FINAL ACCOUNTS END TERM PROJECT ANALYSIS OF JAMMU AND KASHMIR BANK LIMITED AND HDFC BANK LIMITED

(PRIVATE SECTOR BANKS)

BYADITYA MAHAJAN ROLL NO. 260 SECTION-D

JAMMU AND KASHMIR BANK LIMITED

The Jammu & Kashmir Bank was founded on October 1, 1938 under letters patent issued by the Maharaja of Jammu and Kashmir, Hari Singh. The Maharaja invited eminent Kashmiri investors to become founding directors and shareholders of the bank, the most notable of which were Abdul Aziz Mantoo, Pesten Gee and the Bhaghat Family, all of whom acquired major shareholdings.[1][2] The Bank commenced business on July 4, 1939 and was considered the first of its nature and composition as a State owned bank in the country. The Bank was established as a semi-State Bank with participation in capital by State and the public under the control of State Government. The bank had to face serious problems at the time of independence when out of its total of ten branches two branches of Muzaffarabad,Rawalakot and Mirpur fell to the other side of the line of control (now Pakistan-administered Kashmir) along with cash and other assets. Following the extension of Central laws to the state of Jammu & Kashmir, the bank was defined as a government company as per the provisions of Indian companies act 1956. Mushtaq Ahmed is the new Chairman & CEO of Jammu & Kashmir Bank. J&K Banks Annual Report 2008-09 has won three awards at the prestigious LACP 2009 Vision Awards the worlds largest award programme for Annual Reports, organized by California-based League of American Communications Professionals (LACP), USA. The LACP is a forum within the public relations industry that facilitates discussion of best-in-class practices in public relations and recognizes exemplary communication capabilities at a global level. The awards received include Rank 73 on the top hundred list of annual reports from around the world, Platinum Award in the Commercial Banks Up to $10 billion annual revenue from the Asia Pacific Region and Silver Award for Most Creative Report across all sectors from the Asia Pacific Region. [3] Dr Haseeb Drabu was chairman and chief executive of the bank for the period 2005 to 2010.

HDFC BANK
HDFC Bank Limited (BSE: 500180, NSE: HDFCBANK, NYSE: HDB) is an Indian financial services company that was incorporated in August 1994. HDFC Bank is the fifth or sixth largest bank in India by assets and the second largest bank by market capitalization as of February 24, 2012. The bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India. HDFC Bank has 1,986 branches and over 5,471 ATMs, in 996 cities in India, and all branches of the bank are linked on an online real-time basis. As of 30 September 2008 the bank had total assets of Rs.1006.82 billion.[3] For the fiscal year 2010-11, the bank has reported net profit of 3,926.30 crore (US$710.66 million), up 33.1% from the previous fiscal. Total annual earnings of the bank increased by 20.37% reaching at 24,263.4 crore (US$4.39 billion) in 2010-11.[4] HDFC Bank is one of the Big Four banks of India, along with: State Bank of India, ICICI Bank andPunjab National Bank.

ANALYSIS

RATIO ANALYSIS
1) LIQUIDITY RATIOS: a) CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES LIQUID ASSETS CURRENT LIABILITIES

b) LIQUIDITY RATIO =

2) SOLVENCY RATIOS: a) DEBT EQUITY RATIO=

DEBT EQUITY TOTAL ASSET DEBT SHAREHOLDERS FUNDS TOTAL ASSETS PROFIT BEFORE INTEREST & TAXES INTEREST

b) TOTAL ASSET TO DEBT RATIO= c) PROPRIETORY RATIO=

d) INTEREST COVERAGE RATIO=

3) ACTIVITY RATIOS: a) STOCK TURNOVER RATIO=

COST OF GOODS SOLD (COGS) AVERAGE STOCK NET CREDIT SALES AVERAGE ACCOUNTS RECEIVABLES NET CREDIT PURCHASE AVERAGE ACCOUNTS PAYABLE NET SALES OR COGS NET WORKING CAPITAL

b) DEBTORS TURNOVER RATIO=

c) CREDITORS TURNOVER RATIO=

d) WORKING CAPITAL TURNOVER=

4) PROFITABILITY RATIOS: a) GROSS PROFIT RATIO= GROSS PROFIT NET SALES * 100

b) OPERATING RATIO=

COGS+OPERATINGEXPENSES*100 NET SALES OPERATING PROFIT * 100 NET SALES NET PROFIT *100

c) OPERATING PROFIT RATIO=

d) NET PROFIT RATIO=

NET SALES
e) RETURN ON INVESTMENT= PROFIT BEFORE INTEREST TAX OR DIVIDEND *100 CAPITAL EMPLOYED

5) INSTEAD OF THE ACTIVITY RATIOS (OUR CASE BEING PRIVATE SECTOR BANKS) WE SHALL CALCULATE SOME KEY MANAGEMENT RATIOS: A) INTEREST INCOME TOTAL FUNDS B) NON INTEREST INCOME TOTAL FUNDS C) INTEREST EXPENDED TOTAL FUNDS D) OPERATING EXPENSES TOTAL FUNDS

RATIO ANALYSIS IS DONE IN THIS EXCEL SHEET ..\Desktop\FA_End_Term_Ratios jkb vs hdfc.xlsx

