FINANCIAL STATEMENT ANALYSIS OF BANK – A CASE STUDY
BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER V
2010-2011 SUBMITTED BY SINGH HEMANT OMPRAKASH
KERALEEYA SAMAJAM (REGD) DOMBIVLI’S MODEL COLLEGE ACCREDITIED GRADE “A” BY NAAC
P-32, RESIDENTIAL AREA, MIDC-PHASE II, DOMBIVLI (EAST) THANE-DIST; MAHARASHTRA – 421203 TEL. 0251-2470010/2449227 TELEFAX: 0251-2424779 EMAIL:
[email protected]
A Project Report on
FINANCIAL STATEMENT ANALYSIS OF BANK – A CASE STUDY
Submitted to the University of Mumbai In partial fulfillment for award of the Degree of BACHELOR OF COMMERCE (BANKING & INSURANCE)
By SINGH HEMANT OMPRAKASH (V – SEMESTER)
UNIVERSITY OF MUMBAI OCTOBER 2010
CONTENTS No.
Chapter Name
I
CERTIFICATES
II
DECLARATION
III
ACKNOWLEDGEMENT
IV
LIST OF CHARTS & TABLES
Chapter 1
An Introduction
Chapter 2
HDFC BANK – A Profile
Chapter 3
Financial Statement Analysis
Chapter 4
– A Theoretical View Financial Statement Analysis of HDFC Bank
Chapter 5
Conclusion
V
BIBLIOGRAPHY
VI VII
WEBLIOGRAPHY ANNEXTURE
DECLARATION
Page no.
I,
SINGH
HEMANT
STUDENT
OF
BECHELOR
OF
COMMERCE BANKING & INSURANCE, V – SEMESTER OF MODEL COLLEGE, DOMBIVLI (E) HEREBY DECLARE THAT, I HAVE
COMPLETED
THIS
PROJECT
ON
“FINANCIAL
STATEMENT ANALYSIS OF A BANK – A CASE STUDY” FOR ACADEMIC YEAR 2010 -2011. THIS
INFORMATION
SUBMITTED
IS
TRUE
AND
ORIGINAL TO THE BEST OF MY KNOWLEDGE.
SINGH HEMANT OMPRAKASH BANKING & INSURANCE V – SEMESTER
ACKNOWLEDGEMENT
Any accomplishment requires the effort of many people & this work is no different. This project is a product of many hands & countless hours from many people. My thanks go to all those people who helped me whether through their comments, feedbacks, edits or suggestions. I express my sincere thanks to my Prof. Miss. Manju Jaisinghani, the faculty member, whose support, encouragement, understanding & keen interest helped me to present the study in this form after a few reviews. I am also grateful to Dr. M. R. Nair the Principal of Model College, Dombivli (E).
SINGH HEMANT OMPRAKASH T.Y. BANKING & INSURANCE
List of Tables
Fig. no. 2.1
2.2 2.3 4.1 4.2 4.3 4.4 4.5
Name of Table Branches ATMs CITES Profit after tax Dividend per share Earning per share Capital adequacy Return on capital
Page no.
CHAPTER – 1 AN INTRODUCTION
CHAPTER – 1 AN INTRODUCTION
Financial statement analysis is very helpful in spanning bank’s internal operations and its relations with the outside world.
Therefore, the financial information must be organized into an understandable, coherent and sufficiently limited set of data. Data from the financial statement analysis can be used to quickly calculate and examine financial ratios. The present project seeks to discuss the framework for investment & financing decision and also helps to expound several analytical methods which are in practice. An attempt has been made to analysis the financial statement of HDFC Bank. The investors relay on the financial statement and judge the bank and ensure that these statements are correct, complete, consistent and comparable. The accuracy of the financial statement can be identified from the report of the auditors. The financial statement analysis can be used by investors for deciding about their investments. The financial institutions also use these statements while granting loans to the banks. The debenture holders, creditors, employees and government can also use the financial statements for different purposes.
The bank itself and outside providers of capital – creditors and investors – all undertake financial statement analysis. The type of analysis varies according to the specific interests of the party involved. Creditors are primary interested in the liquidity of a bank. Their claims are short term, and the ability of the bank to pay these claims quickly is best judged by an analysis of the bank’s liquidity. The claims of bound holders, on the other hand, are long
term. Accordingly, bound holders are more interested in the cash – flows ability of the bank to service debt over a long period of time. It is a useful tool for management of bank. Internally, management also employs financial analysis for the purpose of internal control and to better provide what capital suppliers seek in financial condition and performance from the bank. To plan for future, the financial manager must assess the bank’s present financial position and evaluate opportunities in relation to current position. To bargain effectively for outside funds, the financial manager needs to be attuned to all aspects of financial analysis that outside suppliers of capital use in evaluating the bank.
ABOUT THE REPORT
TITLE OF THE STUDY:
The present study is titled as “Financial Statement Analysis of A Bank – A Case Study”. The present study is made with special reference to HDFC Bank.
OBJECTIVES OF THE STUDY: The following are the objectives of the present study. •
To highlight the importance of financial
Statements. •
To apply the theoretical knowledge of the
various methods of analysis in to practice. •
To highlight the important methods used in
analysis of financial statement of bank. •
To analyze the financial statement of bank.
PERIOD OF THE STUDY: The period of the study is from July 2010 to September 2010
SCOPE OF THE STUDY:
The present project helps management for their decisionmaking, control and review. Analysis of financial statements helps banks, investments analysts and public in general.
