INTRODUCTION

1.1 INDUSTRIAL BACKGROUND

Meaning of Bank

According to banking regulation act of 1949 defines the term banking as accepting for the purpose of lending or investment of deposits of money from the public, repay on demand or otherwise and withdraw by cheques, draft or otherwise.

Kinds or types of bank: -

Commercial bank Industrial bank Foreign exchange bank Co-operative bank Agricultural bank Land and development bank Saving bank Central bank

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1.2 GENERAL INTRODUCTION

Finance is the life-blood of business. It is rightly termed as the science of money. Finance is very essential for the smooth running of the business. Finance controls the policies, activities and decision of every business.

Definition:

Finance is that business activity which is concerned with the organization and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise.- Wheeler

Financial management is that managerial activity which is concerned with the planning and controlling of a firm financial reserve. Financial management as an academic discipline has undergone fundamental changes as regards its scope and coverage. In the early years of its evolution it was treated synonymously with the raising of funds. In the current literature pertaining to this growing academic discipline, a broader scope so as to include in addition to procurement of funds, efficient use of resources is universally recognized.

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Financial analysis can be defined as a study of relationship between many factors as disclosed by the statement and the study of the trend of these factors.

The objective of financial analysis is the pinpointing of strength and weakness of a business undertaking by regrouping and analyzing of figures obtained from financial statement and balance sheet by the tools and techniques of management accounting. Financial analysis is as the final step of accounting that result in the presentation of final and the exact data that helps the business managers, creditors and investors.

Based on this reasoning, this project is an attempt to analyze the financial performance of HDFC BANK LIMITED. In the financial analysis a ratio is used as an index for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and the financial position of a firm. But the accounting figures convey the meaning when it is related to some other relation information for example Rs.5 crores net profit may look impressive, but the firms performance can be said good or bad only when net profit figures is related to the firms investment.

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Accounting ratios are relationships expressed in the mathematical terms between figures that are connected with each other in the some manner the information contained in the balance sheet, profit and loss account or the income statements are used by the management, creditors investors and others to form judgment about the operating performance and the financial strengths and weaknesses of the firm if we properly analysis the information reported in the statement.

FINANCIAL ANALYSIS Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing relationships between the items of the balance sheet and profit and loss account. The purpose of financial analysis is to disclose the information contained in the financial statements so as to judge the profitability and financial soundness of the organization. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statement. Secondly, to arrange the information in a way to highlight the significant relationships.

Finally, to interpret and draw inferences and conclusions. In brief, financial analysis is the process of selection, relation and evaluation.
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ANALYSIS AND INTERPRETATION

Analysis of Financial statements is a process of scanning them with a view to get the necessary information. Accordingly, there are a large number of persons who are interested in the analysis of financial statements. However, even with the accompanying schedules, the layman does not understand the statements. Except an expert analyst, others including the management cannot follow and digest the information contained in the statements. Hence, they need for analysis.

Interpretation is drawing conclusions with regard to the nature of the inter-relationship between figures analyzed.

It is necessary to note in the context, that analysis and interpretation are complementary and one cannot be stressed or favored as against the other. In fact, the very object of the analysis is to interpret the significant relationship between figures, and there cannot be any interpretation without first analyzing the data. Thus, analysis and interpretation go hand in hand.

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TYPES OF ANALYSIS

When we use the term financial analysis, we do distinguish between horizontal analysis and vertical whether the analysis and vertical analysis whether the analysis is for those external to the business or the managerial personnel.

Horizontal Analysis- also known as dynamic analysis portrays figures for a

number of years and change in these figures from the figure of a particular year is chosen as the standard or the base year. Changes from the figures of the base year, represented as percentage, gives us a clear idea of the trend, during the year, i.e. whether there is an increasing trend, decreasing trend or violent fluctuations so that it is possible to analyze the reasons for the same.

Vertical Analysis- aims at making a static analysis of financial statements

for one year only. This method of analysis is useful in studying the interrelationship of different figures, as for instance, the relationship of gross or net profit to total deposits and also for inter-firm comparison.

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TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS

A financial analyst analyzes the financial statements by selecting the appropriate techniques according to the purpose of analysis. Financial

statements may be analyzed by means of any of the following techniques.

Comparative Statements Common-size Statements Trend Analysis Ratio Analysis Fund Flow Statements Cash Flow Statements Cost-Volume-Profit Analysis

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RATIO ANALYSIS:

A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two quantitative terms between figures which have a cause and effect relationship or which are connected with each other in some manner or the other. A noticeable point is that a ratio

reflecting a quantitative relationship helps to perform a qualitative judgment. Such is the nature of all financial ratios.

