Submitted ByAditya Aggarwal Aditya Narayanan Anand Chandran Ankita Kunwar Kevin Abraham Pulkit Kabra Saket Deepak

About HDFC
Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts 2201 branches and over 7110 ATMs across India.

Capital Structure
HDFC Bank boasts of an authorized capital of Rs 550 crore (Rs5.5 billion), of this the paid-up amount is Rs.468.26 crore (Rs.4.68 billion). In terms of equity share, the HDFC Group holds 23.20%. Foreign Institutional Investors (FIIs) have around 29.67% of the equity 17.33% is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 477,291 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB.

Source: HDFC BANK website

As on 31st December, 2011

Timeline
1994 The Bank was Incorporated on 30th August. A new private sector Bank promoted by housing Development Corporation Ltd. (HDFC), a premier housing finance company 1995 The Bank opened its first branch in Ramon House at Churchgate, Mumbai on January 16th 1998 HDFC Bank, had tied up with BPL Ltd to offer Internet-enabled supply-chain management and business-to-consumer (B2C) e-commerce services to corporates Hutchison Max Telecom and HDFC Bank introduced the country's first-ever mobile-banking services in the city 2002 HDFC Bank unveils Silver card in Hyderabad. HDFC Bank opens first overseas representative office. HDFC Bank unveils gold card

Timeline
2007 HDFC Bank has signed an agreement with Tata Pipes to offer credit facilities to farmers across the country. HDFC Bank Opens Its First Overseas Branch In Bahrain 2009 HDFC Bank launches Meritus Scholarship Programme. The Asian Banker declares HDFC Bank the Best Retail Bank 2010 With a view to attract long term deposits and prevent premature withdrawal when the interest rates peak, HDFC, the housing finance major, has decided to pay variable interest rate on recurring deposits

Net Revenues
2006-07 498,471 Lakhs 2007-08 751,103 Lakhs 2008-09 1,071,176 Lakhs 2009-10 1,236,953 Lakhs 2010-11 1,487,828 Lakhs

Growth
HDFC Bank
100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%

50% 42.60% Growth (%)

15.90%

15.80%

FY08

FY09

FY10

FY11
Source: Edelweiss Research

Market Capitalization
Market Capitalization depends upon the future performance of the company to a large extent It is different from profit margin and profitability PE Ratio = Market Capitalization Profit MC= PE Ratio* Profit After Tax 2006/07 = 26.29 * 114145 Lakhs = 3000872 Lakhs 2007/08 = 28.80 * 159018 Lakhs = 4579718 Lakhs 2008/09 = 18.42 * 224493 Lakhs = 4135161 Lakhs 2009/10 = 28.62 * 294870 Lakhs = 8439179 Lakhs 2010/11 = 27.59 * 392640 Lakhs = 10832937 Lakhs

Leading banks by market capitalization

Company Name SBI HDFC Bank

Market Cap(Rupee Cr)

135,321.59 122,648.63

Company Name Canara Bank Bank of India Union Bank

Market Cap(Rupee Cr) 22,980.63 19,803.89 15,886.43

ICICI Bank
Axis Bank Kotak Mahindra Bank of Baroda PNB

106,796.74
46,093.45 41,331.53 31,998.30 31,377.08

IndusInd Bank
Yes Bank Federal Bank ING Vysya Bank

14,760.92
12,091.78 6,910.32 5,266.06

Source: Money Control (Latest)

Business Strategy
Increase the market share in India Expand the product range and the customers Improve the quality of customer service Innovate on the product and service range to attract more customers and address the existing inefficiencies Maintain a disciplined credit risk management Reduce banks cost of funds

HDFCs diverse loan portfolio along with superior lending practices de-risks its business model
Lower operating costs along with stable margins and high asset quality ensures sustainable profitability

Business Philosophy
Operational Excellence

People

Based on 4 Core Values

Customer Focus

Product Leadership

Porters Forces
Bargaining power of suppliers RBI rules and regulations

Threat of new entrants Product differentiation very difficult Entry barriers

Threat of competitors Large number of banks Strong exit barriers Low switching costs

Threat of substitutes Deposits in posts Non Banking financial sector growing rapidly

Bargaining power of consumer Numerous alternatives Low switching costs Increasing consumer awareness

Industry Size
Indias GDP (USD Billion PPP) 4057 Share of Services (% of GDP) 55.2 Banking and Insurance Size (USD Billion) 395.96
00

