Limited (CRISIL) and ICRA Limited(ICRA). As at March 31, 2011, the Corporations outstanding subordinated debt stood at Rs2,875 crores. The debt is subordinated to present and future senior indebtedness of theCorporation and has been assigned the highest rating by CRISIL and ICRA. Based on thebalance term to maturity, as at March 31, 2011, Rs. 2,375 crores of the book value ofsubordinated debt is considered as Tier II under the guidelines issued by the NHB for thepurpose of capital adequacy computation. Foreign Currency Convertible Bonds (FCCB) In September 2005, the Corporation concluded the issue of USD 500 million zero couponFCCB. The bonds were convertible into equity shares of the Corporation of the face valueof Rs. 10 each

up to the close of business hours on July 29, 2010 at the option of theholders, at Rs. 1,399 per equity share, representing a conversion premium of 50% over theinitial reference share price. During the year, 906 FCCB were converted into 28,31,021 equity shares of face value ofRs 10 each, which were entitled to the receipt of dividend as the same were convertedprior to the date of book closure. Accordingly, dividend in respect of the previous yearamounting to Rs. 11.88 crores (inclusive of tax) was paid during the year. During the year, an amount of Rs. 2.83 crores has been credited to the Share CapitalAccount and an amount of Rs. 407.89 crores has been credited to the Securities PremiumAccount. All the bonds were lodged with the Corporation for conversion into equity shares on orprior to the last date for conversion. In aggregate, the Corporation allotted 1,56,23,732equity shares of Rs. 10 each pursuant to the conversion of the FCCB. Hence, there are nooutstanding FCCB. The increase in net worth as a result of the FCCB over the life was Rs2,186 crores. Borrowings Borrowings as at March 31, 2011 amounted to Rs. 1,15,410 crores as against Rs. 96,565crores in the previous year - an increase of 20%. Borrowings constituted 87% of fundsemployed as at March 31, 2011. Of the total borrowings, bonds and debentures constituted42%, domestic term loans 36%, deposits 21% and international borrowings 1%. Foreign Currency Borrowings The outstanding foreign currency borrowings constitute borrowings from FCNR (B) loansfrom domestic commercial banks (USD 743.54 million), Asian Development Bank under theHousing Finance Facility Project (USD 71.63 million), International Finance Corporation(USD 100 million), KfW of Germany (Euro 6.14 million), DEG, a member of the KfW Group (USD5 million) and Short Term Foreign Currency Borrowings (USD 175 million). Deposits As at March 31, 2011, outstanding deposits stood at Rs. 24,625 crores. The depositorbase stood at approximately 9.67 lac depositors. CRISIL and ICRA have for the sixteenth consecutive year, reaffirmed theirAAA rating for HDFCs deposits. This rating represents highestsafety as regards timely repayment of principal and interest. HDFC pays brokerage to agents who mobilise retail deposits. The brokerage is linked tothe amount and the period of deposit and is paid up-front for the full term of thedeposit. In addition, agents who achieve certain collection targets are paid an incentiveevery year. In line with international accounting standards, HDFC has been amortising thebrokerage, proportionately over the term of the deposit. Incentive brokerage is beingfully charged to the Profit and Loss Account in the year of payment.

Borrowings from Banks and Financial Institutions During the year, HDFC raised loans from commercial banks aggregating to Rs. 29,538crores. Out of this, loans amounting to Rs. 2,610 crores qualify for priority sectorallocation. HDFC raised a further Rs. 2,528 crores from the banking sector as FCNR (B)loans. As at March 31, 2011, the total loans outstanding from banks, financial institutionsand the National Housing Bank amounted to Rs. 40,778 crores as compared to Rs. 30,360 croresas at March 31, 2010. Non-Convertible Debentures (NCD) During the year, the Corporation issued NCD amounting to Rs. 13,865 crores on a privateplacement basis. The Corporations NCD issues have been listed on the Wholesale DebtMarket segment of the National Stock Exchange of India Limited (NSE). TheCorporations NCD have been assigned the highest rating of AAA by bothCRISIL and ICRA. During the year, the Corporation utilised Rs. 532 crores out of the Securities PremiumAccount in accordance with Section 78 of the Companies Act, 1956. Risk Management The Financial Risk Management and Hedging Policy as approved by the Audit Committeesets limits for exposures on currency and interest rates. HDFC manages its interest rateand currency risk in accordance with the guidelines prescribed. The risk managementstrategy has been to protect against foreign exchange risk, whilst at the same timeexploring any opportunities for an upside, so as to keep the maximum all-in cost on theborrowing in line with or lower than the cost of a borrowing in the domestic market for asimilar maturity. HDFC has to manage various risks associated with the mortgage business. These risksinclude credit risk, liquidity risk, foreign exchange risk and interest rate risk. HDFCmanages credit risk through stringent credit norms. Liquidity risk and interest rate risksarising out of maturity mismatch of assets and liabilities are managed through regularmonitoring of the maturity profiles. HDFC has from time to time entered into risk management arrangements in order to hedgeits exposure to foreign exchange and interest rate risks. The currency risk on theborrowings is actively hedged through a combination of dollar denominated assets, longterm forward contracts, principal only swaps, full currency swaps and currency options. As at March 31, 2011, the Corporation had foreign currency borrowings of USD 1,103.9million equivalent. The entire principal on the foreign currency borrowings has beenhedged by way of principal only swaps, currency options, forward contracts and riskmanagement arrangements with financial institutions. Further, interest rate swaps on anotional amount of USD 15 million equivalent are outstanding and have been undertaken tohedge the interest rate risk on the foreign

