Analysis of Financial Statements

COMPARATIVE STUDY OF SBI & HDFC REGARDING
PROFITABILITY RATIO
Dissertation Submitted to the
Burhani College of Commerce and Arts Institute of Management

Studies
(Affiliated to University of Mumbai)
BACHELOR OF MANAGEMENT STUDIES
Submitted by:
Husain Kader
(Roll No-14 , Div-A)
DEC 2016
1
DECLARATION
I, Husain Qutbuddin Kader, student of T.Y.B.M.S. Semester V (2016- 2017) hereby
declare that the dissertation titled “Comparative Study of SBI & HDFC regarding
Profitability Ratio.” submitted for the BMS Degree of University of Mumbai at BCCA’s
Institute of Management Studies, is my original work and the dissertation has not been
plagiarized or formed the basis for the award of any other diploma or degree, associate ship,
fellowship or any other similar titles.The information submitted is true and original to the
best of my knowledge.
(Signature of Student)
Husain Qutbuddin Kader
Roll number:- 14
BURHANI COLLEGE OF COMMERCE AND ARTS

MUMBAI
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ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.
I would like to thank my Principal, Dr. Haider-E-Karrar for providing the necessary
facilities required for completion of this project.
I would also like to express my sincere gratitude towards my Project Guide Prof. Naheed
Ansari whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my Parents and Peers who supported me
throughout my project.
2
TABLE OF CONTENTS
Chp. No TITLE Page No

A LIST OF TABLES 6
B LIST OF FIGURES 7
C LIST OF ABBREVIATIONS 8
1 EXECUTIVE SUMMARY 9
2 RESEARCH METHODOLOGY 10-11
2.1 Research Problem
2.2 Objectives
2.3 Method of Collecting Data
2.4 Limitation
2.5 Review of Literature
3 ANALYSIS OF FINANCIAL STATEMENTS 12-14
3.1 Introduction
3.2 Objectives of Financial Statement Analysis
3.3 Limitations of Financial Statement Analysis
3.4 Methods of Analyzing Financial Statements
4 RATIO ANALYSIS 15-20
4.1 Introduction
4.2 Accounting Ratios
4.3 Uses of Ratio Analysis
4.4 Classification of Ratios
4.5 Advantages of Ratio Analysis
4.6 Limitations of Ratio Analysis
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5 PROFITABILITY RATIOS 21-27
5.1 Return on Investment
5.2 Return on Shareholders’ Funds
5.3 Return on Assets
5.4 Gross Profit Ratio or Gross Margin
5.5 Net Profit Ratio
5.6 Operating Ratio
6 BANKING INDUSTRY 28-30
6.1 Introduction
6.2 Banking in India
7 STATE BANK OF INDIA 31-41
7.1 Overview of SBI
7.2 Introduction of SBI
7.3 Board of Directors
7.4 Listing and Shareholding
7.5 Recent awards and recognitions
7.6 Balance Sheet of SBI
7.7 Profit & Loss Account of SBI
7.8 Key Performance Ratios
7.9 SWOT Analysis
7.10 Profit Before Tax & Profit After Tax
7.11 Net Worth
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8 Housing Development Finance Corporation Limited 42-49
8.1 Overview of HDFC
8.2 Introduction of HDFC
8.5 Recent Awards and Recognitions
8.6 Balance Sheet of HDFC
8.7 Profit & Loss Account of HDFC
8.9 SWOT Analysis
8.11 Net Worth
9 SBI v/s HDFC 50-51
9.1 Profitability Ratios of SBI
9.2 Profitability Ratios of HDFC
9.3 SBI v/s HDFC Ratio Comparison
10 PUBLIC SECTOR V/S PRIVATE SECTOR 52-53
11 CONCLUSION 54
11.1 General
11.2 Based on Profitability
12 ANNEXURE 55-58
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LIST OF TABLES
Table No. TITLE Page No.
7.1 Board of Directors of SBI 36
7.2 Listing and Shareholding of SBI 37
7.3 Balance sheet of SBI 38
7.4 Profit & Loss Account of SBI 39
7.5 Key Performance Ratio of SBI 40
7.6 SWOT Analysis of SBI 40
8.1 Listing and Shareholding of HDFC 44
8.2 Recent awards and recognitions of HDFC 45
8.3 Balance Sheet of HDFC 46
8.4 Profit & Loss Account of HDFC 47
8.5 Key Performance Ratio of HDFC 48
8.6 SWOT Analysis of HDFC 48
9.1 Profitability Ratios of SBI 50
9.2 Profitability Ratios of HDFC 50
9.3 SBI v/s HDFC Ratio Comparison 51
10.1 Banks Growth 52
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LIST OF FIGURES
Fig No. TITLE Page No.
5.1 Profitability Ratio 27
6.1 Need for Banks 29
7.1 Profit Before Tax & Profit After Tax of SBI 41
7.2 Net Worth of SBI 41
8.1 Profit Before Tax & Profit After Tax of HDFC 49
8.2 Net Worth of HDFC 49
9.1 SBI v/s HDFC 51
10.1 Banks Network 52
10.2 Capital Adequacy 53
10.3 Management Efficiency 53
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LIST OF ABBREVIATIONS
SBI State Bank of India
HDFC Housing Development Finance Corporation Limited
RBI Reserve Bank of India
INR Indian National Rupee
NSE National Stock Exchange
BSE Bombay Stock Exchange
NYSE New York Stock Exchange
ADR American Depository Receipts
GDR Global Depository Receipts
FII Foreign Institutional Investors
NP Net Profit
NPAT Net Profit After Tax
NPBT Net Profit Before Tax
C.E Capital Employed
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Chapter 1
EXECUTIVE SUMMARY
This project is specially designed to understand the subject matter of Financial Statement
Analysis through profitability ratios in the banks. This project gives us information and report
about bank's Financial Position. Throughout the project the focus has been on presenting
information and comments in easy and intelligible manner.
This project concentrates on two major banks in their respective sectors , SBI and HDFC.
The purpose is to determine profitability of the respective banks and conclude who is superior
in terms of profits and performance. Based on the data of two banks a comparative analysis
of public and private sector banks have also been made.
Ratio analysis is used to evaluate relationships among financial statement items. Ratio
Analysis is an important tool for any business organization. The computation of ratios
facilitates the comparison of firms which differ in size. Ratios can be used to compare a
firm's financial performance with industry averages. In addition, ratios can be used in a form
of trend analysis to identify areas where performance has improved or deteriorated over time.
Profitability ratios give some yardstick to measure the profit in relative terms with reference
to sales, assets or capital employed. These ratios highlight the end result of business
activities. The main objective is to judge the efficiency of the business.
This project is very useful for those who want to know about the banks and financial position
of the banks.
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Chapter 2
RESEARCH METHODOLOGY
2.1 Research Problem

The research is conducted to gain knowledge of profitability enjoyed by two bank namely
SBI and HDFC and provide a comparison between the two regarding their profitability.
Research indicates where the problem is being faced by the respective banks with regards to
profitability and what are the aspects leading to such problems.
The research problem is to find out where each of the bank is lacking in terms of improving
its financial statements and profitability ratios.
2.2 Objectives
Following are the objectives of the study
1) To understand the uses of ratios.

2) To determine various advantages of including ratios in decision making.
3) To understand how comparison of ratios can help in studying financial positions of
different entities.
4) To provide an overview of banking industry and two of its leading banks in India.
5) To determine which bank succeeds in terms of overall profitability.
6) To compare public and private sector banks.
2.3 Method of Collecting Data
 Primary Data
The primary data was collected mainly with interactions and discussions with personals
possessing sound financial knowledge and persons working in the field of analyzing financial
statements.
Some of the data regarding banks financial information and its overview is obtained through
interacting with SBI and HDFC staff members.
 Secondary Data
Most of the calculations are based on the financial statements of the banks and banks
provided financial statements for 5 years.
Other information including theoretical aspects were collected by referring ICSI modules,
bulletins, journals, news articles and through internet.
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2.4 Limitation
1. Certain data provided regarding banks is limited to selected branches in Mumbai.
Data may differ elsewhere.
2. Certain assumptions are based on personal interviews therefore such assumptions may
differ from person to person.
3. Calculation of ratios are done with limited financial data due to no access to all the
financial data required. Therefore ratios are near to accurate but may not be used to
provide base for decision making.
4. Difficulty in collection of primary data. Many biased replies were received and many
were too busy to respond
5. Most of the data is limited to the year 2016. Data may differ in comparison with other
years.
2.5 Review of Literature

Findings by others relating to Comparative study of SBI and HDFC regarding Profitability
ratio.
1. Arvind Mahandhwal:- Comparative Analysis of SBI & HDFC Bank
Focus:-Customer Satisfaction
While there is no doubt that HDFC has high maintenance charges and high interest rates but
against these flaws it satisfies its customers with excellent service guarantee which may not
be available at SBI.SBI may be more customer friendly in case of rates and charges but its
services are not good enough to compete with those provided by HDFC .
2. Siddartha Swamy :-Ratio Analysis Project Report
Focus:-Importance of Ratio
Major policy and decisions are based on financial statements and to gain a clear
understanding of financial statement use of ratio is essential. Ratios not only provide base for
major policy decisions but also indicates the current financial position of the entity and helps
to compare the performance of entity with either itself in previous years or with other entities.
3. Saurabh Sharma:-Financial Ratios
Focus:- Understanding and Applicability of Ratios
Financial ratios are a useful by-product of financial statement and provide standardized
measures of firms financial position, profitability and riskiness. It is an important and
powerful tool in the hands of financial analyst. By calculating one or other ratio or group of
ratios he can analyze the performance of a firm from different point of view.
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Chapter3
ANALYSIS OF FINANCIAL STATEMENTS
3.1 Introduction
Published financial statements are the only source of information about the activities and
affairs of a business entity available to the public, shareholders, investors and creditors, and
the governments. These various groups are interested in the progress, position and prospects
of such entity in various ways. But these statements howsoever, correctly and objectively
prepared, by themselves do not reveal the significance, meaning and relationship of the
information contained therein. For this purpose, financial statements have to be carefully
studied, dispassionately analyzed and intelligently interpreted. This enables a forecasting of
the prospects for future earnings, ability to pay interest, debt maturities both current as well
as long-term, and probability of sound financial and dividend policies. According to Myers,
“financial statement analysis is largely a study of relationship among the various financial
factors in business as disclosed by a single set of statements and a study of the trend of these
factors as shown in a series of statements”.
Thus, analysis of financial statements refers to the treatment of information contained in the
financial statement in a way so as to afford a full diagnosis of the profitability and financial
position of the firm concerned.
The process of analyzing financial statements involves the rearranging, comparing and
measuring the significance of financial and operating data. Such a step helps to reveal the
relative significance and effect of items of the data in relation to the time period and/or
between two organizations.
Interpretation, which follows analysis of financial statements, is an attempt to reach to logical

conclusion regarding the position and progress of the business on the basis of analysis. Thus,
analysis and interpretation of financial statements are regarded as complimentary to each
other.
3.2 Objectives of Financial Statement Analysis