Composition of Service Sector

0 0.18% 1.81% 2.53% 2.74% 9.76% Storage

11.36% 9.40%

Transport
Railways Hotels & Rest. Commu. Banking & Insurance Trade

14.67%

20.61%

26.94%

Real Estate Other Services Public Admin. & Defence

Source:http://www.interlinkre.com

Growth
Annual growth in Banking and Insurance sector which forms a part of Indias services
25.00%

20.60%
20.00% 15.90% 16.70% 14% 11.30%

15.00%
10.00% 5.00% 0.00%

Annual Growth

2005-06 2006-07 2007-08 2008-09 2009-10

Source:http://www.interlinkre.com

Segmental Analysis
Reserve Bank of India

Scheduled Commercial Bank

Commercial Bank Co-operative Bank

Non-Scheduled Commercial Bank

Local Area Bank

Foreign24

Regional rural6

Urban Bank

State Bank

Public Sector26

Private Sector22

SBI Group7

Nationalized19

New7

Old15

Basis of Competition
The following factors have influenced the increase in competition in the banking sector Profitability - Higher profitability compared to the past or international standards. This attracts new entrants which increases the competition in the industry Technological Changes This enable quicker and more efficient service Product Innovations Features such as home banking, ATMs etc are making the industry fiercely competitive Entry/Exit Norms Though regulatory barriers have been eased, desirable barriers exist in the form of capital and other requirements Increasing consumer awareness - consumers of banking services are getting increasingly agile, enlightened, cost and quality conscious. They are already forcing the pace of competition on price, product and quality products

Critical Success Factors

IT

Diversified Products

Critical Success Factors

New Technology

Managing NPAs

Low Employee Cost

Demand Drivers
High Economic Growth

Increase in purchasing power

Sectors showing growth

Retail

Infrastructure

Telecom

Rural Markets

Exports/Imports

Key Events
Main mergers and acquisitions in the Indian banking sector

HDFC Bank acquires Centurion Bank of Punjab (May '08)

Standard Chartered acquires ANZ Grindlays Bank (November '00) Bank of Baroda acquires South Gujarat Local Area Bank Ltd (June '04) ICICI Bank acquires Bank of Madura (March '01) Oriental Bank of Commerce acquires Global Trust Bank Ltd (August '04)

Regulations
Banks in India are governed by the Reserve Bank of India.

Banking Regulation Act, 1949 As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any company which transacts the business of banking in India.
Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts the deposits of money from public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause. As per Section 5(b) of Banking Regulation Act, 1949 , banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Source: http://fiuindia.gov.in

Deposits
Private Sector Banks, 100275 9

Financial Analysis Deposits (Rs. Crore)

Foreign Banks, 240689 1400000 1200000

Deposits
1245862

1000000
800000 Public Sector Banks, 437298 5 600000 400000 200000 0 Deposits 16.20% 11.98% 12.65%
Sourcehttp://www.rbi.org.in/home.aspx

225602

208586

189237

25.00% 20.00% 15.00% 10.00% 5.00% 19.50%

SBI & Associates

ICICI

HDFC

AXIS

0.00%
CAR SBI & Associates ICICI HDFC AXIS

CAR of Different Banks

SWOT Analysis
Policies such as strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and co-operative banks

Bank lending has been a significant driver of GDP growth and employment.

Strengths
Due to the vast networking & growing number of branches & ATMs, Indian banking system has reached even to the remote corners of the country The public sector banks holdover 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies

The government has refused to dilute its stake in PSU banks below 51% Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance etc.

Weaknesses

The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side

Opportunities

Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives

Threat of stability of the system: failure of some weak banks has often threatened the stability of the system.
Rise in inflation figures which would lead to increase in interest rates. Increase in the number of foreign players would pose a threat to the PSB as well as the private players.

Threats

Key Segments
Treasury

Retail Banking Services

Wholesale Banking Services

Wholesale Banking Services

The Banks target market ranges from large manufacturing companies in the Indian corporate to small & mid-sized corporate and agri-based businesses HDFC provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider to corporate customers, mutual funds, stock exchange members and banks
Corporate Funded Services Non Funded Services Value Added Services Internet Banking Small and Medium EnterprisesFunded Services Non Funded Services Specialized Services Value added services Internet Banking Financial Institutions and Trusts BANKS- Sub-Membership ,RTGS sub membership, Fund Transfer, ATM Tie-ups, Tax Collection Financial Institutions Mutual Funds Stock Brokers Insurance Companies Commodities Business

