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 I Chapter 1 II Executive summary Introduction Statement of the Problem Purpose of the Study Scope of the study Objectives of the Study Organization Profile Data Collection Method Measuring tools
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Chapter 2
III
Chapter 3
Analysis and interpretation Findings Suggestions Conclusion
IV
Chapter 4
Appendix Bibliography
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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
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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 owners 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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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
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A Study on Financial Performance based on Ratios At HDFC Bank 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. iv. comparison of items within a single years financial statement of a firm 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 Babasabpatilfreepptmba.com Page 6
A Study on Financial Performance based on Ratios At HDFC Bank 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 Babasabpatilfreepptmba.com Page 7
A Study on Financial Performance based on Ratios At HDFC Bank 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 firms position vis--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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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 companys. 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. Babasabpatilfreepptmba.com Page 9
A Study on Financial Performance based on Ratios At HDFC Bank 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 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 Page 10 plant and
A Study on Financial Performance based on Ratios At HDFC Bank 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 Babasabpatilfreepptmba.com Page 11
A Study on Financial Performance based on Ratios At HDFC Bank 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 Babasabpatilfreepptmba.com Page 12
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
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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 banks 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
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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
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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.
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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. Babasabpatilfreepptmba.com Page 18
A Study on Financial Performance based on Ratios At HDFC Bank 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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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 Indias 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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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. 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 Babasabpatilfreepptmba.com Page 21
A Study on Financial Performance based on Ratios At HDFC Bank 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 Babasabpatilfreepptmba.com Page 22
A Study on Financial Performance based on Ratios At HDFC Bank your name (customers 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 customers financial goals.
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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 Childrens gift fund investment plan HDFC childrens gift fund saving plan Babasabpatilfreepptmba.com Page 24
A Study on Financial Performance based on Ratios At HDFC Bank 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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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, banks 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 Babasabpatilfreepptmba.com Page 26
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 banks Direct Pay service! Smart pay(with credit cards) With Smart Pay, paying customers 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 Babasabpatilfreepptmba.com Page 27
A Study on Financial Performance based on Ratios At HDFC Bank 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 Forbes Magazine Businessworld The Magazine's Triple A Country Awards Asiamoney Awards Best Local Cash Management Bank in Large and Medium segments. Euromoney Awards "Best Bank" in India. Best Bank in India. One of Asia Pacific's Best 50 companies. Best listed Bank of India. Asset Best Domestic Bank.
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A Study on Financial Performance based on Ratios At HDFC Bank 2005 Asia money Awards Best Domestic Commercial Bank Asia money Awards Best Cash Management Bank - India . The Asian Banker Retail Banking Risk Management Award in India. Excellence Hong Finance magazine Economic Awards Times "Company of the Year" Excellence. Award for Corporate Kong-based Best Bank India Asia
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.
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A Study on Financial Performance based on Ratios At HDFC Bank 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. Babasabpatilfreepptmba.com Page 30
A Study on Financial Performance based on Ratios At HDFC Bank 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 200001. 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. Babasabpatilfreepptmba.com Page 31
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 Babasabpatilfreepptmba.com Page 32
A Study on Financial Performance based on Ratios At HDFC Bank 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
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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.
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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 Page 36
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 Profit (Rs) Total income(Rs) Ratio (%) 2006-2007 50950 302896 16.82% 2007-2008 66556 374483 17.7% 2008-2009 87078 559932 15.55%
Percentage
Ratio of Net profit to total income 17.70% 16.82% 15.55% Ratio (%)
18.00% 17.00% 16.00% 15.00% 14.00%
2006- 2007- 20082007 2008 2009 year
Interpretation Babasabpatilfreepptmba.com Page 37
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 Profit (Rs) Total Deposit (Rs) Ratio (%) 2006-2007 50950 3040886 1.67% 2007-2008 66556 3635425 1.83% 2008-2009 87078 5579682 1.56%
Ratio of net profit to total deposit

percentage 1.90% 1.80% 1.70% 1.60% 1.50% 1.40% 2006-2007 2007-2008 2008-2009 year 1.67% 1.56% Ratio (%) 1.83%
Interpretation The ratio of profit to deposits in the year 06-07 was 1.67% it was increased in 0708 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. Babasabpatilfreepptmba.com Page 38
3. Ratio of return on equity This ratio measures the return on the owners (both equity and preference shareholders) invested in the firm. = Year Profit (Rs) Net worth (Rs) Ratio (%) PAT Net worth 2006-2007 50950 181580 28.05% 2007-2008 66556 340238 19.56% (rupees in lakhs) 2008-2009 87078 444855 19.57%
Return on equity
percentage 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2006-2007 2007-2008 2008-2009 year 28.05% 19.56% 19.57% Ratio (%)
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. Babasabpatilfreepptmba.com Page 39
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 = Year Profit (Rs) Total Assets (Rs) Ratio (%) Net income Total Assets 2006-2007 50950 4230699 1.20% 2007-2008 66556 5142900 1.29% (rupees in lakhs) 2008-2009 87078 7350639 1.18%
Ratio of return on assets

