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) DOMBIVLIS

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: modelcollege@vsnl.net

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

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

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

banks 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 banks
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 banks 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 HDFCs 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.
Banks 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 Banks 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 banks 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.
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 dont change quite often. Near-term objectives do.
The countrys 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 doesnt ruffle the top management of Housing
Development Financing Corporation (HDFC) Bank.
As American author, Frank Herbert says: Theres no secret
to balance. You just have to feel the waves. It may be quite a
unique distinction but HDFC Bank hasnt 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. Its 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 banks 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 banks 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.

Fig. 2.1

ATMs:
HDFC Bank has 4,232 ATMs in India.

Fig. 2.2
CITES:
HDFC Bank in 779 cites in India.

Fig. 2.3

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
enterprises 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 diagnosiss 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, Shareholders Equity to Total Capital,
and Funded Debt to Net Working Capital.
5. Efficiency Ratios:
Efficiency ratios are useful for measuring the companys
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 companys
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 years 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 000s)
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

Money at Call and Short notice

Investments
Advances
Fixed Assets
Other Assets
Total
INTERPRETATION:

144,591,147

6.50

39,794,055

586,076,161 26.35 588,175,488 32.09

1,258,305,939 56.56 988,830,473 53.95
21,228,114
0.95
17,067,290
0.93
59,551,495
2.68
63,568,314
3.47
2,224,585,697 100 1,832,707,732 100

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.

2.17

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 000s)
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 000s)
%
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

1,832,707,732 2,224,585,697 391,877,965

21.38

Provisions
Total
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

Year

Other Assets
Total

Year

Increase /

Increase /

2009
2010
(Decrease) (Decrease)
63,568,314
59,551,495
(4,016,819)
(6.32)
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 000s)
%
Year

Year

Increase /

Increase /

2009

2010

(Decrease)

(Decrease)

(1,593,611)
5,170,071
3,576,460

(0.98)
15.71
1.82

77,862,988
57,644,827
34,810,282

(11,248,056)
2,316,769
5,470,130

(12.62)
4.19
18.64

Total 173,779,254 170,318,097

(3,461,157)

(1.99)

7,037,617
8,809,313
15,846,930

31.35
34.22
32.88

Particulars
INCOME:
Interest earned
Other Income

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

Contingencies
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

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 Banks 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 banks 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 000s)
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

1,331,766,032 1,832,707,732 2,224,585,697

100

137.61 167.04

125,531,766

135,272,112

154,832,841

100

107.76 123.34

Year 2008

Year 2009

Year 2010

and
Provisions
Total
ASSETS:
Cash
and
Balances
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
Advances
Fixed Assets
Other Assets
Total

493,935,382
588,175,488
586,076,161
634,268,934
988,830,473 1,258,305,939
11,750,917
17,067,290
21,228,114
44,027,411
63,568,314
59,551,495
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 000s)
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 000s)
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.

Fig. 4.1
DIVIDEND PER SHARE:
Dividend per share is Rs.12 in year 2009 2010.

Fig. 4.2

EARNING PER SHARE:

Earning per share is Rs.67.6 n year 2009 2010.

Fig. 2.3
CAPITAL ADEQUACY:
Capital adequacy is 17.4% for 2009 2010.

Fig. 4.4
RETURN ON CAPITAL:
Return on capital is 16.8% for 2009 2010.

Fig. 4.5

CHAPTER 5
CONCLUSION

CHAPTER 5
CONCLUSION

The financial performance during the year ended 31 st 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, thats why
the operating expenses have increased. The banks 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.

Banks 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.