Retail Services
Loan Product Auto Loan Loan Against Property Personal loan Credit card Commercial vehicles finance Home loans Retail business banking Working Capital Finance Health Care Finance Education Loan Gold Loan Deposit Product Saving a/c Current a/c Fixed deposit Demat a/c Safe Deposit Lockers Investment & Insurance Mutual Fund Bonds Insurance Equity and Derivatives Mudra Gold Bar Cards and Services Credit Card Debit Card Prepaid Card Bill pay Direct Pay Visa Money Transfer Online Payment of Direct Tax Mobile Banking ATM Phone Banking Email Statements Branch Network

Treasury
Foreign Exchange and Derivatives Local Currency Money Market & Debt Securities Equities

To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio

FINANCIAL PERFORMANCE (in crore)

March 31, 2011 March 31, 2010

Deposits and Other Borrowings Advances Total Income Profit before Depreciation and Tax Net Profit

208,586

167,404

159,982.7 14,878.28 5,818.66

125,830.6 12,369.53 4,289.14

3,926.4

2,948.7

Non Performing Assets (%)

2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 1.74% 1.54%

0.48%

Year

2009

2010

2011

Profit After Tax in (Rs. Crore)

4500 4000 3500 3926

3000
2500 2000 1500 1000 500 0 Years 1141

2949 2245 1590

2007

2008

2009

2010

2011

DPS (Rs.)
18 16 14

16.5

12
10 8 6 4 2 0 7 8.5

12
10

Year

2007

2008

2009

2010

2011

EPS (Rs.)
90 80 70 67.6 52.9 46.2 36.3 85

60
50 40 30 20 10 0

Year

2007

2008

2009

2010

2011

Balance Sheet Size (Rs. Crore)

300000
200000 100000 0 2009 Year 2010 2011

183271

222459

277353

Advances (Rs. Crore)

200000 150000 100000 50000 0 2009 Years 2010 2011 98883 125831 159983

Deposits (Rs. Crore)

300000 200000 100000 0 2009 Year 2010 2011 142812 167404 208586

Savings Deposits (Rs. Crore)

100000
50000 0 Year 2009 2010 2011 34915 49877 63448

Retail Assets (Rs. Crore)

100000 50000 0 Year 2009 2010 2011 53548 63161 80113

Net Interest Margin (%) (Denotes Core NIM)

4.6 4.4 4.4

4.2
4

4.2

4.2

Year 2009 2010 2011

Capital Adequacy (%)

18
17 16 15 14 Year 2009 2010 2011 15.7 17.4 16.2

Return on Capital (%)

17 16.5 16.2

16.8

16.5

16
15.5 Year 2009 2010 2011

ATMs (Nos.)
6000 4000 2000 0 Year 3295 4232 5471

2009

2010

2011

Cities (Nos.)
1500 1000 500 0 Year 2009 2010 2011

Debit Cards (Nos. in Lacs)

150

100
50

90.8

98.3

115.5

0
Year 2009 2010 2011

Credit Cards (Nos. in Lacs)

60 50 40 2009 Year 2010 2011 50.5 43.9 44.5

Rupee Earned in 2010-11

0.71% 3.24% Interest from Advances = 62.18% Interest from Investments = 19.05% 19.05% Commision, Exchange & Brokerage = 14.82%

14.82%

62.18%

FX & Derivative Income = 3.24% Other Interest Income = 0.71%

Rupee Spent in 2010-11

Rupee Spent
Interest Expense = 41.48% 3.96% 6.15% 8.36% 8.43% 41.48% Operating Expense = 31.62% Provisions = 8.43% Tax = 8.36% Transfer to Reserve = 6.15% Dividend & Tax on Dividend = 3.96%

31.62%

Financial Analysis
HDFC Bank has a consistent high CAR Ratio, which signifies the solid position of the bank. NPAs of HDFC Bank are very low. This shows the banks good relations with its customer. Deposits are increasing continuously which shows the good services provided by the bank. NIM for the bank is also good which further solidifies its position in the market. Profit margins are increasing year by year.

List of Products and Services

No-limit Credit Cards Forexplus Platinum Card Mobile Bank Account with Vodafone Product called Mirevenue Dual Rate Loans Move-In Home Loans Quickremit Tie-up with International Bank of Qatar SWIFT - Personal Loan Debt Fund for Cancer Cure

Competitive Analysis
Indias banks have grown at a rapid pace over the past 2 decades after the financial liberalization This growth has still lacked in meeting the massive demand in the need of financial intermediation. It has led to the growth on non-banking financing companies (NBFCs) and microfinance companies Major banks in India are either state owned or previous government owned institutions which have been fully privatized like ICICI and HDFC Bank

