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CORRESP
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CORRESP RELATING TO HDFC'S 20-F FILES IN SEPT 2003

September
20, 2005

HDFC Bank Limited

Form 20-F for the period ended March 31, 2004

File No. 1-15216

Dear Mr. Walker:

     On behalf of HDFC Bank Limited (“HDFC” or the “Bank”), set forth below are
HDFC’s responses to the comments on the annual report on Form 20-F filed by HDFC on September 28,
2004 contained in the letter of the Staff of the Division of Corporation Finance (the
“Staff”) of the Securities and Exchange Commission (the “SEC”) dated September 1,
2005.

     For the convenience of the Staff, each of the Staff’s comments is reproduced below in its
entirety in bold and is followed by the corresponding response of HDFC. For clarity of
presentation purposes, some questions have been aggregated and answered cumulatively.

      1.

    Your table on page 52 indicates that the specific valuation allowance as a percentage
of gross non-performing loans increased from 71% at March 31, 2003 to 91% at March 31,
2004. Please tell us the reasons for the increase.

     The following table sets forth, for the Bank’s business as a whole and for the retail and
wholesale segments, the total funded exposure, the total specific allowance and the percentage that
the specific allowance represented of total exposure as of March 31, 2003 and March 31, 2004:

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    Total Non-Performing Funded

    Total Specific Allowance as of

    Percentage Coverage as of

    Exposure as of March 31,

    March 31,

    March 31,

    2003

    2004

    2003

    2004

    2003

    2004

    (Rs. in millions, except percentages)

    Retail

    74.9

    403.5

    74.9

    342.9

    100.0
    %

    85.0
    %

    Wholesale

    2,292.7

    2,589.1

    1,609.4

    2,379.8

    70.2

    91.9

    Total

    2,367.6

    2,992.6

    1,684.3

    2,722.7

    71.1
    %

    91.0
    %

     As is evident from the table, the increase in the specific allowance as a percentage of
total non-performing loans from 71% as of March 31, 2003 to 91% as of March 31, 2004 was due to an
increase in such percentage with respect to the Bank’s wholesale business. This percentage
increase was primarily because of additional allowances made in respect of certain wholesale
borrowers. This is explained further below.

     With respect to the Bank’s retail portfolio, although the specific allowance as a percentage
of non-performing loans declined due to a change in the Bank’s policy, the relative size of the
allowance for this segment did not significantly affect the overall increase in the allowance as a
percentage of total loans. As of March 31, 2003, the Bank’s policy was to establish a specific
allowance of 100% of the outstanding amount of a retail loan when the loan was more than 180 days
overdue. (The Bank established an unallocated allowance in respect of loans overdue more than 90
days but less than 180 days. Prior to April 1, 2003, the Bank considered such loans to be
performing.) As of March 31, 2004, the Bank’s policy was to establish a specific allowance of 50%
of the outstanding amount of a loan when the loan was more than 90 days overdue, and to increase
the specific allowance to 100% when the loan was more than 120 days overdue. Thus, the specific
allowance at March 31, 2004 reflects a mix of allowances of 50% in respect of some retail loans and
100% in respect of others. It should be noted that this change in policy did not affect the
aggregate allowance held for the Bank’s retail portfolio, merely the portion classified as
specific.

     With respect to certain of the Bank’s wholesale borrowers, the Bank increased the specific
allowances as of March 31, 2004 compared to March 31, 2003 due to revised estimates of the expected
future cash flows and the realizability of the collateral (primarily receivables) related to each
borrower. The table below shows the increase in the allowances pertaining to certain borrowers.

    Total Funded Exposure as of

    Increase in

    Borrower

    March 31,

    Total Allowance as of March 31,

    Allowance

    2003

    2004

    2003

    2004

    (Rs. in millions)

    1

    183.9

    639.1

    17.5

    595.0

    577.5

    2

    120.8

    120.8

    51.7

    120.8

    69.1

    3

    642.9

    642.9

    578.5

    642.9

    64.4

    4

    78.3

    73.0

    42.2

    73.0

    30.8

    5

    110.1

    109.8

    86.9

    109.8

    22.9

    6

    129.1

    129.1

    98.8

    121.3

    22.5

    7

    45.2

    45.2

    29.2

    45.2

    16.0

    Total

    1,310.3

    1,759.9

    904.8

    1,708.0

    803.2

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     The reasons for the increase in coverage are provided below.