Financial statement analysis is very much helpful in assessing the financial position and
profitability of a concern. The main objectives of analyzing the financial statements are as
follows:
(i) The analysis would enable the present and the future earning capacity and the profitability
of the concern.
(ii) The operational efficiency of the concern as a whole as well as department wise can be
assessed. Hence the management can easily locate the areas of efficiency and inefficiency.
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(iii) The solvency of the firm, both short-term and long-term, can be determined with the help
of financial statement analysis which is beneficial to trade creditors and debenture holders.
(iv) The comparative study in regard to one firm with another firm or one department with
another department is possible by the analysis of financial statements.
(v) Analysis of past results in respects of earning and financial position of the enterprise is of
great help in forecasting the future results. Hence it helps in preparing budgets.
(vi) It facilitates the assessments of financial stability of the concern.
(vii) The long-term liquidity position of funds can be assessed by the analysis of financial
statements.
3.3 Limitations of Financial Statement Analysis

(i) Owing to the fact that financial statements are compiled on the basis of historical costs,
while there is a market decline in the value of the monetary unit and resultant rise in prices,
the figures in the financial statement loses its functions as an index on current economic
realities. Again the financial statements contain both items. So an analysis of financial
statements can not be taken as an indicator for future forecasting and planning.
(ii) Analysis of financial statements is a tool which can be used profitably by an expert
analyst but may lead to faulty conclusions if used by unskilled analyst. So the result can not
be taken as judgements or conclusions.
(iii) Financial statements are interim reports and therefore can not be final because the final
gain or loss can be computed only at the termination of the business. Financial statement
reflects the progress of the position of the business so analysis of these statements will not be
a conclusive evidence of the performance of the business.
(iv) Financial statements though expressed in exact monetary terms are not absolutely final
and accurate and it depends upon the judgement of the management in respect of various
accounting methods. If there is change in accounting methods, the analysis may have no
comparable basis and the result will be biased.
(v) The reliability of analysis depends on the accuracy of the figures used in the financial
statements. The analysis will be vitiated by manipulations in the income statement or balance
sheet and accounting procedure adopted by the accountant for recording.
(vi) The results for indications derived from analysis of financial statements may be
differently interpreted by different users.
(vii) The analysis of financial statement relating to a single year only will have limited use.
Hence the analysis may be extended over a number of years so that results may be compared
to arrive at a meaningful conclusion.
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(viii) When different firms are adopting different accounting procedures, records, policies
and different items under similar headings in the financial statements, the comparison will be
more difficult. It will not provide reliable basis to access the performance, efficiency,
profitability and financial condition of the firm as compared to industry as a whole.
(ix) There are different tool of analysis available for the analyst. However, which tool is to be
used in a particular situation depends on the skill, training, and expertise of the analyst and
the result will vary accordingly.
3.4 Methods of Analyzing Financial Statements

The analysis of financial statements consists of a study of relationship and trends, to
determine whether or not the financial position and results of operations as well as the
financial progress of the company are satisfactory or unsatisfactory. The analytical methods
or devices, listed below, are used to ascertain or measure the relationships among the
financial statements items of a single set of statements and the changes that have taken place
in these items as reflected in successive financial statements. The fundamental objective of
any analytical method is to simplify or reduce the data under review to more understandable
terms.
Analytical methods and devices used in analyzing financial statements are as follows:
1. Comparative Statements
2. Common Size Statements
3. Trend Ratios
4. Ratio Analysis
5. Cash Flow Statements
6. Fund Flow Statement.
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Chapter 4
RATIO ANALYSIS
4.1 Introduction
Ratio analysis is used to evaluate relationships among financial statement items. The ratios
are used to identify trends over time for one organization or to compare two or more
organizations at one point in time. Ratio analysis focuses on three key aspects of a business:
liquidity, profitability, and solvency.
Ratio Analysis is an important tool for any business organization. The computation of ratios
facilitates the comparison of firms which differ in size. Ratios can be used to compare a
firm's financial performance with industry averages. In addition, ratios can be used in a form
of trend analysis to identify areas where performance has improved or deteriorated over time.
Ratios are the symptoms like the blood pressure, the pulse or the temperature of an
individual. Just as in the case of an individual, a doctor or a valid by reading the pulse of a
patient or by studying the blood pressure or the temperature of a patient can diagnose the
cause of his ailment, so also a financial analyst through ration analysis of the employment of
resources and its overall financial position. Just as in medical science the symptoms are
passive factors, to diagnose them properly depends upon the efficiency and the expertise of
the doctor, so also to derive right conclusions from ratio analysis will depend upon the
efficiency and depth of understanding of the financial analyst.
4.2 Accounting Ratios

An absolute figure often does not convey much meaning. Generally, it is only in the light of
other information that significance of a figure is realized. A weighs 70 kg Is he fat? One
cannot answer this question unless one knows A’s age and height. Similarly, a company’s
profitability cannot be known unless together with the amount of profit and the amount of
capital employed. The relationship between the two figures expressed arithmetically is called
a ratio.
The ratio between 4 and 10 is 0.4 or 40% or 2:5. “0.4", “40%" and “2:5" are ratios.
Accounting ratios are relationships, expressed in arithmetical terms, between figures which
have a cause and effect relationship or which are connected with each other in some other
manner.
Accounting ratios are a very useful tool for grasping the true message of the financial
statements and understanding them. Ratios naturally should be worked out between figures
that are significantly related to one another. Obviously no purpose will be served by working
out ratios between two entirely unrelated figures, such as discount on debentures and sales.
Ratios may be worked out on the basis of figures contained in the financial statements.
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Ratios provide clues and symptoms of underlying conditions. They act as indicators of
financial soundness, strength, position and status of an enterprise.
Interpretation of ratios form the core part of ratio analysis. The computation of ratio is simply
a clerical work but the interpretation is a taste requiring art and skill. The usefulness of ratios
dependent on the judicious interpretations.
4.3 Uses of Ratio Analysis

A comparative study of the relationship, between various items of financial statements,
expressed as ratios, reveals the profitability, liquidity, solvency as well as the overall
financial position of the enterprises.
Ratio analysis helps to analyze and understand the financial health and trend of a business, its
past performance makes it possible to have forecast about future state of affairs of the
business. Inter-firm comparison and intra-firm comparison becomes easier through the
analysis. Past performance and future projections could be reviewed through the ratio
analysis easily. Management uses the ratio analysis in exercising control in various areas viz.
budgetary control, inventory control, financial control etc. and fixing the accountability and
responsibility of different departmental heads for accelerated and planned performance. It is
useful for all the constituents of the company as discussed under:
1. Management: Management is interested in ratios because they help in the formulation of

policies, decision-making and evaluating the performances and trends of the business and its
various segments.
2. Shareholders: With the application of ratio analysis to financial statements, shareholders

can understand not only the working and operational efficiency of their company, but also the
likely effect of such efficiency on the net worth and consequently the price of their shares in
the Stock Exchange. With the help of such analysis, they can form opinion regarding the
effectiveness or otherwise of the management functions.
3. Investors: Investors are interested in the operational efficiency, earning capacities and
‘financial health’ of the business. Ratios regarding profitability, debt-equity, fixed assets to
net worth, assets turnover, etc., are some measures useful for the investors in making
decisions regarding the type of security and industry in which they should invest.
4. Creditors: Creditors can reasonably assure themselves about the solvency and liquidity
position of the business by using ratio-analysis. Such analysis helps to throw light on the
repayment policy and capability of an enterprise.
5. Government: The Government is interested in the ‘financial health’ of the business.

Carefully worked ratios will reflect the policy of the management and its consistency or
otherwise with the overall regional and national economic policies. Such ratios help in better
understanding of cost structures and may justify price controls by the Government to save the
consumers.
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6. Analysts: Ratio analysis is the most important technique available to the financial analysis
to study the financial statements to compare the progress and position of various firms with
each other and vis-a-vis the industry.
4.4 Classification of Ratios

Different ratios calculated from different financial figures carry different significance for
different purposes. For example, for the creditors liquidity and solvency ratios are more
significant than the profitability ratios, which are of prime importance for an investor. This
means that ratios can be grouped on different basis depending upon their significance. The
classification is rather crude and unsuitable to determine the profitability or financial position
of the business. In general, accounting ratios may be classified on the following basis leading
to overlap in many cases.
1. According to the statement upon which they are based
Ratios can be classified into three groups according to the statements from which they are
calculated:
i. Balance Sheet Ratios: They deal with relationship between two items appearing in
the balance sheet, e.g., current assets to current liability or current ratio. These ratios
are also known as financial position ratios since they reflect the financial position of
the business.
ii. Operating Ratios or Profit and Loss Ratios: These ratios express the relationship
between two individual or group of items appearing in the income or profit and loss
statement. Since they reflect the operating conditions of a business, they are also
known as operating ratios, e.g., gross profit to sales, cost of goods sold to sales, etc.
iii. Combined Ratios: These ratios express the relationship between two items, each
appearing in different statements, i.e., one appearing in balance sheet while the other
in income statement, e.g., return on investment (net profit to capital employed);
Assets turnover (sales) ratio, etc. Since both the statements are involved in the
calculation of each of these ratios, they are also known as inter-statement ratios.
Since the balance sheet figures refer to one point of time, while the income statement figures
refer to events over a period of time, care must be taken while calculating combined or inter-
statement ratios. For example while computing assets turnover ratio, average assets should be
taken on the basis of opening and ending balance sheets.
2. Classification according to "IMPORTANCE"

