a study on financial statement analysis in hdfc bank ltd 2013

HDFC Bank

Financial Analysis of HDFC

Financial Analysis of HDFC Bank

A

PROJECT REPORT

ON

A STUDY ON FINANCIAL STATEMENT ANALYSIS IN HDFC BANK

MASTER OF MANAGEMENT STUDIES (MMS)

UNIVERSITY OF MUMBAI

SUBMITTED TO

SINHGAD INSTITUTE OF BUSINESS MANAGEMENT

CHANDIVALI

UNDER THE GUIDANCE OF

MRS. SUSHMA VERMA

SUBMITTED BY

ABHIRUP KRISHNA UBALE

BATCH : 2011-2013 ROLL NO : 112

FINANCE

2


CERTIFICATE

This is to certify that Mr. Abhirup Krishna Ubale has successfully completed the project work as a part of academic fulfillment of Masters of Management Studies (M.M.S.) semester IV examination.

Mrs. Sushma Verma

Date : _________________

DIRECTOR

SIBM

3


DECLARATION

I, Abhirup Krishna Ubale of Master of Management Studies Semester IV of

Sinhgad Institute of Business Management (SIBM), hereby declare that I have

successfully completed this Project on A Study on Financial Statement Analysis

in HDFC Bank Limited in the academic year 2012 – 13.The information

incorporated in this project is true and original to the best of my knowledge.

_____________________________

Signature

4


ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me

during the writing of this book.

My deepest thanks to Professor, Mrs. Sushma Verma the Guide of the project

for guiding and correcting various documents of mine with attention and care.

She has taken pain to go through the project and make necessary correction as

and when needed.

I express my thanks to the Director of, Sinhgad Institute of Management

Studies, Chandivali, for extending her support.

I would also thank my Institution and my faculty members without whom this

project would have been a distant reality. I also extend my heartfelt thanks to

my family and well wishers.

5


CONTENTSPAGE

NO

INTRODUCTION 7

FINANCIAL SECTOR OF INDIA – AN OVERVIEW 10

HDFC BANK 13

FINANCIAL ANALYSIS 16

FINANCIAL STATEMENT ANALYSIS OF HDFC BANK 19

COMPARATIVE STATEMENT ANALYSIS 16

RATIO ANALYSIS OF HDFC BANK 29

COMMON SIZE ANALYSIS OF HDFC BANK 49

TREND ANALYSIS OF HDFC BANK 56

GROSS NON-PERFORMING ASSET AND NET NON-PERFORMING 60

MANAGERS PERSPECTIVE 67

BIBLIOGRAPHY 68

6


INTRODUCTION

Financial statement analysis is very helpful in spanning

bank’s internal operations and its relations with the

outside world. Therefore, the financial information must

be organized into an understandable, coherent and

sufficiently limited set of data. Data from the financial

statement analysis can be used to quickly calculate and

examine financial ratios. An attempt has been made

here to analyse the financial statements of HDFC Bank.

The investors rely on the financial statement to judge

the performance of the bank and ensure that these

statements are correct, complete, consistent and

comparable. The accuracy of the financial statement

can be identified from the report of the auditors. The

financial statement analysis can be used by investors

for deciding about their investments. The financial

institutions also use these statements while granting

loans to the banks. The debenture holders, creditors,

employees and government can also use the financial

statements for different purposes.

The bank itself and outside providers of capital –

creditors and investors – all undertake financial

7


statement analysis. The type of analysis varies

according to the specific interests of the party involved.

Creditors are primary interested in the liquidity of a

bank. Their claims are short term, and the ability of the

bank to pay these claims quickly is best judged by an

analysis of the bank’s liquidity. The claims of bond

holders, on the other hand, are long term. Accordingly,

bond holders are more interested in the cash – flows

ability of the bank to service debt over a long period of

time.

Inflation Rate

Inflation rate in double-digit and resulted in hike in

policy rates by 150 bps, which put the liquidity

situation under high stress. Although, further rate hike

is not imminent, but inflation would drive the monetary

policy further and interest rate expected to remain

high.

8


Headline inflation is always considered as a major

vexation for the India’s central bank. Since, inflation

was reading in a double-digit figure, it was a challenge

for the Reserve Bank of India to fix the inflation

problem under the condition of fragile global economic

recovery without denting the recovery process. In

response to that, RBI revised its policy rates by over

100 bps and now it does seem that the policy action is

working but the money supply is still at 20.34 per

cent. Both trend lines are now acting inversely, and

inflation is falling down to 8 per cent. According to VMW

Research, inflation is projected at 7.48 per cent for the

month of Nov, 2010. It is also evident that in the past

three months, schedule commercial banks and non-

banking financial companies have started

borrowing from the RBI’s window of Liquidity

9


Adjustment Facility (LAF) at the rate of 6.25 per cent.

Since, banks are now left with the limited amount of

liquidity; they’re again focusing on deposits from

customers. Several banks have revised their deposit

rates between 50 bps and 150 bps to attract funds,

however, going forward, banks will see a

narrow interest rate spread, resulted in lower earnings.

Discomfort levels of inflation and money supply will

keep interest rates higher for the next few months.

Moreover, to reduce the impact of tight liquidity, RBI

has already started the Open Market Operation

(OMO) to infuse liquidity by way of purchasing

government bonds in exchange of money.

10


FINANCIAL SECTOR OF INDIA – AN OVERVIEW

Financial Sector of India is intrinsically strong,

operationally sundry and exhibits competence and

flexibility besides being sensitive to India’s economic

aims of developing a market oriented, industrious and

viable economy. An established financial sector assists

greater standards of endowments and endorses

expansion in the economy with its intensity and

exposure. The fiscal sector in India entails banks,

financial organization, markets and services.

Fiscal transactions in an organized industry are

executed by a number of financial organizations which

are commercial in nature and offer monetary services

to the society. Further classification includes banking

and non-banking enterprises, often recognized as

activities that are client specific. The chief controller of

the finance in India is the Reserve Bank of India (RBI)

and is regarded as the supreme organization in the

fiscal structure.

Other significant fiscal organizations are business

banks, domestic rural banks, cooperative banks and

development banks. Non-banking fiscal organizations

entail credit and charter firms and other organizations

11


like Unit Trust of India, Provident Funds, Life Insurance

Corporation, Mutual funds, GIC, etc.

12


INDIAN BANKING SECTOR

After a difficult FY09 Indian banks managed to grow

their balance sheets in FY10 albeit at a lower average

rate than that projected by the RBI. The monetary

stimuli (reduction in repo rate, cash reserve ratio (CRR)

and statutory liquidity ratio (SLR) offered to the banks

by the RBI early in the fiscal made it easier to sustain

margins But what really helped was the accretion of

low cost deposits (CASA). Indian banks grew their

advances and deposits by 16.9% YoY and 17.2% YoY

respectively in FY10. The growth was mainly driven by

a expansion in low cost deposits and growth in agricultural and large

corporate credit.

With lesser avenues of credit disbursal, banks had to

park most of the liquidity available with them with the

RBI. In the retail portfolio, while home loans grew by

13


11% YoY, personal loans enjoyed a much smaller

growth of 6% YoY due to bank's reluctance towards

uncollateralized credit. Credit card outstanding in fact

dropped by 27% YoY.

Indian banks, however, enjoyed higher levels of money supply,

credit and deposits as a percentage of GDP in FY10 as

compared to that in FY09 showing improved maturity in the

financial sector.

Despite poor pricing power lower cost of funds helped

Indian banks grow their net interest margins in FY10.

While few like ICICI Bank chose to reduce their balance

sheet size, most entities chose to reasonably grow their

franchise as well as assets. Public sector banks outdid

their private sector counterparts in terms of growth and

14


franchise expansion in the last fiscal. Improved capital

adequacy also helped banks to comfortably comply

with Basel II. The higher efficiency levels were the

hallmarks of better performance of Indian banks last

year.

