A PROJECT REPORT ON

“A Comprehensive Study on Financial Analysis”

OF
HDFC BANK LTD

A Project undertaken in partial fulfilment of

Requirement for the award of the degree of

MASTER IN BUSINESS ADMINISTRATION

(Session 2009-2011)

SUBMITTED TO: – SUBMITTED BY:-

MBA DEPARTMENT Student Name
GUIDE NAME :- ROLL NO:107/09

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 DECLARATION

I (Name of the Student) student of M.B.A 4th sem of IMS( BADDI) affiliated to Himachal
Pradesh University Shimla hereby declare that all the information, facts and findings
furnished in this report is result of my hard work and are original in nature. This information
is used for academic only. Any resemblance for existing work is purely coincidental.

DATE:

PLACE:

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 ACKNOWLEDGEMENT

“This study is an internal part of our MBA program and to do this project in a
short period was a tough task. Intention, dedication, concentration and hard work are very
essential to complete any task. But still it needs lots of support, guidance, cooperation of
people to make it successful.
Any work that is well accomplishes is half done without word of gratitude.
Herein I take this opportunity to offer my sincere words of thanks to all those people who
have given me these precious ideas and time to enable me to complete project work.

I want to acknowledge the opportunity given by MR.

…………..[Head of the Department (I.M.S.)] and MS………… [Faculty (I.M.S.)]. for her
extremely valuable support and guidance. Her time to time suggestions were of great help.
This project work could never have come into being without her cooperation and support. I
am highly grateful to her for making me able to accomplish this tough task. I am also very
thankful to my friends for their invaluable support. Their contribution can never be forgotten.
Above all I thank my parents for all their support, love and for giving sympathetic ears to all
my needs. Today whatever am I, is all because of their blessings.

(Name of Student)

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 TABLE OF CONTENTS

S.NO CONTENTS PAGE NO

Chapter 1 INTRODUCTION
1.1:HISTORY OF BANKING 5-22
1.2: HISTORY OF HDFC BANK
1.3:INTRODUCTION OF TOPIC

Chapter 2 REVIEW OF LITERATURE 23-26

Chapter 3 OBJECTIVE OF STUDY 27
Chapter 4 RESEARCH METHODOLOGY 28
Chapter 5 DATA ANALYSIS 29-38
Chapter 6 FINDINGS 39
Chapter 7 CONCLUSION ,SUGESSTION AND 40-42
LIMITATIONS
Chapter 8 BIBLIOGRAPHY 43
Chapter 9 ANNEXURE 44

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 CHAPTER.1:INTRODUCTION

1.1 : HISTORY OF BANKING

Banking is nearly as old as civilization. The history of banking could be said to have started
with the appearance of money. The first record of minted metal coins was in Mesopotamia in
about 2500B.C. the first European banknotes, which was handwritten appeared in1661, in
Sweden. Cheque and printed paper money appeared in the 1700’s and 1800’s, with many
banks created to deal with increasing trade.
The history of banking in each country runs in lines with the development of trade and
industry, and with the level of political confidence and stability. The ancient Romans
developed an advanced banking system to serve their vast trade network, which extended
throughout Europe, Asia and Africa.
Modern banking began in Venice. The word bank comes from the Italian word “ban co”,
Meaning bench, because moneylenders worked on benches in market places. The bank of
Venice was established in 1171 to help the government raise finance for a war.

At the same time, in England merchant started to ask gold smiths to hold gold and silver in
their safes in return for a fee. Receipts given to the Merchant were sometimes used to buy or
sell, with the metal itself staying under lock and key. The goldsmith realized that they could
lend out some of the gold and silver that they had and charge interest, as not all of the
merchants would ask for the gold and silver back at the same time. Eventually, instead of
charging the merchants, the goldsmiths paid them to deposit their gold and silver.
The bank of England was formed in 1694 to borrow money from the public for the
government to finance the war of Augsburg against France. By 1709, goldsmith were using
bank of England notes of their own receipts.

New technology transformed the banking industry in the 1900’s round the world, banks
merged into larger and fewer groups and expanded into other country.

INDIAN BANKING INDUSTRY ANALYSIS

The banking scenario in India has been changing at fast pace from being just the borrowers
and lenders traditionally, the focus has shifted to more differentiated and customized
product/service provider from regulation to liberalization in the year 1991, from planned
economy to market .Economy, from licensing to integration with Global Economics, the
changes have been swift. All most all the sector operating in the economy was affected and
banking sector is no exception to this. Thus the whole of the banking system in the country
has undergone a radical change. Let us see how banking has evolved in the past 57 years of
independence.

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After independence in 1947 and proclamation in 1950 the country set about drawing its road
map for the future public ownership of banks was seen inevitable and SBI was created in
1955 to spearhead the expansion of banking into rural India and speed up the process of
magnetization.

Political compulsion’s brought about nationalization of bank in 1969 and lobbying by bank
Employees and their unions added to the list of nationalized banks a few years later.
Slowly the unions grew in strength, while bank management stagnated. The casualty was to
the customer service declined, complaints increased and bank management was unable to
item the rot.
In the meantime, technology was becoming a global phenomenon lacking a vision of the
future and the banks erred badly in opposing the technology up gradation of banks. They
mistakenly believed the technology would lead to retrenchment and eventually the
marginalization of unions.

The problem faced by the banking industry soon surfaced in their balance sheets. But the
Prevailing accounting practices unable banks to dodge the issue.
The rules of the game under which banks operated changed in 1993. Norms or income
Recognition, Assets classification and loan loss provisioning were put in place and capital
adequacy ratio become mandatory. The cumulative impact of all these changes has been on
the concept of state ownership in banks. It is increasingly becoming clear that the state
ownership in bank is no longer sustainable.

The amendment of banking regulation act in 1993 saw the entry of new private sector banks
and foreign banks.

MAJOR PLAYER IN INDIA

1.HDFC BANK LTD
2.ICICI BANK LTD
3.STATE BANK OF INDIA LTD
4.PUNJAB NATOINAL BANK LTD
5.BANK OF BARODA LTD

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 1.2: HISTORY OF HDFC BANK

HDFC BANK LTD 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.
If ever there was a man with a mission it was Hasmukh bhai Parekh, Founder and Chairman-
Emeritus, of H.D.F.C Group. HDFC BANK LTD was amongst the first to set up a bank in
the
Private sector. The bank was incorporated on 30th August 1994 in the name of ‘HDFC Bank
Limited’, with its registered office in Mumbai. It commenced operations as a Scheduled
Commercial Bank on 16th January 1995. The bank has grown consistently and is now
amongst the leading players in the industry
.
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 In a milestone transaction in the Indian banking industry, Times Bank
was merged with HDFC Bank Ltd., effective February 26, 2000.

