UNIVERSITY OF MUMBAI

PROJECT ON

CORPORATE GOVERNANCE IN HDFC BANKING SECTOR

BACHELOR OF COMMERCE

BANKING AND INSURANCE

SEMESTER VI

(2023-2024)

SUBMITTED
In partial Fulfilment of the requirement for the Award of Degree of
Bachelor of Commerce- Banking & Insurance

SUBMITTED BY,
SIDDHI BHAGOJI LOKHANDE

ROLL NO-231024

UNDER GUIDANCE,
ASST. PROF. PRIYANKA BHATKAR
MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE & COMMERCE
PAREL, MUMBAI-400 012.
 MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE & COMMERCE
PAREL, MUMBAI – 400012.

CERTIFICATE

This is to certify that SIDDHI BHAGOJI LOKHANDE.

of B.Com (BANKING & INSURANCE) Semester V1

(2022- 2023) has successfully completed the project on

CORPORATE GOVERNANCE IN HDFC BANKING SECTOR

Under the guidance of ASST. PROF. PRIYANKA BHATKAR.

ASST. PROF. MARY VINI DR. KUNAL SONI

(PROJECT GUIDE) (COURSE CO-ORDINATOR)

EXTERNAL EXAMINER DR. MS C.S. PANSE

( PRINCIPAL)
 DECLARATION

I SIDDHI BHAGOJI LOKHANDE, the student of B.Com (BANKING &

INSURANCE) Semester VI (2022-2023) has declare that I have completed the Project
on CORPORATE GOVERNANCE IN HDFC BANKING SECTOR .”
The information submitted is true and original to the best of my knowledge.

Signature of student
Name of Student

SIDDHI BHAGOJI LOKHANDE

231024
 ACKNOWLEDGEMENT

The college, the faculty, classmates & the atmosphere, in the college were
all the favorable contributory factors right from the point when the topic
was to be selected till the final copy was prepared. It was a very enriching
experience throughout the contribution from the following individuals in
the form in which it appears today. We feel privileged to take this
opportunity to put on record my gratitude towards them.
Course Coordinator Dr. KUNAL SONI made sure that the
resource was made available in time & also for immediate
advice & guidance throughout making the project. The
principal of our college Dr. C.S PANSE has always been
inspiring and driving force.
 EXECUTIVE SUMMARY

Corporate Governance refers to the way a corporation is governed. It is the technique by

which companies are directed and managed. It means carrying the business as per the
stakeholders' desires. It is actually conducted by the board of Directors and the concerned
committees for the company's stakeholder's benefit. It is all about balancing individual
and societal goals, as well as, economic and social goals

The main objective of this project is to introduce about the corporate governance and how
the corporate governance workout in the Indian Banking Sector. This project would also
provide fundamental concepts to understand about the corporate governance and Indian
Banking System. The project covers emergence of the concept of corporate governance,
the manner in which it is relates with banking sector, its various issues, constituents and
how it is being implemented in the banking sector. The focus mainly on some specific
aspects of codes of corporate governance and is application in the banking sector.

Though outcomes of good corporate governance remains same irrespective of nature of

business, type of ownership, quality of management, business/legal regulations, and
political environment, but the means to achieve this good governance differs a lot based
on the factors mentioned above. Some of the parameters that may influence corporate
governance include ownership structure, board philosophy, industry segment, and
maturity of business, management process, level of competition, international business
participation, and size of the company.

Corporate Governance is the interaction between various participants (shareholders,

board of directors, and company's management) in shaping corporation's performance and
the way it is proceeding towards. The relationship between the owners and the managers
in an organization must be healthy and there should be no conflict between the two. The
owners must see that individual's actual performance is according to the standard
performance. These dimensions of corporate governance should not be overlooked.

Lot of effort is being put both nationally and internationally in understanding and
suggesting good practices that can improve governance of banking sector. In India also
several initiatives have been taken up in understanding nuances of banking sector
governance.
 INDEX

Sr. No Topic Page No.

1 INTRODUCTION 1-11
1.1 EVOLUTION OF CORPORATE GOVERNANCE IN 3-4
BANKING SECTOR

1.2 NEED OF CORPORATE GOVERNANCE IN BANKS 5

1.3 THE ADVANTAGES OF CORPORATE 6

GOVERNANCE IN BANKS

1.4 IMPORTANCE & ROLE OF CORPORATE 7

GOVERNANCE IN BANKING SECTOR

1.5 CHALLENGES CORPORATE GOVERNANCE IN 8-9

BANKS
1.6 MEASURES TAKEN BY RBI FOR 10-11
IMPLEMENTATION OF CORPORATE
GOVERNANCE NORMS IN BANKS

2 LITERATURE REVIEW 12-14

3 COMPANY PROFILE 15-32

4 RESEARCH METHODOLOGY 33

4.1 DATA COLLECTION METHOD 33

4.2 RESEARCH DESING 34

4.3 SAMPLE DESIGN & SIZE 34

4.4 SAMPLE SIZE 33-35

5 DATA ANALYSIS, INTERPRETATION 36-47

6 CONCLUSION 48

7 BIBILIOGRAPHY 50

8 ANNEXURE 51-52
 INTRODUCTION

Corporate governance is the acceptance by management of the inalienable rights of

shareholders as the true owners of the corporation and of their own role as trustees on behalf
of the shareholders. It is about commitment to values, about ethical business conduct and about
making a distinction between personal and corporate funds in the management of a company.
Corporate governance deals with laws, procedures, practices and implicit rules that determine
a company's ability to take managerial decisions through its claimants-in particular, its
shareholders, creditors, customers, the State and employees. Good corporate governance
involves a commitment of a company to run its businesses in a legal, ethical and transparent
manner a dedication that must come from the very top and permeate throughout the
organization. That being so, much of what constitutes good corporate governance has to be
voluntary. Law and regulations can, at best, define the basic framework-boundary conditions
that cannot be crossed. Although "corporate governance" still remains an ambiguous and
misunderstood phrase, particularly in India. There is no unique structure of "corporate
governance" in the developed world; nor is one particular type unambiguously better than
others. Thus, one cannot design a code of corporate governance for Indian companies
mechanically importing one form or another as some of the Indian corporate houses thinks to
do and Indian corporates can no longer afford to ignore better corporate practices. As India gets
integrated in the world market, Indian as well as international investors will demand greater
disclosure, more transparent explanation for major decisions and better shareholder value.
Corporate governance is the system of rules, practices and processes by which a firm is directed
and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management, customers, suppliers,
financiers, government and the community. Since corporate governance also provides the
framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to corporate disclosure. Performance
measurement corporate disclosure.
Though outcomes of good corporate governance remains same irrespective of nature of
business, type of ownership, quality of management, business/legal regulations, and political
environment, but the means to achieve this good governance differs a lot based on the factors
mentioned above. Some of the parameters that may influence corporate governance include
ownership structure, board philosophy, industry segment, and maturity of business,
management process, level of competition, international business participation, and size of the
company. Lot of effort is being put both nationally and internationally in understanding and
suggesting good practices that can improve governance of banking sector. Separation of
Ownership and Management: There is a distinction between those who have ownership of the
company and those who control its affairs. The management runs the operations of the
company without being individually responsible for providing finance. Limited Liabilities of
the Members: Limited liability with respect to share ownership confers an attractive option for
risk-averse investors who want to be part of the organization through their investment in share
capital. Ease of Transferability of Ownership: A shareholder can easily pass the risk of
ownership to others if he perceives that stocks of the company may lose value.

1
 1.1 Evolution of corporate governance in banking sector
There is complete uniformity now in the banking industry and the system therefore
ensures responsibility and accountability on the part of the management in proper accounting
of income as well as loan impairment. At the initiative of the regulators, banks were quickly
required to address the need for Asset Liability Management followed by risk management
practices. Both these are critical areas for an effective oversight by the Board and the senior
management which are implemented by the Indian banking system on a tight time frame and
the implementation review by RBI. These steps have enabled banks to understand measure and
anticipate the impact of the interest rate risk and liquidity risk, which in deregulated
environment is gaining importance, Prudential norms in terms of income recognition, asset
classification, and capital adequacy have been well assimilated by the Indian banking system.
In keeping with the international best practice, starting 31st March 2004, banks have adopted
90 days norm for classification of NPAs.