Most banks had to restructure some loans in their

portfolio during FY10 which deferred their interest

income. Further the PSU banks had also to provide for

the loss of interest on the agri-loans waived by the

government.

15


HDFC Bank

In August, 1994 the Housing Development Finance

Corporation Limited (HDFC) was incorporated in the

name of HDFC Bank Limited. The Reserve Bank of India

has approved in principle to set up private banks. HDFC

was one of the first organizations to receive in principle

approval from RBI. The HDFC Bank has its registered

office in Mumbai. In January 1995, the operations of

HDFC Bank as a commercial bank has commenced.

In India and in international markets HDFC has an

impeccable track record. HDFC has maintained a

healthy growth and a consistency in its operations and

remained as a leader in market of mortgages. The

portfolio of HDFC’s outstanding loan has a million

dwelling units.

HDFC has a large corporate client base for housing

related credit facilities. HDFC was ideally positioned to

promote a bank in the Indian market with its

experience and strong reputation in market of finance.

HDFC Bank has 1,725 branches in India.

Objective:

16


HDFC Bank is a young and dynamic bank, with a youthfuland

enthusiastic team determined to accomplish the vision ofbecoming

a world-class Indian bank.

Bank’s business philosophy is based on four core values- Customer

Focus, Operational Excellence, ProductLeadership and People.

Bank believes that the ultimateidentity and success of bank will

reside in the exceptionalquality of our people and their

extraordinary efforts. For this reason, bank is committed to hiring,

developing, motivating and retaining the best people in the

industry.

MISSION:

The Bank’s mission is to be “a World Class Indian

Bank”, benchmarking bank against international

standards and best practices in terms of product

offerings, technology, service levels, risk management

and audit & compliance. The objective is to build sound

customer franchises across distinct businesses so as to

be a preferred provider of banking services for target

retail and wholesale customer segments, and to

achieve a healthy growth in profitability, consistent

with the Bank’s risk appetite. Bank is committed to do

this while ensuring the highest levels of ethical

standards, professional integrity, corporate governance

and regulatory compliance. HDFC Bank has been

17


recognized as 'Best Bank in India' in the magazine

rankings as well as surveys year on year. HDFC

Bank is the most preferred employer in banking

industry in India. Bank business strategy emphasizes

the following:

Increase bank’s market share in India’s expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service.

Leverage technology platform and open scalable systems to deliver more products to more customers and to control operating costs.

Maintain current high standards for asset quality through disciplined credit risk management.

Develop innovative products and services that attract targeted customers and address inefficiencies in the Indian financial sector.

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

Focus on high earnings growth with low volatility.

18


CAPITAL STRUCTURE:

At present, HDFC Bank boasts of an authorized capital

of Rs.550 crore (Rs5.5 billion), of this the paid-up

amount is Rs 424.6 crore (Rs.4.2 billion). In terms of

equity share, the HDFC Group holds 19.4%. Foreign

Institutional Investors (FIIs) have around 28% of the

equity and about 17.6% is held by the ADS Depository

(in respect of the bank's American Depository Shares

(ADS) Issue). The bank has about 570,000

shareholders. Its shares find a listing on the Stock

Exchange, Mumbai and National Stock Exchange, while

its American Depository Shares are listed on the New

York Stock Exchange (NYSE), under the symbol 'HDB'.

CAPITAL ADEQUACY RATIO:

Bank’s total Capital Adequacy Ratio (CAR) calculated in

line with the Basel II framework stood at 17.4%, well

above the regulatory minimum of 9.0%. Of this, Tier I

CAR was 13.3%.

19


Financial Analysis

Financial Analysis:

Financial analysis is a study of relationship among the

various financial factors in a business. The process of

financial statement analysis can be described in various

ways depending on the objective to be obtained.

Financial analysis can be used as a preliminary

screening tool in the selection of the stock in

theprimary and secondary market. It can be used as a

forecasting tool of future financial condition and result.

It may be used as a process of evolution and

diagnosis’s of managerial, operating or other problem

area. Financial analysis is an integral part of the

interpretation of result disclosed by financial

statements. It supplies to decision makers, crucial

financial information and points out the problem areas,

which can be investigated. Financial analysis reduce

reliance on institution guesses and thus narrows the

areas of uncertainty that is present in all decision

making process.

Tools of Financial Analysis:

Common Size Statement:

20


The statement is prepared to bring out the ratio of each

asset or liability to the total of balance sheet and the

ratio of each item of expense or revenue to interest

earned. These common size statements are often

called common measurement or component

percentage statement, since each statement is reduced

to the total of 100 and each individual component of

the statement is represented as a percentage of the

total of 100, which invariably serves as the base.

21


Comparative Financial Statement:

Comparative financial statements are statement of

financial position of a business so designed as to

facilitate comparison of different accounting variables

from drawing useful inferences.

Preparation of Comparative Financial Statement

These statements are prepared by placing the various

items in rows and years in the columns. This is done to

facilitate easy identification of their significant

differences. Columns may be drawn to accommodate

absolute changes as well as percentage changes side

by side. In order to calculate the percentage change,

the absolute change in the various account figures are

divided by their respective base year figures and

multiplied by 100.

Comparative Income Statement:

A comparative income statement shows the absolute

figures for two or more periods, and the absolute

change from one period to another since the figure are

shown side by side the user can quickly understand the

operation.

22


Comparative Balance Sheet:

Balance sheet as on two or more different dates is used

to compare the assets, liabilities and net worth of the

bank. Comparative balance sheet is useful to study the

trends in the financial position of a bank.

Ratio Analysis:

Ratio analysis is the method or process by which the

relationship or item or group of item in the financial

statement are computed determine and presented to

determine a particular aspect of organization or

company. Ratio analysis is an attempt to drive

quantities measure or guide concerning the financial

health and profitability of a business enterprise. Ratio

analysis can be used both in trends and static analysis.

There are several ratios at the disposal of an analysis

but the group of the ratio would prefer depends on the

purpose and the objective of analysis.

Types of Financial Ratios:

1. Liquidity Ratios:2. Profitability Ratios:3. Solvency Ratios:4. Capital Market Ratio

23


Financial Statement analysis of HDFC Bank

Comparative Statement Analysis

Here we analyse the comparative financial statements

of HDFC Bank as at 31st March 2008, 2009, 2010.

Analysis with respect to its competitors namely ICICI

Bank, Axis Bank and the public sector giant State Bank

of India all of which fall among the top banks in India is

also done.

24


Comparative Balance Sheet of HDFC Ltd as at 31st March 2008, 2009 and

2010 (in Rs Cr.)

