FINANCIAL STATEMENT ANALYSIS OF BANK

– A CASE STUDY

BACHELOR OF COMMERCE
BANKING & INSURANCE
SEMESTER V

2010-2011
SUBMITTED BY
SINGH HEMANT OMPRAKASH

KERALEEYA SAMAJAM (REGD) DOMBIVLI’S

MODEL COLLEGE
ACCREDITIED GRADE “A” BY NAAC

P-32, RESIDENTIAL AREA, MIDC-PHASE II,

DOMBIVLI (EAST)
THANE-DIST; MAHARASHTRA – 421203
TEL. 0251-2470010/2449227 TELEFAX: 0251-2424779
EMAIL: modelcollege@vsnl.net
 A Project Report on

FINANCIAL STATEMENT ANALYSIS OF BANK

– A CASE STUDY

Submitted to the University of Mumbai

In partial fulfillment for award of the Degree of
BACHELOR OF COMMERCE
(BANKING & INSURANCE)

By
SINGH HEMANT OMPRAKASH
(V – SEMESTER)

UNIVERSITY OF MUMBAI
OCTOBER 2010
 CONTENTS
No. Chapter Name Page no.

I CERTIFICATES

II DECLARATION

III ACKNOWLEDGEMENT

IV LIST OF CHARTS & TABLES

Chapter 1 An Introduction

Chapter 2 HDFC BANK – A Profile

Chapter 3 Financial Statement Analysis

– A Theoretical View
Chapter 4 Financial Statement Analysis of
HDFC Bank

Chapter 5 Conclusion

V BIBLIOGRAPHY

VI WEBLIOGRAPHY
VII ANNEXTURE

DECLARATION
 I, SINGH HEMANT STUDENT OF BECHELOR OF
COMMERCE BANKING & INSURANCE, V – SEMESTER OF
MODEL COLLEGE, DOMBIVLI (E) HEREBY DECLARE THAT, I
HAVE COMPLETED THIS PROJECT ON “FINANCIAL
STATEMENT ANALYSIS OF A BANK – A CASE STUDY” FOR
ACADEMIC YEAR 2010 -2011.

THIS INFORMATION SUBMITTED IS TRUE AND

ORIGINAL TO THE BEST OF MY KNOWLEDGE.

SINGH HEMANT OMPRAKASH

BANKING & INSURANCE
V – SEMESTER

ACKNOWLEDGEMENT
 Any accomplishment requires the effort of many people &
this work is no different. This project is a product of many hands &
countless hours from many people. My thanks go to all those
people who helped me whether through their comments,
feedbacks, edits or suggestions.

I express my sincere thanks to my Prof. Miss. Manju

Jaisinghani, the faculty member, whose support, encouragement,
understanding & keen interest helped me to present the study in
this form after a few reviews. I am also grateful to Dr. M. R. Nair
the Principal of Model College, Dombivli (E).

SINGH HEMANT OMPRAKASH

T.Y. BANKING & INSURANCE

List of Tables
Fig. no. Name of Table Page no.
2.1 Branches
2.2 ATMs
2.3 CITES
4.1 Profit after tax
4.2 Dividend per share
4.3 Earning per share
4.4 Capital adequacy
4.5 Return on capital
 CHAPTER – 1
AN INTRODUCTION

CHAPTER – 1
AN INTRODUCTION

Financial statement analysis is very helpful in spanning

bank’s internal operations and its relations with the outside world.
Therefore, the financial information must be organized into an
understandable, coherent and sufficiently limited set of data. Data
from the financial statement analysis can be used to quickly
calculate and examine financial ratios.

The present project seeks to discuss the framework for

investment & financing decision and also helps to expound several
analytical methods which are in practice. An attempt has been
made to analysis the financial statement of HDFC Bank.

The investors relay on the financial statement and judge the

bank and ensure that these statements are correct, complete,
consistent and comparable. The accuracy of the financial
statement can be identified from the report of the auditors. The
financial statement analysis can be used by investors for deciding
about their investments. The financial institutions also use these
statements while granting loans to the banks. The debenture
holders, creditors, employees and government can also use the
financial statements for different purposes.

The bank itself and outside providers of capital – creditors

and investors – all undertake financial statement analysis. The
type of analysis varies according to the specific interests of the
party involved. Creditors are primary interested in the liquidity of a
bank. Their claims are short term, and the ability of the bank to pay
these claims quickly is best judged by an analysis of the bank’s
liquidity. The claims of bound holders, on the other hand, are long
term. Accordingly, bound holders are more interested in the cash –
flows ability of the bank to service debt over a long period of time.

It is a useful tool for management of bank. Internally,

management also employs financial analysis for the purpose of
internal control and to better provide what capital suppliers seek in
financial condition and performance from the bank. To plan for
future, the financial manager must assess the bank’s present
financial position and evaluate opportunities in relation to current
position. To bargain effectively for outside funds, the financial
manager needs to be attuned to all aspects of financial analysis
that outside suppliers of capital use in evaluating the bank.

ABOUT THE REPORT

 TITLE OF THE STUDY:

 The present study is titled as “Financial Statement Analysis
of A Bank – A Case Study”. The present study is made with
special reference to HDFC Bank.

 OBJECTIVES OF THE STUDY:

The following are the objectives of the present study.

• To highlight the importance of financial
Statements.
• To apply the theoretical knowledge of the
various methods of analysis in to practice.
• To highlight the important methods used in
analysis of financial statement of bank.
• To analyze the financial statement of bank.

 PERIOD OF THE STUDY:

The period of the study is from July 2010 to September

2010

 SCOPE OF THE STUDY:

 The present project helps management for their decision-
making, control and review. Analysis of financial statements
helps banks, investments analysts and public in general.

 METHODOLOGY OF STUDY:

For the purpose of the present study both primary and

secondary data is used.

1. The primary data is collected from bank visits and

interviewing concerned person.

2. The secondary data is collected from books, internet,

magazines, newspaper and journals.

