INDEX

SR NO. TOPIC NAME PAGE NO.

1. CHAPTER -1.INTRODUCTION
1.1. BANKING ACTIVITIES
1.2. BANK IN THE ECONOMY
1.3 SIZE OF GLOBAL BANKING INDUSTRY

2. CHAPTER -2 .RESEARCH AND METHODOLOGY

OBJECTIVES OF THE STUDY
LIMITATIONS OF THE STUDY
SCOPE OF THE STUDY

3. CHAPTER -3
LITERATURE REVIEW

4. CHAPTER -4.DATA ANALYSIS

4.1 SOURCES OF INCOME
4.2 SWOT ANALYISIS
4.3 STATEMENT OF PROFIT AND LOSS
4.4 STATEMENT OF BALANCESHEETS
4.5 RATIO ANALYSIS

5 CHAPTER -5
CONCLUSIONS AN SUGGESSTION
6.1 FINDINGS OF THE STUDY
6.4 SUGGESTIONS
6.5 CONCLUSIONS

ANNEXURE
WEBLIOGRAPHY & BIBLIOGRAPHY

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CHAPTER 1. INTRODUCTION

Introduction

A Bank is a financial intermediary that creates credit by lending money to a borrower,

thereby creating a corresponding deposit on the bank’s balance sheet. Lending activities can
be performed either directly or indirectly through capital markets. Due to their importance is
the financial system and influences on national economics, banks are highly regulated in
most countries. Most nations have institutionalized a system known as fractional reserve
banking under which banks hold liquid assets equal to only a portion of their current
liabilities. In addition to other regulations intended to ensure liquidity, banks are generally
subject to minimum capital requirements based on an international set of capital standards,
known as the Basel Accords.

Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy
but in many ways was a continuation of ideas and concepts of credit and lending that had
their roots in the ancient world. In the history of banking, a number of banking dynasties—
notably, the medicis, the Fuggers, the welsers, the Berenbergs and the Rothschilds--- have
played a central role over many centuries, The oldest existing retail bank is Monte dePaschi
di Siena, while the oldest existing merchant bank is Berenberg Bank.

Banking begins with the first prototype banks of merchants of the ancient world, which made
grain loans to farmers and traders who carried goods between cities. This began around 2000
BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders
based in temples, made loans and added two important innovations: they accepted deposits
and changed money, Archaeology from this period in ancient China and India also shows
evidence of money lending activity.

The origins of modern banking can be traced to medieval and early Renaissance Italy, to the
rich cities in the north like Florence, Lucca, Siena, Venice, and Genoa. The Bardic and
Peruzzi dominated banking in 14th Century Florence, establishing branches in many other
parts of Europe. One of the most famous Italian banks was the Medici bank, set up by
Giovanni di Bicci de’ in 1937. The earliest known state deposit bank, Banco di san Giorgio
(Bank of St. George), was founded in 1407 at Genoa, Italy.

Modern banking practices, including fractional reserve banking and the issue of banknotes,
emerged in the 17th and 18th centuries. Merchants started to store their gold with the
goldsmiths of London, who possessed private vaults, and charged a fee for that service. In

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exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the
quantity and purity of the metal they held as a Bailee; these receipts could not be assigned,
only the original depositor could collect the stored goods.

Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led
to the development of modern banking practices; promissory notes (which evolved into bank
notes) were issued for money deposited as a loan to the goldsmith. The Goldsmith paid
interest on this deposits. Since the promissory notes were payable on demand, and the
advances (loans) to the goldsmith’s customers were repayable over a longer time period. This
was an early form of fractional reserve banking. The promissory notes developed into an
assignable instrument which could circulate as a safe and convenient form of money backed
by the goldsmith’s promise to pay, allowing goldsmiths to advance loans with little risk of
default. Thus, the goldsmiths of London became the forerunners of banking by creating new
money based on credit.

The Bank of England was the First to begin permanent issue of banknotes, in 1695. The
Royal Bank of Scotland establishes the first overdraft facility in 1728. By the beginning of
the 19th century a banker’s clearing house was established in London to allow multiple banks
to clear transactions. The Rothschilds pioneered international finance on a large scale,
financing the purchase of the Suez Canal for the British Government.

Banking is the backbone of the modern economy. Health of banking industry is one of the
most important pre-conditions for sustained economic progress of any country. The world of
banking has assumed a new dimension at the dawn of the 21st century with the advent of tech
banking, thereby lending the industry a stamp of universality. In general, banking may be
classified as retail and corporate banking. Retail banking, which is designed to meet the
requirements of individual customers and encourage their savings, includes payment utility
bills, consumer loans, credit cards, checking account balances. ATMs, transferring funds
between accounts and the like. Corporate banking, on the other hand, caters to the needs of
corporate customers like bills discounting, opening letters of credit and managing cash.

HDFC Bank was incorporated in August 1994 and promoted by Housing Development
Finance Corporation Limited (HDFC) India’s premier housing finance company, which also
enjoys an impeccable track record in India as well as in international markets.

The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet
size, number of branches, market capitalisation and profits is today going through a
momentous phase of change and transformation? The two hundred year old public sector
behemoth is today stirring out of its public sector legacy and moving with an ability to give
the private and foreign banks run for their money.

The origin of the State Bank of India goes back to the first decades of the nineteenth century
with the establishment of the Bank of Calcutta in 1806 in Calcutta. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2nd January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of

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Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843)
followed the bank of Bengal.

These three bank remained at the apex of modern banking in India till their amalgamation as
the Imperial Bank of India on 27 January 1921.

Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European
commerce and where not imposed from outside in an arbitrary manner to modernise India’s
economy.

Their evolution was, however, shaped by ideas called from similar developments in Europe
and England, and was influenced by changes occurring in the structure of both the local
trading environment and those in the relations of the Indian economy to the economy of
Europe and the Global economic framework.

HDFC Bank was incorporated in August 1994 and Promoted by Housing Development
Finance Corporation Limited (HDFC) India’s premier housing finance company, which also
enjoys an impeccable track record in India as well as in International markets. HDFC was
amongst the first to receive an ‘in principal’ approval from the Reserve Bank of India (RBI)
to set up a bank in the private sector, as part of the RBI’s liberalisation of the Indian Banking
Industry.

HDFC bank concentrates is four areas – corporate banking, treasury management, custodial
services and retail banking. It has entered the banking consortia of over 50 corporates for
providing working capital finance, trade services, corporate finance and merchant banking.
HDFC bank has become the first private sector bank to be authorised by the Central Board of
Direct Taxes (CBDT) as well as the RBI to accept direct taxes, commencing April 01, 2001.

The taxes will be accepted at specified branches of the bank. Also is has announced a
strategic tie-up with a Bangalore-based business solutions software developer Tally Solutions
Pvt. Ltd. (TSPL) for developing and offering products and services facilitating on-line
accounting and banking services to SMEs (Small and Medium Enterprises). In 2001-02, the
bank was listed on the New York Stock Exchange in the form of ADS. Each ADS represents
3 equity shares. Consequent to the issue, the paid up capital of the Bank has increased by RS.
37.42 crores.

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1.1 BANKING ACTIVITIES

STANDARD ACTIVITIES

Banks at as payment agents by conducting checking or current accounts for customers.

Paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers’ current accounts. Banks also enables customer payments via other payment
methods such as Automated Clearing House (ACH), wire transfer or telegraphic transfer,
EFTOPS and Automated Teller machine (ATM).

Banks borrow money by accepting deposited on current accounts, by accepting term deposits,
and by issuing debt securities such as banknotes and bonds. Banks lend money by making
advances to customers on current accounts, by making instalment loans, and by investing in
marketable debt securities and other forms of money lending.

Banks provide different payment services, and a bank account is considered indispensable by
most businesses and individuals. Non-banks that provide payment services such as remittance
companies are normally not considered as an adequate substitute for a bank account.

Banks can create new money when they make a loan. New loans throughout the banking
system generate new deposits elsewhere in the system. The money supply is usually
increased by the act of lending, and reduced when loans are repaid faster than new ones are
generated. In the United Kingdom between 1997 and 2007, there was an increase in the
money supply, largely cause by much more bank lending, which served to push up property
prices and increase private debt.