Capital & Liabilities

Mar'08 Inc/Dec % Mar'09 Inc/Dec % Mar'10

Total Share Capital

354.43 70.95 20.02 425.38 32.36 7.61 457.74

Equity Share Capital

354.43 70.95 20.02 425.38 32.36 7.61 457.74

Share Application Money

0 400.92 0 400.92 -400.92 -100 0

Preference Share Capital

0 0 0 0 0 0 0

Reserves 11,142.80 3083.63 27.67 14,226.43 6838.32 48.07 21,064.75

Revaluation Reserves

0 0 0 0 0 0 0

Net Worth 11,497.23 3555.5 30.9 15,052.73 6469.76 42.98 21,522.49

Deposits 1,00,768.60 42042.98 41.7 1,42,811.58 24592.86 17.22 1,67,404.44

Borrowings 4,478.86 -1793.02 -40.03 2,685.84 10229.85 380.88 12,915.69

Total Debt 1,05,247.46 40249.96 38.24 1,45,497.42 34822.71 23.93 1,80,320.13

Other Liabilities & Provisions

16,431.91 6288.71 38.27 22,720.62 -2104.68 -9.26 20,615.94

Total Liabilities

1,33,176.60 50094.17 37.61 1,83,270.77 39187.79 21.38 2,22,458.56

25


Assets Mar'08 Inc/Dec % Mar'09 Inc/Dec % Mar’10

Cash &

Balances

with RBI

12,553.18 974.03 7.76 13,527.21 1,956.07 14.46 15,483.28

Balance with

Banks,

Money at

Call

2,225.16 1,754.25 78.84 3,979.41 10,479.70 263.35 14,459.11

Advances 63,426.90 35,456.15 55.9 98,883.05 26,947.54 27.25 1,25,830.59

Investments 49,393.54 9,424.01 19.08 58,817.55 -209.93 -0.35 58,607.62

Gross Block 2,386.99 1,569.64 65.76 3,956.63 751.34 18.99 4,707.97

Accumulated

Depreciation1,211.86 1,038.04 85.66 2,249.90 335.26 14.9 2,585.16

Net Block 1,175.13 531.6 45.24 1,706.73 416.08 24.37 2,122.81

Capital Work

In Progress0 0 0 0 0 0 0

Other Assets 4,402.69 1,954.14 44.39 6,356.83 -401.68 -6.32 5,955.15

Total Assets 1,33,176.60 50,094.18 37.61 1,83,270.78 39,187.78 21.38 2,22,458.56

Contingent

Liabilities5,82,835.94

-

1,86,241.63-31.95 3,96,594.31 69,641.93 17.56 4,66,236.24

Bills for

collection17,092.85 846.77 4.95 17,939.62 3,000.51 16.73 20,940.13

Book Value

(Rs)324.38 20.06 6.18 344.44 125.75 36.51 470.19

26


Comparative Income Statement of HDFC Ltd for the periods 31st March 2008, 2009 and 2010 (in Rs. Cr)

Income Mar '08 % Mar '09 % Mar '10

Interest Earned10,115.0

061.47 16,332.26 -0.98 16,172.90

Other Income 2,205.38 57.37 3,470.63 9.8 3,810.62

Total Income12,320.3

860.73 19,802.89 0.91 19,983.52

Expenditure

Interest expended 4,887.12 82.34 8,911.10 -12.62 7,786.30

Employee Cost 1,301.35 71.99 2,238.20 2.28 2,289.18

Selling and Admin

Expenses974.79 192.5 2,851.26 19.1 3,395.83

Depreciation 271.72 32.46 359.91 9.58 394.39

Miscellaneous

Expenses3,295.22 -2.97 3,197.49 -0.89 3,169.12

Preoperative Exp.

Capitalized0 0 0

Operating Expenses 3,935.28 85.26 7,290.66 5.66 7,703.41

Provisions &

Contingencies1,907.80 -28.91 1,356.20 13.93 1,545.11

Net Profit 1,590.18 41.18 2,244.94 31.35 2,948.70

Total Expenses10,730.2

063.63 17,557.96 -2.98 17,034.82

Extraordinary Items -0.06 883.33 -0.59 57.63 -0.93

Profit brought

forward1,932.03 33.26 2,574.63 34.22 3,455.57

Total 3,522.15 36.82 4,818.98 32.88 6,403.34

Preference Dividend 0 0 0

Equity Dividend 301.27 41.2 425.38 29.13 549.29

Corporate Dividend 51.2 41.19 72.29 26.2 91.23

27


Tax

Per share data

(annualized)

Earnings Per Share

(Rs.)44.87 17.61 52.77 22.08 64.42

Equity Dividend (%) 85 17.65 100 20 120

Book Value (Rs.) 324.38 6.18 344.44 36.51 470.19

Appropriations

Transfer to Statutory

Reserves436.05 47.06 641.25 45.83 935.15

Transfer to Other

Reserves159.02 41.18 224.5 31.35 294.87

Proposed

Dividend/Transfer to

Govt.

352.47 41.19 497.67 28.7 640.52

Balance c/f to

Balance Sheet2,574.61 34.22 3,455.57 31.17 4,532.79

Total 3,522.15 36.82 4,818.99 32.88 6,403.33

Interpretation of Comparative Statements

Comparative Balance Sheet:

The total assets and liabilities have increased by

21.38% compared to 2008-2009 to reach Rs.

2,22,458.56 crore but this rise is less when compared

to the previous period’s rise of 37.6%. The increase in

total assets can be attributed mainly by the rise in

Advances and Balances with Banks and Money at Call

and Short notice. This could be an indication of the

28


healthy position the bank is in. Cash and Balance with

RBI has also increased over the period by 14.46%

further contributing to the rise in total assets.

Investments have reduced by 0.36% over the period.

According to the schedules to the accounts, there has

been addition of fixed assets, mainly to premises

including land worth Rs.2,735,762,000 further adding

to rise in value of fixed assets. This increase in assets is

met by a 7.61% rise in Capital, increase in deposits by

17.22% and a large increase in borrowingswhich shows

the company has raised money through

borrowings.This is an indication of the bank planning for

expansion to cover more areas and increase its

operations. But the large part of this expansion is

funded by deposits and borrowings which may not be

good sign as far as the bank and its shareholders are

concerned.

There is a 14.46% increase in cash balances with the

RBI which could be explained by the various policies

adopted by the central bank, 263.35% increase in

balance with banks and money at call and short notice,

27.25% in advances and 24.38% in fixed assets.

Contingent liabilities have increased by 17.56% and

29


Bills for collection by 16.73%. Book value has increased

by 36.5% to 470.19.

Capital has increased by 7.61%. It consists of

55,00,00,000 Equity Shares of Rs. 10/- each of

Authorised Capital and 45,77,43,272 Equity Shares of

Rs. 10/- each of Issued, Subscribed and Paid-up Capital.

Reserves have increased by 48.06% compared to the

previous period where there was only 27.67% rise. This

rise can be attributed to the rise in profits. The deposits

have grown by 17.22% which is a good indication of the

bank’s healthy position and the confidence it enjoys

with the public.

Comparative Income Statement:

We notice that the interest earned has decreased by

0.98% over the period ending March 2010 whereas

there was in increase by 61.47% over the previous

period. This change is not favourable to the bank as far

as shareholders and the management are concerned.

But the interest expense has also gone down by -

30


12.62% whereas there was a rise by 82.34% over the

previous period.

The decrease in interest expense is mainly due to the

reduction in interest on deposits and interest on

RBI/Inter-Bank Borrowings. The decrease in interest

earned has gone down mainly due to decreases in

Interest / discount on advances / bill, income from

investments, Interest on balance with RBI and other

inter-bank funds. From the balance sheet we have

noticed that investments had gone down.

There is decrease in investments from 32.09% to

26.35%, which shows that bank has sold some of its

investments Since there has been a much greater

descent in interest expense, the profit had increased

over the period. There has been a decrease in the rate

of depreciation from 32.46% to 9.58%. Employee cost

and Selling and Administrative expenses has increased

down by 2.28% and 19.10% respective whereas in the

previous year it was 71.99% an 192.50% respectively.

31


Net profit for the period was Rs.2948.70 crore which

represents an increase by 31.35% compared to a rise of

41.18% over the previous period. The decrease in

interest income could have contributed to the decline in

the rate. Profit brought forward from the previous year

was Rs.3,455.57 crore. Equity dividend rose by 29.13%

to 549.29 crore compared to 41.20% over the previous

period and corporate dividend tax rose by 26.2% to Rs.

91.23 crore.

Equity dividend percentage rose by 20% to 120% from

the previous 100%. The book value has increased by

36.51% to 470.19 which is good news for the

investors.Transfers to statutory and other reserves rose

by 45.83 and 31,83% respectively. Proposed Dividend

rose by 28.7% to 640.52 which indicates the healthy

position of the bank.