 LIMITATIONS OF THE STUDY:

The present study could be influenced by personal judgment

of the analysts. All the tools of financial analysis for this study
have its own limitation.

 CHAPTER LAYOUT:

The present study is arranged as follows:

  Chapter 1 –
It contains “An Introduction” to the title and to the report.

 Chapter 2 –
It contains “Profile of HDFC Bank”.

 Chapter 3 –
It contains “Theoretical view” of the topic.

 Chapter 4 –
It contains “Financial Statement Analysis of HDFC Bank”.

 Chapter 5 –
It contains “Summary of Findings, Suggestions and Conclusion”
to the topic.
 CHAPTER – 2
HDFC BANK – A PROFILE

Chapter – 2
HDFC Bank – A Profile
INTRODUCTION:

In August, 1994 the Housing Development Finance

Corporation Limited (HDFC) was incorporated in the name of
HDFC Bank Limited. The Reserve Bank of India has approved in
principle to set up private banks. HDFC was one of the first
organizations to receive in principle approval from RBI. The HDFC
Bank has its registered office in Mumbai. In January 1995, the
operations of HDFC Bank as a commercial bank has commenced.
In India and in international markets HDFC has an impeccable
track record. HDFC has maintained a healthy growth and a
consistency in its operations and remained as a leader in market of
mortgages. The portfolio of HDFC’s outstanding loan has a million
dwelling units. HDFC has a large corporate client base for housing
related credit facilities. HDFC was ideally positioned to promote a
bank in the Indian market with its experience and strong reputation
in market of finance.

 Objective:
• HDFC Bank is a young and dynamic bank, with a youthful
and enthusiastic team determined to accomplish the vision of
becoming a world-class Indian bank.
• Bank’s business philosophy is based on four core values
- Customer Focus, Operational Excellence, Product
Leadership and People. Bank believes that the ultimate
 identity and success of bank will reside in the exceptional
quality of our people and their extraordinary efforts. For this
reason, bank is committed to hiring, developing, motivating
and retaining the best people in the industry.

 Mission:

Bank mission is to be “a World Class Indian Bank”,

benchmarking bank against international standards and best
practices in terms of product offerings, technology, service levels,
risk management and audit & compliance. The objective is to build
sound customer franchises across distinct businesses so as to be
a preferred provider of banking services for target retail and
wholesale customer segments, and to achieve a healthy growth in
profitability, consistent with the Bank’s risk appetite. Bank is
committed to do this while ensuring the highest levels of ethical
standards, professional integrity, corporate governance and
regulatory compliance.

HDFC Bank has been recognized as 'Best Bank in India' in

the magazine rankings as well as surveys year on year. HDFC
Bank is the most preferred employer in banking industry in India.

Bank business strategy emphasizes the following:

• Increase bank’s market share in India’s expanding banking
and financial services industry by following a disciplined
 growth strategy focusing on quality and not on quantity and
delivering high quality customer service.
• Leverage technology platform and open scalable systems to
deliver more products to more customers and to control
operating costs.
• Maintain current high standards for asset quality through
disciplined credit risk management.
• Develop innovative products and services that attract
targeted customers and address inefficiencies in the Indian
financial sector.
• Continue to develop products and services that reduce cost
of funds.
• Focus on high earnings growth with low volatility.

 Vision:

Visions don’t change quite often. Near-term objectives do.

The country’s second largest private bank still strives to become a
“world-class Indian bank”, a vision that was documented in its first
annual report back in 1995. Call them less aggressive or more
conservative, it doesn’t ruffle the top management of Housing
Development Financing Corporation (HDFC) Bank.

As American author, Frank Herbert says: “There’s no secret

to balance. You just have to feel the waves.” It may be quite a
unique distinction but HDFC Bank hasn’t seen a change in the
leadership since day one. Aditya Puri, in his capacity as MD and
CEO, has continued to surprise industry critics and consistently
delivered a growth of around 25-30% (Quos) in net profit for the
past 40-50 quarters. Today, the Rs 54,000-crore bank services
over 11 million customers and operates from more than 1,200
branches in 444 Indian towns and cities, while some 2,500-odd
ATMs offer anytime, anywhere banking.

For HDFC Bank executive director Paresh Sukthankar, this

consistent performance has been his defining moment at the bank.
“It may look less glamorous, but personally this achievement has
been much more valuable. It’s very easy to have a great quarter,
and fall back to mediocrity, in terms of a lazy quarter. What makes
this success even more remarkable is the fact that the last 10
years have seen a fair amount of volatility in the macroeconomic
environment, domestically as well as globally,” he quips.

 Strengths:
Highest level of ethical standards

• Professional integrity
• Corporate governance
• Regulatory compliance

 Business Philosophy:
The four values are the bank’s business philosophy,

• Operational Excellence
• Customer Focus
• Product Leadership
 • People

 Management:

• Chairman

In July 2001 Mr. Jadish Capoor has taken the

responsibilities of the bank as Chairman. He was a Deputy
Governor of the RBI.

• Managing Director

Mr. Aditya Puri is the managing director of the HDFC bank,

before he was with Citibank as a head for operations in
Malaysia.

• Board of Directors

The members of the HDFC bank’s Board of Directors are

senior banking professionals with experience in abroad and
India, who head various businesses.

 PROMOTERS:

HDFC is India's premier housing finance company and

enjoys an impeccable track record in India as well as in
international markets. Since its inception in 1977, the Corporation
has maintained a consistent and healthy growth in its operations to
remain the market leader in mortgages. Its outstanding loan
portfolio covers well over a million dwelling units. HDFC has
developed significant expertise in retail mortgage loans to different
market segments and also has a large corporate client base for its
housing related credit facilities. With its experience in the financial
markets, a strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment.

 BUSINESS FOCUS:

HDFC Bank's mission is to be a World-Class Indian Bank.

