A Project Report on Financial Performance Based on Ratios at HDFC Bank

“A Study on Financial Performance based on Ratios” At HDFC Bank

Contents

Sl. No. Titles Page No.

I Chapter 1

Executive summary

Introduction

Statement of the Problem

Purpose of the Study

Scope of the study

Objectives of the Study

II Chapter 2

Organization Profile

Data Collection Method

Measuring tools

III Chapter 3

Analysis and interpretation

Findings

Suggestions

Conclusion

IV Chapter 4

Appendix

Bibliography

Babasabpatilfreepptmba.com Page 1




EXECUTIVE SUMMARY

Finance is a life blood of business it is required from the establishment of the

business to liquidity or winding up of a business, so financial institutions played a

very important role on the operation of the business.

In the early days banking business was been confined to receiving of deposits and

lending of money. But now a modern banker under take wide variety of functions

to assist their customers. They provide various facilities to customers which

makes the transaction easy and comfortable.

Financial institutions such as banks, financial service companies, insurance

companies, securities firms and credit unions have very different ways of

reporting financial information. Running a bank is just difficult as analyzing it for

investment purposes.

In this report I made an effort to know the financial position of the HDFC

Bank .My topic is “A study of financial performance based on ratio analysis”

which means that a process to identify the financial performance of a firm by

properly establishing the relationship between the items of balance sheet and

profit or loss account. Thus, we can say that, Financial Analysis is a starting point

for making plans before using any sophisticated forecasting and planning.

Introduction



When we observed the financial statement comprising the balance sheet and profit

or loss account is that they do not give all the information related to financial

operations of firm, they can provide some extremely useful information to the

extent that the balance sheet shows the financial position on a particular date in

terms of structure of assets, liabilities and owner’s equity and profit or loss

account shows the results of operation during the year. Thus the financial

statements will provide a summarized view of the firm. Therefore in order to learn

about the firm the careful examination of an valuable reports and statements

through financial analysis or ratio is required.

Meaning and Definition

Ratio analysis is one of the powerful techniques which are widely used

for interpreting financial statements. This technique serves as a tool for assessing

the financial soundness of the business. it can be used to compare the risk and

return relationship of firms of different sizes. The term ratio refers to the

numerical or quantitative relationship between two items/ variables.

The idea of ratio analysis was introduced by Alexander Wall for the first

time in 1919. Ratios are quantitative relationship between two or more variables

taken from financial statements.

Ratio analysis is defined as, “the systemic use of ratio to interpret the financial

statement so that the strength and weakness of the firm a well as its historical

performance and current financial condition can be determined.



In the financial statement we can find many items are co-related with each

other for example current assets and current liabilities, capital and long term debt,

gross profit and net profit purchase and sales etc

Basis of comparison

Ratios are relative figures reflecting the relationship between variables. They

enable analysts to draw conclusions regarding financial operations. The use of the

ratios, as a tool of financial analysis involves their comparison, for a single ratio

like absolute figures, fails to reveal the true position. For example, if in the case of

a firm, the return on capital employed is 15 percent in a particular year, what does

it indicate? Only if the figure is related to the fact that in the preceding year the

relevant return was 12 per cent or 18 percent, it can be inferred whether the

profitability of the firm has declined or improved. Alternatively, if we know that

the return for the industry as a whole is 10 percent or 20 percent, the profitability

of the firm in question can be evaluated. Comparison with related facts is,

therefore, the basis of ratio analysis. Four types of comparison are involved

i. Trend ratio

Trend ratios involve a comparison of the ratios of a firm over time,

that is, present ratios are compared with the past ratio of the same firm. Trend

ratio indicates the direction of change in the performance, improvement,

deterioration or constancy- over the years. This kind of ratio particularly

applicable to the items of profit and loss account. It is advisable that trends of

the sales and the net income may be studied in the light of two factors: the rate

of fixed expansion or secular trend in the growth of the business and the

general price level. it might be found in practice that a number of firms would

show a persistent growth over the period of the years.

ii. Intra firm comparison



Intra firm comparison involving comparison of the ratio of the firm with

those of the others in the same line of business or for the industry as a whole

reflects its performance in relation to its competitors.

iii. comparison of items within a single year’s financial statement of a

firm

iv. Comparison with standard or plans.

STATE Of THE PROBLEM

Importance of the ratio analysis

As a tool of financial management, ratios are of crucial significance. The

importance of the ratio analysis lies in the fact that it presents facts on a

comparative basis and enables the drawing of inference regarding the

performance of a firm. Ratio analysis is relevant in assessing the performance of a

firm in respect of the following aspects

1. liquidity position

With the help of ratio analysis conclusion can be drawn regarding the

liquidity position of the firm. The liquidity position of the firm would be

satisfactory if it is able to meet its current obligation when they become due. a

firm can be said to have the ability to meet its short term liabilities if it has

sufficient liquidity funds to pay the interest on its short maturing debts usually

within a year as well as to repay the principal.

2. Long term solvency



Ratio analysis is equally useful for assessing the long term viability

of a firm. This aspect of the financial position of a borrower is of concern to

long term creditor, security analysts and the present and potential owners of a

business. The long term solvency is measured by the leverage/ capital

structure profitability ratio which focus on earning power and operating

efficiency. Ratio analysis reveals the strength and weakness of the firm in this

respect.

3. Operating efficiency

Yet another dimension of the usefulness of the ratio analysis, relevant

from the view point of the management, is that it throws light on the degree of

the efficiency in the management and utilization of its assets. The various

activity ratios measure this kind of operational efficiency. In fact, the solvency

of a firm is, in the ultimate analysis, dependent upon the sales generated by

the use of its assets-total as well as its components.

4. Overall profitability

Unlike the outside parties which are interested in one aspect of the

financial position of a firm, the management is constantly concerned about the

overall profitability of the enterprise. That is, they are concerned about the

ability of the firm to meet its short term as well as long term obligations to its

creditors, to ensure a reasonable return to its owners and secure optimum

utilization of the assets of the firm. This is possible if an integrated view is

taken and all the ratios are considered together.

5. Inter-firm comparison

Ratio analysis not only throws the light on the financial position of a

firm but also serves as a stepping stone to remedial measures. This is made



possible due to interfirm comparison and comparison with the averages. A

single figure of a particular ratio is meaningless unless it is related to some

standard or norm. One of the popular techniques to compare the ratio of the

firm with the industry average. It should be reasonably expected that the

performance of a firm should be in broad conformity with that of the industry

to which it belongs. An interfirm comparison would demonstrate the firm’s

position vis-à-vis its competitors.

6. Trend analysis

Finally, ratio analysis enables a firm to take the time dimension into

account. In other words, whether the financial position of a firm is improving

or deteriorating over the years. This is made possible by the use of the trend

analysis. The significance of a trend analysis of the ratio lies in the fact that

the analyst can know the direction of movement, that is, whether the

movement is favourable or unfavourable.

Guidelines for the financial statement analysis

1. Use ratio to get clues to ask the right questions: By themselves ratios rarely

provide answers, but they definitely help you to raise the right questions.

2. Be selective in the choice of the ratios you can compute scores of the

different ratios and easily drown yourself into the confusion. For most

purposes a small set of the ratios- three to seven- would suffice. Few ratios,

aptly chosen, would capture most of the information that you can derive from

the financial statements.