This classification has been recommended by the British Institute of Management for inter-
firm comparisons. It is based on the fact that some ratios are more relevant and important
than others in the process of comparisons and decision-making. Therefore, ratios may be
treated as primary or secondary.
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i. Primary Ratio: Since profit is primary consideration in all business activities, the
ratio of profit to capital employed is termed as ‘Primary Ratio’. In business world this
ratio is known as “Return on Investment”. It is the ratio which reflects the validity or
otherwise of the existence and continuation of the business unit. In case if this ratio is
not satisfactory over long period, the business unit cannot justify its existence and
hence, should be closed down. Because of its importance for the very existence of the
business unit it is called ‘Primary Ratio’.
ii. Secondary Ratios: These are ratios which help to analyse the factors affecting
“Primary Ratio”. These may be sub-classified as under:
a) Supporting Ratios: These are ratios which reflect the profit-earning
capacities of the business and thus support the “Primary Ratio”. For example
sales to operating profit ratio reflects the capacity of contribution of sales to
the profits of the business. Similarly, sales to assets employed reflects the
effectiveness in the use of assets for making sales, and consequently profits.
b) Explanatory Ratios: These are ratios which analyze and explain the factors
responsible for the size of profit earned. Gross profit to sales, cost of goods
sold to sales, stock-turnover, debtors turnover are some of the ratios which can
explain the size of the profits earned. Where these ratios are calculated to
highlight the effect of specific activity, they are termed as ‘Specific
Explanatory Ratios’. For example, the effect of credit and collection policy is
reflected by debtors turnover ratio.
3. Functional Classification
The classification of ratios according to the purpose of its computation is known as
functional classification. On this basis ratios are categorized as follows:
i. Profitability Ratios: Profitability ratios give some yardstick to measure the profit in
relative terms with reference to sales, assets or capital employed. These ratios
highlight the end result of business activities. The main objective is to judge the
efficiency of the business.
ii. Turnover Ratios or Activity Ratios: These ratios are used to measure the
effectiveness of the use of capital/assets in the business. These ratios are usually
calculated on the basis of sales or costs of goods sold and are expressed in integers
rather than as percentages.
iii. Financial Ratios or Solvency Ratios: These ratios are calculated to judge the
financial position of the organization from short-term as well as long-term solvency
point of view. Thus, it can be subdivided into: (a) Short-term Solvency Ratios
(Liquidity Ratios) and (b) Long-term Solvency Ratios (Capital Structure Ratios).
iv. Market Test Ratios: These are of course, some profitability ratios, having a bearing
on the market value of the shares.
The classification of the structure of ratio analysis cuts across the various bases on which it
has been made. The determination of activity and profitability ratios is drawn partly from the
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balance sheet and partly from the Statement of Profit & Loss. Ratios satisfying the test of
liquidity or solvency partake the items of both the balance sheet and income statement, some
activity ratios coincide with those satisfying the test of liquidity, some leverage ratios belong
to the category of income statement. This clearly indicates that one basis of classification
crosses into other category.
4.5 Advantages of Ratio Analysis

Ratio analysis is a powerful tool of financial analysis. An absolute figure generally conveys
no meaning. It is seen that mostly figure assumes importance only in background of other
information. Ratios bring together figures which are significantly allied to one another to
portray the cause and effect relationship.
From a study of the various ratios and their practical applications, the following advantages
can be attributed to the technique of ratio analysis:
1. It helps to analyze and understand financial health and trend of a business, its past
performance, and makes it possible to forecast the future state of affairs of the business. They
diagnose the financial health by evaluating liquidity, solvency, profitability etc. This helps
the management to assess the financial requirements and the capabilities of various business
units. It serves as a media to link the past with the present and the future.
2. It serves as a useful tool in management control process, by making a comparison between

the performance of the business and the performance of similar types of business.
3. Ratio analysis plays a significant role in cost accounting, financial accounting, budgetary
control and auditing.
4. It helps in the identification, tracing and fixing of the responsibilities of managerial
personnel at different levels.
5. It accelerates the institutionalization and specialization of financial management.
6. Accounting ratios summarize and systematize the accounting figures in order to make them
more understandable in a lucid form. They highlight the inter-relationship which exists
between various segments of the business expressed by accounting statements.
4.6 Limitations of Ratio Analysis

Ratio analysis is a widely used technique to evaluate the financial position and performance
of a business. But these are subject to certain limitations:
(i) Usefulness of ratios depend on the abilities and intentions of the persons who handle them.
It will be affected considerably by the bias of such persons.
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(ii) Ratios are worked out on the basis of money-values only. They do not take into account
the real values of various items involved. Thus, the technique is not realistic in its approach.
(iii) Historical values (specially in balance sheet ratios) are considered in working out the
various ratios. Effects of changes in the price levels of various items are ignored and to that
extent the comparisons and evaluations of performance through ratios become unrealistic and
unreliable.
(iv) One particular ratio, in isolation is not sufficient to review the whole business. A group
of ratios are to be considered simultaneously to arrive at any meaningful and worthwhile
opinion about the affairs of the business.
(v) Since management and financial policies and practices differ from concern to concern,
similar ratios may not reflect similar state of affairs of different concerns. Thus, comparisons
of performance on the basis of ratios may be confusing.
(vi) Ratio analysis is only a technique for making judgements and not a substitute for
judgement.
(vii) Since ratios are calculated on the basis of financial statements which are themselves
affected greatly by the firm’s accounting policies and changes therein, the ratios may not be
able to bring out the real situations.
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Chapter 5
PROFITABILITY RATIOS
A measure of ‘profitability’ is the overall measure of efficiency. In general terms efficiency
of business is measured by the input-output analysis. By measuring the output as a proportion
of the input, and comparing result of similar other firms or periods the relative change in its
profitability can be established.
The income (output) as compared to the capital employed (input) indicates profitability of a
firm. Thus the chief profitability ratio is:
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭 (𝐍𝐞𝐭 𝐌𝐚𝐫𝐠𝐢𝐧)

× 𝟏𝟎𝟎
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝
Once this is known, the analyst compares the same with the profitability ratio of other firms
or periods. Then, when he finds some contrast, he would like to have details of the reasons.
These questions are sought to be answered by working out relevant ratios. The main
profitability ratio and all the other sub-ratios are collectively known as ‘profitability ratios’.
Profitability ratio can be determined on the basis of either investments or sales. Profitability
in relation to investments is measured by return on capital employed, return on shareholders’
funds and return on assets. The profitability in relation to sales are profit margin (gross and
net) and expenses ratio or operating ratio.
5.1 Return on Investment

This ratio is also known as overall profitability ratio or return on capital employed. The
income (output) as compared to the capital employed (input) indicates the return on
investment. It shows how much the company is earning on its investment. This ratio is
calculated as follows:
𝐍𝐞𝐭 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭

𝐑𝐞𝐭𝐮𝐫𝐧 𝐨𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 = × 𝟏𝟎𝟎
𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝
Operating profit means profit before interest and tax. In arriving at the profit, interest on
loans is treated as part of profit (but not the interest on bank overdraft or other short-term
finance) because loans themselves are part of the input, i.e., the capital employed and hence,
the interest on loans should also be part of the output. All non-business income or rather
income not related to normal operations of the company should be excluded. Thus net
21
operating profit figure shall be IBIT, i.e., Income Before Interest and Taxation (excluding
non-business income).
The income figure is reckoned before taxation because the amount of tax has no relevance to
the operational efficiency. Both interest and taxation are appropriations of profit and do not
reflect operational efficiency. Moreover, to compare the profitability of two different
organizations having different sources of finance and different tax burden, the profit before
interest and taxation is the best measure.
Capital employed comprises share capital and reserves and surplus, long-term loans
minus non-operating assets and fictitious assets. It can also be represented as net fixed
assets plus working capital (i.e. current assets minus current liabilities).
Capital employed = Share Capital + Reserve and Surplus + Long-term Loans − Non-
Operating Assets − Fictitious Assets
OR
Capital employed = Net fixed assets + working capital
In using overall profitability ratio as the chief measure of profitability, the following two
notes of caution should be kept in mind.
First, the figure of operating profit shows the profit earned throughout a period. The figure of
capital employed on the other hand refers to the values of assets as on a balance sheet date.
As the values of assets go on changing throughout a business period it may be advisable to
take the average assets throughout a period, so that the profits are compared against average
capital employed during a period.
Secondly, in making comparison between two different units on the basis of the overall
profitability ratio, the time of incorporation of the two units should be taken care off. If a
company incorporated in 2000 is compared with that incorporated in 2010, the first
company’s assets will be appearing at a much lower figure than those of second company.
Thus the former will show a lower capital base and if profits of both the companies are the
same, the former will show a higher rate of return. This does not indicate higher efficiency;
only the capital employed is lower because of the reason that it started 10 years earlier.
Hence, in such cases the present value of the fixed assets should be considered for calculating
the capital employed.
“Return on capital employed” should be used cautiously with clear understanding of its
limitations. The ‘profits’ and “capital employed” figures are the result of a number of
approximations (example, depreciation) and human judgement (valuation of assets).
Therefore, the purpose of calculation of the ratio should be kept in view and appropriate
figures should be selected having regard to impact of changing price levels.
22
Suppose a company has the following items on the liabilities side and it shows underwriting
commission of INR 1,00,000 on the assets side:
13% Preference capital 10,00,000

Equity capital 30,00,000
Reserves 26,00,000
Loans @ 15% 30,00,000
Current Liabilities 15,00,000
Its profit, after paying tax @ 50% is INR 14,00,000. Profit before interest and tax will be INR
32,50,000 which can be calculated as shown below:
Profit after tax 14,00,000

Tax 14,00,000
Interest @ 15% on INR 30,00,000 4,50,000
32,50,000
The operating capital employed is INR 95,00,000 i.e. total of all the items on liabilities side
(excluding current liabilities) less INR 1,00,000, a fictitious asset (underwriting commission).
The ROI comes to
= (32,50,000 / 95,00,000) × 100 or 34.21%
The overall profitability ratio has two components. These are the net profit ratio (operating
profit/sales x 100) multiplied by turnover ratio (sales/capital employed). Therefore, ROI, in
terms of percentage:
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭
× 𝟏𝟎𝟎
𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭 𝐒𝐚𝐥𝐞𝐬