INTERPRETATION

The current ratio has been more than adequate in the 2 years however there has been a steep decline in the ratio (half) because of a nearly more than half decline in current assets. The liquid ratio is not suitable since it is currently even less than 1 declining from the earlier relatively more adequate liquid ratio. The debt equity ratio has remained constant at around 12 indicating a very high debt as compared to equity (13 times). This indicates a very infusion of debt in the capital structure as compared to equity. Total asset to debt ratio has remained around 1 indicating the debt is a very major component in the total asset of the company. There is a less than 1 proprietary ratio for both the years indicating a very low composition of equity in the total assets of the company or a very low amount of assets have been financed by equity. Interest coverage ratio has increased from around 4 to 6. This indicates that the total income is 4 times the interest and 6 times the interest. The interest income contributed around 6.88 percent to the total funds and which increased to around 8 percent. The non interest income remained the same around .01 percent of total funds. The operating expenses increased from 1.21 to 1.3 due to an increase in the operating expenses at a rate more than the increase in the total funds. There has been a marginal decline in the gross profit ratio, operating profit ratio and the net profit ratio due to an increase in the expenses at a rate slightly more than the rate of increase in the income.

TREND ANALYSIS A)VERTICAL ANALYSIS B) HORIZONTAL ANALYSIS C) CROSS SECTIONAL ANALYSIS

VERTICAL ANALYSIS
J&K BANK LTD HDFC BANK LTD As a percentage of total Assets 0.200526

Actual Value

As a percentage of total Assets

Actual Value ( In Lacs)

Trade Payables

1,296.83

0.219943

3,583

Deferred Tax Liability

92.83

0.015744

312

0.017461

Intangible Assets

25.05

0.004248

1,760

0.0985

Current Investments

285.02

0.04834

30

0.001679

Trade Receivables Total assets

781.25 5,896.21

0.1325

3,586 17,868

0.200694

Observations
Trade payables as a percentage of total assets are approximately equal for both the companies.

Deferred tax liability as a percentage of total assets is slightly higher in HDFC BANK LTD (0.017) as compared to that of J&K BANK LTD (0.015). Intangible assets in case of HDFC BANK LTD are much higher than that of J&K BANK LTD. Current investments made by J&K BANK LTD is quite high than that of HDFC BANK LTD. Trade receivables as a percentage of total assets in HDFC BANK LTD are slightly higher than that of J&K BANK LTD.

HORIZONTAL ANALYSIS
Horizontal/Trend Analysis of J&K BANK LTD Actual Values FY 2012 Trade Payables Deferred Tax Liability Intangible Assets Current Investments Trade Receivables 1,296.83 92.83 25.05 285.02 781.25 FY2011 As percentages (%) FY 2012 1,087.44 19.25532 85.18 8.980981 22.86 9.580052 366.51 -22.234 573.1 36.32001

OBSERVATION:

There has been a significant growth in the trade payables (creditors) of the company .It means the company has offered more credit as compared to the previous year. In comparison to last year deferred tax liability has increased by approximately 9 %.Thus in this fiscal year the company will have to bear the cost of the increased deferred tax. Intangible assets have increased which is a good sign for the company as there is cut throat competition in the paint industry and increase in the goodwill would be profitable. Current investments have reduced by 22 %( approx) .It means that the companys current assets have reduced and its operational efficiency may also be affected due to reduction in the current ratio.

Trade receivables (debtors) have increased.

Horizontal/Trend Analysis of HDFC BANK LTD Actual Values FY 2012 Trade Payables Deferred Tax Liability Intangible Assets Current Investments Trade Receivables 30 3,586 3,583 312 1,760 FY2011 As percentages (%) FY 2012 2,736 30.9576 263 18.63118 1,699 3.590347 521 -94.2418 2,728 31.45161

OBSERVATIONS:

There has been a significant growth in the trade payables (creditors) of the company .It means the company has offered more credit as compared to the previous year. In comparison to last year deferred tax liability has increased by approximately 18 %.Thus in this fiscal year the company will have to bear the cost of the increased deferred tax. Intangible assets have increased which is a good sign for the company as there is cut throat competition in the paint industry and increase in the goodwill would be profitable. Current investments have reduced by 94 %( approx) .It means that the companys current assets have reduced and its operational efficiency may also be affected due to reduction in the current ratio. Trade receivables(debtors ) have increased

JAMMU AND KASHMIR BANK

VALUATION OF INVENTORY
In compliance with RBI guidelines, all investments, are categorized as "Held for trading" ('HFT'), "Available for sale" ('AFS') or "Held to maturity" ('HTM') at the time of its purchase. Investments that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments.

Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM category is deducted from interest income. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made.

VALUATION OF FIXED ASSETS

Fixed assets are stated at cost less accumulated depreciation and provision for impairment. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net discounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Method of depreciation calculation

Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below (which are higher than or equal to the corresponding rates prescribed in Schedule XIV to the Companies Act, 1956): Class of asset Rates of depreciation per annum Office Equipment 16.21% Computer Hardware 33.33% Computer Software 25.00% Vehicles 20.00% Furniture and Fixtures 6.33% Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank.