The objective is to build sound customer franchises across distinct
businesses so as to be the preferred provider of banking services
for target retail and wholesale customer segments, and to achieve
healthy growth in profitability, consistent with the bank's risk
appetite. The bank is committed to maintain the highest level of
ethical standards, professional integrity, corporate governance and
regulatory compliance. HDFC Bank's business philosophy is based
on four core values - Operational Excellence, Customer Focus,
Product Leadership and People.
 CAPITAL STRUCTURE:

At present, HDFC Bank boasts of an authorized capital of Rs

550 crore (Rs5.5 billion), of this the paid-up amount is Rs 424.6
crore (Rs.4.2 billion). In terms of equity share, the HDFC Group
holds 19.4%. Foreign Institutional Investors (FIIs) have around
28% of the equity and about 17.6% is held by the ADS Depository
(in respect of the bank's American Depository Shares (ADS)
Issue). The bank has about 570,000 shareholders. Its shares find
a listing on the Stock Exchange, Mumbai and National Stock
Exchange, while its American Depository Shares are listed on the
New York Stock Exchange (NYSE), under the symbol 'HDB'.

 Awards:

Awards with its strengths and its talented people the HDFC
banks have made all its efforts to achieve its mission to be World
Class Indian bank. Its services are recognized not only nationally
but also internationally. The HDFC bank is appreciated with so
many awards like:

• Asian Banker Excellence Awards 2009

• The Asset Triple A Awards
• Financial Insights Innovation Awards 2010
• Global Finance Awards 2010
• Business World Best Bank Award 2009
BRANCHES:

HDFC Bank has 1,725 branches in India.

2000
1800
1600
1400
1200
1000
800
600
400
200
0
2008 2009 2010

Fig. 2.1

ATMs:
HDFC Bank has 4,232 ATMs in India.

4500

4000

3500

3000

2500

2000

1500

1000

500

0
2008 2009 2010

Fig. 2.2
CITES:
HDFC Bank in 779 cites in India.
900

800

700

600

500

400

300

200

100

0
2008 2009 2010

Fig. 2.3
 CHAPTER – 3
Financial Statement Analysis
- A Theoretical View

Chapter – 3
Financial Statement Analysis
- A Theoretical View
Definition of Financial Statement:

According to Hampton John “A financial statement is an

organized collection of data according to logical and consistent
accounting procedures. Its purpose is to convey an understanding
of some financial aspects of a business firm. It may show a
position at a movement of times as in the case of a balance sheet,
or may reveal a series of activities over a given period of time, as
in the case of an income statement.”

Objectives of financial statements:

The objectives of financial statement are to provide

information about the financial position, performance and changes
in financial position of an enterprise that are useful to wide range
of users in making economic decision.
Financial statements are prepared for this purpose to meet
common need of most users. And it also shows the accountability
of management for the resources entrusted to it.
In short objectives of financial statement is to provide factual
and interpretative information about transaction and other events
which are useful for prediction, comparing, and evaluating
enterprise’s earning power.

Financial Statements Provides:

 1. Information for economic decision.

2. Information about financial position.

3. Information about performance of an enterprise.

FINANCIAL STATEMENTS USING TOOLS OF

FINANCIAL ANALYSIS:

Financial Analysis:

Financial analysis is a study of relationship among the

various financial factors in a business. The process of financial
statement analysis can be described in various ways depending on
the objective to be obtained. Financial analysis can be used as a
preliminary screening tool in the selection of the stock in the
primary and secondary market. It can be used as a forecasting tool
of future financial condition and result. It may be used as a process
of evolution and diagnosis’s of managerial, operating or other
problem area.

Financial analysis is an integral part of the interpretation of

result disclosed by financial statements. It supplies to decision
makers, crucial financial information and points out the problem
areas, which can be investigated.

Financial analysis reduce reliance on institution guesses and

thus narrows the areas of uncertainty that is present in all decision
making process.

Requirement of Financial Statement Analysis:

1. Systematic compilation and study of financial data.

2. Methodical classification of data.

3. Scientific arrangement of the classified group of data.

4. Devising suitable tools of analysis.

5. Supplementing with sound comments.

6. Comparisons of the various inter connected figures with

others, which are properly termed as ratio analysis.

Objectives of Financial Statement Analysis:

 1. To judge the financial health of the firm.

2. To evaluate the profitability of the enterprise.

3. To gauge the debt serving capacity of the firm.

4. To understand the long term and short-term solvency of the

firm.

5. To know the return on capital employed invested.

 Tools of Financial Analysis:

Common Size Statement:

The statement is prepared to bring out the ratio of each asset

or liability to the total of balance sheet and the ratio of each item of
expense or revenue to interest earned.

These common size statements are often called common

measurement or component percentage statement, since each
statement is reduced to the total of 100 and each individual
component of the statement is represented as a percentage of the
total of 100, which invariably serves as the base.

Advantages:
 1. Common size analysis reveals the sources of capital and all
other sources of funds and the distribution or use or
application of the total funds in the asset of a bank.

2. Comparison of common size statement over a number of

years will clearly indicates the changing proportions of the
various components of assets, liabilities, interest earned and
profits.

3. Comparison of common size statement of two or more banks

will assist evolution and ranking.

Disadvantages:

1. Common size statements do not show variation in the

various account items from period to period.

2. Common size statements are regarded by many as useless

as there are no established standard proportions of an asset
to the total assets or of an item of expense to the interest
earned.

3. If financial statements of a particular business organization

are not prepared year after year on a consistent basis,
comparative study of common size statement will be
misleading.

Comparative Financial Statement:

 Comparative financial statements are statement of financial
position of a business so designed as to facilitate comparison of
different accounting variables from drawing useful inferences.

Preparation of Comparative Financial Statement

These statements are prepared by placing the various items

in rows and years in the columns. This is done to facilitate easy
identification of their significant differences. Columns may be
drawn to accommodate absolute changes as well as percentage
changes side by side.

In order to calculate the percentage change, the absolute

change in the various account figures are divided by their
respective base year figures and multiplied by 100.