The account of money in the economy as measured by M4 in the UK went from €750 billion
to £1700 billion between 1997 and 2007, much of the increase caused by bank lending. If all
the banks increase their lending together, then they can expect new deposits to return to them
and the amount of money in the economy will increase. Excessive or risky lending can cause
borrowers to default, the banks then become more cautions, so there is less lending and
therefore less money so that the economy can go from boom to bust as happened in the UK
and many other Western economies after 2007.

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RANGE OF ACTIVITY
Activities undertaken by bank include -

 Personal banking

 Corporate banking

 Investment banking

 Private banking

 Insurance

 Consumer finance

 Foreign exchange trading

 Commodity trading

 Trading in equities
 Futures and options trading and money market trading

6
CHANNELS
Bank offer many different channel to access their banking and other services:

 Automated Teller Machine.

 A branch is a retail location.

 Call center

 Mail: most bank accept cheque deposits via mail and use mail to communicate to their
customer, e.g. by sending out statements.

 Mobile banking is a method of using one's mobile phone to conduct banking

transactions.

 Online banking is a term used for performing multiple transactions, payments etc.
over the internet.

 Relationship manger, mostly for private banking or business banking, often visiting
customers at their homes or business

 Telephone banking is a service which allows its customers to conduct transactions

over the telephone with automated attendant or when requested with telephone
operator.

 Video banking is a term used for performing banking transactions or professional

banking consultations via a remote video and audio connection. video banking can be
performed via purpose built banking transaction machines (similar to an Automated
Teller Machine), or via a video conference enabled bank branch clarification

 DSA is a Direct Selling Agent, who works for the bank based on a contract. its main
job is to increase the customer base for the bank.

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1.2 BANKS IN THE ECONOMY

ECONOMIC FUNCTIONS
The economic functions of banks include:

1. Issue of money, in the form of banknotes and current account subject to check or payment
at the customer’s order. These claims on banks can act as money because they are negotiable
or repayable on demand, and hence valued at par. They are effectively transferable by mere
delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash.

2. Netting and settlement of payment -banks act as both collection and paying agent for
customers, participating in interbank clearing and settlement systems to collect, present, be
presented with, and pay payment instruments. This enables the offsetting of payment flows
between geographical areas, reducing the cost of settlement between them.

3. Credit intermediation -bank borrow and lend back-to -back on their own account as middle
men.

4. Credit quality improvement - banks lend money to ordinary commercial and personal
borrower (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations.

5. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty
and pledges assets as security, to raise the funding it need to continue to operate , This Put
holders and depositor’s in an economically subordinated position.

6. Asset liability mismatch/maturity transformation banks borrow more one demand debt and
short term debit, but more long term loans.in other word, they borrow short and led log. With
a stronger credit quality than most other borrower, banks can do this by aggregating issue
(e.g. Accepting deposits and issuing banknotes) and redemption (e.g. Withdrawals and
redemption of banknotes), maintaining reserves of cash, investing in marketable securities
that can be really converted to cash if needed, and raising replacement funding as needed
from various Sources (e.g. wholesale cash markets and securities Market).

7. Money creation -whenever a bank gives out a loan in a fractional-reserve banking system,
a new sum of virtual money is created.

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1.3 SIZE OF GLOBAL BANKING INDUSTRY
Assets of the largest 1,000 bank in the world grew by 6.8% in the 2008/2009 financial year to
a record US$96.4 trillion while profit declined by 85% to US$115 billion. Growth in assets in
adverse market conditions was largely a result of recapitalization. EU bank held the largest
share of the total, 56% in 2008/2009, don form 61% in the previous year. Asian banks share
increased from 12% to 14% during the year, while the share of us banks increased from 11%
to 13%. Fee revenue generated by global investment banking totaled US$66.3 billion in 2009,
up 12% on the previous year

The United States has the most banks in the world in term of institutions (7,085 at the end of
2008) and possibly branches (82,000).This is an institutions of the geography and regulatory
structure of the USA , resulting in a large number of small to medium-sized institution in its
banking system. As of November 2009, china's top 4 banks have in excess of 67,000
branches (ICBC: 18000+BOC: 12000+, CCB: 1300+, ABC: 24000+) with an additional 140
smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000
branches. In 2004, Germany, France, and Italy each had more than 30,000 branches---more
than double the 15,000 branches in the UK.

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1.4 GLOBALIZATION IN THE BANKING INDUSTY

In modern time there has been huge reductions to the barriers of global completion in the
banking industry. Increases in telecommunication and other financial technologies, such as
Bloomberg, have allowed banks to extend their reach all over the world, since they no longer
have to be near customer to manage both their finances and their risk. The growth in cross-
border activates has also increased the demand for banks that can provide various services
across borders to different nationalities .However ,despite these reduction in barriers and
growth in cross-border activities, the banking industry is nowhere near as globalized as some
other industries. in the USA ,for instance, very few banks even worry about the Rigel-Neal
Act, which promotes more efficient interstate banking. in the vast majority of nations around
globe the market share for foreign owned banks is currently less than a tenth of all market
shares for banks in a particular nation. One reason the banking industry has not been fully
globalized is that it is that it is more convenient to have local provide loans to small business
and individuals. On the other hand for large corporations it is not as important in what nation
the bank is in, since the corporation's financial information is available around the globe.

Banking in India In the modern sense originated in the last decades of the 18th century.
Among the first bank of Hindustan, which was established in 1770 and liquidated in 1829-32;
and the General Bank of India, established 1786 but failed in 1791.

The largest bank, and the oldest still in existence, in the state Bank of India. It originated as
the Bank of Calcutta in June 1806. In 1809, it was renamed as the bank of Bengal. This was
one of the three banks funded by a presidency government, the other two were the Bank of
Bombay and the Bank of Madras. The three banks were merged in 1921 to form the imperial
Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks,
as did their successors, until the Reserve Bank of India was established in 1935, under the
reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the
state Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks.
In 1969 the India government nationalized 14 major private banks. In 1980, 6 more private
banks were nationalized. These nationalized banks are the majority of lenders in the Indian
economy. They dominate the banking sector because of their large size and widespread
networks.

The Indian banking sector is broadly classified into scheduled banks and non-scheduled
banks. The scheduled banks are those which are included under the 2nd Scheduled of the
Reserve Bank of India Act, 1934.

The scheduled banks ae further classified into; nationalized banks; state bank of India and its
associates; regional rural banks (RRBs); foreign banks; and other Indian private sector banks.

10
the team commercial banks refers to both scheduled and non scheduled commercial banks
which are regulated under the banking regulation Act, 1949.

generally banking in India was fairly mature in terms of sully , product range and reach-even
though reach in rural India and to poor still remains a challenge. the government has
developed initiatives to address this though the state bank of India expanding its branch
network and though the national bank for agriculture and rural development with things like
microfinance.

11
2.2 CLASSIFICATION OF BANKING INDUSRY IN
INDIA
The organized banking system in India can be classified as given
below:

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RESERVE BANK OF INDIA (RBI):
The country had no central bank prior to the establishment ot the RBI. The RBI is the
supreme monetary and banking authority in the country and controls the banking system in
India. it is called the Reserve Bank as it keeps the reserves of all commercial bank.

COMMERCIAL BANK:
Commercial banks mobilize savings of general public and make them available to large and
small industrial and trading units mainly for working capital requirements.

Commercial bank in India are largely Indian-public sector and private sector with a few
foreign banks. The public sector banks account for more than 92 percent of the entire banking
business in India-occupying a dominant position in the commercial banking. The State bank
of India and its 7 associate banks along with another 19 banks are the public sector banks.

SCHEDULED AND NON-SCHEDULED BANKS:

The scheduled banks are those which are enshrined i the second schedule of the RBI Act,
1934. These banks have a paid-up capital and reserves of an aggregate value of not less than
Rs.5 lakhs. They have to satisfy the RBI that their affairs carried out in the interest of their
depositors.

All co000mmercial banks (Indian and foreign), regional rural banks, and state Co-operative
banks are scheduled banks. Non-scheduled banks are those which are not included in the
second schedule of the RBI Act, 1934.At present these are only three such banks in the
country.

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REGIONAL RURAL BANKS:
The Regional Banks (RRBs) the newest form of banks, came into existence in the middle of
1970s (sponsored by individual nationalized commercial bank) with the objective of
developing rural economy by providing credit and deposit facilities for agriculture and other
productive activities of all kinds in rural areas.

