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Commercial and institutional advance schemes

CHAPTER 1.

INTRODUCTION TO FINANCE

Financial System of any country consists of financial markets, financial

intermediation and financial instruments or financial products. The term "finance" in

our simple understanding it is perceived as equivalent to 'Money'. We read aboutMoney and banking in Economics, about Monetary Theory and Practice and about

"Public Finance". But finance exactly is not money; it is the source of providing funds

for a particular activity. Thus public finance does not mean the money with the

Government, but it refers to sources of raising revenue for the activities and functions

of a Government.

Providing or securing finance by itself is a distinct activity or function, which results

in Financial Management, Financial Services and Financial Institutions. Finance

therefore represents the resources by way funds needed for a particular activity. We

thus speak of 'finance' only in relation to a proposed activity. Finance goes with

commerce, business, banking etc. Finance is also referred to as "Funds" or "Capital",

when referring to the financial needs of a corporate body. When we study finance as a

subject for generalising its profile and attributes, we distinguish between 'personal

finance" and "corporate finance" i.e. resources needed personally by an individual for

his family and individual needs and resources needed by a business organization to

carry on its functions intended for the achievement of its corporate goals.

FINANCIAL SYSTEM




The word "system", in the term "financial system", implies a set of complex and

closely connected or interlined institutions, agents, practices, markets, transactions,

claims, and liabilities in the economy. The financial system is concerned about

money, credit and finance-the three terms are intimately related yet are somewhat

different from each other. Indian financial system consists of financial market,

financial instruments and financial intermediation. These are briefly discussed below;

FINANCIAL MARKETS

A Financial Market can be defined as the market in which financial assets are created

or transferred. As against a real transaction that involves exchange of money for real

goods or services, a financial transaction involves creation or transfer of a financial

asset. Financial Assets or Financial Instruments represents a claim to the payment of a




sum of money sometime in the future and /or periodic payment in the form of interest

or dividend.

Money Market -

The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term

instrument. Funds are available in this market for periods ranging from a single day

up to a year. This market is dominated mostly by government, banks and financial

institutions.

Capital Market -

The capital market is designed to finance the long-term investments. The transactions

taking place in this market will be for periods over a year.

Forex Market - The Forex market deals with the multicurrency requirements,

which are met by the exchange of currencies. Depending on the exchange rate that is

applicable, the transfer of funds takes place in this market. This is one of the most

developed and integrated market across the globe.

Credit Market- Credit market is a place where banks, FIs and NBFCs purvey

short, medium and long-term loans to corporate and individuals.

CONSTITUENTS OF A FINANCIAL SYSTEM




FINANCIAL INTERMEDIATION

Having designed the instrument, the issuer should then ensure that these financial

assets reach the ultimate investor in order to garner the requisite amount. When the

borrower of funds approaches the financial market to raise funds, mere issue of

securities will not suffice. Adequate information of the issue, issuer and the security

should be passed on to take place. There should be a proper channel within the

financial system to ensure such transfer. To serve this purpose, financial

intermediaries came into existence. Financial intermediation in the organized sector is

conducted by a wide range of institutions functioning under the overall surveillance of

the Reserve Bank of India. In the initial stages, the role of the intermediary was

mostly related to ensure transfer of funds from the lender to the borrower. This

service was offered by banks, FIs, brokers, and dealers. However, as the financial

system widened along with the developments taking place in the financial markets,

the scope of its operations also widened. Some of the important intermediaries

operating ink the financial markets include; investment bankers, underwriters, stock

exchanges, registrars, depositories, custodians, portfolio managers, mutual funds,




financial advertisers financial consultants, primary dealers, satellite dealers, self

regulatory organizations, etc. Though the markets are different, there may be a few

intermediaries offering their services in move than one market e.g. underwriter.

However, the services offered by them vary from one market to another.

Intermediary Market Role

Stock Exchange Capital Market Secondary Market to securities

Investment Bankers Capital Market, Credit MarketCorporate advisory services,

Issue of securities

Underwriters Capital Market, MoneyMarket

Subscribe to unsubscribedportion of securities

Registrars, Depositories,

CustodiansCapital Market

Issue securities to the investors

on behalf of the company and

handle share transfer activity

Primary Dealers Satellite

DealersMoney Market

Market making in government

securities

Forex Dealers Forex Market Ensure exchange in currencies

FINANCIAL INSTRUMENTS

MONEY MARKET INSTRUMENTS

The money market can be defined as a market for short-term money and financial

assets that are near substitutes for money. The term short-term means generally a

period up to one year and near substitutes to money is used to denote any financial




asset which can be quickly converted into money with minimum transaction cost.

Some of the important money market instruments are briefly discussed below;

1. Call/Notice money

Call/Notice money is the money borrowed or lent on demand for a very short period.

When money is borrowed or lent for a day, it is known as Call (Overnight) Money.

Intervening holidays and/or Sunday are excluded for this purpose. Thus money,

borrowed on a day and repaid on the next working day, (irrespective of the number of

intervening holidays) is "Call Money".

When money is borrowed or lent for more than a day and up to 14 days, it is "Notice

Money". No collateral security is required to cover these transactions.

2. Inter-Bank Term Money

Inter-bank market for deposits of maturity beyond 14 days is referred to as the term

money market. The entry restrictions are the same as those for Call/Notice Money

except that, as per existing regulations, the specified entities are not allowed to lend

beyond 14 days.

3. Treasury Bills

Treasury Bills are short term (up to one year) borrowing instruments of the union

government. It is an IOU of the Government. It is a promise by the Government to

pay a stated sum after expiry of the stated period from the date of issue

(14/91/182/364 days i.e. less than one year). They are issued at a discount to the face




value, and on maturity the face value is paid to the holder. The rate of discount and

the corresponding issue price are determined at each auction.

4. Certificate of Deposits

Certificates of Deposit (CDs) is a negotiable money market instrument issued in

dematerialised form or as Promissory Note, for funds deposited at a bank or other

eligible financial institution for a specified time period. Guidelines for issue of CDs

are presently governed by various directives issued by the Reserve Bank of India, as

amended from time to time. CDs can be issued by (i) scheduled commercial banks

excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii)

select all-India Financial Institutions that have been permitted by RBI to raise short-

term resources within the umbrella limit fixed by RBI. Banks have the freedom to

issue CDs depending on their requirements. An FI may issue CDs within the overall

umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz.,

term money, term deposits, commercial papers and intercorporate deposits should not

exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

5. Commercial Paper

CP is a note in evidence of the debt obligation of the issuer. On issuing commercial

paper the debt obligation is transformed into an instrument. CP is thus an unsecured

promissory note privately placed with investors at a discount rate to face value

determined by market forces. CP is freely negotiable by endorsement and delivery. A

company shall be eligible to issue CP provided - (a) the tangible net worth of the

company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the

working capital (fund-based) limit of the company from the banking system is not less

than Rs.4 crore and (c) the borrowal account of the company is classified as a

Standard Asset by the financing bank/s. The minimum maturity period of CP is 7

days.




CAPITAL MARKET INSTRUMENTS

The capital market generally consists of the following long term period i.e., more than

one year period, financial instruments; in the equity segment Equity shares,

preference shares, convertible preference shares, non-convertible preference shares

etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.

HYBRID INSTRUMENTS

Hybrid instruments have both the features of equity and debenture. This kind of

instruments is called as hybrid instruments. Examples are convertible debentures,

warrants etc.

INDIAN FINANCIAL SYSTEM

India has a financial system that is regulated by independent regulators in the sectors

of banking, insurance, capital markets, competition and various services sectors. In a

number of sectors Government plays the role of regulator.

Ministry of Finance, Government of India looks after financial sector in India.

Finance Ministry every year presents annual budget on February 28 in the Parliament.

The annual budget proposes changes in taxes, changes in government policy in almost

all the sectors and budgetary and other allocations for all the Ministries of

Government of India. The annual budget is passed by the Parliament after debate and

takes the shape of law.

India has commercial banks, co-operative banks and regional rural banks. The




commercial banking sector comprises of public sector banks, private banks and

foreign banks. The public sector banks comprise the ‘State Bank of India’ and its

seven associate banks and nineteen other banks owned by the government and

account for almost three fourth of the banking sector. The Government of India has

majority shares in these public sector banks.