Ratio analysis is a widely used technique in financial analysis. It is defined as systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of the organization, its historical performance and current financial condition, can be determined.

CLASSIFICATION OF RATIOS

The use of ratio analysis is not confined to the financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of the firm for different purpose. In view of the various users of ratios, there are many types of ratios, which can be calculated for the given information in the financial statements.

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FOLLOWING IS THE CLASSIFICATION OF RATIOS: 1. Liquidity Ratio 2. Leverage Ratio 3. Profitability Ratio 4. Activity Ratio

LIQUIDITY RATIOS

Liquidity refers to the ability of the concern to meet its current obligations as and when they, become due. These ratios are calculated to comment upon the short term paying capacity of the concern or the firms ability to meet its current obligations. Much insight could be obtained into the present cash

solvency of the firm and its ability to remain solvent in the event of emergent: i.e. the firm should ensure that it does not suffer from any lack of liquidity and also that it is necessary to strike a proper balance between high liquidity and lack of liquidity.

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LEVERAGE RATIOS

The short-term creditors like the bankers and the suppliers of raw materials are more concerned with the firms current debt paying ability. On the other hand, long terms creditors like debenture holders, financial institutions, etc, are more concerned with the firms long-term financial position. To judge the longterm financial position of the firm, financial leverage or capital structure ratio is used. The shareholders, debenture holders and other long-termed creditors like financial institutions are more interested in the long term financial position or long term solvency of the firm. Leverage or solvency ratios are used for such an analysis. These ratios are also used to analyze the capital structure of a company. That is only these are also called capital-structure ratios. The term solvency generally refers to the firm ability to pay the interest regularly and repay the principal amount of debt on due date. There are two aspects of long-term solvency of a firm. They are: 1. Ability to repay the principal amount of loan on the due date. 2. Regular payment of interest.

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Accordingly, there are two types of leverage ratios. The first type of leverage ratio is based on the relationship between owned-capital and borrowed capital. These ratios are calculated from the balance items. The second type of leverage ratio is coverage ratios. These are computed from the profit and loss account.

PROFITABILITY RATIO Profit reflects the final result of the business operations. There is two types of profitability ratios namely margin ratio and ratio on returns rates. Profit margin ratios show the relation between sales and profits. The ultimate aim of any business enterprise is to earn maximum profit. Lord keens remarked, Profit is the engine that drives the business enterprise, a firm should earn profit to survive and grow for a long period of time. To the management profit is a measurement of efficiency and control. To the owners it is to measure the worth of their investment. To the creditors it is the margin of safety.

The management of the company should know how efficiently they carry out business operation. In other words, the management of the company is very much interested in the profitability of the company. Beside management, creditors and owners are also interested in the profitability of the co-creditors, as they want to get interest and repayment of principal amount regularly. Owners want to get a reasonable return on their investment.
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The profitability ratio measures the ability of the firm to earn and on sales, total assets and invested capital. Profitability ratios are generally calculated either in relation to sales or in relation to investment. The profitability ratios in relation to sales are gross profit ratio. Net profit ratio, operating ratio, expenses ratio, and etc. the profitability ratios in relation to investment are return on assets, return on investment, return on equity capital.

The important profit margin ratios are gross profit margin and net profit margin .the rate of return ratio reflects the relationship between rate and profit and investment. The important rate of return ratio is return on equity and return on investment, etc.

ACTIVITY RATIO Funds of the owners and creditors are invested in various assets to generate sales and profits. Better the management of assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firms managers utilize their assets.

These ratios are also called turnover ratio because they indicate the speed with the assets are being converted or turn over into sales.

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RESEARCH DESIGN

Research design means a search of facts, answers to question and solution to the problems. It is a prospective investigation. Research is a systematic logical study of an issue or problem through scientific method. It is a systematic and objective analysis and recording of controlled observation that may lead to the development of generalization, principles, resulting in prediction and possibly ultimate control of events.

Research design is the arrangement of conditions for the collection and analysis of data in manner that aims to combine relevance to the research purpose with relevance to economy. There are various designs, which are descriptive and helpful for analytical research.

In brief a research design contains A clear statement of the research problem. A specification of data required. Procedure and techniques to be adopted for data collection. A method of processing and analysis of data.

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Research design used in the specific study includes the following: Identifying the statement of the problem. Collection of the companys specific literature i.e., annual reports for the study period and the profile of the company. Scanning through standard books to understand the theory behind the financial performance evaluation. Collection of information from various journals to understand the industrial background of the study Decision regarding study period in this case it was decided to be 4 years i.e., from 2000-2003. Identification of financial ratios likely to reflect the capital adequacy, resources deployed, assets quality, management quality, earning quality and liquidity of the organization. In this case it was decided to be: 1. Profitability Ratio 2. Liquidity Ratio 3. Activity Ratio Calculation of the above ratios over the study period and analyzing it. Forwarding certain recommendation and conclusion to the bank.

