Loan, Advances and Provision

All advances are classified under four categories, i.e. (a) Standard, (b) Sub-standard, (c) Doubtful
and (d) Loss assets. Provisions required on such advances are made as per the extant
prudential norms issued by the RBI.

Advances are stated net of specific loan loss provisions, Counter cyclical provisioning buffer,
Provision for diminution in fair value of restructured advances and unrecovered interest held in
Sundry / claims received from Credit Guarantee Trust Fund (CGTF) / Export Credit Guarantee
Corporation (ECGC) relating to non-performing assets.

The general provision on Standard Advances is held in Other Liabilities and Provisions reflected
in Schedule 5 of the Balance Sheet and is not considered for arriving at both net NPAs and net
advances.

Counter Cyclical Provisioning Buffer

The Bank has policy for creation and utilization of Counter Cyclical Provisioning Buffer separately for
Advances and Investments. The quantum of provision to be created is assessed at the end of each
financial year. The counter cyclical provisions are utilized only for contingencies under extra ordinary
circumstances specified in the policy with prior permission of the Reserve Bank of India.
Provisions involving substantial degree of estimation in measurement are recognized when there is a
present obligation as a result of past events and it is probable that there will be an outflow of
resources and a reliable estimate can be made of the amount of the obligation.

HDFC
Loan, Advances and Provision

Advances are classified as performing and non-performing based on the RBI guidelines and are
stated net of bills rediscounted, specific provisions, interest in suspense for non-performing advances,
claims received from Export Credit Guarantee Corporation, provisions for funded interest term loan
classified as non-performing advances and provisions in lieu of diminution in the fair value of
restructured assets. Interest on non-performing advances is transferred to an interest suspense
account and not recognised in the Statement of Profit and Loss until received.
Provisioning
Specific loan loss provisions in respect of non-performing advances are made based on
management's assessment of the degree of impairment of wholesale and retail advances, subject to
the minimum provisioning level prescribed by the RBI.
The specific provision levels for retail non-performing assets are also based on the nature of product
and delinquency levels. Specific loan loss provisions in respect of non-performing advances are
charged to the Statement of Profit and Loss and included under Provisions and Contingencies. In
accordance with RBI guidelines, accelerated provision is made on non-performing advances which
were not earlier reported by the Bank as Special Mention Account under SMA-2 category to Central
Repository of Information on Large Credits (CRILC). Accelerated provision is also made on nonperforming advances which are erstwhile SMA-2 accounts with Aggregate Exposure (AE) Rs.1,000
million or above and Joint Lenders'' Forum (JLF) is not formed or they fail to agree upon a common
Corrective Action Plan (CAP) within the stipulated time frame.
Recoveries from bad debts written-off are recognised in the Statement of Profit and Loss and
included under other income.
In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes
provision for the entire amount of overdue and future receivables relating to positive marked to market
value of the said derivative contracts.
The Bank maintains general provision for standard assets including credit exposures computed as per
the current marked to market values of interest rate and foreign exchange derivative contracts, and
gold in accordance with the guidelines and at levels stipulated by RBI from time to time. In the case of
overseas branches, general provision on standard advances is maintained at the higher of the levels
stipulated by the respective overseas regulator or RBI. Provision for standard assets is included under
other liabilities.
Provisions made in excess of the Bank's policy for specific loan loss provisions for non-performing
assets and regulatory general provisions are categorised as floating provisions. Creation of floating
provisions is considered by the Bank up to a level approved by the Board of Directors. In accordance
with the RBI guidelines floating provisions are used up to a level approved by the Board only for
contingencies under extraordinary circumstances for making specific provisions for impaired
accounts. Floating provisions have been included under other liabilities.
Further to the provisions required to be held according to the asset classification status, provisions
are held for individual country exposures (other than for home country exposure). Countries are
categorised into risk categories as per Export Credit Guarantee Corporation of India Ltd. (''ECGC'')
guidelines and provisioning is done in respect of that country where the net funded exposure is one
percent or more of the Bank's total assets.
In addition to the above, the Bank on a prudential basis makes provisions on advances or exposures
which are not NPAs, but has reasons to believe on the basis of the extant environment or specific
information, the possible slippage of a specific advance or a group of advances or exposures or
potential exposures. These are classified as contingent provisions and included under other liabilities.