India has a two-tier structure of financial institutions with thirteen all India financial

institutions and forty-six institutions at the state level. All India financial institutions

comprise term-lending institutions, specialized institutions and investment

institutions, including in insurance. State level institutions comprise of State Financial

Institutions and State Industrial Development Corporations providing project finance,

equipment leasing, corporate loans, short-term loans and bill discounting facilities to

corporate. Government holds majority shares in these financial institutions.

Non-banking Financial Institutions provide loans and hire-purchase finance, mostly

for retail assets and are regulated by RBI.

Insurance sector in India has been traditionally dominated by state owned Life

Insurance Corporation and General Insurance Corporation and its four subsidiaries.

Government of India has now allowed FDI in insurance sector up to 26%. Since then,

a number of new joint venture private companies have entered into life and general

insurance sectors and their share in the insurance market in rising. Insurance

Development and Regulatory Authority (IRDA) is the regulatory authority in the

insurance sector under the Insurance Development and Regulatory Authority Act,

1999.

CONCLUSION

In India money market is regulated by Reserve bank of India and Securities Exchange

Board of India (SEBI) regulates capital market. Capital market consists of primary

market and secondary market. All Initial Public Offerings comes under the primarymarket and all secondary market transactions deals in secondary market. Secondary




market refers to a market where securities are traded after being initially offered to the

public in the primary market and/or listed on the Stock Exchange. Secondary market

comprises of equity markets and the debt markets. In the secondary market

transactions BSE and NSE plays a great role in exchange of capital market

instruments.

Reserve bank of India (RBI)

Reserve bank of India (RBI) established in 1935 is the Central bank. RBI is regulator

for financial and banking system, formulates monetary policy and prescribes

exchange control norms. The Banking Regulation Act, 1949 and the Reserve Bank of

India Act, 1934 authorize the RBI to regulate the banking sector in India.

Establishment

The Reserve Bank of India was established on April 1, 1935 in accordance with the

provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve

Bank was initially established in Calcutta but was permanently moved to Mumbai in

1937. The Central Office is where the Governor sits and where policies are

formulated.

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is

fully owned by the Government of India.

Preamble




"...to regulate the issue of Bank Notes and keeping of reserves with a view to

securing monetary stability in India and generally to operate the currency and

credit system of the country to its advantage."

Central Board

The Reserve Bank's affairs are governed by a central board of directors. The board is

appointed by the Government of India in keeping with the Reserve Bank of India Act

for a period of four years.

Functions

General superintendence and direction of the Bank's affairs

Local Boards

One each for the four regions of the country in Mumbai, Calcutta, Chennai and New

Delhi

Functions

To advise the Central Board on local matters and to represent territorial and economicinterests of local cooperative and indigenous banks; to perform such other functions

as delegated by Central Board from time to time.

FINANCIAL SUPERVISION




The Reserve Bank of India performs this function under the guidance of the Board for

Financial Supervision (BFS). The Board was constituted in November 1994 as a

committee of the Central Board of Directors of the Reserve Bank of India.

Objective

Primary objective of BFS is to undertake consolidated supervision of the financial

sector comprising commercial banks, financial institutions and non-banking finance

companies.

BFS meetings

The Board is required to meet normally once every month. It considers inspection

reports and other supervisory issues placed before it by the supervisory departments.

BFS through the Audit Sub-Committee also aims at upgrading the quality of the

statutory audit and internal audit functions in banks and financial institutions. The

audit sub-committee includes Deputy Governor as the chairman and two Directors of

the Central.

Umbrella Acts

Reserve Bank of India Act, 1934 governs the Reserve Bank functions

Banking Regulation Act, 1949 governs the financial sector

Main Functions:




Monetary Authority:

Formulates implements and monitors the monetary policy. Also maintains the price

stability and ensures adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's banking

and financial system function, thus maintains public confidence in the system,

protect depositors' interest and provide cost-effective banking services to the

public.

Manager of Foreign Exchange:

Manages the Foreign Exchange Management Act, 1999 to facilitate external trade and

payment and promote orderly development and maintenance of foreign exchange

market in India.

Issue of currency:

Issues and exchanges or destroys currency and coins not fit for circulation thus

guarantees the public adequate quantity of supplies of currency notes and coins and in

good quality.




Developmental role:

Performs a wide range of promotional functions to support national objectives.

Banker to the Government:

Performs merchant banking function for the central and the state governments; also

acts as their banker.

Banker to banks:

Maintains banking accounts of all scheduled banks.

SUBSIDIARIES

Fully owned : National Housing Bank (NHB), Deposit Insurance and Credit

Guarantee Corporation of India (DICGC), Bharatiya Reserve Bank Note

Mudran Private Limited (BRBNMPL)

Majority stake: National Bank for Agriculture and Rural Development (NABARD)

and the Reserve Bank of India has recently divested its stake in State Bank of India to

the Government of India.

SECURITIES AND EXCHANGE BOARD OF INDIA

(SEBI)

ESTABLISHMENT OF SEBI




The Securities d Exchange Board of India was established on April 12, 1992 in

accordance with the provisions of the Securities and Exchange Board of India Act,

1992.

PREAMBLE

The Preamble of the Securities and Exchange Board of India describes the basic

functions of the Securities and Exchange Board of India as

“…..to protect the interests of investors in securities and to promote the development

of, and to regulate the securities market and for matters connected

therewith…’’Securities and Exchange Board of India (SEBI) established under the

Securities and Exchange aboard of India Act, 1992 is the regulatory authority for

capital markets in India. India has 23 recognized stock exchanges that operate under

government approved rules, bylaws and regulations. These exchanges constitute an

organized market for securities issued by the central and state governments, public

sector companies and public limited companies. The Stock Exchange, Mumbai and

National Stock Exchange are the premier stock exchanges. Under the process of de-

mutualisation, these stock exchanges have been converted into companies now, in

which brokers only hold minority

In addition to the SEBI Act, the Securities Contracts (Regulation) Act, 1956 and the

Companies Act, 1956 regulates the stock markets.

FUNCTIONS OF SEBI

1) Regulatory function

2) Developmental function

1) REGULATORY FUNCTION




Regulations of exchange and self- regulatory obligations, registration and

regulation of stock brokers, registrar ton all issue, MBs, underwriters,

portfolio, managers and such other intermediaries who are associated with

securities market.

Registration and regulation of the working capital of collective investment

scheme including mutual fund

Prohibition of fraudulent and unfair trade practice relating to securities

market.

Prohibits insider trading in securities.

Regulating substantial acquisition of shares and takeover of company.

2) DEVELOPMENT FUNCTION

Promote investors education

Training intermediaries

Conducting research and published information useful to all the market

participants.

Promotion of fair practices code of conduct for self- regulatory

organization.

OBJECTIVES OF SEBI

According to preamble of the SEBI act, the primary objectives of the

SEBI is to promote healthy and orderly growth of securities market and serve

investment protection for this purpose, the SEBI monitors the activities of not only

stock exchange but also merchant bankers.

To protect the interest of investors of that is a steady flow of savings in to the

capital market.




To regulate the securities market and ensure fair practices by the issues of

securities so that they can raise resources at minimum cost.

To promote efficient services by brokers, merchant bankers and other

intermediaries so that they become competitive and professional.

Power of issue directions.

Power of investigation.

Registration of stock brokers, sub brokers and share transfer agents etc.

Prohibition of manipulative and deceptive devices, insider trading and

substantial actuation of securities or control.

MEASURES TAKEN BY SEBI

The securities and exchange board of India has taken a number of measures of

healthy development and regulation of the capital market.

Guidelines for disclosure and investors protection.

Guideline for merchant bankers.

Guideline for euro issue

Guideline for market funds and asset management companies.

Guideline for foreign institutional investors.

Guideline to development financial institution for disclosure and investor

and protection.

Guidelines for book building, employees stock option scheme(ESOS) and

employee stock purchase scheme(ESPS)

Guideline for OTCEI issues

Guidelines for preferential issues.