METHODOLOGY OF STUDY: For the purpose of the present study both primary and secondary data is used. 1. The primary data is collected from bank visits and interviewing concerned person. 2. The secondary data is collected from books, internet, magazines, newspaper and journals.
LIMITATIONS OF THE STUDY: The present study could be influenced by personal judgment of the analysts. All the tools of financial analysis for this study have its own limitation.
CHAPTER LAYOUT: The present study is arranged as follows:
Chapter 1 –
It contains “An Introduction” to the title and to the report.
Chapter 2 –
It contains “Profile of HDFC Bank”.
Chapter 3 –
It contains “Theoretical view” of the topic.
Chapter 4 –
It contains “Financial Statement Analysis of HDFC Bank”.
Chapter 5 –
It contains “Summary of Findings, Suggestions and Conclusion” to the topic.
CHAPTER – 2 HDFC BANK – A PROFILE
Chapter – 2 HDFC Bank – A Profile
INTRODUCTION: In
August,
1994
the
Housing
Development
Finance
Corporation Limited (HDFC) was incorporated in the name of HDFC Bank Limited. The Reserve Bank of India has approved in principle to set up private banks. HDFC was one of the first organizations to receive in principle approval from RBI. The HDFC Bank has its registered office in Mumbai. In January 1995, the operations of HDFC Bank as a commercial bank has commenced. In India and in international markets HDFC has an impeccable track record. HDFC has maintained a healthy growth and a consistency in its operations and remained as a leader in market of mortgages. The portfolio of HDFC’s outstanding loan has a million dwelling units. HDFC has a large corporate client base for housing related credit facilities. HDFC was ideally positioned to promote a bank in the Indian market with its experience and strong reputation in market of finance.
Objective:
•
HDFC Bank is a young and dynamic bank, with a youthful and enthusiastic team determined to accomplish the vision of becoming a world-class Indian bank.
•
Bank’s business philosophy is based on four core values - Customer
Focus, Operational
Excellence, Product
Leadership and People. Bank believes that the ultimate
identity and success of bank will reside in the exceptional quality of our people and their extraordinary efforts. For this reason, bank is committed to hiring, developing, motivating and retaining the best people in the industry. Mission:
Bank mission is to be “a World Class Indian Bank”, benchmarking bank against international standards and best practices in terms of product offerings, technology, service levels, risk management and audit & compliance. The objective is to build sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank’s risk appetite. Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank has been recognized as 'Best Bank in India' in the magazine rankings as well as surveys year on year. HDFC Bank is the most preferred employer in banking industry in India.
Bank business strategy emphasizes the following: •
Increase bank’s market share in India’s expanding banking and financial services industry by following a disciplined
growth strategy focusing on quality and not on quantity and delivering high quality customer service. •
Leverage technology platform and open scalable systems to deliver more products to more customers and to control operating costs.
•
Maintain current high standards for asset quality through disciplined credit risk management.
•
Develop innovative products and services that attract targeted customers and address inefficiencies in the Indian financial sector.
•
Continue to develop products and services that reduce cost of funds.
•
Focus on high earnings growth with low volatility.
Vision: Visions don’t change quite often. Near-term objectives do.
The country’s second largest private bank still strives to become a “world-class Indian bank”, a vision that was documented in its first annual report back in 1995. Call them less aggressive or more conservative, it doesn’t ruffle the top management of Housing Development Financing Corporation (HDFC) Bank. As American author, Frank Herbert says: “There’s no secret to balance. You just have to feel the waves.” It may be quite a unique distinction but HDFC Bank hasn’t seen a change in the leadership since day one. Aditya Puri, in his capacity as MD and CEO, has continued to surprise industry critics and consistently
delivered a growth of around 25-30% (Quos) in net profit for the past 40-50 quarters. Today, the Rs 54,000-crore bank services over 11 million customers and operates from more than 1,200 branches in 444 Indian towns and cities, while some 2,500-odd ATMs offer anytime, anywhere banking. For HDFC Bank executive director Paresh Sukthankar, this consistent performance has been his defining moment at the bank. “It may look less glamorous, but personally this achievement has been much more valuable. It’s very easy to have a great quarter, and fall back to mediocrity, in terms of a lazy quarter. What makes this success even more remarkable is the fact that the last 10 years have seen a fair amount of volatility in the macroeconomic environment, domestically as well as globally,” he quips.
Strengths:
Highest level of ethical standards •
Professional integrity
•
Corporate governance
•
Regulatory compliance
Business Philosophy:
The four values are the bank’s business philosophy, •
Operational Excellence
•
Customer Focus
•
Product Leadership
•
People
Management:
Chairman
•
In
July
2001
Mr.
Jadish
Capoor
has
taken
the
responsibilities of the bank as Chairman. He was a Deputy Governor of the RBI. •
Managing Director
Mr. Aditya Puri is the managing director of the HDFC bank, before he was with Citibank as a head for operations in Malaysia. •
Board of Directors
The members of the HDFC bank’s Board of Directors are senior banking professionals with experience in abroad and India, who head various businesses.
PROMOTERS:
HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan
portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.
BUSINESS FOCUS:
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People. CAPITAL STRUCTURE:
At present, HDFC Bank boasts of an authorized capital of Rs 550 crore (Rs5.5 billion), of this the paid-up amount is Rs 424.6 crore (Rs.4.2 billion). In terms of equity share, the HDFC Group holds 19.4%. Foreign Institutional Investors (FIIs) have around 28% of the equity and about 17.6% is held by the ADS Depository
(in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 570,000 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB'.
