MANAGEMENT OF BANKS

FINANCIAL ANALYSIS OF HDFC BANK

SUBMITTED BY C SHYAM GIRISH INDU R SUHAVNI DHALL SYED MEHTAJ

Liquidity Ratios
Deposit to Time Deposit
Ratio 2011 2010
1.10075769 0.941854167 Total Demand deposits Total Time Deposits

(Numerator)
985060808.5 752317696

(Denominator)
894893415.5 798762401

The demand to time deposit ratio shows the liquidity position of a bank. The ratio is higher in 2010-2011 indicating higher need for liquidity for the bank.

Demand Deposits Ratio

Ratio 2011 2010
0.394173194 0.370847073 Total Demand deposits Total Assets

(Numerator)
985060808.5 752317696

(Denominator)
2,499,055,805.00 2,028,646,715.00

The demand deposit to Total asset ratio indicates the proportion of assets available for sevicing the deposits. The ratio is higher in 2010-2011 indicating higher need for the bank to invest in liquid assets.

Cash to Demand Deposits Ratio

Ratio
Cash and Bank Balance excluding RB Total Demand Deposits

(Denominator)
985060808.5 752317696

(Numerator) 2011 2010

0.124156519 0.149271798 122301720.5 112299815

This ratio implies the cash and bank balances, available with a bank excluding that with RBI, which is able to fund the liquid deposits. The ratio is higher in 2009-2010 indicating higher liquidity and thus lower risk of defaulting on payment obligations.

Cash to Total Deposits Ratio

Ratio
Cash and Bank Balance excluding RB Total Deposits

(Denominator)
1879954224 1551080097

(Numerator) 2011 2010

0.065055691 0.072401042 122301720.5 112299815

This ratio implies the cash and bank balances, available with a bank excluding that with RBI, which is able to fund the Total deposits. The ratio is higher in 2009-2010 indicating higher liquidity. The liquidity position of the bank has detoriated in 2010-11.

Productivity Ratios
Operating Income to Employees
Ratios 2011 2010
608.0883556 471.5194843 Operating Profit No. of employees

(Numerator)
33902142 24466203

(Denominator)
55752 51888

Operating profit per employee is related with profit employee productivity. It reflects the profit generated per employee of the bank. Higher the ratio, more profitable is the bank. The ratio of HDFC bank has improved as compared to the last year. The number of employees has increased so has the operating profit of the bank. It shows that the efficiency of the employees has increased.

Assets to Employees
Ratios 2011 2010
44824.50504 39096.64499 Total Assets No. of employees

(Numerator)
2,499,055,805.00 2,028,646,715.00

(Denominator)
55752 51888

This ratio indicates the asset of the bank per employee of the bank. Higher ratio would mean that the bank is generating more asset per employee and hence high ratio is desirable. The ratio has increased for HDFC bank inspite of increase in number of employees. It means that the productivity and efficiency of employees has increased.

Total Deposits to Employees

Ratios 2011 2010
33719.94232 29892.848 Total Deposits No. of employees

(Numerator)
1879954224 1551080097

(Denominator)
55752 51888

This ratio indicates the deposit in a bank per employee of the bank. Higher the ratio, more deposits a bank has per employee and is desirable. In case of HDFC bank, this ratio is high and it has increased in 2011 when compared with the previous year. Hence the bank has more money per employee and the productivity per employee has increased.

Profitability Ratios
These ratios measure the results of business operations, the overall performance and effectiveness of the firm

Return on Equity
Ratio 2010 2011 6.677860748 8.5081967 NetProfit(Numerator) 29487009 39264009 Equity(Denominator) 4415637 4614845

The Return on Equity ratio is very important to investors in the company. It measures the return on the money the investors have put into the company. The potential investors evaluate a company by looking at this ratio when deciding whether or not to invest in the company. The net profit to equity ratio measures the rate of return on investment. This is one of the most important indicators of the companys profitability. If we look at the profit to equity ratio of HDFC bank over 2009-10 period to 2010-11 period, it has improved from 6.68 to 8.51 which shows the capital has been better employed. Net income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better, with some exceptions, as it shows that the company is doing a good job using the investors' money. The ratio has increased from 2010 to 2011 which indicates that the bank is doing a better job of producing return on the money invested by investors.

Return on Assets (Return on Investment)

Ratio 2010 2011 0.01453531 0.015711538 NetProfit (Numerator) 29487009 39264009 TotalAssets (Denominator) 2,02,86,46,715.00 2,49,90,55,805.00

The Return on Assets ratio measures the amount of profit earned relative to the firm's level of investment in total assets. It measures the efficiency with which the company is managing its investment in assets and using them to generate profit. The net profit to total assets ratio shows how well a company controls its costs and utilizes its resources. If we look at the profit to total assets ratio of HDFC bank over 2009-10 period to 2010-11 period, it has slightly improved from 0.0145 to 0.0157. HDFC bank has been able to cut down its cost and thereby better utilise its resources.Net Income is taken from the income statement and total assets is taken from the balance sheet. The higher the percentage, the
4

better, because that means the company is doing a good job using its assets to generate sales. The return on assets ratio has increased indicating that the company better utilising its assets to generate sales.

