Report on HDFC BANK

BY :
Rajveer Singh Obhan
PGDM-RM
Roll no.34

Why Indian Banking Sector?

Economics & Demographics: According to the World Bank projections,
India's economy is projected to grow at over 6% in FY14FY15 and 7.1%
byFY16FY17owing to global demand recovery and increase in domestic
investment.
Further more, India has over 1.2billion people under the age of 25.This
represent a large potential bank able population and present a unique
opportunity for the banking system to expand its customer base.
Financial Inclusion: Approximately 41% of the adult population currently
does not hold bank accounts in India ,reflecting a large untapped market.
Infrastructure Development :India needs significant investment in
infrastructure to sustain long-term growth momentum. Investment
requirement in infrastructure is expected to increase a ta CAGR of 14.6%
By FY17.Bank finance would be of critical importance to the sector.
MSME Sector : The Micro, Small and Medium Enterprises (MSME)
segment accounts for 45% of the Indias industrial output and contributes
about 11.5% of GDP. However, the segment faces a chronic shortage of
bank financing for growth. This unmet demand presents a significant
opportunity for the flow of banking credit.
Source:KPMG, Planning Commissions XIth and XIIth fiveyear plan

Growth Prospects
Focus on Emerging and Rural Sector : The tough macro economic
situation in India is driving private- sector banks to sharpen their
focus on emerging sectors and rural markets to boost growth.
Shift to Fee Based Business Model : Banks are looking to increase
fee- based income by shifting focus to selling life and general
insurance policies through bancassurance tie-ups or as insurance
brokers.
Rising Focus on Mobile banking : Banks are increasingly adopting
mobile-based channels as delivery channels to expand reach and
lower costs since opening bank branches comes with its
associated regulatory and financial restrictions.

Source:KPMG, Confederation of Indian Industry (CII), RBI,

Accenture

Equity research on HDFC bank ltd.

About HDFC:
One of the First bank to receive approval from RBI to set up a
bank in the private sector.

Incorporated in August 1994 in the name of HDFC Bank

Limited,
It is headquartered with its registered office in Mumbai,
India.
HDFC

Bank commercial operations as a scheduled

commercial Bank in January 1995.

Listed in BSE,NSE.

Retail Banking

Wholesale Banking

Loan Products:
Commercial Banking:
Auto Loans
Working Capital
Personal Loans
Term Loans
Home Loans / Mortgages
Bill / Invoice discounting
Commercial Vehicles Finance Forex & Derivatives
Retail Business Banking
Wholesale Deposits
Credit Cards
Letters of Credit
Loans against Gold
Guarantees
2-Wheeler /Consumer DurableTransactional
Loans
Construction Equipment Finance
Banking:
Other Products / Services: Cash Management
Depository Accounts
Custodial Services
Mutual Fund Sales
Clearing Bank Services
Private Banking
Correspondent Banking
Insurance Sales (Life, General)Tax Collections
NRI Services
Banker to Public Issues
Debit Cards
Investment Banking:
Deposit Products:
Debt Capital Markets
Savings Accounts
Equity Capital Markets
Current Accounts
Project Finance
Fixed / Recurring Deposits
M&A and Advisory
Corporate Salary Accounts
Loan products contd
Self Help Group Loans
Joint Liability Group Loans
Kisan Gold Card

Treasury
Products /
Segments:
Foreign Exchange
Debt Securities
Derivatives
Equities
Other
Functions:
Asset Liability
Management
Statutory
Reserve
Other
Management
Products /
Services:
Depository
Accounts
Mutual Fund Sales
Private Banking
Insurance Sales
(Life, General)
NRI Services
Bill Payment
Services
POS Terminals
Debit Cards
Foreign Exchange

Revenue Structure
Total
Deposits

4000

Rs. In bn

3500

3500

3000

3000

2500

2500

2000

2000

Gross
Advances

Rs. In bn

gross advances
wholesale

1500
Total Deposits
Wholesale

1500
1000

1000
500

500

0
2012

160

2013

2012

2014

Profit Before Tax Rs. In bn

140
120
100

profit before tax

wholesale

80

profit before tax retail

60
40
20
0
2012

2013

2014

2013

2014

Over 90% of net revenues

from customer segments
Large retail deposit franchise
a source of stable funding
Well balanced loan mix
between wholesale and retail
segments
Equally well positioned to
grow both segments