Borrower 1

     As of March 31, 2003, this borrower’s sales were only slightly below the level required to
earn an operating profit. Production and sales were constrained due to limited finances, and the
borrower was actively pursuing equity financing options with its business partners. The borrower
also started trading activities with its existing infrastructure by leveraging its international
marketing network. The Bank believed that these activities would help the borrower’s financial
position. Based on the above facts and estimations of the cash flows and collateral, the Bank made
an allowance of 10% of its exposure as of March 31, 2003.

     By March 31, 2004, increased competition and greater liquidity constraints impacted production
and resulted in the borrower’s sales declining significantly, leading to a significant cash loss
position. In fiscal 2004, the borrower did not meet its interest payments to the Bank and did not
honor its obligations under letters of credit issued by the Bank. Based on the revised estimates of
cash flows and realizable value of collateral the Bank created a higher allowance, which covered
91% of the exposure to this borrower.

Borrower 2

     In its audited balance sheet as of March 31, 2003, the borrower reported inventory and receivables of Rs. 4,654 million. (The Bank’s secured share was 5% of
this amount.) During fiscal 2004, there was no progress in realization of receivables, while the
inventory declined from Rs. 330 million to Rs. 120 million. Further, the borrower’s performance
continued to deteriorate with sales falling from Rs. 1,178 million to Rs. 622 million. Hence, in
fiscal 2004 the allowance for this exposure was increased to 100%.

Borrower 3

     The Bank recorded an allowance for 90% of its exposure to this borrower in fiscal 2003, as
there was some prospect of recovering the money from the borrower’s assets. Subsequently, in fiscal
2004 the borrower was placed in liquidation and the prospects of recovery diminished. Hence, the
allowance was increased to 100%.

Borrower 4

     For the year ended March 31, 2003, the borrower reported a loss of Rs. 203 million on sales of
Rs. 997 million. This worsened to a loss of Rs. 1,501 million on sales of Rs. 242 million during
the year ended March 31, 2004. During this period, the value of inventories and receivables held
as collateral declined from Rs. 741 million to Rs. 54 million. The borrower’s net worth, which was
Rs. 473 million in March 2003, turned negative by March 2004. Hence, the allowance against the
exposure was increased to 100%.

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Borrower 5

     As of March 2003, the borrower had a net worth of Rs. 483 million and the realizable value of
security available to the Bank was estimated at Rs. 48 million. During fiscal 2004, the borrower’s
net worth turned negative, while there was a further deterioration in sales and activity levels.
The borrower sought statutory protection from creditors. Hence, the allowance was increased to
100%.

Borrower 6

     The borrower had reported inventory, receivables and other assets of Rs. 465 million as of
March 31, 2003, of which the Bank’s share was Rs. 38 million. In fiscal 2004, it became apparent
that the bulk consisted of slow moving inventory and overdue receivables that could not be realized
and the security value was reassessed at Rs. 79 million in March 2004, of which the Bank’s share
was Rs. 10 million. Hence, the allowance was increased in 2004.

Borrower 7

     While the borrower’s performance had been deteriorating over the last few years, it was still
in business and reported current assets of Rs. 53 million as of March 31, 2003, of which the Bank’s
secured share was 40%. During fiscal 2004, business declined sharply and no financial statements
or statements of inventory and receivables were forthcoming from the borrower. Hence, the allowance
was increased to 100%.

      2.

    Your tables on pages 52 and 58 indicate that of your total allowance for loan losses
of Rs. 3,494 million at March 31, 2004, you determined that Rs. 2,722 was your best
estimate of the amount of losses incurred on impaired loans and that Rs. 772 million was
your best estimate of the amounts of probable losses inherent in the remainder of your
loan portfolio. Please provide us with the following information:

    •

    Explain how you determined each element of the allowance for non-impaired
loans;

     The Bank establishes allowances for non-impaired loans – also called unallocated allowances –
for both retail and wholesale loans (wholesale loans with effect from
April 1, 2003). The Bank uses various methodologies, depending
on the product group, in determining the unallocated allowance for
loan losses. The results of these various methodologies are used by
management in order to arrive at and establish its best estimate of
allowance for loan losses.

     The Bank’s retail loan portfolio is comprised of groups of large numbers of small value
homogeneous loans. The product groups consist of Auto Loans, Personal Loans, Consumer/Two Wheeler
Loans, Business Loans, Loans against Securities, Overdrafts against Fixed Deposits and Credit Card
Receivables.