In addition, norms governing provisioning requirements in respect of doubtful assets

have been made more stringent in a phased manner. Beginning 2005, banks will be required to
set aside capital charge for market risk on their trading portfolio of government investments,
which was earlier virtually exempt from market risk requirement. All the Indian banks barring
one today are well above the stipulated benchmark of 9 per cent and remain in a state of
preparedness to achieve the best standards of CRAR as soon as the new Basel 2 norms are
made operational. Reserve Bank of India has taken various steps furthering corporate
governance in the Indian Banking System. These can broadly be classified into the following
three categories: Transparency, Off-site surveillance and Prompt corrective action. However,
there are many gaps in the disclosures in India the international standards, particularly in the
area of risk management strategies and risk parameters, risk concentrations, performance
measures, component of capital structure, etc. Hence, the disclosure standards need to be
further broad- based in consonance with improvements in the capability of market players to
analyses the information objectively. The off-site surveillance mechanism is also active in
monitoring the movement of assets, its impact on capital adequacy and overall efficiency and
adequacy of managerial practices in banks. RBI also brings out the periodic data on "Peer
Group
Comparison" on critical ratios to maintain peer pressure for better performance and
governance. There are three major challenges facing governance ratings in India: Firstly there
does not seem to be a clear objective in relation to the capital markets. The second challenge is
that there is insufficient accumulated knowledge on corporate governance and a great amount
of fluidity in the theory at present and the third challenge is to assign weightings to the
companies in the context of global markets. The rating agencies need to reflect on these while
the regulatorrefrains from putting pressure to initiate a rating system for corporate governance.

The RBI Advisory Committee on Corporate Governance has defined Corporate Governance as
"the system by which business entities are monitored, managed and controlled. The Board of
Directors occupies a pivotal place in the scheme of Corporate Governance". The advisory group
on banking supervision"

1. As representatives of various stakeholders, it is the moral responsibility of Board

of Directors to ensure that the company does not undermine moral and ethical
issues in the lure of profits.
2. It is imperative for the Board to keep itself aware of the happenings in the
company rather than performing perfunctory duties.
2
3. Through its various committees, the board should keep its fingers on the pulse
of the activities besides inspecting the activity of the company. The audit
committee, compensation committee, nominations committee, credit committee,
risk management committee are the various sub-groups of the board that ensure
that the company sticks to the corporate governance mechanisms.

4. The Board is accountable for the action of the company. It act as a governing
body that controls and channelizes the resources into productive and morally right
ways. It is the responsibility of the Board to ensure that proper governance
practices are in place in the company. It has to keep track of the going on in the
company through active involvement at the strategic and policy-making levels.

5. The existence of outside independent directors enables the board to make an

objective evaluation of company's activities. Their position as members of the
board gives them access to information which will not be otherwise available to
outsiders. The independent directors are in a better position to stipulate a course
of action. To increase the effectiveness of directors some of the experts have
suggested the insurance of these directors for the risk they take in providing
guidance or taking certain decisions.

6. The board has the duty to ensure that the management performs its duties with
regard to day-to-day affairs within legal, moral and ethical bounds.

7. Board is not to act as a kind of director. It should set goals for itself and evaluate
its performance. It will set an example for other to follow.

8. Board should be broad based. The directors should bring independent judgment
to bearon issues of strategy, performance, resource planning and standards of
conduct. They should be conversant with the banking business.

9. The board should have following committees, namely, audit committee,

compensation committee, nominations committee, credit committee, risk
management committee.

10. There should be an agreed procedure for directors to seek professional advice
where considered necessary.

3
 1.2 NEED OF CORPORATE GOVERNANCE IN BANKS

Banks and development financial institutions of India, particularly DFI's have

important role in governance of companies and where they have their nominee directors.
The role of these nominee directors is to protect the interest of the institution and also
as a member of the board be responsible as any other director. However, in certain
instances where irregularities have been detected, the role of nominee directors has
attracted attention, however, it is felt in general that theses nominee directors have a duty
to act in the larger public interest. Banking is clearly a very special sub-set of
corporate governance with much of its management obligations enshrined in law or
regulatory codes. Governance is also a curiously two-side issue for banks since their
funding and, often, ownership of other companies makes them a significant
stakeholder in their own right. Governance in bank is a considerably more complex
issue than in:-

Most countries including members of the International Monitory Fund [IMF]

have experienced problems within their Banking community from time to time. The fact
that these problems can still occur after the Most countries including members of the
International Monitory Fund [IMF]have experienced problems within their Banking
community from time to time. The fact that these problems can still occur after the
introduction and indeed implementation of both national and international standards and
regulation gives the subject of corporate governance of banks crucial importance.

It is necessary to have a clear idea, to anyone in financial management, whether

micro or macro and interest in good market practice that banks are extremely
important for development of a successful economy: indeed the corporate governance
of such institution is integral to that development.

Banks are in unique position of effectively collecting a allowing the use of fund in
given manner of enterprise. Where such funds are used in proper and consistent
manner,this can lead to stable market, lower the cost of capital and accordingly stimulate
growth in an economy as whole.
Corporate Governance Guidelines to the bankers [i.e. directors and senior
management of the banks] to allocate capital efficiently, to expert good and effective
Corporate Governance in their own institutions and also to promote good practices for
their customers. This ultimately helps to generate built in discipline in the relations bank
and their customers.

Corporate Governance provides proper attention towards weak or improper

supervision of banks which can have the disproportionate effect of destabilizing a
county's economy and indeed reducing market confidence.

Corporate governance check on the various banking crises which are reasons for
crippling economies, destabilized governments and in a macro sense, held back the
development of less sophisticated economies and emerging nations and this results in
intensified poverty.

4
 1.3 The Advantages of Corporate Governance in Banks

The potential of Corporate Governance to propel a business to greater commercial

success is not generally well known. When you speak to those in business about how
Corporate Governance works, you often get vague responses relating to policy, systems
and processes that are established in an organization. But that explanation does not do
justice to the subject of Corporate Governance If a business is determined to grow to
specially in the especially in the current lack lustre business environment) then they
should seriously think about introducing proper Governance into their organization.

1. Role clarity for the owners and management team: Governance permits
managers and owners to delineate their roles and separate the issues of
ownership (shareholding) from the management of the business. This usually
facilitates faster decision making as it allows managers and owners to choose
which 'hat' towear depending on the issue or matter at hand.

2. Purposeful strategic direction: Corporate Governance relies on the company

defining and following a definitive strategic direction. This enables the owners
and/or management to apply the right resources to the most beneficial
opportunities. In turn this typically leads to the quicker achievement of company
goals, while minimizing wasted resources on less important activities.

3. Retention of staff: Corporate Governance in banks motivation increases when

employees/staff are part of a business that has a well-defined and communicated
vision and direction. This can improve staff retention which can become
especially important when it comes to attracting and retaining senior talent.

4. Improved relationships with the bank: Corporate Governance enables robust and
regular financial and management reporting. The resulting systematic approach
to producing data will foster confidence in your business from your
funders/banks as well as your investors. Improved access to capital can be another
flow-on benefit from sound Corporate Governance.

5. Improvement in profitability: Governance often leads to improved reporting on

performance. This means managers and owners are better equipped to make
higher quality decisions that can drive an increase in sales and margins and a
reduction in costs.

5
 1.4 Importance & Role of corporate governance in Banks

Governance has always been a significant factor for the growth of the economy and
strengthening the banking and corporate sector. The resources are utilized to their
maximum limit, it flows to the sectors where the entities where there is an adequate
production of the services which fulfils the demands of the stakeholders. Corporate
Governance has been the most useful and efficient framework by the best board of
directors on the board to govern the use of the resources and reducing spoilage.

Different Countries have different corporate governance for their banks. The Basel
Committee was formed in 1999 to dignify the diversity in the corporate governance
mechanism globally. This Committee was also formed in 1997 and 1998. This
Committee provided mainly four important forms to be included in the organizational
structure of any bank for proper functioning: the corporate values, codes of conduct and
other standards of appropriate behavior and the system used to ensure compliance with
them. These are listed as follow;

A proper and regular surveillance by the Board of Directors and Supervisory Board.
The clear assignment of responsibilities and decision-making authorities,
incorporating a hierarchy of required approvals from individuals to the board of
directors.
A direct business line supervision of different business areas. A well-defined corporate
strategy against which the success of the general enterprise and also the contribution
ofpeople will be measured.
Surveillance by the individual not involved in day-to-day business areas. A special
monitoring of risk exposures where conflicts of interest are likely to be particularly
great, including business relationships with borrowers affiliated with the bank, large
shareholders, senior management, or prime decision-makers within the bank.
Independent risk management and audit functions. The establishment of a proper
mechanism for the interaction and cooperation among the board of directors, senior
management, and therefore the auditors.
The committee also focuses on the importance of the personnel being fit and proper for
their job by transmitting the flow of information both internally and to the general
public.
The financial and managerial incentives to act in an appropriate manner are offered to
senior management, product line management and employees within the variety of
compensation, promotion, and other recognition.

6
 1.5 CHALLENGES CORPORATE GOVERNANCE IN BANKS

There are several reasons for the absence of sufficient corporate governance
mechanism in the Indian banking sector:

1. Multiplicity of regulations: Banks are governed by multiple enactments. For

instance, private banks are governed both by the companies Act, 1956 and the
banking companies' regulation Act and Bank nationalization Act, 1969 [amended
in 1982]. The state Bank of India and its associates are governed by the state Bank
of India Act, 1955[amended in 1997]. The Regional Rural Banks are regulated by
RRB Act, 1975, the co-operative banks by cooperative banking regulation Act,
1949 and Banking Laws [cooperative societies] Act, 1965. The RBI advisory
group has opined that all the banks should be brought within the purview of a
single act which prescribes the various practices to be followed by one and all.