The emphasis is on providing such facilities to small and marginal farmers, agricultural
laborers, rural artisans and other small entrepreneurs in rural areas.

OTHER SPECIAL FEATURES OF THESE BANKS ARE:

(1) Their area of operation is limited to a specified region, comprising one or more districts
in any state;

(2) Their lending rates cannot be higher than the prevailing lending rates of Co-operative
credit societies in any particular state;

(3) The paid-up capital of each rural bank is Rs.25 lakh, 50 percent of which has been
contributed by the Central GVT, 1 percent by commercial bank which are also responsible
for actual setting up of the RRBs.

These banks are helped by higher-level agencies: the sponsoring banks lend them finds and
advise and train their senior staff, the NABARD (National Bank for Agriculture and Rural
Development) gives them short-term and medium term loans: the RBI has kept CRR (Cash
Reserve Requirements) of hem at 2% and SLR (Statutory Liquidity Requirement) at 25% of
their total net liabilities, whereas for other commercial banks the required minimum ratios
have been varied over time.

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CO-OPERATIVE BANKS:
Co-operative banks are so-called because they are organized under the provision of the Co-
operative Credit Societies Act of the states. The major beneficiary of the Co-operative
Banking is the agricultural sector in particular and the rural sector in general.

The co-operative credit institutions operating in the country are mainly of two kind:
agricultural (dominant) and non-agricultural. There are two separate Co-operative agencies
for the provision of agricultural credit: one for short and medium-term credit, and the other
for long-term credit. The former has three tier and federal structure.

At the apex is the State Co-operative bank (SCD) (cooperation being a state subject in India),
at the intermediate (district) level are the Central Co-operative Bank (CCBs) and at the
village level are primary Agricultural Credit Societies (PACs).

Long-term agriculture credit is provided by the Land Development Banks. The Fund of the
RBI meant for the agriculture sector actually pass through SCBs and CCBs. Originally based
in rural sector, the Co-operative credit movement has now spread to urban areas also and
there are many urban Cooperative banks coming under SCBs.

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LIBERLIZATION

In the early 1990s, the then government embarked on a policy of liberalization licensing a
small number of private banks. These came to known as New Generation tech-savvy banks,
and included Global trust Bank (the first of such new generation banks to be set up), which
later amalgamated with Oriental Bank of Commerce, UTI Bank (Since renamed Axis bank),
ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for foreign direct investment, where all foreign investors in banks may be given voting
rights which could exceed the present cap of 10% at present. It has gone up to 74% with
some restrictions.

The new policy shook the Banking sector in India completely. Banker’s, till this time, were
used to the 4-6-4 method (borrow at 4%; lend at 6%; go home at 4%) of functioning. The
new wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks. All this led to the retail boom in India. People demanded more from their banks and
received more.

16
1.6 ADOPTION OF BANKING TECHNOLOGY

The IT revolution has had a great impact on the Indian banking system. The use of computers
has led to the introduction of online banking in India. The use of computers in the banking
sector in India has increased many fold after the economic liberalization of 1991 as the
country’s banking sector has been exposed to the world’s market. Indian banks were finding
it difficult to compete with the international banks in terms of customer service, without the
use of information technology.

The RBI set up a number of committees to define and co-ordinate banking technology. These
have included:

 In 1984 was formed the Committee on Mechanisation in the Banking Industry (1984)
whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India.
The major recommendations of this committee were introducing MICR technology in
all the banks in the metropolises in India. This provided for the use of standardized
cheques forms and encoders.
 In 1988, the RBI set up the committee on computerisation in Banks (1988) headed by
Dr. C Rangarajan. It emphasized that settlement operation must be computerized in
the clearing houses of RBI in Bhubaneswar, Guwahati, Jaipur, Patna and
Thiruvananthapuram. It further stated that there should be National Clearing of of
inter-city cheques at Kolkata, Mumbai, Delhi, Chennai and MICR should be made
operational. It also focused on computerisation of branches and increasing
connectivity among branches through computers. It also suggested modalities for
implanting on-line banking. The committee submitted its reports in 1989 and
Computerisation began from 1993 with the settlement between IBA and bank
employee’s associations.
 In 1994, the committee on Technology Issues relating to Payment systems, Cheque
Clearing and Securities in the Banking Industry (1994) was set up under Chairman W
S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the BANKNET
communications network as its carrier. It also said that MICR clearing should be set
up in all branches of all those banks with more than 100 branches.
 In 1995, the committee for proposing Legislation on Electronic Funds Transfer and
other Electronic Payment (1995) again emphasized EFT system.

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REGULATIONS FOR INDIAN BANKS

The banking system in India is regulated by the Reserve Bank of India (RBI), through the
provisions of the Banking Regulations Act, 1949. Some important aspects of the regulations
which govern banking in this country, as well as RBI circulates that relate to banking in
India, will be dealt with in this article:

EXPOSURE LIMITS

Lending to a single borrower is limited to 15% of the bank’s capital funds (tier I and tier 2
capital), which may be extended to 20% in case of infrastructure projects. For group
borrowers, lending is limited to 30% of the bank’s capital funds, with an option to extend it to
40 % for infrastructure projects. The lending limit can be extended by a further 5% with the
approval of the bank’s board of directors. Lending includes both fund based and non-fund
based exposure.

CASH RESERVE RATIO (CRR) AND STATUTORY LIQUIDITY

RATIO (SLR)

Banks in India are required to keep minimum of 4% of their net demand and time liabilities
(NDTL) in the form of cash with the RBI. These currently earn no interest. The CRR needs to
be maintained on a fortnightly basis, while the daily maintenance need to be at least 95% of
the required reserves. In case of default on daily maintenance, the penalty is 3% above the
bank rate applied on the number of days of default multiplied by the amount by which the
amount falls short of the prescribed level.

Over and above the CRR, a minimum of 22% and maximum of 40% of NDTL, which is
known as the SLR, needs to be maintained in the form of gold, cash or certain approved
securities. The excess SLR holdings can be used to borrow under the Marginal Standing
Facility (MSF) on an overnight basis from the RBI. The interest charged under MSF is higher
than the repo rate by 100 bps, and te amount that can be borrowed is limited to 2% of NDTL.

18
PROVISIONING

Non-performing assets ( NPA) are classified under 3 categories: Substandard, Doubtful and
Loss. An asset becomes non-performing if there have been no interest or principal payments
for more than 90 days in the case of a term loan. Substandard assets are those assets with
NPA status for less than 12 months, at the end of which they are categorized as doubtful
assets. A loss is one for which the bank or auditor expects no repayment or recovery and is
generally written off the books.

For substandard asset, it is required that a provision of 15% of the outstanding loan amount
for secured loans and 25% of the outstanding loan amount for unsecured loans to be made.

For doubtful assets, provisioning for the secured part of the loan varies from 25% of the
outstanding loan for NPA’s which have been in existence for less than one year to 40% for
NPA’s in existence between one and three years to 100% for NPA’s with a duration of more
than three years, while for the unsecured part it is 100%.

Provisioning is also required on standard assets. Provisioning for agriculture and small and
medium enterprises is 0.25% and for commercial real estate it is 1% (0.75% for housing),
while it is 0.4% for the remaining sectors.

Provisioning for standard asset cannot be deducted from gross NPA’s to arrive at net NPA’s.
Additional provisioning over and above the standard provisioning is required for loans given
to companies that have unhedged foreign exchange exposure.

PRIORITY SECTOR LENDING

The priority sector broadly consists of micro and small enterprises, and initiatives related to
agriculture, education, housing, and lending to low-earning or less privileged groups
(classified aa ‘’Weaker sections”). The lending target of 40% of adjusted net bank credit
(ANBC) (outstanding bank credit minus certain bills and non-SLR bonds) – or the credit
equivalent amount of off balance sheet exposure ( sum of current credit exposure + potential
future credit exposures that is calculated using a credit conversion factor), whichever is
higher – has been set for domestic commercial banks and foreign banks with greater than 20
branches, while a target of 32% exists for foreign .banks with less than 20 branches.

