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A PROJECT REPORT ON HOUSING DEVELOPMENT FINANCE CORPORATION LTD.

Submitted to: NARMADA COLLEGE OF MANAGEMENT

Affiliated to: GUJARAT TECHNOLOGICAL UNIVERSITY, AHEMDABAD Prepared By: AMAN PANCHAL ROLL NO: 1106

INTRODUCTION

HDFC' - a household name that Indians proudly reckon with! Headquartered in Mumbai, the bank is one of the first private banks to be set up in India in 1994. With a network reach of 1412 branches spread over 528 cities across India and with over 2890 ATMs across these cities, the bank is the largest private sector bank in terms of branch network in India -- the next largest, ICICI bank, has 1400 branches Times Bank Limited (another new private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks in the New Generation of Private Sector Banks. As per the scheme of amalgamation approved by the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank.[12] On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally approved by The Reserve Bank of India. As per the scheme of amalgamation, shareholders of CBOP received 1 share of HDFC Bank for every 29 shares of CBOP. The value of the all-share deal worked out to INR 95100 million. The merged entity will have a strong deposit base of around INR 1,220 billion and net advances of around INR 890 billion. HDFC bank is listed on Mumbai Stock Exchange (BSE), National Stock Exchange of India Ltd. (NSE),New York Stock Exchange (NYSE). Background HDFC was incorporated in 1977 by Mr. Hasmukhbhai Parekh with the primary objective of meeting a social need - that of promoting home ownership by providing long-term finance to households. The launching of HDFC was meant to be one small step in dealing with the availability of housing accommodation in India which was then virtually non-existent. HDFC as a pioneer launched India's first specialised home loan company with an initial capital of Rs. 100 million. Business Objective Our primary objective is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. We aim to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets. Goals: • Develop close relationships with individual households. • Maintain our position as the premier housing finance institution in the country. • Transform ideas into viable and creative solutions. • To grow through diversification by gaining leverage from our existing client base.

To nurture the values and ethos of Brand HDFC through all its Subsidiaries and Associate Companies.

Growth strategies: • Increase the return on equity each year by 1 percentage point in order to maximise shareholder value; • Maintain gross Non-Performing Assets (NPAs) below 1%; • Consistently grow the loan book; • Improve operational efficiency by consistently bringing down the cost to income ratio. The HDFC Advantage: • Pioneers of Housing Finance in India with over 34 years of lending experience. • Widest range of home loan & deposit products. • Vast network of over 298 interconnected offices which includes 3 international offices. • Most experienced and empowered personnel to ensure smooth & easy processing. • Online loan application facility at www.hdfc.com and across-the-counter services for new deposits, renewals & repayments. • Counseling and advisory services for acquiring a property. • Flexible loan repayment options • Free & safe document storage

Swot Analysis of HDFC BANK
Strengths : 1. Right strategy for the right products. 2. Superior customer service vs. competitors. 3. Great Brand Image. 4. Products have required accreditation. 5. High degree of customer satisfaction. 6. Good place to work 7. Lower response time with efficient and effective service. 8. Dedicated workforce aiming at making a long-term career in the field. Weakness: – 1. Some gaps in range for certain sectors. 2. Customer service staff need training. 3. Processes and systems, etc 4. Management cover insufficient. 5. Sectoral growth is constrained by low unemployment levels and competition for staff

Opportunities: – 1. Profit margins will be good. 2. Could extend to overseas broadly. 3. New specialist applications. 4. Could seek better customer deals. 5. Fast-track career development opportunities on an industry-wide basis. 6. An applied research center to create opportunities for developing techniques to provide added-value services. Threats: 1. Legislation could impact. 2. Great risk involved 3. Very high competition prevailing in the industry. 4. Vulnerable to reactive attack by major competitors. 5. Lack of infrastructure in rural areas could constrain investment. 6. High volume/low cost market is intensely competitive.

