EXECUTIVE SUMMARY

Introduction

Financial analysis is the starting point for making plans, before using any

sophisticated forecasting and planning procedures. Understanding the past is a

prerequisite for anticipating the future. Financial analysis is the process of

identifying the financial strength and weakness of the firm by properly

establishing relationship between the items of the balance sheet and the profit

and loss account. Financial analysis can be undertaken by management of the

firm, or by parties outside the firm, viz. owners, creditors, investors and

others. The nature of analysis will differ depending on the purpose of the

analyst.

Investors: Who invested their money in the firm’s shares, are most

concerned about the firm’s earnings. They more confidence in those

firm’s that show steady growth in earnings. As such, they concentrate

on the analysis of the firm’s present and future profitability. They are

also interested in the firm’s financial structure to that extent influence

the firm’s earning ability and risk.

Trade creditors and financial instutitution: They are

interested in firm’s ability to meet their claims over a very short period

of time. Their analysis will, therefore, confine to the evolution of the

firms liquidity position. And the financial institutions are interested in

the financial statements of the borrowing concern to ascertain its short-

term as well as long-term solvency and also it profitability.

Suppliers: On the other hand, are concerned with the firm’s long-

term solvency and survival. They analysis the firm’s profitability over

time, its ability to generate cash to be able to pay interest and repay

principal and the relationship between various sources of funds (capital

structure relationships). Long-term creditors do analysis the historical

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financial statements, but they place more emphasis on the firm’s projected,

or pro forma, financial statements to make analysis about its future

solvency and profitability.

Management and employees: The firm would be interested in

every aspect of the financial analysis. It is their overall responsibility to

see that the resources of the firms are used to most effectively and

efficiently, and that the firm’s financial condition is sound. The

foresaid features of financial statement analysis that really facilitates

the organization to determine their financial strengths and weakness. In

connection with this the researcher has opted a HDFC bank ltd to

analyze their financial abilities and suggests them for a long-term

growth prospective. And the employees of a concern are interested in

the financial statement of the firms to ascertain its profitability and

ability to offer higher wages, bonus, better working conditions, etc.

Government: The Government is interested in the financial

statements of a concern for purposes of taxation, and also for the

purpose of regulating the activities of the concern

Objectives of the financial analysis

To determine the profitability or earning capacity and progress of the

concern

To judge the financial position of the concern and also analyze the

strength and weakness of the firm

To find out the solution to the unfavorable financial conditions and

financial performance

To involve comparison for a useful interpretation of the financial

statement

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To act of analysis may also reveal areas where control is deficit and desirable

for the efficient operating of the bank which in turn help to achieve

organizational goals.

TITLE OF THE STUDY

“THE ANALYSIS AND INTERPRETATI'ON OF THE FINANCIAL

STATEMENT OF HDFC BANK LIMITED, BANGALORE.”

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OBJECTIVES OF THE STUDY

The objectives of the study are to evaluate the financial position and

performance of the “HDFC BANK LTD”. The purpose of the study mainly

centers on the critical analysis of the financial statements of the bank. And

makes attempt to get better in sight about the financial strength and weakness

of the bank by analyzing and interpreting the data reported in its statements.

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RESEARCH DESIGN OF THE STUDY

Research design means a search of facts, answers to question and

solution to the problems. It is a prospective investigation. Research is a

systematical logical study of an issue or problem through scientific method. It

is a systematic and objective analysis and recording of controlled observation

that may lead to the development of generalization, principles, resulting in

prediction ultimate control of events.

Research design is the arrangement of conditions for the collection

and analysis of data in manner that aims to combine relevance to the research

purpose with relevance to economy. There are various designs, which are

descriptive and helpful for analytical research.

In brief a research design contains

• A clear statement of the research problem.

• A specification of data required

• Procedure and techniques to be adopted for data collection.

• A method of processing and analysis of data.

Research design used in the specific study includes the following

• Identifying the statement of the problem.

• Collection of the company’s specific literature i.e., annual reports for

the study period and the profile of the company.

• Scanning through standard books to understand the theory behind the

financial performance evaluation

• Collection of information from various journals to understand the

industrial background of the study.

• Decision regarding study prior in this case it was decided to be 5 years

i.e., from 2002-2003.

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METHODOLOGY

Sources of data can be classified into two groups they are:

• Primary data and

• Secondary data

Primary data

The data are originally collects the data directly from the company or

from the agency for the first time, for any statistical investigation and used by

them in the statistical analysis are termed as primary data. It has been

collected through different books of accounting, broaches, catalogs, company

prospects, company file etc.

Secondary data

The data published or un published, which have already been collected

and processed by some agencies for their statistical work are termed as

secondary data. As for as secondary data is concerned the second agency if

and when it publishes and files such data, it becomes secondary data sources

to any one who later uses that data.

This is related to collect the required information about the study. My

sources of information are the data available with the bank by on going

through the annual reports. The study is basically relies on secondary data

supplied by the bank. The primary data used for this study consist of informal

discussion, interviews with the deputy manager of the bank.

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Analysis and Interpretation of Financial Statement

The Financial Statement Provides a Summarized view of the financial

position and operation of the firm, therefore much can be learnt about a firm

from an examination of its financial statements ad invaluable documents /

performance reports. The analysis of financial statements is a processes of

scanning and evaluating with a view to get a necessary information and

interpretation is drawing conclusions with regard to the nature of the inter

relationship between figures and analyzed.

It is necessary to note in the context that analysis and interpretation are

complementary and one cannot be stressed or favored as against the other.

Infact the very object of the analysis is to interpret the significance relation

ship between figures and there cannot be any interpretation without first

analyzing the data. Thus analysis and interpretation go hand in hand. The

main objectives of the analysis is the analyzing the strength and weakness of

the firm, obtained from the Financial Statement and balance sheet of the

company. The Financial Analysis is a final step of accounting that resulting

presentation of the final and the exact data, which helps the business manager,

creditors, investors and other related people to know the financial position of

the company and their strength.

The subject matter of the Finance has been changing at a rapid pace

about three decades ago. The scope of Financial Management was

circumscribed to the raising Funds whenever is needed and a little significance

used to be attached to Financial Decisions and problem solving. As a

consequence the traditional finance context was structured around the theme

and contains discussion of the instruments and institution of rising funds and

of the major events such as Promotion, re-organization, re-adjustment,

Mergers, Consolidation, etc., when fund are required to be raised.

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Finance is a life blood of business; it is rightly termed as the science of

money. It is the foundation of each and every economic activity and is the

pivot around whichever business rotates. So it is very essential for the smooth

running of the business. It has made possible tremendous savings of time and

trouble in the marshalling productive facilities and in the distribution of the

output of the industry to final consumers. It has brought about rapid economic

progress be facilitating specialization and division of labour technological

progress, large scale production and expansion of various forms of business

and financial organization and it controls the Policies, activities and decision

of every business.

Finance may be defined as a “It is that the business activities which is

concerned with the organization and conservation of capital funds in meeting

the financial needs and over all objective of the business enterprises”

The Financial Management is a Managerial activity and an integral part

of the all Management of the business. It is concerned with the proper

planning and controlling of the firm’s financial resources as a separate activity

of discipline has under fundamental changes as regards it scope and

coverage’s. It is of recent origin. It was a branch of economies till 1890. Still

today, it has no unique body of knowledge of it own and depend economics

for its theoretical concepts.

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The Financial Management concerned with:

The ascertainment of finance both long term and short term needed by

the firm

Determination of suitable resources under given circumstance

Collection of funds with in the time and control over utilization of

funds

And also to maximization of profit of the firm, share holder’s wealth

maximization.

Ensure a fair return in investment to the share holders

Creating of reserves for growth and expansion

Based on this reasoning the Financial Analysis is a study of relationship

between many factor as disclosed by the company financial statement and the

study of the trend of these essential factors.

FINDINGS

Average Quarterly balance for urban area are slight high for

common people

Penetrating rural market

In the era where India is witnessing emergence of eminent

foreign banks, HDFC Bank has still maintain its glory

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LIMITATIONS

The financial statements are prepared on the basis of historical costs or

original costs. The value of assets decreases with the passage of time

current price changes are not taken into account.

The financial statements are expressed in monetary values, so they

appear to give final and accurate position, but some times it does not

give exact position.

The precision of financial statement data is not possible because the

statements deal with natters which cannot be precisely stated.

The bank wanted not to disclose some of the analysis carried on.

Hence some of them are not included in this report.

CONCLUSION

The study is entitle “A Study of Financial Statement Analysis of the

HDFC Bank Limited” has been undertaken with the objective to analyze and

interpret the bank’s financial performance.

In general, the bank has achieved tremendous progress over the recent

years. The bank has a healthy financial performance. The bank has been able

to achieve heavy growth across multiple parameters, including customer’s

acquisition, geographical spread, business volumes and revenues.

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COMPANY PROFILE

Origin Of The Organization

HDFC BANK LTD. is leading private sector bank and financial services

company in India. 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 up a bank in the private sector, as part of

RBI`s liberalization of the Indian Banking Industry in 1994. The Bank was

incorporated in August 1994 in the name of “HDFC BANK LTD.”, with its

registered office in Mumbai, in India and commenced operation as a

Scheduled Commercial Bank in January 1995. The Bank is a banking

company governed by India’s Banking Regulations Act, 1949. The Bank’s

shares are listed on the Bombay Stock Exchange Ltd., the National Stock

Exchange of India Limited and its ADSs are listed on the New York Stock

Exchange.

The bank is a part of the HDFC Group of Companies founded by out

parent. This bank is public limited company established under the laws of

India. HDFC LTD. and its subsidiaries owned approximately 22% of our

outstanding Equity Shares as of March 31st 2006. From the beginning, HDFC

Bank its operation with the aim of becoming a world-class Indian Bank and

the endeavor of fulfilling all the financial requirements of customer under one

roof. Over the years, by delivering superior financial products and services,

the bank has build a stable and long lasting relationship with nearly 7 million

customers without compromising standard for maintaining high quality

association, culture for learning, quick absorption of latest and best

technologies and unwavering adherence to best practice in governance have

been the core strength that have brought the bank to the present position with

the constant learning to growth, the bank has continued to use the dividends of

leadership to fuel future expansion and presence.