32


Comparative Balance Sheet of HDFC Bank with respect to ICICI as of 31 st

March 2010.

HDFC Bank ICICI Mar. 2010 % Mar.2010 %Total share capital 457.74 14.46 1,114.89 -23.81Equity share capital 457.74 263.38 1,114.89 0.14Share Application money

0 27.251 0

Preference share capital

0 -0.256 0 -100

Reserves 21064.8 14.901 50,503.48 4.3Revaluation reserves 0 24.2787 0 Net worth 21522.5 0 51,618.37 3.48Deposits 167404.5 -6.3188 2,02,016.60 -7.48Borrowings 12915.7 21.382 94,263.57 40.02Total debt 180320.1 21.382 2,96,280.17 3.71Other liablities and 20615.94 17.56 15,501.18 -64.57Provisions Total liabilities 222458.6 21.38 3,63,399.72 -4.19 Cash & balances with RBI

15483.28 23.35 27,514.29 56.9

Balances with banks Money at call 1459.11 27.25 11,359.40 -8.61Advances 125830.6 18.989 1,81,205.60 -17Investments 58607.62 24.39 1,20,892.80 17.31Gross block 4707.97 -6.31 7,114.12 -4.43 Accumulated depreciation

2585.16 21.383 3,901.43 7.12

Net block 2122.81 17.599 3,212.69 -15.49Capital work in progress

0 16.7 0

Other assets 5955.15 36.5 19,214.93 -20.48Total assets 222458.6 21.39 3,63,399.71 -4.19

33


Here we, observe that share capital has increased by a

greater extent for HDFC bank than ICICI but still ICICI is

shown to be having a much larger share capital than

HDFC. Reserves rose about 14.9% as of March 2010

when compared to ICICI where it is only 4.3%.

ICICI has a much larger amount in investment where

they seek to increase their wealth but the growth is

larger for HDFC bank for the period. Advances grew at

19% for HDFC bank whereas in the case of ICICI bank,

there is decrease by 17%. HDFC is a smaller bank than

ICICI but when comparing profitability, efficiency etc it

is not behind ICICI in any manner.

ICICI bank gets funds by borrowings and the rate of

increase is more than that of HDFC. Total assets rose

by 21.39% for HDFC bank whereas it went down by

4.19% for ICICI bank.

34


Ratio Analysis of HDFC Bank

Here a ratio analysis of HDFC Bank for three periods

with respect to its competitors namely ICICI Bank, Axis

Bank and the public sector giant State Bank of India is

performed (FY ending March of that year).

Profitability Ratios

1. Profit Margin

Profit Margin = (Profit After Tax / Net Revenue) * 100

HDFC Bank:

Year 2008 2009 2010Profit Margin 12.82 11.35 14.76

ICICI Bank:


Axis Bank:


State Bank of India:


35


2. Return on Assets

Return on Assets = (Profit After Tax / Average Total Assets) * 100

HDFC Bank:

Year 2008 2009 2010Return on Assets 1.20 1.20 1.3

ICICI Bank:


Axis Bank:




36


3. Asset Turnover

Assets Turnover = (Net Revenue / Average Operating Assets) * 100

HDFC Bank:

Year 2008 2009 2010Assets Turnover 5.18 5.0 4.24

ICICI Bank:


Axis Bank:




37


4. Return on Equity

Return on Equity = (Profit After Tax / Average Shareholders’ Equity) * 100

HDFC Bank:

Year 2008 2009 2010Return on Equity 13.83 15.32 13.7

ICICI Bank:


Axis Bank:




38


5. Earnings Per Share

Earnings Per Share (EPS) = (Profit After Tax / Weighted Average No. of Equity Shares) * 100

HDFC Bank:

Year 2008 2009 2010EPS 44.87 52.77 64.42

ICICI Bank:

Year 2008 2009 2010EPS 37.37 33.76 36.10

Axis Bank:

Year 2008 2009 2010EPS 29.94 50.57 62.06


Year 2008 2009 2010EPS 106.56 143.67 144.37

Interpretation of Profitability Ratios

The Profit Margin has increased by over 30% to 14.76

as of March 2010 over the period where as there was a

slight fall as of March 2009 over the period.

The net profit had gone up by 31% for the period 2009-

10 although for the period 2008-09, the rise in profits

was 41%.

39


Though there was a fall by 0.98% in interest income,

other income rose by 9.8% over the period due to

increase in fees and commissions earned and income

from foreign exchange and derivatives offset in part by

lower bond gains than those in the previous financial

year as per the annual report of the bank.

Total income rose by 0.91% over the period. Total

expenses had gone down by 2.98%, thus explaining the

rise in profit margin.

Although total income had increased by 60.73% for the

period ending March 2009, there was a higher increase

in total expenses by 63.63%.

Hence total expenses rose at a higher percentage than

total income thus causing a reduction in profit with

respect to income thus causing a fall in Profit margin

during the period.

The rise in profit margin over the period 2009-10 shows

the good health the bank is in. Investors have reason to

feel satisfied as an increase in profit cause increase in

wealth. Increase in capital value signals a healthy

position for the management too.

40


The profitability is in good shape and hence potential

investors can take a favourable decision as the profit

margin shows the bank in good health. Operating

efficiency could have increased over the period and it

shows effective cost control.

This outcome is favourable to the management.

Creditors too can take comfort in the fact that the

situation is favourable to them also as there rise in

profits and there is less risk of returns.

Comparing with the competitors (here Axis Bank, ICICI

Bank and SBI are taken), only Axis Bank shows a larger

profit margin due to its consistently good performance.

Other banks show a fall in profit margin in the period

2008-09, Axis Bank show an increase in profit margin.

Hence HDFC Bank should take measures to prevent

investors to consider the opportunity cost with respect

to Axis Bank and arriving at a conclusion that Axis Bank

was a better choice.

There is a slight increase in Return On Assets ratio to 1.3 from

1.2 over the period ending March 2010. There has been

an increase in profits over the period though assets

have also increased over the period.

41


An increase in ROA indicates higher efficiency and here

the costs have shown to be effectively controlled. From

the three other banks, only Axis Bank is shown to have

a higher ROA due to its consistently better performance

when compared to other banks including HDFC.

There was a fall in Assets Turnover ratio to 4.24 from 5.00

during the period. We can see that there was a fall in

this ratio over the previous period also. This could be

due to the lesser rise in Net Revenue when compared

to the rise in assets over the period. A fall in this ratio

indicates lesser efficiency in utilising the assets to

generate revenue.

We see that the ratios for the other three banks too

have fallen during the period, but they are still higher

than that of HDFC bank indicating higher efficiency. The

management has to consider this seriously and take

steps to improve the operating efficiency of the bank.

There was a fall in Return on Equity ratio over the period

ending March 2010 to 13.7 from 15.32 though there

was a rise in the previous period from 13.82. This

indicates that the efficiency to generate profits from

every unit of shareholder’s equity has gone down which

42


should be of concern to the shareholders as well as the

management.

The opportunity cost has to be considered in the case

of Return on Equity. We can see that this ratio has

fallen for most other banks except ICICI Bank which

shows a marginal increase.

Axis Bank has a highest value of this ratio and there is

very little difference between the ratios for SBI and

HDFC. There is a chance that investors could prefer

Axis Bank over HDFC.

There has been in increase in Earnings Per Share (EPS) over the

period to 64.42 from 52.77. This shows strong

foundation of the bank to achieve this growth rate by

increasing the net income.

This is good news for the shareholders as well as the

management because this results in maximization of

wealth which is the objective of any firm. According to

the Annual Report, post merger of the erstwhile

Centurion Bank of Punjab with the bank, 26,200,220

warrants convertible into an equivalent number of

43


equity shares were issued to HDFC Limited on a

preferential basis at a rate of Rs. 1,530.13 each.