3. Employ proper benchmarks: It is a common practice to compare the ratios

(calculated from the set of financial statements) against some benchmarks.

This benchmark may be the average ratios of the industry or the ratios of the

industry leaders or the historic ratios of the firm itself.



4. Know the tricks used by accountants since firms tend to manipulate the

reported income, you should learn about the devices employed by them.

5. Read the footnotes: Footnotes sometimes contain valuable information. They

may reveal the things that the management may try to hide. The more

difficult it to read a footnote, the more information- laden it may be.

6. Remember that financial statement analysis is an odd mixture of art and

science financial statement analysis cannot be regarded as a simple,

structured exercise. It is a process requiring care, thought, common sense, and

business judgment – a process for which there are no mechanical substitutes.

ADVANTAGES AND DISADVANTAGES OF RATIO ANALYSIS:

Advantages:

Simplifies financial statements: Ratio Analysis simplifies the

comprehension of financial statements. Ratios tell the story of changes

in financial condition of the business.

Facilitates inter firm comparison: Ratio analysis provides data for

inter company comparison. Ratio highlights the association with

successful and unsuccessful firms. They also reveal strong and weak

companies, overvalued and undervalued company’s.

Makes intra firm comparison possible: Ratio analysis also makes

possible comparison of the performance of different division of the

company. The ratio helpful in deciding about their efficiency.

Helps in planning: Ratio Analysis helps in planning and forecasting

over period of time a company develops certain norms that may

indicates future success/ failure. If relationship changes in firms data



over different time periods. The ratio may provide clues on trends and

future problems.

Liquidity position: With the help of ratio analysis conclusions can be

drawn regarding liquidity position of the company. The liquidity

position of a company could be satisfactory if it is able to meet its

current obligations when they become due.

Long term solvency: Ratio analysis equally useful for assessing the

long-term financial viability of a firm. The long-term solvency is

measured by the leverage / capital structure and profitability ratios,

which focus on earning power and operating efficiency.

Disadvantages:

Ratio analysis is a widely used tool of financial analysis. Yet, it suffers from

various limitations. The operational implication of this is that while using ratios,

the conclusion should not been taken on their face value. Some of the limitation

which characterize ratio analysis are

1. Difficulty in comparison

One serious limitation of ratio analysis arises out of the difficulty

associated with their comparability. One technique that is employed is

interfirm comparison. But such comparisons are vitiated by different

procedures adopted by various firms. The difference may relate to

Difference in the basis of inventory valuation

Different depreciation methods (i.e. straight line vs. written down

basis)

Estimated working life of the assets, particularly of plant and

equipment

Amortization of intangible assets like goodwill, patents and so on.

Amortization of deferred revenue expenditure such as preliminary

expenditure and discount on issue of shares



Capitalization of lease

Treatment of extraordinary items of income and expenditure and

so on

Secondly, apart from different accounting procedures, companies may have

different accounting periods, implying differences in the composition of the

assets, particularly the current assets. For these reasons, the ratios of two firms

may not be strictly comparable.

2. Impact of inflation

The second major limitation of the ratio analysis as a tool of financial

analysis is associated with price level changes. This, in fact is a weakness of

the traditional financial statement which are based on historical cost. An

implication of this feature of the financial statement as regards ratio analysis is

that assets acquired at different periods are, in effect, shown at different prices

in the balance sheet, as they are not adjusted for changes in the price level. As

a result, ratio analysis will not yield strictly comparable and therefore,

dependable results.

3. Conceptual Diversity

Yet another factor which affects the usefulness of ratios is that there

is difference of opinion regarding the various concepts used to compute the

ratios. there is scope for diversity of opinion as to what constitutes

shareholders’ equity, debt, asset, profit and so on. Different firms may use

these terms in different senses or the same firm may use them to mean

different things at different times.

Reliance on a single ratio for a particular purpose may not be a

conclusive indicator. for instance, the current ratio alone is not a adequate

measure of short-term financial strength; it should be supplemented by the

acid test ratio, debtors turnover ratio and inventory and inventory turnover

ratio to have a real insight into the liquidity aspect.

Classification of ratio



1. Profitability Ratios

a. Ratio of profit to total income

b. Ratio of profit to deposits

c. Return on equity

d. Return on Capital

e. Ratio of return on assets

f. Net interest margin

g. Ratio of interest income to average working fund

h. Ratio of non-interest income

i. Cash dividend

j. EPS

2. Operating Ratios

a. Ratio of interest earned to interest paid

b. ratio of interest paid to total income

c. Ratio of staff expenses to total expenses

d. Ratio of total expenses to total income.

e. Ratio of operating expenses to average working fund

f. Ratio of interest expenses to average working fund

3. Solvency ratios

a. ratio of cash to deposit

b. ratio of investment to deposits

c. Credit deposit ratio

d. ratio of fixed assets to net worth

e. Current assets ratio

f. Quick ratio

g. Fixed assets ratio

4. Safety ratio

a. ratio of Net NPA to Net advance



b. Capital adequacy ratio

DESIGN OF THE STUDY

Title of the project:

“A Study of Financial Performance Based On Ratios” at HDFC Bank Belgaum

Statement of the problem

Ratios are very useful to draw the conclusion so management wants to know

what are the factor contributing for the future growth and also wants to maintain

the same in the longer run and also improve the profitability and liquidity of the

organization.

Research problem

To know the financial performance of the organization through ratio analysis, by

comparing three years financial performance of the bank



Purpose of the study

A financial services sector plays a critical role in fulfilling the needs of growing

and increasingly diverse economy, offering high quality services to business and

individual alike. Though Indian banking system registered commendable progress

in terms of geographical and functional coverage, its performance in terms of

operational efficiency and viability still leaves considerable room for

improvement

A bank’s balance sheet and income statement are valuable

information sources for identifying risk taking and assessing risk management

effectiveness. Although amounts found on these statements does not provide

valuable insights of performance so ratio analysis is required for determining

good or bad performance of bank and also for determining its causes. The study

includes the calculation of different financial ratios. It compares three years

financial statements of the company to know its performance in these different

years.

Scope of the study

The scope of the study is limited to financial aspects of HDFC bank



OBJECTIVES OF STATEMENT

• To know the financial performance of the organization

• To study different ratios in HDFC bank

• To determine the profitability and liquidity of the bank through ratios

analysis

• To compare the present and previous years performance of HDFC bank





ANISATION PROFILE

HDFC is India's premier housing finance company and enjoys an impeccable

track record in India as well as in international markets. Since its inception in

1977, the Corporation has maintained a consistent and healthy growth in its

operations to remain the market leader in mortgages. Its outstanding loan portfolio

covers well over a million dwelling units. HDFC has developed significant

expertise in retail mortgage loans to different market segments and also has a

large corporate client base for its housing related credit facilities. With its

experience in the financial markets, a strong market reputation, large shareholder

base and unique consumer franchise, HDFC was ideally positioned to promote a

bank in the Indian environment.

The Housing Development Finance Corporation Limited (HDFC) was amongst

the first to receive an 'in principle' approval from the Reserve Bank of India (RBI)

to set up a bank in the private sector, as part of the RBI's liberalization of the

Indian Banking Industry in 1994. The bank was incorporated in August 1994 in

the name of 'HDFC Bank Limited', with its registered office in Mumbai, India.