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The strategy of bank is to provide comprehensive range of financial

products and services for their customers through multiple distributed in

channels, with high quality service and superior execution. The multiple

distribution channel including an electronically linked branch network,

automated telephone banking, internet banking and banking by mobile phone,

to offer customer convenient access to their product. The quality of service is

provided by bank through intensive staff training and the use of our

technology platform. Their focus on knowledgeable and personalized services

draws customers to our products and increases the loyalty to the existing

customers.

The HDFC Bank’s philosophy is based on four core values that is

Operational excellence, Customer focus, Product leadership and People. The

bank is professionally managed organization with board of directors consisting

of eminent persons who represent various fields including finance, taxation,

construction, urban policy and development. The board primarily focus on

strategy formulation policy and control, design to delivery increasing value to

share holders.

Today, HDFC are market leader in most of the segments that they

operate and their goal is to acquire the best position in attracting customers.

The bank has grown rapidly since commencing operations in Jan 1995.

Currently the bank has a nation spread over 583 branches in 263 cities across

the country by operating in three principle segments, that is

Wholesale banking

Retail banking

Treasury service

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Wholesale Banking Services

The Bank's target market ranges from large, blue-chip

manufacturing companies in the Indian corporate to small & mid-sized

corporate 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.

It is recognized as a leading provider of cash management and transactional

banking solutions to corporate customers, mutual funds, stock exchange

members and banks.

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 their banking requirements. The products

are backed by world-class service and delivered to the customers through the

growing branch network, as well as through alternative delivery channels like

ATMs, Phone Banking, Net Banking and Mobile Banking.

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 liberalization of the financial markets in India,

corporate 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.

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It is well-recognized fact that the quality of financial management is a

key ingredient in determining the success of an organization. This is even

more relevant in a service industry like banks. In this bank, they work for

ultimate identity and success of their bank will reside, as it always has, in the

exceptional quality of their people and their extraordinary effort. The bank is

only as strong as its infrastructure and its processes. The bank, right from

inception, they have invested in a robust technology platform, that’s

seamlessly integrated with centralized and audited processes. This has

enabled them to expand rapidly and grow manifold while maintaining

acceptable service standards.

The bank’s well-documented procedures, high levels of automation,

intensive training of personnel and ongoing audit review had enabled then to

improve the reliability of their operational processes. ISO 9002 certifications

of their cash management, retail centralized processing and custody and

depository operations are indicative of their achievements in this regard.

According to leading Indian Business magazine, Business World, a survey

was carried out and it was noted that HDFC Bank stand best in India for the

year 2006. The bank was ranked as “India’s” third best company by Finance

Asia 2005. The bank received the “Dream Home” award for the best housing

finance company for 2004 from outlook money magazine. And also has been

named best domestic bank in India in the Asset Triple a country awards in the

year 2004. In 2003 the bank won the award for operational excellence in retail

financial services India as a part of Asian Banker excellence in retail financial

services program.

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MANAGEMENT

Directors and executives

HDFC Bank’s Memorandum and articles of association provides

that until otherwise determined by a general meeting of shareholders. The

number of our directors shall not be less than three (3) or more than fifteen

(15) directors, excluding directors appointed pursuant to the term of issue date.

Bank’s board of directors consisted of nine (9) members as of March 31st 2006

were comprised of;

Mr. Jagadeesh Kapoor (Chairmen)

Mr.Aditya puri (Managing Director)

Dr. V.R.Gadwal (Non Executive Director)

Mr. Vineet Jain (Non Executive Director)

Mr. K.M.Mistry (Non Executive Director)

Mrs. Renukarnad (Non Executive Director)

Mr. Aravind Pande (Non Executive Director)

Mr. Bobby Parikh (Non Executive Director)

Mr. Ashim Samanta (Non Executive Director)

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ORGANIZATIONAL STRUCTURE

Structure of the branch

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BOARD OF DIRECTORS

CHAIRMAN AND MANAGING DIRECTKOR

EXEUTIVE DIRECKTOR

REGIONAL BUSINESS MANAGER

STATE MANAGER

BRANCH MANAGER

SUPERVISOR AUTHORITIES

SUPERVISOR AUTHORITIES

PERSONAL BANKER TELLER AND RELATIONSHIP MANAGER

PRODUCT PROFILE

The products, which are found in HDFC Bank, are

Saving Account

Current Account

Fixed Account

Preferred Program

Demat Account

NRI Account

ForexPlus travel’s Card

Bill pay

Insta Alert

Direct banking Channel

Saving Bank Account

People with steady and monthly income save their excess earning

through this account. There are certain restrictions in the withdrawals. Bank

pays interest at a nominal rate. Small savings are encouraged in this account.

The bank has these accounts under the savings accounts are

Regular Account

Salary Account

Trust account

Kids Advantage Account

Current Account

These deposits constitute major portion of banks circulating medium of

exchange. Normally business people keep money in his accounts as they can

withdraw and issues cheques any number of times. Banks does not pay any

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interest for these deposits. The different accounts that can be opened under

the current accounts are:

Regular Account

Premium Account

Plus Account

Trade Account and Merchant Establishment

Fixed Deposits

Money is accepted for a fixed period it cannot be with draw on before

expiry of fixed period. The interest’s rate higher than other accounts.

Minimum amount of new fixed accounts is Rs. 10,000 and addition on fixed

deposits is 5,000. Since fixed deposits was booked for a period 14 days

interest is paid only if the fixed deposits runs for at least 15 days if the

deposits was booked for 14 days or less interest is paid if the fixed deposits

runs for at least 7 days.

Preferred Program

The following are the components of preferred program

Free Gold Debit card with enhanced daily limit

ATM at par cheque book

Free Gold Debit card

Fixed discount up to 8 paise on card rate

Free intercity transaction

Monthly combined statement

Free cheque book pick-up and delivery

Discount on loans

Free standing instructions.

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Demat account

With SEBI making trading mandatory in the Demat form advent of

rolling settlement, it is imperative that all investors have a Demat account with

a depository participant. When a customer places an order the seller can

deliver the securities in Demat form, which can only be traded to the Demat

account.

The following are the benefits of Demat account in HDFC bank

Nominal annual maintenance charges

Competitive fees for transaction

Demat account status on the Internet

Option to open Demat account with NSDL or CDSL or both

Personalize Instruction Book

Paper less trading which will help to prevent mutilation, loss and

misplacement of certificate and eliminate the problems of bad delivery

Safety of securities with HDFC bank

Problem of bad delivery, mutilation is eliminated

Zero stamp duty

Faster settlement of buying and selling of orders, direct credit of allotment

for public/rights/bonus issue.

NRI Account

The different types of NRI Accounts are

♦ NRO Accounts: It is an account that can be opened in Indian rupees. One

can also open on account in any form; be it savings, current or term

deposits. Interest on account can be repatriated.

♦ NRE Account: Non Resident External account at HDF Bank is available

as a savings, current and term deposit. One can also get an international

debit card with your NRE Account, the average quarterly balanced are

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NRE savings accounts is Rs. 10,000 and current and fixed deposit account

is Rs. 25,000.

♦ FCNR Account : In foreign currency non resident account you get

protection against exchange risk, apart from earning attractive interest rate

the fund can also be repatriated abroad

♦ RFC Account: It is an account is to retain fund in foreign currency.

Forex Plus Travel’s Card

The Forex plus Travel Card is a non-personalized car in association with

Visa. It is a prepaid USD/EUR/GBP denominated card. Moreover, it can also

be used at ATM with pin and with signature. The main features of the Forex

plus Travel card are

Minimum loading $500 and E400 and Maximum loading $10,000 and

E8, 000

Per day limit ATM $2,000

Personal accident covers Rs. 2 lakhs

Loss of baggage covers Rs. 20,000

Hence, Forex plus Card cannot be used for the cash withdrawal in India,

Nepal and Bhutan. The customers are not able to check outstanding balance at

HDFC Bank ATMs. Also, the card Pin cannot be changed.

Bill Pay Account

Through Bill Pay, a customer can not only pay his Electricity, Mobile,

Telephone bills but also Life Insurance premium. The customer can also

subscribe or renew his Internet account through the Direct Pay facility.

Hence, the Bill Pay through the Internet is done by logging to Net Banking

using the customer ID and password. Then the customer has to click on the

bill payment icon and select the company of which the bill is to be paid and

confirm payment. Bill Pay through Phone is done just by calling Phone

banking in the city and then follows the simple instruction that’s given. Bill

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Pay through Mobile Phone is just to access your HDFC Bank account on your

mobile phone to pay your bills, while you are on the move. Bill Pay at ATMs

is simply by selecting the others option in the main menu. Then, select the bill

payment option in the sub-menu. And finally, just confirm the amount of the

bill that you wish to pay. However, you must be registered for Net banking

and Mobile Banking in order to use these channels for Bill pay.

Insta Alert

HDFC Bank makes its customer life simple with the introduction of its

new Insta alert service. With this facility, one can get regular updates on his

bank account via SMS or e-mail. Hence, Insta alert ensures its customer

complete peace of mind. For our salary account holders, Insta alert helps in

getting an SMS or e-mail the moment the salary gets credited.

The main features of the Insta Alert are Utility bill payments due and weekly

balance alert. For these services they charge Rs: 25 per account quarterly for

savings account and for current account they charge Rs: 50 per account

quarterly.

Direct banking channels

There are three types of direct banking channels. They are

Net banking

Mobile banking

Phone banking

Net banking

Net banking relates to the benefits through financial and non financial

transactions. They are Free Funds transfer, Demand Draft, Bank Credit Card,

Bill Pay for financial transactions. For non financial transactions, account

balance, statement download update mailing address, cheque book request

etc…

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Mobile banking

Mobile banking product proposition is based on the SMS (Short

Messaging Service) protocol. The information available on the cell phone

screen is in the form of text message.