On November 30, 2009 these said warrants were

converted by HDFC Limited and consequently the bank

issued them 26,200,220 equity shares. During the year

under review, 61.59 lac shares were allotted to the

employees of the bank pursuant to the exercise of

options under the employee stock option scheme of the

bank.

These include the shares allotted under the employee

stock option scheme of the erstwhile Centurion Bank of

Punjab. Correspondingly there was a large rise in net

revenue and profit contributing to the higher EPS.

Hence shareholders can find the situation more

favourable.

Liquidity Ratios

1. Current Ratio

Current Ratio = (Current Assets / Current Liabilities)

HDFC Bank:

Year 2008 2009 2010Current Ratio 0.26 0.27 0.28

ICICI Bank:

Year 2008 2009 2010

44


Current Ratio 0.72 0.78 1.94

Axis Bank


State Bank of India


2. Quick Ratio

Quick Ratio = (Quick Assets / Current Liabilities)

HDFC Bank:

Year 2008 2009 2010Quick Ratio 4.89 5.23 7.14

ICICI Bank:

Year 2008 2009 2010Quick Ratio 6.42 5.94 14.70

Axis Bank

Year 2008 2009 2010Quick Ratio 9.23 9.52 19.19

State Bank of India

Year 2008 2009 2010Quick Ratio 6.15 5.74 9.07

Interpretation of Liquidity Ratios

45


The Current Ratio is mainly used to give an idea of

the company's ability to payback its short-term

liabilities with its short-term assets.

The higher the current ratio, the more capable the

company is of paying its obligations. Hence

creditors are most concerned about these liquidity

ratios. A lesser current ratio leads to higher

creditor concern.

A ratio under 1 suggests that the company would

be unable to pay off its obligations if they came

due at that point. Due to a rise in current assets

the ratio shows a rise, but is very low as current

assets are only 28% of current assets.

ICICI Bank is shown to have the highest Current

Ratio and the ratio for all the other three banks are

shown to have increased substantially when

compared to HDFC bank.

The Quick Ratio is an indicator of a company's short-

term liquidity. It measures a company's ability to

meet its short-term obligations with its most liquid

assets.

The higher the quick ratio, the better the position

of the company. Hence creditors are most

46


concerned about the quick ratios. A lesser quick

ratio leads to higher creditor concern. The quick

ratio is more conservative than the current ratio.

When short-term obligations need to be paid off

immediately, there are situations in which the

current ratio would overestimate a company's

short-term financial strength. The quick ratio has

been 7.14 in the year 09-10 which indicates the

bank’s robustness and financial soundness in

paying off its short term obligations.

The figures indicate that there is excess liquidity in

the bank except in 2009-10. But the other three

banks show a higher liquidity when compared to

HDFC. But the banks are under the guidance of

RBI and they have to follow the liquidity norms laid

down by RBI.

Solvency Ratios

1. Total Debt To Equity Ratio

Total Debt to Equity Ratio = (Total Debt /Shareholders’ Equity)

HDFC Bank:

Year 2008 2009 2010

47


Total Debt to Equity Ratio

8.76 9.75 7.78

ICICI Bank:

Year 2008 2009 2010Total Debt to Equity Ratio

5.27 4.42 3.91

Axis Bank


9.99 11.49 8.81

State Bank of India


10.96 12.81 12.19

48


2. Interest Coverage Ratio

Interest Coverage Ratio = (Earnings Before Income Tax / Interest Expenses)

HDFC Bank:

Year 2008 2009 2010Interest Coverage Ratio

1.79 1.44 1.63

ICICI Bank:


1.25 0.25 0.33

Axis Bank


1.46 1.43 1.62

State Bank of India


1.37 1.36 0.33

49


3. Loan to Depost Ratio

Loan to Deposit Ratio = (Total Loans Lent / Total Deposit)

HDFC Bank:

Year 2008 2009 2010Loan to Deposit Ratio

65.28 66.64 76.00

ICICI Bank:


84.99 91.44 90.04

Axis Bank


65.94 68.89 71.87

State Bank of India


77.51 74.97 75.96

50


Interpretation of Solvency Ratios

The Total Debt To Equity ratio indicates what proportion

of equity and debt the company is using to finance its

assets. A high total debt/equity ratio generally means

that a company has been aggressive in financing its

growth with debt. This can result in volatile earnings as

a result of the additional interest expense.

In the case of HDFC Bank, this ratio has decreased over

the period ending March 2010. There is growth of the

bank and it is able to manage its funds from the

internal sources. The equity capital has increased its

share in the liabilities in balance sheet in comparison to

the outside debts. This helps the bank to maintain high

credit reputation in market. The other banks were able

to reduce the ratio substantially.

The Interest Coverage ratio is used to determine how

easily a company can pay interest on outstanding debt.

The interest coverage ratio is calculated by dividing a

bank's earnings before interest and taxes (EBIT) of one

period by the bank's interest expenses of the same

period.

The lower the ratio, the more the company is burdened

by debt expense. When a company's interest coverage

ratio is 1.5 or lower, its ability to meet interest

expenses may be questionable. An interest coverage

51


ratio below 1 indicates the company is not generating

sufficient revenues to satisfy interest expenses.

The ratio for the year ending 2010 is 1.63 which is

reasonable and not below1.5. This indicates that the

bank is in a sound financial health and is able to pay

the interest on its outstanding debts.

The ratio was best in 2007-08 among the three

financial years. But has reduced in the year 2009 to

1.44 and increased to 1.63 in 2009-10. The bank has

maintained a somewhat healthy ratio over the years.

The ratios for SBI and ICICI are substantially lower.

The Loan To Deposit ratio is indicative of the percentage

of funds lent by the bank out of the total amount raised

through deposits. Higher ratio reflects ability of the

bank to make optimal use of the available resources.

The point to note here is that loans given by bank

would also include its investments in debentures, bonds

and commercial papers of the companies. This ratio

forms an integral part of analysis as it indicates the

amount of reliability the bank has earned in the minds

of its customers and evidence of its robustness.

The ratio has increased over the period ending March

2010 to 76 which is a healthy sign. The ratio of ICICI

bank is the highest though it shows a slight decline in

the ratio over the period.

52


Capital Market Ratios

1. Price - earnings Ratio

Price – earnings Ratio = Average Stock Price / Earnings Per Share

HDFC Bank (30/12/10): 35.74

ICICI Bank (30/12/10): 31.50

Axis Bank (30/12/10): 21.42

State Bank of India (30/12/10): 19.04

53


2. Dividend Per Share

HDFC Bank:

Year 2008 2009 2010Dividend Per Share

8.50 10.00 12.00

ICICI Bank:


11.00 11.00 12.00

Axis Bank:


6.00 10.00 12.00


Year 2008 2009 2010Dividend Yield Ratio

21.50 29.00 30.00

54


3. Book Value Per Share

Book Value Per Share = (Equity Share Capital + Reserves &Surplus / No. of Equity Shares)

HDFC Bank:

Year 2008 2009 2010Book Value Per Share

324.38 344.44 470.19

ICICI Bank:


417.64 444.94 463.01

Axis Bank


245.13 284.50 395.99

State Bank of India


776.48 912.73 1,038.76

55


Interpretation of Capital Market Ratios

The Price – Earnings ratio (P/E Ratio) is a valuation ratio

of a company's current share price compared to its per-

share earnings. In general, a high P/E suggests that

investors are expecting higher earnings growth in the

future compared to companies with a lower P/E.

However, the P/E ratio doesn't tell us the whole story by

itself. It's usually more useful to compare the P/E ratios

of one company to other companies in the same

industry, to the market in general or against the

company's own historical P/E. Here we can see that

HDFC Bank has a higher P/E ratio of 35.74.