HDFC BANK VALUATION OF INVESTMENT

Held to maturity These investments are carried at their acquisition cost. Any premium on acquisition of debt securities is amortised over the balance period to maturity. The amortised amount is deducted from Interest earned Income on investments (Item II of Schedule 13). The book value of security is reduced to

the extent of amount amortised during the relevant accounting period. Diminution other than temporary, if any, in the value of such investments is determined and provided for on each investment individually. Held for trading Each security in this category is re-valued at the market price or fair value and the resultant depreciation of each security is charged to the profit and loss account. Appreciation if any is ignored .Market value of government securities is determined on the basis of the prices / Yield to Maturity Available for sale Each security in this category is re-valued at the market price or fair value and the resultant depreciation for each security in this category is charged to profit and loss account and appreciation, if any, is ignored

VALUATION OF FIXED ASSETS & DEPRECIATION Fixed assets (including assets given on operating lease) have been stated at cost (except in the case of premises which were re-valued based on values determined by approved valuers) less accumulated depreciation and impairment, if any. Cost includes incidental expenditure incurred on the assets before they are ready for intended use. The carrying amount of Fixed Assets is reviewed at each Balance Sheet date to determine if there are any indications of impairment based on internal / external factors. The appreciation on revaluation is credited to revaluation reserve. Depreciation relating to revaluation is adjusted against the revaluation reserve Depreciation has been provided pro rata for the period of use, on Straight Line Method at such rates that are reflective of managements estimate of the useful life of the related Fixed Assets. These rates are as prescribed under Schedule XIV to the Companies Act, 1956, except in respect of the following where the rates adopted are higher than the prescribed rates: (a)Computers at 33.33% p.a. (b) Furniture and Fixtures at 10% p.a. (c) Electrical Installations at 10% p.a. (d) Other office equipment at 10 % pa (e) Vehicles at 20% p.a.

Taking into account various criteria such as changes in technology, changes in business environment, utility and efficacy of an asset class to meet with intended user needs etc., the useful life of an asset class is periodically assessed. Whenever there is a revision in the estimated useful life of an asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset.

Auditors Report J&K Bank

1. We have audited the accompanying financial statements of the Jammu & Kashmir Bank LimiThed, which comprise the Balance Sheet as at 31st March, 2012 and the StaThement of Profit & Loss and the Cash Flow StaThement for the year then ended and a summary of signifi cant Accounting Policies and other explanatory information. IncorporaThed in these fi nancial staThements are the returns of 65 Branches/offi ces audiThed by us and 572 Branches/Offi ces audiThed by Statutory Branch Auditors. 2. T e Management is responsible for the preparation of these fi nancial staThements in accordance with the requirement of the Reserve Bank of India, the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956 and recognised accounting policies and practices including the Accounting Standards issued by the InstituThe of CharThered Accountants of India (ICAI). T is responsibility includes the design, implementation and

mainThenance of inThernal control relevant to the preparation of the fi nancial staThements that are free from maTherial misstaThement whether due to fraud or error. 3. Our responsibility is to express an opinion on these fi nancial staThements based on our audit. We conducThed our audit in accordance with the Standards on Auditing issued by the InstituThe of CharThered Accountants of India. T ose standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial staThements are free from maTherial misstaThement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial staThements. T e procedures selecThed depend on the Auditor''s judgment, including the assessment of the risk of maTherial misstaThement of the fi nancial staThements, whether due to fraud or error. In making those risk assessments, the Auditor considers inThernal control relevant to the Company''s preparation and fair presentation of the fi nancial staThements in order to design the audit procedures that are appropriaThe in the circumstances. An audit also includes evaluating the appropriaTheness of accounting policies used and the reasonableness of the accounting estimaThes made by the management, as well as evaluating the overall presentation of the fi nancial staThements. 5. We believe that the audit evidence we have obtained is suffi cient and appropriaThe to provide a basis for our audit opinion.

6. In our opinion and to the best of our information and according to the explanations given to us, the said accounts together with the noThes thereon give information required by the Banking Regulation Act, 1949 as well as the Companies Act, 1956, in the manner so required for the banking companies and give true and fair view in conformity with the accounting principles generally accepThed in India: (i) In the case of the Balance Sheet, of the StaThe of Aff airs of the Bank as at 31st March, 2012; (ii) In the case of the Profit and Loss Account, of the Profit for the year ended on that daThe; and (iii) In the case of the Cash Flow StaThement, of the cash fl ows for the year ended on that daThe. 7. T e Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956. 8. We report that: a. We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory. b. T e transactions of the Bank, which have come to our notice, have been within the powers of the Bank. c. T e returns received from the offi ces and branches of the Bank

have been found adequaThe for the purpose of our audit. 9. In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow StaThement comply with the Accounting Standards referred to in SubSection (3C) of Section 211 of the Companies Act, 1956. 10. We further report that: (i) the Balance Sheet and Profit and Loss Account dealt with by this report, are in agreement with the books of account and the returns. (ii) in our opinion, proper books of account as required by law have been kept by the bank so far as appears from our examination of those books. (iii) the reports on the accounts of the branches audiThed by the branch Auditors have been dealt with in preparing our report in the manner considered necessary by us. (iv) as per information and explanation given to us, the Central Government has, till daThe, not prescribed any cess payable under section 441A of the Companies Act, 1956. (v) on the basis of writThen representation received from the Directors and taken on record by the Board of Directors, none of the Directors is disqualifi ed as on 31st March, 2012 from being appoinThed as a Director in Therms of Clause (g) of Sub-Section (1) of Section 274 of the Companies Act, 1956.