× × 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐝
If a management wants to maximize its profitability, it could do so by improving its net profit
ratio and turnover ratio. The former refers to the margin made in each sale in terms of
percentage whereas, the latter shows the utilization, i.e., rotation of the capital in making the
sale. If the selling price of an article is INR 10 whose cost is INR 6, there is a margin of INR
4 or 40%. This shows the gap between selling price and cost price in the percentage form.
The overall profitability is also dependent upon the effectiveness of employment of capital. If
in this case, sales INR 200 were made with a capital of INR 100 then the rotation, i.e. the
turnover is 200/100 or 2 times. Thus the business has earned a total profit of INR 80 with a
capital of INR 100, profitability ratio being 80%, i.e.,
23
Net profit ratio x Turnover ratio = 40% x 2 = 80%.
5.2 Return on Shareholders’ Funds

It is also referred to as return on net worth. In this case it is desired to work out the
profitability of the company from the shareholders’ point of view and it is computed as
follows:
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐚𝐟𝐭𝐞𝐫 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐚𝐧𝐝 𝐓𝐚𝐱

× 𝟏𝟎𝟎
𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬’ 𝐅𝐮𝐧𝐝𝐬
Modifications of the ‘return on capital employed’ can be made to adopt it to various

circumstances. Thus if it is required to work out the profitability from the shareholders’ point
of view, then the profit figure should be after interest and taxation and the capital employed
should be after deducting the long-term loans. This ratio would reflect the profitability for the
shareholders. To extend the idea further, the profitability from equity shareholders’ point of
view can also be worked out by taking the profits after preference dividend and comparing
against capital employed after deducting both long-term loans and preference capital.
5.3 Return on Assets

Here the profitability is measured in terms of the relationship between net profits and assets.
It shows whether the assets are being properly utilized or not. It is calculated as:
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐚𝐟𝐭𝐞𝐫 𝐓𝐚𝐱

× 𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
This ratio is a measure of the profitability of the total funds or investment of the organization.
5.4 Gross Profit Ratio or Gross Margin

Gross profit ratio expresses the relationship of gross profit to net sales or turnover. Gross
profit is the excess of the proceeds of goods sold and services rendered during a period over
their cost, before taking into account administration, selling and distribution and financing
charges. Gross profit ratio is expressed as follows:
𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭
× 𝟏𝟎𝟎
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬
24
This ratio is important to determine general profitability since it is expected that the ratio
would be quite high so as to cover not only the remaining costs but also to allow proper
returns to owners.
Any fluctuation in the gross profit ratio is the result of a change either in ‘sales’ or the ‘cost
of goods sold’ or both. The rise or fall in the selling price may be an external factor over
which the management may have little control, especially when prices are controlled. The
management, however, must try to keep the other end of the margin (i.e., cost) at least steady,
if not reduce it. If the gross profit ratio is lower than what it was previously, when the selling
price has remained steady, it can be reasonably concluded that there is an increase in the
manufacturing cost. Since manufacturing overheads include a fixed element as well, a fall in
the volume of sales will also lower the rate of gross profit and vice-versa.
5.5 Net Profit Ratio

One of the components of return on capital employed is the net profit ratio (or the margin on
sales) calculated as:
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭 𝐑𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
𝐒𝐚𝐥𝐞𝐬
It indicates the net margin earned in a sale of INR 100. Net profit is arrived at from gross
profit after deducting administration, selling and distribution expenses; non-operating
incomes, such as dividends received and non-operating expenses are ignored, since they do
not affect efficiency of operations.
5.6 Operating Ratio

The ratio of all operating expenses (i.e., materials used, labour, factory overheads, office and
selling expenses) to sales is the operating ratio.
A comparison of the operating ratio would indicate whether the cost content is high or low in
the figure of sales. If the annual comparison shows that the sales has increased, the
management would be naturally interested and concerned to know as to which element of the
cost has gone up.
It is not necessary that the management should be concerned only when the operating ratio
goes up. If the operating ratio has fallen, though the unit selling price has remained the same,
still the position needs analysis as it may be the sum total of efficiency in certain departments
and inefficiency in others. A dynamic management should be interested in making a fuller
analysis.
25
It is, therefore, necessary to break up the operating ratio into various cost ratios. The major
components of cost are: material, labour and overheads. Therefore, it is worthwhile to
classify the cost ratio as:
𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐜𝐨𝐧𝐬𝐮𝐦𝐞𝐝
𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐜𝐨𝐬𝐭 𝐫𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
𝐋𝐚𝐛𝐨𝐮𝐫 𝐜𝐨𝐬𝐭
𝐋𝐚𝐛𝐨𝐮𝐫 𝐜𝐨𝐬𝐭 𝐫𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
𝐎𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 𝐜𝐨𝐬𝐭
𝐅𝐚𝐜𝐭𝐨𝐫𝐲 𝐨𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 𝐜𝐨𝐬𝐭 𝐫𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
𝐀𝐝𝐦𝐢𝐧𝐢𝐬𝐭𝐫𝐚𝐭𝐢𝐯𝐞 𝐞𝐱𝐩𝐞𝐧𝐬𝐞𝐬
𝐀𝐝𝐦𝐢𝐧𝐢𝐬𝐭𝐫𝐚𝐭𝐢𝐯𝐞 𝐞𝐱𝐩𝐞𝐧𝐬𝐞𝐬 𝐫𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐚𝐧𝐝 𝐝𝐢𝐬𝐭. 𝐞𝐱𝐩.

𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐚𝐧𝐝 𝐝𝐢𝐬𝐭. 𝐞𝐱𝐩. 𝐫𝐚𝐭𝐢𝐨 = × 𝟏𝟎𝟎
Generally all these ratios are expressed in terms of percentage. They total upto the Operating
Ratio. This, deducted from 100 will be equal to the Net Profit Ratio.
If possible, the total expenditure for effecting sales should be divided into two categories,
viz., fixed and variable-and then ratios should be worked out. The ratio of variable expenses
to sales will be generally constant; that of fixed expenses should fall if sales increase; it will
increase if sales fall.
26
PROFITABILITY RATIO
On Sales On Capital
1) Gross Profit Ratio 1) Return on Capital Employed

OR
2) Net Profit Ratio Return on Investment
3) Operating Expense Ratio 2) Return on Shareholders Fund

OR
4) Operating Ratio Return on Net Worth
3) Return on Equity
4) Return on Total Asset
Fig 5.1
27
Chapter 6
BANKING INDUSTRY
6.1 Introduction
1. Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Florentine bankers, who used to make their transactions above a desk covered
by a green tablecloth. However, there are traces of banking activity even in ancient times
2. History
Banks have influenced economies and politics for centuries. Historically, the primary purpose
of a bank was to provide loans to trading companies. Banks provided funds to allow
businesses to purchase inventory, and collected those funds back with interest when the
goods were sold. For centuries, the banking industry only dealt with businesses, not
consumers. Banking services have expanded to include services directed at individuals, and
risk in these much smaller transactions are pooled.
6.2 Banking in India

Banking in India, in the modern sense, originated in the last decades of the 18th century.
Among the first banks were the Bank of Hindostan, which was established in 1770 and
liquidated in 1829-32; and the General Bank of India, established in 1786 but failed in 1791.
The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It
originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of
Bengal. This was one of the three banks funded by a presidency government, the other two
were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to
form the Imperial Bank of India, which upon India's independence, became the State Bank of
India in 1955. For many years the presidency banks had acted as quasi-central banks, as did
their successors, until the Reserve Bank of India was established in 1935, under the Reserve
Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under the
State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate. In 1969
the Indian government nationalized 14 major private banks. In 1980, 6 more private banks
were nationalized. These nationalized banks are the majority of lenders in the Indian
economy. They dominate the banking sector because of their large size and widespread
networks.
Generally banking in India is fairly mature in terms of supply, product range and reach-even
though reach in rural India and to the poor still remains a challenge.
28
Need for Banks
Channel household savings Risk Transformation Service Provider
Fig 6.1
The Banking System in India consists of:

1. Reserve Bank
2. Development Banks
3. Public Sector Bank.
4. Foreign Banks
5. Private Sector Banks
6. Cooperative Banks
7. Regional Rural Banks
 The Reserve Bank of India
The Reserve Bank of India is the Central Bank of the Country and came into being by the
Reserve Bank of India Act 1934. It was nationalized in 1948.
Reserve Bank of India is the bank that issues and regulates the issue of currency in India .The
banker to the Government of India and the State governments. It manages the public debt. It
has the obligation to transact the banking business of the Central Government. It undertakes
to accept money on behalf of the Government and make payment on its behalf. The banker’s
bank. Commercial banks maintain their current account with the Reserve Bank of India.
The bank that manages the volume of credit created by the commercial banks to ensure price
stability.
The bank that manages the external value of the currency (Indian rupee).
 Development Banks
These were set up to give long term finance for the development of the country. These are the
Industrial Finance Corporation of India and the Industrial Development Bank of India, The
Industrial Reconstruction Bank of India and the National Bank for Agriculture and Rural
Development. A former development bank, the Industrial Credit and Investment Corporation
of India Ltd. by a reverse merger in 2002,became a normal commercial bank.It is expected
29
that the other development banks, having outlived their utility would also be either converted
to commercial banks or merged with commercial banks
 Public Sector Banks
These are banks which the Government either owns or has a majority stake in it.
The largest is the State Bank of India which was formed by the merger of the Presidency
Banks – the Bank of Bengal, the Bank of Bombay and the Bank of Madras in 1921. It was
then known as the Imperial Bank. It was nationalized in 1955 by the passing of the State
Bank of India Act, 1955. It has seven subsidiaries or associates.
 Foreign Banks
These are branches of banks incorporated outside India. In 1995/ 96 many other
foreign banks (optimistic in view of India’s liberalization) opened branches in India.
However, after banking began to become increasingly competitive and margins began to be
squeezed coupled with large non performing assets, many banks closed their
branches
 Private Sector Banks
These are banks which are not government owned or controlled. Their shares are freely
traded in the Stock Markets.
 Cooperative Banks:-
Cooperative Banks are those that are created by a group of individual to support either a
community or a religious group. They operate in metropolitan, urban and semi urban centers
to cater to the needs of small borrowers.
 Regional Rural Banks
These came into being on October 2, 1975 when 5 regional rural banks were established
under what became the Regional Rural Banks Act 1975. These were to bridge the gap in rural
credit granting loans and advances to small and marginal farmers, artisans, small entrepreneur
and persons of small means engaged in trade, commerce, industry or other productive
,activities within their area of operation.
 Local Area Banks