Awards:
Awards with its strengths and its talented people the HDFC banks have made all its efforts to achieve its mission to be World Class Indian bank. Its services are recognized not only nationally but also internationally. The HDFC bank is appreciated with so many awards like: •
Asian Banker Excellence Awards 2009
•
The Asset Triple A Awards
•
Financial Insights Innovation Awards 2010
•
Global Finance Awards 2010
•
Business World Best Bank Award 2009 BRANCHES: HDFC Bank has 1,725 branches in India.
2000 1800 1600 1400 1200 1000 800 600 400 200 0 2008
2009
2010
Fig. 2.1
ATMs: HDFC Bank has 4,232 ATMs in India. 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2008
2009
2010
Fig. 2.2 CITES: HDFC Bank in 779 cites in India.
900 800 700 600 500 400 300 200 100 0 2008
2009
Fig. 2.3
2010
CHAPTER – 3 Financial Statement Analysis - A Theoretical View
Chapter – 3 Financial Statement Analysis - A Theoretical View
Definition of Financial Statement: According to Hampton John “A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a movement of times as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an income statement.”
Objectives of financial statements: The objectives of financial statement are to provide information about the financial position, performance and changes in financial position of an enterprise that are useful to wide range of users in making economic decision. Financial statements are prepared for this purpose to meet common need of most users. And it also shows the accountability of management for the resources entrusted to it. In short objectives of financial statement is to provide factual and interpretative information about transaction and other events which are useful for prediction, comparing, and evaluating enterprise’s earning power.
Financial Statements Provides:
1. Information for economic decision. 2. Information about financial position. 3. Information about performance of an enterprise.
FINANCIAL
STATEMENTS
USING
TOOLS
OF
FINANCIAL ANALYSIS:
Financial Analysis: Financial analysis is a study of relationship among the various financial factors in a business. The process of financial statement analysis can be described in various ways depending on the objective to be obtained. Financial analysis can be used as a preliminary screening tool in the selection of the stock in the primary and secondary market. It can be used as a forecasting tool of future financial condition and result. It may be used as a process of evolution and diagnosis’s of managerial, operating or other problem area.
Financial analysis is an integral part of the interpretation of result disclosed by financial statements. It supplies to decision
makers, crucial financial information and points out the problem areas, which can be investigated. Financial analysis reduce reliance on institution guesses and thus narrows the areas of uncertainty that is present in all decision making process.
Requirement of Financial Statement Analysis: 1. Systematic compilation and study of financial data. 2. Methodical classification of data. 3. Scientific arrangement of the classified group of data. 4. Devising suitable tools of analysis. 5. Supplementing with sound comments. 6. Comparisons of the various inter connected figures with others, which are properly termed as ratio analysis.
Objectives of Financial Statement Analysis:
1. To judge the financial health of the firm. 2. To evaluate the profitability of the enterprise. 3. To gauge the debt serving capacity of the firm. 4. To understand the long term and short-term solvency of the firm. 5. To know the return on capital employed invested.
Tools of Financial Analysis: Common Size Statement: The statement is prepared to bring out the ratio of each asset or liability to the total of balance sheet and the ratio of each item of expense or revenue to interest earned. These common size statements are often called common measurement or component percentage statement, since each statement is reduced to the total of 100 and each individual component of the statement is represented as a percentage of the total of 100, which invariably serves as the base.
Advantages:
1. Common size analysis reveals the sources of capital and all other sources of funds and the distribution or use or application of the total funds in the asset of a bank. 2. Comparison of common size statement over a number of years will clearly indicates the changing proportions of the various components of assets, liabilities, interest earned and profits. 3. Comparison of common size statement of two or more banks will assist evolution and ranking.
Disadvantages: 1. Common size statements do not show variation in the various account items from period to period. 2. Common size statements are regarded by many as useless as there are no established standard proportions of an asset to the total assets or of an item of expense to the interest earned. 3. If financial statements of a particular business organization are not prepared year after year on a consistent basis, comparative study of common size statement will be misleading.
Comparative Financial Statement:
Comparative financial statements are statement of financial position of a business so designed as to facilitate comparison of different accounting variables from drawing useful inferences.
Preparation of Comparative Financial Statement These statements are prepared by placing the various items in rows and years in the columns. This is done to facilitate easy identification of their significant differences. Columns may be drawn to accommodate absolute changes as well as percentage changes side by side. In order to calculate the percentage change, the absolute change in the various account figures are divided by their respective base year figures and multiplied by 100.
Comparative
Financial
Statement
can
prepared to show: 1. Absolute data for each of the periods stated. 2. Changes in absolute data in terms of rupees. 3. Changes in absolute data in percentages. 4. Ratio 5. Percentages to totals.
Comparative Income Statement:
thus
be
A comparative income statement shows the absolute figures for two or more periods, and the absolute change from one period to another since the figure are shown side by side the user can quickly understand the operation.
Comparative Balance Sheet: Balance sheet as on two or more different dates is used to compare the assets, liabilities and net worth of the bank. Comparative balance sheet is useful to study the trends in the financial position of a bank.
Advantages: 1. Comparative financial statements indicate trends in interest earned profit etc. and help to evaluate performance of the bank. 2. It uses to compare the performance of a bank with the average performance of the other banks and helps in identification of weakness of the bank and remedial measures can be taken accordingly.
Disadvantages:
1. Procedure with regards to depreciation, inventory valuation etc. policies if followed differently, the comparison can be mislead. 2. Comparison of different periods can also be misleading if the period has witness changes in accounting policies, inflation, and recession.
