COMPANY REPORT

Financial Statement Analysis of HDFC Bank

Submitted by

Karan MalikA0101913138

MBA Class of 2015

Under the Supervision of

Dr. Anu Prashant

In Partial Fulfillment of the Requirements for the Degree of Master of Business Administration (Marketing & Sales)

AMITY BUSINESS SCHOOLAMITY UNIVERSITY UTTAR PRADESH

SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA

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DECLARATION

The title of Company Report is Financial Statement Analysis of HDFC Bank

I declare that (a) the work presented for assessment in this Dissertation/ Company Report/ Minor Project

is my original work, that it has not previously been presented for any other assessment and that my debts

(for words, data, arguments and ideas) have been appropriately acknowledged; (b) work conforms to the

guidelines laid by the University, and (c) Plagiarism for this report has been checked using TURNITIN

SOFTWARE and is __12__%. The summary of report is attached along with for reference.

Date: 13/03/2014 Karan Malik

A0101913138

MBA – General

(Class of 2015)

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CERTIFICATE

This is to certify that Karan Malik student of Masters of Business Administration – General at Amity

Business School, Amity University Uttar Pradesh has completed the Company Report/ on “Financial

Statement Analysis of HDFC Bank ”, in Partial Fulfillment of the Requirements for the Degree of Master

of Business Administration – General under my guidance.

The report has been checked for the plagiarism and it is acceptable.

Dr. Anu Prashant

Department of Economics

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Index

Contents Page no.

About the banking industry……………………………………………………………………….. 9

Private Banks

Public Banks

Contribution of HDFC bank in the economy……………………………………………… 10

History of HDFC Bank……………………………………………………………………………….. 10

Business Environment Factors Affecting Banking Industry………………………. 11

Role of Private Bank in the Indian Economy……………………………………………… 13

About HDFC Bank……………………………………………………………………………………… 15

Computation of Ratios and their interpretation……………………………………….. 17

Current ratio

Net Profit Ratio

Return on Investment Ratio

Expense Ratio

Debt Equity Ratio

Conclusion………………………………………………………………………………………………… 22

Suggestions………………………………………………………………………………………………. 23

Annexure………………………………………………………………………………………………….. 24

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ABOUT THE BANKING INDUSTRY:

A bank is a financial institution who acts as a payment agent to customers and to borrow and

lend money. Banking in India originated in the last decades of the 18thcentury. The first bank was

the General Bank of India, which started in the year 1786, and The Bank of Hindustan. The

banking regulation act of India, 1949 regulates the Indian banking industry, and it has classified

the banks into two major categories, namely, scheduled banks and non- scheduled banks.

The banking industry is one of the huge sectors of banking and finance that has existed in human

civilization in some form for thousands of years. There are many banks in the world and they all

are usually regulated by the world’s governments so as to curb corruption and also protect the

money of the general public. In today’s world, the banking industry plays a major part in

financial dealings, as it is one of the most biggest and popular means for investing, borrowing,

and storing money.

The oldest bank still in existence is the State Bank of India, which originated in the Bank of

Calcutta in June 1806.

Private Banks :

Private Banks in India is a part of Indian banking sector which are owned by either an individual

or a general partner. Private Banks are usually not incorporated. These are the banks in which the

greater part of stake or equity is held by the private shareholders and not by the government. The

word “private” denotes that the customer service is rendered in a more personalized manner.

Public Banks:

Public banks are the banks wherein the majority stake is held by the government. Therefore, the

banks in which more than 50% of stake is held by the government are called the public sector

banks. In India there are 21 public sector banks in total. A public bank is a bank or a financial

institution in which state or the public actors are the owners. Thus, it is a company under the

state control.

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Therefore, to conclude, the major difference between the two banks is that the private banks are

the banks in which the government interference is less, whereas government holdings are more

than 50% in the public banks.

Contribution of HDFC bank in the economy:

HDFC Bank has won award for offering products which are new and innovative. It thus

contributes towards the economy. The bank has also reduced the poverty by providing more

employment opportunities. It provides better and speedy services to the customers also.