Yield on Assets
Ratio Interest Income Earned (Numerator) 161727194 199282122 Total Earning Assets (Denominator) 1710694031 2076751205

2010 2011

0.094538936 0.095958592

This ratio measures the yields that were generated from invested capital (assets). Yield on assets shows the earnings of the bank from the loans and advances it extended. There is a rise in this ratio from 0.09 to 0.10. Showing a rise in the interest earning. The amount of average total earning assets increased by 21% in 2011-10 over 2009-10. Whereas, interest income increased by 23% in 2011 as compared to 2010. Therefore, the asset income increased not just because of the increase in total advances and investment but because of improved efficiency of the bank.

Net Operating Margin

Ratio Total op Income less Total Operating Expenses 24466203 33902142 Total Assets (Denominator) 2,02,86,46,715.00 2,49,90,55,805.00

2010 2011

0.012060357 0.01356598

It represents bank's operational efficiency. What portion of the bank's revenues flow through to net income. The ratio increased from 0.02 in 2009-10 to 0.03 in 2010-11.

5. Earning Assets to Total Deposits

Ratio Earning Assets (Numerator) 1710694031 2076751205 Total Deposits (Denominator) 1551080097 1879954224

2010 2011

1.102905024 1.104681794

this ratio indicates the % of deposits funded through earning assets (advances + investment). The ratio is lower in 2010-2011 indicating that the banks profitibality position is worse off.

Leverage ratios
Leverage ratios help us understand the company s financing method. These ratios also measure its ability to meet the financial obligations.

Deposits to Capital
Ratio
Avg. Deposits Capital

(Numerator) 2010 2011

8.577580844 8.017557274 1551080097 1879954224

(Denominator)
180829551.5 234479675

The ratio has decreased from 2010 to 2011. The reduction in ratio shows that the bank has more capital to handle the deposits.

Borrowings to Capital
Ratio
Avg. Borrowing Capital

(Numerator) 2010 2011

0.610501152 0.58234799 110396649.5 136548767.5

(Denominator)
180829551.5 234479675

The ratio is seen decreasing from 2010 to 2011. The bank has more capital cover over its debts

Borrowings to Assets
Ratio
Avg. Borrowing Total Assets

(Numerator) 2010 2011

0.054418864 0.054640143 110396649.5 136548767.5

(Denominator)
2,02,86,46,715.00

2,49,90,55,805.00

The ratio has remained more or less the same except for a slight increase from 2010-2011 from 0.0544188 to 0.0546401 which shows bank has more assets to pay off its debt.

Risk Ratio
Equity Multiplier
Ratios 2011 2010
541.5254044 459.4233437 Total Assets Total Equity

(Numerator)
2,499,055,805.00 2,028,646,715.00

(Denominator)
4614845 4415637

It is a measure of the bank's financial leverage-a higher financial leverage works to the firm's advantage by boosting the ROE when earnings are positive. With a higher equity multiplier a rise in ROA gives greater return on equity.

Capital Adequacy Ratio

Total Capital Ratios= Numerator/Denominator (Numerator) Risk Weighted Assets

(Denominator)
14474054.01 10392502.96

2011 2010

16.2 17.4

234479675 180829551.5

If Capital adequacy ratio is high, the bank can meet your time liabilities and other risks such as credit risk, operational risk etc. It is subject to RBI guidelines and is expected to meet minimum requirement as given in RBI guidelines. It acts as a cushion for potential losses. Higher the ratio, the better the protection for the bank. The ratio has decreased in 2011 to 16.2% from 17.4% in 2010 which indicates lesser protection for the bank as less will be the banks ability to meet time liabilities and risk.

Credit to Deposit Ratio

Ratios= Numerator/Denominator Credit (Numerator) 2011 2010
0.760160156 0.72437794 1429066297 1123568206 Total Deposits

(Denominator)
1879954224 1551080097

This ratio implies that if the bank liquidates immediately, only 19% of the deposits wil be serviced through the advances. this ratio is higher for 2010-2011, indicating that the bank is in a better position to service the deposits.

Contingent Liability to Total Assets

Ratios 2011 2010
2.109144554 2.181338886 Contingent Liability Total Assets

(Numerator)
5270869942 4425165965

(Denominator)
2,499,055,805.00 2,028,646,715.00

the lower this ratio the better for a company. The contingent liability has reduced indicating the financial position of the bank is better than in 2009-2010.

Conclusion : Since there is a trade-off between liquidity and profitability, the company s
profitability in the year 2011 has increased leading to a decline in the liquidity of the company compared to 2010. The increased profitability has led to increased productivity per employee of the bank.