Guidelines on external commercial borrowers.

Regulatory measures for stock brokers and sub brokers, underwriters,

portfolio managers, registrars to an issue and share transfer agents, insider




trading bankers to an issue, depositors and participants, venture capital

funds etc.

BANKING

Banks play a significant role in the economic n social development of a country.

According to some authorities, the word Bank is derived from the words ‘bancus’ or

‘banquet’ i.e., a bench. The early bankers transacted their business on benches in the

market place. There are others who are of the opinion that the word ‘Bank’ is

originally derived from the German word ‘Back’ meaning a joint stock fund which

was Italianized into ‘Banco’ when the Germans were masters of a great part of Italy.

The history of banking can be traced back to Europe from the middle ages.

EVOLUTION OF BANKING INSTITUTIONS

As early as 2000B.C. the Babylonians had developed a banking system. The temples

of Babylon were used as banks and were the most powerful of the Greek banking

institutions. With the end of civilization of antiquity, and as a result of administrative

decentralization and demoralization of the government authority, with its unenviablecounterpart of commercial insecurity, banking degenerated for a period of some

securities into a system of financial makeshifts. However, upon the revival of

civilization, growing necessity forced the issue in the middle of the 12 th century, and

banks were established at Venice and Genoa, though in fact they did not become

banks as we understand them today. Again the origin of modern banking may be

traced to the money dealers in Florence, who receive money on deposit, and were

lenders of money in the 14th century.




DEFINITION OF BANKING

A Bank is an institution which deals in money. It means that a bank receives money in

the form of deposits from public and lends the money to the development of trade and

commerce.

Prof.Hart says that a banker is one who in the ordinary course of his

business receives money which he repays by honouring the cheques of

persons from whom or on whose account he receives it.

Prof . Kinley defines a bank as an establishment which makes to individuals such

advances of money as may be required and safely made and to which individuals

entrust money which is not required by them for use.

The Indian Companies Act defines the term bank as “the accepting for the purpose of

lending or investment of deposits of money from the public, repayable on demand or

otherwise and withdraw able by cheque, draft, order or otherwise”.

Section 6 of Banking Companies Act of 1949 specifies a good number of

business functions such as discounting, buying and selling, collecting and dealing

business instruments like bills of exchange, promissory notes, drafts, bills of lending,

warrants, debentures, securities and etc. Banks can also undertake buying and selling

of foreign exchange including notes. The banks can also acquire, hold, issue, and




underwrite shares, debentures of business companies etc. The bank is prohibited in

carrying out trading activities.

INTRODUCTION TO LOANS

One of the primary functions of the commercial bank is ‘lending’. Through lending

commercial banks meet their objective of making profits. The deposits collected from

the public cannot be kept idle. It has to be utilized in order to derive benefits out of it.

The bank collects deposits with the objective of lending and makes profits out of the

interest received and paid. Their main aim is to deal in money and provide for those

who need it. The banker performs the job of lending within the framework of status

governing the banking business, the government policy and guidelines issued by the

monitory authorities of the country (RBI in India).

The basic objective of nationalization of commercial banks was to provide funds to

the neglected sectors like agriculture, tiny industries and other weaker sectors of the

society. Today nearly 40% of the total commercial bank advances are in the priority

sectors.

Greater part of commercial bank funds are employed in the form of loans and

advances. Loans bring god money to the bank in the form of profit by charging

interest. Lending function of a commercial bank benefits the bank in the form of

profits and the one who takes loans enjoy the benefits of money required for their

activities. The wheels of industry cannot run without the bank advances. The bank

needs to assess the condition of industry or trade or any business enterprise while

making advances.




Loans:

When a bank makes an advance in lump-sum against some security it is called a loan.

Here a specified amount is sanctioned by the bank to the customers. The loan amount

so sanctioned is paid to the borrower either in cash or by credit to his account. A

certain amount of interest has to be paid by the borrower for the loan that he has

borrowed. A loan can be repaid in lump-sum or in instalments. Commercial banks

generally provide short-term loans Up to one year for meeting the working capital

requirements. But these days, term loans exceeding are also provided by banks. The

term loans may be either medium term or long term loans

SHORT TERM LOANS FINANCED BY COMMERCIAL BANKS

Commercial banks are the most important source of short term capital. The major

portion of working capital loans are provided by commercial banks. They provide a

wide variety of loans tailored to meet the specific requirements of o concern. The

different forms in which the banks normally provide loans and advances are loans,

cash credits, overdrafts, purchasing and discounting of bills.

.

TERM FINANCING BY COMMERCIAL BANKS

Commercial banks normally provide short term financial assistance to industry sector.

The assistance provided by them fulfilled the working capital requirements of the

industrial enterprises. A massive investment in industries during the second plan and

after changed the priority of bank lending. The industries required huge funds for long

term financing. The financial institutes failed to meet the increasing demands of the

industries. Then the entry of commercial banks came into existence and filled the gap

between the demand and supply of long term requirements. The banks started giving




term loans to meet the long term needs of the industry. The refinance scheme of IDBI

encouraged more term lending by commercial banks.

The commercial banks are assisting industrial units by granting term loans,

subscribing to shares and debentures of corporate units and underwriting securities

issued by those companies.

Some of the specialized financial institutions providing term loans are-

Industrial Finance Corporation of India (IFCI)

Industrial development bank of India (IDBI)

Industrial credit and Investment Corporation of India (ICICI)

Industrial Reconstruction Corporation of India (IRCI)

State Financial corporations (SFCs)

Unit trust of India (UTI)

Small Industries Development Bank of India (SIDBI).




CHAPTER 2 .

RESEARC H DESIGN

TITLE OF THE STUDY

“AN ANALYSIS AND COMPARISON OF COMMERCIAL AND INSTITUTIONAL ADVANCE

SCHEMES -HDFC BANK .”

INTRODUCTION

FINANCE is a discipline concerned with determining value and making decisions.

The finance function allocates resources, including the acquiring, investing and

managing, of resources. In other words, “Finance” is the process of raising funds or

capital for any kind of expenditure. Consumers, business firms, and governments

often do not have the funds they need to make purchases or conduct their operations,

while savers and investors have funds that could earn interest or dividends if put to

productive use. Finance is the process of channelling funds from savers to users in the

form of credit, loans, or invested capital through agencies including commercial

banks, savings and loan associations, and such non-bank organizations as credit

unions and investment companies. Finance can be divided into three broad areas:

business finance, personal finance, and public finance. All three involve generating

budgets and managing funds for the optimum results.

The word "system", in the term "financial system", implies the various elements in the

economy via, interlined institutions, markets, agents, practices, transactions, claims,

and liabilities all intertwined with each other. The financial system deals with money,

http://encyclopedia2.thefreedictionary.com/commercial+bank


http://encyclopedia2.thefreedictionary.com/savings+and+loan+association

http://encyclopedia2.thefreedictionary.com/credit+union


http://encyclopedia2.thefreedictionary.com/business+finance

http://encyclopedia2.thefreedictionary.com/savings+and+loan+association



http://encyclopedia2.thefreedictionary.com/business+finance






credit and finance. Indian financial system consists of financial market, financial

instruments and financial intermediation.

STATEMENT OF PROBLEMS

The post globalization era in Indian economy spurred an unprecedented growth in the

industrial as well as service sector. As such the commercial undertakings required a

vast amount of money to fund its long term as well short term needs. Consequently,

the financial institutions, especially the commercial banks played and have been

playing a pivotal role in the smooth financing of these growing sectors. In fact, major

portion of bank funds is employed by way of advances and are a major source of

profits for them. Commercial institutions have been a target of the banks to elevate

their profits level, and the banks have been attracting them with various schemes to

address their manifold needs. In light of this, here is the project where is addressed the

question how the commercial institutions are being financially supported through the

various advance (loan/overdraft) schemes of commercial banks with specific

reference to the HDFC BANK.

SCOPE OF THE STUDY

The study was limited to the advances by HDFC BANK to the commercial

institutions, viz,

Corporate /Industrial undertakings.

Traders, Owners of buildings and commercial properties.

Applicants engaged in trade, services activities.