History of HDFC bank:

HDFC Bank popularly named as Housing Development Finance Corporation Limited was

founded by Hasmukh Bhai Parakh in the year 1977. In the year 1994, the HDFC Bank was

incorporated. The bank was promoted by The Housing Development Finance Corporation

which is the India's largest housing finance company. The Bank started operations as in January

1995. On 26 February 2000, Times Bank Limited owned by The Times Group (Bennett,

Coleman & Co.) was merged with HDFC Bank Ltd. This was the first merger of two private

banks in India. Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75

shares of Times Bank. On 23 May 2008, HDFC Bank acquired Centurion Bank of Punjab taking

its total branches to more than 1,000. The amalgamated bank emerged with a base of about Rs. 1,

22,000 crore and net advances of about Rs. 89,000 crore. The balance sheet size of the combined

entity is more than Rs. 1, 63,000crore.

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BUSINESS ENVIRONMENT FACTORS AFFECTING BANKING

INDUSTRY

Business environment includes the internal as well as external factors that affect the operation of

a business. Therefore, business environment is the sum total of the forces or the surroundings

that have an influence on the business operations. The internal environmental factors are usually

controllable because the management has control over it. Whereas the external environmental

factors are difficult to control by the company. There are two types of external environment:

Microenvironment and Macro environment.

It is important for every company to do environment analysis that is scanning the environment so

that it may identify its threats and opportunities and improve its planning process.

Rebound in the housing market -

According to the recent reports, there have been some improvements in the national

housing market this year. The average sale price for existing homes in June 2012

showed an increase of 7.9% when compared to the last year according to the National

Association of REALTORS (NAR) reported that The median home sale price in York

County for August was $142,000 down from $142,500 in 2011 according to a report by

The REALTORS Association of York and Adams Counties (RAYAC)  . There were

around 349 properties sold in August 2012 compared to 322-sold last year.  In August

2012, Adams County’s median home sale price was $162,000 with a total of 73

properties sold compared to 2011 when the median home sale price was $163,000 and 58

properties sold according to the report by RAYAC

Competitors -

The mortgage and banking industries have always been very competitive. (In York

County alone, there are 275 banking and lending institutions.) The historically low

interest rates are fueling buyers to shop around for the best possible deals, while it is

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believed that new federal regulations will make it harder for small community banks to

compete with the larger regional and national banks.

Interest rates -

The interest rates for a 30 year fixed rate mortgage at the end of August 2012 was 3.55%

while a 15 year fixed rate mortgage was 2.86% according to Freddie Mac,

Presidential election -

Undoubtedly the economy is the center of attention in the future presidential election.

Whoever the next president may be will have a huge effect on the future of real estate and

mortgages. Economic and employment policies will help drive the affordability and

sustainability of the real estate market while applying or revoking the Dodd-Frank Act

will largely impact the mortgage market.

Supply and demand -

The increase in average sale price nationwide is mainly due to a tightening in housing

supply in markets across the nation. The shortage of inventory is limiting the buying

opportunities and therefore is driving prices up. Even though, average prices are raising

some, many homeowners are still upside down on their mortgages (they owe more than

their home is currently worth). This is the main cause for the tightening in the housing

supply. Demand for housing is being fueled by historically low mortgage interest

rates. Buyers are starting to get back out there and take advantage of the interest rates

while they last.

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Role of private sector bank in Indian economy:

The private sector banks play a very important role in the Indian economy. The contribution of

private sector banks in the Indian economy over the last 15 years has been incredible.

Skilled Management:

The private sector banks help in introducing a high level ofqualifiedadministration and marketing

thought into banking system. It aids the public sector banks to develop similar expertise and

knowledge.

Product improvement :

The private sector banks always introduce some innovative new products avenues (new schemes,

services, etc.) and help the industries to attain proficiency in their particular areas by providing

quality service and control.

They introduce new technology in the banking service. Thus, they lead the other banks in various

new fields. For example, introduction of computerized operations, credit card business, ATM

service, etc.