Local Area Banks came into existence in 1999 and licenses were given for these banks as it
was felt that regular commercial banks were not financial the rural/ agricultural sector
adequately. Licenses were given to open branches in three districts. Branches in urban/ semi
urban areas were granted only after ten branches were established in rural areas/ villages.
30
CHAPTER 7
STATE BANK OF INDIA
7.1 Overview of SBI
Logo
Type Public company (Public Sector Bank)
Traded as NSE: SBIN

BSE: 500112
LSE: SBID
BSE SENSEX Constituent
CNX Nifty Constituent
Industry Banking, financial services
Founded 2 June 1806, Bank of Calcutta
27 January 1921, Imperial Bank of India
1 July 1955, State Bank of India
2 June 1956, nationalization
Headquarters Mumbai, Maharashtra, India
Area served Worldwide
Key people Arundhati Bhattacharya
(Chairperson)
Products Consumer banking, corporate banking, finance and

insurance, investment banking, mortgage loans, private
banking, private equity, savings, securities, asset
management, wealth management, credit cards,
Revenue Increase INR2.7287103 trillion (US$41 billion) (2016)
31
Profit Increase INR127 billion (US$1.9 billion) (2016)
Total assets Decrease INR20.480 trillion (US$300 billion) (2014-

15)
Owner Government of India
Number of employees 293,459 (2016)
Slogan The Banker to Every Indian
Website sbi.co.in
Registered Address State Bank Bhavan,

Corporate Centre, ,Madame Cama Marg,
Mumbai
Maharashtra
400021
Tel 022-22740841 022-22740842
Fax 022-22855348
Email investor.complaints@sbi.co.in
Group SBI Group
Registrars Datamatics Financial Services Ltd. Plot No. B-5,

MIDC, Part B Cross Lane,
Andheri (E) Mumbai - 400093
Maharashtra
Tel 022-66712151 – 160
Fax 022-66712230
Email Investorsqry@dfssl.com
Website http://www.dfssl.com
Auditors Amit Ray & Co.
32
7.2 Introduction of SBI
State Bank of India (SBI) is an Indian multinational, public sector banking and financial
services company. It is a government-owned corporation with its headquarters in Mumbai,
Maharashtra. As of 2014-15, it had assets of INR20.480 trillion (US$300 billion) and more
than 14,000 branches, including 191 foreign offices spread across 36 countries, making it the
largest banking and financial services company in India by assets. The company is ranked
232nd on the Fortune Global 500 list of the world's biggest corporations as of 2016.
The bank traces its ancestry to British India, through the Imperial Bank of India, to the
founding, in 1806, of the Bank of Calcutta, making it the oldest commercial bank in
the Indian Subcontinent. Bank of Madras merged into the other two "presidency banks" in
British India, Bank of Calcutta and Bank of Bombay, to form the Imperial Bank of India,
which in turn became the State Bank of India in 1955. Government of India owned the
Imperial Bank of India in 1955, with Reserve Bank of India (India's Central Bank) taking a
60% stake, and renamed it the State Bank of India. In 2008, the government took over the
stake held by the Reserve Bank of India.
State Bank of India is a banking behemoth and has 20% market share in
deposits and loans among Indian commercial banks.
Evolution of SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later
the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A
unique institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1
July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern
banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European
commerce and were not imposed from outside in an arbitrary manner to modernise India's
economy. Their evolution was, however, shaped by ideas culled from similar developments
in Europe and England, and was influenced by changes occurring in the structure of both the
local trading environment and those in the relations of the Indian economy to the economy of
Europe and the global economic framework.
Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow the
33
Bank of Bengal to issue notes, which would be accepted for payment of public revenues
within a restricted geographical area. This right of note issue was very valuable not only for
the Bank of Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an
accretion to the capital of the banks, a capital on which the proprietors did not have to pay
any interest. The concept of deposit banking was also an innovation because the practice of
accepting money for safekeeping (and in some cases, even investment on behalf of the
clients) by the indigenous bankers had not spread as a general habit in most parts of India.
But, for a long time, and especially upto the time that the three presidency banks had a right
of note issue, bank notes and government balances made up the bulk of the investible
resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed
the affairs of each bank, were mostly proprietary directors representing the large European
managing agency houses in India. The rest were government nominees, invariably civil
servants, one of whom was elected as the president of the board.
Business
The business of the banks was initially confined to discounting of bills of exchange or other
negotiable private securities, keeping cash accounts and receiving deposits and issuing and
circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation
confined to three months only. The security for such loans was public securities, commonly
called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature'
and no interest could be charged beyond a rate of twelve per cent. Loans against goods like
opium, indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also
granted but such finance by way of cash credits gained momentum only from the third decade
of the nineteenth century. All commodities, including tea, sugar and jute, which began to be
financed later, were either pledged or hypothecated to the bank. Demand promissory notes
were signed by the borrower in favour of the guarantor, which was in turn endorsed to the
bank. Lending against shares of the banks or on the mortgage of houses, land or other real
property was, however, forbidden.
Indians were the principal borrowers against deposit of Company's paper, while the business
of discounts on private as well as salary bills was almost the exclusive monopoly of
individuals Europeans and their partnership firms. But the main function of the three banks,
as far as the government was concerned, was to help the latter raise loans from time to time
and also provide a degree of stability to the prices of government securities
34
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three
presidency banks under a common statute with similar restrictions on business. The
proprietary connection of the Government was, however, terminated, though the banks
continued to hold charge of the public debt offices in the three presidency towns, and the
custody of a part of the government balances. The Act also stipulated the creation of Reserve
Treasuries at Calcutta, Bombay and Madras into which sums above the specified minimum
balances promised to the presidency banks at only their head offices were to be lodged. The
Government could lend to the presidency banks from such Reserve Treasuries but the latter
could look upon them more as a favour than as a right.
First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was
given the highest priority. The commercial banks of the country including the Imperial Bank
of India had till then confined their operations to the urban sector and were not equipped to
respond to the emergent needs of economic regeneration of the rural areas. In order,
therefore, to serve the economy in general and the rural sector in particular, the All India
Rural Credit Survey Committee recommended the creation of a state-partnered and state-
sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former
state-owned or state-associate banks. An act was accordingly passed in Parliament in May
1955 and the State Bank of India was constituted on 1 July 1955. More than a quarter of the
resources of the Indian banking system thus passed under the direct control of the State.
Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State
Bank of India to take over eight former State-associated banks as its subsidiaries (later named
Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480
offices comprising branches, sub offices and three Local Head Offices inherited from the
Imperial Bank. The concept of banking as mere repositories of the community's savings and
lenders to creditworthy parties was soon to give way to the concept of purposeful banking
subserving the growing and diversified financial needs of planned economic development.
The State Bank of India was destined to act as the pacesetter in this respect and lead the
Indian banking system into the exciting field of national development.
35
List of Directors on the Central Board of State Bank of India w.e.f. 28.09.2016
Under Section
Sr.No Name Designation
of SBI Act 1955
1. Smt. Arundhati Bhattacharya Chairman 19(a)
2. Shri B. Sriram Managing Director 19 (b)
3. Shri Rajnish Kumar Managing Director 19 (b)
4. Shri P.K. Gupta Managing Director 19 (b)
5. Shri Dinesh Kumar Khara Managing Director 19 (b)
6. Shri Sanjiv Malhotra Director 19 (c)
7. Shri Sunil Mehta Director 19 (c)
8. Shri M.D. Mallya Director 19 (c)
9. Shri Deepak I. Amin Director 19 (c)
10. Shri Girish K. Ahuja Director 19 (d)
11. Dr. Pushpendra Rai Director 19 (d)
12. Ms. Anjuly Chib Duggal Director 19 (e)
13. Shri Chandan Sinha Director 19 (f)
Table 7.1