To analyze the advance schemes provided by the bank with respect to advances limit,

Customer’s eligibility, Comparison of interest rate for different advance schemes, etc.




OBJECTIVES OF STUDY

To study the purpose for different advance schemes with comparison among the

various schemes (and their features) offered by HDFC BANK

To evaluate the customer’s eligibility, criterion and total advance (credit) limit

allowed.

To analyze and interpret the data to offer findings, suggestions & recommendations.

SOURCES OF DATA AND INFORMATION:

The collected data and information are the internal organization report.

The two sources of information’s are: -

Primary data

These are the data collected first hand by interviewing with the personnel and senior

officials of HDFC BANK and data collected through them.

Secondary data

Brochures and catalogs of the company.




Official reports.

Bank Website.

Intra bank websites of the bank.

Various other websites that offers information on various commercial institutions.

TOOLS FOR ANALYSIS

Data & information are analyzed and interpreted with the help of using the following

mentioned:

Tables

Graphs

Bar diagrams

METHODOLOGY

To fulfill the objectives of the study, the data acquired through primary and

secondary sources have been presented through the techniques of analysis namely,

tables, graphs and bar diagrams as appropriate. The data so tabulated has been

analyzed and proper inference supported by the findings has been drawn. The various

schemes have been then analyzed with respect to earlier stated criterion of the

advance schemes. Certain queries were tackled through discussions with the bank

officials and various commercial institutions.




LIMITATIONS OF THE STUDY

The accuracy of the study entirely depends upon the data provided by bank.

Time was one of the constraints during study.

Some data vital to the study could not be accessed due to the confidentially polices of

the bank.

Due to financial constrains advanced statistical techniques; modules could not be

learned and incorporated in the research.

CHAPTER SCHEME

INTRODUCTION• Introduction to finance

• Indian Financial System

• Reserve bank of India

•

Securities and Exchange board of India• Banking

RESEARCH METHODOLOGY

• Title of the study

• Statement of the problems

• Objectives of the study

• Scope of the study

• Source of data and information

•

Tools for analysis• Methodology




• Limitations of the study

COMPANY PROFILE

• Origin

• Mission of SBM

• Organizational set up

• Financial profile

• Business profile

• Bank products

• Value added services

ANALYSIS AND INTERPRETATION

FINDINGS & RECOMMENDATIONS

ANNEXURE BIBLIOGRAPHY

CHAPTER. 3-

COMPANY PROFILE

ORIGIN

HDFC BANK was established in the year 1913 as Bank of Mysore Ltd. under the

patronage of the erstwhile Govt. of Mysore, at the instance of the banking committee

headed by the great Engineer-Statesman, Late Sir.M. Visvesvaraya. Subsequently, in

March 1960, the Bank became an Associate of State Bank of India. State Bank of

India holds 92.33% of shares. The Bank's shares are listed in Bangalore, Chennai, and

Mumbai stock exchanges.




Bharata Ratna Sir.M. Visvesvaraya:

“Remember, your work may be only to sweep a railway crossing, but it is your duty to

keep it so clean that no other crossing in the world is as clean as yours”.

An engineer by profession and a genius, Sir MV as he was affectionately and

respectfully addressed, was the architect of the Krishnarajasagara dam - or KRS or

Brindavan gardens - which has amazed and enchanted thousands of people from all

countries, one of the biggest dams in India which irrigates a hundred and twenty

thousand acres of land. The Bhadravati Iron and Steel Works, the Mysore sandal OilFactory and the Mysore soap factory, Mysore University, the HDFC BANK (it was

first named The Bank of Mysore) - all these were the gifts of one man, Sir MV - and

he gave these to his country, when it was still not free. Bharata Ratna (The gem of

India), the highest honour for a citizen of India was conferred on him.

COMPANY MISSION

A premier commercial Bank in Karnataka, with all India presence, committed to

provide consistently superior and personalized customer service backed by

employee pride and will to excel, earn progressively high returns for its

shareholders and be a responsible corporate citizen contributing to the well

being of the society.

Branch Network

The Bank has a widespread network of 671 branches (as on 31.01.2009) and 20

extension counters spread all over India which includes 6 specialized SSI branches, 4

Industrial Finance branches, 3 Corporate Accounts Branches, 4 specialized Personal

Banking Branches, 10 Agricultural Development Branches, 3 Treasury branches, 1

Asset Recovery Branch and 7 Service Branches, offering wide range of services to the

customers.




Human Resources

The Bank has a dedicated workforce of 9720 employees consisting of 3169

supervisory staff, 6551 non-supervisory staff (as on 31.03.2008). The skill and

competence of the employees have been kept updated to meet the requirement of our

customers keeping in view the changes in the environment

ORGANISATIONAL SET UP

While the Chairman of State Bank of India is also the Chairman of the Bank, The

Managing Director is assisted by a Chief General Manager and 6 General managers in

the areas of operation, commercial and international bank, planning and development,

finance and service, inspection and vigilance and it from the management team of the

bank. The bank has zonal offices headed by deputy general manager, while two zonal

officers are situated in Bangalore other the zonal officers are situated at Mysore and

Hubli respectively.

Management Committee of the Bank

Managing Director 91 80 22251855

Fax 080 22254753

Chief General Manager Mr. Dilip

Mavinkurve

91 80 22251570

Fax 080 22350563

General Manager Mr. Salil.K.Misra 91 80 30907236

http://www.statebankofmysore.co.in/mcpix.htm

http://www.statebankofmysore.co.in/mcpix.htm




(Technology)

Fax 080 22356472

General Manager (Operations)

Mr. P. Ram Kumar 91 80 22353487Fax 080 22353478

General Manager

(Commercial &

Institutional Banking)

91 80 22353471

Fax 080 22355978

General Manager

(Treasury)

Mr K. Vijaya Kumar 91 80 22254040

Fax 080 22280682

General Manager

(Planning &

Development)

Mr.Sebastian Chacko 91 80 22257149

Fax 080 22353494

General Manager

(Vigilance & Inspection)

Mr.T.Thomas

Mathew

91 80 22255617

Fax 080 22350562

Financial Profile

The paid up capital of the Bank is Rs.360 Millions as on 31.03.2008 out of which

State Bank of India holds 92.33%. The net worth of the Bank as on 31.03.2008 is

Rs.13778.10 Millions and the Bank has achieved a capital adequacy ratio of 11.73%

as at the end of March 2008. The Bank has an enviable track record of earning profits

continuously and uninterrupted payment of dividend since its inception in 1913. The

Bank earned a net profit of Rs.3188.60 Millions for the year ended March 2008 andearning per share is at Rs.886.




Business Profile

Total deposits of the Bank as at the end of January 2009 is Rs.31817 Crores and the

total advances stood at Rs. 24713 Crores which include export credit of Rs. 10159.50

Millions. The Forex turnover of the Bank crossed Rs.336963.50 Millions during the

year March 2007 to March 2008 which is 44.66% higher.

VALUE ADDED SERVICE :

The following value added services are provided to the customers. They are-

• Core banking solution.

• Video conferencing

• Bank web-sites

• Internet banking:

Online HDFCis certified by VeriSign, the world leading internet

certification authority. Internet banking provides the following mentioned facilities to

the customers

a) Personal banking:




Under personal banking HDFCprovides-

I) Account statement

II) Bill payment

III) Demand draft

IV) Transaction enquire

V) User profile

b) Corporate banking

Safe online banking:

Online HDFCprovides several inbuilt features for safe and secure banking. You can

use the security options in the profile tab to:

Customize your Personal Profile:

Customer can set their display name, mobile number and email ID in your personal

profile. The display name is used in the Welcome message.

Manage Third Party:

Customers can define your own trusted third parties to

whom you wish to transfer funds. You can also add, delete or modify your list of

trusted third parties.




Define Limits:

Customers can set limits for demand draft and third party transfers,

in the profile section. It is advisable to set a lower limit. You can enhance the limit as

and when required.

d) There are the new internets banking services which are provided to the customers:

I) Profile enhancement

II) Inter bank transfer (account using RTGS/NEFT

facility)

III) Online Railway booking

IV) OLTAS (online tax accounting system)

Retail banking and Cross selling :

Under cross selling the services offered as follows:

I) Bancassurance

II) SBI life insurance




III) SBI Mutual Funds

IV) SBI Capital Market Ltd (SBICAP)

V) Dhanvanthari Bima Policy

Interest rates:

I) SBM’s prime lending rate

II) Interest rates on Domestic Deposits

III) Interest rates on personal segment advances

IV) Interest rates on NRE Deposit schemes, FCNR, RFC.