Competitive Analysis
State Bank of India (SBI)
SBI is Indias Largest Bank which is majority owned by the government. The Company has a number of Subsidiaries and has been a market outperformer in recent times. Revenues of $22 billion. The SBI has 7 subsidiaries of which 2 have been merged and 5 are remaining
State Bank Bikaner Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore

Punjab National Bank

Punjab National Bank (PNB) , is the second largest PSU bank with about 5000 branches across 764 cities The Bank like BOB and SBI has shown good growth while at the same time managed to control bad debt

Competitive Analysis
ICICI Bank
This is the largest Indian Private Bank with operations in all Financial Services Sectors. The Company has faced a bad time during the Lehman downturn but has recovered well Revenues of $12.5 billion. ICICI Bank is strong in almost all sectors of the financial industry with one of the best management teams in the country The company which overextended itself in the 2007-2008 boom has now reduced the size of its risky segments and is again back on the growth trajectory

Axis Bank
Axis Bank has been the best performing private bank along with HDFC Bank showing excellent growth in top line and bottom line The Bank has been expanding into insurance and investment banking (acquired Enam) The Bank was promoted jointly by UTI, LIC and other state owned general insurers

Direct Comparison HDFC Bank Vs Axis Bank - Q2 FY2010

1. Interest on Advances 2. Interest Earned 3. Total Income 4. Interest Expended 5. Employees Cost 6. Other Operating Expenses 7. Operating Profit 8. Provisions 9. Tax Expense 10. Net Profit 11. Paid-up Equity 12. Capital Adequacy Ratio 13. Basic EPS 14. Percentage of Gross/Net NPA 15. Market Price and PE Ratio

SWOT - HDFC
STRENGTHS Leader in home loan segment Right strategy for products Brand image High degree of customer satisfaction Robust Risk control Framework Large network, Distribution structure OPPORTUNITIES Untapped rural market WEAKNESSES Strict policy of funding Not very aggressive on M&A Low international presence Controversies like job cuts, racism and data loss have affected image

Fast growing insurance business

THREATS Risk of fraud and NPA Major private players RBI policies Increase in funding cost Economic instability and global crisis

SWOT - ICICI
STRENGTHS Global player in International Banking operations in 18 countries Pioneer in usage of Internet services for Online Banking Advanced infrastructure with sound IT base OPPORTUNITIES Rise in upper and middle class population due to increase in GDP, therefore could introduce economical version of their services Largely unexplored market in regions where only PSBs operate WEAKNESSES High Bank Service Charges Less Credit Period

THREATS Tight local and international competition ICICI levies higher service chargestransactions expensive ICICI Bank provides all services through electronic computerized machines. This creates problems to the less educated people

SWOT - AXIS
STRENGTHS Sound technological platform Current Account deposits grew by 24%yoy Retail Banking: Savings Bank Deposits by 29% YOY WEAKNESSES Market capitalization is very low Not having Image - UTI (fraud) Higher cost Customer service

OPPORTUNITIES Large retail and corporate market Wide scope in rural India Other Activity (Non Banking Activity) People are become more service oriented

THREATS Government Rules And Regulation Very high competition with Private sector (ICICI Bank, HDFC bank) or public sector (BOB, PNB)banks Capital Market slow-down Rising Rates

SWOT - YES
STRENGTHS High Quality, Customer Centric, Service Driven Adopted International Best Practices, the highest standard of service, quality and operational excellence Credible And Transparent Performance Management Process OPPORTUNITIES Very wide market Other activity(insurance, stock broking, mutual fund) Wide scope in rural area WEAKNESSES Less wide network Not in every state Less promotional activity Unknown brand

THREATS Very high competition Private bank market (ICICI Bank, HDFC bank), In public sector (BOB, PNB) Government Policy Other better Saving, investment option a vailable

SWOT - SBI
STRENGTHS Strong domestic market position, sustaining reach and customer confidence Wide Distribution Network Government owns 60% stake in SBIcustomer security Offers very low transition costs OPPORTUNITIES Highest beneficiary from increasing adoption of E-transactions Information technology - decrease transaction cost Merger with associate banks Addition of more branches and ATMs WEAKNESSES The existing hierarchical management structure - barrier to change Has the highest non performing assets Susceptible to political intervention Lags in terms of modernization of its processes, infrastructure, centralization THREATS Large numbers of MNC banks mushrooming Private banks venturing into the rural and semi-urban sector, which used to be the bastion of the State Bank and other PSU banks