OBJECTIVE

The objective of the HDFC Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-step window for all
his/her requirements. The HDFC Bank plus and the investment advisory services programs
have been designed keeping in mind needs of customers who seeks distinct financial
solutions, information and advice on various investment avenue.

MISSION AND VISION OF HDFC BANK

MISSION

I. World Class Indian Bank

II. Benchmarking against international standards.
III. To builds sound customer franchises across distinct businesses
IV. Best practices in terms of product offerings, technology, service levels, risk
management and audit & compliance.

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VISION STATEMENT

The HDFC Bank is committed to maintain the highest level of ethical standards, professional
integrity and regulatory compliance. HDFC Bank’s business philosophy is based on four core
values such as:-
1.Operationalexcellence.
2.CustomerFocus.
3.Productleadership.
4. People.

BUSINESS STRATEGY

I. Increasing market share in India’s expanding banking

II. Delivering high quality customer service
III. Maintaining current high standards for asset quality through disciplined credit risk
Management
IV. Develop innovative products and services that attract targeted customers and address
Inefficiencies in the Indian financial sector

SWOT ANALAYSIS OF HDFC BANK

SWOT Analysis is a powerful technique for understanding your Strengths and Weaknesses,
and for looking at the Opportunities and Threats you face. Used in a business context, it helps
you carve a sustainable niche in your market. Used in a personal context, it helps you develop
your career in a way that takes best advantage of your talents, abilities and opportunities.

STRENGTH

Right strategy for the right products.

Superior customer service vs. competitors.
Great Brand Image
Products have required accreditations.
High degree of customer satisfaction.
Good place to work
Lower response time with efficient and effective service.
Dedicated workforce aiming at makinga long-term career in the field.

WEAKNESSES

Some gaps in range for certain sectors.

Customer service staff need training.
Processes and systems, etc
Management cover insufficient.
Sectoral growth is constrained by low unemployment levels and competition for Staff.

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OPPORTUNITIES

Profit margins will be good.

Could extend to overseas broadly.
New specialist applications.
Could seek better customer deals.
Fast-track career development opportunities on an industry-wide basis.
An applied research centre to create opportunities for developing techniques to provide
added-value services.

THREATS

Legislation could impact.

Great risk involved
Very high competition prevailing in the industry.
Vulnerable to reactive
attack by major competitors
Lack of infrastructure in rural areas could constrain investment.
High volume/low cost market is intensely competitive.

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 1.3: INTRODUCTION OF THE TOPIC

MEANING OF FINANCIAL STATEMENTS:-

Financial statements refer to such statements which contains financial information about an
enterprise. They report profitability and the financial position of the business at the end of
accounting period. The team financial statement includes at least two statements which the
accountant prepares at the end of an accounting period. The two statements are: -

1. The Balance Sheet

2. Profit And Loss Account

They provide some extremely useful information to the extent that balance Sheet mirrors the
financial position on a particular date in terms of the structure of assets, liabilities and owners
equity, and so on and the Profit And Loss account shows the results of operations during a
certain period of time in terms of the revenues obtained and the cost incurred during the year.
Thus the financial statement provides a summarized view of financial positions and
operations of a firm.

MEANING OF FINANCIAL ANALYSIS:-

The first task of financial analysis is to select the information relevant to the decision under
consideration to the total information contained in the financial statement. The second step is
to arrange the information in a way to highlight significant relationship. The final step is
interpretation and drawing of inference and conclusions. Financial statement is the process of
selection ,relation and evaluation.

Features of Financial Analysis:

1 .To present a complex data contained in the financial statement in simple and
understandable form.
2.To classify the items contained in the financial statement in convenient and rational groups.
3.To make comparison between various groups to draw various conclusions.

Purpose of Analysis of financial statements

To know the earning capacity or profitability.
To know the solvency.
To know the financial strengths.
To know the capability of payment of interest & dividends.
To make comparative study with other firms.
To know the trend of business.
To know the efficiency of mgt.
To provide useful information to mgt

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Procedure of Financial Statement Analysis

The following procedure is adopted for the analysis and interpretation of

financial statements:-

The analyst should acquaint himself with principles and postulated of accounting. He
should know the plans and policies of the management so that he may be able to find out
whether these plans are properly executed or not.

The extent of analysis should be determined so that the sphere of work

may be decided. If the aim is find out. Earning capacity of the enterprise then analysis of
income statement will be undertaken. On the other hand, if financial position is to be studied
then balance sheet analysis will be necessary.

The financial data be given in statement should be recognized and rearranged.It will
involve the grouping similar data under same heads. Breaking down of individual
components of statement according to nature. The data is reduced to a standard form.

A relationship is established among financial statements with the help of tools &
techniques of analysis such as ratios, trends, common size,fund flow etc.

The information is interpreted in a simple and understandable way. The significance and
utility of financial data is explained for help in decision making.

The conclusions drawn from interpretation are presented to the management in the form
of reports.

TYPES OF FINANCIAL ANALYSIS

A) Classification on the basis of natural used

a) External Analysis :Outsiders, who don’t have access to the detailed internal
accounting records of the business firm, do this analysis. These outsiders parties are potential
investor, creditors, credit agencies & general public.

b)Internal Analysis: :The analysis conducted by person who has access to the internal
accounting records of a business firm is known as internal analysis.

B) On the basis of modus operand:

a) Horizontal Analysis: Horizontal analysis refers to the comparison of financial data of

a company for several years. The figures of this type of analysis are presented
horizontally over a no. of columns. This type of analysis is also called “Dynamic
Analysis”.

b) Vertical Analysis : This analysis refers to the study of relationship of the various
items in the financial statements, of one accounting period. It is also known as “Static
analysis”.

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FUNCTIONS OF FINANCE DEPARTMENT

The functions of finance department include the following areas:

1)Effective management of financial resources of the company.

2) Coordinates & Monitors the functions of accounts activities in the units/ marketing offers.

3) Establish and maintain systems of financial control, internal check and render advice on
financial & accounting matters including examination of feasibility report and detailed
project reports.

4) Establish and maintain proper system of budgetary control, cost control and management
reporting.

5) Maintain financial accounts and compile annual periodical accounts in accordance with the
companies Act, 1956, ensuring the audit of accounts as per law/Govt. Directions

6) Looks after overall funds management and arranges funds required for the capital schemes
and working capital form govt., banks and financial institutions etc.

7) Timely payment of all taxes, levies & duties under the Law, Maintenance of records and
filing returns statements connected with such taxes, levies and duties with the appropriate
authorities , as per law.

All the power involving financial implications are to e exercised in prior consultation
with head of concerned finance department. In the event of any difference of opinion between
the General Manger and the Head of Finance Dept., the matter shall be referred to Managing
Director who after consulting Director (Finance) shall issue appropriate instruction after
following the prescribed procedures.