HDFC Bank commenced operations as a Scheduled Commercial Bank in January

1995.



BROAD AREAS IN WHICH IT OPERATES

The Bank operates in three segments: retail banking, wholesale banking and

treasury services. The retail banking segment serves retail customers through a

branch network and other delivery channels. The wholesale banking provides

loans and transaction services to corporate and institutional customers. The

treasury services segment undertakes trading operations on the proprietary

account, foreign exchange operations and derivatives trading. The Bank operates

in India.

Retail Banking

This segment raises deposits from customers and makes loans and provides

advisory services to such customers. The objective of the Retail Bank is to

provide its target market customers a range of financial products and banking

services, giving the customer a one-stop window for all his/her banking

requirements. The products are backed by service and delivered to the customers

through the growing branch network, as well as through alternative delivery

channels like automated teller machines (ATMs), phone banking, net banking and

mobile banking.

The HDFC Bank Preferred program for high net worth individuals, the HDFC

Bank Plus and the Investment Advisory Services programs have been designed



keeping in mind needs of customers who seek distinct financial solutions,

information and advice on various investment avenues. The Bank also has an

array of retail loan products, including auto loans, loans against marketable

securities, personal loans and loans for two-wheelers. It is also a provider of

depository participant (DP) services for retail customers, providing customers the

facility to hold their investments in electronic form.

HDFC Bank has launched an international debit card in association with VISA

(VISA Electron) and also issues the MasterCard Maestro debit card. The Bank

launched its credit card business during the fiscal year ended March 31, 2001. By

September 30, 2005, the bank had a total card base (debit and credit cards) of 5.2

million cards. The Bank is also engaged in the merchant acquiring business with

over 50,000 point-of-sale (POS) terminals for debit/credit cards acceptance at

merchant establishments.

Wholesale Banking

, The Bank's target market ranges from large, blue-chip manufacturing companies

in the Indian corporate to small and mid-sized corporates and agri-based

businesses. For these customers, the Bank provides a range of commercial and

transactional banking services, including working capital finance, trade services,

transactional services and cash management. The bank is also a provider of

structured solutions, which combine cash management services with vendor and

distributor finance for facilitating superior supply chain management for its

corporate customers. It provides cash management and transactional banking

solutions to corporate customers

Treasury Services

Within this business, the bank has three main product areas: Foreign Exchange

and Derivatives, Local Currency Money Market & Debt Securities, and Equities.



Risk management information, advice and product structures, as well as fine

pricing on various treasury products are provided through the Bank's Treasury

team. The Treasury business is responsible for managing the returns and market

risk on this investment portfolio.

MISSION

HDFC Bank's mission is to be “a World-Class Indian Bank” which is

benchmarked against international standards and best practices in terms of

product offerings, technology, service levels, risk management and audit

compliance.

Objectives of HDFC bank

The objective is to build sound customer franchises across distinct businesses so

as to be the preferred provider of banking services for target retail and wholesale

customer segments, and to achieve healthy growth in profitability, consistent with

the bank's risk appetite. The bank is committed to maintain the highest level of

ethical standards, professional integrity, corporate governance and regulatory

compliance. HDFC Bank's business philosophy is based on four core values -

Operational Excellence, Customer Focus, Product Leadership and People.



BUSINESS STRATEGY

Increase our market share in India’s expanding banking and financial

services industry by following a disciplined growth strategy and delivering

high quality customer service.

Leverage our technology platform and open, scaleable systems to deliver

more products to more customers and to control operating costs.

Maintain our current high standards for asset quality through disciplined

credit risk management.

Develop innovative products and services that attract our targeted

customers and address inefficiencies in Indian financial sectors.

Continue to develop products and services that reduce our cost of funds

and

Focus on healthy earnings growth with low volatility.

CAPITAL STRUCTURE

Authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid-up

capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the

bank's equity and about 19.4% of the equity is held by the ADS Depository (in

respect of the bank's American Depository Shares (ADS) Issue). Roughly 31.3%

of the equity is held by Foreign Institutional Investors (FIIs) and the bank has

about 190,000 shareholders. The shares are listed on the The Stock Exchange,

Mumbai and the National Stock Exchange. The bank's American Depository

Shares are listed on the New York Stock Exchange (NYSE) under the symbol

"HDB

VARIOUS SERVICES

FOREX AND TRADE SERVICES

., HDFC Bank has a range of products and services that one can choose from to

transact smoothly.


http://www.hdfcbank.com/personal/forex/forex_products_services.htm


The following are different methods of transacting in foreign exchange and

remitting money.

Travelers cheques

Foreign currency cash.

Foreign currency drafts

Cheque deposits

Remittances

Cash to master

Trade services

Foreign services branch locator

Important guidelines and schedules

All Foreign Exchange transactions are conducted by strictly adhering to RBI

guidelines. Depending on the nature of your transaction or point of travel, you

will need to understand your Foreign Exchange limits.

LOANS

Home Loans

Personal Loans

Two Wheeler Loans

New Car Loans

Used Car Loans

Overdraft Against Car

Express Loans

Loans Against Securities



Loans Against Property

PERSONAL BANKING

Savings Accounts

These Accounts are primarily meant to inculcate a sense of saving for the future,

accumulating funds over a period of time. Whatever may be the occupation, bank

is confident that customer will find the perfect banking solution. Open an account

in your name (customer’s name) or register for one jointly with a family member

today.

Current Accounts

Now, with an HDFC Bank Current Account, experience the freedom of multi-city

banking! Customer can have the power of multi-location access to his account

from any of banks 500 branches in 220 cities. Not only that, he can do most of

his banking transactions from the comfort of his office or home without stepping

out.

At HDFC Bank, it understands that running a business requires time and money,

also that customers business needs are constantly evolving. That's where it comes

in. It provides him with a choice of Current Account options to exclusively suit

his business - whatever the size or scope.

Fixed Deposits

Long-term investments form the chunk of everybody's future plans. An alternative

to simply applying for loans, fixed deposits allow the customer to borrow from his

own funds for a limited period, thus fulfilling his needs as well as keeping his

savings secure.

As per the finance (No 2) Act 2004, all fees & charges mentioned in the

Tariffs, Charges or Fees Brochures will attract Service Tax @10% & Education

Cess @2% of the service tax amount effective 10th September 2004. The same

will appear as separate debits in the statements.



PRIVATE BANKING

HDFC Bank offers Private Banking services to high net worth individuals and

institutions. Banks team of seasoned financial and investment professionals

provide objective guidance backed by thorough research and in-depth analysis

keeping in mind customer’s financial goals.

Multiple Recognition from Euro money

At HDFC Bank, they have always strived towards providing exceptional service

to each of their esteemed customers. As testament to this dedication, they have

earned the following ranks in a recently conducted Euromoney Survey.

Rated as the best private bank in the super effluent category in India

HDFC Bank Investment Advisory Services - Helping you take your

Investment portfolio further.

Dedicated investment advisor

HDFC Private Banking service involves a high degree of personalization.