Competition:

The private sector banks helps in creating a healthy competition and also increases the

efficiency levels of the banking industries.

Foreign Investment:

The private sector banks encourage foreign investment. The foreign banks have influence on the

foreign investment in the country.

Helps to access foreign capital markets:

The foreign banks in the private sector help the Indian companies and the government agencies

to meet out their financial requirements from international capital markets. This service becomes

easier for them because of the presence of their head offices/other branches in important foreign

centers. In this way they help a large extent in the promotion of trade and industry in the country.

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Customer service:

Earlier, the government enterprises ruled the Indian market but today the situation has been

changed. With the rise of Indian private sector companies, the customer’s needs have got

more personalized and they are given speedy services.

Employment:

The importance of private sector in Indian economy has been very commendable in

generating employment and thus reducing the poverty. It thus increases the quality of life of

the people, also it leads to increased access to essential commodities and also the value of

human capital has been increased due to this.

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About HDFC BANK:-

HDFC bank is a private bank which was promoted by Housing Finance Development

Corporation. It was incorporated in the year 1994 and it started its commercial operations in

1995. HDFC Bank’s philosophy is based on customer focus, operational excellence, product

leadership, and human values. HDFC bank limited is an Indian financial service company based

in Mumbai, Maharashtra

The first two private banks in India which merged are Times Bank Limited (owned by Bennett, Coleman and The Co./ Times Group ) and HDFC bank limited on February 26, 20000. It would be interesting to know that the first bank in India who launched an International Debit Card in association with VISA and issues the Master Cared Maestro debit card as well

.

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HDFC VISION AND MISSION

Vision :

To be customer driven best managed enterprise that enjoys market leadership

in providing housing related finance.

Mission :

To provide a package of attractive financial services for housing purposes

through a competed and motivated team of employees using the state of the

art technology to maintain financial stability and growth of the organization

whilst contributing to the national goal of providing descent housing to all.

The business strategies of HDFC Bank Limited are:

Increasing market share in India’s expanding banking.

Delivering high quality customer service.

Delivering more products to more customers.

Maintaining 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.

Thus, HDFC Bank is always trying to develop some new innovative product which can satisfy

the customers. It aims not only to deliver more products to customer but also makes sure that it is

delivering a quality service to its customers. By doing this, HDFC Bank is contributing towards

the Indian economy.Future plan of HDFC is to launch 250 new branches. It also aims to set up

NBFC.The HDFC Bank is the second largest private sector bank in India and it has won the

NASSCOM CNBC-TV 18 IT innovation award for the BEST IT DRIVEN INNOVATION IN BANKING

(COMMERCIAL) in the VERTICAL category.

THE BOARD OF DIRECTORS OF THE BANK ARE :

Name Designation

A.N. Roy Director

Aditya Puri CEO

Bobby Parikh Director

CM Vasudev Chairman

Kaizad Bharucha Additional and Executive Director

Partho Datta Director

Renu Karnad Director

Pandit Palande Director

Keki Mistry Director

Paresh Sukthankar Deputy Managing Director

Sanjay Dongra Company Secretary

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Computation of ratios:-

Current ratio = current assets/current liabilities

For the year 2012: 32395/15499

= 2.09:1

Here current assets include:

- Current investments

- Trade receivables

- Cash and bank balances

- Short-term loans and advances

- Other current assets

Here current liabilities include:

- Trade payables

- Other current liabilities

- Short-term provisions

For the year 2013:36921/16915

= 2.18:1

Here current assets include:

- Current investments

- Trade receivables

- Cash and bank balances

- Short-term loans and advances

- Other current assets

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Here current liabilities include:

- Trade payables

- Other current liabilities

- Short-term provisions

Interpretation:

The current ratio is a financial ratio that helps to measure the liquidity of the firm. It

tells us about the company ability to meet its obligation. It shows that whether the firm

has enough resource to pay off its debts or liabilities. It compares a firm's current

assets to its current liabilities. It is expressed as follows:

The ideal current ratio is 2:1. In the year 2012, hdfc bank’s current ratio is 2.09: 1 and

in the year 2013, the current ratio is 2.18:1. In both the year the firm is facing and ideal

ratio, which means that the bank is able to meet its debt on time. Thus, this shows that

in the year 2012 and 2013, the hdfc bank,s financial strength is very good and strong. If

the bank will not meet its ideal ratio in any case, it will have problem to meet its short-

term obligations.