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METHODS OF FINANCIAL ANALYSIS

A number of methods can be used for the purpose of analysis of financial statements. These
are also termed as techniques or tools of financial analysis. Out of these, and enterprise can
choose those techniques which are suitable to its requirements. The principal techniques of
financial analysis are:

1.Comparative Financial Statements.

a)comparative balance sheet
b)comparative income statement
2.Trend Analysis
3.Common – size Statements
4.Fund flow analysis
5.Cash Flow Statement
6.Ratio Analysis

1.COMPARATIVE FINANCIAL STATEMENTS:

When financial statements figures for two or more years are placed side-side to facilitate
comparison, these are called “comparative Financial Statements”. Such statements not only
show the absolute figures of various years but also provide for columns to indicate to increase
or decrease in these figures from one year to another. In addition, these statements may also
show the change from one year to another on percentage form. Such cooperative statements
are of great value in forming the opinion regarding the progress of the enterprise.

PURPOSE OR UTILITY OR IMPORTANCE OF COMPARATIVE STATEMENTS

1.To make the Data simpler and more understandable

2.To indicate the Trend.
3.To indicate the strong points weak points of the concern
4.To compare the firms performance with the average performance of the industry
5.To help in forecasting.

FORMS OF PRESENTING COMPARATIVE STATEMENTS

1.To show only the absolute data of various items or in other words to show only rupee
amounts of various items.
2.To show the increases and decreases in data in terms of money values
3.To show the increases and decreases in data in terms of percentages
4.Comparison expressed in ratios
5.Use of cumulative figures and averages

Classification of comparative statement

A)COMPARATIVE BALANCE SHEET

The Comparative Balance Sheet as on two or more different dates can be prepared to show
the increase or decrease in various assets ,liabilities and capital. Such a comparative Balance
Sheet is very useful in studying the trends in a business enterprise.

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ADVANTAGES OF COMPARATIVE BALANCE SHEET

1.Helpful for comparison.

2.Helpful in knowing changing in the size of items.
3.Helpful in knowing trends.
4.Link between income statement and Balance sheet

B)COMPARATIVE PROFIT & LOSS ACCOUNT

Profit and loss account shows the net profit or net loss of a particular year
whereas comparative profit and loss account for a number of years provides
the following information
1.Rate of increase or decrease in gross profit.
2.Rate of increase or decrease in operating profit.
3.Rate of increase or decrease in cost of goods sales
4.Rate of increase or decrease in net profit
5.Rate of increase or decrease in sales.

2.TREND ANALYSIS

Trend percentage are very useful is making comparative study of the financial statements for
a number of years. These indicate the direction of movement over a long time and help an
analyst of financial statements to form an opinion as to whether favourable or unfavourable
tendencies have developed. This helps in future forecasts of various items.
For calculating trend percentages any year may be taken as the ‘base year’. Each item of base
year is assumed to be equal to 100 and on that basis the percentage of item of each year
calculated.
PROCEDURE FOR TREND ANAYSIS
1)One year is taken as base year.generally,the first or the last is taken as base year.
2)The figure of base year are taken as trend.
3)Trend percentage are calculated in relation to base year.

FEATURES OF TREND ANALYSIS

1)In case of a trend analysis all the given years are arranged in an ascending order.
2)The first year is termed as the “Base year” and all figures of the base year are taken as
100%.
3)Item in the subsequent years are compared with that of the base year.
4)If the percentages in the following years is above 100% it indicates an increase over the
base year and if the percentages are below 100% it indicates a decrease over the base year.
5)A trend analysis gives a better picture of the overall performance of the business.
6)A trend analysis helps in analysing the financial performance over a period of time.
7)A trend analysis indicates in which direction a business is moving i.e. upward or
downwards.
8)A trend analysis facilitates effective comparative study of the financial performance over a
period of time.
9)For trend analysis at least three years financial data is essential .Broader the base the more
reliable is the data and analysis.

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3.COMMON –SIZE STATEMENT
Common size ratios are used to compare financial statements of different- size companies or
of the same company over different periods. By expressing the items in proportion to some
size-related measure, standardized financial statements can be created, revealing trends and
providing insight into how the different companies compare. The common size ratio for each
line on the financial statement is calculated as follows:

Common Size Ratio=Item of Interest/Reference Item

For example, if the item of interest is inventory and it is referenced to total assets (as it
normally would be), the common size ratio would be:

Common Size Ratio for Inventory=Inventory Total Assets

The ratios often are expressed as percentages of the reference amount .Common size
statements usually are prepared for the income statement and balance sheet, expressing
information as follows:
•Income statement items - expressed as a percentage of total revenue
•Balance sheet items - expressed as a percentage of total assets
The following example income statement shows both the rupee amounts
and the common size ratios:

Common Size Income Statement

Income Common-Size Income

Statement Statement
Revenue 70,134 100%
Cost of Goods
Sold 44,221 63.1%
Gross Profit 25,913 36.9%
SG&A Expense 13,531 19.3%
Operating Income 12,382 17.7%
Interest Expense 2,862 4.1%
Provision for Taxes 3,766 5.4%
Net Income 5,754 8.2%
For the balance sheet, the common size percentages are referenced to the total assets. The
following sample balance sheet shows both the dollar amounts and the common size ratios:

Common Size Balance Sheet

Balance Sheet Common-Size Balance Sheet
ASSETS
Cash & Marketable
Securities 6,029 15.1%
Accounts Receivable 14,378 36.0%
Inventory 17,136 42.9%
Total Current Assets 37,543 93.9%
Property, Plant, &
Equipment 2,442 6.1%
Total Assets 39,985 100%
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities 14,251 35.6%
Long-Term Debt 12,624 31.6%

Total Liabilities 26,875 67.2%

Shareholders' Equity 13,110 32.8%
Total Liabilities & Equity 39,985 100%

The above common size statements are prepared in a vertical analysis, referencing each line
on the financial statement to a total value on the statement in a given period.
The ratios in common size statements tend to have less variation than the absolute values
themselves, and trends in the ratios can reveal important changes in the business. Historical
comparisons can be made in a time-series analysis to identify such trends. Common size
statements also can be used to compare the firm to other firms.

Comparisons Between Companies (Cross-Sectional Analysis)

Common size financial statements can be used to compare multiple companies at the same
point in time. A common-size analysis is especially useful when comparing companies of
different sizes. It often is insightful to compare a firm to the best performing firm in its
industry (benchmarking). A firm also can be compared to its industry as a whole.
To compare to the industry, the ratios are calculated for each firm in the industry and an
average for the industry is calculated. Comparative statements then may be constructed with
the company of interest in one column and the industry averages in another. The result is a
quick overview of where the firm stands in the industry with respect to key items on the
financial statements

FEATURES OF COMMON SIZE STATEMENT

1.A common size statement analysis indicates the relation of each component to the whole.
2.In case of a Common Size Income statement analysis Net Sales is taken as 100% and in
case of Common Size Balance Sheet analysis total funds available/total capital employed is
considered as 100%.
3.It is used for vertical financial analysis and comparison of two business enterprises or two
years financial data.
4.Absolute figures from the financial statement are difficult to compare but when converted
and expressed as percentage of net sales in case of income statement and in case of Balance
Sheet as percentage of total net assets or total funds employed it becomes more meaningful
to relate.

