Dogo Rangsang Research Journal UGC Care Group I Journal

ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020

A Study on Financial Analysis of HDFC Limited

S. JOSEPHIN SAKILA
(II-M.Com.,)
Idhaya College for Women, Kumbakonam.
(Affiliated to Bharathidasan University)

Abstract
Financial analysis refers to an assessment of the viability, stability and profitability
of a business, sub-business or project. It’s a process of scanning the financial statements for
evaluating the relationship between the items of the balance sheet and profit and loss account. In
this study related to “A study on financial analysis of HDFC Ltd’’ with help of ratio analysis.

Key words: Financial analysis – HDFC Ltd – Relationship – Ratio

Introduction

In the context of sophisticated and advanced global environment, `money’ plays a

predominant role in all walks of life. It is `sine-qua-non’ that there should be an institution to
exchange money for values received and to undertake other commercial activities for ensuring
financial settlement. As such, banks in the world occupy a pivotal position in the financial
management of the respective systems.

Ratio analysis is a conceptual technique which dates back to the inception of accounting, as a
concept. Financial analysis as a scientific tool is used to carry out the calculations in the area of
accounting. In order to appraise the valid and existent worth of an enterprise, financial tool
comes handy, regularly. Financial analysis is an essential mechanism for a clear interpretation of
financial statements.

Meaning of Ratio Analysis

Ratio analysis is an age old technique of financial analysis. It is`` the process of determining
and presenting the relationship of items and groups of items in the financial statements’’. The
information provided by the financial statements in absolute form is historical and static,
conveying very little meaning uses. Accounting ratios are designed to show how one number is

Page | 60 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
related to another and the meaning of such relationships. A ratio is worked out by dividing one
number by another number. Accounting ratios measure and indicate efficiency of an enterprise in
all aspects.

Definition

Ratios can be defined as `` Relationships expressed in quantitative terms, between figures

which have cause and effect relationships or which are connected with each other in some
manner or the other’’.

Modes of Expression of Ratios

1. In Proportion:

A ratio may be expressed as a proportion. (eg) profit sharing.

2. In Rate Or Times Or Co-Efficient:

It is indeed a ratio between two numerical facts covering generally a definite period of
time. (eg) the stock turnover is four times a year.

3. In Percentage:

It is a special type of ratio which expresses the relation between two numerical facts per
hundred.

Steps in Ratio Analysis

1. Selection of Relevant Data:

The first step is the selection of a set of data which are relevant to the purpose for which
analysis is being made.

2. Comparison of Calculated Ratios:

The next step is comparison of the ratios of the business concern with the standard ratio.

Page | 61 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
3. Interpretation and Reporting:

The last step in ratio analysis is drawing conclusions on the basis of comparison and
presenting the conclusions in the form of reports.

Limitations of Ratio Analysis

1. Inadequacy of Standards:
Ratios are useful only if they are compared with some standards. But, adequate
standards like industry averages are not easily available.

2. Limitations of Financial Statements:

Ratios are based only on the information recorded in the financial statements. Financial
statements suffer from a number of limitations. Hence, the ratios derived from them are also
subject to those limitations.

3. Ratios Alone are Not Adequate:

Ratios are not only indicators. They cannot be taken as final regarding good or bad
financial position of the firm. Other things have also to be seen.

4. Difficulty in Comparison:
In actual practice, it is difficult to have similar companies for comparison. Even if
similar companies are available, their accounting periods may differ. They makes inter firm
comparison difficult.
5. Problem of Price Level Changes:
Ratio analysis does not take into account the effects of changes in price level. Because
of this, interpretation of ratios becomes invalid.
6. Personal Bias:
Ratios are only a means of financial analysis. They have to be interpreted and different
people may interpret the same ratio in different ways.

Page | 62 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020

Review of Literature

Vinothkumar and bhawnamalhothra (2017) attempted has been made Evaluate the
performance and financial soundness of selected private sector banks in India for AXIS
Bank is ranked first under the camel analysis followed by ICICI bank. Kotak Mahindra bank
occupied the third position. The fourth position occupied by HDFC bank and the last position is
occupied by Indusland bank amongst all the selected banks.

Taqi and Mustafa (2018) analysed the Growth and performance of Punjab National
Bank and HDFC bank for the period 2006-2007 to 20152016. They made quantitative analysis
and found that PNB is more financially sound that HDFC but in context of deposits and
expenditure HDFC has better managing efficiency.