Phone banking

Phone banking is the transaction between non-financial and financial

phone banking that give the details of both the mentioned transactions.

Examples are Free Funds transfer, Demand Draft, Bank Credit Card, Bill Pay

for financial transactions. For non financial transactions, account balance,

statement download update mailing address, cheque book request etc…

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Risk management and portfolio quality of HDFC Bank

Taking on various types of risk is integral to the banking business.

Sound risk management and balancing risk reward trade offs are therefore

critical to a bank’s success. Business and revenue growth have therefore to be

weighed in the context of the risks implicit in the bank’s business strategy. Of

the various types of risks the bank is exposed to, the most important are credit

risk, market risk (which includes liquidity risk and price risk) and operational

risk. The identification, measurement, monitoring and management of risks

remain a key focus area for the bank. For credit risk, distinct policies and

processes are in place for the retail and wholesale businesses.

In retail loan businesses, the credit cycle is managed through appropriate

front-end credit, operational and collection processes. For each product,

programs defining customer segments, underwriting standards, security

structure etc., are specified to ensure consistency of credit buying patterns.

Given the granularity of individual exposures, retail credit risk is managed

largely on a portfolio basis, across various products and customer segments.

For

Wholesale credit exposures, management of credit risk is done through target

market definition, appropriate credit approval processes, ongoing post-

disbursement monitoring and remedial management procedures. Overall

portfolio diversification and reviews also facilitate mitigation and

management.

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The risk monitoring committee of the Board monitors the Bank’s

management policies and procedure, vets treasury risk limits before they are

considered by the Board, and reviews portfolio composition and impaired

credits, from an industry concentration perspective, as of March 31 2005, the

retail asset portfolio constituted 49% of the total customer assets (including

advances, corporate debt instruments, etc.). Other larger industry exposures

include automotive at 9% land transport at 4%, housing finance at 4% and

heavy engineering/equipment at 1% of total customer assets. The well-

diversified nature of the portfolio is evidenced in the fact that 23 industries

account for 1%or more of the Bank’s customer assets portfolio.

As of March 31st 2005, the Bank’s ratio of gross non-performing assets

(NPA) to total customer assets was 1.47% as against 1.50% as of March 31st

2004. Increases in non-performing assets during the year were primarily

related to delinquencies in various retail loan products. These delinquencies

and NPAs were within the expected levels for each of the retail asset products

given the seasoning of the retail portfolio. Net non-performing assets were

0.24% of net advances and 0.20% of customer assets as of March 31st 2005 as

against 0.16% and 0.12% respectively as of March 31st 2004. The specific

loan loss provisions that the Bank has made for its non-performing assets

continue to be more conservative than the regulatory requirement.

The bank continues to have a policy of creating general provisions

upfront based on estimated portfolio losses for its major retail loan product

programs against which specific provisions are set-off as the portfolio ages

and NPAs surface. As on March 31st 2005, total general loan loss provisions

were 0.6% of the standard advances as against the regulatory requirement of

0.25%. The bank has been tracking the farming of the New Basel Capital

Accord (Basel II) and the guidelines of the Reserve Bank of India in this

regard. It has also assessed the key requirements of the framework, identified

the areas in rating systems, risk architecture, technology support, process

documentation, etc., needing augmentation and has laid down a road map for

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meeting the requirements in this respect. The Bank is in the process of

implementing a solution, which meets its requirements in the wholesale credit

area in connection with the Internal Rating Based (IRB) Approach for credit

risk. This will supplement the risk management systems the Bank already has

in place since inception.

PROJECT OVERVIEW

Theoretical overview of Financial Statement Analysis

Financial Statement

An organization communicates its financial information to the users

through financial statements and reports. Financial statements contain

summarized information of the organization’s financial affairs, organized

systematically. These statements comprise the incomer statements or profit

and loss account and the position statement or the balance sheet.

These financial statements have been prepared in accordance with

accounting principles generally accepted in the United States of America.

This principles differs in certain material respects from accounting principles

generally accepted in India, the requirements of India’s Banking Regulations

Act and related regulations issued by the Reserve Bank of India which form

the basis of the statutory general purpose financial statements of the Bank of

India. Principal differences in so far as they deferred income taxes, stock

based compensation, employee benefits, loan origination fees and derivative

financial instruments, and the presentation format and disclosures of the

financial statements and related notes. The preparation of financial

statements in conformity with US GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosures of contingent assets and liabilities at the date of

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these financial statements and the reported amounts of revenues and expenses

for the years presented. Actual results could differ from these estimates.

Material estimates included in these financial statements that are susceptible to

change include the allowance for credit losses and the valuation of unlisted

investments.

To give a full view of the financial affairs of the undertaking it is also

necessary to include a statement of retained earnings, a statement of changes

in the financial position and a few schedules such as schedule of fixed assets

and schedule of debtors.

Income Statement: The profit and loss account sets out income as

well as expenses of the same period and after matching the two, the

difference being the net profit or net loss, is shown as the difference

between the two sides of the account. Thus, the earning capacity and

the potential of an organization are reflected by its profit and loss

account.

Position Statement: And also know as Balance sheet. It displays

the total resources of a business and the owners and creditor’s equity in

these resources. It indicates a statement of affair of a business at a

particular moment of time and thus it is static in nature.

Statement of Retained Earnings: Also known, as the profit and

loss appropriation account, is generally a part of the profit and loss

account. It shows how the profit of the business for the accounting

period is appropriated towards reserve and dividend and how much of

the same is carried forwarded as retained earnings.

Statement of Changes in Financial Position: Also known as the

fund flow statement summarized the changes in assets, liabilities and

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the owner’s equity between two balance sheet dates. Thus, it is a

statement of flows, which is it measures the changes that have been

taken place in the financial position of a firm between two balance

sheet dates. It summarizes the sources and uses of the funds obtained.

TITLE OF THE STUDY

“THE ANALYSIS AND INTERPRETATI'ON OF THE FINANCIAL

STATEMENT OF HDFC BANK LIMITED, BANGALORE.”

The analysis of the statement is a evaluating the financial position and

analyzing the performance of the bank and also evaluating the financial

strength and weakness of the bank. The analysis is based on absolute

accounting figures reported in the financial statement, like Balance Sheet,

Profit and Loss Account and other Income Statement, which were prepared by

the bank.

The essence of financial statement of the bank lies in balancing its goal,

commercial strategy and resultant financial needs. The bank should have

financial capabilities and flexibility to peruse its commercial strategies.

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OBJECTIVES OF THE STUDY

The objectives of the study are to evaluate the financial position and

performance of the “HDFC BANK LTD”. The purpose of the study mainly

centers on the critical analysis of the financial statements of the bank. And

makes attempt to get better in sight about the financial strength and weakness

of the bank by analyzing and interpreting the data reported in its statements

Various objectives of the analysis are:

To study the service offered by the HDFC BANK LTD., to the

customers and financial activities, and also study the new planes and

schemes of the bank.

Study is mainly focused on the financial and commercial activities of

the bank

To indicate the trend progress of downfall of the bank

To evaluate the profitability of the bank

To show the relative strength and weakness of the bank

To determine the financial condition and financial performance of the

bank

To involve comparison for a useful interpretation of the financial

statement

To find out the solution to the unfavorable financial conditions and

financial performance

To analyze how the bank as utilized its each financial resources and its

sources

To find out the market share of the bank

28

To act of analysis may also reveal areas where control is deficit and

desirable for the efficient operating of the bank which in turn help to achieve

organizational goals.

Need of the Study

Any company would like to know its position against its competitors.

The ultimate performance indicator of any company is the financial

parameters because invariably all cost efficiencies, activities and solvency

position of the company will be reflected in the financial mirror.

The following are stated as the need for the study:

To understand the volume of the profit and its reasonableness.

To understand the movement of profit over a period of time.,

To know the reason for the variation in the profit.

To know the present standing of the company.

SCOPE OF THE STUDY

The study is confined to HDFC BANK LTD., the annual reports of the

bank constitutes primary sources of statistical data for deciding its working

results and financial stand besides the information given by the finance

manager also constitute a part of information for the study. The financial

information dealing with the Balance sheet and Profit and Loss account have

been analyzed and interpreted to arrive at definite conclusion. The statements

are prepared on 31st March of every year.

The analysis of financial statement and financial performance is a well-

researched area and innumerable studies have proved the utility and usefulness

29

of this analytical technique. This research seeks to investigate and

constructively contribute to help,

The bank in finding out the gray areas for improvement in performance

The bank to understand its own position overtime

The managers to understand the contribution to the performance of

bank

The present and potential investors outside parties such as the creditors,

debtors, government and many more to get an idea of the over all performance

of the bank.

30

METHODOLOGY

Sources of data can be classified into two groups they are:

• Primary data and

• Secondary data

Primary data

The data are originally collects the data directly from the company or

from the agency for the first time, for any statistical investigation and used by

them in the statistical analysis are termed as primary data. It has been

collected through different books of accounting, broaches, catalogs, company

prospects, company file etc.

Secondary data

The data published or un published, which have already been collected

and processed by some agencies for their statistical work are termed as

secondary data. As for as secondary data is concerned the second agency if

and when it publishes and files such data, it becomes secondary data sources

to any one who later uses that data.

This is related to collect the required information about the study. My

sources of information are the data available with the bank by on going

31

through the annual reports. The study is basically relies on secondary data

supplied by the bank. The primary data used for this study consist of informal

discussion, interviews with the deputy manager of the bank.

Financial Analysis

The focus of financial is on key figures in the Financial Statements and

the significant relationship that exists between them. The analysis of financial

statement is a process of evaluating relationship between component parts of

the financial statement to obtain a better understanding of the firm’s position

their strength and weakness and performance of the firm. The purpose of

financial analysis is to disclose the information contained in the financial

statements so as to judge the profitability and financial soundness of the

organization. The first task of the financial analysis is to select the

information relevant to decision under consideration from the total

information contained in the financial statement. The second step involved in

financial analysis is to arrange the information in a way to highlight significant

relationship. The final step is interpretation and drawing of inference and

conclusions. In brief financial analysis is the process of selection, relation and

evaluation.