Ratio Analysis: Ratio analysis is the method or process by which the relationship or item or group of item in the financial statement are computed determine and presented to determine a particular aspect of organization or company. Ratio analysis is an attempt to drive quantities measure or guide concerning the financial health and profitability of a business enterprise. Ratio analysis can be used both in trends and static analysis. There are several ratios at the disposal of an analysis but the group of the ratio would prefer depends on the purpose and the objective of analysis.
Types of Financial Ratios:
1. Liquidity Ratios: Liquidity refers to the ability of a firm to meet its obligations in the short run, usually a year. These ratios measure the ability of a firm to meet its current obligations and indicate its short term financial stability. The liquid ratio is designed to show the amount of cash available for meeting immediate payments. Liquidity ratios are generally based on current assets and current liabilities. The important liquidity ratios are Current Ratio and Liquid Ratio. 2. Profitability Ratios: Profitability is the final result of business operations. Every business organization has to earn profit in order to survive and grow. Therefore it is necessary to know whether it is earning adequate profits. The profitability ratios are Return on Investment, Return on Equity, etc. 3. Solvency Ratios: Solvency of a firm is indicated by its ability to meet its immediate commitments. Whether the firm is solvent or otherwise is determined by adequacy of its quick assets as compared to its immediate liabilities. The solvency ratios are sub – set of other financial ratios. The solvency ratios are Proprietory Ratio, Debt – Equity Ratio, Interest Coverage Ratio.
4. Leverage Ratios:
Leverage is an ability of a firm to use fixed cost assets or funds to magnify the return to its owners. The leverage ratios are useful as an analytical tool for creditors, financial institutions and debenture holders. The leverage ratios are Interest Coverage Ratio, Debt – Equity Ratio, Shareholder’s Equity to Total Capital, and Funded Debt to Net Working Capital. 5. Efficiency Ratios: Efficiency ratios are useful for measuring the company’s managerial efforts in managing inventories, production process, credit and assets and effectiveness of marketing and sales force. These are very useful in judging the performance of a company. The efficiency ratios are Average Collection Period, Inventory Turnover, Total Assets Turnover, Net Worth Turnover and Net Working Capital Turnover. 6. Ratios Relevant For Equity Shareholders: These ratios are of primary interest to the company’s shareholders. The ratios are: a) Earning Per Share b) Price to Earnings Ratio c) Dividend Payout Ratio d) Dividend Yield Ratio e) Book Value Per Share
Advantages of Ratio Analysis:
1. Simplifies Financial Statement: Ratio analysis simplifies the comprehension of financial statement. Ratio tells the whole story of changes in the financial condition of the business. 2. Makes Intra – firm Comparison Possible: Ratio analysis also makes possible comparison of the performance of different division of the firm. The ratio is helpful in deciding about their efficiency or other wise in the past and likely performance in the future. 3. Useful in judging the efficiency of a business. 4. Useful in improving future performance.
Disadvantages of Ratio Analysis: 1.
Reliability of ratios depends upon the correctness of
the basic data. 2.
An Individual ratio may by itself be meaningless.
3.
Ratios are not always comparable.
4.
Ratios ignore qualitative factors.
Trend Analysis: Trend analysis is also termed as trend percentage. It is used for the purpose of comparative study of financial statements over a number of years. In case of trend analysis a minimum of three financial year’s data is a must. Out of the periods under study, one year is taken as the base year and each item in this year is taken
as 100. Trend percentages are computed by dividing amount of each item in the statement of each remaining year with the corresponding item in the base statement and the result is expressed in percentage. Trend Percentage = Amount of year under study / Amount of base year * 100
Advantages of Trend Analysis: 1. A trend analysis indicates in which direction a business is moving i.e. upwards or downwards. 2. The trend analysis facilitates an efficient comparative study of the financial performance of a business enterprise over a period of time.
Disadvantages of Trend Analysis: 1. During the inflationary periods the data over a period of time becomes incomparable unless the absolute rupee is adjusted. 2. The undue importance must not be laid down on the percentage when there is a small number in the base year in such a case even a slight variation will be magnified by the percentage change.
Cash Flow Statement:
A cash flow statement shows the inflows and outflows of cash including bank balances and cash equivalents of an enterprise during a particular period. Cash flow statement is prepared to explain the cash movements between two points. A cash flow statement is used for making short term future plans which will assist the management to assess their ability to meet immediate requirements like paying creditors, paying dividends, etc. A cash flow statement is prepared in order to analyse the past movement of cash in an organization. A cash flow analysis is done at the completion of the financial year in order to analyse the cash movement position during the financial year. Cash flow statement divided into three main parts. They are explained as follows. 1. Cash Flows from Operating Activities:
In operating activities all items of Adjusted Profit and Loss Account and Changes in Working Capital (except Cash and Bank balance) are considered here and provision for income tax is deducted in order to obtain Net cash flows generated from operating activities. If the final value is positive it is termed as cash flows generated from operating activities and if it is negative it is termed as cash flows used in operating activities. 2. Cash Flows from Investing Activities:
Under investing activities transactions resulting in long term investments in fixed assets (both tangible n intangible) and long term investments are reported. The following items are reported under investing activities: I. Purchase of Fixed Assets. II. Sale of Fixed Assets. III. Purchase of long term investments. IV. Sale of long term investments. V. Interest / Dividend received on long term investments. Here a positive value reported indicates a cash inflow and a negative value indicates a cash outflow. A positive value is a debit effect and a negative value is a credit effect.