For O P Garg & Co.

For K B Sharma & Co. For Verma AssociaThes

CharThered Accountants CharThered Accountants CharThered Accountant

HDFC BANK
We have audited the attached Balance Sheet of HDFC Bank Limited (''the Bank'') as at 31 March 2012 and also the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, annexed thereto for the year ended on that date. These financial statements are the responsibility of the Bank''s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a

reasonable basis for our opinion. The Balance Sheet and the Statement of Profit and Loss have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211(1), (2) and (3C) of the Companies Act, 1956. We report that: a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory; b) in our opinion, the transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and c) the returns received from the offices and branches of the Bank have been found adequate for the purposes of our audit. In our opinion, the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report comply with the accounting principles generally accepted in India including Accounting Standards referred to in subsection (3C) of section 211 of the Companies Act, 1956, to the extent they are not inconsistent with the accounting policies prescribed by the Reserve Bank of India. We further report that: a) the Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this report are in agreement with the books of account and returns;

b) in our opinion, proper books of account as required by law have been kept by the Bank so far as appears from our examination of those books; c) on the basis of written representations received from the directors, as on 31 March 2012, and taken on record by the Board of Directors, we report that none of the director is disqualified as on 31 March 2012 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956. In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 1956, in the manner so required for banking companies and give a true and fair view in conformity with accounting principles generally accepted in India: a) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31 March 2012; b) in the case of the Statement of Profit and Loss, of the profit of the Bank for the year ended on that date; and c) in the case of the Cash Flow Statement, of the cash flows of the Bank for the year ended on that date.

For B S R & Co. Chartered Accountants

MANAGEMENTS DISCUSSIONS J&K BANK

Macroeconomic and Industry Overview In 2011-12, the Indian economy found itself in the heart of conflicting demands of managing growth amidst price stability. Aggressive hikes in policy rate in a bid to clamp down inflation, elevated global crude oil prices, rising cost of funds, lack of domestic policy traction and a deteriorating global environment, saw GDP growth slipping successively on a quarterly basis through 2011. In terms of sectoral trends, the slowdown in headline GDP growth in 201112, is primarily owing to a dip in industrial growth to 3.9% compared to 7.2% in 2010-11. Within the industry, with the exception of electricity, all sub-indices namely mining, manufacturing and construction, witnessed significant slowdown over 2010-11. In contrast, both agriculture and services sector remained largely resilient in the year. Headline WPI inflation remained persistently high and relatively sticky at around 9% during 2011-12. A combination of several factors elevated international commodity prices, frequent adjustment to petrol prices, strong demand conditions (led by sharper increase seen in rural wages), and rupee depreciation kept inflationary pressures intact. As a result, the Reserve Bank of India (RBI) in a bid to curb inflationary expectations upped its quantum of rate hikes in 2011-12. It hiked the repo rate by 175 bps during Apr-Oct 2011-12. Though inflation remained high during most of the year, it has shown signs of moderation lately. Headline WPI inflation has corrected by close to 250 bps since Oct-11. In addition, core inflation, an indicator of demand side pressures in the economy, has also corrected by close to 300 bps since Nov-11. In the light of the recent easing in inflation and the concomitant deceleration in growth, the period from Dec-11 to Jan-12 marked a reversal of the rate cycle, with the RBI now clearly having indicated that the monetary tightening cycle has peaked. In the last policy review in Mar-12, while the RBI sounded concerned on domestic growth remaining below trend and acknowledged future policy action in the form of monetary easing, it kept policy rate unchanged while balancing upside risks (due to the recent surge in crude oil prices, fiscal slippage and the rupee depreciation) of inflation in the economy verses growth. Liquidity conditions remained in the deficit during the majority of 2011-12. As a result, RBI addressed liquidity concerns by allowing Banks to avail overnight funds through the MSF scheme, and by reducing CRR and through Open

Market Operations (OMO). The continued structural deficit in liquidity prompted RBI to reduce CRR in two tranches by 50 bps in Jan-12 and by 75 bps in Mar-12 to an effective 4.75%.

Vision, Mission and Business Strategy

In April 2010, your Bank launched the Version 2.0 and announced the rollout of a strategic roadmap to further accelerate business growth with an aim to achieve a balance sheet size of ` 1,50,000 crore and a pan India network of 900 branches with a human capital base of 12,750 by 2015. Your Bank continues on this Version 2.0 strategy which is based on a relationship-driven, service-centric approach to deliver customised and comprehensive financial solutions to suit the specific requirements of its customers. Your Bank is taking steps to achieve the 7 Strategic Objectives for the Version 2.0 growth phase, built around CORE Relationship Management: (1) Liabilities Generation :The most important objective of the Bank is to increase the quantum of Current and Savings Account (CASA) deposits and granular term deposits as a part of its Version 2.0 goals. For this purpose, the Bank plans to use a business-tobusiness-to-customer (B2B2C) strategy along with focused target segment approach by offering products according to customer needs. Key elements of this strategy involve identifying Current Account rich corporate customer segments and offering them tailormade products, offering wealth products to the owner promoters and directors of corporate customers and offering salary accounts to these companies under the Y-COPs Program (Corporate Salary Programs). The Bank also taps the supply chain of large corporate customers by offering superior cash management and liquidity management solutions. Further,Yes Bank has tied up with various brokers and insurance firms to offer innovative products to their customers as a part of its strategy to target financial intermediaries, who are a rich source of references of technology savvy and transaction heavy customers. In addition, Yes Bank is continuously investing in expanding the distribution network to further improve access to the customer base. It has set up more than 356 branches and 600 ATMs with a target to achieve 900 branches and 2000 ATMs by March 2015. In October 2011, the Reserve Bank of India announced deregulation of Savings Account rates, whereby individual banks were allowed to set differential savings rate for their customers. Accordingly, your Bank was