The amount that is disbursed as loans to the agriculture sector should either be the credit
equivalent of off balance sheet exposures, or 18% of ANBC – whichever of the two figures is

19
higher. Of the amount that is loaned to micro enterprises and small businesses, 40% should
be advanced to those enterprises with equipment that has a maximum value of 200,000
rupees, and plant and machinery valued at a maximum of half a million rupees, while 20% of
the total amount lent is to be advanced to micro-enterprises with plant and machinery ranging
in value from just above 500,000 rupees to a maximum of a million rupees and equipment
with a value above 200,000 rupees but not more than 250,000 rupees.

The total value of loans given to weaker sections should be either be 10% of ANBC or the
credit equivalent amount of off balance sheet exposure, whichever is higher. Weaker sections
include specific castes and tribes that have been assigned that categorization, as well as small
farmers etc. There are no specific targets for foreign banks with less than 20n branches.

NEW BANK LICENSE NORMS

The new guidelines state that the groups applying for a license should have a successful track
record of at least 10 years and the bank should be operated through a non-operative financial
holding company(NOFHC) wholly owned by the promoters. The minimum paid-up voting
equity capital has to be five billion rupees, with the NOFHC holding at least 40% of it and
gradually bringing it down 15% over 12 years. The shares have to be listed within 3 years of
the start of the bank’s operations.

The foreign shareholding is limited to 49% for the first 5 years of its operations, after which
RBI approval would be needed to increase the stake to maximum of 74%. The board of the
bank should have a majority of independent directors and it would have to comply with the
priority sector lending targets discussed earlier.

The NOFHC and the bank are prohibited from holding any securities issued by the promoter
group and the bank is prohibited from holding any financial securities held by the NOFHC.
The new regulations also stipulates that 25% of the branches should be opened in previously
rural areas.

20
WILFUL DEFAULTERS

A wilful defaults takes place when a loan isn’t repaid even through resources are available, or
if the money lent is used for purposes other than the designated purpose, or if a property
secured for a loan is sold off without the bank’s knowledge or approval. In case a company
within a group defaults and the other group companies that have given guarantees fail to
honour their guarantees, the entire group can be termed as a wilful defaulter. Wilful
defaulters (including the directors) have no access to funding, and criminal proceedings may
be initiated against them. The RBI recently changed the regulations to include non-group
companies under the wilful defaulter tag as well if they fail to honour a guarantee given to
another company outside the group.

THE BOTTOM LINE

The way a country regulates its financial and banking sectors is in some senses a snapshot of
its priorities, its goals, and the type of financial landscape and society it would like to
engineer. In the case of India, the regulations passed by its reserve bank give us a glimpse
into its approaches to financial governance and shows the degree to which it prioritizes
stability within its banking sector, as well as economic inclusiveness.

Though the regulatory structure of India’s banking system seems a hit conservative, this has
to be seen in the context in the context of the relatively under-banked nature of the country.

The excessive capital requirements that have been set are required to build up trust in the
banking sector while the priority lending targets are needed to provide financial inclusion to
those to whom the banking sector would not generally lend given the high level of NPA’s and
small transaction sizes. Since the private banks have been left with that burden. A case could
also be made for adjusting how the priority sector is defined, in light of the high priority
given to agriculture, even though its share of GDP has been going down.

21
NATIONALIZATION

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India
except the State Bank of India (SBI), continued to be owned and operated by private persons.
By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer,
and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, the
then Prime Minister of India, expressed the intention of the Government of India in the
annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on
bank Nationalization”. The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance
[‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’] and
nationalised the 14th largest commercial banks with effect from the midnight of 19th July
1969. These banks contained 85 percent of bank deposits in the country. Shri Jayaprakash
Narayan, a national leader of India, described the step as a “masterstroke of political
sagacity”. Within two weeks of the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertakings) Bill, and it received the presidential
approval on 9th August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery.
With the second dose of nationalisation, the Government of India controlled around 91% of
the banking business of India. Later on, in the year 1993, the government merged New Bank
of India with Punjab National Bank.

It was the only merger between nationalised banks and resulted in the reduction of the
number of nationalised banks 20 to 19. After this, until the 1990s, the nationalised banks
grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

LIBERLIZATION

In the early 1990s, the then government embarked on a policy of liberalization licensing a
small number of private banks. These came to known as New Generation tech-savvy banks,
and included Global trust Bank (the first of such new generation banks to be set up), which

22
later amalgamated with Oriental Bank of Commerce, UTI Bank (Since renamed Axis bank),
ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for foreign direct investment, where all foreign investors in banks may be given voting
rights which could exceed the present cap of 10% at present. It has gone up to 74% with
some restrictions.

The new policy shook the Banking sector in India completely. Banker’s, till this time, were
used to the 4-6-4 method (borrow at 4%; lend at 6%; go home at 4%) of functioning. The
new wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks. All this led to the retail boom in India. People demanded more from their banks and
received more.

1.6 ADOPTION OF BANKING TECHNOLOGY

The IT revolution has had a great impact on the Indian banking system. The use of computers
has led to the introduction of online banking in India. The use of computers in the banking
sector in India has increased many fold after the economic liberalization of 1991 as the
country’s banking sector has been exposed to the world’s market. Indian banks were finding
it difficult to compete with the international banks in terms of customer service, without the
use of information technology.

The RBI set up a number of committees to define and co-ordinate banking technology. These
have included:

 In 1984 was formed the Committee on Mechanisation in the Banking Industry (1984)
whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India.
The major recommendations of this committee were introducing MICR technology in
all the banks in the metropolises in India. This provided for the use of standardized
cheques forms and encoders.
 In 1988, the RBI set up the committee on computerisation in Banks (1988) headed by
Dr. C Rangarajan. It emphasized that settlement operation must be computerized in
the clearing houses of RBI in Bhubaneswar, Guwahati, Jaipur, Patna and
Thiruvananthapuram. It further stated that there should be National Clearing of of
inter-city cheques at Kolkata, Mumbai, Delhi, Chennai and MICR should be made

23
 operational. It also focused on computerisation of branches and increasing
connectivity among branches through computers. It also suggested modalities for
implanting on-line banking. The committee submitted its reports in 1989 and
Computerisation began from 1993 with the settlement between IBA and bank
employee’s associations.
 In 1994, the committee on Technology Issues relating to Payment systems, Cheque
Clearing and Securities in the Banking Industry (1994) was set up under Chairman W
S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the BANKNET
communications network as its carrier. It also said that MICR clearing should be set
up in all branches of all those banks with more than 100 branches.
 In 1995, the committee for proposing Legislation on Electronic Funds Transfer and
other Electronic Payment (1995) again emphasized EFT system.

REGULATIONS FOR INDIAN BANKS

The banking system in India is regulated by the Reserve Bank of India (RBI), through the
provisions of the Banking Regulations Act, 1949. Some important aspects of the regulations
which govern banking in this country, as well as RBI circulates that relate to banking in
India, will be dealt with in this article:

EXPOSURE LIMITS

Lending to a single borrower is limited to 15% of the bank’s capital funds (tier I and tier 2
capital), which may be extended to 20% in case of infrastructure projects. For group
borrowers, lending is limited to 30% of the bank’s capital funds, with an option to extend it to
40 % for infrastructure projects. The lending limit can be extended by a further 5% with the
approval of the bank’s board of directors. Lending includes both fund based and non-fund
based exposure.

CASH RESERVE RATIO (CRR) AND STATUTORY LIQUIDITY

RATIO (SLR)

24
Banks in India are required to keep minimum of 4% of their net demand and time liabilities
(NDTL) in the form of cash with the RBI. These currently earn no interest. The CRR needs to
be maintained on a fortnightly basis, while the daily maintenance need to be at least 95% of
the required reserves. In case of default on daily maintenance, the penalty is 3% above the
bank rate applied on the number of days of default multiplied by the amount by which the
amount falls short of the prescribed level.

Over and above the CRR, a minimum of 22% and maximum of 40% of NDTL, which is
known as the SLR, needs to be maintained in the form of gold, cash or certain approved
securities. The excess SLR holdings can be used to borrow under the Marginal Standing
Facility (MSF) on an overnight basis from the RBI. The interest charged under MSF is higher
than the repo rate by 100 bps, and te amount that can be borrowed is limited to 2% of NDTL.