As on 31 March 2014, Government of India held around 58.59% equity shares in SBI. Life
Insurance Corporation of India is the largest non-promoter shareholder in the company with
14.99% shareholding.
36
Shareholders Shareholding
Promoters: Government of India 58.60%
Banks & Insurance Companies 16.79%
FIIs/GDRs/OCBs/NRIs 12.04%
Mutual Funds & UTI 03.78%
Private Corporate Bodies 02.87%
Others 5.92%
Total 100.0%
Table7.2
The equity shares of SBI are listed on the Bombay Stock Exchange, where it is a constituent
of the BSE SENSEX index, and the National Stock Exchange of India, where it is a
constituent of the CNX Nifty.
Its Global Depository Receipts (GDRs) are listed on the London Stock Exchange.
 SBI was ranked as the top bank in India based on tier 1 capital by The Banker magazine
in a 2014 ranking.
 SBI was ranked 298th in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2012.
 SBI was named the 29th most reputed company in the world according to Forbes 2009
rankings.
 SBI was 50th Most Trusted brand in India as per the Brand Trust Report 2013, an annual
study conducted by Trust Research Advisory, a brand analytics company and
subsequently, in the Brand Trust Report 2014, SBI finished as India's 19th Most Trusted
Brand in India.
37
7.6 Balance Sheet of SBI ------------------- in Rs. Cr. -------------------
Mar 16 Mar 15 Mar 15 Mar 14 Mar 13
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 776.28 746.57 746.57 746.57 684.03
Total Share Capital 776.28 746.57 746.57 746.57 684.03
Reserves and Surplus 143,498.16 127,691.65 127,691.65 117,535.68 98,199.65
Total Reserves and Surplus 143,498.16 127,691.65 127,691.65 117,535.68 98,199.65
Total Shareholders Funds 144,274.44 128,438.22 128,438.22 118,282.25 98,883.69
Deposits 1,730,722.44 1,576,793.24 1,576,793.24 1,394,408.51 1,202,739.57
Borrowings 224,190.59 205,150.29 205,150.29 183,130.88 169,182.71
Other Liabilities and
159,875.57 137,698.05 137,698.05 96,412.96 95,455.07
Provisions
Total Capital and Liabilities 2,259,063.03 2,048,079.80 2,048,079.80 1,792,234.60 1,566,261.04
ASSETS
Cash and Balances with
129,629.33 115,883.84 115,883.84 84,955.66 65,830.41
Reserve Bank of India
Balances with Banks Money
37,838.33 58,977.46 58,977.46 47,593.97 48,989.75
at Call and Short Notice
Investments 477,097.28 495,027.40 495,027.40 398,308.19 350,927.27
Advances 1,463,700.42 1,300,026.39 1,300,026.39 1,209,828.72 1,045,616.55
Fixed Assets 10,389.28 9,329.16 9,329.16 8,002.16 7,005.02
Other Assets 140,408.41 68,835.55 68,835.55 43,545.90 47,892.03
Total Assets 2,259,063.03 2,048,079.80 2,048,079.80 1,792,234.60 1,566,261.04
OTHER ADDITIONAL INFORMATION
Number of Branches 16,784.00 16,524.00 16,333.00 16,059.00 15,002.00
Number of Employees 207,739.00 213,238.00 213,238.00 222,033.00 228,296.00
Capital Adequacy Ratios (%) 13.00 12.00 12.00 13.00 13.00
KEY PERFORMANCE INDICATORS
Tier 1 (%) 10.00 10.00 10.00 10.00 9.00
Tier 2 (%) 3.00 2.00 2.00 3.00 3.00
ASSETS QUALITY
Gross NPA 98,172.80 56,725.00 56,725.00 61,605.00 51,189.39
Gross NPA (%) 7.00 4.00 4.00 5.00 5.00
Net NPA 55,807.02 0.00 0.00 0.00 21,956.48
Net NPA (%) 4.00 2.00 2.00 3.00 2.00
Net NPA To Advances (%) 4.00 2.00 2.00 3.00 2.00
CONTINGENT LIABILITIES,
COMMITMENTS
Bills for Collection 199,140.17 92,795.25 190,560.35 74,028.42 66,639.54
Contingent Liabilities 865,027.48 1,000,627.26 902,862.16 1,017,329.95 926,378.91
Table 7.3
38
7.7 Profit & Loss account of SBI ------------------- in Rs. Cr. -------------------
INCOME
Interest / Discount on Advances /
115,666.01 112,343.91 112,343.91 102,484.10 90,537.10
Bills
Income from Investments 42,303.98 37,087.77 37,087.77 31,941.87 27,200.63
Interest on Balance with RBI and
621.07 505.12 505.12 409.31 545.14
Other Inter-Bank funds
Others 5,094.25 2,460.27 2,460.27 1,515.52 1,374.23
Total Interest Earned 163,685.31 152,397.07 152,397.07 136,350.80 119,657.10
Other Income 28,158.36 22,575.89 22,575.89 18,552.92 16,034.84
Total Income 191,843.67 174,972.96 174,972.96 154,903.72 135,691.94
EXPENDITURE
Interest Expended 106,803.49 97,381.82 97,381.82 87,068.63 75,325.80
Payments to and Provisions for
25,113.82 23,537.07 23,537.07 22,504.28 18,380.90
Employees
Depreciation 1,700.30 1,116.49 1,116.49 1,333.94 1,139.61
Operating Expenses (excludes
14,968.24 14,024.08 14,024.08 11,887.63 9,763.91
Employee Cost & Depreciation)
Total Operating Expenses 41,782.37 38,677.64 38,677.64 35,725.85 29,284.42
Provision Towards Income Tax 3,577.93 6,689.95 6,689.95 4,227.47 5,951.06
Provision Towards Deferred Tax 245.47 -477.56 -477.56 1,055.25 -107.97
Provision Towards Other Taxes 0.00 0.00 0.00 0.00 2.82
Other Provisions and Contingencies 29,483.75 19,599.54 19,599.54 15,935.35 11,130.83
Total Provisions and
33,307.15 25,811.93 25,811.93 21,218.07 16,976.74
Contingencies
Total Expenditure 181,893.01 161,871.39 161,871.39 144,012.55 121,586.96
Net Profit / Loss for The Year 9,950.65 13,101.57 13,101.57 10,891.17 14,104.98
Net Profit / Loss After EI & Prior
9,950.65 13,101.57 13,101.57 10,891.17 14,104.98
Year Items
Profit / Loss Brought Forward 0.32 0.32 0.32 0.34 0.34
Total Profit / Loss available for
9,950.98 13,101.89 13,101.89 10,891.51 14,105.32
Appropriations
APPROPRIATIONS
Transfer To / From Statutory
2,985.20 4,029.08 4,029.08 3,339.62 4,417.86
Reserve
Transfer To / From Capital Reserve 345.27 0.00 0.00 0.00 19.17
Transfer To / From Revenue And
4,267.35 5,994.56 5,994.56 5,013.40 6,453.26
Other Reserves
Dividend and Dividend Tax for The
0.01 0.00 0.00 0.01 0.00
Previous Year
Equity Share Dividend 2,018.32 2,557.28 2,557.28 2,239.71 2,838.74
Tax On Dividend 334.51 520.65 520.65 298.45 375.95
Balance Carried Over To Balance
0.32 0.32 0.32 0.32 0.34
Sheet
39
Total Appropriations 9,950.98 13,101.89 13,101.89 10,891.51 14,105.32
OTHER INFORMATION
EARNINGS PER SHARE
Basic EPS (Rs.) 12.98 17.55 18.00 156.76 210.06
Diluted EPS (Rs.) 12.98 17.55 18.00 156.76 210.06
Table 7.4

Net Profit Margin (%) 6.07 8.59 7.98 11.78 10.99
Operating Profit Margin (%) -11.12 -6.21 -5.61 -1.61 -2.48
Return on Assets (%) 0.44 0.63 0.60 0.90 0.87
Return on Equity / Networth (%) 6.89 10.20 9.20 14.26 13.94
Net Interest Margin (X) 2.51 2.68 2.74 2.83 3.24
Cost to Income (%) 39.14 36.85 36.76 34.09 38.00
Interest Income/Total Assets (%) 7.24 7.44 7.60 7.63 7.97
Non-Interest Income/Total Assets
1.24 1.10 1.03 1.02 1.07
(%)
Operating Profit/Total Assets (%) -0.80 -0.46 -0.42 -0.12 -0.19
Operating Expenses/Total Assets (%) 1.84 1.88 1.99 1.86 1.95
Interest Expenses/Total Assets (%) 4.72 4.75 4.85 4.80 4.73
Table 7.5
7.9 SWOT Analysis
STRENGTH
WEAKNESSES
 Brand Name
 Less Modernisation
 Market Leader
 Higher NPA
 Government Owned
 Customer does not have full information
 Diversified Portfolio
about getting facilities.
THREAT
OPPURTUNITIES
 Employee Strike
 High Approach of ATM
 Other Nationalized Bank and private
 2000 Branches coming on various
banks.
location
 Advent of MNC bank
 Merged with associated banks
Table 7.6
40
PBT stands for Profit Before Tax, and PAT stands for Profit After Tax.
The graph visually shows how the net profit of the company stand reduced due to the impact
of Tax.
Fig 7.1
7.11 Net Worth
Net Worth is the difference between a company's total assets and its total liabilities. It is also
known as shareholder`s equity.
Fig7.2
41
Chapter 8
Housing Development Finance Corporation Limited
8.1 Overview of HDFC

Logo
Type Public Company (Private Sector Bank)
Traded as BSE: 500180
NSE: HDFCBANK
NYSE: HDB
BSE SENSEX Constituent
CNX Nifty Constituent
Industry Banking, Financial services
Founded August 1994
Headquarters Mumbai, Maharashtra, India
Area served India
Key people Aditya Puri (MD)
Products Investment Banking, Investment Management, Wealth

Management, Private Banking, Corporate Banking,
Private Equity, Finance and Insurance, Consumer
Banking, Mortgages, Credit Cards
Revenue INR10,588.1 crore (US$1.6 billion) (2016)
Profit INR3,238.9 crore (US$480 million) (2016)
Total assets INR755,100 crore (US$110 billion)(2016)
Total equity INR507.1 crore (US$75 million)
Number of employees 87,555 (April 2016)
Website hdfcbank.com
42
Registered Address HDFC Bank House,
Senapati Bapat Marg,, Lower Parel
Mumbai
Maharashtra
400013
Tel: 022-66521000 022-24988484
Fax: 022-24960737 022-24965235
Email: shareholder.grievances@hdfcbank.com
Group: HDFC Group
Registrars Datamatics Financial Services Ltd. Plot No. B-5,
MIDC, Part B Cross Lane,
Andheri (E) Mumbai - 400093
Maharashtra
Tel 022-66712151 – 160
Fax 022-66712230
Email Investorsqry@dfssl.com
Website http://www.dfssl.com
Auditors Deloitte Haskins & Sells
8.2 Introduction of HDFC

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 RBI's liberalisation 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.
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, strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.
Business focus
HDFC Bank's mission is to be a World Class Indian 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 five core values: Operational
Excellence, Customer Focus, Product Leadership, People and Sustainability.
43
The equity shares of HDFC Bank are listed on Bombay Stock Exchange and the National
Stock Exchange of India. Its American Depository Shares are listed on NYSE and the Global
depository receipt are listed on theLuxembourg Stock Exchange where two GDRs represent
one equity share of HDFC Bank..
Shareholders Shareholding
Promoter Group (HDFC) 21.57%
Foreign Institutional Investors (FII) 32.4%
Individual shareholders 8.5%
Bodies Corporate 7.5%
Insurance companies 5.38%
Mutual Funds/UTI 8.65%
NRI/OCB/Others 0.29%
Financial Institutions/Banks 2.75%
ADS/GDRs 18.78%
Table 8.1
44
Mrs. Shyamala Gopinath

Mr. Partho Datta
Mr. Bobby Parikh
Mr. A. N. Roy
Mr. Malay Patel
Mr. Keki Mistry
Mrs. Renu Karnad
Mr. Aditya Puri
Mr. Paresh Sukthankar
Mr. Kaizad Bharucha
Mr. Umesh Chandra Sarangi
Mr. Srikanth Nadhamuni
Best Bank in JLG-Bank Linkage programme