2. Lack of synchronization among various corporate various corporate

governance norms: Three different committees in India have dealt with the
subject of corporate governance. These are: the Kumar Mangalam Birla
committee report, 2000 that had been constituted by SEBI; CH Report, 1998 and
the RBI Advisory Committee Report,2001. There is no synchronization of the
regulations. Each Report has dwelt on specific issues. It would be better if a
common code is prescribed after harmonizing the recommendations of various
committees.

3. Mix-up between ownership role and regulatory role: In most of the financial
institutions, the RBI has been a majority shareholder as well as regulator.
Narsimhan committee on banking reforms raised the question as to whether
regulator should be owners in the context of State Bank of India. Recently RBI
has vacated its majority ownership role in Securities Trading Corporation of
India Ltd. And discount and Finance House of India and is in the process of
divestment. There is also no justification for a regulator like RBI to be represented
on process of divestment. There is also no justification for a regulator like RBI
to be represented on the board of those regulated.

4. Mismatch between ownership pattern and board level representation:

previously, when government used to be the majority shareholder in many of
the financial institutions, it could have a majority representation on its board,
with diversified ownership, private shareholders have begun to be given board
level representation. But private shareholders representation is not
commensurate with the extent of their shareholding. For instance, even with the
40 per cent shareholding private shareholders ‘representation on the board may
not exceed 10to 15 per cent of the total board membership.

5. Lack of transparency in selection of board members: It is anybody's guess as

to what are the considerations that weigh in government's mind in making
boardlevel appointments. To have truly professional directors, there should be a
process of transparent search.
7
 6. Board accountability: Accountability of directors in public sector banks is
another aspect on which processes have to be put in the place. Directors must
be made aware.

as to what they are expected to do on the board. Their actual performance should be
monitored and kept in view while reappointing them.

7. Lack of timely appointment of directors: sometimes, it takes a number of years

for the government to reconstitute the board of some of the public sector banks.

8. Political boards: Very often, board level appointments in financial institutions

are based on political considerations. Board appointments must remain stable
and unaffected by political developments. In many cases, whole of the board has
got replaced overnight.

Benefits of Corporate Governance:-

 Good corporate governance ensures corporate success and Economic growth.

 Strong corporate governance maintains investors' confidence, as a result of

which, company can raise capital efficiently and effectively.

 It lowers the capital cost.

 There is a positive impact on the share price.

 It provides proper inducement to the owners as well as managers to achieve

objectives that are in interests of the shareholders and the organization.

 Good corporate governance also minimizes wastages,

corruption, risks and mismanagement.

 It helps in brand formation and development

 It ensures organization in managed in a manner that fis the best interests o of all

8
 1.6 MEASURES TAKEN BY RBI FOR IMPLEMENTATION OF
CORPORATE GOVERNANCE NORMS IN BANKS

Corporate governance are the policies, procedures and rules governing the
relationships between the shareholders, (stakeholders), directors and managers in a
company, as defined by the applicable laws, the corporate charter, the company's
bylaws, and formal policies.

Primarily it is about managing top management, building in checks and balances

to ensure that the snoop' for executives pursue strategies that are in accordance with the
corporate mission. It consists of a set of processes, customs, policies, laws and
institutions affecting the way of a corporation is directed, administered or controlled.
Corporate governance governs the relationship among the many players involved (the
stakeholders) and the goals for which the corporation in governed.

Series of efforts being made by two independent regulatory bodies in a last few
years to accomplish harmonium of regulations policies and guidelines made applicable
to the regulated entities. RBI has advised, on the suggestion from the SEBI that the
Indian commercial banks (both public & private sector). Which are listed on the stock
exchanges should adopt the guidelines of SEBI committees on corporate governance.
They are as follows:

A] Optimum combination of executive and non-executive directors in the board.

B] Pecuniary relationship or transactions of the non-executives directors vis- à-vis the

bank

C] Independent adult committees, chairmanship, power, role & responsibilities

conduct of business etc.

D] Remuneration of directors, Periodicity/no. of board meetings if Disclosure by

management to the board about the conflict of interest

G) Information reappointments of directors, display the quarterly results

presentations to analysis on websites. Maintenances of office by non-
executivechairman.

Reviewing with the management by the audit committee of the board the annual
financial statement before submission to the board, focusing primarily on:

 Any changes in accounting policies and practices

 Major accounting entities based on exercise the judgment of managements.

 Qualifications in draft audit report

 Significance adjustments arising out of audit compliance with standards

9
H] The audit committee of the board may look into the reasons for default in payments
to deposits debenture shareholders (Non Payment of dividend) & creditors wherever
there are cases of default s in payment.

SEBI Committee's recommendations on other additional functions to be interested

to the audit committee complied with by the listed banks as per listing agreements.

I] As regards the appointment and removal external auditors, the practice followed in
banks is more stringent that the recommendations of the committee and hence will
continue as it is.
With the view to further improve corporate governance standards in banks, the
following new measures are recommended:

J] In the interest of the stakeholders, the private sector and public sector banks which
have issued shares to the public may form committees on the same lines as listed
companies under the chairmanship of non- executive director to look into redressal of
shareholders complaints.

All listed banks may provide in audited financial results on half yearly banks to their
shareholders with summary of significant development.

10
 2. LITERATURE REVIEW

A literature review is a description of the literature relevant to a particular field

or topic. It gives an overview of what has been said, who the key writers are, what are
the prevailing theories and hypotheses, what questions are being asked and what
methods and methodologies are appropriate and useful. As such, it is not in itself
primaryresearch, but rather it reports on other findings.

A literature review may be purely descriptive, as in an annotated bibliography or

it may provide a critical assessment of the literature in a particular field, stating where
the weakness and gaps are, contrasting the views of particular authors or raising
questions. Such a review will not be just summary but will also evaluate and show
relationships between different materials, so that key themes emerge. Most often
associated with academic-oriented literature, such as these, a literature review usually
precedes a research proposal and results section. A well-structured literature review is
characterized by a logical flow of ideas, current and relevant references with
consistent, appropriate referencing style, proper flow of terminology and an unbiased
and comprehensive view of the previous research on the topic. This chapter aims to
providea general overview of the literature relevant to this thesis.

The Internet is the driving force behind the new global economy, with Internet
Banking allowing banks to revolutionize services and giving their customers more
options than even before. This is because so many banks world-wide have launched
Internet sites in the last few years, banks can no longer differentiate themselves by
merely having an Internet presence. Online services such as Internet banking
transactions, online credit card applications and online bill payment are becoming the
global industry standard. To differentiate themselves in the future, banks will need to
continuously evolve such services to better meet customer’s needs, capitalizing on
newtechnologies to build stronger customer relationships.

1. Holmstrom (1982), however, presents a model where concerns with reputation

are not sufficient to drive agency costs to zero. Holmstrom and Costa (1986) go
even further as they suggest that manager’s career concerns may actually lead
them to behave against shareholders ‘interests.

2. John and Senbet (1998) propose the more comprehensive definition that
"corporate governance deals with mechanisms by which stakeholders of a
corporation exercise control over corporate insiders and management such that
their interests are protected (p. 372)". They include as stakeholders not just
shareholders, but also debt holders and even non-financial stakeholders such as
employees, suppliers, customers, and other interested parties. Hart (1995) closely
shares this view as he suggests that "corporate governance issues arise in an
organization whenever two conditions are present. First, there is an agency

11
 problem, or conflict of interest, involving members of the organization these
might be owners, managers, workers or consumers. Second, transaction costs
are such that this agency problem cannot be dealt with through a contract (p.
678)".

3. Agrawal and Knoeber (1998) observe that takeover threat has two opposing
effects on compensation. The first is a competition effect in the market for
managers, which results in less capability for managers to extract higher wages.
The second is a risk effect, which leads, in contrast, to increased compensation
as higher takeover threat is likely to result in an increased probability of firm-
specific human capital loss or implicitly deferred compensation.

4. Lin and McNichols (1998) present results suggesting that underwriting

relationships may hamper the potential monitoring role of financial analysts.
They find that lead and co-underwriter analyst’s forecasts are significantly
more favorable than those made by unaffiliated analysts although their earnings
forecasts are not generally greater.

5. Bhagat and Black (2000) agreed with Agrawal and Knoeber (1996) and showed
in their study that independence of board of directors does not help achieve
improved profitability because of increase in agency and monitoring costs
consistent with Coleman et al. (2005) and Miller (2009). These studies are
inconsistent with other studies which showed that shareholder activism, large
institutional shareholders, and independent board of directors can help a
corporation achieve improve performance (Ferri & Sandino, 2009; Othman,
Ponirin. &Ghani,2009). The theory is that institutional investors do not fear risk-
taking because they hold diversified portfolios that allow them to spread risks. As
a result they are more willing to investing corporations that pursue investment
strategies that seek to minimize risk and maximize returns.