When customer avail of this facility, a dedicated Investment Advisor serves

him. This seasoned finance professional adds value to his portfolio by keeping

him up to date with financial markets and investment opportunities

MUTUAL FUNDS PRODUCTS SCHEMES

Equity fund

HDFC growth fund

HDFC long term Advantage fund

HDFC Index fund

HDFC Capital Builder fund

HDFC tax saver



HDFC top 200 funds

HDFC core & satellite fund

HDFC premier multi-Cap fund

HDFC long term equity fund

Balanced Fund

HDFC Children’s gift fund investment plan

HDFC children’s gift fund saving plan

HDCF Balanced Fund

HDCF Prudence Fund

Debt Fund

HDCF Income fund

HDCF liquid fund

HDCF gift fund short term plan

HDCF gift fund long term plan

HDCF short term plan

HDCF floating rate income fund short term plan

HDCF floating rate income fund long term plan

HDCF liquid fund- premium plan

HDCF liquid fund- premium plus plan

HDCF high interest fund

HDCF high interest fund short term plan

HDCF cash management fund saving plan

HDCF cash management fund call plan

HDCF MF monthly plan



PAYMENT SERVICES

With HDFC Bank's payment services, one can bid goodbye to queues and paper

work. Its range of payment options make it easy for customer to pay for a variety

of utilities and services.

Verified by visa

If one wants to be worry free for his online purchases. Now he can shop

securely online with his existing Visa Debit/Credit card.

Net safe

Now shop online without revealing your (customers) HDFC Bank Credit Card

number.

Prepaid refill

If a person is a HDFC Bank Account holder and a prepaid customer, he can

now refill his Prepaid Mobile card with this service.

Bill pay

One can pay his telephone, electricity and mobile phone bills at his convenience.

Through the Internet, ATMs, his mobile phone and telephone - with Bill Pay, bank’s

comprehensive bill payments solution



Visa Bill Pay

One can pay his utility bills from the comfort of his home! Pay using his

HDFC Bank Visa credit card and forget long queue and late payments forever

Insta pay

One can Pay his bills, make donations and subscribe to magazines without

going through the hassles of any registration.

Direct pay

Shop or Pay bills online without cash or card. Debit your(customers ) account

directly with bank’s Direct Pay service!

Smart pay(with credit cards)

With Smart Pay, paying customer’s electricity, telephone, mobile phone,

water bills, gas and insurance premia payments becomes easy like never

before.

Visa money transfer

One can transfer funds to any Visa Card (debit or credit) within India at his

own convenience through HDFC Bank's Net Banking facility.

e-Monies Electronic Funds Transfer

Transfer funds from customers account to any account in any Bank in India

at 15 locations - FREE of cost!

Online payment of excise and service tax

One can make his Excise and Service Tax payments at his own convenience.

PREFFERED/CLASSIC BANKING



If a customer expects more from everything, even HDFC bank, will invite him

into the world of exclusive banking. Where he will never again have to wait to

be served. With HDFC Bank Preferred Programme, his comfort always comes

first.

Ideal for seasoned professionals or businessmen, this programme will provide

him with a banker dedicated to take care of all his banking and investment

needs. It also means he get preferential rates on various banking products and

other exclusive benefits.

HDFC BANK CLASSIC BANKING

If a person wants to experience banking beyond the ordinary, our HDFC Bank

Classic Programme is just for him. Becoming an HDFC Bank Classic

customer entitles him to a host of benefits, including a bouquet of

preferentially priced products and specialized wealth management solutions.

AWARDS AND ACHIEVMENTS

HDFC Bank began operations in 1995 with a simple mission: to be a "World-

class Indian Bank". They realized that only a single-minded focus on product

quality and service excellence would help them get there. Today, they are proud

to say that they are well on the way towards that goal.

2006

Business Today Best Bank in India.

Forbes Magazine One of Asia Pacific's Best 50 companies.

Businessworld Best listed Bank of India.

The Asset Best Domestic Bank.



Magazine's Triple A

Country Awards

Asiamoney Awards Best Local Cash Management Bank in Large and

Medium segments.

Euromoney Awards "Best Bank" in India.

2005

Asia money Awards Best Domestic Commercial Bank

Asia money Awards Best Cash Management Bank - India .

The Asian Banker

Excellence

Retail Banking Risk Management Award in India.

Hong Kong-based

Finance Asia

magazine

Best Bank India

Economic Times

Awards

"Company of the Year" Award for Corporate

Excellence.

Asiamoney also named the bank:

Best Local Cash Management Bank in India 2004 - US$11-100m

Best Local Cash Management Bank in India 2004 - >US$501m



Best Local Cash Management Bank in India 1989-2004 (poll of polls)

Best Overall Domestic Trade Finance Services in India 2004

Most Improved company for Best Management Practices in India 2004

The Business Today-KPMG Survey published in the leading Indian business

magazine Business Today has named HDFC Bank "Best Bank in India" for the

third consecutive year in 2005.

The Asset magazine named HDFC Bank "Best Cash Management Bank" and

"Best Trade Finance Bank" in India, in 2006.

HDFC Bank named the "Most Customer Responsive Company - Banking and

Financial Services in The Economic Times - Avaya Global Connect Customer

Responsiveness Awards 2005"

HDFC Bank has been named Best Domestic Bank in India in The Asset Triple A

Country Awards 2005.

HDFC Bank has been named Best Domestic Bank in India Region in The Asset

Triple A Country Awards 2004 and 2003.

In 2004, HDFC Bank was selected by BusinessWorld as "One of India's Most

Respected Companies" as part of The Business World Most Respected Company

Awards 2004.

In 2004, Forbes Global again named us in its listing of Best Under a Billion, 100

Best Smaller Size Enterprises in Asia/Pacific and Europe, in its November 1,

2004 issue.

In 2004, HDFC Bank won the award for "Operational Excellence in Retail

Financial Services" - India as part of the Asian Banker Awards 2003.



In 2003, Forbes Global named us in its ranking of "Best Under a Billion, 200 Best

Small Companies for 2003".

Leading business newspaper The Financial Express named HDFC Bank the "Best

New Private Sector Bank 2003" in the FE-Ernst & Young Best Banks Survey

2003.

Leading Personal Finance Magazine in India Outlook Money named HDFC Bank

the "Best Bank in the Private Sector" for the year 2003.

Leading Indian business magazine Business Today in a survey rated us "Best

Bank in India" 2003, and "Best Private Sector Bank" in India in 1999.

NASSCOM and economictimes.com have named us the 'Best IT User in Banking'

at the IT Users Awards 2003.

There have been some other proud moments as well:

London-based Euromoney magazine gave us the award for "Best Bank - India"

in 1999, "Best Domestic Bank" in India in 2000, and "Best Bank in India" in

2001 and 2002

Asiamoney magazine has named us "Best Commercial Bank in India 2002".

For our use of information technology we have been recognized as a

"Computerworld Honors Laureate" and awarded the 21st Century

Achievement Award in 2002 for Finance, Insurance & Real Estate category by

Computerworld, Inc., USA.

Our technology initiative has been included as a case study in their online

global archives.The Economic Times has conferred on us The Economic

Times Awards for Corporate Excellence as the Emerging Company of the

Year 2000-01.



Leading Indian business magazine Business India named us "India's Best

Bank" in 2000.

In the year 2000, leading financial magazine Forbes Global named us in its list

of "The 300 Best Small Companies" in the world and as one of the "20 for

2001" best small companies in the world.

CORPORATE GOVERNARCE

HDFC Bank recognizes the importance of good corporate governance, which is

generally accepted as a key factor in attaining fairness for all stakeholders and

achieving organizational efficiency. This Corporate Governance Policy, therefore,

is established to provide a direction and framework for managing and monitoring

the bank in accordance with the principles of good corporate governance.