the first Bank to offer higher savings rates to its customers; your Bank now offers 6% to customers maintaining balances below ` 100,000 and 7% to Saving Account customers maintaining balances above ` 100,000, significantly higher than the 4% offered by public sector and larger private sector banks. (2) Optimal Risk Management: Yes Bank believes in achieving growth while maintaining high standards of asset quality through Risk Management and mitigation practices that are actively focused on evaluations of credit, market and operational risk. (3) Sustainable / Diversified Revenue Generation: Yes Bank intends to expand its presence by increasing its customer base in its Corporate and Institutional Banking, Commercial Banking and Branch Banking divisions through a focused customer relationship management approach. (4) Consistent Customer Service & Brand Management As a part of this strategy, for the last 2 years, your Bank has undertaken a customer centric advertising campaign that has had a strong resonance among its customers. These measures are expected to result into improved customer sentiment. (5) Finest Human Capital Management: Yes Bank continues to attract the best quality talent from leading financial institutions and business schools in the country. During the financial year 2011-12, Bank was one of the leading recruiters at the top business schools and the Institute of Chartered Accountants of India hiring more than 170 post-graduates. (6) Effective Cost Management: Yes Bank continues to maintain one of the best costs to income ratios in the banking sector. Your Bank intends to effectively manage cost by reducing waste, efficiently using resources, and negotiating rates efficiently with vendors and reducing technology cost through innovations (7) Continuous Strengthening of Systems, Controls, Processes & Procedures: YES BANK launched Version 2.0 in April 2010, which indeed is the most stimulating phase of the Bank's lifecycle, and has successfully completed two years of Version 2.0 with a stellar financial performance. Yes Bank has further strengthened its platform to deliver on the key goals established for 2015.

Further, with a rapidly expanding branch network, which is also achieving the desired vintage/maturity, yes Bank is seeing the commencement of an inflection point in the liabilities base of its branch network

Report on Corporate Governance 1. Global econom y The global macro-economic environment is reeling under multiple challenges. Even though concerns about an economic crisis have somewhat abated since the beginning of the year, apprehensions persist about the pace and stability of global economic recovery. The US economic revival continues to be sluggish and fragile, despite the extensive application of both fiscal and monetary policy tools. Large scale liquidity infusions by the European Central Bank (ECB) have significantly reduced stress in the global financial markets. However, a sustainable solution to the euro-zone debt problem is yet to emerge. Recent developments in Spain are a case in point: the countrys fourth-largest lender requested a 19 billion ($24 billion) bail-out from the government, raising doubts about how much help other lenders might need. The verdict is clear: euro-zones sovereign debt problem will continue to cast looming shadows on the economies of the rest of the world. Growth risks are also visible in emerging and developing economies (EDEs), reflecting the combined impact of monetary tightening and global slowdown. As regards BRICS, the yearonyear GDP growth in China declined from an average of 9.6% in the first half of 2011 to 8.1% in the first quarter of 2012. The slow down in growth was also sharp in Brazil in last Quarter of

2011. However, Russia and South Africa witnessed modest downturn. Headline measures of inflation in major advanced economies continued to soften in March, 2012. While headline inflation moderated in Brazil and Russia in March, it edged up in China. International crude oil prices have, however, risen by about 10% since January and appear to be persisting at current levels. The worsening of geopolitical conditions, particularly in the Middle-East and North Africa, could trigger a sharp escalation in oil prices and reduce global output significantly. 2. Dome stic econom y The domestic economy performed below expectations in FY 2011-12. Growth moderated and fiscal balance deteriorated due to tight monetary policies. The monetary and fiscal policies during most part of the year were primarily aimed at taming domestic inflation. Although inflation has moderated recently, it has remained above the tolerance level, even as economic growth is showing sure signs of fatigue. Significantly, these trends are occurring in a situation in which concerns over the fiscal deficit, the current account deficit and deteriorating asset quality loom large. The GDP growth for 2011-12 now stands at 6.5%, as opposed to earlier projections of 6.9% It is lower than 6.8% growth in 2008-09, the year of the Lehman crisis. This is utterly disappointing when compared to two successive previous years, which had witnessed a fairly robust growth of 8.4%. Although initial expectations were positive about domestic economic performance, it became increasingly clear during the course of the year that it would fall far short of the desired