Percentage 1.30% 1.25% 1.20% 1.15% 1.10% 2006-2007 2007-2008 2008-2009 Year 1.20% 1.18% Ratio (%) 1.29%
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) Babasabpatilfreepptmba.com Page 40
A Study on Financial Performance based on Ratios At HDFC Bank Capital employed lakhs) Year 2006-2007 2007-2008 97894 819239 11.94% 2008-2009 125351 730703 17.15% PBT (Rs) 71896 Capital employed 412362 (Rs) Ratio (%) 17.43% (rupees in
Ratio of return on capital employed

Percentage 20.00% 15.00% 10.00% 5.00% 0.00% 2006-2007 2007-2008 2008-2009 Year 17.43% 11.94% Ratio (%) 17.15%
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 banks 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 Babasabpatilfreepptmba.com Page 41
A Study on Financial Performance based on Ratios At HDFC Bank = Net interest income Total earning assets Year Net 2006-2007 interest 133788 4230699 3.16% 2007-2008 177793 5142900 3.45% 2008-2009 254584 7350639 3.46% X 100
income (Rs) Total asset (Rs) Ratio (%)
Net interest margin

Percentage 3.50% 3.40% 3.30% 3.20% 3.10% 3.00% 2006-2007 2007-2008 2008-2009 Year 3.16% Ratio (%) 3.45% 3.46%
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
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A Study on Financial Performance based on Ratios At HDFC Bank Interest income = Average working fund (Rupees in lakhs) Year 2006-2007 Interest income(Rs) 254893 Average working 3636553.5 fund (Rs) Ratio (%) 7.0% 2007-2008 309349 4686799.5 6.6% 2008-2009 447534 6246769.5 7.16% X 100
Ratio of interest income to AWF

Percentage 7.40% 7.20% 7.00% 6.80% 6.60% 6.40% 6.20% 2006-2007 2007-2008 2008-2009 Year 7.00% 6.60% Ratio (%) 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 Babasabpatilfreepptmba.com Page 43
A Study on Financial Performance based on Ratios At HDFC Bank 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 Average working fund (Rupees in lakhs) Year Non 2006-2007 interest 48003 3636553.5 1.32% 2007-2008 65134 4686799.5 1.38% 2008-2009 112398 6246769.5 1.79% X 100
income(Rs) AWF (Rs) Ratio (%)
Ratio of non interest income to AWF 2.00% percentage 1.50% 1.00% 0.50% 0.00% 2006-2007 2007-2008 2008-2009 year 1.32% 1.38% Ratio (%) 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
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A Study on Financial Performance based on Ratios At HDFC Bank interest income increase the profitability of the firm. There is significant growth in non operating income in year 2009.
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 banks 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 Cash dividend (Rs) Net income(Rs) Ratio (%) 2006-2007 __ 50950 __ 2007-2008 26 66556 2008-2009 __ 87078 __
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 Babasabpatilfreepptmba.com Page 45
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 = Year 2006-2007 PAT (Rs) 50950 No. of shares 283806538 outstanding (Rs) Ratio (Rs) 17.95 PAT (profit after tax) Number of shares outstanding 2007-2008 66556 290383946 22.91 2008-2009 87078 311939366 27.91
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Earning per share 30 25 Perce ntage 20 15 10 5 0 2006-2007 2007-2008 Year 2008-2009 17.95 Ratio (Rs) 22.91 27.91
Interpretation 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 Interest earned 254893 (Rs) Interest paid (Rs) Ratio (times) 121105 2.10 2007-2008 309349 131556 2.35 2008-2009 447534 192950 2.31
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Ratio of interest earned to interest paid

2.4 2.35 Percentage 2.3
2.35 2.31
2.25 2.2 2.1 Ratio (times)
2.15 2.1 2.05 2 1.95
2006-2007
2007-2008 Year
2008-2009
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.
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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 Interest paid (Rs) Total income (Rs) Ratio (%) 2006-2007 121105 302896 39.98% 2007-2008 131556 374483 35.13% 2008-2009 192950 559932 34.45%
Ratio of interest paid on total income

percentage 42.00% 40.00% 38.00% 36.00% 34.00% 32.00% 30.00% 2006-2007 2007-2008 2008-2009 Year 35.13% 34.45% Ratio (%) 39.98%
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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, firms 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.
Staff expense X 100 Total expense (Rupees in
lakhs) Year Staff (Rs) Total (Rs) Ratio (%) 2006-2007 expenses 20409 expenses 251946 8.10% 2007-2008 27667 307927 8.98% 2008-2009 48682 472854 10.29%
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Ratio of staff expenses to total expenses