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1.2 TITLE OF THE STUDY: FINANCIAL ANALYSIS OF HDFC BANK

1.3 STATEMENT OF THE PROBLEM

A financial statement contains sales, revenue, tax, expenses, etc, on one side and the other side shows the liabilities and assets position in the year.

There are various reasons, which contribute to profits such as operational costs, marketing efficiencies, reduced interests and many more.

The essence of the financial soundness of a company lies in balancing its goals, commercial strategy and resultant financial needs. The Company should have financial needs. The company should have financial capability and flexibility to pursue its commercial strategy.

Ratio analysis is a very useful analytical technique to raise pertinent questions on a number of managerial issues. It provides bases or clues to investigate such issues in detail. While assessing the financial health of a company, ratio analysis answers to questions relating to the companies profitability, asset utilization, and liquidity and financial capabilities of the company.
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The statement of the problem can be generalized here as:

Analysis of the relationship between liabilities and assets.

Analysis of the liquidity and profitability of the current assets and current liabilities.

Detection of the reasons for the variability of profits.

Analysis of various components of working capital such as cash, marketable securities, inventories and receivables.

Find out the business fluctuations, technical developments, etc., on financial performance.

The study takes into consideration the external analyst point of view and with the help of the past and latest financial statements, financial position will tried to be analyzed impartially.

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1.4 OBJECTIVES OF THE STUDY

Based on the information furnished in the financial statements, the various objectives of the ratio analysis are:

To show the firms relative strength and weakness.

To determine the financial condition and financial performance of the firm.

To involve comparison for a useful interpretation of the financial statements.

To find out the solution to the unfavorable financial conditions and financial performance.

To help to take in suitable corrective measures when the firms financial condition and performance are unfavorable to the firm when compared to other firms in the same industry.

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With the help of analysis, analysts can determine the following:

The ability of the firm to meet its current obligations. The efficiency with which the firm is utilizing its various assets in generalizing sales. The overall operating efficiency and performance of the firm.

1.5 SCOPE OF THE STUDY Ratio analysis is perhaps the first financial tools developed to analyze and interpret the financial statement and is still used widely for this purpose. Financial performance analysis is a well-researched area and innumerable studies have proved the utility and usefulness of this analytical technique. This research seeks to investigate and constructively contribute to help:

The bank in finding out the gray areas for improvement in performance

The bank to understand its own position over time

The managers to understand the contribution to the performance of the bank

The present and potential investors outside parties such as the creditors, debtors, government and many more to get an idea of the overall performance of the bank

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REVIEW OF LITERATURE:

For the purpose of this project information collected is from the primer data, which was obtained from the field to make the research work more meaningful.

OPERATIONAL DEFINITION OF CONCEPTS Ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures &groups of figures). It is with the help of ratios that the financial statements can be analyzed more clearly and scientific decisions are made from such analysis.

Ratio analysis can be also defined as the yardstick that provides a measure of relationship between two accounting figures. Ratio analysis of financial statements stands for the process of determining and presenting the relationship of items and group of items in the statement. Ratio analysis can be used both in the trend or dynamic analysis and statistical analysis.

Though financial analysis is subjected to certain limitations, it is yet useful to the interested parties in the followings ways:

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 Investment planning Present and prospective investors are enabled to

judge the profitability of a concern by computing rate of return on investment, earnings per share. After a careful study of the earning capacity of concern that may adopt the extrapolation technique for studying the trend of dividend and later decide to invest their savings in the most profitable channel of investment.

Detection of unfavorable factors If, on the face of the financial statements

it is possible to find out financial unsoundness, detailed analysis of the statements enable the analyst to separate out the factors responsible for the same so that corrective action may be taken.

Forecasting Besides assisting the users in the making the decisions

appropriate to their objectives, financial analysis is also of immense significance in making a forecast of the profitability and financial soundness of an organization.

METHODOLOGIES

Definitions used are universal. Selected study period is sufficient. Selected financial ratio reflects the financial performance of the bank. Ultimate performance evaluation of the bank is shown in its financial assets.

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DATA COLLECTION:

Data is defined as group of non-random symbols in the form of text, image, or voice representing quantities, actions as objects. Data is processed into a form that is meaningful to the recipient and is of real and perceived value in the current or prospective actions or decisions of the recipient.