3. Cash Flows from Financing Activities:
Under financing activities items that result from long term sources of finance are included. The following are the transaction reported under financing activities: I. Issue of Equity Share Capital II. Buyback of Equity Share Capital III. Equity Dividend paid IV. Issue of Preference Share Capital / Debentures V. Redemption of Preference Share Capital / Debentures VI. Preference Dividend paid VII. Long term loan obtained VIII. Repayment of long term loan IX. Interest paid on Debentured / Long term loans
Here a positive value reported indicates a cash inflow and a negative value indicates a cash outflow. A positive value is a debit effect and a negative value is a credit effect. In a cash flow statement to the net cash flows obtained the opening cash and bank balances are added in order to obtain the closing cash and bank balances.
Importance of Cash flow Statements: 1. A cash flow statement helps in indicating the changes in the liquidity position of the company. 2. A cash flow statement is helpful to find out whether the cash balance has increased or decreased and what the reasons are for the same. 3. A cash flow statement helps in understanding how the cash from the sale of assets or issue of shares have been utilized. 4. A cash flow statement is used for planning, forecasting and budgeting the cash resources of the company. E.g. obtaining bank loans to buy new assets, to plan temporary investment of excess cash, etc.
CHAPTER – 4 FINANCIAL STATEMENT ANAYLSIS OF HDFC BANK
CHAPTER – 4 FINANCIAL STATEMENT ANAYLSIS OF HDFC BANK In The Books of HDFC Ltd. Common Size Balance Sheet As On 31st March, 2010 (Rs. In 000’s) Particulars
Amount
%
2010 CAPITAL AND LIABILITIES: Capital Equity Share Warrants Reserves and Surplus Employees’ Stock Options
4,577,433 _ 210,618,369 29,135
Amount
%
2009 0.21 _ 9.47 0.001
4,253,841 4,009,158 142,209,460 54,870
0.23 0.22 7.76 0.003
Outstanding Deposits 1,674,044,394 75.25 1,428,115,800 77.92 Borrowings 129,156,925 5.81 91,636,374 5 Other Liabilities and Provisions 206,159,441 9.27 162,428,229 8.86 Total 2,224,585,697 100 1,832,707,732 100 ASSETS: Cash and Balances with 154,832,841 6.96 135,272,112 7.38 Reserve Bank of India Balances with Banks
and
144,591,147
6.50
39,794,055
2.17
Money at Call and Short notice Investments 586,076,161 26.35 588,175,488 32.09 Advances 1,258,305,939 56.56 988,830,473 53.95 Fixed Assets 21,228,114 0.95 17,067,290 0.93 Other Assets 59,551,495 2.68 63,568,314 3.47 Total 2,224,585,697 100 1,832,707,732 100 INTERPRETATION: 1. There is increase in capital to Rs.4,577,433,000 compare to last year i.e. Rs.4,253,841,000. But 0.02 % has been decrease current year. Although the bank has issued shares in order to raise fund.
2. There is increase in deposits but percentage has decreased to 2.67%, which shows that the bank has got more deposits in current year. 3. There is increase in borrowings from 5% to 5.81% this shows that company has raise funds through borrowings. 4. There is increase in cash and balances with RBI to Rs.154,832,841,000
compare
to
last
year
i.e.
Rs.135,272,112,000. But 0.42 % has been decreased current year; this shows that the bank has deposited money with RBI. 5. There is increase in balance with banks and money at call and short notice from 2.17% to 6.50% this shows that bank has invested its deposits in other bank. 6. There is decrease in investments from 32.09% to 26.35%, which shows that bank has sold some of its investments. 7. There is increase in advances from 53.95% to 56.56% which shows that bank granted more advances and loans to customer. 8. Fixed assets have increase from 0.93% to 0.95%. This shows that bank has made purchase of fixed assets. 9. There is decrease in other assets from 3.47% to 2.68%, which shows bank maintaining its liquidity.
In The Books of HDFC Ltd. Common
Size
Income
Statement
for
the
31st March, 2010 Particulars
year
ended
(Rs. In 000’s) Amount
%
Amount
%
INCOME: Interest earned Other Income Total
161,729,000 38,076,106 199,805,106
EXPENDITURE: Interest expended 77,862,988 Operating expenses 57,644,827 Provisions and Contingencies 34,810,282 Total 170,318,097 PROFIT: Net Profit for the year 29,487,009 Profit brought forward 34,555,658 Total 64,042,667 APPROPRIATIONS: Transfer to Statutory Reserve 7,371,752 Proposed dividend 5,492,919 Tax(including cess) on dividend 912,305 Dividend(including tax / cess 9,343
100 23.54 123.54
163,322,611 32,906,035 196,228,646
100 20.15 120.15
48.14 35.64 21.52 105.30
89,111,044 55,328,058 29,340,152 173,779,254
54.56 33.88 17.96 106.40
18.23 21.37 39.60
22,449,392 25,746,345 48,195,737
13.75 15.76 29.51
4.56 3.40 0.56 0.01
5,612,349 4,253,841 722,940 5,900
3.44 2.60 0.44 0.003
thereon) pertaining to previous year paid during the year Transfer to General Reserve Transfer to Capital Reserve Transfer to/(from) Investment
2,948,701 1,994,599 (14,900)
1.82 1.23 (0.01)
2,244,939 938,660 (138,550)
1.37 0.57 (0.08)
Reserve Account Particulars Balance carried over to Balance
Amount 45,327,948
% 28.03
Amount 34,555,658
% 21.16
64,042,667
39.60
48,195,737
29.51
Sheet Total
INTERPRETATION: 1. Total incomes have increased from 120.15% 123.54%. In which other income is increased and income from interest is less. 2. There is decrease in total expenditure from 106.40% to 105.30%, which shows operating inefficiency.