PROVISIONING

Non-performing assets ( NPA) are classified under 3 categories: Substandard, Doubtful and
Loss. An asset becomes non-performing if there have been no interest or principal payments
for more than 90 days in the case of a term loan. Substandard assets are those assets with
NPA status for less than 12 months, at the end of which they are categorized as doubtful
assets. A loss is one for which the bank or auditor expects no repayment or recovery and is
generally written off the books.

For substandard asset, it is required that a provision of 15% of the outstanding loan amount
for secured loans and 25% of the outstanding loan amount for unsecured loans to be made.

For doubtful assets, provisioning for the secured part of the loan varies from 25% of the
outstanding loan for NPA’s which have been in existence for less than one year to 40% for
NPA’s in existence between one and three years to 100% for NPA’s with a duration of more
than three years, while for the unsecured part it is 100%.

Provisioning is also required on standard assets. Provisioning for agriculture and small and
medium enterprises is 0.25% and for commercial real estate it is 1% (0.75% for housing),
while it is 0.4% for the remaining sectors.

Provisioning for standard asset cannot be deducted from gross NPA’s to arrive at net NPA’s.
Additional provisioning over and above the standard provisioning is required for loans given
to companies that have unhedged foreign exchange exposure.

25
PRIORITY SECTOR LENDING

The priority sector broadly consists of micro and small enterprises, and initiatives related to
agriculture, education, housing, and lending to low-earning or less privileged groups
(classified aa ‘’Weaker sections”). The lending target of 40% of adjusted net bank credit
(ANBC) (outstanding bank credit minus certain bills and non-SLR bonds) – or the credit
equivalent amount of off balance sheet exposure ( sum of current credit exposure + potential
future credit exposures that is calculated using a credit conversion factor), whichever is
higher – has been set for domestic commercial banks and foreign banks with greater than 20
branches, while a target of 32% exists for foreign .banks with less than 20 branches.

The amount that is disbursed as loans to the agriculture sector should either be the credit
equivalent of off balance sheet exposures, or 18% of ANBC – whichever of the two figures is
higher. Of the amount that is loaned to micro enterprises and small businesses, 40% should
be advanced to those enterprises with equipment that has a maximum value of 200,000
rupees, and plant and machinery valued at a maximum of half a million rupees, while 20% of
the total amount lent is to be advanced to micro-enterprises with plant and machinery ranging
in value from just above 500,000 rupees to a maximum of a million rupees and equipment
with a value above 200,000 rupees but not more than 250,000 rupees.

The total value of loans given to weaker sections should be either be 10% of ANBC or the
credit equivalent amount of off balance sheet exposure, whichever is higher. Weaker sections
include specific castes and tribes that have been assigned that categorization, as well as small
farmers etc. There are no specific targets for foreign banks with less than 20n branches.

NEW BANK LICENSE NORMS

The new guidelines state that the groups applying for a license should have a successful track
record of at least 10 years and the bank should be operated through a non-operative financial
holding company(NOFHC) wholly owned by the promoters. The minimum paid-up voting
equity capital has to be five billion rupees, with the NOFHC holding at least 40% of it and

26
gradually bringing it down 15% over 12 years. The shares have to be listed within 3 years of
the start of the bank’s operations.

The foreign shareholding is limited to 49% for the first 5 years of its operations, after which
RBI approval would be needed to increase the stake to maximum of 74%. The board of the
bank should have a majority of independent directors and it would have to comply with the
priority sector lending targets discussed earlier.

The NOFHC and the bank are prohibited from holding any securities issued by the promoter
group and the bank is prohibited from holding any financial securities held by the NOFHC.
The new regulations also stipulates that 25% of the branches should be opened in previously
rural areas.

WILFUL DEFAULTERS

A wilful defaults takes place when a loan isn’t repaid even through resources are available, or
if the money lent is used for purposes other than the designated purpose, or if a property
secured for a loan is sold off without the bank’s knowledge or approval. In case a company
within a group defaults and the other group companies that have given guarantees fail to
honour their guarantees, the entire group can be termed as a wilful defaulter. Wilful
defaulters (including the directors) have no access to funding, and criminal proceedings may
be initiated against them. The RBI recently changed the regulations to include non-group
companies under the wilful defaulter tag as well if they fail to honour a guarantee given to
another company outside the group.

THE BOTTOM LINE

The way a country regulates its financial and banking sectors is in some senses a snapshot of
its priorities, its goals, and the type of financial landscape and society it would like to
engineer. In the case of India, the regulations passed by its reserve bank give us a glimpse
into its approaches to financial governance and shows the degree to which it prioritizes
stability within its banking sector, as well as economic inclusiveness.

27
Though the regulatory structure of India’s banking system seems a hit conservative, this has
to be seen in the context in the context of the relatively under-banked nature of the country.

The excessive capital requirements that have been set are required to build up trust in the
banking sector while the priority lending targets are needed to provide financial inclusion to
those to whom the banking sector would not generally lend given the high level of NPA’s and
small transaction sizes. Since the private banks have been left with that burden. A case could
also be made for adjusting how the priority sector is defined, in light of the high priority
given to agriculture, even though its share of GDP has been going down.

NATIONALIZATION

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India
except the State Bank of India (SBI), continued to be owned and operated by private persons.
By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer,
and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, the
then Prime Minister of India, expressed the intention of the Government of India in the
annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on
bank Nationalization”. The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance
[‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’] and
nationalised the 14th largest commercial banks with effect from the midnight of 19th July
1969. These banks contained 85 percent of bank deposits in the country. Shri Jayaprakash
Narayan, a national leader of India, described the step as a “masterstroke of political
sagacity”. Within two weeks of the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertakings) Bill, and it received the presidential
approval on 9th August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery.
With the second dose of nationalisation, the Government of India controlled around 91% of

28
the banking business of India. Later on, in the year 1993, the government merged New Bank
of India with Punjab National Bank.

It was the only merger between nationalised banks and resulted in the reduction of the
number of nationalised banks 20 to 19. After this, until the 1990s, the nationalised banks
grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

LIBERLIZATION

In the early 1990s, the then government embarked on a policy of liberalization licensing a
small number of private banks. These came to known as New Generation tech-savvy banks,
and included Global trust Bank (the first of such new generation banks to be set up), which
later amalgamated with Oriental Bank of Commerce, UTI Bank (Since renamed Axis bank),
ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for foreign direct investment, where all foreign investors in banks may be given voting
rights which could exceed the present cap of 10% at present. It has gone up to 74% with
some restrictions.

The new policy shook the Banking sector in India completely. Banker’s, till this time, were
used to the 4-6-4 method (borrow at 4%; lend at 6%; go home at 4%) of functioning. The
new wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks. All this led to the retail boom in India. People demanded more from their banks and
received more.

29
2 RESEARCH AND METHDOLOGY

Data has been collected from the following sources:

 Primary Data
 Secondary Data
All the data has been collected by visiting official websites and other web pages of HDFC Bank
& SBI Bank.

OBJECTIVES

1. To Compute and compare the financial performance of HDFC and SBI through
Profitability ratios.
2. The present study attempts to analyse the profitability of the two major banks in India;
HDFC and SBI.
3. The Fundamental Analysis, which aims at developing an insight into the economic
performance of the business, is of paramount importance from the view point of
investment decisions.
4. The present study attempts to analyse the profitability of the two major banks in India;
HDFC and SBI. The variables taken for the study are Operating profit margin (OPM),
Gross profit margin (GPM), Net profit margin (NPM).
5. The main objective of the study is to analyse and compare the financial performance
of select banks in terms of Deposits mobilization, Lending and Recovery Performance
Investment Management efficiency and profitability of public and private sector
banks through select financial ratios.
6. The present study focuses on a critical evaluation of financial performance of select
public sector and private sector banks through financial fiscal investment management
efficiency and profitability ratios.
7. It also compares the financial performance of SBI and HDFC over select parameters
namely, trends of Deposits, Lending, and Recovery Performance.

LIMITATIONS

 The researcher has tried to study about the profitability of HDFC Bank and SBI Bank
in depth, however faced some difficulties in collecting information and also faced
limitations.
 Time constraint was the main limitation faced while making the project.