12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% percentage 8.98% 10.29%
8.10%
Ratio (%)
2006-2007 2007-2008 2008-2009 Year
Interpretation 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 Total expenditure 251946 (Rs) Total income (Rs) Ratio (%) 302896 83.17%
2007-2008 307927 374483 82.22%
2008-2009 472854 559932 84.44%
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Ratio of total expenditure to total income

85.00% 84.50% 84.00% 83.50% 83.00% 82.50% 82.00% 81.50% 81.00% 84.44% 83.17% 82.22%
Ratio (%)
g a t n c r e P
2003-2004 2004-2005 2005-2006 Year
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 Average working fund Babasabpatilfreepptmba.com Page 52 X 100
Year Operating
2006-2007 81000
2007-2008 108540 4686799.5 2.31%
2008-2009 169109 6246769.5 2.70%
expenses(Rs) Average working 3636553.5 fund (Rs) Ratio (%) 2.22%
Ratio operating expense to AWF

Percentage 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2006-2007 2007-2008 2008-2009 Year Ratio (%) 2.22% 2.31% 2.70%
Interpretation Babasabpatilfreepptmba.com Page 53
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.
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 Average working fund Year Interest exp(Rs) 2006-2007 121105 2007-2008 131556 2008-2009 192950 Page 54 X 100
A Study on Financial Performance based on Ratios At HDFC Bank Average working 3636553.5 fund (Rs) Ratio (%) 3.33% 4686799.5 2.80% 6246769.5 3.08%
Ratio of interest expenses to AWF

percentage 3.40% 3.20% 3.00% 2.80% 2.60% 2.40% 2006-2007 2007-2008 2008-2009 year 2.80% 3.33% 3.08% Ratio (%)
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
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A Study on Financial Performance based on Ratios At HDFC Bank 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. = Total Cash X 100 Total deposits (Rupees in lakhs) Year 2006-2007 2007-2008 265013 3635425 7.28% 2008-2009 330661 5579682 5.92% Total cash (Rs) 254198 Total deposits (Rs) 3040886 Ratio (%) 8.35%
Ratio of total cash to total deposits

percentage 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2006-2007 2007-2008 2008-2009 Year 8.35%
7.28% 5.92% Ratio (%)
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 Babasabpatilfreepptmba.com Page 56
A Study on Financial Performance based on Ratios At HDFC Bank 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.
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 (Rs) Total deposits (Rs) Ratio (%)
2006-2007
2007-2008 1934981 3635425 53.22%
2008-2009 2839396 5579682 50.88%
Total investment 1936346 3040886 63.32%
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Ratio of total investment to total deposits percentage 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 63.32% 53.22% 50.88% Ratio (%)
2006-20072007-20082008-2009 Year 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 2556630
2008-2009 3506126 Page 58
Loan and advance 1774451 Babasabpatilfreepptmba.com
A Study on Financial Performance based on Ratios At HDFC Bank (Rs) Total deposits (Rs) 3040886 Ratio (times) 0.58
3635425 0.70
5579682 0.62
credit deposit ratio

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2006-2007 2007-2008 Year 2008-2009 Percentage 0.58
0.7 0.62
Ratio (times)
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.
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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 Total asset X 100
Year Total loan (Rs) Total Assets (Rs) Ratio (%)
2006-2007 1455054 4230699 34.39%
2007-2008 2091063 5142900 40.65%
2008-2009 3368449 7350639 45.82%
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Ratio of total loans to total assets

percentage 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2006-2007 2007-2008 year 2008-2009 34.39% Ratio (%) 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.
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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 Average assets Year loss (Rs) Average Assets(Rs) Ratio (%) 2006-2007 2007-2008 17622 4686799.5 0.37% 2008-2009 47976 6246769.5 0.76% X 100
Provision for loan 17828 3636553.5 0.49%
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Ratio of provision for loan loss to Average asset