NABARD Award
in Assam
Business Today - KPMG India's Best - Bank of the year
Bank - Best Digital Banking Initiative awards
Best Bank in SHG Credit Linkage in Tamil
NABARD Award
Nadu
Business Today Award Best CEO Award - Mr. Aditya Puri
FinanceAsia Awards Best Equity Deal in Asia Award
- Best Asian Bank
FinanceAsia Country Awards 2015
- Best Domestic Bank - India
Forbes Asia Fab 50 Companies List for the 9th year
AIMA Managing India Awards 2015 - Business Leader of the Year - Aditya Puri
Barron's - World's 30 Best CEOs - Mr Aditya Puri
- Best Managed Public Company - India'
Finance Asia poll on Asia's Best Best CEO- Aditya Puri
Companies 2015 Best Corporate Governance- Rank 3
Best Investor Relations- Rank 3
- Best in class straight Through Processing
J. P Morgan Quality Recognition Award
Rates
Table 8.2
45
8.6 Balance Sheet of HDFC ------------------- in Rs. Cr. -------------------
EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 505.64 501.30 501.30 479.81 475.88
Total Share Capital 505.64 501.30 501.30 479.81 475.88
Reserves and Surplus 72,172.13 61,508.12 61,508.12 42,998.82 35,738.26
Total Reserves and Surplus 72,172.13 61,508.12 61,508.12 42,998.82 35,738.26
Total Shareholders Funds 72,677.76 62,009.42 62,009.42 43,478.63 36,214.15
Deposits 546,424.19 450,795.64 450,795.64 367,337.48 296,246.98
Borrowings 53,018.47 45,213.56 45,213.56 39,438.99 33,006.60
Other Liabilities and Provisions 36,725.13 32,484.46 32,484.46 41,344.40 34,864.17
Total Capital and Liabilities 708,845.57 590,503.07 590,503.07 491,599.50 400,331.90
ASSETS
Cash and Balances with Reserve
30,058.31 27,510.45 27,510.45 25,345.63 14,627.40
Bank of India
Balances with Banks Money at Call
8,860.53 8,821.00 8,821.00 14,238.01 12,652.77
and Short Notice
Investments 163,885.77 166,459.95 166,459.95 120,951.07 111,613.60
Advances 464,593.96 365,495.03 365,495.03 303,000.27 239,720.64
Fixed Assets 3,343.16 3,121.73 3,121.73 2,939.92 2,703.08
Other Assets 38,103.84 19,094.91 19,094.91 25,124.60 19,014.41
Total Assets 708,845.57 590,503.07 590,503.07 491,599.50 400,331.90
OTHER ADDITIONAL INFORMATION
Number of Branches 4,520.00 4,014.00 4,014.00 3,403.00 3,062.00
Number of Employees 87,555.00 76,286.00 76,286.00 68,165.00 69,065.00
Capital Adequacy Ratios (%) 16.00 17.00 17.00 16.00 17.00
KEY PERFORMANCE INDICATORS
Tier 1 (%) 13.00 14.00 14.00 12.00 11.00
Tier 2 (%) 2.00 3.00 3.00 4.00 6.00
ASSETS QUALITY
Gross NPA 4,392.83 3,438.38 3,438.38 2,989.28 2,334.64
Gross NPA (%) 1.00 1.00 1.00 1.00 1.00
Net NPA 1,320.37 896.28 896.28 820.03 468.95
CONTINGENT LIABILITIES,
COMMITMENTS
Bills for Collection 55,242.58 22,304.93 22,304.93 20,943.06 26,103.96
Contingent Liabilities 821,565.54 975,233.95 975,233.95 723,154.91 720,122.43
Table 8.3
46
8.7 Profit & Loss account of ------------------- in Rs. Cr. -------------------
HDFC
INCOME
Interest / Discount on Advances /
44,827.86 37,180.79 37,180.79 31,686.92 26,822.39
Bills
Income from Investments 14,120.03 10,705.61 10,705.61 9,036.85 7,820.26
Interest on Balance with RBI and
361.61 517.10 517.10 355.99 281.63
Other Inter-Bank funds
Others 911.95 66.41 66.41 55.78 140.59
Total Interest Earned 60,221.45 48,469.90 48,469.90 41,135.53 35,064.87
Other Income 10,751.72 8,996.35 8,996.35 7,919.64 6,852.62
Total Income 70,973.17 57,466.26 57,466.26 49,055.18 41,917.50
EXPENDITURE
Interest Expended 32,629.93 26,074.24 26,074.24 22,652.90 19,253.75
Payments to and Provisions for
5,702.20 4,750.96 4,750.96 4,178.98 3,965.38
Employees
Depreciation 705.84 656.30 656.30 671.61 651.67
Operating Expenses (excludes
10,571.66 8,580.29 8,580.29 7,191.61 6,619.07
Employee Cost & Depreciation)
Total Operating Expenses 16,979.70 13,987.54 13,987.54 12,042.20 11,236.12
Provision Towards Income Tax 6,507.59 5,204.03 5,204.03 4,269.41 3,275.76
Provision Towards Deferred Tax -165.88 -91.23 -91.23 24.27 -251.42
Provision Towards Other Taxes 0.00 0.75 0.75 0.75 0.60
Other Provisions and Contingencies 2,725.61 2,075.01 2,075.01 1,587.27 1,676.40
Total Provisions and
9,067.32 7,188.56 7,188.56 5,881.70 4,701.34
Contingencies
Total Expenditure 58,676.96 47,250.34 47,250.34 40,576.80 35,191.21
Net Profit / Loss for The Year 12,296.21 10,215.92 10,215.92 8,478.38 6,726.28
Net Profit / Loss After EI & Prior
12,296.21 10,215.92 10,215.92 8,478.38 6,726.28
Year Items
Profit / Loss Brought Forward 18,627.79 14,654.15 14,654.15 11,132.18 8,399.65
Total Profit / Loss available for
30,924.01 24,870.07 24,870.07 19,610.56 15,125.93
Appropriations
APPROPRIATIONS
Transfer To / From Statutory
3,074.05 2,553.98 2,553.98 2,119.59 1,681.57
Reserve
Transfer To / From Capital Reserve 222.15 224.92 224.92 58.27 85.85
Transfer To / From General Reserve 1,229.62 1,021.59 1,021.59 847.84 672.63
Transfer To / From Investment
-8.52 27.54 27.54 3.22 17.66
Reserve
Dividend and Dividend Tax for The
-11.71 0.84 0.84 4.85 4.47
Previous Year
Equity Share Dividend 2,401.78 2,005.20 2,005.20 1,643.35 1,309.08
47
Tax On Dividend 488.95 408.21 408.21 279.29 222.48
Balance Carried Over To Balance
23,527.69 18,627.79 18,627.79 14,654.15 11,132.18
Sheet
Total Appropriations 30,924.01 24,870.07 24,870.07 19,610.56 15,125.93
OTHER INFORMATION
EARNINGS PER SHARE
Basic EPS (Rs.) 48.84 42.15 42.00 35.47 28.49
Diluted EPS (Rs.) 48.26 41.67 42.00 35.21 28.18
Table 8.4

Net Profit Margin (%) 20.41 21.07 20.61 19.18 18.93
Operating Profit Margin (%) 2.56 2.51 1.35 -0.36 -0.28
Return on Assets (%) 1.73 1.73 1.72 1.68 1.52
Return on Equity / Net worth (%) 16.91 16.47 19.50 18.57 17.26
Net Interest Margin (X) 3.89 3.79 3.75 3.94 3.63
Cost to Income (%) 36.69 36.84 36.53 38.02 38.03
Interest Income/Total Assets (%) 8.49 8.20 8.36 8.75 8.07
Non-Interest Income/Total Assets (%) 1.51 1.52 1.61 1.71 1.55
Operating Profit/Total Assets (%) 0.21 0.20 0.11 -0.03 -0.02
Operating Expenses/Total Assets (%) 2.39 2.36 2.44 2.80 2.54
Interest Expenses/Total Assets (%) 4.60 4.41 4.60 4.80 4.43
Table 8.5
8.9 SWOT Analysis
STRENGTH WEAKNESSES
 Segmentation  Timing short
 Product features  Maintenance charges high
 Work environment  High interest rate
 Low documentation  Customer does not have full information
about getting facilities
OPPURTUNITIES
 Merged with Centurion Bank THREAT
 1300 branches coming on various  SBI BANK
location  Other Private Bank (ICICI,AXSIS etc)
 Name and logo will be new
Table 8.6
48
PBT stands for Profit Before Tax, and PAT stands for Profit After Tax.
The graph visually shows how the net profit of the company stand reduced due to the impact
of Tax.
Fig 8.1
8.11Net Worth
Net Worth is the difference between a company's total assets and its total liabilities. It is also
known as shareholder`s equity.
Fig
8.2
49
Chapter 9
SBI v/s HDFC
9.1 Profitability Ratios of SBI

Ratio Name Ratio Answer
Net Profit Ratio NPAT 9951

x100 x100 = 6.07%
Interest Income 163685
Operating Expense Ratio Operating Expense 41782

x100 x100 = 25.53%
Return on Total Asset NPBT 13774

x100 x100 = 061%
Total Asset 2259063
Return on Net Worth NPAT 9951

x100 x100 = 6.87%
Net Worth 144274
Return on Capital Employed NPBT 13774

x100 x100 = 9.55%
C. E 144274
Table 9.1
9.2 Profitability Ratios of HDFC

Ratio Name Ratio Answer
Net Profit Ratio NPAT 12296

x100 x100 = 20.42%
Operating Expense Ratio Operating Expense 16980

x100 x100 = 28.19%
Return on Total Asset NPBT 18638

x100 x100 = 2.63%
Total Asset 708846
Return on Net Worth NPAT 12296

x100 x100 = 16.92%
Net Worth 72678
Return on Capital Employed NPBT 18638

x100 x100 = 25.64%
C. E 72678
Table 9.2
50
9.3 SBI v/s HDFC Ratio Comparison
RATIO SBI HDFC
Net Profit Ratio 6.07% 20.42%
Operating Expense Ratio 25.53% 28.19%
Return on Total Asset 0.61% 2.63%
Return on Net Worth 6.87% 16.92%
Return on Capital Employed 9.55% 25.64%
Table 9.3
Graphical Depiction of SBI v/s HDFC
30
25
20
15 SBI
HDFC
10
0
Net Profit Ratio
Operating Expense Ratio
Return on Total Asset
Return on Net Return
Worth on Capital Employed
Fig 9.1
51
Chapter 10
PUBLIC SECTOR V/S PRIVATE SECTOR