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4.CASH-FLOW STATEMENT:

A cash – flow statement is a statement showing inflows (receipts) and outflows (payments)
of cash during a particular period. In other words, it is a summary of sources and applications
of each during a particular span of time.

Objectives of Cash Flow Statement :

• Useful for Short-Term Financial Planning.

• Useful in Preparing the Cash Budget.
• Comparison with the Cash Budget.
• Study of the Trend of Cash Receipts and Payments.
• It explains the Deviations of Cash from Earnings.
• Helpful in Ascertaining Cash Flow from various Separately.
• Helpful in Making Dividend Decisions.

PURPOSE:

The cash flow statement reflects a firms liquidity or solvency. The main purpose to make
cash flow statement are as follows:
1. Provide information on a firm's liquidity and solvency and its ability to change cash flows
in future circumstances
2. Provide additional information for evaluating changes in assets, liabilities and equity
3. Improve the comparability of different firms' operating performance by eliminating the
effects of different accounting methods
4. Indicate the amount, timing and probability of future cash flows.

ACTIVITIES INVOLVED IN CASH FLOW:

The cash flow statement is partitioned into cash flow resulting from operating activities, cash
flow resulting from investing activities, and cash flow resulting from financing activities.

Operating activities: Operating activities include the production, sales and delivery of the
company's product as well as collecting payment from its customers. This could include
purchasing raw materials, building inventory ,advertising.

Investing activities: Investing activities focus on the purchase of the long-term assets a
company needs in order to make and sell its products, and the selling of any long-term assets.

Financing activities: Financing activities include the inflow of cash from investors such
as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the
company generates income. Other activities which impact the long-term liabilities and equity
of the company are also listed in the financing activities section of the cash flow statement.
Analysis of cash flow statement is necessary for every organisation to depict its cash inflow
and outflow.

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5.Fund Flow Statement:

Meaning of Fund Flow

The financial statement of the business indicate assets, liabilities and capital on a particular
date and also the profit or loss during a period. But it is possible that there is enough profit in
the business and the financial position is also good and still there may be deficiency of cash
or of working capital in business. If the management wants to find out as to where the cash is
being utilized, financial statement cannot help. Therefore, a statement is prepared of the
sources and applications of funds from where Working Capital comes and where it is
utilized. This is called Fund Flow statement.

Meaning of ‘Fund’:

In a popular and generally accepted sense the term ‘fund’ is used to denote the excess of
current assts over current liabilities : A fund flow statement is a summary of a firm's inflow
and outflow of funds. It tells us from where funds have come and where funds have gone.
Fund flows statement can indicate whether sourcing of funds and their use match in ALM
sense and also reveal the prudence or otherwise of a firm's financing and investment
decisions.

A firm's balance sheet

From a bank's perspective a borrower's balance sheet can be seen as a structure of five boxes
as below.We can observe the following from above figure:

• Owner's fund and long term loans represent long term sources of funds
• Current liabilities (including short term loans repayable within one year) represents
short term sources of capital.
• The whole of long term funds is not invested in long term assets but a portion of it is
invested in short term or current assets as well. The extent by which current assets are
financed by long term funds is known as net working capital or NWC.

If we convert balance sheets of two consecutive years into boxes as above and work out the
change in amounts in the boxes, we will get a fund flow statement as below.

Therefore, preparation of fund flow statement involves the followings steps:

• Take balance sheets as at two dates covering the period for which fund flows
statement is intended to be prepared.
• Work out increase /decrease in each of items
• Classify change in each item under any of the four heads: (1) Long term sources (2)
Long term uses (3) Short term sources (4) Short term uses. The deficit or the surplus
in the long term category will be equal to the surplus or deficit in the short term
category.

Preparing fund flow statement

Generally changes in assets and liabilities lead to inflows or outflows of cash (or funds).
Increase in assets or liabilities, however does not always lead to flow of funds, for instance,
depreciation or any kind of revaluation. Therefore, all increases/decreases in asset or

18
liabilities will not form part of fund flow statement but only those that result in the flows of
funds. The following table encapsulates the fund flow implications of changes in
asset/liabilities values.

Table -1
Asset Liability Type of fund Non-fund based adjustments
flow
Increase Outflows Upward revaluation
Decrease Inflows Depreciation
Increase Inflows Upward revaluation (as in the case
foreign currency liabilities)
Decrease Outflows Depreciation (as in the case foreign
currency liabilities)

When preparing fund flow statement we have to nullify the non-fund based adjustments in
order to capture only those changes in the values of assets and liabilities that are accompanied
by flows of fund. Increase in the item "reserves and surplus" indicate the amount of retained
profits for the year. If we add profits distributed to this figure we will get the amount of net
profit for the year after taxes. We need to adjust the net profit figure for all non-cash expenses
and non-cash incomes. As a rule, we have to add all non-cash expenditure to and deduct all
non-cash income from the figure of net profit. For depreciation in assets: Add depreciation to
the change in reserve and surplus and correspondingly to the value of assets concerned. The
opposite holds for appreciation. For write offs: Add the amount of write offs to net profits.

Fund Flow Statement

Rs. Lakh
Long term Sources Long Term Uses
Increase in capital 20 Purchase of fixed assets 125
Profit from operations 104 Investment in associates 56
Increase in long term loan 40 Profit withdrawn 50
Long term deficit 67
Total 231 Total 231
Short Term Sources Short Term Uses
Increase in CC 15 Incraese in inventory 35
Increase in Trade Creditors 80 Increase in receivables 5
Increase in Other Current Liabilities 5 Short term surplus 67
Decrease in cash 2
Decrease in other current assets 5
Total 107 Total 107

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How do we interpret the above fund flow statement? Basically, it shows healthy cash flows
from operations. However the problem is that the firm is using short term money to finance
long term investments. This can lead to liquidity problems in future. The onset of liquidity
problems is visible as the firm has increased current assets by Rs.33 lakhs as compared with
increase in current liabilities by Rs.100 lakh, which produces incremental current ratio of
0.33. Also, the promoter has withdrawn nearly half the profit, which is serious imprudence
when he had plans to invest heavily in fixed assets. From another angle, it can be argued that
the promoter has withdrawn the more than the entire bank loan. Prima facie, this also appears
to be a case of diversion of funds.