12
 3. Company Profile

The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set
upa 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.

HDFC Bank comprises of a dynamic and enthusiastic team determined to accomplish the
vision of becoming a World-class Indian bank. HDFC bank" s business philosophy is
based on our four core values - Customer Focus, Operational Excellence, Product
Leadership and People. They believe that the ultimate identity and success of their bank
will reside in the exceptional quality of people and their extraordinary efforts. They are
committed to hiring, developing, motivating and retaining the best people in the
industry.

3.1 Board of Directors

The Composition of the Board of Directors of the Bank is governed by the Companies
Act, 1956, the Banking Regulation Act, 1949 and the fisting requirements of the Indian
Stock Exchanges where securities issued by the Bank are listed The Board has strength
of 12, Directors as on March 31, 2008, All Directors other than Mr. Aditya Puri, Mr.
Harish Engineer and Mr. Paresh Sukthankar ure non-executive directors The Bank has
five independent directors and seven non-independent directors The Board consists of
eminent persons with considerable professional expertise and experience in banking,
finance, agriculture, small scale industries and other related filed.

HDFC is a professionally managed organization with its Board consisting of eminent

persons, professionals who represem various segments including finances, taxation,
construction and urban policy & development. The Board primarily focuses on strategy
formulation, policy and coral designed to deliver increasing value to the various
stakeholder.

Mrs. Shyamala Gopinath holds a Master's Degree in Commerce and is a CAIIB. Mrs.
Gopinath has over 39 years of experience in financial sector policy formulation in
different capacities at RBI. Mrs. Gopinath is a member of the following Committees
ofthe Board of the Bank.
13
Audit Committee

Registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled

Commercial Bank in January 1995.

Nomination and Remuneration

Committee Risk Policy and Monitoring

Committee Customer Service

Committee (Chairperson) Fraud

Monitoring Committee (Chairperson)

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.

3.2 MISSION STATEMENT OF HDFC BANK

 World Class Indian Bank.

 Benchmarking against international standards.

 To build sound customer franchises across distinct businesses

 Best practices in terms of product offerings, technology, service levels, risk

management and audit & compliance

3.3 VISION STATEMENT OF HDFC BANK

The HDFC Bank is committed to maintain the highest level of ethical standards,
professional integrity and regulatory compliance. HDFC Bank’s business philosophy is
based on four core values such as:-

1. Operational excellence.

14
 2. Customer Focus.

3. Product leadership.

4. People

The HDFC Bank plus and the investment advisory services programs have been designed
keeping in mind needs of customers who seeks distinct financial solutions, information
and advice on various investment avenues.

BUSINESS STRATEGY

➤ Increasing market share in India’s expanding banking

➤ Delivering high quality customer service

➤ Maintaining 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.

3.4 NETWORK DISTRIBUTION

HDFC Bank is headquartered in Mumbai. As of December 31, 2023, the Bank’s

distribution network was at 8,086 branches across 3,836 cities. Customers across India
are serviced through multiple delivery channels such as Phone Banking, Net Banking,
Mobile Banking, and SMS based banking. The Bank's expansion plans take into account
the need to have a presence in all major industrial and commercial centers, where its
corporate customers are located, as well asthe need to build a strong retail customer
base for both deposits and loan products. Being a clearing / settlement bank to various
leading stock exchanges, the Bank has branches in centres where the NSE / BSE have
astrong and active member base. The Bank also has a network of 18,089 ATMs across
India. HDFC Bank's ATM network can be accessed by all domestic and international
Visa / MasterCard, Visa Electron / Maestro, Plus / Cirrus and American Express
Credit/ Charge cardholders.

Technology

HDFC Bank has embarked on a transformative path, aspiring to be a “Technology

company with a banking license”. Adoption to state-of-the-art information technology
and communication systems along with leveraging emerging technologies and
automation in key areas has been fundamental to empower this transformation.
15
 We conduct our operations in a highly efficient manner at our Tech competency centres
at the back end to deliver a seamless experience to our customers at the front-end. For
smoother end user operation and enhanced availability, all branches have been
equippedwith online connectivity giving multi-branch access to our customers through
branch network and Automated Teller Machines (ATMs).

We are constantly evolving and upgrading to acquire the best-in-class technology

available internationally making us truly a world class bank.

Our core banking systems are powered by Flex cube for corporate banking and Fin ware
for retail banking. The systems are open, scalable and web enabled.

At HDFC Bank, we strive towards making banking simple through seamless, neo-
banking experiences. Each of our businesses are focused with a domain-led expertise to
develop new digital products and services for our customers which will usher in the
next wave of digital banking.

What has been achieved by the bank:-

Delivered double-digit deposit and assets growth of 20%+ CAGR; faster

than thebanking sector

Best in class branch productivity, people productivity, balance sheet

productivity and
asset quality.

Low credit cost; allows investments for future through enhanced

distribution and digitisation.

Low and stable GNPAS throughout the credit cycles (0.9% -1.3%)

ROA has consistently ranged -1.9%- 2.1%; one of the highest across banks in
India.

16
3.5 PROMOTER

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
a 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.

QUALITY POLICY

SECURITY: The bank provides long term financial security to bank does this by
offering life insurance and pension products. Their policy. The

TRUST: The bank appreciates the trust placed by their policy holders in the bank.
Hence, it will aim to manage their investments very carefully and live up to this trust.

INNOVATION: Recognizing the different needs of our customers, the bank offers a
range of innovative products to meet these needs

BUSINESS

HDFC Bank offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business
segments.

Wholesale Banking Services the Bank's target market ranges from large, blue- chip
manufacturing companies in the Indian corporate to small & mid-sized corporates and
agri- based businesses. For these customers, the Bank provides a wide range of
commercial and transactional banking services, including working capital finance, trade
services, transactional services, cash management, etc. The bank is also a leading
provider of structured solutions, which combine cash management services with vendor
and distributor finance for facilitating superior supply chain management for its
corporate customers. Based on its superior product delivery/service levels and strong
customer orientation, the Bank has made significant inroads into the banking consortia
of a number of leading Indian corporates including multinationals, companies from the
domestic business houses and prime public sector companies. It isrecognised as a
leading provider of cash management and transactional banking solutions to corporate
customers, mutual funds, stock exchange members and banks.

17
3.6 RETAIL BANKING SERVICES

The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world- class service and
delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile
Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC
Bank Plus and the Investment Advisory Services programs have been designed keeping
in mind needs of customers who seek distinct financial solutions, information and
advice on various investment avenues. The Bank also has a wide array of retail loan
products including Auto Loans, Loans against marketable securities, Personal Loans
and Loans for Two-wheelers. It is also a leading provider of Depository Participant
(DP) services for retail customers, providing customers the facility to hold their
investments in electronic form. HDFC Bank was the first bank in India to launch an
International Debit Card in association with VISA (VISA Electron) and issues the
MasterCard Maestro debit card as well. The Bank launched its credit card business in
late 2001. By March2010, the bank had a total card base (debit and credit cards) of over
14 million. The Bank is also one of the leading players in the "merchant acquiring"
business with over 90,000 Point-
of-sale (POS) terminals for debit/credit cards acceptance at merchant establishments. The
Bank is well positioned as a leader in various net based B2C opportunities including a
wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

TREASURY
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the
liberalisation of the financial markets in India, corporates need more sophisticated risk
management information, advice and product structures. These and fine pricing on
various treasury products are provided through the bank's Treasury team. To comply
with statutory reserve requirements, the bank is required to hold 25% of its deposits in
government securities. The Treasury business is responsible for managing the returns
and market risk on this investment portfolio.

ORGANIZATION OBJECTIVES & GOALS

 To develop close relationships with individuals households.

 To maintain its position as the premier housing finance institution in the country.

 To transform ideas into variable and creative solutions.

 To provide consistently high returns to shareholders.

 To grow through diversification by leveraging off the existing client base.

18
3.7 CURRENT SITUATION OF THE BANK:

HDFC Bank is one of India's leading banking and financial services institutions. Its
mission is to be a world-class Indian bank, and it provides a wide range of services in
wholesale and retail banking, including commercial, investment, transactional and
branch banking.

HDFC Bank today has more than 3.25 million customers. On the wholesale services
front, it is recognized as a leading provider of cash management and transactional
banking solutions to corporate customers, mutual funds, stock exchange members and
banks.

Increasing revenue in the face of fierce competition HDFC Bank was among the first
privatized banks to be set up in India after the liberalization of the Indian banking
industry. Today it is among several banks vying for the customers who have not
experienced the benefits of private banking. In a fiercely competitive market place, the
bank knows that growing its bottom-line is dependent largely on increasing returns from
existing customers, while adding new customers to its portfolio.

Capital Structure:

As on 31-March-2023, the authorized share capital of the Bank is ₹ 650 crore. The
paid- up share capital of the Bank as on the said date is ₹ 557,97,42,786 comprising
of 557,97,42,786 equity shares of the face value of ₹ 1/- each. The HDFC Group
holds 20.87% of the Bank's equity and about 18.43% of the equity is held by the ADS
Depositories in respect of the Bank's American Depository Shares (ADS).
Further, 26.30% of the equity is held by Foreign Institutional Investors (FIIs) and the
Bank has 22,90,092 shareholders.