NRI services:

I) International banking

II) Performa for foreign currency remittance

III) Account opening system

IV) Money transfer to India

V) Remittance facility trough SBI, NY

VI) Forex Exchange facility-FAQ’s




Other related linked service:

I) RBI’s Financial Education Initiative

II) Reserve Bank of India (RBI)

III) State Bank ok of India (SBI )

IV) Indian Bank’s Association

Deposits:

New Deposit Schemes-

Mybank surakshana

A unique deposit scheme linked with insurance cover has been introduced.

Insurance cover to a maximum of Rs. 5.00 lacs on deposits held for 5 years and

more......

Saving Plus

http://www.statebankofmysore.co.in/sbmsavplus.htm






In order to provide value added services to our Personal Segment customers, a

new specialized auto sweep product for Personal Segment savings bank

customers has been introduced. Click on the image for more details

Saral Savings Bank account

This account comes with very low minimum balances as well as low / nil charges, to

cater to the needs of individual from the vast sections of population who are,

otherwise, not fulfilling certain conditions of our existing Savings Bank requirements.

HDFCTax Saver Scheme

A Bank Term Deposit Scheme 2006 has been introduced by the Central Government

commencing from the financial year 2006-07 wherein time deposits made unto

Rs.1.00 lakh for a period of 5 years are exempted from payment of Income tax under

Sec 80C.

Multi Option Deposit Scheme

A new deposit scheme combining the features of Current account, Savings Bank a/c,

TDR or RID a/c. The product proposes to give liquidity to the depositor with highreturns and convenience. It provides the depositor an automatic overdraft facility in

Current a/c and automatic withdrawal of Term deposits in units through SB a/c.

Depositor has to simultaneously open TDR / RID a/c for Rs.1000/-, SB a/c with

balance Rs.500/- and Current a/c.

Savings Bank account




You can open an account with a deposit as low as Rs.100/- to Rs.300/-(Rs. 250/- for

chequebook facility and Rs.100/- without chequebook facility) depending upon the

area and earn interest at 3.5% (wef 01/03/2003) per annum. Computerised branches -

Rs.500/- and Specialised hi-tech branches - Rs.2000/-

Term Deposits

Invest a lump sum amount for a specific period from 15 days up to 120 months and

collect interest at monthly (discounted), quarterly, half- yearly or yearly intervals.

Reinvestment Deposits

Your investment and interest for the specified period will be paid together at the end

of the term. It gives you the highest yield of interest on your savings taking care of

your future needs like marriage, house construction, children’s higher education, etc.,

Period can be from 6 months up to 10 years.

Power Money

A flexible term deposit scheme. Deposits are accepted in units of Rs.500/- each with a

minimum of Rs.5000/- (10 units) for a period of 1-10 years. Partial withdrawals are

permitted in units without loss of interest on premature withdrawal for the entire

deposit. Loans / Overdrafts can be availed up to 75% on the balance of units held.




Recurring Deposits

Save bit by bit. Spend when the need is big and relax. Minimum monthly instalment

is Rs.100/- and is accepted in multiples of Rs.10/- thereafter. Deposits are accepted

from 12 months to 120 months.

Harsha Deposit

Save with pleasure at your convenience. No penalty on your irregular remittance. You

may enhance your instalment up to 10 times your initial deposit. An ideal deposit

scheme for all, whose income is flexible and also for the salaried that may have to

incur unexpected expenditure.

HIGHLIGHTS OF THE FINANCIAL RESULTS FOR THE YEAR

ENDED 31st MARCH, 2008

The Board of Directors of HDFC BANK approved the financial results for the year

ended 31st March, 2008 at its meeting held in Mumbai on 23rd April 2008. The

highlights of the performance and working results are as under.

NET PROFIT:

The “Net Profit” of the Bank registered a growth of 28% to reach a level of Rs 318.86

Crores mainly backed by an increase of 20.35% in operating profit and lower

provisions towards bad debts.




The Bank’s Board has proposed/declared a dividend of 100% for the year 2007-08.

OPERATING PROFIT :

The Operating Profit increased to Rs.567.52 Crores as on 31st March 2008 from Rs.

471.58 Crores as on 31st March, 2007. The increase in Operating Profit is on account

of growth of 11.52% in net interest income and an increase of 20.53% in other

income. The Income from Sale and Purchase of Securities increased by over 105% to

Rs.79.91 Crores. Interest on Advances and Investments grew by 50% and 23.72%

respectively, year on year. Staff Expenses were contained at 6.29%, while other

Operating Expenses increased by 14.18%, year on year.

KEY FINANCIALS :

The Return on Assets was at 1.08%.

Return on Equity increased from 21.84% to 23.76%.

Net Worth of the Bank increased to Rs. 1341.09 Crores from Rs. 1121.56 Crores

representing a growth of 19.57%.

The Bank’s Capital Adequacy Ratio (CAR) which was at 11.47% as on 31st March,

2007 increased to 12.34% against the regulatory benchmark of 9%. The Bank has

complied with BASEL – II norms for Capital Adequacy as on 31st March 2008.

Capital to Risk Weighted Assets Ratio (CRAR) as per BASEL – II Norms was at

11.73%. Core CRAR was at 6.54%.

Earnings per Share (EPS) increased to Rs.886/- from Rs.692/- in March, 2007.




The Book Value of a share has increased to Rs.3725/- from Rs.3115/- in March 2007.

“Business per Employee” has risen from Rs.398 Lacs in March, 2007 to Rs.502 Lacs

in March, 2008.

DEPOSITS :

Aggregate deposits increased from Rs.21,395 Crores in March, 2007 to Rs.26781

Crores in March, 2008 registering a growth of 25.17% (Rs.5386 Crores).

ADVANCES :

The advances of the Bank increased from Rs.16,772 Crores in March 2007 to

Rs.21,315 Crores in March, 2008, registering a growth of Rs.4,543 Crores (27.10%)

during the year.

TOTAL BUSINESS :

The Total Business of the Bank increased by Rs.9,983 Crores to reach a level of

48,096 Crores.

CREDIT DEPOSIT RATIO:

The Credit Deposit ratio stood at 79.59% as against 78.39% in March, 2007.




PRIORITY SECTOR ADVANCES :

Priority sector advances increased by Rs.897 Crores to reach a level of Rs.6,960

Crores constituting 43% of Adjusted Net Bank Credit.

The Priority Sector Advances form 43.35% of the Adjusted Net Bank Credit (ANBC),

thereby the Bank has surpassed the bench-mark ratio of 40% to ANBC.

Impressive performance was achieved in Agricultural Segment which stood at

Rs.2,911 Crores (growth of 30.60%)

Small Business Segment which stood at Rs.709 Crores (growth of 45%) from Rs.489

Crores.

The Bank’s advances to SME sector have registered an increase of Rs.456 Crores to

reach a level of Rs.2261 Crores as on 31st March 2008 from Rs.1805 Crores in March

2007(at 3%). The growth is 25 % as against the Government of India guideline of

Year On Year growth of 20%.

Loans to Housing Sector increased from Rs.1,716 Crores to Rs.1,992 Crores (growth

of 16.09%) as at the end of March’08.

Educational Loans also witnessed increase of Rs.89 Crores (at 48%) from Rs.185

Crores to Rs.274 Crores.

AGRICULTURE FINANCE :




Agricultural advances continued to receive high priority and have recorded a growth

of 30.60% to reach Rs.2,911 Crores from Rs.2,229 Crores.

The Bank has achieved the benchmark ratio of 18% to Adjusted Net Bank Credit

(ANBC) under Agricultural Advances.

In Karnataka, Bank’s advances to agriculture sector stood at Rs.2,380 Crores and

constituted 24% of the total advances of the bank in the State.