Data are mainly classified into two groups:

Primary data Secondary data

Primary data An investigator originally collects the data or agency for the first time for any statistical investigation and used by them in the statistical analysis are termed as primary data.

Secondary data The data published or unpublished, which have already been collected and processed by some agencies for their statistical work, are termed as secondary data as far as second agency is concerned. The second agency if

and when it publishes and files such data, it becomes secondary data source to any one who later uses the data.

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This is related to collect the required information about the study. My source of information is the data available with the bank by on going through the annual reports.

The study basically relies on secondary data supplied by the bank. The primary data used for this study consist of informal discussion, interviews with the deputy manager of the bank.

PLAN OF ANALYSIS

The data collected from the various source have to be processed and analyzed systematically.

These include: Selection of the study for the bank Identification of the financial ratios likely to reflect the financial Performance of the organization Application of ratio analysis for the period of the study Calculation of Liquidity ratio Calculation of activity ratios Calculation of Leverages Compilation and tabulation of the above for the company and the study

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 Studying of ratio analysis over the study period. REFERENCE PERIOD: The project has been carried out from January 10th , 2007 to February 28th, 2007.

LIMITATIONS OF THE STUDY The ratio analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from some serious limitations:

Limited use of a single ratio:

A single ratio, usually, does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion.

Lack of adequate standards:

There are no well-accepted standards or rules of thumb for all ratios, which can be accepted as norms. It renders interpretation of the ratios difficult.

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Inherent limitation of accounting: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as theirs historical nature. Window Dressing: Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very careful in making a decision from ratios, calculated from such financial statements. But it may be very difficult for an outsider to know about the window dressing made from a firm. Personal Bias: Ratios are only means of financial analysis and not an end of itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways. Incomparable: Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedures, etc. it makes comparison of ratios difficult and misleading. Moreover comparisons are difficult due to differences in definitions of various financial terms used in the ratio analysis.

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Absolute Figures Distortive:

Ratios devoid of absolute figures may prove distortive, as ratio analysis is primarily a quantitative analysis and not a qualitative analysis.

Price Level Changes:

While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of ratios invalid.

CHAPTER SCHEMES

The overview of the report proceeds as below:

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ORIGIN OF THE BANK

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of RBIs liberalization of the Indian Banking Industry. HDFC Bank was incorporated in August 1994 and commenced operation as a Commercial Bank in January 1995. Currently, HDFC Bank has a nation spread over 110 cities across the country and operates in three segments. Wholesale banking, retail banking and treasury services.

The challenge: Efficiently Deploy Critical Applications to Branch offices. The sheer size and complexity of HDFC Banks operation made it difficult to deploy new businesscritical banking applications to hundreds of branches swiftly and efficiently. Operating in an industry where speed, efficiency and customer responsiveness are key performance metrics, delays in application deployment mean a loss of productivity, and spiraling maintenance and support costs. The deployment of the application across all access terminals was of paramount importance, explained Mr. S.V Surya Prasad, Assistance Vice President, IT, HDFC Bank.

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However, our existing IT challenges at HDFC Bank also entailed bringing a standardized system across the enterprise that would enable us to achieve a broader spectrum of operational and strategic benefits.

GROWTHS AND DEVELOPMENT OF THE BANK

It is well-recognized fact that the quality of financial management is a key ingredient in determining the success of an organization. This is even more relevant in a service industry like banks. At HDFC Bank, they work for ultimate identity and success of their bank will reside, as it always has, in the exceptional quality of their people and their extraordinary effort.

The bank is only as strong as its infrastructure and its processes. At HDFC Bank, right from inception, they have invested in a robust technology platform, thats is seamlessly integrated with centralized and audited processes.

This has enabled them to expand rapidly and grow manifold while maintaining acceptable service standards.

The banks well-documented procedures, high levels of automation, intensive training of personnel and ongoing audit review had enabled then to improve the reliability of their operational processes. ISO 9002 certifications of their cash management, retail centralized processing and custody and depository operations are indicative of their achievements in this regard.
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FUNCTIONAL DEPARTMENTS OF BANK

The regulatory environment for the Indian banking sector was characterized by greater liberalization in foreign ownership and related areas, tightening of certain exposure norms and infrastructure improvements in the market.

Some of the developments are:

Ceiling of 5% of the total advances imposed on the capital markets exposure (fund based and non-fund based) for all commercial banks. Better systems for trading in government securities and settlement in the foreign exchange and government securities markets operationalised through the cleaning corporation of India ltd. (CCIL) and the electronic negotiated dealing system (NDS).