3. Profit has increased from 13.75% to 18.23%. Bank has made more profit compare to last year.
In The Books of HDFC Ltd. Comparative Balance Sheet As On 31st March, 2010 (Rs. In 000’s) % Particulars
Year
Year
Increase /
Increase /
2009
2010
(Decrease)
(Decrease)
4,253,841 4,009,158 142,209,460 54,870
4,577,433 _ 210,618,369 29,135
323,592 (4,009,158) 68,408,909 (25,735)
7.61 (100) 48.10 (46.90)
CAPITAL AND LIABILITIES: Capital Equity Share Warrants Reserves and Surplus Employees’ Stock Options Outstanding
Deposits Borrowings Other Liabilities and
1,428,115,800 1,674,044,394 254,928,594 91,636,374 129,156,925 37,520,551 162,428,229 206,159,441 43,731,212
17.85 40.95 28.92
Total 1,832,707,732 2,224,585,697 391,877,965
21.38
Provisions ASSETS: Cash and Balances with
135,272,112
154,832,841
19,560,729
14.46
Reserve Bank of India Balances with Banks and
39,794,055
144,591,147
104,797,092
263.35
586,076,161 (2,099,327) 1,258,305,939 269,475,466 21,228,114 4,160,824
(0.36) 27.25 24.38
Money at Call and Short notice Investments Advances Fixed Assets
588,175,488 988,830,473 17,067,290
% Particulars Other Assets
Year
Year
Increase /
Increase /
2009 2010 (Decrease) (Decrease) 63,568,314 59,551,495 (4,016,819) (6.32) Total 1,832,707,732 2,224,585,697 391,877,965 21.38
INTERPRETATION: The bank has increased the total funds increased by 21.38% in 2010 compare to 2009. This increase of funds is met by increase in capital 7.61%, increase in deposits by 17.85%, and increase in borrowings by 40.95%. On the assets side there is 14.46% increase in cash and balances with RBI, 263.35% increase in balance with banks and money at call and short notice, 27.25% in advances and 24.38% in fixed assets. There is slight decrease of 0.36% in investment and decrease in other assets also compare to 2009.
In The Books of HDFC Ltd. Comparative Income Statement for the year ended 31st March, 2010
(Rs. In 000’s) %
Particulars INCOME: Interest earned Other Income
Year
Year
Increase /
Increase /
2009
2010
(Decrease)
(Decrease)
(1,593,611) 5,170,071 3,576,460
(0.98) 15.71 1.82
163,322,611 161,729,000 32,906,035 38,076,106 Total 196,228,646 199,805,106
EXPENDITURE: Interest expended Operating expenses Provisions and
89,111,044 55,328,058 29,340,152
77,862,988 57,644,827 34,810,282
(11,248,056) (12.62) 2,316,769 4.19 5,470,130 18.64
Contingencies Total 173,779,254 170,318,097 PROFIT: Net Profit for the year Profit brought forward Total APPROPRIATIONS:
22,449,392 25,746,345 48,195,737
29,487,009 34,555,658 64,042,667
(3,461,157)
(1.99)
7,037,617 8,809,313 15,846,930
31.35 34.22 32.88
Transfer to Statutory
5,612,349
7,371,752
1,759,403
31.35
Reserve Proposed dividend Tax (including cess) on
4,253,841
5,492,919
1,239,078
29.13
722,940
912,305
189,365
26.19
dividend % Particulars
Year
Year
Increase /
Increase /
2009 5,900
2010 9,343
(Decrease) 3,443
(Decrease) 58.36
during the year Transfer to General
2,244,939
2,948,701
703,762
31.35
Reserve Transfer to Capital
938,660
1,994,599
1,055,939
112.49
Reserve Transfer to/(from)
(138,550)
(14,900)
123,650
89.25
34,555,658
45,327,948
10,772,290
31.17
48,195,737
64,042,667
15,846,930
32.88
Dividend(including tax / cess thereon) pertaining to previous year paid
Investment Reserve Account Balance carried over to Balance Sheet Total INTERPRETATION: There is 0.98% decrease in interest earned and also decrease in interest expended 12.62% in the year 2010 as compare to 2009. Thus reduction in expenditure leads to profit. 31.35% in 2010 compare to 2009 increase the net profit.
Ratio Analysis: For 2010 Name of Ratio Earning Per Share (Rs.)
Calculation For 2010 =Profit after tax-Preference Dividend / Weighted no. of equity shares = 29,487,009,000 - Nil / 436,439,573
Return On Average Networth
= 67.56 Rs. = Net profit for the year / Average Networth * 100 = 29,487,009 / 182,876,133 * 100
Tier 1 Capital Ratio
= 16.12% = Capital Funds / Risk Weighted Assets * 100 = 2,054,885 / 15,498,301 * 100
Total Capital Ratio
= 13.26% = Total Capital / Risk Weighted Assets * 100 = 2,704,079 / 15,498,301 *100
Dividend Payout Ratio
= 17.44% = Profit Available for Appropriation / Profit After Tax = 6404.3 (crores) / 294.9 (crores)
Book Value Per Share
= 21.72% = Equity Share Capital + Reserves & Surplus / No. of Equity Share = 4,577,433,000 + 210,628,369,000 / 457,743,272 = 470.12 Rs.