Jyotirmoykoley (2019), the study titled`` Analysis of financial position and

performance of public and private sector banks in India: A comparative study on SBI and
HDFC bank’’. In this study concluded that total 16 ratios have been measured under camel
model, the average result of HDFC bank is best in 14 cases. So, it is established that largest
private sector bank HDFC bank has better financial performance and efficiency compared to
largest public sector bank SBI.

Profile of HDFC

The Housing development finance corporation limited (HDFC) was amongst the first to
receive an ‘in principle’ approval from reserve bank of India (RBI) to set up a bank in the private
sector, as part of the RBI’s liberalization of the Indian banking industry in 1994. The bank was
incorporated in august 1994 in the name of ‘HDFC bank limited’, with its registered office in
Mumbai, India. HDFC bank commenced operations as a scheduled commercial bank in January
1995.

Research

A research is a systematic enquiry to describe, explain , predict and control the observed
phenomenon”.

Page | 63 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020

Importance of the Study

In this faster life of the world the man cannot drive well his life, without the help of the
banking services. It is necessary for us to deal with the operations of scheduled commercial
banks which influence the supply of money. Scheduled commercial banks play a vital role in
making the wheels if commerce, industry and agriculture etc., to move swiftly. Country’s
economic development depends upon the rate of savings, growth of industries. People’s standard
of living, innovations and rate of interest in the money market and these are influenced by banks
through their functions.

Banks have contributed greatly to the development of saving habits among people through
sustained publicity, branch banking and relatively prompt services to customers. Banks mobilize
the idle and dormant capital of the country and make it available for productive purpose. Now, it
is possible for unemployment eradication poverty alleviation programs thanks to the opening of
thousands of branches in the remotes areas enabling the poorest to get loans an very terms and
easy formalities.

Objectives of the Study

To find out the financial analysis of HDFC ltd for the period of five years, so to say, 2014-
2015 to 2018-2019.

Limitations of the Study

• The study period is limited only to five years between (2015 to 2019).
• In view of the limited period of study, the future scenario cannot be predicted accurately.
• The study mainly depends upon the data available in the bank records.
Research Methodology

Data Collection

This study is entirely based on secondary data. The reports are considered for the past five
years from 2014-2015 to 2018-2019 constitute, it is basis of the study. The gaps in the secondary

Page | 64 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
data were filled up from the official records. To supplement, the information have been collected
from related books, journals and internet. (i.e) official website of HDFC LTD.

Period of Study

This study covers the period of five years from 2015 to 2019 in ``HDFC BANK LTD’’.

Area of Study

The study was conducted among area of a long-term financial position of HDFC BANK
LTD.

Frame Work Analysis

Financial performance of the Housing Development Finance Corporation Limited (HDFC) has
been analyses with the help of ratio analysis.

Data Analysis and Interpretation

1. Fixed assets ratio
This ratio is called ratio of capital or long-term funds to fixed assets. It establishes the
relationship between fixed assets and long-term funds. The main purpose of calculating
this ratio is to find out the proportion of long-term funds invested in fixed assets. It is
calculated by using the following formula:

Formula: Fixed assets ratio= Net fixed assets

long-term funds

Page | 65 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
TABLE-1
FIXED ASSETS RATIO

(RS. IN CRORE)
S.No. Year Net-fixed assets Long-term funds Fixed assets ratio

1. 2014-2015 19094.91 62009.42 0.30

2. 2015-2016 38103.84 72677.77 0.52
3. 2016-2017 42229.82 89462.35 0.47
4. 2017-2018 36878.70 106295.00 0.34
5. 2018-2019 49173.95 149206.35 0.32
Source: Annual report of HDFC Bank ltd.

Inference:

The above table-1 shows that the fixed assets ratio for the year 2014-2015 was 0.30 percent
and for the year 2015-2016 it was 0.52 percent and for the year 2016-2017 is 0.47 percent,
followed by 0.34 and 0.32 percent for the years 2017-2018 and 2018-2019 respectively.

The ratio is high (0.52 percent) in the year 2015-2016 and low in the year 2014-2015 (0.30
percent) when compared with other years.