In the growing competition faced by all the banks from various money market and its effects bank deposits and advances, it has become necessary to design, develop new instruments which would attack the customers by satisfying the identical needs.

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The product should be evolved after studying customers needs and probable due to the same. To give as idea two such products or instruments are described in the following paragraph.

In the context of products of banks in recent days bank marketing it is essential to take a look at the following products, which attract the middle class customers and also are profitable to the bank.

Customers loan Credit card

HDFC bank offers customers the convenience of banking in a manner of their choice. Customers can bank via their telephone, through ATMS, on the Internet or even through their mobile phones.

The bank has several respective departments to measure its performance to decide fulfillment of expectation, deposits that are sources of funds, and break even analysis can be used in bank marketing for deciding pricing of a new product all these are in practice for taking the bank into profitable wings.

As a part of bank marketing it has been introduce two main distribution channels: Branch network Specialized branches
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ORGANIZATION STRUCTURE AND CHART

GROUP HEADS FOR RESPECTIVE DIVISIONS

REGIONAL BUSINESS MANAGER

STATE MANAGER

BRANCH MANAGER

SUPERVISOR / AUTHORIZER

SUPERVISOR / AUTHORIZER

PERSONAL BANKERS

TELLERS & RELATIONSHIP MANAGERS

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FINANCIAL STATEMENTS An organization communicates its financial information to the users through financial statements and reports. Financial statements contain summarized information of the organizations financial affairs, organized systematically. These statements comprise the income statements or profit and loss account and the position statement or the balance sheet.

To give a full view of the financial affairs of the undertaking it is also necessary to include a statement of retained earnings, a statement of changes in the financial position and a few schedules such as schedule of fixed assets and schedule of debtors.

Income Statement the profit and loss account sets out income as well

as expenses of the same period and after matching the two, the difference being the net profit or net loss, is shown as the difference between the two sides of the account. Thus, the earning capacity and the potential of an organization are reflected by its profit and loss account.

Position Statement otherwise know as the balance sheet displays the

total resources of a business and the owners and creditors equity in these resources. It indicates a statement of affair of a business at a particular moment of time and thus it is static in nature.

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 Statement of Retained Earning also known, as the profit and loss

appropriation account, is generally a part of the profit and loss account. It shows how the profit of the business for the accounting period is appropriated towards reserve and dividend and how much of the same is carried forwarded as retained earnings.

Statement of Changes in Financial Position also known as the fund

flow statement, summarizes the changes in assets, liabilities and the owners equity between two balance sheet dates. Thus, it is a statement of flows, i.e., it measures the changes that have been taken place in the financial position of a firm between two balance sheet dates. It summarizes the sources and uses of the funds obtained.

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CHART SHOWING ANATOMY OF FINANCIAL STATEMENTS

FINANCIAL STATEMEN T

Position Statement Or

Income Statements Or
Profit & loss A/c

Statement of Changes in Owners Equity changes in Retained Earnings

Statement of changes in Financial Position

Balance Sheet

Fund Flow Statement

Cash Flow Statement

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ANALYSIS AND INTERPRETATION OF DATA

Financial Analysis:

Financial analysis is the analysis of financial statement of a Company to assess its financial health and soundness of its management. Financial

Statement Analysis involves a study of the financial statements of a company to ascertain its prevailing state of affairs and the reasons thereof. Such a study would enable the public and the investors to ascertain whether one company is more profitable than the other and also to state the causes and factors that are probably responsible.

Ratio Analysis: Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions.

A ratio indicates a quantitative relationship, which can be in term used to make a judgment.
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Types of Ratios:

Short-term solvency ratio Long-term solvency ratio Profitability ratio

1. SHORT-TERM SOLVENCY RATIO These are ratios, which measure the short-term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm ability to meet its current obligations.

The various ratios are:

Current Ratio Absolute Liquid Ratio Cash Position Ratio

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(a) Current Ratio It may be defined as the relationship between the current assets and current liabilities. The ratio is a measure of general Liquidity of the firm for a short period of time. A ratio of 2 : 1 is considered satisfactory as a rule of thumb

Current Assets (CA) Current Ratio = Current Liabilities (CL)

YEAR

CURRENT ASSETS (Rupees in Lacs)

CURRENT LIABILITIES (Rupees in Lacs) 4,864,33 6,361,54 9,336,85 13,125,72

RATIO

2004-2005 2005-2006 2006-2007 2007-2008

5,908,62 7,914,81 9,905,41 13,863,24

1.21 1.24 1.06 1.05

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Interpretation

The Current ratio form the above calculation is worth 1.21 in 2004. it has been increased in 2005 to 1.24 and in the year 2006 it has decreased to 1.06. In 2007, it further decreases to 1.05. The bank needs to maintain more current assets in order to meet its short-term obligations. We can conclude that the ratio is favorable as the current asset is slightly more than the current liabilities. GRAPH SHOWING CURRENT RATIO

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(b) Absolute Liquid Ratio

It may be defined as the relationship between absolute Liquid assets and current Liabilities. Absolute Liquid assets include cash in hand and at bank and marketable securities or temporary investments.