Name of Ratio Calculation For 2010 Market Price Per Share As At = 1933.50 Rs. 31st March, 2010 as per NSE Price to Earning Ratio
= Market Price Per Equity Share / Earning Per Share = 1933.50 / 67.56
Dividend Per Share
= 28.62 = Rs.12
For 2009 Name of Ratio Earning Per Share (Rs.) Return On Average Networth Tier 1 Capital Ratio Total Capital Ratio Dividend Payout Ratio Book Value Per Share Market Price Per Share As At
For 2009 = 52.85 Rs. = 16.05% = 10.58% = 15.69% = 22.17% = 344.31 Rs. = 973.40 Rs.
31st March, 2009 as per NSE Price to Earning Ratio Dividend Per Share
= 18.42 = Rs.10
INTERPRETATION: 1. The Bank’s basic earning per share increased from Rs.52.85 to Rs.67.56 per equity share. 2. The Return on Average Networth is also increased compare to previous year. 3. As per Basel II minimum Tier 1 Capital Ratio should be 6% and HDFC bank has 13.26%. The Total Capital Ratio in accordance with Basel II should be 9.0% and bank’s ratio is 17.44%. 4. There is decrease in Dividend Payout Ratio from 22.17% to 21.72%.
5. There is increase in book value per share from Rs.344.31 to Rs.470.12. due to increase in Equity Share capital and Reserves & Surplus. 6. Market price increase to Rs.1933.50 from Rs.973.40 because of market fluctuation. 7. Price to Earning Ratio is increase to 28.62 from 18.42. Earning on share is increases from past year. 8. The bank gives dividend of Rs.12 per share for financial year 2009 – 2010.
Trend Analysis of Balance Sheet (Rs. In 000’s) Particulars CAPITAL AND LIABILITIES:
Year 2008
Year 2009
Year 2010
%
%
%
2008
2009
2010
Capital Equity Share
3,544,329 _
4,253,841 4,009,158
4,577,433 _
100 _
120.02 129.15 _ _
Warrants Reserves and
111,428,076
142,209,460
210,618,369
100
127.62 189.02
_
54,870
29,135
_
Surplus Employees’
_
_
Stock Options Outstanding Deposits Borrowings Other Liabilities
1,007,685,910 1,428,115,800 1,674,044,394 45,949,235 91,636,374 129,156,925 163,158,482 162,428,229 206,159,441
100 100 100
141.72 166.13 199.43 281.09 99.55 126.36
Total 1,331,766,032 1,832,707,732 2,224,585,697
100
137.61 167.04
100
107.76 123.34
and Provisions ASSETS: Cash and Balances
125,531,766
135,272,112
154,832,841
Year 2008
Year 2009
Year 2010
with Reserve Bank of India Particulars
%
%
%
2008
2009
2010
Balances with Banks and Money at Call
22,251,622
39,794,055
144,591,147
100
177.84 649.80
100 100 100 100 100
119.08 155.90 145.24 144.38 137.61
and Short notice Investments 493,935,382 588,175,488 586,076,161 Advances 634,268,934 988,830,473 1,258,305,939 Fixed Assets 11,750,917 17,067,290 21,228,114 Other Assets 44,027,411 63,568,314 59,551,495 Total 1,331,766,032 1,832,707,732 2,224,585,697
118.65 198.39 180.65 135.26 167.04
INTERPRETATION: 1. The capital, deposits and borrowings showing raising trend and it indicate growth of the bank. 2. The funds are invested in balance with RBI, with other banks and money at call and short notice, and fixed assets. 3. There is decrease in Investments and Other Assets of the bank and it indicates the investment may be sold and current assets are liquidated.
Trend Analysis of Income Statement (Rs. In 000’s) Particulars
Year 2008
INCOME: Interest earned Other Income
Year 2009
Year 2010
%
%
%
2008
2009
2010
101,150,087 163,322,611 161,729,000 22,831,425 32,906,035 38,076,106 123,981,512 196,228,646 199,805,106
100 100 100
161.47 159.89 144.13 166.77 158.27 161.16
48,871,146 37,456,168 21,752,268
77,862,988 57,644,827 34,810,282
100 100 100
182.34 159.32 147.71 153.90 134.88 160.03
Total 108,079,582 173,779,254 170,318,097
100
160.79 157.59
100
141.17 185.43
Total EXPENDITURE: Interest expended Operating expenses Provisions and
89,111,044 55,328,058 29,340,152
Contingencies PROFIT: Net Profit for the year
15,901,930
22,449,392
29,487,009
Profit brought forward Total APPROPRIATIONS: Transfer to Statutory Reserve Proposed dividend Tax (including cess) On dividend Dividend(including tax/
19,320,397 35,222,327
25,746,345 48,195,737
34,555,658 64,042,667
100 100
133.26 178.86 136.83 181.82
3,975,483
5,612,349
7,371,752
100
141.17 185.43
3,012,680 512,005
4,253,841 722,940
5,492,919 912,305
100 100
141.20 182.33 141.20 178.18
621
5,900
9,343
100
950.08 1504.5
Year 2008
Year 2009
Year 2010
%
%
%
2009 _
2010 _ (3.87)
cess thereon) pertaining to previous year paid during year Particulars Transfer to Capital
_
938,660
1,994,599
2008 _
Reserve Transfer to/(from)
385,000
(138,550)
(14,900)
100
(35.9)
25,746,345
34,555,658
45,327,948
100
134.22 176.06
35,222,327
48,195,737
64,042,667
100
136.83 181.82
Investment Reserve Account Balance carried over to Balance Sheet Total
INTERPRETATION: 1. The total income is showing a raising trend thereby indicating a smooth income of bank over the years. 2. The total expenditure is decrease as compare to previous year. 3. The profit of bank is more this year due to increase in income and decrease in expenditure as compare to previous year.