The shares are listed on the BSE Limited (BSE) and The National Stock Exchange of
India Limited (NSE). The Bank's American Depository Shares (ADS) are listed on the
New York Stock Exchange (NYSE) with symbol 'HDB'.

19
FUTURE PLANS:

HDFC has always been market-oriented and dynamic with respect to resource
mobilization as well as its lending programmer. This renders it more than capable to
meet the new challenges that have emerged. Over the years, HDFC has developed a
vast client base of borrowers, depositors, shareholders and agents, and it hopes to
capitalizeon this loyal and satisfied client base for future growth,

HDFC has developed a network of institutions through partnerships with some of the
best institutions in the world, for providing specialized financial services. Each
institution is being fine-tuned for a specific market, while offering the entire HDFC
customer base the HDFC has developed a network of institutions through partnerships
with some of the best institutions in the world, for providing specialized financial
services. Each institution is being fine-tuned fora specific market, while offering the
entire HDFC customer base the highest standards of quality in product design, facilities
and services.

Times bank merger will give HDFC Bank a greater reach in terms of an expanded
network, which will touch 107 branches and an increased customer base. The bank has
also invested 26% each in the equity of computer age management services and ACSYS
system software India as strategic investment. While computer age is a well-established
player in the distribution of a range of mutual fund products, ACSYS is into developing
software that catersto distributors of financial products and mutual funds.

3.8 Service Quality In Banks:

In the days of intense competition, the banks are no different from any other consumer
marketing company. It has become essential for the service firms in general and banks
in particular to identify what the customer's requirements are and how those customer
requirements can be met effectively. In the days where product and price differences
are blurred, superior service by the service provider is the only differentiator left before
the banks to attract, retain and partner with the customers. Superior service quality
enables a firm to differentiate itself from its competition, gain a sustainable competitive
advantage, and enhance efficiency. The benefits of service quality include increased
customer satisfaction, improved customer retention, positive word of mouth, reduced
staff turnover, decreased operating costs, enlarged market share, increased profitability,
and improved financial performance. The construct of service quality has therefore
beena subject of great interest to service marketing researchers.

Service quality has been defined by various experts in various ways as: 'Service Quality
is the difference between customers' expectations for service performance prior to the
service encounter and their perceptions of the service received. According to Gefan
Service quality is the subjective comparison that customers make between the qualities
of service that they want to receive and what they actually get." Parasuraman says,
'Servicequality is determined by the differences between customer's expectations of services
provider's performance and their evaluation of the services they received. Service quality
20
is the delivery of excellent or superior service relative to customer expectations".
Service quality is recognized as a multidimensional construct. While the number of
dimensions often varies from researcher to researcher, there is some consensus that
service quality consists of three primary aspects: outcome quality, interaction quality,
and physical service environment quality. Outcome quality refers to the customer's
assessment of the core service which is the prime motivating factor for obtaining the
services (e.g. money received from ATM). Interaction quality refers to the customer's
assessment of the service delivery process, which is typically rendered via a physical
interface between the service provider, in person, or via technical equipment, and the
customer. It includes, for instance, the consumer's evaluation of the attitude of the
service providing staff. The physical service environment quality dimension refers to
the consumer's evaluation of any tangible aspect associated with the facilities or
equipment that the service is provided in/ with. It includes, for example, the physical
conditions of an ATM machine.

The most popular dimensions of service quality-features five dimensions: tangibles,

reliability, responsiveness, empathy, and assurance. The tangibles dimension
corresponds to the aforementioned physical environment aspect, the reliability dimension
corresponds to the service outcome aspect, and the remaining three represent aspects of
interaction quality. Both the costs and the revenue of firms are affected by repeat purchases,
positive word-of-mouth recommendation, and customer feedback. Moreover, there is strong
evidence that service quality has either a direct influence on the behavioral intentions of
customers and/or an indirect influence on such intentions, mediated through customer
satisfaction. RATER is an instrument that might be used to define and measure banking
service quality and to create useful quality-assessment tools.

The RATER may finally provide the following benefits to the HDFC bank:

1. It is the first approach to add and mix the customers" religious beliefs and cultural
values with other quality dimensions.

2. It provides for multi-faced analysis of customer satisfaction.

3. It links quality with customers" satisfaction and service encounter.

4. It provides information at several levels, already organized into meaningful

groupings.

5. It is a proven approach, which results in usable answers to meet customers" needs.

Banks managers can use the RATER model and its dimensions first to identify the
following issues:

21
 RESPONSIVENES

TANGIBILIT RELIABILITY

EMPATHY ASSURANCE

DIMENSIONS OF SERVICE
QUALITY

TANGIBILITY: This dimension deal with modem looking equipment and visual
appealing part of banks.

RELIABILITY: This dimension has a direct positive effect on perceived service D

quality and customer satisfaction in banking institutions. Banks must provide error free
service and secure online transactions to make customers feel comfortable.

RESPONSIVENESS: Customers expect that the banks must respond their inquiry
promptly. Responsiveness describes how often a bank voluntarily provides services that
are important to its customers. Researchers examining the responsiveness of banking
services have highlighted the importance of perceived service quality and customer
satisfaction

ASSURANCE: Customer expects that the bank must be secured and the behavior of
the employees must be encouraging.

EMPATHY: individual attention, customized service and convenient banking hours

are very much important in today" s service.

In order to achieve better understanding of service quality in banking sector, the

proposed five service quality dimensions are conceptualized to illustrate the overall
service quality of the banking in relation to customers" and providers perspective.

Banking was in the sector featuring medium goods and higher customer producer
interactions, since in banking, consumers and service providers interact personally and
the use of goods is at a medium level. Hence, in banking, where there are high customer-
22
Producer interactions, the quality of service is determined to a large extent by the skills
and attitudes of people producing the service.

3.9 Overview of the Merger with HDFC Ltd

Transaction Structure:

 HDFC Ltd. will merge into HDFC Bank

 Subsidiaries/ associates of HDFC Ltd. will become subsidiary/ associates of
HDFC Bank

Closing Timeline and Approvals:

 Expected to be completed in or around the 2nd quarter of fiscal year ending

2024.

 The Scheme has obtained the requisite ‘no-adverse observation’ letter and ‘no-
objection’ letter from the Indian stock exchanges, and the requisite approvals
from the Competition Commission of India and the Pension Fund Regulatory and
Development Authority. Additionally, the RBI has also issued its ‘no-
objection’letter to the Bank with regard to the Scheme

Major entities coming within the fold upon merger :

Company Main Business Shareholding

(31-Dec-2022)

HDFC Life Life Insurance 48.66%

Insurance Company
Limited
HDFC ERGO General Insurance 49.98%
General (including Health
Insurance Company Insurance)
Limited
HDFC Asset Investment 52.57%
Management Manager to
Company Limited HDFC Mutual
Fund
HDFC Credila NBFC - 100.00%
Financial Services Providing
Limited N Education Loans
for higher
education

23
 HDFC Capital Investment 88.24%
Advisors Limited Manager to
Alternative
Investments Funds
HDFC Sales Marketing, 100.00%
Private Limited distribution of
HDF Chome
loans, other
financial
products

3.10 SWOT ANALYSIS

STRENGTH

OPPORTUNITIES
SWOT WEAKNESS
ANALYSIS

THREAT

24
STRENGHT

Excellence performance in NEW MARKET: HUFC limited has built expertise at

entering view markets and success of them the expansion helped the organization to new
revenue stream and diversify the economic cycle risk to the markets it operates in.

Strong Distribution Network-AS HDFC is a old bank it had great hold on market and
a reliable distribution network that can reach to potential market.

Strong Dealer community-it has built a strong culture where dealer and distribution
not only promote the product but also invest I training the sales team so that they
easily communicate with the customer and explain them how he/she can enjoy
maximum benefit of the product.

High skilled work-force- huge investment done on the training program of the
employee and the work force. Automation of activities brought consistency of quality
- it has enabled the company to scale up and scale- down based on the demand
condition of markets Efficient free cash flow system-it has efficient free cash that
provide resourcein the and of the company to and new projects.

WEAKNESS

Low Rural Penetration: HDFC has low rural penetration in the rural area where it
needs to work on.

Low forecasting availability-it has low. Demand forecasting thus end up keeping
higher inventory both in-house and in channel.

Inefficient positing and unique quality of product-this lead to the high competition
on this segment by the competitor.

Low Investment in research and development -HDFC has low rate of Innovation than
other leading competitor it has come across as a mature firm looking forward to bring
out product based on tested features I the market. Limited success outside core business-
even though HDFC Bank is one of leading organization I its industry it has faced
challenges in moving to others product segment with its present culture.

25
Opportunities

The new tax assessment strategy: can essentially affect the method of working
together and can open new open door for set up players, for example, HDFC Bank
Limited to expand its productivity.