30
  One of the major limitations of this study is all the banks in Hyderabad were not
considered as the network of operation of all the banks is quite distinguishable.
 The banks considered are only single banks i.e. HDFC from private sector bank and
SBI from public sector Bank sector bank as they are the leading banks.
 Co-operative banks and foreign banks are kept out of the study as they follow
different set of guidelines given by RBI.

SCOPE OF THE STUDY

 The first chapter deals with the global view of the banking industry, which includes
introduction to banking industry and evolution of the banking industry. Further, it also
includes history of various foreign countries banking system.
 The second chapter deals with the Indian view of the banking industry, which
includes how the banking system started in India and history of the banking industry.
 The third chapter deals with the introduction, history, sources of income and SWOT
Analysis of HDFC Bank and SBI Bank.
 The fourth chapter includes the major financial aspects of HDFC Bank & SBI Bank.
 The fifth chapter includes case studies of HDFC Bank and SBI Bank.
The sixth chapter includes findings, recommendations, conclusions and Annexure

31
3 REVIEW OF LITERATURE

Banks are important in mobilizing and allocating savings in an economy and can solve
important moral hazard and adverse selection problems by monitoring and screening
borrowers and depositors. Besides, banks are important in directing funds where they are
most needed in an efficient manner and have direct implications on capital allocation,
industrial expansion, and economic growth (Berger, Demirguc-Kunt, and Hubrich 2003;
Levine 1997). Banks also play an important role in diminishing informational asymmetries
and risks in the financial system. Hence, the study of the banking industry and its impact on
the economy is of the utmost importance. The effects of concentration and competition on
bank performance are pertinent since they have important policy implications. A recent
global trend of consolidation in the banking sector has intensified, generating important
debates on its effects on the profitability of banks, consumer costs, the efficiency in
allocating resources in an economy, and on overall financial stability.

The researcher an attempt has been made to provide an overview of various aspects of this study
through the review of literature. The sources referred to include various journals, books, magazines
and internet sites. Khataybeh et al. Determined the influence of yields or rate of return on portfolio
composition and concluded that the availability of funds is more important in determining the
structure of these portfolios. Baser et al.

3. indicated that Asset-Liability Management (ALM) was a comprehensive and dynamic framework
for measuring, monitoring and managing the market risk of a bank. The study attempted to evaluate
the changing perspectives of the banks in identifying and facing the risks and maintaining Asset
Quality so as to ensure profitability with the help of ALM techniques. ISSN: 2395-1664 (ONLINE)
ICTACT JOURNAL ON MANAGEMENT STUDIES, FEBRUARY 2018, VOLUME: 04, ISSUE:
01 699 Prathap et al.

4. indicated ALM in Indian banking system is still in a nascent stage. Against this backdrop, the
objective of the research was to study and analyze the status of ALM approach in the Indian banking
system. This study also indicates a strong relationship between fixed assets and net worth for all
groups of banks. Chaudhary et al.

5. stated that recently the Indian economy has witnessed the emergence of many banks in the private
sector. There are several reasons behind the increasing number of commercialization of banks. The
growth of such banks is not possible unless they witness some success in the context of customer
satisfaction or may it be the net assets held by these banks, efficiency of their management or the
networks of each bank both in private as well as the public sector bank. Arias et al.

32
6. presented an econometric model to study the determinants of profitability of the top five banks of
United States. The study observed that capital asset ratio had positive impact on profitability as large
banks had ability to compete efficiently even if the macroeconomic factor did not support. Ibrahim et
al.

7. Stated that Indian scheduled commercial banks have improved their operational performance since
2000. There is constant increase in aggregate deposits. The C-D ratio also shows an increasing trend.
The investment deposit ratio and priority sector advances have also gone up. Ravinder et al. (2011)
analyzed the profitability of four major banks in India. The study revealed that State Bank of India
performed better in terms of earning per share and dividend payout ratio, while Punjab National Bank
performed better in terms of operating profit margin and return on equity.

8. calculated the business ratios, such as interest income to average working funds, non-interest
income to average working funds, operating profit to average working funds, return on assets,
business per employee and profit per employee for public sector banks, private sector banks and
foreign banks for the period 2004-05 to 2008-09. It was observed that the foreign banks and new
generation private banks have superior business ratios. They effectively leverage technology,
outsourcing and workforce professionalism which helped them to protect their bottom line. Vyas et al.

9. used multiple regression models to compare mean capital to risk weighted assets ratio of various
bank groups. They found a significant difference in the CRAR (Capital to Risk Weighted Asset Ratio)
of State Bank of India group and Foreign Banks operating in India in comparison to that of
nationalized banks group. There is no significant difference in the CRAR of Indian private banks and
that of nationalized banks, the study observed.

HDFC Bank is an Indian Banking and Financial Services Company headquartered in Mumbai
India. The Bank was promoted by a premier housing finance company set up in 1997 of
India.

33
CASE – LAUNCH OF ULTRA PREMIUM

CREDIT CARD

The HDFC Bank is the largest credit card issuer in country. Also HDFC bank is one of the
leading players in the private banking space, The High Network Individuals (HNI) in Indian
grew by 20.8% with India rising to 12th position and being within the striking distance of top
global pecking order. The Bank aimed to become the undisputed leader. It also aimed to fulfil
the need of Number – rich clientele.

CHALLENGEGES FACED

The plan to provide appropriate spending base in order to match the high end lifestyle of uber
–rich customers proved to be challenging. Also it being a credit card, issuance and marketing
it in a developing country like India proved to be a challenge.

SOLUTIONS

In order to make the strategy a success, Infinia Credit was ‘launched. it was a super-premium
card offered to rich Indians with handpicked employees managing the transactions and other
attributes .

BENEFITS

The launch of Infinia Credit Card has resulted in the growth of clientele of HDFC Bank. The
clientele includes not only middle class and salaried employees but also rich individuals as
well as it has positive impact on its profitability.

34
CASE – THE DECISIONS TO MIGRATE CORE SYSTEM

“STATE BANK OF INDIA “was running a branch system, meaning that you did business
with the branch, not the bank .All records of accounts activity resided in the branch. The bank
found itself at a competitive disadvantages with respect to both the global banks (Citi,
Standard, Chartered , HSBC) and the private(as opposed to publicly owned)banks such as
ICICI Bank and HDFC Bank ,which had a single centralized core banking system in India so
that customers could do business with any branch. Corporate customers were moving to other
banks that could work with a single bank operating across the country rather than multiple
branches that couldn’t offer real time consolidation of positions.

Because SBI was at a technology disadvantages with the branch system, the bank was losing
deposit share due to entrants in the market. The private banks were rolling out new products
on modern systems. And State Bank of India had trouble keeping up with this innovation. On
the Bank master branch server, this alone made it much more difficult to compete in the
Indian market.

CHALLENGE FACED

Providing high level of satisfaction to consumer as well as Bank at lower cost in large scale
and being technology based were the biggest challenges.

35
SOLUTIONS

In order to make the strategy a success, the SBI Bank needed robust technology that would
help in achieving profile maximization. After Intense evolution, SBI Bank selected TCS
(TATA CONSULTANCY SERVICES) as the Technology partner. TCS provide Finale,
Universal banking solutions as core banking platform.

BENEFITS

Some of the main basic benefits relates case are as follows.

 Now they could be controlled centrally, providing greater speed, accuracy , and
consistency of pricing across branches. There was also centralized risk reporting
and control, given that all branches were on a single system.
 Standardizing the KYC(know your Customer) process was an additional benefit
of installing the BANCS system.
 State Bank Of India executed a business process reengineering (BPR) in
conjunction with its core migration.
 Increase in transaction levels.
 Increase in the ability to manage more no. of users effectively.

36
4. Data Analysis, Interpretation and Presentation

4.1 SOURCES OF INCOME

 HDFC BANK
 SBI BANK
4.2 SWOT ANALYSIS

 HDFC BANK
 SBI BANK
4.3 STATEMENT OF PROFIT AND LOSS ACCOUNT

 HDFC BANK
 SBI BANK
4.4 BALANCESHEET STATEMENT

 HDFC BANK
 SBI BANK
4.5 RATIO ANALYSIS

 HDFC BANK
 SBI BANK

37
4.1 SOURCES OF INCOME

HDFC

 Products-

HDFC Bank offers the following core products:

 NRI Banking

Under NRI Banking, HDFC offers:

 Accounts & Deposits

 Money Transfer
 Investments & Insurance
 Research Reports
 Payment Services
 SME Banking

Under SME Banking, HDFC offers:

 Accounts & Deposits

 Business Financing
 Trade Services
 Payments & Collections
 Cards
 ATM
 Wholesale Banking

HDFC offers Wholesale Banking for Corporate and Financial Institutions & Trusts. The
Bank also provides services such as Investment Banking and other services in the
Government sector.