6.RATIO ANALYSIS

A ratio is simple arithmetical expression of the relationship of one number to another. It may
be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford,

“a ratio is an expression of the quantitative relationship between two numbers”.

Financial Ratio Analysis:-

Ratio Analysis : Ratio analysis is the process of determining and presenting the relationship
of items and group of items in the statements.
According to Batty J. Management Accounting
“Ratio can assist management in its basic functions of forecasting, planning,
coordination, control and communication”.
It is helpful to know about the liquidity, solvency, capital structure and profitability of an
organization. It is helpful tool to aid in applying judgement, otherwise complex situations.

Ratio may be expressed in the following three ways :

1. Pure Ratio or Simple Ratio :- Pure Ratio or Simple Ratio is expressed by the simple
division of one number by another. For example , if the current assets of a business are Rs.
200000 and its current liabilities are Rs. 100000, the ratio of ‘Current assets to current
liabilities’ will be 2:1.
2. ‘Rate’ or ‘So Many Times :- In this type, it is calculated how many times a figure is, in
comparison to another figure. For example , if a firm’s credit sales during the year are Rs.
200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is
200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
3. Percentage :- In this type, the relation between two figures is expressed in hundredth. For
example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit
capital, in term of percentage, is 200000/1000000*100 = 20%

ADVANTAGE OF RATIO ANALYSIS

The main advantages of Ratio Analysis are as follows :

1. Helpful in analysis of Financial Statements.
2. Helpful in comparative Study.
3. Helpful in locating the weak spots of the business.
4. Helpful in Forecasting.
5. Estimate about the trend of the business.

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6. Fixation of ideal Standards.
7. Effective Control.
8. Study of Financial Soundness.

LIMITATIONS OF RATIO ANALYSIS

The Limitations of Ratio Analysis are as follows :

1. Comparison not possible if different firms adopt different accounting policies.
2. Ratio analysis becomes less effective due to price level changes.
3. Ratio may be misleading in the absence of absolute data.
4. Limited use of a single data.
5. Lack of proper standards.
6. False accounting data gives false ratio.
7. Ratios alone are not adequate for proper conclusions.
8. Effect of personal ability and bias of the analyst.

CLASSIFICATION OF RATIOS

In view of the financial management or according to the tests satisfied, various ratios have
been classified as below:

LIQUIDITY RATIO

Liquidity ratios are measures of the short-term ability of the company to pay its debts when
they come due and to meet unexpected needs for cash.

Current Ratio: The current ratio is a rough indication of a firm ability to service its current
obligations. Generally, the higher the current ratio, the greater the cushion between current
obligations and a firm ability to pay them.The stronger ratio reflects a numerical superiority
of current assets over current liabilities Current ratio is calculated as follows:

Current ratio= Current Assets/Current Liabilities

Quick Ratio: It is also known as the “acid test” ratio, this is a refinement of the current
ratio and is a more conservative measure of liquidity. The quick ratio expresses the degree to
which a company’s current liabilities are recovered by the most liquid current assets .Quick
ratio is calculated as follows:
Quick ratio= (cash + marketable securities + Receivables)/current liabilities

SOLVENCY RATIO
Solvency ratios indicate the ability of the company to meet its long-term obligations on a
continuing basis and thus to survive over a long period of time.

Debt/Worth Ratio: This ratio expresses the relationship between capital contributed by
creditors and that contributed by owners. It expresses the degree of protection provided by
the owners for the creditors. The higher the ratio, the greater the risk being assumed by
creditors. The lower the ratio, the greater the long-term financial safety. A firm with a low

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debt/worth ratio usually has a greater flexibility to borrow in the future. Amore highly
leveraged company has a more limited debt capacity.
Debt/worth ratio=Total Liabilities / Tangible Net Worth

PROFITABILITY RATIO

Profitability ratios are gauges of the company's operating success for a given period of time.

Return On Assets: Return on assets is a measure of how effectively the firm’s assets are
being used to generate profit. It is calculated as follows:

Return On Assets= Net Income/Total Assets

Return On Equity: Return on equity is the bottom line measure for the shareholders,
measuring for the profits earned for each rupee invested in business. It is calculated as
follows:

Return on Equity= Net income/shareholder’s equity

Fixed/Worth Ratio: This ratio measures the extent to which owner’s equity (capital) has
been invested in plant and equipment (fixed assets). A lower ratio indicates a proportionately
smaller investment in fixed assets in relation to net worth and a better cushion for creditors in
case of liquidation. Similarly, a higher ratio would indicate the opposite situation .The
presence of substantial leased fixed assets (not shown on the balance-sheet ) may deceptively
lower this ratio.

Fixed Worth Ratio=Net Fixed Assets/ Tangible Net Worth

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 CHAPTER 2.REVIEW OF LITERATURE

ARTICLES:

2.1:HDFC BANK:Promoters rights:

The Memorandum and Articles of Association of the Bank provides the following rights to
HDFC Limited, promoter of the Bank:The Board shall appoint non-retiring Directors from
amongst the Directors nominated by HDFC Limited with the approval of shareholders, so
long as HDFC Limited and its subsidiaries, singly or jointly hold not less than 20% of the
paid-up share capital of the Bank.
HDFC Limited shall nominate either a part-time Chairman and the Managing Director or a
full time Chairman, with the approval of the Board and the shareholders so long as HDFC
Limited and its subsidiaries, singly or jointly hold not less than 20% of the paid-up share
capital of the Bank.
Under the terms of Bank’s organisational documents, HDFC Limited has a right to nominate
two directors who are not required to retire by rotation, so long as HDFC Limited, its
subsidiaries or any other company promoted by HDFC Limited either singly or in the
aggregate holds not less than 20% of paid up equity share capital of the Bank. At present, the
two directors so nominated by HDFC Limited are the Chairman and the Managing Director
of the Bank.

2.2:HDFC BANK: Better times, post-merger:

The acquisition of Times Bank by HDFC Bank using the merger route may prove beneficial
over the medium-to-long term. Since it is being financed by stock issuance, the merger takes
on an attractive hue. But in the near term, there could be some strains on the balance-sheet
since Times Bank's key parameters do not match HDFC Bank's, says S. Vaidya Nathan.
IN MANY respects, HDFC Bank has been the banking stock for the second half of 1990s.
Highly fancied by institutional and retail investors, it has delivered good value since its 1995
IPO. It has consistently enjoyed a higher valuation in terms of price-earnings multiples
compared to its peers in the industry, including the likes of State Bank of India and
Corporation Bank. This was also in the last three years when the valuation of the banking
sector was marked down sharply. Now the bank has used its valuation to good effect by
acquiring Times Bank through an equity offer. With this acquisition, HDFC Bank's
geographical reach, deposits and business potential stand enhanced considerably.
The acquisition also does not lead to a significant expansion in the equity base - only by
21.50 per cent even after considering the proposed preferential allotment of equity to the
promoter groups.