New patterns in the customer conduct: can open up new market for the HDFC Bank
Limited. It gives an incredible occasion to the association to fabricate new income
streams and differentiate into new item classes as well.

New ecological approaches - The new open doors will make a level battleground for
all the major parts in the business. It speak to an incredible open door for HDFC Bank
Limited to commute home its preferred position in new innovation and addition piece of
the pie in the new item class.

New clients from online channel - Over the previous few years the organization has
put immense amount of cash into the online stage. s speculation has opened new deals
channel for HDFC Bank Limited. In the following not many years the organization
can use this open door by knowing its client better and serving their necessities
utilizing large information investigation.

The new innovation gives an occasion to HDFC Bank Limited to rehearse separated
evaluating technique in the new market. It will empower the firm to keep up its reliable
clientswith extraordinary assistance and draw new clients through other worth situated
suggestions.

Monetary uptick and expansion in client spending following quite a while of

downturn and moderate development rate in the business, is an open door for HDFC
Bank Limited to catch new clients and increment its piece of the bank.

Opinion up of new business sectors due to government understanding - the reception

of new innovation standard and government alliance has given HDFC Bank Limited
anoccasion to enter another developing business sector.

26
Threat

The interest of the exceptionally beneficial items is occasion nature and any far-
fetched occasion during the pinnacle season may affect the productivity of the
organization in short to medium term.

No standard flexibly of imaginative items - Over the years the organization has built
up various items however those are frequently reaction to the improvement by different
players. Besides the gracefully of new items isn't customary subsequently prompting
high and low swings in the business number throughout timeframe. Rising crude
material can represent a danger to the HDFC Bank Limited productivity. Danger to
HDFC Bank Limited's item particularly in the developing business sectors and low
paymarkets.

Expanding pattern toward neutrality in the American economy can prompt

comparative response from other government hence adversely affecting the global
deals.

Extreme rivalry-Stable benefit has expanded the quantity of major parts in the
business over most recent two years which has squeezed productivity as well as on by
and large deals.

Lack of gifted labour force in certain worldwide market speaks to a danger to

consistent development of benefits for HDFC Bank Limited in those business sectors

Consensus views of Fund Managers on Key Sectors

Banking & Financial Services:

 Positive on large private sector banks, insurance companies and

select large NBFCs/HFCs.
 Expect strong credit growth to continue on back of economic recovery
 Steady margins (NIM), corporate asset quality holding up better, Banks
are well capitalized, well placed on technology front.
 Issues around Fund raise and some smaller banks with weaker deposit
franchise could get impacted negatively
 Reasonable valuations, but rising rates could play spoilsport

Information Technology:

 Cautious - Growth and margins both might moderate in few quarters as global
growth slows meaningfully

27
Consumer Sector:

 Cautiously optimistic - Volume growth has shown muted performance,

while gains have come due to better pricing gains. Gross margin
headwindshave eased.
 Organized players to gain market share as unorganized get hit by elevated
inflation.
 Valuations is some pockets are lower relative to their own historical
performance.
 Companies having higher urban dependence is expected to perform better.
Rural demand continues to remain slow but recent correction in
commodities to aid gross margins expansion. FMCG better than Durables.

Auto:

 Positive - Positive on select Passenger Vehicle OEMs which have a larger

part of the demand coming from urban consumers.
 Demand for vehicles is currently strong and is expected to retain momentum,
due to high backlogs. Improvement in supply chain situation, volume
improvement in PV segment suggests strong growth. Decline in commodity
prices likely to help margins.

Pharma :

 Neutral to Positive - US generics market experiencing higher than expected price

erosion due to inventory liquidation by large players that seems to have been
priced in by the stocks.
 Normalisation of production expected in next few months.
 Domestic oriented business momentum continues to be strong. Domestic
focused companies could generate Alpha.

Housing & Construction:

 Positive - Higher household savings have increased the affordability for Housing
sector.
 Focus on Infrastructure is clearly visible with government accelerating spending
at the cost of fiscal deficit. Risk-reward is still highly favourable and medium-
term outlook remains positive.
 Volatility in raw material cost could impact profitability.
 Sector is coming out of long period of consolidation

Metals

 Cautious- Due to High cyclicality and global risks.

 Uncertainty over volatility in raw material cost, including thermal and coking
coal and iron ore, leading to earnings volatility.
28
  Possibility of demand slowdown due to widespread global inflation is a major
concern for metals sector. Commodity cycle has largely played out - Prices
likelyto correct further as global growth moderates.

3.1 HUMAN RESOURCE DEPARTMENT

“Human Resource Management function that helps managers recruit, select, train and
develop Members for an organization. Obviously, HRM is concerned with the
people’sdimension in Organizations. Work force of an Organization is one of the most
important inputs of components. It is said that people are our single most important
assets. Because of the unique importance of HUMANRESOURCE and its complexity
due to ever changing psychology, behavior and attitudes of men and women at
work, in all business concerns, there is one common element. I.e. Human personnel
function, i.e., manpower management function is becoming increasingly specialized.
The personnel function or system can be broadly defined as the management of people
at work- management of managers and management of workers. Personnel function is
particularly interested in personnel relationship and interaction of employees-human
relations. In a sense, management is personnel administration. Management is the
development of people, and not mere direction of material resources.
Human capital
is the greatest asset of a business enterprise. The essential ingredient of management is
the leadership and direction of people. Each manager of people has to be his own
personnel man. Personnel management is not something you really turn over to
personnel department staff.

Responsibilities of Human Resource Department.

 HRD maintain daily attendance record through branch manager via E-mail.

 Take decisions for approval regarding leave notes.

 He takes the decision related to the recruitment, selection and training of the
candidates. He talks to the consultant related to the recruitment of the qualified
candidates. He also does screening of the candidates, shortlist the candidate and
takes the first round of the interview.

 He maintains the database of the candidates to come for an interview. He also

maintains personal file of each employee. He also completes the joining
formalities of each new employee.

29
  They are taking surprising visit in every branch and collect information about
employees.

 He is responsible for the monthly salary of the employees as per their attendants
and passing to the Branch Manager.

Human Resource planning

This is handled by doing the planning at the beginning of every year. At the end of the
year, the Human Resource department from each Branch receives the requirement for the
person for whole year. Then the planning of recruitment and training is done by training
manager and recruiting manager which is approved from Head of HR Department.

Recruitment

Recruitment is a process of searching for prospective candidates for the given job in the
industry. As we know it is very important for an industrial concerns to have efficient
and effective personnel with right quality and at right time and at right place available
whenever they are needed. Every organization needs employee time by time because of
promotion or retirement of an employee. For this purpose an organization need to search
for the right candidate. And so it needs to encourage this type of right candidates
whenever they require.

Training and Development

 Training aims at increasing the aptitudes, skills and abilities of workers to

perform specific job. It makes employees more effective and skilful. In present
dynamic world of business training is more important there is an ever present
need for training men. So that new and changed techniques may be adopted. A
new and changed technique may be taken as an advantages and improvement
affected in the old methods.

 Training is learning experience that seeks relatively permanent change in an

individual that will improve his/her ability to perform on the job.

 They provide “on the job” training to their employees in the branch as they select
these

 Employees for selling various products of bank by direct marketing. Whenever

they select new candidates for any post, they use to give them on the job work.

30
  In case of sales persons to distribute their various products, in the beginning the
person has to work under the observation of his senior then they have to go in
market to have their own experience.

 The time for training program for the candidate is depends up on the relevant
position of his work area. They also provide training related to customer care
and communication.

3.2 INTRODUCTION OF FINANCE DEPARTMENT

In this modern era it is very easy to know how much important the finance is in the
business. As current position of the market is totally different from ancient where it was
very easy to get the finance. But now a days it is not so, it is very difficult task to raise
funds from market. As today people are facing lot of problem and have less confidence
on the market so it is difficult to raise fund without proper planning.

For the bank as it is a Financial Institution we can consider finance as lifeblood of this
business. The company should manage to get sufficient finance. The company should
use to keep proper planning for the finance of its own and also of the large no. of
depositors who are there with the bank. We Can define financial management as a task
of acquisition and utilization of funds needed in the business in a manner so that
organizations goal can be achieved. In HDFC Bank, its chief Financial Officer and
Treasurer manage the finance. Due to proper policies and separate management the
company can have proper operation of finance.

ORGANIZATION OF FINANCIAL ACTIVITIES OF BANK

For the bank finance itself is the product now it is not an easy task to manage this
finance. As bank has to keep watch on the deposits of its millions of customers and also
it has to manage its own large financial base. As in recent it is popular “No finance no
business”, for the bank “Finance itself is business”. There are different types of
organizational structure such as group organization, line organization, line and staff
organization. HDFC Bank has line of authority and line of authority is vertical i.e.
authority passes from top to bottom and responsibility passes from bottom to top level
management. As HDFC Bank is very big company and it has large cliental base so it is
very difficult and complicated to manage its finance in proper way. Therese need of
concrete and proper policies to have proper management of it. Because of big size of
the bank one cannot manage all the accounts of it alone. So, company has to appoint
many different persons so that there is proper maintenance of the funds of different
persons ispossible.