In The Books of HDFC Ltd.
Cash Flow Statement For the year ended 31st March, 2010 (Rs. In 000’s) Particulars Cash flow from operating activities: Net profit before income tax Adjustments for: Depreciation (Profit) / Loss on Revaluation of Investments Amortisation of premia on Investments Loan Loss provisions Floating Provisions Provision against standard assets Provision for wealth tax Contingency provisions (Profit) / Loss on sale of fixed assets Adjustments for: (Increase) / Decrease in Investments (Increase) / Decrease in Advances Increase / (Decrease) in Borrowings Increase / (Decrease) in Deposits (Increase) / Decrease in Other assets Increase / (Decrease) in Other liabilities and provisions
Amount 42,891,365 3,943,917 30,082 4,408,528 19,389,292 500,000 _ 5,500 1,511,134 (40,242) 72,639,576 (2,339,283) (289,364,758) 38,185,551 245,928,594 2,019,737 40,854,639 107,924,056
Direct taxes paid (net of refunds) Net cash flow from / (used in) operating activities Particulars Cash flow from investing activities: Purchase of fixed assets Proceeds from sale of fixed assets Net cash used in investing activities Cash flows from financing activities: Money received on exercise of stock options by
(14,025,156) 93,898,900 Amount (5,637,118) 121,996 (5,515,122) 5,559,685
employees Proceeds from issue of Convertible Warrants Proceeds from issue of equity shares Proceeds from issue of Upper & Lower Tier II capital
_ 36,080,586 _
instruments Redemption of subordinated debt Dividend paid during the year Tax on Dividend Net cash generated from financing activities Effect of Exchange Fluctuation on Translation
(665,000) (4,263,184) (722,940) 35,989,147 (15,104)
reserve Cash and cash equivalents on amalgamation Net increase in cash and cash equivalents Cash and cash equivalents as at April 1st Cash and cash equivalents as at March 31st
_ 124,357,821 175,066,167 299,423,988
INTERPRETATION: 1.
The bank has generated Rs. 93,898,900,000 from
operating activities. 2.
The bank has used Rs. 5,637,118,000 for purchase of
fixed assets and net amount used in investing activities is Rs. 5,515,122,000 3.
The bank has generated net cash from financing
activities Rs. 35,989,147,000 through issue of shares. PROFIT AFTER TAX:
Profit after Tax is Rs.2949 crores in the financial year 2009 – 2010. 3500 3000 2500 2000 1500 1000 500 0 2008
2009
2010
Fig. 4.1 DIVIDEND PER SHARE: Dividend per share is Rs.12 in year 2009 – 2010. 14 12 10 8 6 4 2 0 2008
2009
2010
Fig. 4.2
EARNING PER SHARE: Earning per share is Rs.67.6 n year 2009 – 2010.
80 60 40 20 0 2008
2009
2010
Fig. 2.3 CAPITAL ADEQUACY: Capital adequacy is 17.4% for 2009 – 2010. 20.00% 15.00% 10.00% 5.00% 0.00% 2008
2009
2010
Fig. 4.4 RETURN ON CAPITAL: Return on capital is 16.8% for 2009 – 2010. 17.00% 16.80% 16.60% 16.40% 16.20% 16.00% 15.80% 15.60% 2008
2009
Fig. 4.5
2010
CHAPTER 5 CONCLUSION
CHAPTER 5 CONCLUSION
The financial performance during the year ended 31st March, 2010 remain healthy with total income of Rs.199,805,106,000. Other income registered a growth of 15.7% over that in the previous year to Rs. 38,076,106,000. in the financial year 2009 – 2010. This growth was driven primarily by an increase in fees and commissions earned and income from foreign exchange and derivatives. The bank made a profit on sale / revaluation of investments of Rs. 345.1 crores. Operating expenses grew at a much lower pace than net revenues and increased from Rs. 55,328,058,000 in the previous year to Rs. 57,644,827,000 in the current year. The bank has opened 300 new branches, which resulted in higher infrastructure, and staffing expenses, that’s why the operating expenses have increased. The bank’s provisioning policies for specific loan loss provisions remained higher than regulatory requirements. The NPA coverage ratio based on specific provision was at 74.8%. Net profit increased by 31.35% from
Rs.
22,449,392,000
in
the
previous
year
to
Rs. 29,487,009,000 in the year ended 31st March, 2010. Bank’s total Capital Adequacy Ratio calculated in the line with Basel II framework stood at 17.44%, well above the regulatory minimum of 9.0%. Tier I CAR was 13.26%. The bank is giving dividend per share Rs.12 as compared to last year Rs.10.
Taking on various types of risk is integral to the banking business. Sound risk management and balancing risk – reward
trade – offs are critical to a bank success. The identification, measurement, monitoring and management of risks accordingly remain a key focus area for the bank. The HDFC Bank faces increasing competition, pressure for their product and services. The bank has to manage its cost efficiently because as the services increase they may not able to manage to keep their operating cost low in future. If the bank improves cost and operational efficiency, the bank can become leader in the industry. As an investor point of view the bank is profitable to invest as Earning Per Share ratio, Dividend Per Share, Book Value Per Share and Price to Earning Ratio are increasing from year to year.
BIBLIOGRAPHY
Name of Book
Name of Book
Author
WEBLIOGRAPHY
www.wikipedia.com www.hdfcbank.com
ANNEXTURE
Annual Report:
Balance Sheet of HDFC Bank Limited. Profit and Loss Account of HDFC Bank Limited.
Cash Flow Statement of HDFC Bank Limited.