Comparative Financial Statement can thus be

prepared to show:

1. Absolute data for each of the periods stated.

2. Changes in absolute data in terms of rupees.
3. Changes in absolute data in percentages.
4. Ratio
5. Percentages to totals.
Comparative Income Statement:
 A comparative income statement shows the absolute figures
for two or more periods, and the absolute change from one period
to another since the figure are shown side by side the user can
quickly understand the operation.

Comparative Balance Sheet:

Balance sheet as on two or more different dates is used to

compare the assets, liabilities and net worth of the bank.
Comparative balance sheet is useful to study the trends in the
financial position of a bank.

Advantages:

1. Comparative financial statements indicate trends in interest

earned profit etc. and help to evaluate performance of the
bank.

2. It uses to compare the performance of a bank with the

average performance of the other banks and helps in
identification of weakness of the bank and remedial
measures can be taken accordingly.

Disadvantages:
 1. Procedure with regards to depreciation, inventory valuation
etc. policies if followed differently, the comparison can be
mislead.

2. Comparison of different periods can also be misleading if the

period has witness changes in accounting policies, inflation,
and recession.

Ratio Analysis:

Ratio analysis is the method or process by which the

relationship or item or group of item in the financial statement are
computed determine and presented to determine a particular
aspect of organization or company.

Ratio analysis is an attempt to drive quantities measure or

guide concerning the financial health and profitability of a business
enterprise. Ratio analysis can be used both in trends and static
analysis. There are several ratios at the disposal of an analysis but
the group of the ratio would prefer depends on the purpose and
the objective of analysis.

Types of Financial Ratios:

 1. Liquidity Ratios:
Liquidity refers to the ability of a firm to meet its obligations in
the short run, usually a year. These ratios measure the ability of a
firm to meet its current obligations and indicate its short term
financial stability. The liquid ratio is designed to show the amount
of cash available for meeting immediate payments. Liquidity ratios
are generally based on current assets and current liabilities. The
important liquidity ratios are Current Ratio and Liquid Ratio.

2. Profitability Ratios:
Profitability is the final result of business operations. Every
business organization has to earn profit in order to survive and
grow. Therefore it is necessary to know whether it is earning
adequate profits. The profitability ratios are Return on Investment,
Return on Equity, etc.

3. Solvency Ratios:
Solvency of a firm is indicated by its ability to meet its
immediate commitments. Whether the firm is solvent or otherwise
is determined by adequacy of its quick assets as compared to its
immediate liabilities. The solvency ratios are sub – set of other
financial ratios. The solvency ratios are Proprietory Ratio, Debt –
Equity Ratio, Interest Coverage Ratio.

4. Leverage Ratios:
 Leverage is an ability of a firm to use fixed cost assets or
funds to magnify the return to its owners. The leverage ratios are
useful as an analytical tool for creditors, financial institutions and
debenture holders. The leverage ratios are Interest Coverage
Ratio, Debt – Equity Ratio, Shareholder’s Equity to Total Capital,
and Funded Debt to Net Working Capital.

5. Efficiency Ratios:
Efficiency ratios are useful for measuring the company’s
managerial efforts in managing inventories, production process,
credit and assets and effectiveness of marketing and sales force.
These are very useful in judging the performance of a company.
The efficiency ratios are Average Collection Period, Inventory
Turnover, Total Assets Turnover, Net Worth Turnover and Net
Working Capital Turnover.

6. Ratios Relevant For Equity Shareholders:

These ratios are of primary interest to the company’s
shareholders. The ratios are:
a) Earning Per Share
b) Price to Earnings Ratio
c) Dividend Payout Ratio
d) Dividend Yield Ratio
e) Book Value Per Share

Advantages of Ratio Analysis:

1. Simplifies Financial Statement:
Ratio analysis simplifies the comprehension of financial
statement. Ratio tells the whole story of changes in the financial
condition of the business.
2. Makes Intra – firm Comparison Possible:
Ratio analysis also makes possible comparison of the
performance of different division of the firm. The ratio is helpful
in deciding about their efficiency or other wise in the past and
likely performance in the future.
3. Useful in judging the efficiency of a business.
4. Useful in improving future performance.

Disadvantages of Ratio Analysis:

1. Reliability of ratios depends upon the correctness of
the basic data.
2. An Individual ratio may by itself be meaningless.
3. Ratios are not always comparable.
4. Ratios ignore qualitative factors.

Trend Analysis:

Trend analysis is also termed as trend percentage. It is used

for the purpose of comparative study of financial statements over a
number of years. In case of trend analysis a minimum of three
financial year’s data is a must. Out of the periods under study, one
year is taken as the base year and each item in this year is taken
as 100. Trend percentages are computed by dividing amount of
each item in the statement of each remaining year with the
corresponding item in the base statement and the result is
expressed in percentage.

Trend Percentage = Amount of year under study /

Amount of base year * 100

Advantages of Trend Analysis:

1. A trend analysis indicates in which direction a business is

moving i.e. upwards or downwards.

2. The trend analysis facilitates an efficient comparative study

of the financial performance of a business enterprise over a
period of time.

Disadvantages of Trend Analysis:

1. During the inflationary periods the data over a period of time

becomes incomparable unless the absolute rupee is
adjusted.

2. The undue importance must not be laid down on the

percentage when there is a small number in the base year in
such a case even a slight variation will be magnified by the
percentage change.
Cash Flow Statement:
 A cash flow statement shows the inflows and outflows of
cash including bank balances and cash equivalents of an
enterprise during a particular period. Cash flow statement is
prepared to explain the cash movements between two points. A
cash flow statement is used for making short term future plans
which will assist the management to assess their ability to meet
immediate requirements like paying creditors, paying dividends,
etc.

A cash flow statement is prepared in order to analyse the

past movement of cash in an organization. A cash flow analysis is
done at the completion of the financial year in order to analyse the
cash movement position during the financial year.

Cash flow statement divided into three main parts. They are
explained as follows.