Types of Financial Analysis

There are two types of financial analysis, they are

On the basis of material used

On the basis of modus operandi

On the basis of material used

32

According to material used, financial analysis can be of two types, they

are

External Analysis: This analysis is done by outsiders who do not have

access to the detailed internal accounting records of the business firm.

These outsiders include investors, potential investors, creditors,

potential creditors, government agencies, credit agencies and the

general public.

Internal Analysis: This analysis conducted by persons who have

access to the internal accounting records of a business firm is known as

internal analysis. Such analysis can, therefore, performed by

executives and employees of the organization as well as government

agencies which have statutory powers vested in them.

On the basis of modus operation

According to the method of operation followed in the analysis, financial

analysis can also be of two types, they are

Horizontal Analysis: This analysis refers to the comparison of

financial data of a company for several years. This type of analysis is

also called ‘Dynamic Analysis’ as it is based on the data from year to

year rather than on data of any one year.

Vertical Analysis: This analysis refers to the study of relationship of

the various items in the financial statements of one accounting period.

In this type of analysis the figures from financial statement of a year

are compared with a base selected from the year’s statement.

Techniques of Financial Statement Analysis

33

Analysis of the financial statement by selecting the appropriate

techniques according to the purpose of analysis financial statement may be

analyzed by means of any of the following techniques, they are

Ratio Analysis

Comparative Statements Analysis

Common-size Statements Analysis

Trend Analysis

Cash flow Statements Analysis

Fund flow Statements Analysis

Ratio analysis

It is one of the powerful tools of the financial analysis and it is a

statistical yard stick that provides a measure of relationship between two

accounting figures. Ratio analysis of financial statement stands for the process

of determining and presenting the relationship of items and group of items in

the statement. Ratio analysis can be used both in the trend analysis and static

analysis. Ratio is thus the numerical or an arithmetical relationship between

two figures, it expressed where one figures is divided by another. It is very

useful analytical techniques to raise pertinent questions on a number of

managerial issues. It provides bases or clues to investigate such issues in

details. While assessing the financial health of a company ratio analysis

answers to question relating to the companies profitability, asset utilization

and liquidity and financial capability of the firm. The ratio can be classified as

follows,

• Profitability ratios

• Coverage ratios

• Turnover ratios

• Financial ratios

Comparative Financial Statement analysis

34

The preparation of comparative financial statement is an important

device of horizontal financial analysis. Financial data become more

meaningful when compared with similar data for a previous period or a

number of prior periods. Statements prepare in a form that reflect financial

data for two or more periods are known as comparative financial statement

analysis. Any statement prepared in a comparative form will be covered in

comparative statements. This statement not only the comparison of the figures

of two periods but also be relationship between balance sheet and income

statement enables an in depth study of financial position and operative results.

The financial data will be comparative only when same accounting principles

used in preparing these statements. In case of any deviation in the use of

accounting principles this fact must be mentioned at the foot of a financial

statements and the analyst should be careful in using these statements the two

comparative statements are balance sheet and income statement

Common size Statements

Ratio analysis apart, another useful way of analyzing Financial

Statement is convert them into common size statement by expressing absolute

rupees amount into percentages, when this method is pursued. Then income

statement exhibits each expenses item or group of expenses. Item as a

percentage of net sales and net sales are taken at 100%. Similarly each

individual assets and liability classification is show as a percentage of total

assets and liabilities respectively. Statement prepare in this way are referred

to as common size statements. This prepared for one firm over the year would

highlight the relative changes in each group of expenses, assets and liabilities.

These statements can be equally useful for inter-firm comparison. This

statement shows the relation of each component to the whole. It is useful in

vertical financial analysis and comparison of two business enterprises at a

certain dates.

35

Trend Analysis

The financial statements may be analyzed by computing trends of

services of information. This method determines the direction upwards or

downwards and involves the computation of the percentage relationship that

each statement item bears to the same item in base year. Clearly the

comparison of the past data over a period of time with a base year is known as

trend analysis. Under trend analysis the percentage relationship that each

financial statement item of each year bears to the same in the base year is

taken as hundred and on that the base trend analysis for the corresponding

item in the other years are calculated.

Cash flow Statement analysis

A statement changes in financial position on cash basis commonly know

as the cash flow statement analysis. Summarize the causes of changes in case

position between dates of two balance sheets. It indicates the sources and uses

of each. It is similar to the fund flow analysis except that it focuses attention

on cash instead of working capital funds. The cash flow statement classifies

cash flows during the period from operating investing and financial activities.

Fund flow Statement analysis

Fund flow statement is a statement has to be prepared to show the

changes in the assets and liabilities from the end of one period of time to the

end of another period of time. And the fund flow statement is a statement

which shows the movement of funds and is a report of the financial operations

of the business undertaking. It indicates various means by which funds were

obtained during a particular period and the ways in which these funds were

employed. In simple word ‘it is a statement of sources and application of

funds’. This statement shows the changes in the position of Working capital

that is may decrease or increase. The working capital is defined as a

difference between current assets and current liability.

36

1. Fixed assets ratio

This ratio establishes the relationship between fixed assets and share

holders funs. This ratio indicates the extent to which share holders funds are

sunk in the fixed assets. Generally, in the purchase of fixed assets should be

financed by the share holder’s equity, which includes Reserves, Surplus and

retained earnings

Fixed assets ratio = Fixed assets / Net worth * 100

Table-1

(Rs in Lacs)Years Fixed assets Net worth Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

371.10528.58616.91708.32855.08

1,951.332,251.742,693.334,562.855,306.53

19.0223.4722.9015.5216.11

The above table shows that the fixed assets to the net worth in the

year 2002 it was 19.02%, then it increased to 23.47% in 2003, but it decreased

37

to 22.90% and 15.52% in 2004 and 2005 respectively. Then it has increased

to 16.11% in the year 2006. This ratio is in good position as the net worth is

more than the fixed assets. The share holder’s funds are sufficient to finance

the fixed assets.

Chart 1:

0

5

10

15

20

25

2002 2003 2004 2005 2006

years

rati

os

38

2. Proprietary ratio

This ratio establishes the relationship between the share holders fund and

the total assets of the firm. It establishes the claims of the share holders on the

firm’s assets. It is usually expressed as a pure ratio.

Proprietary ratio = share holders fund / Total assets * 100

Table - 2 (Rs in Lacs)

Years Share holders funds

Total assets Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

1,951.332,251.742,693.334,562.855,306.53

23,787.3930,424.0843,306.9951,428.0073,506.39

8.207.406.218.877.21

39

The above table indicates that the Proprietary ratio reflects the

financial strength of the bank. In the year 2002, the ratio was 8.20%, and then

it decreased to 7.40% and 6.21%, in the year 2003 and 2004 respectively.

Then it increased to 8.87% in the year 2005, but again decreased to 7.21% in

the year 2006.

Chart 2:

40

0

2

4

6

8

10

2002 2003 2004 2005 2006

years

rati

os

3. Return on equity

It indicates the how the firm has used the resources of the owners. This

ratio is one of the most important ratios in financial analysis. The earnings of

a satisfactory return are one of the most desirable objectives of a business. The

ratio of net profit to owner’s equity reflects the extent to which the objective

has been accomplished.

ROE = Profit after Tax / Equity Share holders fund * 100

Table – 3

(Rs in Lacs)Years PAT Equity share

holders fundRatios (%)

2001-20022002-20032003-20042004-20052005-2006

297.04387.60509.50665.56870.78

281.37282.05284.79309.88313.14

105.56137.42178.90214.77278.08

41

The above table shows that, this reflects the financial strength of the

bank. In the year 2002, the ratio was 105.56%, and then it was continuously

increased to 137.42%, 78.08%, 214.77% and 278.08% in the year 2003, 2004,

2005 and 2006 respectively.

Chart 3:

0

50

100

150

200

250

300

2002 2003 2004 2005 2006

years

rati

os

42

4. Return on assets

Also called as Return on Investments ratio, it is the ratio of net profit to

total assets. Return here means, net profit after taxes and total assets, all

realizable assets including intangible assts. If they are realizable this ratio

measures the productivity of the total assets of a concern.

ROA = Net profit / Total assets * 100

Table – 4

(Rs in Lacs)Years Net profit Total assets Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

297.04387.60509.50665.56870.78

23,787.3930,424.0843,306.9951,428.0073,506.39

1.251.271.171.291.18

43

The above table shows that, the ratio indicates the return on assets. In

the year 2002 it was 1.25% and it increased to 1.27% in 2003. But it was

decreased to 1.17% in 2004, and again it has been increased to 1.29% in the

year 2005 and was decreased to 1.18% in the year 2006.

Chart 4:

0

0.5

1

1.5

2

2002 2003 2004 2005 2006

years

rati

os

44

5. Equity Multiplier

This ratio establishes relationship between total assets and total equity capital of the bank.

Equity Multiplier = Total assets / Total equity capital

Table – 5

(Rs in Lacs)Years Total assets Total equity

capitalRatios (%)

2001-20022002-20032003-20042004-20052005-2006

23,787.3930,424.0843,306.9951,428.0073,506.39

281.37282.05284.79309.88313.14

84.54107.87148.56165.96234.74

45

The above table indicates that the relationship between the bank total

assets and total equity. In the year 2002, it was 84.54% then it increased to

107.87%, 148.56%, 165.96% and 254.74, in the year 2003, 2004, 2005 and

2006 respectively.

Chart 5:

0

50

100

150

200

250

2002 2003 2004 2005 2006

years

rati

os

46

6. Earnings per share

It is the ratio between net profits available for equity share holders (i.e. net profits after tax and preference dividend) and the number of equity shares.