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     With respect to Auto Loans, Personal Loans, Consumer/Two Wheeler Loans and Business Loans, the
Bank estimates the expected amount of losses inherent in each
product group portfolio. In order to arrive at these estimates, the Bank stratifies such loans
into subgroups, or buckets, based on the number of days past due. That is, loans are grouped by
whether they are 0-30 days, 31-60 days, 61-90 days, 91-120 days, 121-150 days or 151-180 days
overdue. The Bank then takes into account its historical loss experience based on an analysis of
historical “roll rates”, or the extent to which loans from one bucket move to different buckets
over time. The Bank then determines an allowance for the expected losses by taking into account
observed historical losses applicable to each bucket. Allowance rates
range from 20% to 100% and vary based on the aging categories.

     For
loans that are collateralized by securities, the Bank’s loss estimates take into account the
estimated net realizable value of the securities. In cases of overdrafts against fixed deposits, the
Bank’s loss estimates are calculated by examining the unsecured portion of the overdrafts based on
the loan to value ratio and the days past due.

     In
the case of credit card balances, the Bank considers prevailing market industry loss rates
in establishing its allowance. The Bank does not have mature historical loss data based on
its own observed loss history because it entered into the credit card business recently.

     Effective April 1, 2003, in light of the significant growth in the size and diversity
of its wholesale loan portfolio, the Bank also established an unallocated allowance for wholesale
standard loans based on overall portfolio quality, asset growth, economic conditions and other risk
factors.

     The unallocated allowance for wholesale standard loans is a function of the aggregate Expected
Loss over a one-year horizon of all standard exposures in the wholesale loan portfolio. The
aggregate Expected Loss is computed as the product of the Probability of Default (corresponding to
internal ratings), the estimated Exposure At Default and an estimated Loss Given Default. The
approach for computing each of these risk components are as follows:

¨     Probability of Default (“PD”): An estimate of the probability that a borrower
defaults. The Bank has a risk rating system that it uses to assign a
rating of 1 to 10 to each wholesale
borrower based on a combination of quantitative, qualitative and
capitalization measures. The rating also takes into account
macroeconomic conditions and general business conditions affecting
the industry or the borrower. (See
page 7 for more details.) PD is based on annual ratings transition
studies with respect to borrowers in risk categories 1 through 4. The ratings of
such borrowers as of the beginning of a year are compared with their rating as of the end of the year.
The Bank calculates the likelihood, based on its historical
experience, that a borrower with a given rating (e.g., 3) has of being
upgraded to one of the higher ratings (e.g., 2), being downgraded to one of the lower ratings
(e.g., 4), including the default ratings (i.e., 7-10) or remaining at
the same rating by the
end of the year. For each such borrower in the portfolio, this

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migration over a year is captured
in a database where all borrowers in the same rating grade at the beginning of the year are grouped
into the migration states that they reach at the end of the year. A
one-year transition matrix is built based on this analysis. A similar
matrix for each subsequent year is built based on borrowers in the portfolio during each such year.
The annual transition matrices for all years are then averaged to give the average one-year
transition matrix, which measures the probability of migrating from a
given rating at the beginning of the year to another rating (including default) or remaining at the same rating grade.
The PD is the probability of migrating to a default rating.

¨     Exposure at Default (“EAD”): An estimate of the amount that a borrower is likely to
owe to the Bank at the time of default. The estimates are based on analyses of historical defaults
that the Bank has experienced. For each defaulted borrower, the Bank compares its funded exposure to such borrower one year before the borrower defaulted to the portion of such funded exposure still outstanding at the time of default. This information is aggregated for all borrowers that have defaulted to arrive at the
average Exposure at Default.

¨     Loss Given Default (“LGD”): An estimate of the amount that the Bank is likely to
lose at default. The estimates are based on analyses of losses incurred on historical defaults that
the Bank has experienced. The present value of cash flows, including recovery of any collateral
subsequent to a credit default is computed. The LGD is the amount outstanding at the time of
default less the present value of the cash flows at the time of default, divided by the amount
outstanding at the time of default. This information is aggregated for all borrowers that have
defaulted and an average is derived.

    •

    Clarify how your accounting policy is consistent with the guidance in SFAS 114
as amended by SFAS 118 for loans individually evaluated for impairment;

     The
Bank’s accounting policies for loans individually evaluated for
impairment are consistent with the guidance in SFAS 114 as amended by
SFAS 118. The material provisions of SFAS 114 and SFAS 118 are summarized below, followed by a
description of the relevant policies and procedures adopted by the Bank to comply with them:

¨     Paragraph 8 requires that a loan be treated as impaired when, based on current
information and events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Normal loan review procedures can be
used in making that judgment.

¨     Paragraph 13 requires a creditor to measure impairment of each loan based on the
present value of expected future cash flows discount