Parameter1: Banks Network
45.00%
40.00%
35.00%
30.00% State Bank of India and its
Associates
25.00%
Nationalised Banks
20.00%
15.00% Private Sector Banks
10.00%
5.00%
0.00%
2012 2013 2014 2015 2016
Fig 10.1
The private sector banks are spreading its wings at a much faster rate than public sector
banks. The customer base of these banks has grown manifold since they are able to provide
innovative services to the customers at a much faster pace. This is leading them to capture
more market share and eating up some of the share of their public sector counterparts.
Parameter2: Banks Growth
% Growth in Balance Sheet % Growth in Total Income

Size
2015 2016 2015 2016
New Private
Sector Banks 10.86% 23.51% -2.19% 14.63%
Public Sector
Banks 17.93% 26.21% 12.46% 19.71%
Table 10.1
The public sector banks’ asset base and income grew at a decent rate in the last 2 years
likewise there were equal fluctuation in case of new private sector banks.
52
Parameter3: Capital Adequacy
18
16
14
12
10 Private Sector Banks
8 Public Sector Banks
6
4
2
0
2014 2015 2016
Fig 10.2
The Capital Adequacy ratio (BASEL-II) of new private sector banks is way above RBI’s
minimum requirement of 9%. This shows that these banks are in comfortable position to
absorb losses since they have more capital to cover for their risk weighted assets. Or on the
other hand they have less risky assets in their portfolio for a fixed capital base.
Parameter4: Management Efficiency
3.00%
2.50%
2.00%
Pvt. Sector Bank
1.50% (Net Int. Inc./TA)
Public Sector Banks
1.00% (Net Int. Inc./ TA)
0.50%
0.00%
2014 2015 2016
Fig 10.3
The efficiency ratios of new private sector banks are better than public sector banks which
eventually lead to enhanced bottom line.
53
Chapter 11
CONCLUSION
11.1 General
In general sense SBI overtakes HDFC in many aspects. This situation of SBI is purely due to
its presence in market for a very long amount of time and with the help of its subsidiaries it
manages to acquire a very large market share.
On the other hand HDFC is not that old as compared to SBI and because it is new therefore
does not enjoy advantage of a prestigious brand name like SBI has. HDFC has brilliant setup
and good service performance which landed it in the second position in private sector banks
whereas SBI is the largest bank in the country.
11.2 Based on Profitability

Based on the financial statements of SBI and HDFC and various calculations of ratios
regarding profitability it can be easily concluded that HDFC has an upper hand over SBI as
far as profitability is concerned.
Though SBI is the largest and one of the oldest banks in India and surpasses HDFC in various
aspects such as area covered, number of employes, customers, branches, ATMs etc but still
HDFC is better in providing performance.
SBI may have larger amount of profits as compared to HDFC but the expenditure done to
gain such amount is also much higher as compared to HDFC. Since HDFC earns profits
against low expenditure whereas SBI earns profits against high expenditures, this helps
HDFC to improve its profitability ratios.
If recent trends and news is to be believed then HDFC has all the potential to match and
overtake SBI in various aspects.
54
Chapter 12
ANNEXURE
Questionnaire
Questionnaire was taken among 5 people. 2 of them are given below.
I. NAME: Abhishek Sharma
OCCUPATION : Financial Analyst
AGE:37
1. According to you what are the problems faced by SBI and HDFC banks
regarding their profitability?
Problems faced by SBI:- One of the major problems faced by SBI is employee
problems and sudden strikes. Such problems interrupts management which further
affects profits.
Problems faced by HDFC:- As compared to SBI it has less area coverage and entered
the market late so it is a negative point which affects its profits
2. Who according to you has an upper hand over the other?
I would say HDFC is currently maintaining an upper hand over SBI due its excellent
performance. Even the financial statements indicate the same scenario. Mostly HDFC
is ahead of SBI in many aspects.
3. As a customer which bank do you prefer?
Well though I believe that HDFC has an upper hand over SBI still I would prefer SBI.
This decision is based on my belief in SBI bank. I have been dealing with SBI for a
very long time without any problems. Provided SBI's long history and the fact that it
is governed under a separate act provides me a sense of security.
4. Which bank is better in your opinion based on profitability ?
o State Bank of India

o Housing Development Finance Corporation Limited
5. Based on Financial Statements what are the trends in SBI profits?

o Increasing
o Rapidly Increasing
o Decreasing
o Rapidly Decreasing
55
6. Based on Financial Statements what are the trends in HDFC profits?
o Increasing
o Decreasing
7. In near future what are your opinions regarding these bank's profitability?
Though presently HDFC is ahead of SBI but provided the rapid growth of banking
industry in India it is hard to select a winner in future. SBI is also working hard
enough and stable in competition. So maybe HDFC remain reigning over SBI or SBI
may equalize or pass ahead of HDFC can't say right now. Banking industry is rapidly
growing and fluctuating.
II. NAME: Mustafa Nimbaherawala
OCCUPATION : Chartered Accountant
AGE:42
1. According to you what are the problems faced by SBI and HDFC banks
regarding their profitability?
Problems faced by SBI:- One major problem is employee mismanagement. One other
problem faced could be difficulty and expense in management of its huge banking
network provided it is one of the largest banks in the country.
Problems faced by HDFC:- Many customer may avoid HDFC due to high
maintenance charges and high interest rates. Losing of customers directly affects
profits.
2. Who according to you has an upper hand over the other?
Though Financial statements speak in favor of HDFC but I assume that SBI enjoys
customer support. SBI has been in the market for a very long time and gathered many
loyal customers. People don't accept change very fast so majority has continued with
SBI. SBI enjoys the massive brand name and is governed by a different act so is more
secure in terms of stability in the market.
3. As a customer which bank do you prefer?
Like I said before people don't go for change very fast and I am one of those. I have
been a customer of SBI for long and still continuing. But I would soon try HDFC
provided its wide range of facility and good response to grievances and requests.
56
4. Which bank is better in your opinion based on profitability ?
o State Bank of India

o Housing Development Finance Corporation Limited
5. Based on Financial Statements what are the trends in SBI profits?
o Increasing
o Decreasing
6. Based on Financial Statements what are the trends in HDFC profits?
o Increasing
o Decreasing
7. In near future what are your opinions regarding these bank's profitability?
Presently HDFC is leading in front of SBI in certain aspects but still SBI has been in
the market for a longer period of time and has a larger area coverage then HDFC. This
aspect will definitely help SBI in near future. Provided rapidly increasing awareness
among masses in Indian population regarding banking thanks to our new political
leaders, these people would have easy access to SBI and its services due to its large
area coverage. Therefore its simple business
"More customers equals to more profits"
57
BIBLIOGRAPHY
 Reference Books and journals

ICSI Module Cost and Management Accounting
ICSI Journals and Bulletins
Mukesh Baria:- "Analysis and Calculations of Ratios."
Amrut Raj Bhore:- "How to understand financial statements."
Times of India
SBI Annual Reports
HDFC Annual Reports
 Webliography
www.sbi.co.in
www.hdfcbank.com
www.rbi.org.in
www.moneycontrol.com
www.icsi.edu
Search Engine = www.google.com
 News articles
http://www.livemint.com/Industry/jOR1n6dzBiIQalZhLM11GO/SBI-beats-HDFC-Bank-as-
the-most-valued-bank.html
http://www.firstpost.com/business/why-hdfc-bank-is-beating-the-hell-out-of-state-bank-of-
india-132499.html
58

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Analysis of Financial Statements

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COMPARATIVE STUDY OF SBI & HDFC REGARDING

Dissertation Submitted to the

Burhani College of Commerce and Arts Institute of Management

(Affiliated to University of Mumbai)

BACHELOR OF MANAGEMENT STUDIES

(Roll No-14 , Div-A)

I, Husain Qutbuddin Kader, student of T.Y.B.M.S. Semester V (2016- 2017) hereby

Husain Qutbuddin Kader

BURHANI COLLEGE OF COMMERCE AND ARTS

Chp. No TITLE Page No

2 RESEARCH METHODOLOGY 10-11

2.1 Research Problem

2.3 Method of Collecting Data

2.5 Review of Literature

3 ANALYSIS OF FINANCIAL STATEMENTS 12-14

3.2 Objectives of Financial Statement Analysis

3.3 Limitations of Financial Statement Analysis

3.4 Methods of Analyzing Financial Statements

4 RATIO ANALYSIS 15-20

4.2 Accounting Ratios

4.3 Uses of Ratio Analysis

4.4 Classification of Ratios

4.5 Advantages of Ratio Analysis

4.6 Limitations of Ratio Analysis

5.1 Return on Investment

5.2 Return on Shareholders’ Funds

5.3 Return on Assets

5.4 Gross Profit Ratio or Gross Margin

5.5 Net Profit Ratio

5.6 Operating Ratio

6 BANKING INDUSTRY 28-30

6.2 Banking in India

7 STATE BANK OF INDIA 31-41

7.1 Overview of SBI

7.2 Introduction of SBI

7.3 Board of Directors

7.4 Listing and Shareholding

7.5 Recent awards and recognitions

7.6 Balance Sheet of SBI

7.7 Profit & Loss Account of SBI

7.8 Key Performance Ratios

7.9 SWOT Analysis

7.10 Profit Before Tax & Profit After Tax

7.11 Net Worth

8.1 Overview of HDFC

8.2 Introduction of HDFC

8.3 Listing and Shareholding

8.4 Board of Directors

8.5 Recent Awards and Recognitions

8.6 Balance Sheet of HDFC

8.7 Profit & Loss Account of HDFC

8.8 Key Performance Ratios

8.9 SWOT Analysis

8.10 Profit Before Tax & Profit After Tax

8.11 Net Worth

9 SBI v/s HDFC 50-51

9.1 Profitability Ratios of SBI

9.2 Profitability Ratios of HDFC

9.3 SBI v/s HDFC Ratio Comparison

10 PUBLIC SECTOR V/S PRIVATE SECTOR 52-53

11.2 Based on Profitability

Table No. TITLE Page No.

7.1 Board of Directors of SBI 36