A ratio of 1: 1 is considered to be good. Such a ratio will imply that the firm has enough Liquid assets to meet all current Liabilities of the firm. Cash + Marketable Securities Absolute Liquid Ratio = Current Liabilities YEAR ABSOLUTE LIQUID ASSETS (Rupees in Lacs) 2004-2005 2005-2006 2006-2007 2007-2008 4,474,79 5,355,37 8,800,65 11,192,64 CURRENT LIABILITIES (Rupees in Lacs) 4,864,33 6,361,54 9,336,85 13,125,72 0.92 0.84 0.94 0.85 RATIO

Interpretation

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The liquid ratio of the bank in the year 2004-05 was 0.92; in 2005-06 it decreases to 0.84. In 2006-07, it increases to 0.94. In the year 2006-07, the ratio was the highest which indicate that the firm has the ability to meet its current liabilities in time, while on the other hand in the year 2007-08, it has decreased to 0.85. GRAPH SHOWING ABSOLUTE LIQUID ASSETS RATIO:

C. Cash Position Ratio

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It may be defined as the relationship between the available cash both at bank and in hand and current liabilities.

A ratio of 1 : 1 is considered to be a good ratio but a rate of 0.75 : 1 is also good. Such a ratio would imply that the firm has enough cash on hand to meet all the current liabilities.

Cash Cash Position Ratio = Current Liabilities

YEAR

CASH IN THE FIRM

CURRENT LIABILITIES

RATIO

2004-2005 2005-2006 2006-2007 2007-2008

1,617,64 2,622,41 3,458,19 3,169,22

4,864,33 6,361,54 9,336,85 13,125,72

0.33 0.41 0.37 0.24

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Interpretation The banks cash balances to current liabilities recorded are 0.33, 0.41, 0.37 and 0.24 in the year 2004, 2005, 2006 and 2007 respectively. In the year 2005, the highest ratio was recorded. GRAPH SHOWING CASH POSITION RATIO

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2. LONG TERMS SOLVENCY RATIOS

Long-term solvency ratio conveys a firms ability to meet the interest cost and repayment schedule of its Long-term obligations. These ratios are helpful to management in proper administration of capital. It also helps the creditors to know the capacity of a business concern to pay debt in future. The various ratios are: Proprietary Ratio Solvency Ratio Fixed asset to net worth Ratio

(a)

Proprietary Ratio This ratio establishes the relationship between the shareholders funds and

the total assets of the firm. It establishes the claims of the shareholders on the firms assets. It usually is expressed as a pure ratio.

Shareholders Fund Proprietary Ratio = Total Assets * 100

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YEAR

SHAREHOLDERS FUND (Rs. in Lacs)

TOTAL ASSETS (Rs. in Lacs)

RATIO IN PERCENTAGE

2004-2005

751,52

11,731,03

6.4

2005-2006

913,03

15,617,33

5.8

2006-2007

1,942,28

23,787,38

8.2

2007-2008

2,248,83

30,424,08

7.4

Interpretation

The proprietary ratio reflects the financial strength of the bank. In the year 2004, the proprietary ratio of the bank was 6.4%. In the year 2005, it has decreases to 5.8%. In the year 2006, it has increase to 8.2% and it was 7.4% in the year 2007.

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GRAPH SHOWING PROPRIETARY RATIO

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(b) Solvency Ratio It can be defined as the relationship between total liabilities and total assets.

Total Liabilities Solvency Ratio = Total Assets * 100

Generally lower the solvency ratio, more satisfactory or stable is the longterm solvency position of a firm. YEAR TOTAL LIABILITIES (Rs. in Lacs) 2004-2005 2005-2006 2006-2007 2007-2008 10,979,51 14,704,27 21,845,1 28,175,25 11,731,03 15,617,33 23,787,38 30,424,08 0.94 0.94 0.92 0.93 TOTAL ASSETS (Rs. in Lacs) RATIO IN PERCENTAGE

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Interpretation The above ratios show 0.94% in the year 2004. It has also remained the same in the year 2005. In the year 2006, it was 0.92% and in the year 2007 it increases to 0.93%. We have notice from the ratios calculated above that they have remain almost the same in the four consecutive years. GRAPH SHOWING SOLVENCY RATIO

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(c) Fixed Asset to Net Worth Ratio

This ratio establishes the relationship between fixed asset and shareholders fund. This ratio indicates the extent to which shareholders funds are sunk in the fixed asset. Generally, the purchase of fixed assets should be financed by the shareholders equity, which includes reserve, surpluses and retained earnings.