1. Cash Flows from Operating Activities:

In operating activities all items of Adjusted Profit and

Loss Account and Changes in Working Capital (except Cash
and Bank balance) are considered here and provision for
income tax is deducted in order to obtain Net cash flows
generated from operating activities. If the final value is
positive it is termed as cash flows generated from operating
activities and if it is negative it is termed as cash flows used
in operating activities.
2. Cash Flows from Investing Activities:
 Under investing activities transactions resulting in long
term investments in fixed assets (both tangible n intangible)
and long term investments are reported. The following items
are reported under investing activities:
I. Purchase of Fixed Assets.
II. Sale of Fixed Assets.
III. Purchase of long term investments.
IV. Sale of long term investments.
V. Interest / Dividend received on long term investments.

Here a positive value reported indicates a cash inflow

and a negative value indicates a cash outflow. A positive
value is a debit effect and a negative value is a credit effect.

3. Cash Flows from Financing Activities:

Under financing activities items that result from long

term sources of finance are included. The following are the
transaction reported under financing activities:
I. Issue of Equity Share Capital
II. Buyback of Equity Share Capital
III. Equity Dividend paid
IV. Issue of Preference Share Capital / Debentures
V. Redemption of Preference Share Capital / Debentures
VI. Preference Dividend paid
VII. Long term loan obtained
VIII. Repayment of long term loan
IX. Interest paid on Debentured / Long term loans
 Here a positive value reported indicates a cash inflow
and a negative value indicates a cash outflow. A positive
value is a debit effect and a negative value is a credit effect.

In a cash flow statement to the net cash flows obtained the

opening cash and bank balances are added in order to obtain the
closing cash and bank balances.

Importance of Cash flow Statements:

1. A cash flow statement helps in indicating the changes in the
liquidity position of the company.

2. A cash flow statement is helpful to find out whether the cash

balance has increased or decreased and what the reasons
are for the same.

3. A cash flow statement helps in understanding how the cash

from the sale of assets or issue of shares have been utilized.

4. A cash flow statement is used for planning, forecasting and

budgeting the cash resources of the company.
E.g. obtaining bank loans to buy new assets, to plan
temporary investment of excess cash, etc.
 CHAPTER – 4
FINANCIAL STATEMENT
ANAYLSIS OF HDFC BANK
 CHAPTER – 4
FINANCIAL STATEMENT ANAYLSIS
OF HDFC BANK
In The Books of HDFC Ltd.
Common Size Balance Sheet As On 31st March, 2010
(Rs. In 000’s)
Particulars Amount % Amount %
2010 2009
CAPITAL AND LIABILITIES:
Capital 4,577,433 0.21 4,253,841 0.23
Equity Share Warrants _ _ 4,009,158 0.22
Reserves and Surplus 210,618,369 9.47 142,209,460 7.76
Employees’ Stock Options 29,135 0.001 54,870 0.003
Outstanding
Deposits 1,674,044,394 75.25 1,428,115,800 77.92
Borrowings 129,156,925 5.81 91,636,374 5
Other Liabilities and Provisions 206,159,441 9.27 162,428,229 8.86
Total 2,224,585,697 100 1,832,707,732 100
ASSETS:
Cash and Balances with 154,832,841 6.96 135,272,112 7.38
Reserve Bank of India
Balances with Banks and 144,591,147 6.50 39,794,055 2.17
Money at Call and Short notice
Investments 586,076,161 26.35 588,175,488 32.09
Advances 1,258,305,939 56.56 988,830,473 53.95
Fixed Assets 21,228,114 0.95 17,067,290 0.93
Other Assets 59,551,495 2.68 63,568,314 3.47
Total 2,224,585,697 100 1,832,707,732 100
INTERPRETATION:
1. There is increase in capital to Rs.4,577,433,000 compare to
last year i.e. Rs.4,253,841,000. But 0.02 % has been
decrease current year. Although the bank has issued shares
in order to raise fund.
 2. There is increase in deposits but percentage has decreased
to 2.67%, which shows that the bank has got more deposits
in current year.
3. There is increase in borrowings from 5% to 5.81% this shows
that company has raise funds through borrowings.
4. There is increase in cash and balances with RBI to
Rs.154,832,841,000 compare to last year i.e.
Rs.135,272,112,000. But 0.42 % has been decreased
current year; this shows that the bank has deposited money
with RBI.
5. There is increase in balance with banks and money at call
and short notice from 2.17% to 6.50% this shows that bank
has invested its deposits in other bank.
6. There is decrease in investments from 32.09% to 26.35%,
which shows that bank has sold some of its investments.
7. There is increase in advances from 53.95% to 56.56% which
shows that bank granted more advances and loans to
customer.
8. Fixed assets have increase from 0.93% to 0.95%. This
shows that bank has made purchase of fixed assets.
9. There is decrease in other assets from 3.47% to 2.68%,
which shows bank maintaining its liquidity.

In The Books of HDFC Ltd.

Common Size Income Statement for the year ended
31st March, 2010 (Rs. In 000’s)
Particulars Amount % Amount %
INCOME:
Interest earned 161,729,000 100 163,322,611 100
Other Income 38,076,106 23.54 32,906,035 20.15
Total 199,805,106 123.54 196,228,646 120.15
EXPENDITURE:
Interest expended 77,862,988 48.14 89,111,044 54.56
Operating expenses 57,644,827 35.64 55,328,058 33.88
Provisions and Contingencies 34,810,282 21.52 29,340,152 17.96
Total 170,318,097 105.30 173,779,254 106.40
PROFIT:
Net Profit for the year 29,487,009 18.23 22,449,392 13.75
Profit brought forward 34,555,658 21.37 25,746,345 15.76
Total 64,042,667 39.60 48,195,737 29.51
APPROPRIATIONS:
Transfer to Statutory Reserve 7,371,752 4.56 5,612,349 3.44
Proposed dividend 5,492,919 3.40 4,253,841 2.60
Tax(including cess) on dividend 912,305 0.56 722,940 0.44
Dividend(including tax / cess 9,343 0.01 5,900 0.003
thereon) pertaining to previous
year paid during the year
Transfer to General Reserve 2,948,701 1.82 2,244,939 1.37
Transfer to Capital Reserve 1,994,599 1.23 938,660 0.57
Transfer to/(from) Investment (14,900) (0.01) (138,550) (0.08)
Reserve Account
Particulars Amount % Amount %
Balance carried over to Balance 45,327,948 28.03 34,555,658 21.16
Sheet
Total 64,042,667 39.60 48,195,737 29.51