NETPROFIT RATIO= (Net profit/Net sales) * 100

For the year 2012: 5409/21001*100

= 25.75%

For the year 2013: 6682/23210*100

= 28.78 %

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Interpretation:

The net profit ratio is a financial ratio, which helps to measure the profitability of the firm. The

net profit ratio shows that how much a company is efficient in managing its work and costs. In

short it shows the profit making capacity of the firm. Every firm now a days compute this rate at

the end so as to check whether they are successful than before or not, by comparing the ratio

with the last year’s one. A higher ratio indicates the efficiency of the firm. Hdfc bank’s net profit

ratio in the year 2012 was 25.75% and in the year 2013 it increased by around 3% and reached

28.78%. This implies that the HDFC bank is very efficient, as it has managed to reduce its cost

and increase its profits.

RETURN ON INVESTMENT = Profit after tax/Shareholder’s fund*100

For the year 2012:5409/30308*100

= 17.8 %

For the year 2013:6682/37127*100

= 17.9 %

Interpretation:

Return on investment (ROI) is the performance measure used to evaluate the

efficiency of investment. It compares the degree and timing of gains from investment

directly to the degree and timing of investment costs. It is one of most frequently used

approaches for assessing the financial consequences of business investments,

decisions, or actions.

If an investment has a positive ROI and there are no other chances with a higher ROI,

then the investment should be undertaken. A higher ROI means that investment gains

compare positively to the investment costs. Hdfc bank’s return on investment ratio is

more or less in the same year.

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EXPENSE RATIO = Total expenses/Net Sales*100

For the year 2012: 8007/21001*100

=38.12%

For the year 2013:9742/23210*100

= 41.9%

Interpretation:

The expense ratio shows a relationship between the total expenses incurred by the firm to the

total revenue or sales. In the year 2012 , the hdfc bank’s expense ratio was 38.12% and in the

year 2013 the expense ratio increased to 41.9% . This means in the year 2013 the bank’s

expenses increased by almost 9 to 10% , which is not a good indicator . The company expenses

are more than its sales and therefore it must try to reduce its cost to increase the profits.

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DEBT EQUITY RATIO = Debt/Equity

For the year 2012: 324/30308

=0.01

For the year 2013: 370/37127

=9.9

Interpretation:

It is a leverage ratio, which indicates a relationship between the debt and equity. The ratio

indicates the total liabilities of the firm and the total shareholders’ equity both the figures are

present in the company’s balance sheet.

Lower the ratio, better it is. Higher the ratio, higher the risk. The ideal ratio is 1:1. In the

year 2012, the HDFC bank’s ratio is 0.01. This means the company relies less on the

outsiders and loans. This is a good indicator, which means the company was doing well in

the last year. But in the year 2013, the ratio increased drastically. The ratio in the year

2013 was 9.9, which means that the bank borrowed a lot of money from the outsiders.

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Conclusion:

HDFC bank is one of the leading private banks of the country

It has made his mark due to its unbeaten reliability

The bank has satisfied the people by providing speedy services

The company’s current ratio is quite good which shows the ability of the firm

to meet its short-term obligations

The bank managed to increase its net profit by 3% in the year 2013

This shows the internal financial strength of the company

It has benefitted the consumers in many ways by introducing new and

innovative products

It deals with the people at personal level which gives it an edge over the

other banks

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Suggestions:

The bank’s debt-equity ratio has increased in the year 2013. In 2012, the ratio was 0.01 but

in the year 2013, it increased to 9.9. This means that the debts or liabilities have increased.

It must therefore try and reduce its liabilities

Secondly, the expense ratio in the year 2012 was 38.12% and reached 41.9% in the year

2013. The bank should therefore try to minimize its expenses

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Annexure:

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