2. Proprietary ratio

This ratio is called `EQUITY RATIO’ or `OWNERS FUND RATIO’ or `NETWORTH

RATIO’ or `SHAREHOLDERS EQUITY RATIO’. This ratio points out relationship between
the shareholder funds and total tangible assets. The formula for this ratio may be written as
follows:

Formula for proprietary ratio

Proprietary ratio = Shareholders Fund

Total Tangible Asset

Page | 66 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
TABLE-2

PROPRIETARY RATIO

(RS.IN CRORE)
S.No. Year Shareholder Total tangible proprietary ratio
funds assets
1. 2014-2015 62009.42 587381.34 0.11
2. 2015-2016 72677.77 705502.41 0.10
3. 2016-2017 89462.35 860213.46 0.10
4. 2017-2018 106295.00 1060327.11 0.10
5. 2018-2019 149206.35 1240510.69 0.12
Source: Annual reports of HDFC Bank.

Inference

The above table-2 shows that the proprietary ratio for the year 2014-2015 was 0.11 percent
and for the year 2015-2016 it was 0.10 percent and for the year 2016-2017 is 0.10 percent,
followed by 0.10 and 0.12percent for the years 2017-2018 and 2018-2019 respectively.

The ratio is high (0.12percent) in the year 2018-2019 and low in the year 2017-2018 (0.10
percent) when compared with the other years.

3. Capital Gearing Ratio

This ratio is also known as ``Capital structure ratio’’ or ``leverage ratio’’ or

``capitalization ratio’’. It is one of the long-term solvency ratios. It is used to analyses the capital
structure of the company. It establishes relationship between fixed interest, dividend bearing
securities and equity shareholder funds. It can be calculated by using the following formula:

Formula for capital gearing ratio

Page | 67 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
Capital gearing ratio =

Preference share capital + debentures + long-term loans

Equity share capital + reserves and surplus

TABLE-3

CAPITAL GEARING RATIO

(RS. IN CRORE)
S.No. Year Fixed interest Equity share capital Capital gearing
bearing securities + reserves & ratio
surplus

1. 2014-2015 11254.75 62009.42 0.18

2. 2015-2016 48873.77 72677.77 0.67
3. 2016-2017 19469.84 89462.35 0.21
4. 2017-2018 34787.32 106295.00 0.32
5. 2018-2019 28696.99 149206.35 0.19
Source: Annual reports of HDFC Bank ltd

Inference:

The above table-3 indicates that the capital gearing ratio for the year 2014-2015 was 0.18
percent and for the year 2015-2016 it was 0.67 percent and for the year 2016-2017 was 0.21
percent, followed by 0.32 and 0.19 percent for the years 2017-2018 and 2018-2019 respectively.

The ratio is high (0.67 percent) in the year 2015-2016 and low in the year 2014-2015 (0.18
percent) when compared with other years.

Conclusion

The analysis and discussion in the preceding pages reveals that the HDFC bank are
financially viable and have adopted prudent policies of financial management.

Page | 68 Copyright ⓒ 2020 Authors

 Dogo Rangsang Research Journal UGC Care Group I Journal
ISSN : 2347-7180 Vol-10 Issue-07 No. 9 July 2020
The liquidity in a bank is what is blood in a human body. The bank should be in a position to
meet its liability holders as an when demand arises. Thus the appropriate mixture of liquid asset
is maintained in HDFC bank ltd. HDFC always tried its level best to perform financially well.
Finally, the researcher concluded that the HDFC bank ltd, financial performance is at
satisfactory level.

References

1) V. Krishnapriya, ‘Research methodology’.

2) Dr. R. Ramachandran, ‘Management accounting’.
3) Vinoth kumar and bhawnamalhotra(2017). ‘Evaluate the performance and financial soundness of
selected private sector banks in India’. A camel model analysis of private sector banks in India, EPRA
International journal of economic and business review, volume-5, Issue-7, Pg.No:87-93.
4) Taqi and Mustafa (2018), ‘Growth and performance of Punjab national bank and HDFC bank’. Financial
analysis of public and private sector banks of India. International academic journal of business
management, 5(1), Pg.No:26-47.
5) Jyotirmoykoley(2019), ‘Analysis of financial position and performance of public and private sector banks
in India: A comparative study on SBI and HDFC bank’. A multidisciplinary online journal of netaji
subhas open university, India. Vol.2 No.1 Jan 2019 NSOU- open journal ISSN: 2581-5415.

Page | 69 Copyright ⓒ 2020 Authors