38
Services

 Wholesale Banking Services

 Retail banking services
 Treasury-

HDFC Bank has two subsidiaries:

 HDB Financial Services Limited (‘HDBFS’):

HDBFS is engaged in retail asset Financing. It is a non-deposit taking non-bank finance
company (NBFC). Apart from lending to individuals, the company grants loans to Micro,
small and medium business enterprises. It also runs call canters for collection services to the
HDFC bank’s retail loan products. HDFC Bank holds 97.4% shares in HDBFS.

SBI

PRODUCT AND SERVICES

Personal Banking

 Deposits
 Loans
 Cards
 Investments
 Insurance
 Demat Services
 Wealth Management

39
NRI Banking

 Money Transfer
 Bank accounts
 Investment
 Property Solutions
 Insurance
 Loans

Business Banking

 Corporate net banking

 Cash Management
 Trade Services
 FX Online
 SME services
 Online Taxes
 Custodial services

SUBSIDIARIES

SBI has five associate bank; all use the State Bank of India logo, which is a blue circle, an all
use the “State Bank of India” name, followed by the regional headquarters’ name”:

40
  State Bank of Bikaner & Jaipur
 State Bank of Hyderabad
 State Bank of Mysore
 State Bank of Patiala
 State Bank of Travancore

NON SUBSIDIARIES

Apart from its five associate banks, SBI also has the following Non-banking subsidiaries:

 SBI Capital Markets Ltd

 SBI Funds Management Pvt Ltd
 SBI Factors & Commercial Services Pvt Ltd
 SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)
 SBI DFHI Ltd
 SBI Life Insurance Company Limited
 SBI General insurance

4.2 SWOT ANALYSIS

41
HDFC

STRENGTH

 First Private life insurance Company who got license by IRDA.

 Domestic image of HDFC supported by Standard life’s international image is strength
of the company.
 Strong and well spread network of qualified intermediaries and salesperson.
 Strong capital and reverse base.
 The company provides customer service of the highest order.
 Huge basket of product range which are suitable to all age and income groups.

WEAKNESSES

 Less number of branches compare to nearest competitors.

 Heavy management expenses and administrative costs.
 Lower customer confidence on the private players.
 Poor retention percentage of tied up agents.

OPPORTUNITIES

 International companies will help in building world class expertise in local markets by
introducing the best global practices.
 There will be inflow of managerial and financial expertise from the world’s leading
insurance markets.
 The burden of educating consumers will also be shared among many players.

THRATES

42
  Poaching of customer base by other companies.
 People have more trust on big public sector insurance companies like Life insurance
Corporation (LIC) of India, Oriental insurance Ltd., New India Assurance Company
Ltd., etc.
 Other private insurance companies also aim for the same uninsured population.

SBI

STRENGTH

SBI has largest bank in India in terms of market share, revenue and assets

 As per recent data the bank has more than 13,000 outlets and 25,000 ATM centres.
 The bank has its presence in 32 countries engaging currency trade all over the world.
 The bank has a merged with State Bank of Saurashtra, State Bank of Indore and the
bank is planning to go further acquisition in the current financial year 2012.
 SBI has the first mover advantage in commercial banking service.
 SBI has recently changed its vision and mission statements showing a sign of
inclination towards new age banking services.

WEAKNESSES

 Lack of proper technology driven services when compared to private banks.

 Employees show reluctance to solve issues quickly due to higher job security and
customer’s waiting period is long when compared to private banks.
 The banks spends a huge amount on its rented buildings.
 SBI has the largest number of employees in banking sector, hence the banks spends a
considerable amount of its income in employee’s salary compensation.
 In spite of modernization, the bank still carries the perception of traditional bank to
new age customer.
 SBI fails to attract salary accounts of corporate and many government sector
employees salary accounts are also shifted to private bank for ease of operations
unlike before.

43
OPPORTUNITIES

 SBI’s merger with five more banks namely State Bank of Hyderabad, State Bank of
Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore and State Bank of
Mysore are in approval stage.
 SBI is planning to expand and invest in international operations due to good inflow of
money from Asian market.
 Mergers will result in expansion of market share to defend its number one position.
 Young and talented pool of graduates and B schools are in rise to open new horizon to
so called “old government bank”.

THRATES

 This shows the reduce in market share to its close competitor ICICI other private
banks like HDFC, AXIS bank etc.
 FDIs allowed in banking sector is increased to 49%, this is a major threat to SBI as
people tend to switch to foreign banks for better facilities and technologies in banking
service.
 Other government banks like PNB, Andhra, Allahabad bank and Indian bank are
showing.
 Customer prefer to switch to private banks and financial service providers for loans
and mortgages, as SBI involves stringent verification procedures and take long time
for processing.

44
4.1 PROFIT AND LOSS ACCOUNT

HDFC BANK

STATEMNET OF PROFIT AND LOSS ACCOUNT AS ON

Particulars Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014
( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr
INCOME :
Interest Earned 80241.36 69305.96 60221.45 48469.90 41135.53
Other Income 15220.30 12296.50 10751.72 8996.35 7919.64
Total 95461.66 81602.46 70973.17 57466.25 49055.17
II. Expenditure
Interest 40146.49 36166.73 32629.93 26074.24 22652.90
expended
Payments 6805.74 6483.66 5702.20 4750.96 4178.98
to/Provisions
for Employees
Operating 4802.03 4453.22 3998.66 3396.44 2968.47
Expenses &
Administrative
Expenses
Depreciation 906.34 833.12 705.84 656.30 671.61
Other 16103.75 11526.63 9298.61 7259.60 5811.16
Expenses,
Provisions &
Contingencies
Provision for 10107.25 7916.97 6507.59 5204.03 4269.41
Tax
Deferred Tax -896.68 -327.54 -165.88 -91.23 24.27
Total 95461.66 81602.46 70973.17 57466.25 49055.17
III. Profit &
Loss
Reported Net 17486.73 14549.64 12296.21 10215.92 8478.38
Profit
Adjusted Net 17486.73 14549.64 12296.21 10208.55 8476.19
Profit
Profit brought 32668.94 23527.69 18627.79 14654.15 11132.18
forward
IV.
Appropriations
Transfer to 4371.68 3637.41 3074.05 2553.98 2119.59
Statutory
Reserve
Transfer to 1939.99 1772.67 1443.25 1274.05 909.32
Other Reserves
Trans. to 3390.58 -1.69 2879.02 2414.25 1927.49
Government
/Proposed
Dividend
Balance carried 40453.42 32668.94 23527.69 18627.79 14654.15

45
forward to
Balance Sheet
Equity 650.00 550.00 475.00 400.00 342.50
Dividend %
Earnings Per 67.38 56.78 46.70 39.13 34.18
Share-Unit
Curr

46
SBI BANK

STATEMENT OF PROFIT AND LOSS ACCOUNT AS ON

Particulars Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014
( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr
INCOME :
Interest Earned 220499.32 175518.24 163998.30 152397.07 136350.80
Other Income 44600.69 35460.93 27845.37 22575.89 18552.92
Total 265100.01 210979.17 191843.67 174972.96 154903.72
II. Expenditure
Interest 145645.60 113658.50 106803.49 97381.82 87068.63
expended
Payments 33178.68 26489.28 25113.82 23537.07 22504.28
to/Provisions
for Employees
Operating 10959.58 8384.64 7696.25 7232.57 6519.86
Expenses &
Administrative
Expenses
Depreciation 2919.47 2293.31 1700.30 1116.49 1333.94
Other Expenses, 87924.92 45298.26 36755.73 26391.04 21303.13
Provisions &
Contingencies
Provision for 673.54 4033.29 3577.93 6689.95 4227.46
Tax
Deferred Tax -9654.33 337.78 245.47 -477.56 1055.25
Total 265100.01 210979.17 191843.67 174972.96 154903.72
III. Profit &
Loss
Reported Net -6547.45 10484.10 9950.65 13101.57 10891.17
Profit
Extraordinary -28.73 -25.82 -11.54 -27.88 -25.70
Items
Adjusted Net -6518.72 10509.92 9962.19 13129.45 10916.87
Profit
Profit brought 0.32 0.32 0.32 0.32 0.34
forward

IV.