currency borrowings. As at March 31, 2011, theCorporations net foreign currency exposure on borrowings net of risk managementarrangements was nil. As a part of asset liability management and on account of the predominance ofHDFCs Adjustable Rate Home Loan product as well as to reduce the overall cost ofborrowings, HDFC has entered into interest rate swaps wherein it has converted its fixedrate rupee liabilities of a notional amount of Rs. 23,255 crores as at March 31, 2011 forvarying maturities into floating rate liabilities linked to various benchmarks. Inaddition, HDFC has entered into cross currency swaps of a notional amount of USD 697.50million equivalent wherein it has converted its rupee liabilities into foreign currencyliabilities and the interest rate is linked to benchmarks of the respective currencies. The total net foreign currency exposure inclusive of cross currency swaps is USD 304.21million. The open position is at 1.18% of the total borrowings of HDFC. Assets and liabilities in foreign currency net of risk management arrangements arerevalued at the rates of exchange prevailing at the end of the year. Cross currency swapshave been marked to market at the year end. Asset-Liability Management As at March 31, 2011, assets and liabilities with maturity up to 1 year amounted to Rs36,671 crores and Rs. 35,958 crores respectively. Asset and liabilities with maturity ofbetween 2 years and 5 years amounted to Rs. 57,347 crores and Rs. 60,992 crores respectivelyand assets and liabilities with maturity beyond 5 years amounted to Rs. 45,484 crores andRs 42,552 crores respectively. HDFC does not generally take an interest rate mismatch. As at March 31, 2011, 87% ofthe assets and 85% of the liabilities were on a floating rate basis. Internal Audit and Control HDFC has instituted adequate internal control systems commensurate with the nature ofits business and the size of its operations. Internal audit is carried out by independentfirms of chartered accountants and cover all the offices and key areas of business. Allsignificant audit observations and follow-up actions thereon are reported to the AuditCommittee. The Audit Committee comprises three independent directors. The committee metfive times during the financial year under review. Profit and Loss Account Key elements of the profit and loss account for the year ended March 31, 2011 are: Profit before tax grew by 24% and profit after tax grew by 25%.

 Income tax provision for the year amounted to Rs. 1,332 crores as compared to Rs1,089.50 crores in the previous year. The effective tax rate is 27.4% as compared to 27.8%in the previous year. Pre-tax return on average assets was 4% and the post-tax return on averageassets was 2.9%. Return on equity is 21.7% in the current year. HDFCs cost to income ratio is 7.7% for the year ended March 31, 2011 asagainst 7.9% in the previous year. HDFCs cost income ratio continues to be among thelowest in the financial sector in Asia. Administrative expenses, as a percentage of average assets was 0.30% as at March31, 2011. For the year ended March 31, 2011, a dividend of Rs. 9 per share of Rs. 2 each isbeing recommended as against Rs. 36 per equity share of face value of Rs. 10 each (Rs 7.20per share of Rs. 2 each) in the previous year. HDFC would be paying the distribution taxand education cess on the dividend declared. The dividend payout ratio will be 43.4% as against 42.7% in the previous year. Spread on Loans The average yield on loan assets during the year was 10.30% per annum as compared to10.90% per annum in the previous year. The average all-inclusive cost of funds was 7.97%per annum as compared to 8.59% per annum in the previous year. The spread on loans overthe cost of borrowings for the year was to 2.33% per annum as against 2.31% per annum inthe previous year. Prudential Norms for Housing Finance Companies (HFCs) NHB has issued guidelines to HFCs on prudential norms for income recognition,provisioning, asset classification, provisioning for bad and doubtful debts, capitaladequacy and concentration of credit/investments. HDFCs position with respect to theguidelines is as follows: HDFCs capital adequacy ratio stood at 14% of the risk weighted assets, (ofwhich Tier 1 capital was 12.2%) as against the minimum requirement of 12%. HDFC is in compliance with the concentration of investments and capital marketexposure norms other than on its investments in HDFC Bank and GRUH Finance Limited. NHBhas granted the Corporation time for such compliance. Human Resources Human resources are HDFCs most valuable assets. The efficiency of HDFCsstaff is evident from the fact that the number of offices increased from 41 in 1998 to 218(excluding offices of

HSPL) currently as against the number of employees which increasedfrom 806 to 1,607 during the same period. Total assets per employee as at March 31, 2011 stood at Rs. 83 crores as compared to Rs74 crores in the previous year and net profit per employee as at March 31, 2011 was Rs. 220lacs as compared to Rs. 188 lacs in the previous year. Audited Consolidated Accounts In accordance with the accounting standards prescribed by the Institute of CharteredAccountants of India, the consolidated financial statements comprise the individualfinancial statements of the Corporation together with its subsidiaries which areconsolidated on a line-by-line basis and its associates which are accounted on the equitymethod. On a consolidated basis, for the year ended March 31, 2011, Profit before tax was Rs5,244.15 crores as compared to Rs. 3,883.63 crores in the previous year. Profit after taxwas Rs. 4,528.41 crores as compared to Rs. 3,240.98 crores in the previous year anincrease of 40%. The consolidated return on equity stood at 22.9% as against 19.6% in theprevious year and the consolidated post tax return on assets stood at 3% as against 2.6%in the previous year.