PROJECT REPORT ON

ByDeepak Verma Amrit Kumar Shubham Gupta Priya

COMPANY PROFILE

HDFC Bank Limited is an Indian financial services company based in Mumbai, Maharashtra that was incorporated in August 1994. HDFC Bank is the fifth largest bank in India by assets and the largest bank by market capitalization as of 1 November 2012. The bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India. As on August 2013, HDFC Bank has 3,119 branches and 11,088 ATMs, in 1,891 cities in India, and all branches of the bank are linked on an online real-time basis. As of December 2012 the bank had balance sheet size of Rs. 3837 billion. For the fiscal year 2011-12, the bank has reported net profit of 5167.07 crore (US$820 million), up 31.6% from the previous fiscal. On 14 March 2013 an online magazine named Cobrapost.com released video footage from Operation Red Spider showing high ranking officials and some employees of HDFC bank willing to turn black money into white which is violation of Money Laundering Control Act. Following this the government of India and RBI have ordered an inquiry. The enquiry confirmed violation of KYC (Know Your Customer) norms by HDFC Bank. A penalty of Rs 45 million was imposed on the bank by RBI.

STANDALONE BALANCE SHEET OF HDFC BANK

Standalone Balance Sheet

in Rs. Cr. Mar '13

Mar '12

Mar '11

Mar '10

Mar '09

Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs)

475.88 469.34 475.88 469.34 0 0.3 0 0 35,738.26 29,455.04 0 0 36,214.14 29,924.68 2,96,246.98 2,46,706.45 33,006.60 23,846.51 3,29,253.58 2,70,552.96 34,864.17 37,431.87 4,00,331.89 3,37,909.51

465.23 457.74 465.23 457.74 0 0 0 0 24,914.04 21,064.75 0 0 25,379.27 21,522.49 2,08,586.41 1,67,404.44 14,394.06 12,915.69 2,22,980.47 1,80,320.13 28,992.86 20,615.94 2,77,352.60 2,22,458.56

425.38 425.38 400.92 0 14,226.43 0 15,052.73 1,42,811.58 2,685.84 1,45,497.42 22,720.62 1,83,270.77

14,627.40 12,652.77

14,991.09 5,946.63

25,100.82 4,568.02

15,483.28 14,459.11

13,527.21 3,979.41 98,883.05 58,817.55 3,956.63 2,249.90 1,706.73 0 6,356.83 1,83,270.78 3,96,594.31 17,939.62 344.44

2,39,720.64 1,95,420.03 1,11,613.60 97,482.91 6,865.45 5,930.24 4,162.37 3,583.05 2,703.08 2,347.19 0 0 19,014.41 21,721.64 4,00,331.90 3,37,909.49 6,98,062.89 8,44,374.61 48,163.51 39,610.71 152.2 127.52

1,59,982.67 1,25,830.59 70,929.37 58,607.62 5,244.21 4,707.97 3,073.56 2,585.16 2,170.65 2,122.81 0 0 14,601.08 5,955.15 2,77,352.61 2,22,458.56 5,59,681.87 4,66,236.24 28,869.10 20,940.13 545.53 470.19

PROFIT AND LOSS ACCOUNT OF HDFC BANK

Standalone Profit & Loss account

in Rs. Cr. Mar '13 Mar '12 Mar '11 Mar '10 Mar '09

Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses Net Profit for the Year Extraordinary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Earnings Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total

35,064.87 6,852.62 41,917.49 19,253.75 3,965.38 0 651.67 11,320.41 0 11,236.12 4,701.34 35,191.21 6,726.28 -4.47 8,399.65 15,121.46 0 1,309.08 222.48 28.27 275 152.2 1,785.08 672.63 1,531.56 11,132.18 15,121.45

27,286.35 5,333.41 32,619.76 14,989.58 3,399.91 2,647.25 542.52 5,873.42 0 9,241.64 3,221.46 27,452.68 5,167.09 -2.12 6,174.24 11,339.21 0 1,009.08 163.7 22.02 215 127.52 1,250.08 516.7 1,172.78 8,399.65 11,339.21

19,928.21 4,433.51 24,361.72 9,385.08 2,836.04 2,510.82 497.41 5,205.97 0 8,045.36 3,004.88 20,435.32 3,926.40 -2.65 4,532.79 8,456.54 0 767.62 124.53 84.4 165 545.53 997.52 392.64 892.15 6,174.24 8,456.55

16,172.90 3,810.62 19,983.52 7,786.30 2,289.18 3,395.83 394.39 3,169.12 0 7,703.41 1,545.11 17,034.82 2,948.70 -0.93 3,455.57 6,403.34 0 549.29 91.23 64.42 120 470.19 935.15 294.87 640.52 4,532.79 6,403.33

16,332.26 3,470.63 19,802.89 8,911.10 2,238.20 2,851.26 359.91 3,197.49 0 7,290.66 1,356.20 17,557.96 2,244.94 -0.59 2,574.63 4,818.98 0 425.38 72.29 52.77 100 344.44 641.25 224.5 497.67 3,455.57 4,818.99