growth rate. A part of the reasons were the global factors, particularly the euro zone crisis and near-recessionary conditions prevailing in Europe; sluggish growth in the US and many other industrialized countries; stagnation in Japan Management Discussion & Analysis Corporate Overview 01 Board and Management Reports 50 Financi al Statements 62 Governance 138 57 stagnation and hardening of international crude prices, impacting Indias oil bill. Domestic factors like tightening of the monetary policy, in particular raising the repo rate to control inflation and anchor inflationary expectations, also resulted in sluggish investment and growth, particularly in the industrial sector. Overall, the multi-sector performance during the past year was not very encouraging. However, there are vital signs from high-frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing may be imminent. 3. Econom y outloo k for 2012-13 The baseline GDP growth for 2012-13 is projected at 7.3%, which is little better than the GDP growth of 6.5% for 2011-12. Assuming a normal monsoon, agricultural growth could stay close to the trend level. Industry is expected to perform better than in last year, as leading indicators of industry suggest a turnaround in IIP growth. Services sector is likely to remain largely resilient, though some spill-over may occur from the slow pace of industrial growth. The inflation scenario is expected to remain challenging in FY 2012-13. Food inflation, after a seasonal decline, has risen again. Crude oil prices are expected to remain firm and the pass-through

of past price increases in the international market to domestic petroleum product prices remains significantly incomplete. There also remains an element of suppressed inflation in respect of coal and electricity. However, non-food manufactured products inflation is expected to remain contained, reflecting the lagged effect of past monetary policy tightening on the aggregate demand. Corporate performance numbers also indicate that the pricing power has reduced. Consequently, the risk of adjustments in administered prices, translating into generalized inflationary pressures remains limited, though there is no room for complacency. Consistent with growth and inflation projections, M3 growth for 2012-13, for policy purposes, is projected at 15%. Consequently, aggregate deposits of SCBs are projected to grow by 16%. In view of the need to balance the resource requirements of the private sector and the public sector, growth in non-food credit of SCBs is projected at 17%. Going ahead, the economy is expected to perform slightly better with reasonably higher growth rate, increased industrial production, improvement in investment activity and comparatively contained inflation. However, these expectations could be belied by any failure in containing fiscal deficit, reemergence of demand-led inflation and continued geopolitical uncertainties that may adversely affect the global commodity prices, especially the crude oil prices. 4. The monetar y polic y stance After raising the policy rate by 375 basis points during March, 2010-October, 2011 to contain inflation and anchor inflation expectations, the

Reserve Bank paused in its mid-quarter review (MQR) of December, 2011. Subsequent growth inflation dynamics prompted the Reserve Bank to indicate that no further tightening was required, and that future actions would be focused on lowering the rates. Against the backdrop of global and domestic macroeconomic conditions, outlook and risks, the policy stance for 2012-13 has been guided by two major considerations. First, economic growth decelerated to 5.3% (a historic low) in the fourth quarter of 2011-12, clearly indicating that the economy is operating below its post-crisis trend. Second, as earlier projected, headline WPI inflation as well as non-food manufactured products inflation moderated significantly by March, 2012. During December-January, inflation softened owing to a decline in food prices. However, in the following two months, inflation softening was driven largely by moderation in the core components, reflecting a demand slowdown. Against this backdrop, the stance of monetary policy is intended to: Adjust policy rates to levels consistent with the current growth moderation Guard against risks of demand-led inflationary pressures re-emerging Provide a greater liquidity cushion to the financial system 5. Reg ulator y an d monetar y mea sures 2011-12 witnessed a series of monetary measures initiated by the Reserve Bank of India to contain the rising inflation. The increase in the repo

The baseline GDP growth for 2012-13 is projected at 7.3% which is little better than the GDP growth of 6.5% for 201112. Assuming a normal monsoon, agricultural growth could stay close to the trend level. Industry is expected to perform better than in last year as leading indicators of industry suggest a turnaround in IIP growth. Services sector is likely to remain largely resilient, though some spillover may occur from the slow pace of industrial growth. annual report 2011-12 58 rates in the monetary policy for FY 10-11 and the calibrated increase thereafter were primarily aimed at bringing down the inflationary pressures. RBI also decided to limit repo rate as the only independently varying policy rate with reverse repo to auto-modify at 100 basis points below the repo rate, clearly signaling the stance of monetary policy to achieve macroeconomic objectives of growth with price stability. RBI also introduced a Marginal Standing Facility (MSF), through which, banks can borrow overnight up to 1% of net demand and time liabilities at 100 basis points above the repo rate.

In the second quarter review of the monetary policy on 25th October, 2011, RBI deregulated the Savings Bank interest rate. Subsequently, in December, 2011, RBI also deregulated the interest rates on NRE and NRO accounts to encourage capital flows of more stable nature and to provide greater flexibility to banks in mobilizing nonresident deposits. RBI also raised the Bank Rate by 350 basis points from 6% per annum to 9.50% per annum with effect from close of business on 13th February, 2012 as a one-time technical adjustment to align the Bank Rate with the MSF rate rather than a change in the monetary policy stance. The repo rate was raised from 6.75% to 8.50% in the monetary policy reviews during the year. RBI also reduced the CRR of scheduled banks from 6.0% to 4.75% of their net demand and time liabilities during the financial year. Allowing scheduled commercial banks (other than RRBs) to open Branches, Administrative Offices and Central Processing Centres / Service Branches in Tier II to Tier VI centres without the need to take permission from RBI in each case, subject to reporting, enhancement of rates of provisioning by banks for their non-performing assets and capping of investment in liquid schemes of debt-oriented mutual funds (MFs) by banks at 10% of their net worth as on 31st March of the previous year were among the various other measures taken by RBI during the last year. The major policy measures announced by the Reserve Bank under the Monetary policy for 2012-13 included reduction in the repo rate under the liquidity adjustment facility (LAF) by 50 basis points from 8.5% to 8.0%. Consequently,