Fixed Asset (After Dep) Fixed Assets Ratio = Net Worth * 100

YEAR

TOTAL ASSETS (Rs. in Lakh)

TOTAL LIABILITIES (Rs. in Lakhs) 751,52 913,09 1,942,28 2,248,83

RATIO IN PERCENTAGE

2004-2005 2005-2006 2006-2007 2007-2008

236,76 289,74 371,10 52,86

31.51 31.17 19.12 23.5

Interpretation

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The fixed assets to net worth are 31.51%, 31.17%, 19.12% and 23.5%. In the year 2004,2005,2006,2007 respectively. This ratio is in a good position as the net worth is more than the fixed assets in all the four years. The shareholders funds are sufficient to finance the fixed assets.

GRAPH SHOWING FIXED ASSETS RATIO

35 30

31.51%

31.17%

% of Fixed Asset to Net Worth

23.5% 25 20 15 10 5 0 2004-2005 2005-2006 2006-2007 2007-2008 19.12%

Years

Profitability Ratio

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Profits are measures of overall efficiency of a business. Higher the profit the more efficient is the business.

In other words they are the ratios, which reveal the total effect of business transaction and indicate how far the organization has been successful I its operation.

These ratios are:

Return on Equity Return on Total Resource Net Profit Ratio

Operating Expenses Ratio Return on Equity It indicates how the firm has used the resources of owners. This ratio is one of the most important ratios in financial analysis. The earnings of a satisfactory return are one of the most desirable objectives of a business. The ratio of the net profit to owners equity reflects the extent to which the objective has been accomplished. Profit after tax Return on Equity = Equity share capital * 100

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YEAR

NET PROFIT (Rs. in Lacs) 120,04 210,12 297,04 387,60

SHAREHOLDERS FUND (Rs. in Lacs) 751,52 913,09 1,942,28 2,248,83

RATIO IN PERCENTAGE 15.9 23.0 15.3 17.2

2004-2005 2005-2006 2006-2007 2007-2008

GRAPH SHOWING RETURN ON EQUITY

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Return on Total Resource Return on total resource or total assets ratio is the ratio of net profit to total resources or total assets. Return here means net profit after taxes and total resources mean all realizable assets including intangible assets, if they are realizable. This ratio measures the productivity of the total resources of a concern. Formulae Net Profit Return On Total Resource = ______________ x 100 Total Asset

YEAR

NET PROFIT (Rs. in Lacs)

TOTAL ASSETS (Rs. in Lacs)

RATIO IN PERCENTAGE

2004-2005

120,04

11,731,03

1.02

2005-2006

210,12

15,617,33

1.35

2006-2007

297,04

23,787,38

1.25

2007-2008

387,60

30,424,08
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1.27

Interpretation The ratio indicates the return on fixed assets and current assets. The return on assets in the year 2004 was 1.02%, in the year 2005 it was 1.35%. In the year 2006 it decreases to 1.25% and in the year 2007 it was 1.27%. As the bank purchased more assets during the year 2006 there is a slight decrease in the returns. GRAPH SHOWING RETURN ON TOTAL RESOURCE 1.35% 1.4
Return on Total Resource

1.25%

1.27%

1.2 1 0.8 0.6 0.4 0.2 0

1.02%

2004-2005

2005-2006

2006-2007

2007-2008

Years

Earning Per Share The ratio establishes the relationship between profits after tax to number of equity shares. Profit after Tax
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Earning Per Share =

___________________ Number of Equity Shares

YEAR

NET PROFIT (Rs. in Lacs)

NUMBER OF EQUITY SHARES (Rs. in Lacs)

EARNING PER SHARE

2004-2005

120,04

24,32

4.94

2005-2006

210,12

24,36

8.62

2006-2007

297,04

28,10

10.57

2007-2008

387,60

28,20

13.75

Interpretation

The earning per share for the year 2004 was Rs 4.94, in the year 2005 it has increased to Rs8.62. in the year 2006, it was Rs10.57 and in the year 2007, it increases to Rs13.75. the earning per share is in a very good position. There has been a continuous increase for the four consecutive years.