At HDFC Bank, we understand the value of your time and the opportunities it holds
for you. Your personal financial investment needs might get overlooked, while you attend to
your business and professional needs. In line with this, we are pleased to offer to you a
customised Investment Advisory Service for your existing portfolios and regular investable
surpluses.
The service offers research – based advice to optimise returns on your investment portfolio
across a range of financial instruments, keeping in line with your profile and investment
objectives. Your existing portfolio is analysed to advice you on rebalancing to obtain an
optimum asset mix. Here, a dedicated advisor regularly guides you through the evolution of
new market opportunities, to evaluate and restructure your existing investment portfolio.

23
HDFC BANK:Privacy:
Who is covered by this Policy
All visitors ("visitors") who visit the site http://www.hdfcbank.com and provide information
to HDFC Bank online are covered under this Policy

Information covered by this Policy

This Policy seeks to cover private information of the Visitors provided to HDFC Bank online
as also any information collected by the bank server from the visitors browser. ("the
Information")

The Features of the Policy :

All Information collected shall only be used to provide the Visitor with the best possible
services.
The Information shall not be shared with any external organisation unless the same is
necessary to enable HDFC Bank to provide you services or to enable the compilation of a
transaction, credit reporting, or the same is necessary or required pursuant to applicable
banking norms or pursuant to the terms and conditions applicable to such Information as
agreed to with HDFC Bank. Needless to add, confidentiality norms as applicable to banks
shall be adhered to. HDFC Bank may also share Information to provide you with superior
services and a range of offers.
HDFC Bank will use the Information to improve the visitor experience on the site and
make subsequent offers to the visitor on products which may be of interest to him / her.
The HDFC Bank website uses cookies. Cookies are small data files that a website stores
on your computer. We use persistent cookies which are permanently placed on your
computer to store non-personal (Browser, ISP, OS, Clickstream information etc) and
profiling information (age, gender, income etc). While cookies have unique identification
nos, personal information (name, a/c no, contact nos etc) SHALL NOT be stored on the
cookies.

We will use the information stored in the cookies to improve visitor experience through
throwing up relevant content where possible. We will also use the cookies to store visitor
preferences to ease visitor navigation on the site.

We may in the future implement encryption of the cookies.

HDFC Bank also may disclose information about you as permitted or required by law.
At HDFC Bank, we value your relationship and will at all times strive to ensure your
privacy.

First a few quick words on earnings season. We're just over a week into it and "sell the
news" is dominating.
Monday evening we had IBM (IBM) and Texas Instruments (TXN). IBM is doing fine on
the bottom line but the top line is struggling. This is not really an American company
anymore but a true multinational with 60%+ of its business overseas, so currency shifts
affect it greatly. That issue, along with some weakness in future order flow, appears to be
the culprit. Why do we care about IBM? In the (stupid) price-weighted Dow, the higher
the share price the more effect the stock has on the index; hence IBM is a massive weight

24
at 9%, or about 3x as much impact as a more practical equal weight index. Therefore,
IBM's performance is going to have an outsized effect on today's action. As an aside, the
Texas Instruments report was actually quite fine, but "sell the news" is hitting it just as
did Intel a week ago. This must be respected.
As for our holdings, Indian bank HDFC (HDB) continues to perform quite well. As
always the main issue here is what are you willing to pay for this type of growth and
regional financial exposure? The company released it's earnings Monday and actually
rallied despite the sell the news atmosphere. I've not done much with the name other than
sitting and holding a very modest position for quite a few months, as I am hoping for a
larger swoon and/or time to consolidate the huge run it made in the past 18 months. The
stock has simply been dancing within a large range for quite a few months, so only traders
have been making money, but considering the market's poor action during that time,
flattish is a sign of (relative) strength. (Click to enlarge)

Via Reuters:
HDFC Bank, India's No. 2 private sector lender, reported its strongest profit growth in
more than a year, and highlighted more gains for the booming industry on robust loan
demand. "The signs of core loan growth are clearly visible in the strong earnings of the
top banks and we see this picking up in the coming quarters," said K.K. Mital, head of
portfolio management services at Globe Capital.
HDFC Bank matched analysts estimates with a 34% rise in April-June net profit as
companies and consumers take advantage of a fast-growing economy.
The bank's net interest margin, a key gauge for profitability, edged up to 4.3% from
4.2%, and Sukthankar said margins would remain in a 4-4.3% range in the near-term.
HDFC’s gross advances, during the quarter, expanded by a little over 40%. Its retail book
alone grew by 24.4% over June 30, 2009 to Rs 76,068 crore and currently constitute
51.5% of total advances. Nearly Rs 21,000-crore of retail loans is auto loans, Rs 9,500-
crore housing loans and around Rs 9,000-crore personal advances, the bank said.
The bank expects strong demand from mortgage borrowers and improving asset quality to
help it exceed the sector's 20% credit growth estimated in the year ending March 2011.
The lender has seen a steady improvement in its asset-quality and managed to reduce
the level of net non-performing assets to 0.3% as against 0.6% a year earlier,
Sukhathankar said.
Its capital adequacy improved to 16.3%, up from 15.4% a year earlier and much
above the 9% mandated by the central bank.
Bank credit in India grew an annual 21.7% in early July, according to the central bank's
data, in line with a rise in business and consumer confidence, from a low of 9.7% in
October and compared with 16.7% at end-March.
As of June 30, 2010, the bank's distribution network was 1,725 branches and 4,393 ATMs
in 780 cities, compared to 1,416 branches and 3,382 ATMs in 550 cities as of June last
year.

25
Of course, with the high growth rates come central banks trying to apply the breaks...
India's has begun.
Analysts said a sharp rise in interest rates could derail demand for loans, especially from
mortgage borrowers.

2.3:HDFC Bank net up 33% as loan demand rises:

HDFC Bank Ltd, India’s second largest private sector lender, recorded a 32.90% rise in
net profit to Rs1,087.83 crore in the December quarter, driven by an increase in its
interest and fee income.
The profit has beaten the Street estimate. Analysts’ estimates at Bloomberg had forecast
net profit of Rs1,040 crore for the bank.
HDFC Bank added, Rs5,229.96 crore by way of interest income, a 29.62% rise from the
Rs4,034.81 crore earned in the same period last year.
A 25.44% rise in fee income also added to the bank’s profit. HDFC earned Rs1,127.82
crore through fees versus Rs899.08 crore earned last year.
Non performing assets (NPAs) of the bank dropped to 0.2% of its net advances from
0.5% last year.
Bigger rivals State Bank of India and ICICI Bank had also beat market expectations with
an improvement in asset quality in an economy growing at 8.5%, but rising interest rates
is a concern for the sector.
The Reserve Bank of India (RBI) raised interest rates on Tuesday by a quarter of a
percentage point to clamp down on resurgent inflation, and spurred expectations it would
raise rates again in coming months to check price pressures.