When compared to the other three banks HDFC has the

highest ratio with ICICI Bank close behind at 31.50.

Dividends Per Share(DPS) is the sum of declared

dividends for every ordinary share issued. Dividend per

share (DPS) is the total dividends paid out over an

entire year (including interim dividends but not

including special dividends) divided by the number of

outstanding ordinary shares issued.

Dividends are a form of profit distribution to the

shareholder. Having a growing dividend per share can

56


be a sign that the company's management believes

that the growth can be sustained. HDFC Bank has a

growing DPS value which is 12.00 for the period ending

March 2010 while it was 10.00 for the period ending

March 2009 thus representing an increase of 20%

which is a very healthy sign for investors as well as the

management which can be confident that the growth

can be sustained.

The increase in the ratios of the other three banks is

also similar with State Bank of India showing the

highest DPS of 30.0.

The Book Value Per Share (BV) relates the shareholder's

equity to the number of shares outstanding, giving the

shares a raw value. It is measure used by owners of

common shares in a firm to determine the level of

safety associated with each individual share after all

debts are paid accordingly.

Should the company decide to dissolve, the book value

per common indicates the dollar value remaining for

common shareholders after all assets are liquidated

and all debtors are paid. In simple terms it would be the

amount of money that a holder of a common share

would get if a company were to liquidate.

57


The BV value for HDFC Bank for the year ending March

2010 has substantially increased to 470.19 from 344.44

from the previous year which can be interpreted as a

healthy sign as far as investors are concerned and also

for the management. The share price as of 31-12-2010

is 2346.50 and BV value is 464.14.

This could be interpreted as a healthy situation. The

book values of ICICI Bank, Axis Bankand SBI have risen

in the period with SBT having the highest Book Value

Per Share value of 1038.76 in the period ending March

2010.

58


Common Size Analysis of HDFC Bank

Here a common size financial statement analysis of HDFC Bank for three periods is performed (FY ending March of that year).

Common Size Balance Sheet of HDFC Bank Ltd as on 31 st March 2008, 09, 10 (Rs. million)

31-Mar-10 %BT 31-Mar-09 %BT 31-Mar-08 %BT

Equity Capital 4577.43 0.21 4253.84 0.23 3544.33 0.27

Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00

Share Capital 4577.43 0.21 8263.00 0.45 3544.33 0.27

Reserves and Surplus 210618.37 9.47 142209.46 7.76 111428.08 8.37

Deposits 1674044.39 75.25 1428115.80 77.92 1007685.91 75.67

Borrowings 129156.93 5.81 91636.37 5.00 45949.24 3.45

Other Provisions and Liabilities

206159.44 9.27 162428.23 8.86 163158.48 12.25

Capital and Liabilities (BT) 2224585.70 100.00 1832707.73 100.00 1331766.03 100.00

Fixed Assets 21228.11 0.95 17067.29 0.93 11750.92 0.88

Investments 586076.16 26.35 588175.49 32.09 493935.38 37.09

Advances 1258305.94 56.56 988830.47 53.95 634268.93 47.63

Cash & Money at Call 299423.99 13.46 175066.17 9.55 147783.39 11.10

Other Current Assets 59551.50 2.68 63568.31 3.47 44027.41 3.31

Properties and Assets (BT) 2224585.70 100.00 1832707.73 100.00 1331766.03 100.00

59


Common Size Income Statement of HDFC Bank Ltd for the periods ending 31 st March 2008, 09, 10

31-Mar-10 31-Mar-09 31-Mar-08Profit/Loss A/C Rs. mln %OI Rs. mln %OI Rs. mln %OIInterest Income

Earned161729 80.9 163322.61 83.23 101150 81.58

Commission, Exchange and

Brokerage Income28305.86 14.2 24572.97 12.52 17145 13.83

Lease Income 0 0 0 0 0 0Dividend Income 0 0 0 0 0 0

Miscellaneous Income 9770.25 4.89 8333.07 4.25 5686.5 4.59Other Income 38076.11 19.1 32906.04 16.77 22831.5 18.42

Total Income (OI) 199805.11 100 196228.65 100 123981.5 100Interest Expenditure 77862.99 39 89111.04 45.41 48871.2 39.42

Employee Expenditure

22891.76 11.5 22381.98 11.41 13013.5 10.5

Depreciation 3943.92 1.97 3599.09 1.83 2717.2 2.19Other Operating

Expenditure30809.15 15.4 29346.99 14.96 21725.5 17.52

Provision and Contingencies

34810.28 17.4 29340.15 14.95 14843.3 11.97

Total Expenditure 170318.1 85.2 173779.25 88.56 101170.7 81.6Pretax Income 29487.01 14.8 22449.4 11.44 22810.8 18.4

Tax 0 0 0 0 6909 5.57Extra Ordinary and

Prior Period Items Net0 0 0 0 0 0

Net Profit 29487.01 14.8 22449.39 11.44 15901.8 12.83Adjusted Net Profit 29487.01 14.8 22449.39 11.44 15901.8 12.83

Dividend - Preference 0 0 0 0 0 0Dividend - Equity 5492.92 2.75 4253.84 2.17 3012.7 2.4

60


Interpretation

From the common size balance sheet, we notice that as

on 31st March 2010, equity capital of HDFC bank forms

only 0.21% of its liabilities. This ratio is decreasing from

2008 when it was 0.27% and 0.23% in 2009. Share

capital had become 0.45% of the total liabilities in 2009

but has decreased to 0.21%.

Share capital ratio falling may not be favourable for the

investors. But reserves and surplus shows a marked

increase to 9.47% of total liabilities in 2010 which

indicates the healthy profitability situation.

But the bulk of the share of liabilities ie. 75.25% is

deposits. Though the percentage has decreased over

the previous period, deposits have increased signaling

the confidence the public has in the bank.

This is a favourable situation for investors and the

management. Borrowings have also risen to 5.81% of

total liabilities which shows the company has raised

money through borrowings. Fixed assets form just

0.95% of the total liabilities. Investments and Advances

form the bulk i.e. 26.35% and 56.56% of the total

61


liabilities. Investments have reduced from the previous

period where it accounted for 32.09 of total liabilities.

From the common size income statement we notice

that, interest income has reduced over the period

ending March 2010 and it now constitutes 80.94% of

the total income whereas in the previous period ending

March 2009, it was 83.23% of total income.

The decrease in interest earned has gone down mainly

due to decreases in Interest / discount on advances /

bill, income frominvestments, Interest on balance with

RBI and other inter-bank funds. There is decrease in

investments from 32.09% to 26.35%, which shows that

bank has sold some of its investments.

However there was an increase in Commission,

Exchange and Brokerage Income and Other Income

which constitutes 14.17% and 19.06% of the total

income respectively.

This is a rise from 12.52% and 16.77% which these

components constituted in the total income of the

period ending 31st March 2009.

Operating expenditures is 15.42% of the total income

and provision and contingencies 17.42% of the total

62


income. The total income has increased over the

previous period and the net profit is 14.76% of the total

income which is shows the healthy profitability situation

of the bank. This is more favourable compared to the

previous year where it was only 11.44% of the total

income.