EPS = Net profit / No. of equity shares

Table – 6

Years Net profit

(Rs in Lacs)No. of equity

holdersRatios

2001-20022002-20032003-20042004-20052005-2006

297.04387.60509.50665.56870.78

28,13,74,61328,20,45,71328,47,91,71330,98,75,30831,31,42,408

11.0113.7517.9522.9227.92

The above table shows that the bank earnings position was

satisfactory. So that the bank EPS has continuously increased that is 11.01 per

47

share in 2002 and 13.75, 17.95, 22.92 and 27.92 in the year 2003, 2004, 2005

and 2006 respectively.

Chart 6:

48

0

5

10

15

20

25

30

2002 2003 2004 2005 2006

years

rati

os

7. Profit margin

This ratio is establishes the relationship between the net profit and

total income of the company.

Profit margin = Net profit / Total income * 100

49

Table – 7

(Rs in Lacs) Years Net profit Total income Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

297.04387.60509.50665.56870.78

2,036.242,479.163,028.963,744.835,599.32

14.5915.6316.8217.7915.55

This above table shows that the profit margin of the bank was

satisfactory. That was 14.59% in the year 2002, then it continuously increased

to 15.63%, 16.82%, 17.79% in the year 2003, 2004, 2005. But it again

decreases in the year 2006 that is 15.55%.

Chart 7:

50

0

4

8

12

16

20

2002 2003 2004 2005 2006

years

rati

os

8. Interest expenses ratio

IER= Interest Expended / Total income * 100

Table – 8

51

(Rs in Lacs) Years Interest

expendedTotal income Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

1,073.741,191.961,211.051,315.561,929.50

2,036.242,479.163,028.963,744.835,599.32

52.7348.0839.9835.1334.45

The above table shows that the interest expended ratio that is it

establishes relationship between the interests expended and total income of the

bank. This ratio was 52.73% in the year 2002, then it increased to 48.08% in

2003, and then it decreased to 39.98%, 35.13% and 34.45% in 2004, 2005 and

2006 respectively.

Chart 8:

52

0

10

20

30

40

50

60

2002 2003 2004 2005 2006

years

rati

os

9. Non interest expenses ratio

= Non interest expended / Total income * 100

Table – 9:

53

(Rs in Lacs) Years Non interest

expensesTotal income Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

417.95591.85810.001085.401691.09

2,036.242,479.163,028.963,744.835,599.32

20.5323.8726.7428.9830.23

The above table shows that the relationship between the non interest

expenses and total income to found non interest expenses ratio. This ratio was

20.53% in the year 2002 and then in continuously increased to 23.87%,

26.74%, 28.98% and lastly 30.23% in the year 2003, 2004, 2005 and 2006

respectively.

Chart 9:

54

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006

years

rati

os

10. Tax ratio

= Provision for tax / Total income * 100

Table – 10

55

(Rs in Lacs) Years Provision for

taxTotal income Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

247.51322.55498.41678.311,117.95

2,036.242,479.163,028.963,744.835,599.32

12.1513.0116.4518.1119.78

The above table shows that the relationship between the provision for

taxation and total income of the bank. This ratio was 12.15% in the year 2002.

Then it increases to 13.01%, 16.45%, 18.11% and 19.78% in the year 2003,

2004, 2005 and 2006 respectively.

Chart 10:

56

0

4

8

12

16

20

24

2002 2003 2004 2005 2006

years

rati

os

11. Net interest margin

This ratio is shows relationship between net interest income and total earning assets.

NIM = NII / Total earning assets * 100

Table - 11

57

(Rs in Lacs) Years NII Total earning

assetsRatios (%)

2001-20022002-20032003-20042004-20052005-2006

629.25821.651,337.881,777.992,545.84

23,787.3930,424.0843,306.9951,428.0073,506.39

2.652.703.163.463.46

The above table shows that the net interest margin, which is

relationship between the net interest income and total earnings assets. That

ratio was 2.65% in the year 2002, and then it was increased to 2.70%, 3.16%,

3.46% and 3.46% in the year 2003, 2004, 2005 and 2006 respectively.

Chart 11:

58

0

1

2

3

4

5

2002 2003 2004 2005 2006

years

rati

os

12. Efficiency (cost- income) ratio

= Non interest expenses / Net total income * 100

Table – 12

59

(Rs in Lacs) Years Non interest

expensesNet total income

Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

417.95591.85810.001,085.401,691.09

962.501,287.201,817.912,429.273,669.82

43.4245.9844.5644.6846.08

The above table shows that the efficiency ratio that included cost and

income. This ratio was reflects that the relationship between the non interest

expenses and net total income of the bank.

Chart 12:

60

4

14

24

34

44

2002 2003 2004 2005 2006

years

rati

os

13. Over head efficiency ratio

= Non interest income / Non interest expenses * 100

Table – 13

61

(Rs in Lacs) Years Non interest

incomeNon interest expenses

Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

333.25465.55480.03651.341,123.98

417.95591.85810.001,085.401,691.09

0.790.790.590.600.66

The above table shows that the over head efficiency of the bank by efficiency

ratio that is the relationship between the non interest income and non interest

expenses of respected years.

Chart 13:

62

0

0.25

0.5

0.75

1

2002 2003 2004 2005 2006

years

rati

os

14. Asset utilization

= Total income / Total assets * 100

Table – 14

63

(Rs in Lacs)Years Total income Total assets Ratios (%)

2001-20022002-20032003-20042004-20052005-2006

2,036.242,479.163,028.963,744.835,599.32

23,787.3930,424.0843,306.9951,428.0073,506.39

8.568.157.167.287.62

The above table shows that the asset utilization that is the relationship

between total income and total assets of the bank

Chart 14:

64

0

4

8

12

2002 2003 2004 2005 2006

years

rati

os

Comparative Balance Sheet of HDFC Band LtdFor the year ending 31st March 2002 and 2003

(Rs Lacs)Year ending31st March

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentages)2002 2003

65

Capital and LiabilitiesCapitalReserves and SurplusEmployees stock option (grants) O/S

Deposits BorrowingsSubordinated debtOther liabilities and provisions

Total

AssetsCash and balance with RBIBalance with banksInvestmentsAdvances Fixed assetsOther assets

Total

281.371,660.91

9.05

17,653.81 1,823.02 200.00

2,159.22

23,787.38

1,211.17

2,247.0212,044.026,813.72

371.181,140.35

23,787.38

282.05 1,962.78

6,91

22,376.07 2,084.65 200.00

3,511.62

30,424.08

2,081.961,087.26

13,388.0811,754.86

528.581,583.34

30,424.08

0.68301.87

(2.14)

4,722.26261.63

---

1,352.40

6,636.70

870.79(1,159.76)

1,384.064,941.14

157.40442.99

6,636.70

0.2418.17

(23.65)

26.7514.35

---

62.63

27.90

71.90(51.61)

11.5372.5242.4038.85

27.90

Comparative Balance Sheet of HDFC Band LtdFor the year ending 31st March 2003and 2004

(Rs Lacs)Year ending31st March

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentages)2003 2004

Capital and Liabilities

66

Capital

Reserves and Surplus

Employees stock option (grants) O/S

Deposits

Borrowings

Subordinated debt

Other liabilities provisions

Total

Assets

Cash and balance with

RBI

Balance with banks

Investments

Advances

Fixed assets

Other assets

Total

282.05

1,962.78

6,91

22,376.07

2,084.65

200.00

3,511.62

30,424.

08

2,081.96

1,087.26

13,388.08

11,754.86

528.58

1,583.34

30,424.08

284.79

2,407.09

1.45

30,408.86

2,307.82

600.00

6,296.98

42,306.99

2,541.98

1,115.57

19,256.79

17,744.51

616.91

1031.23

42,306.99

2.74

444.31

(5.46)

8,032.79

223.17

400.00

2,785.36

11,882.91

460.02

28.31

5,868.71

5,989.65

88.33

(552.11)

11,882.91

0.97

22.64

(79.02)

35.90

10.71

200.00

79.32

39.06

22.10

2.60

43.83

50.95

16.71

(34.87)

39.06

Comparative Balance Sheet of HDFC Band LtdFor the year ending 31st March 2004 and 2005

(Rs Lacs)Year ending31st March

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentages)2004 2005

67

Capital and LiabilitiesCapitalReserves and SurplusEmployees stock option (grants) out standing

Deposits BorrowingsSubordinated debtOther liabilities and provisions

Total

AssetsCash and balance with RBIBalance with banksInvestmentsAdvances Fixed assetsOther assets

Total

284.79

2,407.09

1.45

30,408.862,307.82

600.00

6,296.98

42,306.99

2,541.981,115.57

19,256.7917,744.51

616.911031.23

42,306.99

309.88

4,209.97

0.43

36,354.254,790.01

500.00

5,264.46

51,429.00

2,650.131,823.87

19,349.8125,566.30

708.321,330.57

51,429.00

25.09

1,802.88

(1.02)

5,945.392,482.19(100.00)

(1,032.52)

9,122.01

108.15708.3093.02

7,821.7991.41

299.34

9,122.01

8.81

74.90

(70.34)

19.55107.55(16.67)

(16.40)

21.56

4.2580.780.48

44.0814.8229.03

21.56

Comparative Balance Sheet of HDFC Band LtdFor the year ending 31st March 2005 and 2006

(Rs Lacs)Year ending31st March

Increase/Decrease

(Amounts)

Increase/Decrease

(Percentages)2005 2006

68

Capital and

Liabilities

Capital

Reserves and

Surplus

Employees stock

option (grants)

out standing

Deposits

Borrowings

Subordinated debt

Other liabilities and

provisions

Total

Assets

Cash and balance

with RBI

Balance with banks

Investments

Advances

Fixed assets

Other assets

Total

309.88

4,209.97

0.43

36,354.25

4,790.01

500.00

5,264.46

51,429.00

2,650.13

1,823.87

19,349.81

25,566.30

708.32

1,330.57

51,429.00

313.14

4,986.39

0.07

55,796.82

2,858.48

1,702.00

7,849.49

73,506.39

3,306.61

3,612.39

28,393.96

35,061.26

855.08

2,277.09

73,506.39

3.26

776.42

(0.36)

19,442.57

(1,931.53)

1,202.00

2,585.03

22,077.39

656.48

1,788.52

9,044.15

9,494.96

146.76

946.52

22,077.39

1.05

18.44

(83.72)

53.48

(40.32)

240.40

49.10

42.29

24.77

98.06

46.74

37.13

20.71

71.14

42.29

Findings from the comparative balance sheet of the year 2002 -2003

The comparative balance sheet of the bank reveals that during 2003, there

has been increased in fixed assets of Rs. 157.4 lakhs i.e. 42% and the

subordinated debt outstanding as at March 31 2003 is a long term unsecured

non-convertible debt aggregating Rs 200 cores of the year i.e. 2002 Rs. It was

69

also 2002 cores when it compare to the 2002 and 2003. and also included

deposits and borrowings also has been increased in the year 2003.