INTERPRETATION:
1. Total incomes have increased from 120.15% 123.54%. In
which other income is increased and income from interest is
less.
2. There is decrease in total expenditure from 106.40% to
105.30%, which shows operating inefficiency.
 3. Profit has increased from 13.75% to 18.23%. Bank has made
more profit compare to last year.

In The Books of HDFC Ltd.

Comparative Balance Sheet As On 31st March, 2010
(Rs. In 000’s)
%
Year Year Increase / Increase /
Particulars 2009 2010 (Decrease) (Decrease)

CAPITAL AND
LIABILITIES:
Capital 4,253,841 4,577,433 323,592 7.61
Equity Share Warrants 4,009,158 _ (4,009,158) (100)
Reserves and Surplus 142,209,460 210,618,369 68,408,909 48.10
Employees’ Stock 54,870 29,135 (25,735) (46.90)
Options Outstanding
Deposits 1,428,115,800 1,674,044,394 254,928,594 17.85
Borrowings 91,636,374 129,156,925 37,520,551 40.95
Other Liabilities and 162,428,229 206,159,441 43,731,212 28.92
Provisions
Total 1,832,707,732 2,224,585,697 391,877,965 21.38
ASSETS:
Cash and Balances with 135,272,112 154,832,841 19,560,729 14.46
Reserve Bank of India
Balances with Banks and 39,794,055 144,591,147 104,797,092 263.35
Money at Call and Short
notice
Investments 588,175,488 586,076,161 (2,099,327) (0.36)
Advances 988,830,473 1,258,305,939 269,475,466 27.25
Fixed Assets 17,067,290 21,228,114 4,160,824 24.38
%
Particulars Year Year Increase / Increase /
2009 2010 (Decrease) (Decrease)
Other Assets 63,568,314 59,551,495 (4,016,819) (6.32)
Total 1,832,707,732 2,224,585,697 391,877,965 21.38

INTERPRETATION:
The bank has increased the total funds increased by 21.38%
in 2010 compare to 2009. This increase of funds is met by
increase in capital 7.61%, increase in deposits by 17.85%, and
increase in borrowings by 40.95%.
On the assets side there is 14.46% increase in cash and
balances with RBI, 263.35% increase in balance with banks and
money at call and short notice, 27.25% in advances and 24.38% in
fixed assets. There is slight decrease of 0.36% in investment and
decrease in other assets also compare to 2009.
 In The Books of HDFC Ltd.
Comparative Income Statement for the year ended
31st March, 2010 (Rs. In 000’s)
%
Year Year Increase / Increase /
Particulars 2009 2010 (Decrease) (Decrease)

INCOME:
Interest earned 163,322,611 161,729,000 (1,593,611) (0.98)
Other Income 32,906,035 38,076,106 5,170,071 15.71
Total 196,228,646 199,805,106 3,576,460 1.82
EXPENDITURE:
Interest expended 89,111,044 77,862,988 (11,248,056) (12.62)
Operating expenses 55,328,058 57,644,827 2,316,769 4.19
Provisions and 29,340,152 34,810,282 5,470,130 18.64
Contingencies
Total 173,779,254 170,318,097 (3,461,157) (1.99)
PROFIT:
Net Profit for the year 22,449,392 29,487,009 7,037,617 31.35
Profit brought forward 25,746,345 34,555,658 8,809,313 34.22
Total 48,195,737 64,042,667 15,846,930 32.88
APPROPRIATIONS:
Transfer to Statutory 5,612,349 7,371,752 1,759,403 31.35
Reserve
Proposed dividend 4,253,841 5,492,919 1,239,078 29.13
Tax (including cess) on
722,940 912,305 189,365 26.19
dividend
%
Particulars Year Year Increase / Increase /
2009 2010 (Decrease) (Decrease)
Dividend(including tax / 5,900 9,343 3,443 58.36
cess thereon) pertaining
to previous year paid
during the year
Transfer to General 2,244,939 2,948,701 703,762 31.35
Reserve
Transfer to Capital 938,660 1,994,599 1,055,939 112.49
Reserve
Transfer to/(from) (138,550) (14,900) 123,650 89.25
Investment Reserve
Account
Balance carried over to 34,555,658 45,327,948 10,772,290 31.17
Balance Sheet
Total 48,195,737 64,042,667 15,846,930 32.88

INTERPRETATION:
There is 0.98% decrease in interest earned and also
decrease in interest expended 12.62% in the year 2010 as
compare to 2009. Thus reduction in expenditure leads to profit.
31.35% in 2010 compare to 2009 increase the net profit.
Ratio Analysis:
For 2010
Name of Ratio Calculation For 2010
Earning Per Share (Rs.) =Profit after tax-Preference Dividend /
Weighted no. of equity shares
= 29,487,009,000 - Nil / 436,439,573
= 67.56 Rs.
Return On Average Networth = Net profit for the year / Average
Networth * 100
= 29,487,009 / 182,876,133 * 100
= 16.12%
Tier 1 Capital Ratio = Capital Funds /
Risk Weighted Assets * 100
= 2,054,885 / 15,498,301 * 100
= 13.26%
Total Capital Ratio = Total Capital /
Risk Weighted Assets * 100
= 2,704,079 / 15,498,301 *100
= 17.44%
Dividend Payout Ratio = Profit Available for Appropriation /
Profit After Tax
= 6404.3 (crores) / 294.9 (crores)
= 21.72%
Book Value Per Share = Equity Share Capital + Reserves &
Surplus / No. of Equity Share
= 4,577,433,000 + 210,628,369,000 /
457,743,272
= 470.12 Rs.
Name of Ratio Calculation For 2010
Market Price Per Share As At = 1933.50 Rs.
31st March, 2010 as per NSE
Price to Earning Ratio = Market Price Per Equity Share /
Earning Per Share
= 1933.50 / 67.56
= 28.62
Dividend Per Share = Rs.12