Key Focus
Understanding of customers financial needs and providing banking solutions Wide range of products and services to cater both retail and wholesale customer segments Market Leaders in various products of retail banking such as Credit Cards and Auto Loans Providing financial services to the under banked and rural sector Helping Farmers with products like Tractor Loan, Kissan Gold Card, Loan against Warehousing Receipts etc In line with growth strategy today 30% of the branches are located in rural and under banked areas

Merger with CBoP

About Centurion Bank of Punjab Was one of the leading private sector bank in India Strong nationwide presence with 394 Branches and 452 ATMs in 180 Cities Employee base of more than 7500 Was listed in major stock exchanges Strong player in FOREX services, personal loans, mortgages and agricultural loans

Merger with CBoP

Reasons of Merger HDFC wanted to add scale, geography and experienced staff to its franchise CBoP was the right fit in terms of culture, strategic intent and approach to business Merger was Win-Win situation for both the banks Combined entity became even more strong in the banking market

Merger with CBoP

Details of Merger Finalised on 26th Feb., 2008 Swap Ratio of 1:29 (1 share of HDFC Bank for every 29 shares of CBoP Bank)

Acquisition came for Rs.9510 Crores, one of the largest merger in banking history of India
Merger was EPS Dilutive for HDFC Bank in the interim

Strong Deposit Base of Rs. 120000 Crores and Net Advances of around Rs. 85000 Crores

Current Business Strategy

Develop innovative products and services that attract its targeted customers and address inefficiencies in the Indian financial sector Leverage its technology platform and open scalable systems to deliver more products to more customers and to control operating costs Focus on healthy earnings growth with low volatility To increase the market share in the growing banking industry by following a disciplined growth strategy, focusing on quality and not on quantity and delivering high customer service To maintain the current high standards for asset quality through disciplined credit risk To develop innovative products and services that attract the targeted customers To continue developing products and services that reduce the cost of funds.

State Bank of India

State Bank of India (SBI) is the largest nationalized commercial bank in India in terms of assets, number of branches, deposits, profits and workforce. With the liberalization of the Indian banking industry in the mid-1990s, SBI faced stiff competition from the private sector and foreign banks which resulted in significant loss of its market share.

ICICI Bank
ICICI Bank Second largest bank in India Strong diversified financial services franchise in India ICICI Bank has taken up specific initiatives to ramp up financial literacy as well as intermediation to the underserved and under-banked segments in both rural and urban areas ICICI Bank offers a complete suite of products and services to meet the individual financial requirements of customer segments. Savings, investments and insurance products are made available to its rural and agri customer base The Bank also offers microfinance services to low-income households and crop loans, farm equipment loans, commodity based loans to farmers.

Axis Bank
3rd largest private sector bank Aggressive branch and ATM expansion to 1021 branches and 371 ATMs to be upcoming in tier II and Tier III cities. Expanding global reach by way of setting up 3 branch offices in Singapore , Dubai and Hong Kong and 2 representative offices in Shanghai and Dubai recently Axis Bank offers a vast spectrum of services encompassing Large and MidCorporate Banking, SME Banking, Agri-Business Banking, Retail Banking and International Banking.

Axis Bank
Axis Bank's network of over 1,200 branches and 4,900 ATMs is spread across more than 680 cities and towns across the country Instead of piecemeal efforts of promoting their debit card, the bank has launched what it calls the first ever filmi Platinum debit and credit card across 25 cities in India. The objective to offer movie deals on movie tickets through one exclusive card. The bank therefore hopes to carve out a niche in a space not fully explored by competition

Successful Strategies
Focusing on the expansion of retail and rural banking Increasingly customer - centric in their approach Mergers and acquisitions Strong national network Mission is to be "a World Class Indian Bank", benchmarking themselves against international standards.

Successful Strategies
Best practices in terms of product offerings, technology, service levels, risk management and audit & compliance Develop new product and technology is the main business strategy Increase market share in Indias expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service.

Successful Strategies
Leverage our technology platform and open scalable systems to deliver more products to more customers and to control operating costs Develop innovative products and services that attract the targeted customers that reduce banks cost of funds Focus on high earnings growth with low volatility

Where Did They Go Wrong?

FOCUS ONLY ON HIGH END CUSTOMERS: The bank targets only the top bracket of clients and does not cater to the needs of small customers. Due to this reason the bank may sometimes loose good clients Not Equal to International Standard Highly depended on individuals loans Major Stake held by American financial group which are under stress in economic slow down

Where Did They Go Wrong?

Managerial international presence No next line of leadership Lack of infrastructure in rural area Minimum balance to open a account is very high Extension overseas holds lots of risk Credit card department is not active

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