31
INCOME SHEET

32
 RESEARCH METHODOLOGY

RESEARCH OBJECTIVE

The objective of the study is as follows:

➤ To examine the essential dimensions of service quality i.e. Reliability, assurance,

tangibles, empathy and responsiveness of HDFC bank and its effect on customers
satisfaction.

➤ To find out the level of perception of the customers from the service quality offered
by the banks.

➤ To know which service quality dimension of the bank is performing well.

➤ To study the impact of corporate governance norms & policies in banking sector.

DATA SOURCE

 Primary Data:

The primary data was collected by means of a survey. Questionnaires were prepared
and customers of the banks at one branches were approached to fill up the
questionnaires. The questionnaire contains 26 questions which reflect on the type and
quality of services provided by the banks to the customers. The response of the
customer and the is recorded on a grade scale of strongly disagree, yes, uncertain,
agree and strongly agree for each question. The filled up information was later
analyzed to obtainthe required interpretation and the findings.

 Secondary Data:

In order to have a proper understanding of the service quality of bank a depth study was
done from the various sources such as books, a lot of data is also collected from the
official websites of the banks and the articles from various search engines like Google.

33
RESEARCH DESIGN

The research design is exploratory till identification of service quality parameters. Later
it becomes descriptive when it comes to evaluating customer perception of service
quality of the banks.

Descriptive research, also known as statistical research, describes data and characteristics
about the population or phenomenon being studied. Descriptive research answers the
questions who, what, where, when and how Descriptive research, also known as
statistical research, describes data and characteristics about the population or
phenomenon being studied. Descriptive research answers the questions who, what,
where, when and how.

Although the data description is factual, accurate and systematic, the research cannot
describe what caused a situation. Thus, descriptive research cannot be said to create a
causal relationship, where one variable affects another. In other words, descriptive
research can be said to have a low requirement for internal validity. The description is
used for frequencies, averages and other statistical calculations. Often the best
approach, prior to writing descriptive research, is to conduct a survey investigation.
Qualitative research often has the aim of description and researchers may follow-up
with examinations of why the observations exist and what the implications of the
findings are:-

RESEARCH SAMPLE

SAMPLING PLAN:

Since it is not possible to study whole universe, it becomes necessary to take sample
from the universe to know about its characteristics.

➤ Sampling Units: Customers of HDFC bank

➤ Sample Technique: Random Sampling.

Research Instrument: Structured Questionnaire.

SAMPLE SIZE:

The work is a case of HDFC Bank, one of the largest bank of Indian banking industry
together representing over 25 per cent of the market share of Indian banking space.
The survey was conducted in the city of Mumbai branches of HDFC Bank, with 26
customers as respondent.

34
LIMITATIONS OF THE STRATEGY

• The study is only for the HDFC Bank confined to a particular location and a very
small sample of respondents. Hence the findings cannot be treated as representative of
the entire banking industry.

• The study can also not be generalized for public and private sector banks of the
country. Respondents may give biased answers for the required data. Some of the
respondents did not like to respond.

Respondents tried to escape some statements by simply answering "neither agree nor
disagree “to most of the statements. This was one of the most important limitation
faced,as it was difficult to analysis and come at a right conclusion,

• In our study we have included 26 customers of bank because of time limit.

35
 5. DATA ANALYSIS, INTERPRETATION

Q1.Gender

PARTICULAR PERCENTAGE FREQUENCY

MALE 30% 6
FEMALE 10% 4
TOTAL 100% 10

INTERPRETATION

Out of 10 respondents 30% is Male. 10% is female. There are 6 peoples are Male and 4
peoples are female.

36
Q2. AGE

PARTICULAR PERCENTAG FREQUENC

E Y
BELOW 20 34.6% 9
20-30 53.8% 14
30-40 11.5% 3
ABOVE 40 0% 0
TOTAL 100% 26

INTERPRETATION

Out of 26 respondents the age group below 20 is 34.6% the color consists is blue.
Age group20-30 is 53.8% the color consists is red. Age group 30-40 is 11.5% and the
color consists is orange. Age group above 40 is 0% the color consists is green as
shown in the diagram.

37
Q3. EDUCATIONAL QUALIFICATION?

PARTICULAR PERCENTAGE FREQUENCY

UNDER GRADUCATE 50% 13
GRADUCATE 50% 13
PROFESSIONAL 0% 0
OTHER 0% 0
TOTAL 100% 26

INTERPRETATION

Undergraduate (50%): Half of the respondents, 50%, have an undergraduate

educational qualification. This suggests that a significant portion of the surveyed group
has completed or is in the process of completing their undergraduate studies.

Graduate (50%): Another 50% of respondents have a graduate-level educational

qualification. This indicates an equal representation of individuals who have pursued
and completed higher education beyond the undergraduate level.

Professional (0%): No respondents in the dataset have identified themselves as having

a professional qualification.

Other (0%): No respondents have identified themselves with an "Other" educational

qualification.

Total Responses (100%):The data is based on a total of 26 responses, and the

percentages addup to 100%, covering all individuals in the dataset.

38
Q4. WHAT IS YOUR OCCUPATION?

PARTICULAR PERCENTAG FREQUENC

E Y
STUDENT 57.7% 15
EMPOLYEES 42.3% 11
BUSINESSMAN 0% 0
TOTAL 100% 26

INTERPRETATION

Student (57.7%): The majority, 57.7%, of respondents identify as students.

This suggests that a significant portion of the surveyed group consists of individuals
who are currently pursuing education.

Employees (42.3%): A notable percentage, 42.3%, of respondents are employed.

This indicates that there is a significant representation of individuals who are part of the

Businessman (0%): No respondents in the dataset identify as businessmen.

Total Responses (100%): The data is based on a total of 26 responses, and the
percentages add up to 100%, covering all individuals in the dataset.

39
Q5. Do you believe that strong corporate governance practices are crucial for the stability
and success of banking institutions?

PARTICULAR PERCENTAGE FREQUENCY

YES 73.1% 19
NO 19.2% 5
NOT SURE 7.7% 2
TOTAL 100% 26

INTERPRETATION

 The data presented indicates that a majority of respondents, specifically 73.1%,

believe that strong corporate governance practices are crucial for the stability and
success of banking institutions.
 This suggests a widespread recognition of the importance of effective governance
in ensuring the stability and success of these institutions.
 On the other hand, 19.2% of respondents disagree with this notion, indicating a
smaller but still noteworthy portion that holds a different perspective.
 Additionally, 7.7% of respondents are unsure about the role of corporate
governance in banking stability and success. This data highlights varying opinions
within the sample regarding the significance of strong corporate governance in the
banking sector

40
Q6. How would you rate the transparency of your bank's corporate governance
structure?

PARTICULAR PERCENTAGE FREQUENCY

EXCELLENT 65.4% 17
GOOD 34.6% 9
TOTAL 100% 26

INTERPRETATION

 The data provided suggests that a significant majority of respondents,

specifically 65.4%, rate the transparency of their bank's corporate governance
structure as "excellent."
 This indicates a high level of satisfaction or confidence among the respondents
regarding the transparency of how their bank's governance is structured and
communicated.
 Additionally, 34.6% of respondents rated the transparency as "good," implying
that there is still room for improvement but generally, the transparency level is
perceived positively by this subset of respondents.
 Overall, the data indicates a positive perception of transparency in the corporate
governance structure of the banks represented in the sample.

41
Q7. Does your bank have a code of ethics and conduct that is actively enforced?

PARTICULAR PERCENTAGE FREQUENCY

YES 46.2% 12
NO 50% 13
NOT SURE 3.8% 1
TOTAL 100% 27

INTERPRETATION

 The data indicates a fairly balanced distribution of responses regarding whether

banks have a code of ethics and conduct that is actively enforced.
 Specifically, 46.2% of respondents answered "yes," indicating that their bank does
have such a code, and it is actively enforced.
 On the other hand, 50% of respondents answered "no," suggesting that their bank
either does not have a code of ethics and conduct or that it exists but is not actively
enforced.
 Additionally, a small percentage (3.8%) of respondents were unsure about the
enforcement status of the code of ethics and conduct at their bank.

42
Q8. Does your bank have a mechanism for evaluating the independence of board members?

PARTICULAR PERCENTAGE FREQUENCY

YES 38.5% 10
NOT SURE 42.3% 11
NO 19.2% 5
TOTAL 100% 26

INTERPRETATION

 The data provided indicates a mixed response regarding whether banks have a
mechanism for evaluating the independence of board members.
 Specifically, 38.5% of respondents answered "yes," indicating that their bank does
have such a mechanism in place.
 On the other hand, 42.3% of respondents were "not sure" about the existence of
such a mechanism, suggesting a lack of clarity or awareness among this subset of
respondents. Furthermore, 19.2% of respondents answered "no," indicating that
their bank does not have a mechanism for evaluating the independence of board
members.