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GRAPH SHOWING EARNING PER SHARE

Interest Pay out Ratio It establishes the relationship between interest paid and earning before tax and interest. Interest Paid Formulae = ______________ X 100 EBIT

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EBIT= Profit for the year + Interest paid + Tax

YEAR

INTEREST PAID (Rs. in Lacs)

EBIT (Rs. in Lacs)

RATIOS IN PERCENTAGE

2004-2005

374,28

569,13

65.8

2005-2006

753,75

1,072,81

70.3

2006-2007

1,073,74

1,486,12

72.3

2007-2008

1,191,96

1,967,16

60.6

Interpretation The interest pay out ratio in the year 2004 was 65.8%. In the year 2005 it has increases to 70.3%. In the year 2006, it has increased to 72.3% and in the year 2007 it was recorded as 60.6%.

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GRAPH SHOWING PAY OUT RATIO

74 72

72.3 70.3

Pay out Ratio in Percentage

70 68 66 64 62 60 58 56 54 2004-2005 2005-2006 2006-2007 2007-2008

65.8

60.6

Years

TABLE SHOWING INCREASE IN NET PROFIT YEAR NET PROFIT (Rs. in Lacs) 2004-2005 2005-2006 2006-2007 2007-2008 120,04 210,12 294,04 387,60

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Interpretation

In the above table it shows the figure of net profit. There has been a continuous increase in the net profit of the four consecutive years. This shows that the profitability of the bank is in a very sound position we can conclude that the bank have sufficient earnings to meet its expenses and to pay dividend to its shareholders.

GRAPH SHOWING NET PROFIT

387.6

400 350 300 250

210.12 294.04

Profit

200 150 100 50 0 2004-2005 2005-2006 2006-2007 2007-2008

120.04

Years

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6. SUMMARY OF FINDINGS AND CONCLUSIONS & SUGGESTION:

The study entitle A Study of Financial Statement Analysis of HDFC Bank Limited has been undertaken with the objective to analyze and interpret the banks financial performance. The analysis of the bank was undertaken with the help of ratios, which are important tools of financial analysis.

In general, the bank has achieved tremendous progress over the recent years. The bank has a healthy financial performance. The bank has been able to achieve heavy growth across multiple parameters, including customers acquisition, geographical spread, business volumes and revenues.

The liquidity of the bank is financially sound, but is not up to the standard when compared to the standard ratio, which is for current ratio, it is 2: 1 and for liquid ratio it is 1:1. We can say that the liquidity of the bank is favorable. It has been found that the current assets are more than the current liabilities and we can conclude that that the bank will be able to meet all its immediate all its financial commitments, without succumbing to pressure. Therefore, the shortterm solvency position of HDFC Bank Limited remains healthy. The proprietary ratio reveals that the net worth of the company is not sufficient to finance the assets of the bank. It indicates that the bank ill face some difficulties in raising its long-term financial requirements.
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Balance growth during 2006-07 was also strong. Total deposit increased by 27% from Rs17654 crores to Rs22376 crores. This shows a heavy financial performance during the year 2005-06 and a positive outlook for the future. The overall performance of the bank during the past 4 years remains in a sound position with an increasing net profit Rs388, Rs297, Rs210 and Rs120 crores for the financial year 2004, 2005, 2006 and 2007 respectively. As the net profit has been increased, this shows that the profitability of the bank is in a very good position.

After having solved the ratios and analyzing the financial data, we can conclude that the bank has gradually excelled over the years.

Thus, ratio analysis has been a very useful technique, which has highlighted the performance of HDFC Bank Limited in key-areas and also has helped in the avocations of certain strategies to be followed by HDFC Bank Limited, which is indispensable to its future growth.

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SUGGESTION

The liquidity of the bank is found to be favorable, but the bank has to maintain more current assets in order to meet its short-term obligations.

The bank can increase its market share in Indias expanding banking and financial services industry by following a disciplined growth strategy and delivering high quality customer service. HDFC Banks can provide more ATMs and branches in different localities. The bank can service its customers through multiple channels that are phoned Banking, Internet banking and mobile banking.

If the bank has to attract more customers and deal with more transaction, the bank can provide advances and loans to the general public for the following purposes: Loan to small scale industries and cottage industries. Loan to self-employed person or young entrepreneurs.

Increase short-term deposits and long-term deposits by providing higher rate of interest. Provide the facilities of car loans.

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BIBLOGRAPHY

Sl No. 1. 2. 3.

Name of Author By. S.K.R. Paul By S.N Maheshwari By R.K Sharma & Gupta

Title of Book Financial Management Financial Management Financial Management

Publishers Tata McGraw Hill Delhi Vikas Publisher Delhi Tata McGraw Hill Delhi

Year 1998 1999 1998

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