the Reverse Repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, adjusted to 7.0%. The borrowing limit of scheduled commercial banks under the marginal standing facility (MSF) was increased from 1% to 2% of their net demand and time liabilities (NDTL) outstanding at the end of second preceding fortnight. On account of an increase in repo rate, the MSF rate, determined with a spread of 100 basis points above the repo rate, adjusted to 9.0% and the Bank Rate also adjusted to 9.0% with immediate effect. The cash reserve ratio (CRR) of scheduled banks was, however, retained at 4.75% of their NDTL. The policy actions initiated are expected to: Stabilize growth around its current post-crisis trend; Contain risks of inflation and inflation expectations re-surging; and Enhance the in-system liquidity cushion. 6. J &K on the roa d to development The economic scenario of Jammu & Kashmir (J&K) during the FY 2011-12 was reasonably satisfactory, considering the mounting challenges at the national level. The growth in GSDP of J&K state is estimated to touch 6.8% in FY 2011-12, on the back of significant reduction in fiscal deficit and record tax collections. However, on the income front, the state is lagging behind national figures. As a part of its endeavour to develop J&K into a model state, the state government launched many socio-economic developmental programmes. These programmes include the Pradhan Mantri Gram Sadak Yojana (PMGSY), Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), National

Rural Health Mission (NRHM), Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and the Prime Ministers Reconstruction Programme (PMRP), among others. These initiatives span connectivity, electrification, water supply and irrigation. The governments priority attention to issues relating to development and good governance is driving positive outcomes with the year 2011-12 being the most peaceful year in the last two decades. During 2011-12, J&K successfully reduced its fiscal deficit to a record low of 4.3% of GSDP. Moreover, the much desired financial discipline induced through WMA has also begun to show positive impacts with the Government Treasury in credit with Zero Overdraft. The states tax revenue collection in 2011-12 also touched ` 4800 Crore; a 38% growth over the previous year. Similarly, collections under the commercial taxes alone increased by ` 1057 Crore, indicating a 42% surge. For the 2011-12 Annual Plan, the government Management Discussion & Analysis Corporate Overview 01 Board and Management Reports 50 Financi al Statements 62 Governance 138 59 secured ` 7,300 Crores (largest ever plan outlay) and a provision of ` 700 Crores under the Prime Ministers Reconstruction Plan. The state government, in line with its minimum common programme, has announced multiple path-breaking initiatives in the 2012-13 budget. The government has launched result-oriented Child & Women Development Programmes like Beti Anmol Scheme (Budget Provision of ` 5 Crore), Empowering Skilled Young Women (Budget Provision of

` 10 Crore), Training of Women in Handicrafts and Handlooms Trade (Budget Provision of ` 16 Crore). The state is also expected to modernize its agriculture and allied sectors. This objective has entailed the highest-ever focus towards agri-development. A ` 721 Crores budgetary provision has been earmarked for expanding the states irrigation network, while a ` 343 Crores provision will be channelized into the agriculture sector for improving seed replacement rate, farm mechanization and so on. The state witnessed a peaceful year and the dividends of peace are visible in the tourism sector. J&K witnessed unprecedented tourism flow during the year. Recognizing the importance of tourism in the states economic development, due emphasis is being given towards the optimization of tourism resources. The government announced multiple initiatives to boost the tourism sector: 30% capital outright investment subsidy on fixed assets created by new investments, subject to a maximum of ` 30 lacs; capital investment subsidy limit raised to ` 1 Crore in the case of prestigious units, investing ` 25 Crores or more; 40% capital subsidy on paying guest houses; 50% subsidy on equipment for adventure tourism, kitchen and related appliances; 50% subsidy on tourist coaches, air conditioning and office automation; reimbursement of 50% cost on managerial training; and more importantly, liberalizing and expanding the list of areas and locations qualifying for incentives under Tourism Package. The package to encourage tourism is not limited to these initiatives only. To tackle the problem of unemployment and to provide a platform to emerging entrepreneurs, the

state government took a path breaking initiative in 2010 by launching the Sher-e-Kashmir Employment & Welfare Programme for Youth (SKEWPY) to encourage and assist first-generation entrepreneurs. A whopping ` 90 Crores stand earmarked under the initiative to provide adequate funding to the trained and registered first-generation entrepreneurs to commence environment-friendly ventures, relating to core areas of the states economy. The state government is committed to securing inclusive development of J&K. To achieve this objective, the government has identified some core sectors as the thrust areas for next fiscal. These sectors include Power, Connectivity, Education, Agriculture, Social Welfare and Health. The government has adopted a result-oriented return and rehabilitation plan for Kashmiri migrants to bring back lasting peace and serenity to the valley. Moreover, extensive welfare programmes for the disadvantaged sections of society have been initiated. The completion of projects, some of them are mentioned below, reflect the state governments endeavour during 2012-13: To bridge the supply-demand gap in the energy sector, a budgetary provision of ` 455 Crores has been earmarked. Development of roads infrastructure (` 682 Crore) Construction of new/model degree colleges (` 191 Crore). Completion of Mughal Road (` 105 Crores under PMRP). Development of Leh and Kargil districts