Under the Special Agricultural Credit Plan (SACP), the bank disbursed Rs.2,243

Crores during 2007-08 as against Rs.1, 660 Crores disbursed in the previous year,

achieving a growth of 35% against the stipulated target of 24%.

FINANCING OF SELF HELP GROUPS :

12,447 groups were covered during the year with a credit assistance of Rs.108.89

Crores during the year, with a cumulative coverage of 35,025 groups and credit

assistance of Rs.278.29 Crores.

This represents a growth of 35.54 % in numbers and 39.13 % in terms of the amount

disbursed.

The Bank has been adjudged as the Second Best Bank in SHG Credit Linkage for the

year 2006-07 by NABARD.

INVESTMENTS :




The investments of the Bank in Securities, Debt and Equity stood at Rs.8,469.71

Crores.

With prudent management of the Investments portfolio, the Yield there on stood at

8% as on 31st March 2008.

FOREIGN EXCHANGE BUSINESS :

The Foreign Exchange turnover of the Bank stood at Rs.33,696 Crores recording an

increase of Rs.10,402 Crores (44.65%) over the last year.

Export Credit stood at Rs.1,015.95 Crores as against Rs.1026.95 Crores of the

previous year.

NPA MANAGEMENT :

Gross NPA was reduced from Rs. 384 Crores as on March, 2007 to Rs.359 Crores as

on March, 2008.

Gross NPA ratio declined from 2.29% in March, 2007 to 1.68% in March, 2008. Net

NPA ratio declined from 0.45% to 0.42% in the same period.

TECHNOLOGY :

Value added services such as e –payment of direct & indirect taxes and transfer of

funds through Real Time Gross Settlement, National Electronic Funds Transfer

extended at all branches.

ATMs:

Bank’s 319 ATM’s are networked with the State Bank Groups’ over 8400 ATMsallowing easy access to anywhere anytime banking.




SERVICES :

Payment of Electricity Bills/Telephone Bills/Credit Card payment bills etc., are now

enabled in internet banking and through ATM’s of the Bank.

On Line Trading facilities for making investments in Capital Market, D-Mat and

Depository facilities have been launched during the year.

REGIONAL RURAL BANKS :

The Cauvery Kalpatharu Grameena Bank, sponsored by our Bank, has its Head Office

at Mysore, and is covering Tumkur, Mysore, Hassan, Chamarajanagar, Bangalore

Urban and Bangalore Rural Districts, having a network of 203 branches. The total

deposits and advances of the Regional Rural Bank, as on 31st March 2008, stood at

Rs. 1,240 Crores and Rs. 1,010 Crores respectively. The Regional Rural Bank has

been earning profit. The Bank has computerized all its 203 branches.

FUTURE PLANS :

The Bank proposes to reach a business level of over Rs.60, 000 Crores during the year

2008-09. Towards this end, the Bank has set a business target of Rs.7,000 Crores in

Deposits and Rs.5,500 Crores in advances during the year 2008-09, at a growth rate of

26%.

The Bank has obtained RBI’s approval to open 30 (thirty) new Branches to support




the envisaged growth.

The Bank would be setting up around 20 (twenty) Specialised Central Processing

Centres under BPR initiatives.

The Bank proposes to install 65 (sixty five) Automated Teller Machines (ATMs) of

which 43 (forty three) are Off-site and 22 (twenty two) are On-site.

Smart Cards

: To promote Branch-less Banking, Smart Cards are being introduced

which will facilitate customers to transact banking business in remote places under the

Business Correspondent Model. The Smart Card scheme is being introduced in

Tumkur District on a pilot basis.

To emerge as the Bank of 1st Choice in Karnataka and to attract the young and new

customers and at the same time retain the existing customers, new IT enabled services

and products are being introduced to suit the needs of each category of customers.

Bank is aiming to achieve a higher mindshare of the customers to emerge as ‘Most

Preferred Bank in the State.

Audited Financial Results for the year ended 31st March 2008

http://www.statebankofmysore.co.in/fin0308pix.htm

http://www.statebankofmysore.co.in/fin0308pix.htm




Balance Sheet

CAPITAL & LIABILITIES

(Rs. in millions)

31.03.2007 31.03.2008

Capital 360.00 360.00

Reserves & Surplus 11053.28 13418.15

Deposits 220223.45 274623.97

Borrowings 9899.23 17315.32

Other liabilities & provisions 26890.54 24979.61

TOTAL 268426.50 330697.05




ASSETS (Rs. in millions) 31.03.2007 31.03.2008Cash & Balance with RBI 20956.34 26615.48

Balances with banks & Money at

call and short notice

3427.59 2445.40

Investments (Net) 69897.49 84027.60

Advances (Net) 164655.36 210271.46

Fixed Assets 1333.83 1229.91

Other Assets 8155.89 6107.20

TOTAL 268426.50 330697.05




CHAPTER.4

Analysis, comparisons and Interpretation

Table 4.1

Interest rates for various Schemes

SCHEMES MINIMUM RATES Maximum RateScheme for Traders 14.75 15.25

Handy Loans Scheme 12.25 15.25

Corporate Loan 14.25 15.5

Rent Plus 14.25 14.25

HDFC Paryatan Plus 14 15.5

HDFC School Plus 12.25 14.75

Analysis

The table clearly reveals that the minimum rate is 12.25 for each of Handy loan

scheme and HDFC School Plus, while it is 14 for HDFC Paryatan Plus and 14.25 for

Each corporate and rent plus. While it is highest, 14.75 for traders. Similarly,

maximum rate is highest for corporate, while in second comes scheme for traders and

Handy loan scheme with 15.25 and at last is rent plus with 14.25.




Graph 4.1

Interest rates for various Schemes

Interpretation

The graph shows that the Lowest minimum rate is for each of Handy loan scheme and

HDFCSchool Plus, while it is highest for traders. Similarly, maximum rate is highestfor corporate, while in second comes scheme for traders and Handy loan scheme and

is minimum for rent plus.




Table 4.2

Maximum amount allowed for advances

Schemes Maximum limit of loan in lacs

Scheme for Traders 50

Handy Loans Scheme 25

Rent Plus 750

HDFC Paryatan Plus 2HDFC School Plus 25

Analysis

The maximum amount allowed for traders is 50 lacs, while it is 25 lacs for Handy

loans, it is 750 lacs for rent plus and 2 lacs for Paryatan plus and 25 lacs for school

plus.




Graph 4.2

Maximum amount allowed for advances

Interpretation

The maximum amount allowed is obviously Rent Plus while it is least for HDFCParyatan Plus. Second highest is enjoyed by Scheme for Traders while both Handy

Loans Scheme and HDFC School Plus hold third highest limit with same amount of

maximum loan provided.




Table 4.3

Margins of Loan in percentages

SCHEMES MARGINS IN %



Corporate Loan 75

HDFC Paryatan Plus 40

HDFC School Plus 15

Analysis

The margin is 75 for each handy loans and the same for corporate loan, while it is 40

and 35 respectively for traders and Paryatan plus. It clearly is 15 for school plus.

Graph 4.3

Margins of Loan in percentages




Interpretation

The margin is the highest for both handy loans and the same for corporate loan, whileit is second highest for Paryatan plus and then comes traders it clearly is the least for

school plus.

Table 4.4

Period of loan repayment.




SCHEMES PERIOD OF PAYMENT IN YEARS



Corporate Loan 3

Current Account Plus 7Rent Plus 7

HDFC Paryatan Plus 7

HDFC School Plus 7

Analysis

Here scheme for traders has only 1 year for repayment of loans taken, whereas it is 5

years for handy loans scheme and 3 years for corporate loan, and it is 7 years for all

the other, viz, current account plus, rent plus, Paryatan plus and HDFC school plus.

Graph 4.4

Period of loan repayment




Interpretation

Here scheme for traders has the least time allotted for repayment of loans taken,whereas it is highest for all- current account plus, rent plus, Paryatan plus and HDFC

school plus. It is moderate i.e., 5 years and 3 years for handy loans scheme and

corporate loan scheme respectively.