BOARD OF DIRECTORS



Mr. Jagdish Capoor, Chairman

Mr. Aditya Puri , Managing Director

Mr. Keki Mistry

Dr. (Mrs.) Amla Samanta

Mr.Anil Ahuja

Dr. Venkat Rao Gadwai

Mr.Vineet Jain

Renu Karnad

Mr.Aravind Pande

Mr. Ranjan Kanpur(w.e.f January 9, 2004)

Mr. Bobby Parikh (w.e.f.January 9,2004)

VICE PRESIDENT(LEGAL)& COMPANY SECRETARY

Mr. Sanjay Dongre

AUDITOTS

Mr. P.C. Hansotia&Co

(Chartered accountants)

REGISTERED OFFICE

HDFC BANK House

Senapati Bapat Marg

Lower Parel

Mumbai 400013

Tel No: 56521000

Fax No: 24960739

Web –site : www.hdfcbank.com



Methodology

Data Collection method

• Primary Data : The information Collected from Personnel Interaction with

manager and other staff

• Secondary:- Annual report of HDFC bank and websites

Measurement technique/ Statistical tool

1. Accounting ratio

2. Financial statement of the company

Analytical technique



Statistical technique used for calculation of ratios is in terms of percentage

method.



I. Profitability Ratio

This ratio shows the earning ability of organization. The operating efficiency

of the firm and its ability to ensure adequate return to its shareholders depends

ultimately on the profits earned by it. The profitability of the firm can be

measured by its profitability ratio. In other words profitability ratios designed to

provide answers to questions such as

a) Is profit earned by the firm adequate?

b) What rate of return does it represents?

c) What is the rate of profit for various divisions and segments of the firm?

d) What is the rate of return to equity shareholders?

The profitability of the firm can be determined on the following ratios



1. Ratio of Net profit to total income

This ratio implies that the percentage of profit earned by the

organization

Out of its income.

= Net profit

X 100

Total income

(Rupees

in lakhs)



Year 2006-2007 2007-2008 2008-2009

Profit (Rs) 50950 66556 87078

Total income(Rs) 302896 374483 559932

Ratio (%) 16.82% 17.7% 15.55%

Interpretation

The ratio of profit to total income in the first year (2006-07) was

16.8% and in 07-08 ratio increased 17.7% due to increase in interest income

and non interest

income but in 2008-09 ratio decreased 15.55% because there was loss on

revaluation of investment and increase in expenses.

2. Ratio of Net profit to total deposit

This ratio shows organization earning on deposits

(Rupees in lakhs)

Year 2006-2007 2007-2008 2008-2009


Ratio of Net profit to total income

16.82%

17.70%

15.55%

14.00%

15.00%

16.00%

17.00%

18.00%

2006-2007

2007-2008

2008-2009

year

Pe

rce

nta

ge

Ratio (%)


Profit (Rs) 50950 66556 87078

Total Deposit (Rs) 3040886 3635425 5579682

Ratio (%) 1.67% 1.83% 1.56%

Interpretation

The ratio of profit to deposits in the year 06-07 was 1.67% it was increased in 07-

08 by 1.83% and it decreased to 1.56% compared to last year it was more. This

shows that the deposits have increased at a faster rate than income.

3. Ratio of return on equity

This ratio measures the return on the owners (both equity and preference

shareholders) invested in the firm.

= PAT

Net worth (rupees in lakhs)

Year 2006-2007 2007-2008 2008-2009

Profit (Rs) 50950 66556 87078


Ratio of net profit to total deposit

1.67%

1.83%

1.56%

1.40%

1.50%

1.60%

1.70%

1.80%

1.90%

2006-2007 2007-2008 2008-2009

year

per

cen

tag

e

Ratio (%)


Net worth (Rs) 181580 340238 444855

Ratio (%) 28.05% 19.56% 19.57%

Interpretation

Return on equity in the first year was 28.05% it has decreased to 19.56% to

19.57% in the year 07-08 and 08-09 compared to first year. Return on equity is

constant for the year. This indicates generation of return for capital invested by

owner of the company is constant for last two year. Major portion of net profit is

transfer to general reserve which leads to decrease in the return of shareholder.

4. Return on Asset

An indicator of how profitable a company is relative to its total assets. ROA

gives an idea as to how efficient management is at using its assets to generate

earnings. Calculated by dividing net income by its total assets

= Net income

Total Assets (rupees in

lakhs)

Year 2006-2007 2007-2008 2008-2009

Profit (Rs) 50950 66556 87078


Return on equity

28.05%

19.56% 19.57%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2006-2007 2007-2008 2008-2009

year

per

cen

tag

e

Ratio (%)


Total Assets (Rs) 4230699 5142900 7350639

Ratio (%) 1.20% 1.29% 1.18%

Interpretation

Ratio of return on asset in first year was 1.20% and in second year it increased to

1.29% it indicates that company is better at converting its investment into profit

but in third year earning generated from invested capital has been reduced to

1.18% this indicates company is slow in converting its investment into profit.

5. Return on capital employed

This ratio shows the return on capital employed (share capital, reserve,

retained earning and long term borrowings) used in the organization.

= PBT (profit before tax)

Capital employed (rupees in

lakhs)

Year 2006-2007 2007-2008 2008-2009

PBT (Rs) 71896 97894 125351

Capital employed

(Rs)

412362 819239 730703

Ratio (%) 17.43% 11.94% 17.15%


Ratio of return on assets

1.20%

1.29%

1.18%

1.10%

1.15%

1.20%

1.25%

1.30%

2006-2007 2007-2008 2008-2009

Year

Pe

rcen

tag

e

Ratio (%)


Interpretation

Return on capital for the first year 06-07 was 17.43% which was decline in

second year and increased in third year by 17.15%. This indicates that earning

capacity of the capital employed is satisfactory because of borrowing and long

term debts are increased.

6. Net interest Margin

Net interest margin is the gross margin on a bank’s lending and investment

activities. It tells you the average interest margin that the bank is receiving by

borrowing and lending funds. It is determined as.

Net interest income = total interest income- total interest expense

= Net interest income X 100

Total earning assets

Year 2006-2007 2007-2008 2008-2009

Net interest

income (Rs)

133788 177793 254584

Total asset (Rs) 4230699 5142900 7350639

Ratio (%) 3.16% 3.45% 3.46%


Ratio of return on capital employed

17.43%

11.94%

17.15%

0.00%

5.00%

10.00%

15.00%

20.00%

2006-2007 2007-2008 2008-2009

Year

Pe

rcen

tag

e

Ratio (%)


Interpretation

Ratio of net interest margin in first year was 3.16% it has increased in constant

rate by 3.45% and 3.46% in second and third year. This indicates that average

interest margin the bank is receiving by borrowing and lending fund is constant

and satisfactory.

7. Ratio of interest income to average working fund

It is a ratio of interest income to average working fund. It shows

how income is earned from average asset.