Reserves and surplus, there has been increased by Rs. 301.87 lakhs that

is from 1,660.91 to 1,962.78 lakhs i.e. 18.7%. The bank has made an

appropriation from the profit and loss account balance of Rs. 38.76 lakhs out

of profit for the year ended March 31 2003 to general reserves and 28.88 lakhs

in the year of 2002.

The cash balance with the RBI, it has been increased to 870.79 lakhs in

the year 2003 i.e. 71.90% from the year 2002 and also cash balance with

banks and money at call and short notices has decreased to 1,159.76 lakhs in

2003 i.e. 51.61% reduction from the year 2002.

Findings from the comparative balance sheet of the year 2003-2004

There has been increase of Rs 88.33 lakhs in fixed assets i.e. 16.71%

.The increase in fixed assets has been financed out of increase in owners fund

by Rs 2.74 lakhs i.e. 0.97% and subordinate debt by Rs 400 lakhs i.e. 200%

70

increased in 2004 from the year 2003. The financing of increased in fixed

assets out of owners fund and subordinate fund is a sound financial policy

There has been increased in investments by Rs 5868.71 lakhs i.e. 43.83%

in the year 2004. The increased in long term investments has been financed

out of increased in the long –term borrowed funds. The financing of long –

term investments by long term borrowed funds is also a good financial policy-

deposits and borrowings.

There has been an increase in reserves and surplus by Rs 444.31 lakhs

i.e. 22.64 in the year 2004. As a result, the liquidity portion of the concern has

improved in the year 2004 to conclude, the financial portion of the concern is

quite good.

Findings from the comparative balance sheet of the year 2004-2005

This year comparative balance sheet of the bank reveals that during 2005,

there has been increase of Rs 91.41 lakhs in fixed assets i.e. 14.82%. The

increased in fixed assets has been financed through additional capital of Rs

71

25.04 i.e. 8.81% and deposits and borrowing of Rs. 5,945 lakhs and 2,482

lakhs i.e., 19.55% and 107.55% respectively. The financing the increase in

fixed assets through additional capital and deposits and borrowing is a sound

financial policy.

There has been substantial increase in advances by Rs 7,821.79 lakhs

i.e., 44.08% and investment are treated as long term investments there has

been an increase of Rs lakhs i.e.. The increase in investment is a

appreciable. There has been as increase of 80.78% in cash with banks and

4.25% with RBI. Cash is an idle asset the means a huge cash balance is kept

idle.

There is an increase of Rs. 1,802.88 lakhs in reserve i.e., 74.90%. This

suggests that the profitability of the concern is good. To conclude the

financial position of the concern seems to be good.

Findings from the comparative balance sheet of the year 2005 -2006

In this comparative balance sheet of the company, there has been an

overall increase of Rs. 146.76 lakhs in fixed assets i.e., 20.17%. The above

increase in fixed assets has been financial through the raising of additional

72

capital of Rs. 3.26 lakhs i.e. 1.05%. Financing the increase in fixed assets

through additional equity share capital is a sound financial policy.

There is an increased Rs 776.42 lakhs in reserve created out of profit i.e.

18.44%. This is indicates not only the increased financial strength of the bank,

but also the profitability of the operations.

There has been increased in investments by Rs 9,044.15 i.e. 46.74% in

the year 2006. The increased in long term investment has been financed out of

increased in the long term borrowed funds. The financing of long term

investments by long-term borrowed and deposits is also a good financial

positions. There has been increased in subordinate debt by Rs. 1,202 lakhs i.e.

240.14% in the year 2006. To conclude the overall financial position and the

profitability of the concern are good.

Common-size Balance Sheet of HDFC Band LtdFor the year ending 31st March 2002 and 2003

Year ending 31st March (Rs Lacs)

2002 2003

73

Amount % Amount %

Capital and Liabilities

Capital

Reserves and Surplus

Employees stock option (grants) out standing

Deposits

Borrowings

Subordinated debt

Other liabilities and

provisions

Total

Assets

Cash and balance with

RBI

Balance with banks

Investments

Advances

Fixed assets

Other assets

Total

281.37

1,660.91

9.05

17,653.81

1,823.02

200.00

2,159.22

23,787.38

1,211.17

2,247.02

12,044.02

6,813.72

371.18

1,140.35

23,787.38

1.18

6.98

0.04

74.22

7.66

0.84

9.08

100

5.09

9.45

50.46

28.65

1.56

4.79

100

282.0

1,962.7

6,9

22,376.0

2,084.6

200.0

3,511.6

30,424.0

2,081.96

1,087.26

13,388.08

11,754.86

528.58

1,583.34

30,424.0

0.93

6.45

0.02

73.55

6.85

0.66

11.54

100

6.84

3.57

44.00

38.65

1.74

5.20

100

Common-size Balance Sheet of HDFC Band LtdFor the year ending 31st March 2004 and 2005

Year ending 31st March (Rs Lacs)

2004 2005

74

Amount % Amount %

Capital and Liabilities

Capital

Reserves and Surplus

Employees stock option (grants) out standing

Deposits

Borrowings

Subordinated debt

Other liabilities and

provisions

Total

Assets

Cash and balance with

RBI

Balance with banks

Investments

Advances

Fixed assets

Other assets

Total

284.79

2,407.09

1.45

30,408.86

2,307.82

600.00

6,296.98

42,306.99

2,541.98

1,115.57

19,256.79

17,744.51

616.91

1031.23

42,306.99

0.67

5.69

---

71.88

5.45

1.42

14.88

100

6.00

2.64

45.52

41.94

1.46

2.44

100

309.88

4,209.97

0.43

36,354.25

4,790.01

500.00

5,264.46

51,429.00

2,650.13

1,823.87

19,349.81

25,566.30

708.32

1,330.57

51,429.00

0.60

8.19

---

70.69

9.31

0.97

10.24

100

5.15

3.55

37.62

49.71

1.38

2.59

100

Common-size Balance Sheet of HDFC Band LtdFor the year ending 31st March 2005 and 2006

Year ending 31st March (Rs Lacs)

2005 2006

75

Amount % Amount %

Capital and Liabilities

Capital

Reserves and Surplus

Employees stock option (grants) out standing

Deposits

Borrowings

Subordinated debt

Other liabilities and

provisions

Total

Assets

Cash and balance with

RBI

Balance with banks

Investments

Advances

Fixed assets

Other assets

Total

309.88

4,209.97

0.43

36,354.25

4,790.01

500.00

5,264.46

51,429.00

2,650.13

1,823.87

19,349.81

25,566.30

708.32

1,330.57

51,429.00

0.60

8.19

---

70.69

9.31

0.97

10.24

100

5.15

3.55

37.62

49.71

1.38

2.59

100

313.14

4,986.39

0.07

55,796.82

2,858.48

1,702.00

7,849.49

73,506.39

3,306.61

3,612.39

28,393.96

35,061.26

855.08

2,277.09

73,506.39

0.43

6.78

---

75.90

3.89

2.32

10.68

100

4.50

4.91

38.63

47.70

1.16

3.10

100

TREND ANALYSIS

1. Total income

76

The total income of the year 2002 was 2,036.24 loch and was increased

to 122.58% in the year 2003, 148.75% in 2004,183.91 in 2005and 274.98 in

2006. When compared to base year the bank earning position was satisfactory.

This income was earned from investment, interest/discount, advance/bills,

interest on balance with RBI and other bank funds. These major incomes to

the bank and some other income as commission, exchange and brokerage,

profit on sales of assets, profit on exchange transaction, etc. The bank total

income of these years was satisfactory

Chart 1:

50

100

150

200

250

300

2002 2003 2004 2005 2006

years

pe

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nta

ge

2. Profit before Depreciation and Tax

Profit before tax and depreciation in the year 2002 was 494.40 lakhs. It

was increased to 136%, 170.85%, 227.14% and 289.66% in the year 2003,

77

2004, 2005 and 2006 respectively, when it compared to the base year 2002.

The earning position is satisfactory.

Chart 2:

50

100

150

200

250

300

350

2002 2003 2004 2005 2006

years

pe

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nta

ge

3. Net profit

The net profit of the banking the year 2002 was 297.04. It was increased

to 130.48%, 171.52%, 224.06%, and 293.13% in the year 2003, 2004, 2005

and 2006 respectively, when it compared to the base year 2002. This shows

78

the financial strength of the bank and also growth of the Bank in every year.

And it attracts the share holders and other financial institutions to increase the

financial position.

Chart 3:

50

100

150

200

250

300

350

2002 2003 2004 2005 2006

years

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4. Deposits and other Borrowings

Deposits and other Borrowings were 19,476.08 during the year 2002. It

increased to 125.59%, 167.98%, 211.25% and 301.15% during the year 2003,

2004, 2005 and 2006respectively, when it compared to the base year 2002. It

79

is go on increasing as the company’s earning position is good and is providing

good service.