Table 4.5

Pattern of loans and advances according to type

Type of loan / advance As at 31.3.2009 As at 31.3.2010




Rs. Lacs % Rs. Lacs %

Bills purchased and discounted 96055 5.83% 108200 5.15%

Cash credits, overdrafts & loans 551600 33.50% 701223 33.35%

Term loans 998898 60.67% 1293291 61.51%

Total loans and advances 1646553 100.0% 2102714 100.0%

Analysis

Term loans made up the highest, i.e. 60.67% and 61.51% of total loans and advances

as at 31 March 2009 and 31 March 2010 respectively. Next to it are cash credits,

overdrafts and loans that make up 33.5% and 33.35% of total loans and advances as

on 31 March 2009 and 31 March 2010 respectively. Bills purchased and discounted

made up 5.83% and 5.15% of total loans and advances at 31 March 2009 and 31

March 2010 respectively.

Graph 4.5

Pattern of loans and advances according to type




Interpretation

A majority of the Loans and advances are term loans followed by cash credits,

overdrafts and loans. Bills purchased and discounted make up relatively a small

portion of total loans and advances.

Table 4.6

Pattern of loans and advances according to security




Type of security

As at 31.3.2009 As at 31.3.2010

Rs. Lakh % Rs. Lakh %

Secured by tangible assets 1392545 84.57% 1769114 84.13%

Covered by Bank/Govt.

Guarantees63076 3.83% 48252 2.29%

Unsecured 190933 11.60% 285348 13.57%


Analysis

Loans and advances secured by tangible assets represented 84.57% and 84.13% of

total loans and advances as on 31 March 2009 and 31 March 2010 respectively. While

3.83% and 2.29% of loans and advance were covered by bank/Govt. guarantees on 31

March 2009 and 2010, 11.60% and 11.57% were unsecured.

Graph 4.6

Pattern of loans and advances according to security




Interpretation

A bulk of loans and advances are secured by tangible assets. A small portion of loans

and advances are covered by bank/Govt. guarantees but a sizable portion is unsecured.

The unsecured portion as a percentage of total loans and advances has increased.

Table 4.7

Pattern of loans and advances according to sector




Sector

As at 31.3.2009 As at 31.3.2010


Priority sectors 597827 36.31% 669698 31.85%

Public sectors 194265 11.80% 184464 8.77%

Others 854462 51.89% 1248553 59.38%


Analysis

Loans and advances to priority sectors were 36.31% and 31.85% of total loans and

advances as at 31 March 2009 and 31 March 2010. Loans and advances to the public

sector were 11.8% and 8.77as at 31 March 2009 and 31 March 2010 respectively.

Loans and advances granted to other sectors has increased from 51.89% of total loans

and advances to 59.38% of total loans and advances during the year ended 31 march

2008.

Graph 4.7

Pattern of loans and advances according to sector




Interpretation

It can be inferred that a majority of loans and advances are granted to sectors other

than the public sector and priority sectors. Loans and advances to other sectors are

followed by loans and advances to priority sectors in terms of percentage of total

loans and advances.

Table 4.8

Comparison of loans and advances according to type




Analysis

Term loans represent 61.51%, 58.88% and 61.23% of total loans and advances in

HDFC BANK, State bank of Indore and State bank of Hyderabad respectively while

the share of cash credits, overdrafts and loans was 33.35%, 37.19% and 34.94%. Bills

purchased and discounted accounted for 5.15% of total loans and advances provided

by HDFC BANK and this figure was 3.92% in State bank of Indore and 3.82% in

State bank of Hyderabad.

Graph 4.8

Comparison of loans and advances according to type

Type of loan / advance

HDFC BANK

As at 31.3.2010

State bank of

Indore

As at 31.3.2010

State bank of

Hyderabad

As at 31.3.2010

Rs.

Lakh%

Rs.

Lakh% Rs. Lakh %

Bills purchased and discounted 108200 5.15% 71519 3.92% 137095 3.82%

Cash credits, overdrafts &

loans701223 33.35% 677778 37.19% 1252603 34.94%

Term loans 1293291 61.51% 1073136 58.88% 2195178 61.23%

Total loans and advances 2102714 1822433 3584876




Interpretation

In all three banks the bulk of loans and advances are in the form of term loans but the

relative importance of term loans in the HDFC BANK was higher compared to the

other banks. Although cash credits, overdrafts and loans accounted for one third of

loans and advances, the percentage of cash credits, overdrafts and loans to total loans

was lower in HDFC BANK compared to the other two banks. HDFC BANK gives a

higher portion of bills purchased and discounted than the other two banks.

Table 4.9

Pattern of loans and advances according to maturity period




Maturity Period

As at 31.3.2009 As at 31.3.2010


1 - 14 days 45567 2.8% 63888 3.0%

15 - 28 days 19810 1.2% 22400 1.1%

29 days to 3 months 126400 7.7% 154313 7.3%

Over 3 months to 6 months 75444 4.6% 109564 5.2%

Over 6 months to one year 162647 9.9% 213205 10.1%

Over one year to 3 years 711203 43.2% 948281 45.1%

Over 3 years to 5 years 224866 13.7% 260674 12.4%

Over 5 years 280617 17.0% 330390 15.7%

Total Loans and advances 1646554 100.0% 2102715 100.0%

Analysis

As on 31 March 2010 loans with a maturity period of 1 – 14 days, 15 – 28 days, 29

days to 3 months, over 3 months to 6 months and over 6 months to one year were 3%,

1.1%, 7.3%, 5.2% and 10.1% respectively. As on the stated date loans and advances

with a maturity period of one year to 3 years, over 3 years to 5 years and over 5 years

made up 45.1%, 12.4% and 15.7% of total loans and advances.

Graph 4.9

Pattern of loans and advances according to maturity period




Interpretation

Although the loans and advances granted have a range of maturity periods a major

portion of loans and advances have a maturity period of over one year to 3 years.

More than two third of loans and advances are for over a year.




Table 4.10

Comparison of return on advances

HDFC BANK State bank of

HyderabadState bank of Indore

2009 2010 2009 2010 2009 2010

Interest/ discount

earned on advances /

bills (Rs. Lakh)

126999 190494 221215 314462 119578 169646

Average loans and

advances (Rs. Lakh)1411100 1874941 2449779 3199003 1361936 1678002

Return on advances

(%)9.00 10.16 9.03 9.83 8.78 10.11

Return on advances = Interest earned on advances *100 / Average loans & advances

Analysis

The return on loans and advances made by HDFC BANK is 10.16% in the year ended

31 March 2010 compared with 9.83% in State bank of Hyderabad and 10.11% in

State bank of Indore. The rate of return has increased from 9% to 10.16% in the

HDFC BANK during the year ended 31 March 2010.

Graph 4.10




Comparison of return on advances

Interpretation

The HDFC BANK enjoys the highest return on loans and advances compared to State

bank of Hyderabad and state bank of Indore. The rate of return has increased in the

year ended 31 March 2010. The incremental increase in return of HDFC BANK is

higher than State bank of Hyderabad but lower than State bank of Indore.

Table 4.11




Interest rates on commercial loans for various banks

Banks MINIMUM RATES (%) Maximum Rate (%)

HDFC BANK 12.25 15.25

State Bank of Indore 12.5 16

Bank of India 12 16

Bank of Maharastra 10 13.75

Corporate Bank 12.25 14.5

Analysis

Here, the table shows that HDFC BANK has 12.25 and 15.25 % rate of interest as

minimum and maximum interest rate. Similarly, State Bank of Indore has 12.2 %

Bank of India 12, Bank of Maharastra, 10 Corporate Bank, 12.25 % interest rate, while

maximum for them are 16, 16, 13.75, 14.5 respectively.

Graph 4.11

Interest rates on commercial loans for various banks




Interpretation

Here, the graph reveals that shows that Bank of Maharastra has the lowest minimum

rate of interest rate, while the highest is for State Bank of Indore. HDFC BANK, Bank

of India, Corporate Bank, have moderate rate. Maximum interest rate is for State Bank

of Indore and Bank of India, while minimum is for Bank of Maharastra, Corporate Bank

and HDFC BANK have moderate compared to other.