Average working fund= opening total asset + closing total asset / 2

Interest income

= X 100

Average working fund

(Rupees in

lakhs)


Net interest margin

3.16%

3.45% 3.46%

3.00%

3.10%

3.20%

3.30%

3.40%

3.50%

2006-2007 2007-2008 2008-2009

Year

Pe

rcen

tag

e

Ratio (%)


Year 2006-2007 2007-2008 2008-2009

Interest

income(Rs)

254893 309349 447534

Average working

fund (Rs)

3636553.5 4686799.5 6246769.5

Ratio (%) 7.0% 6.6% 7.16%

Interpretation

Ratio of interest income to AWF in first year was 7.0% in second year it was

6.60% and it increased in third year by 7.16% compared to previous year.

Increase in interest income due to increase in interest/ discount on advance,

income from investment. This also indicates interest earned is more.

8. Ratio of non-interest income to Average working fund

This ratio is determined by dividing non-interest income by AWF.

This tells how much is the non-interest income (other income) from average

working fund.

= Non-interest income X 100


Ratio of interest income to AWF

7.00%

6.60%

7.16%

6.20%

6.40%

6.60%

6.80%

7.00%

7.20%

7.40%

2006-2007 2007-2008 2008-2009

Year

Pe

rcen

tag

e

Ratio (%)



(Rupees in lakhs)

Year 2006-2007 2007-2008 2008-2009

Non interest

income(Rs)

48003 65134 112398

AWF (Rs) 3636553.5 4686799.5 6246769.5

Ratio (%) 1.32% 1.38% 1.79%

Interpretation

Ratio of non interest income to AWF in 06-07 was 1.32% and it increased to

1.38% to 1.79% in 07-08 and 08-09 because of increase in profit on sale of

investment, commission, exchange & brokerage, Miscellaneous income

etc.increase in non interest income increase the profitability of the firm. There is

significant growth in non operating income in year 2009.


Ratio of non interest income to AWF

1.32% 1.38%

1.79%

0.00%

0.50%

1.00%

1.50%

2.00%

2006-2007 2007-2008 2008-2009

year

per

cen

tag

e

Ratio (%)


9. Ratio of Cash Dividend to Net income

A cash dividend to net income indicates how much of earnings

are paid out to shareholders. Conversely, it indicates how much of earnings

are retained to build the bank’s capital account. Smaller banks, because they

have limited capital market access, tend to rely more heavily on earnings

retention to build capital.

Cash Dividend

Net income

(Rupees in

lakhs)

Year 2006-2007 2007-2008 2008-2009

Cash dividend

(Rs)

__ 26 __

Net income(Rs) 50950 66556 87078

Ratio (%) __ __

Cash dividend for 06-07 is not paid. Dividend of previous is paid in 07-08

26Lac is paid out of net income. In 2008-2009 dividend is not declared



10. EPS (earning per share)

It measures the profit available to equity shareholders on a per share

basis, that is, the amount that they can get on every share held. It is calculated

by dividing the profits available to shareholders by the number of outstanding

shares. The profits available to the ordinary shareholders are represented by

net profits after taxes and preference dividend. Thus

EPS = PAT (profit after tax)

Number of shares outstanding

Year 2006-2007 2007-2008 2008-2009

PAT (Rs) 50950 66556 87078

No. of shares

outstanding (Rs)

283806538 290383946 311939366

Ratio (Rs) 17.95 22.91 27.91

Interpretation


Earning per share

17.95

22.91

27.91

0

5

10

15

20

25

30

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Ratio (Rs)


Earning per share in 06-07 was 17.95 Rs. it increased by 22.91 and 27.91 Rs. for

last two years. EPS simply shows the profitability of the firm on a per share basis.

II. Operating ratio

This ratio gives the operation efficiency of the organization. The efficiency can be

determined by following ratios.

1. Ratio of interest earned to interest paid

This ratio shows the percentage of interest earned on loans and advances

and interest paid on deposits.

= Interest earned

Interest paid

(Rupees in lakhs)

Year 2006-2007 2007-2008 2008-2009

Interest earned

(Rs)

254893 309349 447534

Interest paid (Rs) 121105 131556 192950

Ratio (times) 2.10 2.35 2.31


Ratio of interest earned to interest paid

2.1

2.35

2.31

1.95

2

2.05

2.1

2.15

2.2

2.25

2.3

2.35

2.4

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Ratio (times)


Interpretation

Ratio of interest earned to interest paid in first was 2.10% that was very less

compared to second year it grew to 2.35% and third year decline by 4% because

interest paid on borrowing was more. Firms earning capacity is satisfactory.

2. Ratio of interest paid to total income

This ratio shows the percentage of interest paid to deposits accepted.

= interest paid

X 100

Total income

(Rupees in lakhs)



Year 2006-2007 2007-2008 2008-2009

Interest paid (Rs) 121105 131556 192950

Total income (Rs) 302896 374483 559932

Ratio (%) 39.98% 35.13% 34.45%

Interpretation

Ratio of interest paid on total income in first year was 39.98% and second and

third year was constant. In first interest paid on borrowing was more by this

even the interest earned was decline. Second and third year, firm’s interest

paid is constant it is satisfactory.

3. Ratio of staff expense to total expense

This ratio shows the percentage of staff expense to total expense.


Ratio of interest paid on total income

39.98%

35.13% 34.45%

30.00%

32.00%

34.00%

36.00%

38.00%

40.00%

42.00%

2006-2007 2007-2008 2008-2009

Year

per

cen

tag

e

Ratio (%)


= Staff expense

X 100

Total expense

(Rupees

in lakhs)

Year 2006-2007 2007-2008 2008-2009

Staff expenses

(Rs)

20409 27667 48682

Total expenses

(Rs)

251946 307927 472854

Ratio (%) 8.10% 8.98% 10.29%

Interpretation


Ratio of staff expenses to total expenses

8.10%8.98%

10.29%

0.00%

2.00%

4.00%6.00%

8.00%

10.00%

12.00%

2006-2007 2007-2008 2008-2009

Year

per

cen

tag

e

Ratio (%)


Ratio of staff expenses to total expenses in the year 06-07 was 8.10% it has been

increased to 8.98% to 10.29% in the last two year. This indicates payment for the

employees are increasing. Hence profit per employee is increasing.

4. Ratio of total expenditure to total income

This shows the percentage of total expenses to total income

= Total expenditure

X 100

Total income

Year 2006-2007 2007-2008 2008-2009

Total expenditure

(Rs)

251946 307927 472854

Total income (Rs) 302896 374483 559932

Ratio (%) 83.17% 82.22% 84.44%



Interpretation

The ratio of total expenditure to total income in the year 06-07 was 83.17% and it

was decreased in the second year by 82.22% but in third year total expenditure

increased to 84.44% because of increase in interest expenses , operating expenses

and there was loss on revaluation of investments.

5. Ratio of operating expenses to Average working fund

Operating expense are those expenses which are connected to

running of the organization it includes staff salary, rent, taxes, printing and

stationary, advertisement etc. this ratio shows the percentage of operating

expenses to AWF.

= Operating Expenses X 100


Year 2006-2007 2007-2008 2008-2009

Operating

expenses(Rs)

81000 108540 169109

Average working

fund (Rs)

3636553.5 4686799.5 6246769.5

Ratio (%) 2.22% 2.31% 2.70%



Interpretation

Ratio of operating expenses to AWF in first year was 2.22% it has increased to

2.31% to 2.70% in 07-08 and 08-09 due to increase in Rent, taxes, lightning,

printing & stationary, Advertisement and publicity, Repairs and maintenance

etc.Along with interest income and non interest income even operating expenses

is growing year by year. By this percentage of profit will decrease.