Chart 4:

50

100

150

200

250

300

350

2002 2003 2004 2005 2006

years

pe

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nta

ge

5. Advances

Advances of the bank, it was 6813.72 during the year 2002. And In

2003, it was 11,754 i.e, 172.52% increase from the previous year and during

2004 it was 17, 744.51 i.e. increased to 260.42%. And then in 2005 it was

80

25,566.30, i.e. increased to 375.22%. in the year 2006 it increased to 514.57%

i.e., 35,061 compared to the year 2002.

Chart 5:

50

100

150

200

250

300

350

400

450

500

550

2002 2003 2004 2005 2006

years

pe

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nta

ge

6. Investments

Banks invest their money to government securities, other approved

securities, shares, debentures and bonds joint ventures, units, certificates of

deposits and others. It invests 12,004.02 during 2003, and it was increased to

81

111.53%, 160.42%, 161.19%, and 236.54% in the year 2003, 2004, 2005 and

2006 respectively, when it compared to the base year 2002.

Chart 6:

50

100

150

200

250

300

2002 2003 2004 2005 2006

years

pe

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nta

ge

7. Fixed assets

Fixed assets was 371.10 lakhs in the year 2002 and was increased to

142.44%, 166.24%, 190.87% and 230.42%, during 2003, 2004, 2005 and

2006 respectively, when it compared to the base year 2002. The fixed assets of

the company have increased i.e. There is regular purchase of the required

82

fixed assets when compared to base year. The company has to utilize all the

fixed assets properly so that it will help in increasing sales and reduces

blockage of capital.

Chart 7:

50

100

150

200

250

300

2002 2003 2004 2005 2006

years

pe

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nta

ge

8. Net worth

Net worth represent that the total share holder’s fund, that included

equity share holder’s fund, reserves and surplus etc. the net worth of the year

2002 was 1,951.33 lakhs. Then it continuously increased to 115%, 138%,

234% and 272% in the year 2003, 2004, 2005 and 2006 respectively, when it

83

compared to the base year 2002. The main reason for increased in net worth

was tremendous growth in the profit of the bank. To conclude the b and

earnings position, and financial position was satisfactory.

Chart 8:

50

100

150

200

250

300

2002 2003 2004 2005 2006

years

pe

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nta

ge

9. Cash balances of the bank

The bank has kept their cash balance with RBI and also other banks.

Balance has been maintaining by current accounts and other accounts with

Indian banks and also out side Indian banks. The cash balance of the year

2002 was 3,458.19 lakhs with both RBI and other banks but in the year 2003 it

84

has been decreased to 91.6% and it continuously increased to 105%, 129% and

200% in the year 2004, 2005 and 2006 respectively, when it compared to the

base year 2002. To conclude the bank financial position was good.

Chart 9:

50

70

90

110

130

150

170

190

210

230

250

2002 2003 2004 2005 2006

years

pe

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10. Total profit for appropriation

The profits was available for the appropriation to, they are statutory

reserve, general reserve, capital reserve, investment fluctuation reserves

proposed dividend etc. the profit for apportion was 297.04 in the year 2002.

85

Then it increased to 197.9%, 291.4%, 360% and 659% in the year 2003, 2004,

2005 and 2006 respectively, when it compared to the base year 2002.

Chart 10:

50

150

250

350

450

550

650

2002 2003 2004 2005 2006

years

pe

rce

nta

gd

Cash flow Statement Analysis

Information about the cash flow of an enterprise in useful in providing

users of financial statements with a basis to the asses the ability of the

enterprise to generate cash and cash equivalents and the needs of the enterprise

to utilize those cash flows. The economic decisions that are taken by users

86

require an evaluation of the ability of an enterprise to generate cash and cash

equivalents and the timing and certain of their generations. The cash flow

statement which classifies cash flows during the period from operating,

investing and financing activities.

The following terms are used in this statements with the meaning

specified,

Cash comprises cash on hand and demand deposits with banks.

Cash and cash equivalents are short term, highly liquid investments

that are readily convertible in cash and which are subject to an

insignificant risk o changes in value.

Cash flow are inflow and outflows of cash and cash equivalents

Cash flow arising from the following activities, they are

• Cash flow from Operating activities: These are the principal

revenue producing activities of the enterprises and other activities

which the operations of the enterprise have generated sufficient cash

flows to maintain the operating capability of the enterprise, pay

dividends, repay loans and make new investments without recourse to

external sources of financing.

• Cash flow from investing activities: These are the acquisition and

disposal of long term assets and other investments not included in cash

equivalents. The separate disclosure of cash flows have been made for

resources intended to generate future income and cash flows.

• Cash flow from financing activities: These are the activities that

result in changes in the size and composition of the owner’s capital

(including preference share capital) and borrowings of the enterprise.

This is an important activity than other activities because it is useful in

predicting claims on future cash flows by providers of funds (both

capital and borrowing) to the enterprise.

87

Financial enterprise may be reported on a net basis are:

Cash receipts and payments for the acceptance and repayment of

deposits with a fixed maturity date

The placement of deposits with and withdraws of deposits from other

financial enterprises

Cash advances and loans made to customer to customers and the

repayment of the advances and loans.

These are all activities may be reported on a net basis:

Cash receipts and payments on behalf of customers when the cash

flows reflects the activities of the customer rather than those of the

enterprises and

Cash receipts and payments for items in which the turnover is quick,

the amounts are large and the maturities are short.

Cash Flow Statement for the

Year ended 31st March 2002 and 2003

(Rs Lacs)

88

Particulars 31-03-2002 31-03-2003

Cash flows from operating activities

Net profit before income tax 425.38 570.85

Adjustment for:

Depreciation and amortizations 95.16 162.27

loan loss provisions 85.77 88.39

ESOs compensation lapsed (54) (12)

Contingencies provision 14.06 ---

(Profit)/Loss on sale of fixed assets 81 (1.08)

620.64 820.31

Adjustment for:

(Increase) in Investment (4,875.54) (1,436.63)

(Increase) in Advances (2,262.83) (5,029.53)

Increase in Borrowings 590.12 261.63

Increase in Deposits 5,995.70 4,722.26(Increase) in other assets net of opening deferred

tax (180.26) (403.13)

Increase in Other liabilities and provisions 520.42 1,317.79

Increase in Deposit Placements --- (774.74)

408.25 (522.04)

Direct taxed paid (148.70) (237.47)

Net cash flow from operating activities 259.55 (759.51)

(contd.) 31-03-2002 31-03-2003

Cash flow from investing activities

Purchase of fixed assets (168.27) (253.43)

Proceeds from sale of fixed assets 10.10 1.69

Long term investments (2.50) ---

Net cash used in investing activities (160.67) (251.74)

89

Cash flows from financing activitiesProceeds from issue of shares abroad net of under-

writing commission 780.34 --- Money receives on exercise of stock options by

employees. 10.25 17.98

Dividend provided last year paid during the year (53.69) (70.34)Dividend paid during the year on stock option

exercised during the previous year --- (10)

Net cash generated from financing activities 736.90 (52.46)

Net increase/(decrease)in cash and cash

equivalents 835.78 (1,063,71)

Cash and cash equivalents at 1st April 2,622.41 3,458.19Cash and cash equivalents as at 31st March 3,458.19 2,394.48

Findings on cash flow statement from 2002 – 2003

The net profit (before tax) has been increased to 570.85 lacks in the year

2003, from 425.28 lacks in 2002. the bank earnings position was satisfactory

when it compare to the year 2003 to 2002 but the cash and cash equivalents

position of the bank was low in the year 2003 when it compare to the year

2002 due to the, The net cash flow from operating activities has been negative

value in

90

the year 2003. and The net cash used in investing activities has been negative

value in both year but in 2003 has shown more negative value than the year

2002

and also The net cash generated from financing activities was Rs 736.90 lacks

in the year 2002 but in 2003 it has shown negative value.

Cash Flow Statement for the

Year ended 31st March 2003and 2004 (Rs Lacs)

Particulars 31-03-2003 31-03-2004

Cash flows from operating activities

Net profit before income tax 570.85 718.96

91

Adjustment for:

Depreciation and amortizations 162.27 230.45

loan loss provision 88.39 178.28

ESOs compensation lapsed (12) (4)

Contingencies provision --- 16.70

(Profit)/Loss on sale of fixed assets (1.08) 45

820.31 1,145.55

Adjustment for:

(Increase) in Investment (1,436.63) (5,981.59)

(Increase) in Advances (5,029.53) (6,051.86)

Increase in Borrowings 261.63 223.17

Increase in Deposits 4,722.26 8,032.79(Increase) in other assets net of opening deferred

tax (403.13) 635.09

Increase in Other liabilities and provisions 1,317.79 2,634.40

Increase in Deposit Placements (774.74) 418.22

(522.04) 1,055.77

Direct taxed paid (237.47) (284.39)

Net cash flow from operating activities (759.51) 771.38

(contd.) 31-03-2003 31-03-2004

Cash flow from investing activities

Purchase of fixed assets (253.43) (214.39)

Proceeds from sale of fixed assets 1.69 2.48

Net cash used in investing activities (251.74) (211.91)

Cash flows from financing activities

Proceeds from issue of subordinated debt --- 400.00

Tax on Dividend --- (10.88)Money receives on exercise of stock options by

employees. 17.98 42.91

Dividend provided last year paid during the year (70.34) (84.95)

92

Dividend paid during the year on stock option

exercised during the previous year (10) ---

Net cash generated from financing activities (52.46) 347.08

Net increase/(decrease)in cash and cash

equivalents (1,063,71) 906.55

Cash and cash equivalents at 1st April 3,458.19 2,394.48

Cash and cash equivalents as at 31st March 2,394.48 3,301.03

Findings on cash flow statement from 2003 – 2004

In these years the position of cash and cash equivalents has been

increased during the year 2004 to 3,301.03 lacks from 2,394.48 lacks in 2003

and the profit (before tax) was also increased to 718 lacks in the year 2004

from 570 lacks in2003. The reasons is the operating profit from the operating

activities has been increased to 771.78 lacks in 2004. The net cash generated

from financing activities also increased to 347.08 lacks The net cash used in

financing as well as

investing activities in 2003 shown all the negative value but it has been

increased in the year 2004, which is shown positive cash balance due to

sufficient net cash flow from position has improved but it is note that such

93

improvements were brought about due to availability of more net profit rather

increased interest charges.