RATIOS OF HDFC BANK

RATIOS Current Ratio Quick Ratio Net profit Margin Earnings Per Share Return on Net Worth Operating Profit Per Share Total Assets Turnover Ratios Asset Turnover Ratio Capital Adequacy Ratio

2013 0.78 7.84 16.04 28.27 18.57 21.97 0.1 0.11 16.8

2012 0.08 6.2 15.93 22.02 17.26 37.71 0.11 0.12 16.52

RATIO ANALYSIS

CURRENT RATIO:
This ratio is a measure of the firms short term solvency. A ratio greater than 1 means that the firm has more current assets than current claims against them. A current ratio of 1.33:1 is considered satisfactory. Basically it indicates its liquidity position as to how liquid the company is i.e. how promptly and with ease the company be able to meet its liabilities on due time. HDFC Bank has a current ratio of 0.78:1 in 2013 against 0.08:1 in 2012 reflecting an increase in current ratio in 2013 through which we can interpret that the bank is insufficiently liquid. As we know that the higher the current ratio the greater will be the margin of safety and so the more ability of the company to meet its current obligation. But even if the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management as higher current ratio reflects that there will be higher level of inventories and sundry debtors which in turn will involve the loss by way of inventory carrying cost and opportunity cost respectively. Therefore the bank should try to bring its current ratio down at least at benchmark level.

QUICK RATIO
Quick ratio is also known as acid test ratio, calculated by dividing the current assets less inventories upon current liabilities. A quick ratio between 0.3 to 0.5 is considered to represent a satisfactory current financial condition of the company. HDFC BANK has a quick ratio of 7.84:1 in 2013 against 6.20:1 in 2012. As we know that a bank with high value of quick ratio can suffer from the shortage of funds if it has a slow paying, doubtful and long duration outstanding debtors. As quick ratio indicates an important index to measure the firms liquidity so HDFC Bank should undertake certain measures which will help in bringing down the quick ratio of a bank.

PROFIT MARGIN:
Profit margins are expressed as a ratio, specifically earnings as a percentage of sales. Margins allow investors to judge, over time, managements ability to manage costs and expenses and to generate profits. Managements success or failure determines the companys profitability. A consistently high profit usually means efficient management and a good investment, bringing in more capital and growth in the company. HDFC banks profit margin ratio of current year is 16.04 in 2013 than that of previous year as 15.93 in 2012. A higher profit margin of HDFC Bank indicates a more profitable company that has better control over its costs compared to its competitors.

RETURN ON NET WORTH:

This ratio reflects the extent to which the objective of the company has been accomplished therefore it is of great interest to the present as well as the perspective shareholders and also the management. A high return on equity/ net worth indicates that the company is spending wisely and is likely profitable; a low return on equity/ net worth indicates the opposite. HDFCs return on net worth for the current year i.e. 2013 is 18.57 against the previous year 2012 i.e.17.26 which means that the bank is spending wisely and is likely to earn profits.

EARNINGS PER SHARE:

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. As we can see the HDFC Banks Earnings per share has seen a significant increase from 22.02 in 2102 to 28.27 in 2013 which shows that the bank is earning profits.

CORRELATION ANALYSIS BETWEEN SELECTED WORKING CAPITAL RATIO AND RETURN ON INVESTMENT

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CR 0.03 0.03 0.04 0.04 0.04 0.04 0.03 0.06 0.08 0.78

QR 3.39 5.61 5.18 4.07 4.89 5.23 7.14 6.89 6.2 7.84

ATR 0.09 0.09 0.1 0.12 0.13 0.14 0.11 0.11 0.12 0.11

OE 2.37 2.38 3.19 2.88 3.27 4.38 3.6 3.02 2.83 2.87

IE 3.33 2.81 3.09 3.86 4.36 5.63 3.84 3.76 4.87 5.22

ROI 24.38 23.67 22.73 23.57 13.83 15.32 13.7 15.47 17.26 18.57

DATA ANALYSIS In the analysis an attempt has been made to identify the impact of working capital on profitability by computing the Karl Pearsons Correlation coefficient between ROI and the selected measures relating to the working capital management. The correlation coefficient between the ROI and CR i.e. current ratio is 0.57 which indicates that there is a positive relation between the profitability and the current ratio of the company. It shows that higher the current assets, higher are the ROI or profitability of the company. The correlation coefficient is found to be statistically insignificant at 5% level of significance. It implies that that there is insignificant association between ROI and CR of the company during the study period. It shows that higher the companys margin of safety to the short-term creditors, the lower is the profitability of the company. The coefficient of correlation between ROI and QR is -0.021 which shows that there is a negative relation between these two variables. It shows that when the value of current assets after deducting inventory and prepayments increases, profitability of the company decreases. The correlation coefficient between ROI and ATR is -0.126 which indicates that there is a negative relation between these two variables. It means if asset turnover of the company increases, profitability will decrease. The correlation coefficient between ROI and OE is 0.4577 which indicates that there is a positive relation between these two variables. It means if operating expenses increases, profitability of the bank will decrease. The correlation coefficient between ROI and IE is -0.042 which indicates that there is a negative relation between these two variables. It means if interest expended increases, profitability of the bank will decrease.

SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total SS MS F 5 134.6511243 26.93022 3.103483314 4 34.70967572 8.677419 9 169.3608 Significance F 0.147589616

0.891658479 0.795054843 0.538873397 2.945745904 10

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. So, R square is 79% of HDFC which means that it is most likely to offer higher risk-adjusted returns as it is closer to 100. Adjusted R square measures the proportion of the variation in the dependent variable accounted for by the explanatory variables. Adjusted R square is 53% which is lower than R square. This normally means that some explanatory variable(s) are missing. Without them, variation in the dependent variable is not fully measured. ROI and Variables ROI and CR ROI and QR ROI and ATR ROI and OE ROI and IE Values 0.57 -0.021 -0.126 0.4577 -0.042

Relation between ROI and Variables

ROI and CR- Positively Correlated ROI and QR- Negatively Correlated ROI and ATR- Negatively Correlated ROI and OE- Positively Correlated ROI and IE- Negatively Correlated

Coefficients Interc ept CR 47.89723299 7.530140359 2.172278162 119.0594835 0.512947326 0.675470809

Standard Error 8.916121 179 7.857983 112 0.930574 877 157.7247 66 2.795693 47 2.887366 426

QR

ATR

OE

IE

t Stat 5.3719 81 0.9582 79 2.3343 4 0.7548 56 0.1834 78 0.2339 4

P-value 0.00579963 0.392188463

Lower 95% 23.14211198 14.28711839 4.755968223

Upper 95% 72.65235399 29.34739911

Lower 95.0% 23.14211198 -14.2871184

Upper 95.0% 72.65235399 29.34739911

0.079871564

0.411411899

-4.75596822

0.411411899

0.492343579

-556.973638 8.275036775

318.854671

-556.973638

318.854671

0.863348389

7.249142122

-8.27503678

7.249142122

0.826517076

-8.69208519

7.341143571

-8.69208519

7.341143571

REGRESSION EQUATION AS PER THE ANALYSIS:Y=47.897+0.5744a-0.0217b-0.1261c+0.4577d-0.0428e WHERE :a=Current Ratio b=Quick Ratio c=Asset Turnover Ratio d=Operating Expenses e=Interest Expended Y=ROI

CORRELATION MATRIX:
Intercept Intercept CR QR ATR OE IE 1 0.574438043 -0.021747409 -0.126177921 0.457785835 -0.042828727 CR QR ATR OE IE

1 0.062705004 1 0.176604711 0.758403 1 0.332640642 0.798812 0.582390367 -0.552545324 -0.6656 -0.66553805

1 -0.586768038

When there is high degree of correlation between the independent variables then there is the existence of multi co linearity .It is observed from the table that there is no high correlation between the above given independent variables therefore in case of HDFC BANK there is no multi co linearity between the variables that are of independent nature. Correlation matrix shows the detailed result of multiple correlation coefficient(R), multiple coefficient of determination (R2) and the regression coefficients of ROI on CR, QR, ATR, OE and IE showing the strength of relationship between dependent variable (ROI) and all the independent variables (CR, QR, ATR, OE, IE) taken together and the impact of these 5 variables on the profitability of the HDFC BANK. It is evident from the table that the multiple regression equation of
ROI = 47.897+0.5744CR-0.0217QR-0.1261ATR+0.4577OE-0.0428IE

Showing that if CR is increased by 1 unit (keeping QR, ATR, OE, IE constant) the ROI is increased by 0.5744 units and this will affect the CR on the profitability of the company.

WORKING CAPITAL LEVERAGING OF HDFC

YEARS 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

CURRENT ASSETS 14627.40 14991.09 25100.82 15483.28 13527.21 12553.18 5182.48 3306.61 2650.13 2541.98

TOTAL ASSETS 400331.90 337909.49 277352.61 222458.56 183270.78 133176.60 91235.61 73506.39 51429.00 42306.99

DCA 0 363.69 10109.73 -9617.54 -1956.07 -974.03 -7370.7 -1875.87 -656.48 -108.15

WCL=(CA/TA+DCA) 0.036538182 0.04431652 0.087318638 0.072745752 0.074606247 0.09495413 0.061795571 0.046162027 0.052196149 0.060238149

The table reveals that the values of WCL in all the years under study are less than 1 showing that in all the years the increase in the rate of return on investments less than the proportion of decrease in level of working capital investment i.e. level of investment in current assets. The study of correlation analysis reveals both positive and negative coefficients. The study of working capital leverage (WCL) of the company under study registered a fluctuating trend during the study period. The values of WCL in all the years under study are always less than unity hence it may be concluded that the increase in profitability of the company is less than the proportion to decrease in working capital throughout the study period.