26
 CHAPTER 3.OBJECTIVE OF THE STUDY

Objectives are the ends that states specifically how goal be achieved. Every study must
have an objective for which all the efforts have been done. Without objective no research
can be conducted and no result can be obtained. On the basis of objective all the research
process is followed .Objectives are the main aspect of every study. The objective of the
study gives direction to go through the research problem. It guides the researcher and
keeps him on track.
I have two objectives regarding my research project. These are shown
below :

● To study all the financial statements for the past four years and to identify the changes
in the various items present in them.

●To examine the impact of the changes in the financial statements on the financial
position and profitability of the board.

●Preparation of comparative statements to know the changes in the absolute figures as

well as the percentages.

●Preparation of common size statements to understand theComposition of the various

assets and liabilities in the balance Sheet, the composition of the various expenses and the
proportion of the profits (gross, operating and net) to sales in the income statements.

● To know the liquidity ratios, solvency ratios, general profitability ratios, turnover ratios
and overall profitability ratios in order to ascertain financial significance of the figures
contained in the financial statements by establishing relationships between them.

●To inform the management about the financial condition of HDFC

●To analyse the financial statements of the corporation to it’s true financial position by
the use of ratio.

CHAPTER 4:RESEARCH METHODOLOGY

27
 Preparing the project report is a research analysis ,it involves the process of collecting data,
analyzing data & reporting data for absolute results.
For the preparation of project report on “Financial Statement Analysis” of
“HDFC Bank” .This project report is based on two types of data i.e
.(1)Primary data
(2)Secondary data.

1).Primary data:-
Primary data is the data, which has not been collected & used by somebody else
before. In short ,Primary data means the data specifically collected for the project. I have
collected data from the managers by asking question because it is difficult for me to
understand the study.

2)Secondary data:-
Secondary data is the data, which is collected from published source. I have
collected data from various sources such as bank’s annual report of previous year, different
document prepared by the bank and from various reference books also.

After the data collection of both the sources, I have analyzed the data & conducted
various financial statement analysis & prepared various graphs. After analyzing the data ,I
have derived a conclusion and have made suggestions based on my analysis.

28
 CHAPTER NO 5: DATA ANALYSIS

4.1:Net revenue breakdown for the year 2008

INTERPRETATION:
The above chart shows us the net revenue breakdown of HDFC bank for
the year 2008.net income has the highest percentage with 69% followed by fee income with
23%.

4.2:GROWTH IN NET PROFIT,INCOME AND ADVANCES

INTERPRETATION: As on 31march 2010 above diagram shows us the net profit in

2008-09 quater was 837 cr as compaired to 2009-10 which was 631cr with 33%
increase.and net income with 27% increase.

29
 4.3: HDFC six years consolidated performance

INTERPRETATION

Strong Capital Base

HDFC Bank has its Capital Adequacy ratios at 15.10 percent much above the mandatory 9%
requirement stipulated by RBI. Net NPA at 0.63 percent is also among the best in the
industry.

Return on Equity (RoE) and Return on Assets (RoA)

These metrics are the defacto standards for gauging bank profitability.
RoE improved to 17.7 percent in FY09 from 16.4 percent a year ago successfully reversing
the gradual declining trend of the last few years. Generally investors are advised to look for
banks that can consistently generate mid to high-teens return on equity. Coupled with this it
has been maintaining RoAs consistently over 1.4 percent –that’s a super track record, as
generally for the banking sector, a top RoA is in the 1.2 to 1.4 percent range.

Efficiency Ratio:
The efficiency ratio measures non-interest expense, or operating costs, as a percentage of
income. Basically it tells you how efficiently the bank is managed. Many good banks have
efficiency ratios under 55% (lower the better)
Cost-efficiency ratios are down to the low 40s, which is a good sign. But what is more
commendable is that it is becoming more efficient at utilising the Assets for generating
Interest Income (Interest Income/Total Assets)- see the gradual improving trend and the
marked jump in FY09 over FY08.

Net Interest Margins (NIM)

Another simple measure to watch is net interest margin, which looks at net interest income as
a percentage of average earning assets. Track margins over time to get a feel for the trend.

30
It is one of the few banks that have held the net interest margins at over 4% for the last few
years and gradually improving. This is a commendable job in a rising interest rate scenario
that we witnessed in the last few years. No other Indian Bank comes even close to it on this
front.
Strong Revenues
Historically many of the best-performing bank investments have been those that have proven
capable of above-average revenue growth
It has a very consistent track record in growing the Balance Sheet and Revenues. While
deposits and advances have grown at a 5yr CAGR of over 40%, Incomes have grown at a 5yr
CAGR of over 50%. Net Interest Income has been growing at a healthy 5yr CAGR of over 40
percent. Fee Income has also grown at a similar 43 percent CAGR over 5 years. This is an
impressive record when seen together with the high NIMs at over 4%

4.4 : HDFC Bank (HDB) Quarterly Performance

That makes for a decent if somewhat unspectacular picture, with growth being mostly in the
low teens. However you can put this in perspective when you compare the results of the other
leading Indian Bank ICICI Bank (IBN) June FY10 performance.
You might be asking already - well with a solid performance like above, it must be priced
expensively, right.

4.5:Cash flow statement for the year ended 31 mar2009 as compared to 31 mar 2008

31
INTERPRETATION:
Figure above is the Cash flow statement for the year ended 31 mar2009
as compared to 31 mar 2008.Bank have a satisfactory increase in income profit and
appropriations.

4.6:COMPARATIVE PROFIT AND LOSS

32
 OF HDFC BANK
FOR THE YEAR ENDED 31ST MARCH, 2007
COMPERATIVE INCOME
STATEMENT
for the year ended 31st march 2008
PARTICULARS 2007 2008 INC/DEC %INC/DEC
INT INCOME 8303.34 12354.41 4051.07 48.78
(-)Cost of sales 2371.06 3663.56 1292.5 54.51
G.P(A) 5932.28 8690.85 2758.57 46.5
OPERATING EXP
Selling Exp 74.88 114.73 39.85 53.21
Adm EXP 1519.32 2247.48 728.16 47.92
Total Operating Exp(B) 1594.2 2362.21 768.01 48.17
Operating income(A-B) 4338.08 6328.64 1990.56 45.88
(+)O.Income 2855.79 3846.77 990.98 34.7
T.Inc 7193.87 10175.41 2981.54 41.44
(-)O.Exp 3956.31 6188.47 2232.16 56.42
Net income 3237.56 3986.94 749.38 23.14
(-)Tax 497.7 690.9 193.2 38.81
Net Profit 2739.86 3296.04 556.18 20.29

INTERPRETATION

Above shown is the comparative profit and loss account of HDFC Bank for year ended 31
march 2007. Since the net income and profit of the bank has been increased by 23.14% and
20.29% respectively during last fiscal so financial of bank is satisfactory.