63


Common Size Statement Analysis of HDFC Bank and Competitor

HDFC % ICICI % SBI %

Income

Interest Earned 16,172.90 80.9 25,706.93 77.9013 70,993.92 82.58749

Other Income 3,810.62 19.1 7,292.43 22.0987 14,968.15 17.41251

Total Income 19,983.52 100 32,999.36 100 85,962.07 100

Expenditure 0 0 0

Interest expended 7,786.30 39 17,592.57 53.3119 47,322.48 55.05042

Employee Cost 2,289.18 11.5 1,925.79 5.83584 12,754.65 14.83753

Selling and Admin

Expenses3,395.83 17 6,056.48 18.3533 7,898.23 9.188041

Depreciation 394.39 1.97 619.5 1.87731 932.66 1.084967

Miscellaneous Expenses 3,169.12 15.9 2,780.03 8.4245 7,888.00 9.17614

Preoperative Exp

Capitalised0 0 0 0 0 0

Operating Expenses 7,703.41 38.5 10,221.99 30.9763 24,941.01 29.01397

Provisions &

Contingencies1,545.11 7.73 1,159.81 3.51464 4,532.53 5.272709

Total Expenses 17,034.82 85.2 28,974.37 87.8028 76,796.02 89.3371

Net Profit for the Year 2,948.70 14.8 4,024.98 12.1972 9,166.05 10.6629

Extraordionary Items -0.93 -0 0 0 0 0

Profit brought forward 3,455.57 17.3 2,809.65 8.51426 0.34 0.000396

Total 6,403.34 32 6,834.63 20.7114 9,166.39 10.6633

Preference Dividend 0 0 0 0 0 0

Equity Dividend 549.29 2.75 1,337.95 4.05447 1,904.65 2.215687

Corporate Dividend Tax 91.23 0.46 164.04 0.4971 236.76 0.275424

Per share data

(annualised)0 0 0

Earning Per Share (Rs) 64.42 0.32 36.1 0.1094 144.37 0.167946

Equity Dividend (%) 120 0.6 120 0.36364 300 0.348991

Book Value (Rs) 470.19 2.35 463.01 1.40309 1,038.76 1.208393

64


Appropriations 0 0 0

Transfer to Statutory

Reserves935.15 4.68 1,867.22 5.65835 6,495.14 7.555821

Transfer to Other

Reserves294.87 1.48 1.04 0.00315 529.5 0.615969

Proposed

Dividend/Transfer to

Govt

640.52 3.21 1,501.99 4.55157 2,141.41 2.49111

Balance c/f to Balance

Sheet4,532.79 22.7 3,464.38 10.4983 0.34 0.000396

Total 6,403.33 32 6,834.63 20.711 9,166.39 10.6633

Interpretation

Comparing the common size income statements of

HDFC, ICICI and SBI Banks, we see that interest

earned forms 81% of the total income of HDFC

bank whereas it forms 77.9% and 82.5% of the

total incomes of ICICI and SBI respectively.

The public sector giant SBI is much larger than

both other banks when we compare their interest

incomes.

Interest expense is just 38% of the total income of

HDFC whereas it is much larger in the case of the

other two banks. Operating expenses is at the

highest ratio with total income for HDFC bank

when compared t the other two which indicates

that it needs to improve its operational efficiency.

65


But when comparing the net profits, HDFC has the

highest ratio of net profit to total income at 14.76%

whereas it is 12.19% for ICICI bank and 10.67% for

SBI which indicates that HDFC’s profitability is

good when compared to the other two as 14.76%

of its total income constitutes profit.

Hence from the management’s, creditors’ and from

shareholders’ perspective profitability situation is

good for HDFC bank.

HDFC bank gives equity dividend of 2.75% of total

income but it is ICICI bank which gives a highest

dividend of 4.05% of total income.

66


Trend Analysis of HDFC Bank

Here a trend analysis of HDFC Bank is performed from a Managerial, Creditor’s and Investor’s perspective.

67


Creditor’s perspective:

The financial performance during the fiscal year 2009-

10 remained healthy with total net revenues (net

interest income plus other income) increasing by 0.91%

to Rs. 12,320.38 crores from Rs. 19,802.89crore in

2008-09. The revenue growth was driven both by an

increase Commission, Exchange and Brokerage Income

and Other Income.

Shareholders perspective:

The Bank’s basic earnings per share increased from Rs.

52.9 to Rs. 64.42 per equity share. Bank has had a

consistent dividend policy of balancing the dual

68


objectives of appropriately rewarding shareholders

through dividends and retaining capital to maintain a

healthy capital adequacy ratio to support future

growth.

69


It has had a consistent track record of moderate but

steady increases in dividend declarations over its

history with the dividend payout ratio rangingbetween

20% and 25%.Net profit increased by 31.35% from Rs.

2244.95 crores in 2008-09 to Rs. 2498.70 crores in

2009-10.

70


71


GROSS NON-PERFORMING ASSET AND NET NON-PERFORMING

Gross NPA is advance which is considered irrecoverable, for bank has made provisions, and which is still held in banks' books of accoun t. Net NPA is obtained by deducting items like interest due but not recovered, part payment received and kept in suspense account from Gross NPA.

The Reserve Bank of India states that, compared to other Asian countries and the US, the gross non-performing asset figures in India seem more alarming than the net NPA figure. The problem of high gross NPAs is simply one of inheritance. Historically, Indian public sector banks have been poor on credit recovery, mainly because o f very little legal provision governing foreclosure and bankruptcy, lengthy legal battles, sticky loans made to government public sector undertakings, loan waivers and priority sector lending. Net NPAs are comparatively better on a global basis because of the stringent provisioning norms prescribed for banks in 1991 by Narasimham Committee.

In India, even on security taken against loans, provision has to be created. Further, Indian Banks have to make a 100 per cent provision on the amount not covered by the realizable Value of securities in case of ''doubtful'' advance, while in some countries; it is 75 per cent or just 50 per cent. The ASSOCHAM Study titled Solvency Analysis of the Indian Banking sector reveals that on an average 24 per cent rise in net non performing assets have been registered by 25 public sector and commercial banks during the second quarter of the 2009 as against 2008. According to the RBI, "Reduction of NPAs in the

72


Indian banking sector should be treated as a national priority item to make the system stronger, resilient and geared to meet the challenges of globalization. It is necessary that a public debate is started soon on the problem of NPAs and their resolution. "

73


The major cause for the NPA can be attributed to:

Improper selection of borrower’s activities Weak credit appraisal system Industrial problem Inefficiency in management of borrower Slackness in credit management & monitoring Lack of proper follow up by bank Recession in the market Due to natural calamities and other uncertainties

The Non-Performing Assets (NPAs) problem is one of the foremost and the most formidable problems that have shaken the entire banking industry in India like an earthquake. Like a canker worm, it has been eating the banking system from within, since long. It has grown like a cancer and has infected every limb of the bankingsystem. At macro level, NPAs have choked off the supply line of credit to the potential borrowers, thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the micro level, the unsustainable level of NPAs has eroded the profitability of banks through reduced interest income and provisioning requirements, besides restricting the recycling of funds leading to serious asset liabilitymismatches. Unfortunately the high level of NPAs of banks is adversely affecting the profitability, liquidity and solvency position of the banking sector. Therefore NPA should be brought down to internationally accepted level (i. e. 2-3% of loan assets).

The objectives of the present study are: Find out trends in NPA Level. Highlight the NPAs position of selected PSB’s and

Private Banks

74


Assess the comparative position of NPA in selected PSBs & Private banks.

Assess the variation of NPA ratio in selected PSBs & Private banks.

The foregoing review indicates that existing studies concentrated on PSBs & comparison of PSBs with private & foreign banks. But the present study has focused on the comparison of NPAs between public and private sector banks. The banks selected for the study are prominent banks among all banks in their respective sector and includes:

Public Sector: State bank of India (SBI) & Punjab National Bank (PNB)

Private Sector: HDFC Bank & ICICI BankFor the study, secondary data has been collected using annual report of “Reserve Bank of India” publication including “Trend & Progress of banking in India”, statistical tables related to banks in India and report on currency and finance. Articles and papers relating to NPA published in different business journals, magazines, newspaper, periodicals were studied and data available on internet and other sources has also been used. Major guidelines issued by RBI from time to time were studied in depth. Along with this assets quality of banks and recommendations also studied.