43
Q9. Does your bank regularly conduct internal audits to assess compliance with
corporate governance policies?

PARTICULAR PERCENTAGE FREQUEN

CY
YES 92.3% 24
NO 7.7% 2
TOTAL 100% 26

INTERPRETATION

 The data presented indicates a strong affirmative response regarding whether banks
regularly conduct internal audits to assess compliance with corporate governance
policies.
 Specifically, a vast majority of respondents, accounting for 92.3%, answered "yes,"
indicating that their bank does conduct regular internal audits for this purpose.
 This high percentage suggests a widespread practice among banks to monitor and
assess compliance with corporate governance policies through internal audit
processes.

 On the other hand, a small minority of respondents, comprising 7.7%, answered

"no," indicating that their bank does not conduct regular internal audits to assess
compliance with corporate governance policies.

44
Q10. Is there a transparent process for appointing board members in your bank?

PARTICULAR PERCENTAGE FREQUENC

Y
AGREE 92.3% 24
DISAGREE 3.8% 1
UNCERTAIN 3.8% 1
TOTAL 100% 26

INTERPRETATION

 The data indicates a high level of agreement regarding the presence of a transparent
process for appointing board members in respondents' banks.
 Specifically, 92.3% of respondents agree that there is a transparent process for
appointing board members.
 This high percentage suggests that the majority of respondents perceive
transparency in the process of appointing board members within their banks,
indicating clear procedures and criteria for selection.

 A small percentage of respondents, 3.8% each, disagreed or were uncertain about

the transparency of the process for appointing board members.

45
Q11. Is there a risk management framework in place to identify and mitigate corporate
governance risks?

PARTICULAR PERCENTAG FREQUENC

E Y
AGREE 76.9% 20
DISAGREE 23.1% 6
UNCERTAIN 0% 0
TOTAL 100% 26

INTERPRETATION

 The data reveals that a significant majority of respondents, accounting for 76.9%,
agree that there is a risk management framework in place within their banks to
identify and mitigate corporate governance risks.
 This high percentage indicates a widespread perception among respondents that
their banks have established frameworks specifically designed to identify and
address risks related to corporate governance effectively.

 On the other hand, a smaller proportion of respondents, 23.1%, disagree with the
presence of such a risk management framework.
 While this percentage is relatively low compared to the agreement percentage, it
still highlights the existence of some respondents who may feel that their banks do
not have adequate risk management mechanisms in place to address corporate
governance risks.

46
Q12. Does your bank have a code of conduct that outlines expected ethical behavior for
employees and executives?

PARTICULAR PERCENTAG FREQUENC

E Y
UNCERTAIN 50% 13
AGREE 50% 13
DISAGREE 0% 0
TOTAL 100% 26

INTERPRETATION

 The data shows an equal split among respondents regarding whether their bank has
a code of conduct that outlines expected ethical behavior for employees and
executives.
 Specifically, 50% of respondents agree that such a code of conduct exists within
their banks, indicating a clear understanding or awareness of the presence of ethical
guidelines.

 On the other hand, an equal percentage of respondents, also 50%, are uncertain
about the existence of a code of conduct outlining expected ethical behavior.
 This suggests a lack of clarity or awareness among this subset of respondents
regarding whether their banks have established guidelines for ethical behavior
among employees and executive.

47
 6. CONCLUSION

Based on the study conducted it can be concluded that responsiveness, assurance and
reliability are the critical dimensions of service quality of HDFC bank and they are
directly related to overall service quality. The factors that may delight customers tend to
be concerned more with the intangible nature of the service, commitment,
attentiveness,friendliness, care, and courtesy.

The employees give prompt services, always are ready to answer the questions and are
trustworthy. The main sources of dissatisfaction appear to be cleanliness, up to date
technology modern equipment’s, and neatly dressed up employees. The Tangibility
dimension of service quality of HDFC bank is highly disappointing and serious steps
are needed to be taken to enhance this dimension. Customers of the bank are dissatisfied
with the empathy dimension. To satisfy these customers, the management can take some
attempts, noted earlier as recommendations.

The study brings about the areas which require urgent attention of the employees, the
management, and the policy makers of the industry. These are areas in which customers
are hugely dissatisfied with the services of the banks against their expectation. This high
degree of dissatisfaction resulting from the services received clearly questions the
design of services or subsequent response of the bank employees. These limitations are
too serious to be avoided as these question the front-line people dealing with the
customersand the approach of the management in taking customers seriously.

The management should understand the benefits of service quality. It include increased
customer satisfaction, improved customer retention, positive word of mouth, reduced
staff turnover, decreased operating costs, enlarged market share, increased profitability,
and improved financial performance. In the days of intense competition, superior service
is the only differentiator left before the banks to attract, retain and partner with the
customers. Superior service quality enables a firm to differentiate itself from its
competition, gain a sustainable competitive advantage, and enhance efficiency. Thus,
improving service quality leads to the customer satisfaction and, ultimately, to customer
loyalty.

Analysis and interpretation of financial statements is an important tool in assessing

company’s performance. It reveals the strengths and weaknesses of a firm by analysis
of financial statements of HDFC BANK LTD it is clear that it have been incurring
profit during the period of study. So the firm should focus on getting of more profits in
further coming years by taking care internal as well as enteral factors. And with regard to
resources, the firm is take utilization of the assets properly. And also the firm has
shownthat it Nonperforming assets is decreasing with positive growth in profit, assets,
deposit advance with above average growth calculation we can conclude that in their
current market capital 770642 95 approx. 50.05% of current market holding.

48
 RECOMMENDATIONS

 Reliability is an obvious place to start. Customers of the bank want to know their
resources are safe and within trustworthy institutions. A way to ensure this peace
of mind would be to take steps to ensure bank employees are well trained so each
bank associate is able to offer complete and comprehensive information at all
times. Consistent policies combined with a knowledgeable staff will foster a high
degree of institutional cohesion and reliability.

 Responsiveness, again when associated with a well-trained staff and timely

answers to service-related questions, would make significant inroads into
causing HDFC bank be regarded as responsive. Staff should be encouraged to
present relevant options to banking customers in a manner that does not
resemble salesmanship so much as a desire to serve.

 Intangibles please customers just as much as tangibles in the banking industry.

People tend to visit the same branch of a bank over and over again. Usually,
this is a location close to their home or their workplace. It is natural that
customers become comfortable and habituated to these branch banks, for the
same reason they develop familiarity with neighborhood supermarket or
convenience store. It makes sense that bank employees would be encouraged to
learn to recognize these regular customers, learn their names, and begin to
identify their basic service requirements.

 Learning to understand customers" needs will allow bank associates to offer

enhanced services, perhaps lowering customers" banking costs and increasing
their investment potential. This could also open up the possibility of increased
profits for banks, for when perceived as more service and customer oriented, they
will, in effect, become a useful and pleasant way to "shop."

 Keeping the bank with up-to-date technologically are important factors. Modern
equipment’s, new improved technology should be replaced with the old ones. If
the staff inside is pleasant and well-informed, in an aesthetically pleasing
environment, then customer satisfaction will be high.

 The five-dimensional structure could possibly serve as a meaningful framework

for tracking a bank" s service quality performance over time and comparing it
against the performance of competitors. Items on some dimensions should be
expanded if that is necessary for reliability.

 Thus, the banking industries must continuously measure and improve these
dimensions in order to gain customers loyalty.

49
 7. BIBLIOGRAPHY

References

Kotler Philip, marketing management, (Pearson education, 12th edition) Malhotra K.

Naresh, marketing research (An applied orientation), Research design, (Prentice hall of
India pvt. 5th edition)

Zenithal V. A., Grembler D.D., Bitner M.j., and Pandit A.: Service Marketing Integrated
customer Focus across the Firm" (4th Edition) M.K. Rampal Service Marketing

Research Methodology By M.V.Kulkarni

Marketing Management By Philip

Kotler

Websites

www.hdfcbank.com

www.hdfcindia.com

www.wikipedia.org

50
 8. ANNEXURE
1. Name

2. Age

Below 20
20-30
30-40
Above 40

3. Gender

4. Educational Qualification
Under
Graduate
Professional
Other

5. What is your occupation?

Student
Employee
Businessman

6. How would you rate the transparency of your bank's corporate governance structure?
Excellent
Good

7. Does your bank have a code of ethics and conduct that is actively enforced?
Yes
No
Not Sure

8. Does your bank have a mechanism for evaluating the independence of board members?
Yes
Not sure
No

9. Does your bank regularly conduct internal audits to assess compliance with
corporate governance policies?
Yes
No

51
10. Is there a transparent process for appointing board members in your bank?
Agree
Disagree
uncertain

11. Is there a risk management framework in place to identify and mitigate corporate
governance risks

Agree
Disagree
uncertain

12. Does your bank have a code of conduct that outlines expected ethical behavior for
employees and executives?

Agree
Disagree
uncertain

52