LEVERAGE

Leverage can be defined as “the employment of an asset or source of funds for which the firm has to pay a fixed cost or fixed return”. Because of the incurrence of fixed costs, the net income and the earnings available to the equity shareholders as well as the risk gets affected. Leverage is favorable when the earnings less the variable costs exceed the fixed costs or when the earnings before interest and taxes exceed the fixed return requirement. Leverage is unfavorable in the reverse situation. Leverage can be of two types – Operating & Financial leverages. 1.Operating leverage - The leverage associated with investment, i.e., asset acquisition activities is called as operating leverage. The operating leverage refers to the use of fixed operating costs to magnify the effects of changes in sales on the operating profits (EBIT) of the firm. In other words, operating leverage leads to more than a proportionate change (±) in operating profits as a result of given change in the sales volume. The operating leverage can be favourable when increase in sales volume has a positive magnifying effect on operating profits and it is unfavourable when a decrease in sales volume has a negative magnifying effect on operating profits. Therefore, high operating leverage is good when sales revenues are rising and bad when they are falling. The degree of operating leverage has implications for the business risk of the firm. An important technique to analyze operating leverage is break-even analysis. Degree of Operating leverage of HDFC bank. Years EBIT SALES 2007 4819.65 6889.02 2008 7167.5 10115.00 2009 12206.77 16332.27 2010 12071.97 16172.91 2011 15205.16 19928.21

DOL= Percentage change in EBIT/ Percentage change in sales > 1

particulars 2007-08 EBIT (% 48.71 change) SALES (% 46.83 change) DOL 1.04 > 1

2008-09 70.31 61.47 1.14 > 1

2009-10 - 1.10 - 0.98 1.12 >1

2010-11 25.95 23.22 1.12 >1

Interpretation:

In 2007-08 DOL 1.04>1 hence it shows there is operating leverage & there is a presence of fixed charges. Also it shows FAVORABLE leverage since with 1 time change in sales brings 1.04 times change in EBIT. fixed charges. Also it shows FAVORABLE leverage since with 1time change in sales brings 1.14 times change in EBIT.

 In 2008-09 DOL 1.14 >1 thus it shows there is operating leverage & hence presence of

 In 2009-10 DOL 1.12 >1 thus it shows there is no operating leverage & hence no

presence of fixed charges. Also it shows UNFAVORABLE leverage since with 1 time change in sales brings 1.12 times change in EBIT.  In 2010-11 DOL 1.12 >1 thus it shows there is operating leverage & there is a presence of fixed charges. Also it shows FAVORABLE leverage since with 1time change in sales brings 1.12 times change in EBIT. 2.Financial Leverage - the leverage associated with financing activities is called as financial leverage The financial leverage implies the employment of source of funds, involving fixed return so as to cause more than a proportionate change in earnings per share (EPS) due to change in operating profits. Like the operating leverage, financial leverage can be positive when operating profits are increasing and can be negative in the situation of decrease in such profits. In view of these, financial leverage will affect the financial risk of the firm. An important analytical tool for financial leverage is the indifference point at which the EPS/market price is the same for different financial plans under consideration.

• • Years EPS EBIT

Favourable or positive leverage occurs when the firm earns more on the assets purchased with the funds , than the fixed cost of their use. Unfavourable or negative leverage occurs when the firm does not earn more on the assets purchased with the funds , than the fixed cost of their use. 2007 35.74 4819.65 2008 44.87 7167.5 2009 52.77 12206.77 2010 64.42 12071.97 2011 84.40 15205.16

DFL = Percentage change in EPS/ Percentage change in EBIT > 1 Particulars EPS (% change) EBIT (% change) DFL 2007-08 25.55 48.71 0.52 <1 2008-09 17.61 61.47 0.29<1 2009-10 22.08 -1.10 -20.07<1 2010-11 31.02 25.95 1.20>1

Interpretation:

 In 2007-08 DFL 0.52< 1 hence it shows there is no financial leverage & there is no

presence of fixed charges. Also it shows UNFAVORABLE leverage since 1 time change in EBIT brings 0.52 times change in EPS.
 In 2008-09 DFL 0.29 <1 hence it shows there is no financial leverage & there is no

presence of fixed charges. But it shows UNFAVORABLE leverage since 1 time change in EBIT brings 0.29 times change in EPS.
 In 2009-10 DFL -20.47<1 hence it shows there is no financial leverage & no presence of

fixed charges. Also it shows UNFAVORABLE leverage since 1 time change in EBIT brings -20.47 times change in EPS.
 In 2010-11 DFL 1.20 >1 hence it shows there is financial leverage & there is presence of

fixed charges. Also it shows FAVORABLE leverage since 1 time change in EBIT brings 1.20 times change in EPS.