In the present study, various statistical tools ratio, Averages, percentages, ratio analysis, Measure of central tendency, frequency distribution, Standard Deviations, coefficient of variation and ANOVA test have been used to analyze and interpret the data. In the light of objective mentioned above, the present study is confirmed to examine the various aspects of NPAs in PSBs & Private banks of India(selected banks). The study covers the period from 2001-02 to 2010-

75


2011. To study NPA ratio variation data over the year 2010-2011 have been analyzed.

NPA position is different and present in PSBs & Private Banks of India. Basically, there are many banks but in this study some prominent banks are selected among all in their respective sector. And the data related to NPA of all these banks i.e. SBI, PNB, HDFC, ICICI is collected and their comparison is done on this basis.

76


TABLE 1:Source: Reports on Trend & Progress of Banking in IndiaYEAR SBI PNB HDFC ICICI

2001-02 11. 95 11. 38 3. 18 10. 23

2002-03 9. 34 11. 58 2. 22 8. 72

2003-04 7. 75 9. 35 1. 86 4. 70

2004-05 5. 96 5. 96 1. 69 4. 27

2005-06 3. 61 4. 10 1. 44 1. 51

2006-07 2. 92 3. 45 1. 39 2. 08

2007-08 3. 04 2. 74 1. 42 3. 30

2008-09 2. 86 1. 60 1. 98 4. 32

2009-10 3. 05 1. 71 1. 44 6. 52

2010-11 3. 28 1. 79 1. 06 5. 80

Gross NPA ratio (%)

Table: 1(a): Analysis of Mean, Standard Deviation & Coefficient of VariationSource: calculated on the basis of data in Table 1.

BANKS MEAN STANDARD DEVIATIONCO-EFFICIENT OF

VARIATIONSBI 5. 37 3. 09 57. 53PNB 5. 36 3. 78 70. 59HDFC 1. 76 0. 57 32. 24ICICI 5. 14 2. 60 50. 53

Table 1(b): ANOVA TableSource: calculated on the basis of data in Table 1.

SOURCE OF VARIATION SUM OF SQUARE DEGREE OF FREEDOM MEAN SQUAREBetween 93. 67 3 31. 22Within 311. 01 36 0. 64Total 404. 68 39 31. 86F – value 0. 02Table value 2. 84 at 5% level of significance

77


Gross NPA ratio (in %): (position of gross NPA to gross advances):It is clear from table 1 that there has been marginal decrease in NPAs level over the period in all selected banks. Gross NPAs to Gross Advances ratio of SBI decreased from 11. 95 percent at the end of March 2002 to 3. 28 percent at the end of March 2011. In Case of PNB this ratio decreased from 11. 38 percent at the end of March2002 to 1. 79 percent at the end of March 2011. And in HDFC Gross NPAs to Gross Advances ratio decreased from 3. 18 percent at the end of March 2002 to 1. 06 percent at the end of March 2011. In improvement term PNB has shown the significant result while in ICICI trend has started reversing from 2006 and its NPA is 5. 80 in 2011. To ascertain the significance difference between NPA ratios of these selected banks ANOVA test by formulating null hypothesis (Ho) is attempted.

Ho: There is no significant difference in Gross NPAs to Gross Advances ratio of SBI, PNB, HDFC, and ICICI.

It is observed from above table 1(b) that the calculated value is less than the table value resulting in accepting of null hypothesis meaning thereby there is no significant difference in GNPAs to Gross Advances ratio of SBI, PNB, HDFC, and ICICI.

TABLE 2:Source: Reports on Trend & Progress of Banking in India

YEAR SBI PNB HDFC ICICI2001-02 5. 64 5. 27 0. 50 5. 48

2001-03 4. 49 3. 80 0. 37 5. 21

2001-04 3. 45 0. 98 0. 16 2. 21

2001-05 2. 65 0. 20 0. 24 1. 65

78


2001-06 1. 88 0. 35 0. 44 0. 72

2001-07 1. 56 0. 76 0. 43 1. 02

2001-08 1. 78 0. 64 0. 47 1. 55

2001-09 1. 79 0. 17 0. 63 2. 09

2001-10 1. 72 0. 53 0. 31 2. 12

2001-11 1. 63 0. 85 0. 19 1. 11

Net NPA ratio

79


Table: 2(a): Analysis of Mean, Standard Deviation & Coefficient of VariationSource: calculated on the basis of data in Table 2.

BANKS MEAN STANDARD DEVIATIONCO-EFFICIENT OF

VARIATIONSBI 2. 65 1. 87 70. 57PNB 1. 35 2. 09 154. 83HDFC 0. 37 0. 14 37. 83ICICI 2. 31 1. 59 68. 54

Table 2(b): ANOVA TableSource: calculated on the basis of data in Table 2.

SOURCE OF VARIATION SUM OF SQUARE

DEGREE OF FREEDOM

MEAN SQUARE

Between 31. 74 3 10. 58Within 70. 09 36 1.95Total 101. 83 39 12. 53F – value 0. 18Table value 2. 84 at 5% level of significance

Net NPA ratio (in %age): (position of net NPA to net advances):It is observed from table-2 that there has been marginal reduction in Net NPAs ratio of all selected banks over the considered period. Net NPAs to Net Advances ratio of SBI reduced from 5.64 percent at the end of March 2002 to 1.63 percent at the end of March 2011.In Case of PNB this ratio decreased from 5.27 percent at the endof March 2002 to 0.85 percent at the end of March 2011. And in HDFC Net NPAs to Net Advances ratio came down from 0.50 percent the end of March 2002 to 0.19percent at the end of March 2011. In improvement term PNB has shown the significant result and control Net NPA while in ICICI since 2001 Net NPAs ratio was

80


decreasing till 2006 but trend has started reversing from 2007and its NPA is 1.11 in 2011.To be compared PNB is better in term of NNPA in PSBs and HDFC in Private sector banks.

Ho: There is no significant difference in Net NPAs to Net Advances ratio of SBI, PNB, HDFC, and ICICI

Table: 2(a) shows that bank wise Mean, standard deviation & coefficient of variation of NNPAs ratio of selected banks. SBI & ICICI has highest mean value while HDFC has lowest value in comparison to other. Standard deviation of Net NPAs to Net Advances Ratio is 2.09 of PNB with highest coefficient of variation with154.83percent. HDFC has less Standard Deviation & coefficient of variation than ICICI.

It is observed from above table 2(b) that the calculated value is less than the table value resulting in accepting of null hypothesis meaning thereby there is no significant difference in NNPAs to Net Advances ratio of SBI, PNB, HDFC, and ICICI.

81


Managers’ perspective:

82


The financial performance during the years remained

healthy. An increment in providing loan shows that the

bank is in a sound position, as it is an asset to the bank.

The percentage of deposits has been increasing but by

comparing the percentage change of loans and

deposits, loans have more increase in its percentage

change. Deposits and lending rates spiked up sharply.

Net profit increased by 31.35% from Rs. 2244.95 crores

in 2008-09 to Rs. 2498.70 crores in 2009-10.

83


BIBLIOGRAPHY

www. hdfc bank.com

www. hdfc bank.com/aboutus/cg/ annual _ report

www.moneycontrol.com/financials/hdfcbank/ratios/HDF01

www.wikinvest.com/stock/HDFC_Bank_LTD_Ads_(HDB)/Non-performing_Assets

www. rbi .org.in

84

http://www.rbi.org.in/

http://www.wikinvest.com/stock/HDFC_Bank_LTD_Ads_(HDB)/Non-performing_Assets

http://www.moneycontrol.com/financials/hdfcbank/ratios/HDF01

http://www.hdfcbank.com/aboutus/cg/annual_report

http://www.hdfcbank.com/

a study on financial statement analysis in hdfc bank ltd 2013

Documents

financial information

financial institutions

financial ratios

hdfc bank limited

project report

project work

deepest thanks

heartfelt thanks