For 2009
Name of Ratio For 2009
Earning Per Share (Rs.) = 52.85 Rs.
Return On Average Networth = 16.05%
Tier 1 Capital Ratio = 10.58%
Total Capital Ratio = 15.69%
Dividend Payout Ratio = 22.17%
Book Value Per Share = 344.31 Rs.
Market Price Per Share As At = 973.40 Rs.
31st March, 2009 as per NSE
Price to Earning Ratio = 18.42
Dividend Per Share = Rs.10

INTERPRETATION:
1. The Bank’s basic earning per share increased from Rs.52.85
to Rs.67.56 per equity share.
2. The Return on Average Networth is also increased compare
to previous year.
3. As per Basel II minimum Tier 1 Capital Ratio should be 6%
and HDFC bank has 13.26%. The Total Capital Ratio in
accordance with Basel II should be 9.0% and bank’s ratio is
17.44%.
4. There is decrease in Dividend Payout Ratio from 22.17% to
21.72%.
 5. There is increase in book value per share from Rs.344.31 to
Rs.470.12. due to increase in Equity Share capital and
Reserves & Surplus.
6. Market price increase to Rs.1933.50 from Rs.973.40
because of market fluctuation.
7. Price to Earning Ratio is increase to 28.62 from 18.42.
Earning on share is increases from past year.
8. The bank gives dividend of Rs.12 per share for financial year
2009 – 2010.

Trend Analysis of Balance Sheet

(Rs. In 000’s)
Particulars Year 2008 Year 2009 Year 2010 % % %
2008 2009 2010
CAPITAL AND
LIABILITIES:
Capital 3,544,329 4,253,841 4,577,433 100 120.02 129.15
Equity Share _ 4,009,158 _ _ _ _
Warrants
Reserves and 111,428,076 142,209,460 210,618,369 100 127.62 189.02
Surplus
Employees’ _ 54,870 29,135 _ _ _
Stock
Options
Outstanding
Deposits 1,007,685,910 1,428,115,800 1,674,044,394 100 141.72 166.13
Borrowings 45,949,235 91,636,374 129,156,925 100 199.43 281.09
Other Liabilities 163,158,482 162,428,229 206,159,441 100 99.55 126.36
and
Provisions
Total 1,331,766,032 1,832,707,732 2,224,585,697 100 137.61 167.04
ASSETS:
Cash
and
Balances 125,531,766 135,272,112 154,832,841 100 107.76 123.34
with
Reserve Bank of
India
Particulars Year 2008 Year 2009 Year 2010 % % %
2008 2009 2010
Balances with
Banks and
Money at Call 22,251,622 39,794,055 144,591,147 100 177.84 649.80
and Short
notice
Investments 493,935,382 588,175,488 586,076,161 100 119.08 118.65
Advances 634,268,934 988,830,473 1,258,305,939 100 155.90 198.39
Fixed Assets 11,750,917 17,067,290 21,228,114 100 145.24 180.65
Other Assets 44,027,411 63,568,314 59,551,495 100 144.38 135.26
Total 1,331,766,032 1,832,707,732 2,224,585,697 100 137.61 167.04
 INTERPRETATION:
1. The capital, deposits and borrowings showing raising trend
and it indicate growth of the bank.
2. The funds are invested in balance with RBI, with other banks
and money at call and short notice, and fixed assets.
3. There is decrease in Investments and Other Assets of the
bank and it indicates the investment may be sold and current
assets are liquidated.

Trend Analysis of Income Statement

(Rs. In 000’s)
Particulars Year 2008 Year 2009 Year 2010 % % %
2008 2009 2010
INCOME:
Interest earned 101,150,087 163,322,611 161,729,000 100 161.47 159.89
Other Income 22,831,425 32,906,035 38,076,106 100 144.13 166.77
Total 123,981,512 196,228,646 199,805,106 100 158.27 161.16
EXPENDITURE:
Interest expended 48,871,146 89,111,044 77,862,988 100 182.34 159.32
Operating expenses 37,456,168 55,328,058 57,644,827 100 147.71 153.90
Provisions and 21,752,268 29,340,152 34,810,282 100 134.88 160.03
Contingencies
Total 108,079,582 173,779,254 170,318,097 100 160.79 157.59
PROFIT:
Net Profit for the year 15,901,930 22,449,392 29,487,009 100 141.17 185.43
Profit brought forward 19,320,397 25,746,345 34,555,658 100 133.26 178.86
Total 35,222,327 48,195,737 64,042,667 100 136.83 181.82
APPROPRIATIONS:
Transfer to Statutory 3,975,483 5,612,349 7,371,752 100 141.17 185.43
Reserve
Proposed dividend 3,012,680 4,253,841 5,492,919 100 141.20 182.33
Tax (including cess) 512,005 722,940 912,305 100 141.20 178.18
On dividend
Dividend(including tax/ 621 5,900 9,343 100 950.08 1504.5
cess thereon)
pertaining to previous
year paid during year
Particulars Year 2008 Year 2009 Year 2010 % % %
2008 2009 2010
Transfer to Capital _ 938,660 1,994,599 _ _ _
Reserve
Transfer to/(from) 385,000 (138,550) (14,900) 100 (35.9) (3.87)
Investment Reserve
Account
Balance carried over to 25,746,345 34,555,658 45,327,948 100 134.22 176.06
Balance Sheet
Total 35,222,327 48,195,737 64,042,667 100 136.83 181.82