Cash Flow Statement for the

Year ended 31st March 2004 and 2005

(Rs Lacs)

Particulars 31-03-2004 31-03-2005

Cash flows from operating activities

Net profit before income tax 718.96 978.94

Adjustment for:

Depreciation and amortizations 230.45 318.15

loan loss provisions 178.28 176.22

94

ESOs compensation lapsed (4) ---Contingencies provision and provision for wealth

tax 91.70 65

(Profit)/Loss on sale of fixed assets 45 (21)

1,145.55 1,473.75

Adjustment for:

(Increase) in Investment (5,981.59) (160.43)

(Increase) in Advances (6,051.86) (7,961.18)

Increase in Borrowings 223.17 2,482.19

Increase in Deposits 8,032.79 5,945.39(Increase) in other assets net of opening deferred

tax 635.09 (232.71)

Increase in Other liabilities and provisions 2,634.40 (1,146.64)

Increase in Deposit Placements 418.22 (376.48)

1,055.77 23.89

Direct taxed paid (284.39) (371.95)

Net cash flow from operating activities 771.38 (348.06)

(contd.) 31-03-2004 31-03-2005

Cash flow from investing activities

Purchase of fixed assets (214.39) (244.28)

Proceeds from sale of fixed assets 2.48 95

Net cash used in investing activities (211.91) (243.33)

Cash flows from financing activities(Redemption)/Proceeds from issue of subordinated

debt 400.00 (100.00)

Proceeds from ADR issue --- 1,274.77Money receives on exercise of stock options by

employees. 42.91 76.39

Dividend provided last year paid during the year (84.95) (100.05)

Tax on Dividend (10.88) (13.08)

Net cash generated from financing activities 347.08 1,138.03

95

Net increase/(decrease)in cash and cash

equivalents 906.55 546.64

Cash and cash equivalents at 1st April 2,394.48 3,301.03

Cash and cash equivalents as at 31st March 3,301.03 3,741.00

Findings on cash flow statement from 2004 – 2005

During the year 2005 the cash and cash equivalent position has slightly

increased from the year 2004 that is 3,194.36 lacks to 3741 lacks due to

increased the net profit before tax and also increased in the cash generated

from financing activities. Even though the cash flow from operating activities

and also the cash used in investing activities has shown negative value but in

has not effected to the cash earnings position of the bank. The main reason of

cash out flow of the bank has been purchased of fixed assets but to

proportionately increased in the net profit could not be bought about therefore

further investment will have to be made with cautions

96

Cash Flow Statement for the

Year ended 31st March 2005 and 2006

(Rs Lacs)

Particulars 31-03-2005 31-03-2006

Cash flows from operating activities

Net profit before income tax 978.94 1,253.51

Adjustment for:

Depreciation and amortizations 318.15 513.41

loan loss provisions 176.22 479.76

Contingency provision 65 30

(Profit)/Loss on sale of fixed assets (21) (27)

97

1,473.75 2,246.71

Adjustment for:

(Increase) in Investment (160.43) (9,350.30

(Increase) in Advances (7,961.18) (9,889.35)

Increase in Borrowings 2,482.19 (1,931.53)

Increase in Deposits 5,945.39 19,442.57(Increase) in other assets net of opening deferred

tax (232.71) (738.33)

Increase in Other liabilities and provisions (1,146.64) 2,495.49

Increase in Deposit Placements (376.48) 2.66

23.89 2,277.92

Direct taxed paid (371.95) (553.76)

Net cash flow from operating activities (348.06) 1,724.76

(contd.) 31-03-2005 31-03-2006

Cash flow from investing activities

Purchase of fixed assets (244.28) (367.99)

Proceeds from sale of fixed assets 95 5.15

Long term investments --- (19.13)

Net cash used in investing activities (243.33) (381.97)

Cash flows from financing activitiesProceeds / (Redemption)from issue of

subordinated debt (100.00) 1,202.00Money receives on exercise of stock options by

employees. 76.39 62.58

Dividend provided last year paid during the year (100.05) (140.07)

Proceeds from ADR issue net of commission 1,274.77 ---

Tax on Dividend (13.08) (19.64)

Net cash generated from financing activities 1,138.03 1,104.87

Net increase/(decrease)in cash and cash 546.64 2,447.66

98

equivalents

Cash and cash equivalents at 1st April 3,301.03 3,741.00

Cash and cash equivalents as at 31st March 3,741.00 6,188.66

Findings on cash flow statement from 2005 – 2006

During the year 2006 the position of cash and cash equivalent has

proportionately increased from the year 2005, it was 3,741 lacks to 6,188

lacks. The main reasons for increased in the cash position that are, Increasing

the net cash flow from operating activities and also proportionately increased

in the net profit. But the net cash used in investing activities has shown

negative value and

the cash generated from financing activities also decreased from the year 2005

to 2006, it was 1,138 lacks to 1,104.87 lacks. Even though the net cash from

financing activities decreased and investing activities has shown negative

value but it has not affected to the cash earning position of the year 2006. And

the overall cash position of the year 2006 was satisfactory.

Interpretation

The directed policy of the bank is to be well appreciated for the reason

that comp any has paid for dividend to equity share holders when it was

making profits while the company had not paid any amount when it incurred a

loss.

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The main reasons of cash outflow of the bank has been purchased of

fixed assets but to proportionately increased in the net profit could not be

brought about therefore further investment will have to be made with cautions.

Present situation does not warrant any amount to be invested in the

fixed assets rather aim of the company most be to utilize existing assets

capacity to maximum while spreading up the recovery of debts.

Finally the cash earnings position of the bank was satisfactory.

FINDINGS

Average Quarterly balance for urban area are slight high for

common people

Penetrating rural market

In the era where India is witnessing emergence of eminent

foreign banks, HDFC Bank has still maintain its glory

HDFC Bank has excelled in all the banking products starting

from saving account and current account till the critical fields

like investment and insurance

HDFC Bank possess a treasure of highly qualify and

professionalized employees which helps the bank to excel in all

the banking fields

All the products are carefully hand picked and molded in order

to meet the needs of its customers

The bank success is reflected by its share price, which is ever

increasing since the day of its commencement.

HDFC Bank is a blend of antiquity and modernity

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LIMITATION OF THE STUDY

The main limitation of the study is time constraints some other limitation

as follows,

The financial statements are prepared on the basis of historical costs or

original costs. The value of assets decreases with the passage of time

current price changes are not taken into account.

The financial statements are expressed in monetary values, so they

appear to give final and accurate position, but some times it does not

give exact position.

The precision of financial statement data is not possible because the

statements deal with natters which cannot be precisely stated.

The bank wanted not to disclose some of the analysis carried on.

Hence some of them are not included in this report.

The study had to be fully dependent upon past financial statements as

such it may fail to reflect the financial stand and capacity of the bank a

near future.

More emphasis has been laid on the accounting ratios as they reveal

the trend over a period.

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A conclusion from this analysis is not real indications of the efficiency

of the management and hence requires further investigation.

The balance sheet ratio cannot be fully relied upon as the balance sheet

show the financial position as particular data.

For the industrial average comparisons analysis the data were not

available.

Difference in definitions of basic concepts renders the comparison

inaccurate. Hence ratio value might vary significantly.

In spite of all these limitation, study was grand success as it helped to

improve the knowledge and give better experience and exposes to factory

practice and surrounding all the attempts have been made to make right type

of interpretation and suggestion.

SUGGESTION

As the bank has already establish a good demand in the product, it

should try to keep the same by developing the effective and efficient

marketing strategies

The bank should try and continue with the relation they are

maintaining with their employees, because they are the biggest assets

for the bank

For better customer satisfaction, the bank should know the product and

marketing strategies of its competitors

Bank should try to improve the reward system so as to motivate the

employees

HDFC Banks can provide more ATM’s and branches in different

localities.

The bank can increase its market share in India’s expanding banking

and financial services industry by following a disciplined growth strategy and

delivering high quality customer service. The bank can service its customers

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through multiple channels that are phoned Banking, Internet banking and

mobile banking.

If the bank has to attract more customers and deal with more

transactions, the bank can provide advances and loans to the general public

for the following purposes:

Loan to small scale industries and cottage industries.

Loan to self-employed person or young entrepreneurs.

Increase short-term deposits and long-term deposits by providing

higher rate of interest.

Provide the facilities of car loans.

CONCLUSION

The study is entitle “A Study of Financial Statement Analysis of the

HDFC Bank Limited” has been undertaken with the objective to analyze and

interpret the bank’s financial performance.

In general, the bank has achieved tremendous progress over the recent

years. The bank has a healthy financial performance. The bank has been able

to achieve heavy growth across multiple parameters, including customer’s

acquisition, geographical spread, business volumes and revenues.

The HDFC Bank Limited is selling close to 50 percent of its new

consumer loan in smaller towns and under banked territories. It has applied to

the Reserve Bank of India for a wholly owned non-banking Finance company

for business in small towns and take on finance house run by foreign banks.

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Recently, HDFC Bank managing director, Aditya Puri has told that more

than 50 percent of the consumer lending is now from 14 cities of the country.

If things go forward, then this lending could go up by 5 percent. Also more

than 50 percent of HDFC Bank branches are now in semi urban bank or under

bank regions. Current year bank is looking at 45-50 percent of new branches.

An under bank region covers a population of over 16 thousand people.

In recent years, private sector banks have been setting up branches in semi

urban and rural areas where public sector banks have a strong presence. The

present government is also keen that private banks set up shops in these areas.

BIBLIOGRAPHY

Financial Management - Prasanna Chandra

Financial Planning Analysis and Control - P.V. Kulkarni

Financial Markets & Services - K. Nattarajan

Financial Management - I.M. Pandey

Annual reports of HDFC BANK

Website: www.hdfcbank.Com

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