3.Combined leverage – This is the product of the operating and financial leverages. The combined leverage represents the effect of a given change in the sales revenue on die earnings per share. It affects the total risk of die firm To keep the risk within manageable limits, a firm which has high degree of operating leverage will be well advised to have low financial leverage and vice versa. DCL = DOL * DFL Particulars DCL 2008-09 0.3306 2009-10 -22.48 2010-11 1.344

Interpretation:
 From year 2008-2011 shows the result of total leverage & the risk associated with the

combined leverage.

BIBLOGRAPHY www.hdfc.com www.moneycontrol.com www.money.rediff.com FINANCIAL MANAGEMENT BY M Y KHAN P K JAIN 4TH EDITION

ANNEXURE

Balance sheet of HDFC bank
Mar ' 11 Sources of funds Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation 5,244.21 3,073.56 4,707.97 2,585.16 3,956.63 2,249.90 2,386.99 1,211.86 1,917.56 950.89 68,297.94 74,731.09 465.23 24,914.04 457.74 21,064.75 425.38 400.92 14,226.43 354.43 11,142.80 319.39 6,113.76 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

2,08,586.41 1,67,404.44 1,42,811.58 1,00,768.60 2,33,965.67 1,88,926.93 1,57,864.31 1,12,265.83

Mar ' 11 Net block Capital work-in-progress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Notes: Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity sharesoutstanding (Lacs) 14,601.08 2,170.65 70,929.37

Mar ' 10 2,122.81 58,607.62

Mar ' 09 1,706.73 58,817.55

Mar ' 08 1,175.13 49,393.54

Mar ' 07 966.67 30,564.80

5,955.15

6,356.83

4,402.69

3,605.48

28,992.86 -14,391.78

20,615.94 -14,660.79

22,720.62 -16,363.79

16,431.91 -12,029.22

13,689.13 -10,083.65

58,708.23

46,069.63

44,160.49

38,539.45

21,447.82

-

-

-

-

-

-

-

-

-

5,88,550.98 4,87,176.37 4,14,533.93 5,99,928.79 2,09,338.61

4652.26

4577.43

4253.84

3544.33

3193.90

Mar ' 11

Mar ' 10

Mar ' 09

Mar ' 08

Mar ' 07

Profit loss account of HDFC bank Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Income Operating income 24,393.60 19,958.76 19,770.72 12,354.41 8,303.34

Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Adminstrative expenses Expenses capitalised Cost of sales Operating profit Other recurring income 2,836.04 158.95 4,552.96 7,547.95 7,460.57 2,289.18 83.12 4,936.73 7,309.02 4,863.44 17.72 2,238.20 108.68 4,583.86 6,930.74 3,928.87 1,301.35 114.73 2,247.48 3,663.56 3,803.73 43.04 776.86 74.88 1,519.32 2,371.06 2,752.83 102.96

Mar ' 11 Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Non recurring items Other non cash adjustments Reported net profit Earnigs before appropriation Equity dividend Preference dividend Dividend tax Retained earnings 9,385.08 497.41 -2,421.92 1,892.86 3,927.22 -0.82 -2.65 3,923.75 8,456.55 767.62 124.53 7,564.40

Mar ' 10 4,881.17 7,786.30 394.39 4,486.77 1,340.99 2,944.68 4.02 -0.93 2,947.77 6,403.33 549.29 91.23 5,762.81

Mar ' 09 8,911.10 359.91 -5,342.14 1,054.92 2,240.75 4.19 -0.59 2,244.35 4,818.98 425.38 72.29 4,321.31

Mar ' 08 3,846.77 4,887.12 271.72 -1,312.07 690.90 1,589.48 0.70 -0.06 1,590.12 3,522.15 301.27 51.20 3,169.68

Mar ' 07 2,855.79 3,179.45 219.60 241.09 2,395.10 497.70 1,142.50 -1.05 -0.35 1,141.10 2,596.12 223.57 38.00 2,334.55