Ratio operating expense to AWF

2.22% 2.31%2.70%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2006-2007 2007-2008 2008-2009

Year

Pe

rcen

tag

e

Ratio (%)


6. Ratio of interest expenses to Average working fund

This ratio is determined by dividing interest expenses to AWF. It

indicates what percentage or rate of interest is paid from working fund.

= Interest Expenses X 100


Year 2006-2007 2007-2008 2008-2009

Interest exp(Rs) 121105 131556 192950

Average working

fund (Rs)

3636553.5 4686799.5 6246769.5

Ratio (%) 3.33% 2.80% 3.08%



Interpretation

Ratio of interest expenses to AWF in 06-07 was 3.33% and in second year

it decrease to 2.80% and in third year it increased to 3.08% compared to last year

due to increase in interest expenses and operating expense. If we compare interest

income and interest expense, the percentage of interest paid is more than interest

earned so it is unfavorable.

III. Solvency ratio

This ratio helps to know the liquidity of the firm i.e. ability to meet its short term

obligations or current liabilities. The solvency of the firm can be determined in

the following ratios.

1. Ratio of Total cash to total deposits

This ratio helps to find what extent the deposits used and cash balance

in hand. The conversion into cash while payment of deposits is very important for

any bank. If there is more need of deposit liquidity the bank as to keep more funds

in cash. This ratio can be calculated with the following formula.


Ratio of interest expenses to AWF

3.33%

2.80%

3.08%

2.40%

2.60%

2.80%

3.00%

3.20%

3.40%

2006-2007 2007-2008 2008-2009

year

per

cen

tag

e

Ratio (%)


= Total Cash

X 100

Total deposits

(Rupees

in lakhs)

Year 2006-2007 2007-2008 2008-2009

Total cash (Rs) 254198 265013 330661

Total deposits

(Rs)

3040886 3635425 5579682

Ratio (%) 8.35% 7.28% 5.92%

Interpretation

Ratio of cash to total deposits in the first year 06-07 was 8.35% it was decreased

by 7.28% to 5.92% in 07-08 and 08-09. Compared to the first year ratio has

reduced year by year it indicates that firm has no idle fund in bank. But still firm

has to maintain cash reserve to meet its current obligation.


Ratio of total cash to total deposits

8.35%7.28%

5.92%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2006-2007 2007-2008 2008-2009

Year

per

cen

tag

e

Ratio (%)


2. Ratio of investment to total deposits

This ratio shows at what extent the firm invested its deposits on securities

from its total deposits.

= Total investment

X 100

Total deposits

Year 2006-2007 2007-2008 2008-2009

Total investment

(Rs)

1936346 1934981 2839396

Total deposits (Rs) 3040886 3635425 5579682

Ratio (%) 63.32% 53.22% 50.88%



Interpretation

Ratio of total investment to total deposits for the first year stood at healthy i.e.

63.32% and in second and third year it decreased to 53.22% to 50.88% because

of decreased shares received, other approved securities and decreased in

certificate of deposits.

3. Credit deposits ratio

This ratio shows the percentage of loans and advances provided by bank

from its deposits. This ratio is purely depending upon the lending policy of the

bank and also the loan requirements of bank customer. If there is increase in loans

demand higher then the likely rise in deposits the bank has to keep more of its

funds in liquid assets to meet the increase in the loan demand and this is also

depending upon the nature of loan and type of deposit of the bank.

= loans and advances

Total deposits

Year 2006-2007 2007-2008 2008-2009

Loan and 1774451 2556630 3506126


Ratio of total investment to total deposits

63.32%53.22% 50.88%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%

2006-20072007-20082008-2009

Year

per

cen

tag

e

Ratio (%)


advance (Rs)

Total deposits

(Rs)

3040886 3635425 5579682

Ratio (times) 0.58 0.70 0.62

Interpretation

Ratio of credit to deposits in 06-07 was 0.58 times and it was increased in 07-

08 by 0.70 times but in 08-09 it decreased to 0.62 times compare to previous

year it was more. This indicates that banker has lag behind in the loan and

advances. Therefore measures are to taken to increase the loan and advance to

the customer.


credit deposit ratio

0.58

0.7

0.62

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Ratio (times)


4. Ratio of loans to Total assets

The loans to total assets ratio measures the total loans as a

percentage of total assets. The higher this ratio indicates a bank is loaned up and

its liquidity is low. The higher the ratio more risky the bank may be to higher

defaults. This figure is determined as follows:

= Loans X 100

Total asset

Year 2006-2007 2007-2008 2008-2009

Total loan (Rs) 1455054 2091063 3368449

Total Assets (Rs) 4230699 5142900 7350639

Ratio (%) 34.39% 40.65% 45.82%



Interpretation

Ratio of loans to total assets in first year was 34.39% it increased to 40.65% to

45.82% in last two year. Increase in loan out of total asset indicates bank is

loaned up and its liquidity is low. This show that bank is at risk side by this

NPA also increases over a period of time. This may also affect the earning of

the bank and bank may not be able to recover interest and principal amount.


Ratio of total loans to total assets

34.39%40.65%

45.82%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2006-2007 2007-2008 2008-2009

year

per

cen

tag

e

Ratio (%)


5. Ratio of provision for loan losses to Average assets

The provision for loan losses to average assets is a charge to

current earnings to build the allowance for loan and lease losses. The ALL is a

general reserve kept by the bank to absorb loan losses. This important figure

is a reserve account to cover unexpected default on loans by borrowers. These

are generally referred to as nonperforming loans.

= Provision for loan loss X 100

Average assets

Year 2006-2007 2007-2008 2008-2009

Provision for

loan loss (Rs)

17828 17622 47976

Average

Assets(Rs)

3636553.5 4686799.5 6246769.5

Ratio (%) 0.49% 0.37% 0.76%



Interpretation

Ratio of provision for loan loss to average asset in 06-07 was 0.49% and in

second year it was 0.37% and it increased in third year by o.76% loan loss on

average assets (its means if one Hundred Rupees is average asset 0.76 paise is

loan loss). Moreover, there is sufficient loan loss reserve to absorb probable

loan losses.

IV. Safety Ratio

1. Ratio of Net NPA to Net Advances


Ratio of provision for loan loss to Average asset

0.49%

0.37%

0.76%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Ratio (%)


The ratio of NPAs to advances reflects the quality of a bank’s loan

portfolio. A distinction is often made between gross NPA and net NPA. Net NPA,

which is obtained by deducting from gross NPA items like interest due but not

recovered, part payment received and kept in suspense account, etc. is

internationally accepted as the more relevant indicator of financial health of

banks. If the NPA is increasing it shows Bad sign to the organization.

= Net NPA X100

Net advances

Year 2006-2007 2007-2008 2008-2009

Net NPA (Rs) 2795 6063 15518

Net Advances(Rs) 1774451 2556630 3506126

Ratio (%) 0.15% 0.23% 0.44%

Interpretation

Ratio of Net NPA to Net Advances in 06-07 was 0.15% and in second and third

year


Ratio of net NPA to net Advance

0.15%

0.23%

0.44%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Ratio (%)


Has increased to 0.23% to 0.44% because of increase in total loan even NPA has

increased over a period of time. However this ratio is satisfactory with industry

norms where on an average this ratio is 3-5%. This ratio tells the credit quality of

the bank.