(` 148 Crores provision) 7. J &K Ban k polic y over view The Bank continues to make significant strides in all important areas of operation. The business strategy is focused on the socio-economic development of the home state through an exhaustive need-based credit dispensation and selective pan-India quality lending. The process was initiated with a slew of re-engineering processes. The objective is to attain a healthy balance sheet, better asset liability management, optimal asset utilization and redefined systems and procedures to achieve higher efficiency, TQM, better compliance and risk management and real-time monitoring to accelerate decision-making. The Banks aggregate business breached another psychological mark and stood at ` 86424.32 Crores at FY 2011-12 end. The cumulative business increased by ` 15554.75 Crores from the previous years figure of ` 70869.57 Crores, registering 22% growth. At J&K Bank, we are accelerating our momentum to achieve the target of ` 1 lakh crores and net profit of ` 1,000 crores by the end of FY 2012-13 to coincide with our platinum jubilee celebrations. The Bank continues to make significant strides in all important areas of operation. We are accelerating our momentum to achieve the target of ` 1 lakh crores and net profit of ` 1,000 crores by the end of FY 2012-

13 to coincide with our platinum jubilee celebrations. annual report 2011-12 60 8. Performance over view of JK Ban k in 2011-12 Liability management At J&K Bank, we are sharpening our focus towards improving the qualitative parameters of liability management. Our total deposits grew by ` 8670.97 Crores from ` 44,675.93 Crores as on 31st March, 2011 to ` 53346.90 Crores as on 31st March, 2012, registering a 19.41% growth. This is comfortably above the 17.4% industry growth. CASA deposits constitute 40.71% of total deposits as on 31st March, 2012. The cost of deposits stood at 5.92% for the financial year 2011-12. Credit management The overall 26% credit growth exceeds the industry growth levels of 19.3%. The Bank continued its prudent approach in expanding quality credit assets in line with its policy on Credit Risk Management. The net advances increased by ` 6883.78 Crores and stood at ` 33077.42 Crores as on 31st March, 2012. The priority sector advances stood at ` 9961.20 Crores, whereas agriculture advances stood at ` 2925.50 Crores as on 31st March, 2012. The yield on advances improved to 11.45% during FY2011-12. Credit quality The Banks performance in the recovery of NPAs during the year continued to be robust. It managed a cumulative cash recovery, up-gradation of NPAs and technical write-off of ` 316.91 Crores for

FY 2011-12. A combination of relentless efforts, coupled with efficient monitoring and management enabled the Bank to maintain a healthy credit quality. The result is a quality loan book with 1.54 % GNPA and 0.15 % net NPA. Investment book The Banks investment portfolio increased by ` 1928.55 Crores from ` 19,695.77 Crores as on 31st March, 2011 to ` 21624.32 Crores as on 31st March, 2012 through gradual investment in the Central Government securities and SDLs as per SLR requirements. SLR securities increased by 12% and constituted 53% of the total investment book as on 31st March, 2012. Non-SLR investment portfolio increased by 8% and constituted 47% of the total investment book as on March, 2012. The Bank maintained minimum levels in T-bills and simultaneously reduced exposure to equity and equity linked MFs. 9. Financial incl usion To cater to the rural unbanked population and special segments, the Bank has formulated a comprehensive Financial Inclusion Plan (FIP). The FIP envisages providing basic banking services in 535 SLBC allotted villages and in 725 other unbanked villages of Jammu & Kashmir in a phased manner up to March, 2013. FIP is being implemented through a mix of branch network and Business Correspondent Model by engaging Common Service Centres (CSC) for delivery of services through smart cards. The coverage has reached 836 unbanked villages comprising 467 SLBC and 369 Non-SLBC villages as on 31.03.2012. The total number of 4.34 lac accounts has been

opened in the identified villages, covering 1.92 lacs households. The Bank has undertaken the setting up of Common Service Centres under the e-governance initiative of the Government of India. Of 1109 Common Service Centres to be set up, 700 Common Service Centres were established across the state up to March, 2012. The Bank laid a great emphasis on product development and promotion under financial inclusion. For this purpose, a number of customized micro-products like Micro Credit Card, Micro Overdraft to Ujala accounts, Micro Recurring Deposit Scheme and Micro-Remittance were introduced during the year. Management Discussion & Analysis.

Key Improvement Areas for It should focus to improve working capital management through various initiatives and introduce information technology in areas of operations where essential. It should try to improve its current ratio as it is quite below the ideal current ratio. This would increase the margin of safety. J&k bank should explore opportunities in the area of home improvement and decor. In the recent years the share price is showing a declining trend .The Company should take steps to attract investors and improve the share prices.

Key Improvement Areas for Hdfc bank

In the recent years the share price is showing a declining trend .The Company should take steps to attract investors and improve the share prices. It should try to improve its current ratio as it is quite below the ideal current ratio. This would increase the margin of safety.

Industrial business growth was lower and operating performance was impacted due to high solvent prices and inability of the company to pass on the price increase. It should take steps to solve his problem In the recent years the share price is showing a declining trend .The Company should take steps to attract investors and improve the share prices.

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J&K BANK AND HDFC BANK MOVEMENT WEEKLY SHARE PRICE (2011-12)

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