Table 4.12

Average Margin for loan for various Banks




Banks Margin

HDFC BANK 20

State Bank of Indore35

Bank of India25

Bank of Maharastra25

Corporate Bank 30

Analysis

Here the table shows that the margin kept by bank as security measures are 20 for

HDFC BANK, 35 for state Bank of Indore, 5 for both bank of India and Bank of

Maharastra, while it is 30 for Corporate bank.

Graph 4.12

Average Margin for loan for various Banks




Interpretation

Here the graph clearly depicts that State Bank of Indore has the highest average

margin followed by Corporae Bank and then come bank of Maharastra and Bank of

India which are equal, while HDFC BANK has the lowest margin rate.

Table 4.13

Table showing the nature of advances for the schemes




SCHEMES INTEREST RATESScheme for Traders Term

Handy Loans Scheme Term

Corporate Loan Short term/ term

Rent Plus TermHDFC Paryatan Plus Term/ Short term

HDFC School Plus Term

Analysis & Interpretation

Here the Table clearly depicts that most of the schemes, i.e. for Traders, Handy loan

scheme, Rent Plus and School Plus allows for long term while corporate loan and

Paryatan Plus can be availed for either short term or long term depending on the

purpose for which advance is taken.

Table 4.14

Table showing Insurance required for the advances…

SCHEMES INSURANCE REQUIREDScheme for Traders 100% of securities




Handy Loans Scheme 100% of securities

Rent Plus All assets covered

HDFC Paryatan Plus 100 % of the loan

HDFC School Plus Adequate


Here, we can see that Traders, Handy loan rent Plus and Paryatan Plus require cent

percent security with Insurance. While HDFC School Plus is little bit flexible with

adequate insurance required. Thus most of the loans can be considered safe.

Table 4.15

Table showing the mortgage required

SCHEMES MORTGAGE REQUIREDScheme for Traders Immovable property

Handy Loans Scheme Immovable property

Corporate Loan Financial assets, Guarantee

Rent Plus Receivables

HDFC Paryatan Plus Immovable property




HDFC School Plus Immovable property


We can see in the table that the mortgage required as securities are mostly

immovable. It is true for Scheme for traders, Handy loan scheme, Paryatan Plus and

School Plus. While corporate loan should get financial assets and guarantee as

mortgage, also, rent plus requires receivables as mortgage.

Table 4.16

Table showing the eligibility required for the loan

SCHEMES ELIGIBILITYScheme for Traders Under C&I segment only

Handy Loans Scheme For trade and Services Sector

Corporate Loan Corporate in C&I and SSI sector

Current Account Plus Existing and new accounts holders

Rent Plus Owners of buildings and commercial

propertiesHDFC Paryatan Plus Involvement in tourism activities




HDFC School Plus Educational institution with adequate

income


The tale shows that the various schemes cover different eligibility. Obviously, the

cover the various dimensions of commercial purpose. It also covers Service sector and

real estate. Also hospitality and Education have been touched.

Table 4.17

Table showing the eligible purpose of loans

SCHEMES ELIGIBLE PURPOSES

Scheme for Traders Working Capital needsHandy Loans Scheme Acquisition of Fixed Assets & General

Trade

Corporate Loan Genuine Commercial purpose in Regular

Business

Rent Plus Meet liquidity mis-match and other purpose

HDFC Paryatan Plus Construction & modernization for tourism

HDFC School Plus Construction/Renovation of school buildings





We can see that the purpose for which can be availed is for both long term and short

term requirement of the commercial institutions. It can be availed to meet the current

and future demand of the business and also for the purpose for real estate and schools

like development and renovation.

CHAPTER 5: FINDINGS, RECOMMEMDATION &

CONCLUSIONS

SUMMERY OF FINDING

Schemes for corporate and Paryatan Plus have the highest interest rates among

the other schemes, while the lowest is for Handy loan scheme and Schools.

The maximum amount of loan among all the schemes can be by real estate as

per Rent Plus while it is least for hospitality with HDFC Paryatan Plus.

The margin is the highest for both handy loans and the same for corporate loan

thus they are the most secured loan for the banker. While it is the least for

school plus as such, it may not be as secured as the other schemes.




Here scheme for traders has the least time allotted for repayment of loans

taken as they are mostly granted for short term purpose, whereas it is the

highest for all- current account plus, rent plus, Paryatan plus and HDFC school

plus which is obviously due to their long term nature.

A majority of the Loans and advances are term loans followed by cash credits,

overdrafts and loans. Bills purchased and discounted make up relatively a

small portion of total loans and advances.

A bulk of loans and advances are secured by tangible assets. A small portion

of loans and advances are covered by bank/Govt. guarantees but a sizable

portion is unsecured.

The unsecured portion as a percentage of total loans and advances has

increased.

It can be inferred that a majority of loans and advances are granted to sectors

other than the public sector and priority sectors. Loans and advances to other

sectors are followed by loans and advances to priority sectors.

The percentage of cash credits, overdrafts and loans to total loans was lower in

HDFC BANK compared to the other two banks.

More than two third of loans and advances are for over a year. A major of the

remaining portion of loans and advances have a maturity period of over one

year to 3 years.

The HDFC BANK enjoys the highest return on loans and advances compared

to State bank of Hyderabad and state bank of Indore.




Maximum interest rate is for State Bank of Indore and Bank of India, while

minimum is for Bank of Maharastra, Corporate Bank and HDFC BANK have

moderate compared to other.

HDFC BANK has the lowest margin rate compared to State Bank of Indore,

Corporae Bank, Maharastra and Bank of India.

The mortgage required as securities are mostly immovable.

Obviously, the cover the various dimensions of commercial purpose. It covers

Service sector and real estate hospitality and Education.

RECOMMENDATIONS

Since The Schemes for corporate and Paryatan Plus have the highest interest

rates among the other schemes, If the bank decreases it, it has potentiality to

attract even more customers.

Only real estate can avail needful amount, i.e. 750 lacs, other can avail only as

low as 2 – 50 lacs, which should be increased to some extent.

The margin for handy and corporate should be made little bit lower to be in

par with other banks and attract more customers.




The traders scheme should get higher time limit to repay and renew the loan

availed and to meet their varied needs.

Besides tangible assets, the securities like bank and government guarantee

should be encouraged, since it has got significantly less focus.

The unsecured portion of advances that has increased over the last year needs

attention not to make it default.

Public and priority sectors should get still more focus.

Since HDFC BANK has the least average margin rate, it should be studied and

given more attention.

CONCLUSION

The project titled “An analysis of Commercial and Institutional Advance Schemes”

was undertaken to analyse and interpreter the various schemes that HDFC BANK has

come up to meet Commercial and institutional need.

All information has been collected from HDFC and other banks’ websites and

discussion with the bank officials who are well aware of the various advance schemes

to be able to tackle the confusions.




Overall, the various commercial and institutional schemes that HDFC offers for the

needing their various demands are appropriately thought of. They are framed to cover

a wide scope an area of business so that they could deal with their various short term

and long term needs.

Nevertheless, the bank needs always be careful about the margin it has for the loans

and the securities therein. Also it needs to keep on studying its interest rate and should

make it in par with the other banks. Also it should come up with new schemes to meet

the ever changing demand of the market.

BIBLIOGRAPHY

1) BOOKS REFERRED

S.NO

.

BOOKS NAME AUTHORS PUBLISHER

1. Research MethodologyC.R Kothari New Age International

2. Financial Markets

&

Services

Gordon

&

Himalaya Publishing

House




Natarajan

3. Law and Practice

of

Banking K.Venekataramana

Seven Hills Book

Publications

2) Dailies / journals / reports:

Sl. no Title Publishers

1. Annual Report HDFC BANK

2. Statistical tables relating to banks in

India 2009-2010

RBI

3. A profile of banks 2009 - 2010 RBI

4. A report on trend and progress of

banking in India 2009 - 2010

RBI

WEB SITES

www.hdfcbank.com

www.economywatch.com

www.rbi.org.in

www.google.com

Websites of the various banks concerned.1

http://www.economywatch.com/

http://www.rbi.org.in/

http://www.google.com/

http://www.economywatch.com/

http://www.rbi.org.in/

http://www.google.com/




Documents

Ravishankar Project