INTERPRETATION:
1. The total income is showing a raising trend thereby indicating
a smooth income of bank over the years.
2. The total expenditure is decrease as compare to previous
year.
3. The profit of bank is more this year due to increase in income
and decrease in expenditure as compare to previous year.
 In The Books of HDFC Ltd.
Cash Flow Statement
For the year ended 31st March, 2010
(Rs. In 000’s)
Particulars Amount
Cash flow from operating activities:
Net profit before income tax 42,891,365
Adjustments for:
Depreciation 3,943,917
(Profit) / Loss on Revaluation of Investments 30,082
Amortisation of premia on Investments 4,408,528
Loan Loss provisions 19,389,292
Floating Provisions 500,000
Provision against standard assets _
Provision for wealth tax 5,500
Contingency provisions 1,511,134
(Profit) / Loss on sale of fixed assets (40,242)
72,639,576
Adjustments for:
(Increase) / Decrease in Investments (2,339,283)
(Increase) / Decrease in Advances (289,364,758)
Increase / (Decrease) in Borrowings 38,185,551
Increase / (Decrease) in Deposits 245,928,594
(Increase) / Decrease in Other assets 2,019,737
Increase / (Decrease) in Other liabilities and provisions 40,854,639
107,924,056
Direct taxes paid (net of refunds) (14,025,156)
Net cash flow from / (used in) operating activities 93,898,900
Particulars Amount
Cash flow from investing activities:
Purchase of fixed assets (5,637,118)
Proceeds from sale of fixed assets 121,996
Net cash used in investing activities (5,515,122)
Cash flows from financing activities:
Money received on exercise of stock options by 5,559,685
employees
Proceeds from issue of Convertible Warrants _
Proceeds from issue of equity shares 36,080,586
Proceeds from issue of Upper & Lower Tier II capital _
instruments
Redemption of subordinated debt (665,000)
Dividend paid during the year (4,263,184)
Tax on Dividend (722,940)
Net cash generated from financing activities 35,989,147
Effect of Exchange Fluctuation on Translation (15,104)
reserve
Cash and cash equivalents on amalgamation _
Net increase in cash and cash equivalents 124,357,821
Cash and cash equivalents as at April 1st 175,066,167
Cash and cash equivalents as at March 31st 299,423,988

INTERPRETATION:
1. The bank has generated Rs. 93,898,900,000 from
operating activities.
2. The bank has used Rs. 5,637,118,000 for purchase of
fixed assets and net amount used in investing activities is
Rs. 5,515,122,000
3. The bank has generated net cash from financing
activities Rs. 35,989,147,000 through issue of shares.

PROFIT AFTER TAX:

Profit after Tax is Rs.2949 crores in the financial year 2009 – 2010.

3500
3000
2500
2000
1500
1000
500
0
2008 2009 2010

Fig. 4.1

DIVIDEND PER SHARE:

Dividend per share is Rs.12 in year 2009 – 2010.

14
12
10
8
6
4
2
0
2008 2009 2010

Fig. 4.2

EARNING PER SHARE:

Earning per share is Rs.67.6 n year 2009 – 2010.
 80

60

40

20

0
2008 2009 2010

Fig. 2.3

CAPITAL ADEQUACY:
Capital adequacy is 17.4% for 2009 – 2010.

20.00%

15.00%

10.00%

5.00%

0.00%
2008 2009 2010

Fig. 4.4

RETURN ON CAPITAL:
Return on capital is 16.8% for 2009 – 2010.

17.00%
16.80%
16.60%
16.40%
16.20%
16.00%
15.80%
15.60%
2008 2009 2010

Fig. 4.5
CHAPTER 5
CONCLUSION

CHAPTER 5
CONCLUSION
 The financial performance during the year ended 31st March,
2010 remain healthy with total income of Rs.199,805,106,000.
Other income registered a growth of 15.7% over that in the
previous year to Rs. 38,076,106,000. in the financial year 2009 –
2010. This growth was driven primarily by an increase in fees and
commissions earned and income from foreign exchange and
derivatives. The bank made a profit on sale / revaluation of
investments of Rs. 345.1 crores. Operating expenses grew at a
much lower pace than net revenues and increased from
Rs. 55,328,058,000 in the previous year to Rs. 57,644,827,000 in
the current year. The bank has opened 300 new branches, which
resulted in higher infrastructure, and staffing expenses, that’s why
the operating expenses have increased. The bank’s provisioning
policies for specific loan loss provisions remained higher than
regulatory requirements. The NPA coverage ratio based on
specific provision was at 74.8%. Net profit increased by 31.35%
from Rs. 22,449,392,000 in the previous year to
Rs. 29,487,009,000 in the year ended 31st March, 2010.

Bank’s total Capital Adequacy Ratio calculated in the line

with Basel II framework stood at 17.44%, well above the regulatory
minimum of 9.0%. Tier I CAR was 13.26%. The bank is giving
dividend per share Rs.12 as compared to last year Rs.10.

Taking on various types of risk is integral to the banking

business. Sound risk management and balancing risk – reward
trade – offs are critical to a bank success. The identification,
measurement, monitoring and management of risks accordingly
remain a key focus area for the bank.

The HDFC Bank faces increasing competition, pressure for

their product and services. The bank has to manage its cost
efficiently because as the services increase they may not able to
manage to keep their operating cost low in future. If the bank
improves cost and operational efficiency, the bank can become
leader in the industry.

As an investor point of view the bank is profitable to invest as

Earning Per Share ratio, Dividend Per Share, Book Value Per
Share and Price to Earning Ratio are increasing from year to year.

BIBLIOGRAPHY
Name of Book Name of Book Author

WEBLIOGRAPHY

 www.wikipedia.com
 www.hdfcbank.com
ANNEXTURE

Annual Report:
 Balance Sheet of HDFC Bank Limited.
 Profit and Loss Account of HDFC Bank Limited.

 Cash Flow Statement of HDFC Bank Limited.