Source : Investor Information , HDFC website

Net Interest Margin

Cost of Deposits
In percentage

6.2

4.46

6.1

4.44

4.42

5.9

4.4
6.13

5.8

5.5

4.38
5.97

5.7
5.6

In percentage

4.48

4.43

4.36
4.37

4.34

5.72

4.32
2012

4.47

2013

2014

2012

2013

2014

Amongst the lowest

deposit costs in the
Non-funded Revenues FY2014
industry.
Healthy margins
relatively stable across
Recoveries ; 7% P/L on Investments; 1%
interest rate and economic
Fx & derivatives; 19%
cycles .
Average yields supported
fees & commission; 73%
by higher proportion &
mix of retail
Sourceproduct
: Investor Information
, HDFC loans
website

High Quality
Total Deposits
Deposits
Rs. in bn

Core Casa Ratio

3500

Rs. in bn

60%

3000
50%

2500
2000

total deposits
current

40%

1500

total deposits
savings

30%

1000

total deposits time

core CASA ratio

current
core CASA ratio
savings

20%

500

10%

0
2012

2013

0%

2014

2012

2013

2014

Average Saving Balance per account

Rs. in bn

53000
52000
51000

average saving balance

per account

50000

Healthy proportion of CASA

(current & savings) deposits.

49000
48000
47000
46000
2012

2013

2014

Source : Investor Information , HDFC

Key Differentiating Strategies

Extensive ATM network : Leading private sector
bank with a large network of over 11,000ATMs.
The bank has an ATM/Branch ratio of 3.4
compared to 3.0 of ICICI Bank . In 2013, HDFC
Bank also launched a pilot program for solarpowered ATMs.
Focus on semi-urban & under-banked markets:
Added 518 branches including 193 micro
branches (2 3 member branches ) in FY13 to
strengthen their rural presence. Over 88% of the
banks new branches were setup in in semiurban
and ruralDiversification
areas during the same period.
Branch

Rural ; 22%
Semi urban; 34%
Metro; 23%
Urban ; 21%

Source : Investor Information , HDFC website

Source : HDFC Bank Website

SWOT Analysis
Strengths
Support of Promoters.
High Level of Services.
Knowledge of Indian Market s,
Extensive National Presence

Weakness
Marginal International Presence
Customer service staff requirement
Some gaps in certain sectors.

Opportunities
Could extent overseas broadly.
ThreatsInnovative Banking techniques adopted by ICICI and
other competitors to capture market share

Competitors

Net Profit

USD billion

2.5

Net Profit

USD Billion

1.6
1.4

1.2
1.5

1
0.8

0.6

0.5

0.4
0

0.2
0

Market Cap

Market Cap

USD billion

USD Billion

Canara Bank; 5%
Bank of India; 8%
PNB; 12%

Indusland Bank; 6%
Kotak Mahindra bank; 13%
HDFC Bank; 37%
Axis Bank; 15%

Bank of Baroda; 14% SBI; 62%

ICICI Bank; 30%

Source: MoneyControl.com, RBI

Data on Market cap as on 10thApril, 2014

HDFC BANK

Banking Sector

NPA % to Advances
1.2
1.02

0.98

0.97

Red = Net NPAs

40%
Blue =Gross
NPAs
35%

Non-performing assets

1.7
%

30%

1.3%

25%

0.8

1.1%

20%
0.6

1.1%

1.0%

15%
10%

0.4
0.2

Blue = Gross
NPAs
Black = Net
NPAs

0.2

0.18

0.27

5%
0%

2010
2012

2013

2011

2012

2013

2014

2014

Specific provision cover at 73% of NPAs, total coverage

ratio over 100%
Restructured loans at 0.2% of the Bank's gross advances
as on March 31, 2014
NPA rate lower than 10 year average even in current
challenging environment
Source:RBI report on trend and progress of banking in India 2013-14 and
HDFC website.

Blue = net interest income

Red = net profit

Blue = deposits
Red = advances
USD in Billion
70
60

56

51

50

56

60

58

60

58

2.7
2.3

47
2

40

1.

1.6
1.3

30

20
10
0

FY11

FY12

FY13

60

40
30

FY12

45

2.7

44

FY14

2.9

2.4

40
35

FY13

54

51
50

FY11

FY14

35
1.8
26

20

0.9

1.1

1.2

0.6
10
0

FY11
FY11

FY12

FY13

FY12

FY13

FY14
Source:HDFC Bank website, RBI,ICICI Bank Website

FY14