4.7:RATIOS

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35
36
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 CHAPTER 6:FINDINGS

✓ HDFC Bank Ltd, India’s second largest private sector lender, recorded a 32.90% rise
in net profit to Rs1,087.83 crore in the December quarter, driven by an increase in its
interest and fee income.

✓ HDFC Bank has its Capital Adequacy ratios at 15.10 percent much above the
mandatory 9% requirement stipulated by RBI.

✓ Historically many of the best-performing bank investments have been those that have
proven capable of above-average revenue growth. It has a very consistent track record
in growing the Balance Sheet and Revenues.

✓ Since the dividend per share has shown a promising increase for the
period under study .It shows that the bank is following a sound dividend
policy and is capable of distributing higher dividends. in this way the investors
will feel investing in capital of the bank a much beneficial option and will be reluctant
to withdraw capital for a longtime.

✓ Profit earnings ratio of HDFC BANK is 28.80 %.The earnings per share for the period
under study also shows a promising increase .it suggests that bank has better
profitability position and in future it can be a better or attractive channel of
investment for shareholders.

✓ High trends of credit deposit ratio reveals that bank has performed satisfactorily as
regard to granting loans and advances to generate income. It suggests that credit
performance is good and the bank is doing its business good by fulfilling its major
objective as regards to granting loans and accepting deposits.

✓ HDFC Bank reported a 32.6% rise in its quarterly profit, beating market estimates,
bolstered by a pick-up in credit demand in Asia's third-largest economy. Profits were
boosted by a 29% drop in interest expenses, which improved net interest income by
27%

39
 CHAPTER 7: CONCLUSION, SUGGESTIONS AND LIMITATIONS

7.1 CONCLUSION
• The balance-sheet along with the income statement is an important tools for investors
and many other parties who are interested in it to gain insight into a company and its
operation. The balance sheet is a snapshot at a single point of time of the company’s
accounts- covering its assets, liabilities and shareholder’s equity.
• The purpose of the balance-sheet is to give users an idea of the company’s financial
position along with displaying what the company owns and owes. It is important that
all investors know how to use, analyze and read balance-sheet. P & L account tells the
net profit and net loss of a company and its appropriation.
• In the case of HDFC Bank, during fiscal 2008, the bank continued to grow and
diversify its assets base and revenue streams. Bank maintained its leadership in all
main areas such as retail credit, wholesale business, international operation ,insurance,
mutual fund, rural banking etc. Continuous increase in the number of branches, ATM
and electronic channels shows the growth take place in bank.
• Trend analysis of profit & loss account and balance sheet shows the % change in
items of p & l a/c and balance sheet i.e. % change in 2006 from 2005 and % change in
2007 from 2006. It shows that all items are increased mostly but increase in this year
is less than as compared to increase in previous year. In p& l a/c, all items like interest
income, non-interest income, interest expenses, operating expenses, operating profit,
profit before tax and after tax is increased but in mostly cases it is less than from
previous year but in some items like interest income, interest expenses, provision %
increase is more. Some items like tax, depreciation, lease income is decreased.
Similarly in balance sheet all items like advances, cash, liabilities, deposits is
increased except borrowings which is decreased. % increase in some item is more
than previous year and in some items it is less.
• Ratio analysis of financial statement shows that bank’s current ratio is betterthan the
quick ratio and fixed/worth ratio. It means bank has invested more incurrent assets
than the fixed assets and liquid assets. Bank have given moreadvances to its customer

40
 and they have less cash in their hand.Profitabilityratio of bank is lower than as
compared to previous year. Return on equity isbetter than the return on assets.
• The cash flow statement shows that net increase in cash generated from operating and
financing activities is much more than the previous year but cash generated from
investing activities is negative in both year. There is increase of 159,708,479 thousand
RS. in Increase in cash & cash equivalents from previous year. Therefore analysis of
cash flow statement shows that cash inflow is more than the cash outflow in HDFC
Bank.
Thus, the ratio analysis and trend analysis and analysis of cash flow statement shows that
HDFC Bank’s financial position is good. Bank’s profitability is increasing but not at high
rate. Bank’s liquidity position is fair but not good because bank invest more in current assets
than the liquid assets. As we all know that HDFC Bank is on the first position among all the
private sector bank of India in all areas but it should pay attention on its profitability and
liquidity .Bank’s position is stable.

7.2 SUGGESTIONS

1) The attention is required on the areas of growth, profitability, service level and
building talent.
2) To increase the profit of bank, bank should decrease their operating expenses and increase
their income.
3) To increase the profit of bank, bank should decrease their operating expenses and increase
their income.
4) To increase its liquidity, bank should keep some more cash in its hand instead of
giving more and more advances.
5) Introduce quality consciousness and standardization of the work system and
procedures.
6) Make manager competitive and introduce spirit of market-orientation and culture of
working for customer satisfaction.
7) There is need to build the knowledge and skill base among the employees in the context of
technology.
8) Performance measure should not only cover financial aspects i.e. quantitatively aspects but
also the qualitative aspects.

41
7.3:LIMITATIONS OF STUDY
There is no activity that can be completed without any limitation .The main
limitation faced during the preparation of this project report on “Financial Statement
Analysis”of “HDFC BANK” is as
follows:-
Time available for the completion of the project is very short,Hence much information
could not be undertaken.
The information collected through secondary data.Some of the information might be
wrong.
The calculation & computation are based on valuable information given by the bank.
The report is based on the analysis of the last five years data,which may not be sufficient
in some cases.
The analysis and conclusion made is as per my limited understanding for this concerned
subject.

Lack of practical knowledge about conducting the research.

Don’t having any practical knowledge of doing financial analysis

The analysis and interpretation are based on secondary data contained in the published
annual reports of ICICI group for the study period, Research Papers, etc.

Ratio itself will not completely show the company’s good or bad financial position.

The study of financial performance can be only a means to know about the financial
condition of the company and cannot show a through picture of the activities of the company

42
 CHAPTER 8:BIBLIOGRAPHY

BOOKS REFFERED:

Philip Kotler (Eight Edition), “ Marketing Management

T.N Chhabra , Human Resource Management

WEBSITES REFFERED:
http://www.hdfcbank.com/personal/default.htm
http://en.wikipedia.org/wiki/HDFC_Bank
http://www.accessmylibrary.com/article-1G1-58041489/india-hdfc-bank-better.html

REPORTS/ARTICLES REFFERED:

Annual report of HDFC BANK 2009.

http://www.scribd.com/doc/11840537/Welcome-to-All-of-You-in-the-power-point-
persentation-of-hdfc-bank-saving-account

43
CHAPTER 9: ANNEXURE

44