0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 2006-2007 2007-2008 Year 2008-2009 0.49% 0.37% Ratio (%) Percentage 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 Babasabpatilfreepptmba.com Page 63
A Study on Financial Performance based on Ratios At HDFC Bank The ratio of NPAs to advances reflects the quality of a banks 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. = Year Net NPA (Rs) Net Advances(Rs) Ratio (%) Net NPA Net advances 2006-2007 2795 1774451 0.15% 2007-2008 6063 2556630 0.23% 2008-2009 15518 3506126 0.44% X100
Ratio of net NPA to net Advance 0.50% 0.45% Percentage 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 2006-2007 2007-2008 Year 2008-2009 0.15% 0.23% Ratio (%)
0.44%
Interpretation Ratio of Net NPA to Net Advances in 06-07 was 0.15% and in second and third year
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A Study on Financial Performance based on Ratios At HDFC Bank 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
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A Study on Financial Performance based on Ratios At HDFC Bank 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 Total Risk Weighted Asset Year 2006-2007 Capital (Rs) 222970 Total Risk 2777382 weighted (Rs) Ratio (%) Tier 2 Capital = includes general loss reserve, investment fluctuation reserve and subordinated debt. Tier 2 Capital Total Risk Weighted Asset Year 2006-2007 Capital (Rs) 100812 Total Risk 2777382 weighted asset Page 66 2007-2008 105473 4127103 2008-2009 172071 6021762 X100 asset 8.03% 9.60% 8.55% 2007-2008 396216 4127103 2008-2009 514991 6021762 X 100
A Study on Financial Performance based on Ratios At HDFC Bank (Rs) Ratio (%)
3.62%
2.56%
2.86%
Year 2006-2007 2007-2008 2008-2009
Tier 1 Capital 8.03% 9.60% 8.55%
Tier 2 Capital 3.62% 2.56% 2.86%
Total
Capital
Adequacy Ratio 11.66% 12.16% 11.41%
Total Capital Adequacy Ratio 12.40% Percentage 12.20% 12.00% 11.80% 11.60% 11.40% 11.20% 11.00% 2006-2007 2007-2008 Year 2008-2009 11.66% 11.41% Total Capital Adequacy Ratio 12.16%
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.
Findings
Page 67
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 its 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 second year it increased to 2.35% and it decreased by 4% compared to second year.
1. Ratio of interest earned to interest paid in the first year it was 2.10% and
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%.
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A Study on Financial Performance based on Ratios At HDFC Bank 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 5.92% in 08-09
1. Ratio of total cash to total deposits is decreasing from 8.35% in 03-04 to 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 0708 it was 0.37% and in 08-09 it increased to 0.76% compared to last two years. Babasabpatilfreepptmba.com Page 69
IV.
Safety was 0.15% and it increased to 0.44%
1. Ratio of net NPA to net advances is increasing year by year in first year it 2. Capital Adequacy ratio in 06-07 was 11.66%, in 06-08 it was 12.11%, 0809 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) Page 70 investments to take care of returns as well as liquidity. Babasabpatilfreepptmba.com
A Study on Financial Performance based on Ratios At HDFC Bank 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.
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BIBOLOGRAPHY Books: Financial Management Financial Accounting : Khan and Jain : Narayanaswamy
Annual Report of HDFC bank Magazine : Reserve Bank of India Bulletin
Websites: www.google.com www.HDFCbank.com
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A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

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A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

Asiamoney also named the bank:

A Study on Financial Performance based on Ratios At HDFC Bank

VICE PRESIDENT(LEGAL)& COMPANY SECRETARY Mr. Sanjay Dongre Babasabpatilfreepptmba.com Page 32

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of Net profit to total income Page 36

A Study on Financial Performance based on Ratios At HDFC Bank

18.00% 17.00% 16.00% 15.00% 14.00%

2006- 2007- 20082007 2008 2009 year

Interpretation Babasabpatilfreepptmba.com Page 37

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of net profit to total deposit

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of return on assets

Ratio of return on capital employed

income (Rs) Total asset (Rs) Ratio (%)

Net interest margin

Ratio of interest income to AWF

income(Rs) AWF (Rs) Ratio (%)

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of interest earned to interest paid

2.25 2.2 2.1 Ratio (times)

2.15 2.1 2.05 2 1.95

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of interest paid on total income

A Study on Financial Performance based on Ratios At HDFC Bank

Staff expense X 100 Total expense (Rupees in

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of staff expenses to total expenses

2006-2007 2007-2008 2008-2009 Year

2007-2008 307927 374483 82.22%

2008-2009 472854 559932 84.44%

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of total expenditure to total income

2003-2004 2004-2005 2005-2006 Year

A Study on Financial Performance based on Ratios At HDFC Bank

2007-2008 108540 4686799.5 2.31%

2008-2009 169109 6246769.5 2.70%

expenses(Rs) Average working 3636553.5 fund (Rs) Ratio (%) 2.22%

Ratio operating expense to AWF

Interpretation Babasabpatilfreepptmba.com Page 53

A Study on Financial Performance based on Ratios At HDFC Bank

Ratio of interest expenses to AWF

Ratio of total cash to total deposits

7.28% 5.92% Ratio (%)