2. Capital Adequacy Ratio

Capital adequacy is a key element in maintaining the stability of banking

corporations. A crucial - though not the only - tool for testing capital adequacy is

the maintenance of a minimum ratio of capital to the weighted risk elements of

banking business. However, it must be emphasized that the minimum ratio

required in this regulation is not necessarily the optimum ratio, and most banking

corporations are expected to maintain a higher ratio.

The following are the current minimum capital adequacy ratios:

Tier one capital to total risk weighted credit must not be less than 4%.

Total capital (tier one plus tier two less certain deductions) to total risk

weighted credit exposures must not be less than 8%.

Tier 1 Capital: In relation to the capital adequacy ratio, tier one capital can

absorb losses without a bank being required to cease trading. This is core

capital, and includes equity capital and disclosed reserves. In other words, this

ratio is designed to indicate the amount of equity or capital support or assets

that can protect the bank from unexpected events.



Tier 2 Capital: In relation to the capital adequacy ratio, tier two capital can

absorb losses in the event of a winding-up, and so provides a lesser degree of

protection to depositors. It includes items such as undisclosed reserves,

general loss reserves, and subordinated term debt.

Tier 1 Capital

Capital = includes paid up capital, statutory reserve, general reserve, balance in

profit and loss account and amalgamation reserve. Deferred asset if any deducted

Tier 1 Capital X 100

Total Risk Weighted Asset

Year 2006-2007 2007-2008 2008-2009

Capital (Rs) 222970 396216 514991

Total Risk

weighted asset

(Rs)

2777382 4127103 6021762

Ratio (%) 8.03% 9.60% 8.55%

Tier 2

Capital = includes general loss reserve, investment fluctuation reserve and

subordinated debt.

Tier 2 Capital X100

Total Risk Weighted Asset

Year 2006-2007 2007-2008 2008-2009

Capital (Rs) 100812 105473 172071

Total Risk

weighted asset

2777382 4127103 6021762



(Rs)

Ratio (%) 3.62% 2.56% 2.86%

Year Tier 1 Capital Tier 2 Capital Total Capital

Adequacy Ratio

2006-2007 8.03% 3.62% 11.66%

2007-2008 9.60% 2.56% 12.16%

2008-2009 8.55% 2.86% 11.41%

Interpretation

Total capital adequacy ratio for 2006-2007 was 11.66% which is not less 8% and

in second year it increased to 12.16% and third year it decreased to 11.41%

compared to second year but capital adequacy ratio is more than 8% so it can

absorb losses in the event of a winding-up, and also provide protection to

depositors. It indicates that bank is maintaining a sound and efficient financial

system.


Total Capital Adequacy Ratio

11.66%

12.16%

11.41%

11.00%

11.20%

11.40%

11.60%

11.80%

12.00%

12.20%

12.40%

2006-2007 2007-2008 2008-2009

Year

Per

cen

tag

e

Total Capital AdequacyRatio


Findings

I. Profitability Ratio

1. Ratio of net profit to total income has been decreased from 17.70% to

15.55% in last year i.e. 08-09 compared to first two years.

2. Ratio of net profit to total deposit has been decreased in last year by

1.56%.as compared to previous years.

3. Return on equity of firm is constant for last two year.

4. Return on Asset in first year was 1.20% it increased to 1.29% in the year

07-08 and decreased to 1.18% in 08-09.

5. Return on Capital employed is increased by 17.15% in the last year

6. Net interest margin in 06-07 was 3.16% and it increased by 3.45% to

3.46% in 07-08 & 08-09 and it’s constant for both years.

7. Ratio of interest income to average working fund is increased in 08-09 to

17.16% as compared to last two year.

8. Ratio of non- interest income to average working fund is increasing year

by year. In first year it was 1.32% it increased to 1.79%.

9. There is no dividend paid for 06-07 & 08-09

10. EPS of the firm also increasing. First year it was 17.95% and it increased

to 27.91%.

II. Operating Ratio

1. Ratio of interest earned to interest paid in the first year it was 2.10% and

second year it increased to 2.35% and it decreased by 4% compared to

second year.



2. Ratio of interest paid to total income is decreased by 35.13% to 34.45% in

07-08 & 08-09 as compared to first year it was 39.98%.

3. Ratio of staff expenses to total expenses in the year 06-07 was 8.10% it

has been increased to 8.98% to 10.29% in last two year.

4. ratio of total expenditure to total income in first year it was 83.17% it

decreased in 07-08 to 82.22% and in 05-06 it increased to 84.44%

5. Ratio of operating expenses to average working fund in first year i.e.06-07

was 2.22% it increased to 2.31% to 2.70% on last two year.

6. Ratio of interest expenses to Average working fund in 06-07 was 3.33%

and in second year it was 2.80% and in last year it increased to 3.08%.

III. Solvency Ratio

1. Ratio of total cash to total deposits is decreasing from 8.35% in 03-04 to

5.92% in 08-09

2. Ratio of investment to total deposits in first year was 63.32% in second

year it was 53.22% and it decreased to 50.88% in 08-09.

3. Credit deposits ratio in first year it was 58.35% it increased in second and

third year compared to first year.

4. Ratio of loans to total asset is increasing year by year. In first year it was

34.39% it increased to 45.82%.



5. Ratio of provision for loan loss to Average asset in 06-07 was 0.49%, in

07-08 it was 0.37% and in 08-09 it increased to 0.76% compared to last

two years.

IV. Safety

1. Ratio of net NPA to net advances is increasing year by year in first year it

was 0.15% and it increased to 0.44%

2. Capital Adequacy ratio in 06-07 was 11.66%, in 06-08 it was 12.11%, 08-

09 it decreased to 11.41% as compared to first and second year.

Recommendation

1. The organization can improve on selection of assets class for

investment and other related factors such as timing etc. This could

enhance their Return to Total Assets and Total Investment to Total

Deposits ratios.

2. The organization can concentrate on improving on Net Margin

ratio which is relatively low. The above mentioned suggestion

would extend to better this position.

3. The organization might reconsider their dividend policy, which has

been pretty dormant. In view of increased free reserves as well as

EPS, this suggestion holds sanctity. It would enhance the market

positioning of the organization.



4. The expense to income ratio seems stagnant (82 to 85%) in these 3

years. The synergy of large scale operations may need to be looked

into.

5. The organization could improve on its short term (liquid)

investments to take care of returns as well as liquidity.

6. Compared to previous year NPA has increased so Bank should

adopt new strategy to improve NPA and also take almost care in

lending the money. It should follow tight credit policy.

Conclusion

Overall Prospects of the bank looks good. HDFC is doing well in its performance.

To maintain the same position in market it as to concentrate on liquidity position

and make the investment in good class of asset to earn more returns. HDFC

should also concentrate highly on expenses which is increasing year by year

which would lead to decrease in the profitability of the firm.







BIBOLOGRAPHY

Books:

Financial Management : Khan and Jain

Financial Accounting : Narayanaswamy

Annual Report of HDFC bank

Magazine : Reserve Bank of India Bulletin

Websites:

www.google.com

www.HDFCbank.com

s


http://www.HDFCbank.com/

http://www.google.com/

Documents

A Project Report on Financial Performance Based on Ratios at HDFC Bank