47
Appropriations
Transfer to 0.00 3145.23 2985.20 4029.08 3339.62
Statutory
Reserve
Transfer to 2123.74 4923.93 4612.63 5994.56 5013.39
Other Reserves
Trans. to 0.00 2414.94 2352.84 3077.93 2538.18
Government
/Proposed
Dividend
Balance carried -8670.88 0.32 0.32 0.32 0.32
forward to
Balance Sheet
Equity 0.00 260.00 260.00 350.00 300.00
Dividend %
Earnings Per 0.00 12.76 12.39 16.97 141.88
Share-Unit Curr

48
4.2 BALANCESHEET STATEMENT

HDFC BANK

BALANCESHEET OF HDFC BANK

BASED ON LAST FIVE YEARS

Particulars Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014
( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr
SOURCES OF
FUNDS :
Capital 519.02 512.51 505,64 501.30 479.81
Reserve Total 105775.98 88949.84 72172.13 61508.12 42998.82
Deposits 788770.64 643639.66 546424.19 450795.64 367337.48
Borrowings 123104.97 74028.87 84968.98 45213.56 39438.99
Other Liabilities & 45817.45 56830.80 36818.98 32557.39 41402.97
Provisions
Total Liabilities 1063988.06 863961.68 740889.92 590576.01 491658.07
Application Of
Funds:
Cash & Balances 104670.47 37896.87 30058.31 27510.45 25345.63
With RBI
Balances with 18244.61 11055.22 8860.53 8821 14238.01
Bank & Money at
Call
Investments 242200.24 214463.34 195836.28 151641.75 120951.07
Advances 658333.09 554568.20 464593.96 303000.27 239720.64
Fixed Assets 3607.20 3626.74 3343.16 3121.73 2939.92
Other Assets 36932.43 42351.30 38197.69 33986.03 25183.17
Miscellaneous
Expenditure not
written off
Total Assets 1063988.04 863961.67 740889.93 590575.99 491658.85
Contingent 875488.22 817869.58 853318.11 975233.95 723154.92
Liability
Bill for Collection 42753.83 30848.04 23490 22304.93 20943.06

49
SBI

BALANCESHEET OF SBI BANK

BASED ON LAST FIVE YEARS

Particulars Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014
( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr
SOURCES OF
FUNDS :
Capital 892.46 797.35 776.28 746.57 746.57
Reserve Total 218236.10 187488.71 143498.16 127691.65 117535.68
Deposits 2706343.29 2044751.39 1730722.44 1613264.64 1431079.90
Borrowings 362142.07 317693.66 323344.59 168678.90 146459.49
Other Liabilities 167138.08 155235.19 163185.42 141113.87 98748.45
& Provisions
Total Liabilities 3454752 2705966.30 2361526 2051495.63 1794570.00
Application Of
Funds:
Cash & 150397.18 127997.62 129629.33 115883.84 84955.66
Balances With
RBI
Balances with 41501.46 43974.03 37838.33 38871.94 47593.97
Bank & Money
at Call
Investments 1060986 765979.38 575651 481758 398799.57
Advances 1934880 1571078 1463700 1300026 1209828
Fixed Assets 39992.25 42918.92 10389.28 9329.16 8002.16
Other Assets 226994.20 154007 144317.75 105625.54 45390.01
Miscellaneous 0.00 0.00 0.00 0.00 0.00
Expenditure not
written off
Total Assets 3454752 2705966 2361526 2051495 1794570
Contingent 1162020 1046440 971956 1000627 1017329
Liability
Bill for 74027.90 65640.42 92211.65
Collection

50
4.3 RATIO ANALYSIS

1) Demand Deposit Ratio

The sum of money that is given to a bank but can be withdrawn as per the requirement of the
depositor.

Amounts that are lying in the savings and current accounts are known as demand deposits
because they can be used at any point of time. Demand Deposit Ratio= Demand Deposit/
Total Deposit

Year HDFC SBI

2015 19.92 14.92
2016 22.24 15.24
2017 22.27 14.04
2018 19.41 11.78
Mean 20.96 13.95
SD 1.90 2.85
CV 10.12 20.35

RATIO ANALYSIS
25

20

15

10

0
2015 2016 2017 2018

HDFC SBI

As shown in table the ration of demand deposit is more in HDFC bank (20.96) Demand
Deposit is more in HDFC bank than in SBI it may be because no interest is paid on these

51
accounts except in special cases where a large dormant balance is kept which could otherwise
be transferred to the savings deposits.

2) Saving Deposit Ratio

Accounts that pay interest and can be withdrawn on upon demand Offered by banks, credit
unions, and Savings and Loans. Saving Deposit Ratio = Saving Deposit/ Total Deposit.

RATIO ANALYSIS
40

35

30

25

20

15

10

0
2015 2016 2017 2018

HDFC SBI

Year HDFC SBI

2015 24.45 26.71
2016 29.79 32.01
2017 29.99 35.36
2018 30.31 35.37
Mean 28.63 32.36
SD 2.92 4.15
CV 9.95 12.78

52
As shown in table the ratio of savings deposit to total deposit is maximum in case of SBI
(32.36) it is an account at a bank in which the customer deposits money for any non-
immediate use. For example, one may utilize a savings deposit to save funds for an expensive
purchase, such as a house or a car. Because most customers keep money in a savings deposit
for a longer period than a checking account, a savings deposit pays a slightly higher interest
rate.

3) Net Interest Margin

A measure of the return on a Company’s investments relative to its interest expenses. The net
interest margin helps a company determine whether or not it has made wise investment
decisions. A negative net interest margin indicates that interest expenses exceed investment
returns and that the company therefore has a net negative return. A positive net interest
margin indicates the opposite. Net Interest Margin = (Interest Received-Interest Paid)/ total
Assets

Year SBI HDFC

2015 2.3 4.2
2016 2.4 3.9
2017 2.9 4.1
2018 3.3 3.9
Mean 2.72 4.02
SD 0.46 0.15
CV 17.04 3.72

4.5

3.5

2.5

1.5

0.5

0
2015 2016 2017 2018

SBI HDFC

53
As shown in table NIM of HDFC is more than others i.e. 4.02 which shows that interest
earned by HDFC bank is much more than expended and other banks are earning less interest.
Interest earned by bank is there foremost income which is more in case of HDFC and other
banks following are almost at same level and chart shows that there is very less variation in
case of HDFC bank and more variation in SBI bank.

4) Credit Deposit Ratio:

The proportion of loans generated by banks from the deposits received. Credit Deposit Ratio
= Credit/ Deposit

Year SBI HDFC

2015 26.71 24.45
2016 32.01 29.79
2017 35.36 30.42
2018 35.37 29.99
Mean 32.36 28.66
SD 4.08 2.82
CV 12.62 9.84

40

35

30

25

20

15

10

0
2015 2016 2017 2018

SBI HDFC

54
As per the SBI bank is issuing maximum credit as per the deposits generated against
maximum in case of HDFC.

5) DEBT EQUITY RATIO

The debt-to-equity ratio (debt/equity ratio, D/E) is a financial ratio indicating the relative
proportion of entity’s equity and debt used to finance an entity’s assets. If the ratio is
increasing, the company is being financed by creditors rather than from its own financial
sources which may be a dangerous trend. A debt-to-equity ratio is calculated by taking the
total liabilities and dividing it by the shareholder’s equity: Debt-to-equity ratio= Debt/Equity

Year SBI HDFC

2015 15.4 10.1
2016 14.9 8
2017 16.7 8.7
2018 14.8 9
Mean 15.45 8.95
SD 0.87 0.87
CV 5.65 9.76

18

16

14

12

10

0
2015 2016 2017 2018

SBI HDFC

As shown in the table debt equity is ratio is maximum in case of SBI, and variation is least in
case of HDFC.
55
6) RETURN ON ASSETS

Return on assets is the ratio of annual net income to average total assets of a business during
a financial year. It measures efficiency of the business in using its assets to generate
net income. ROA= Net Income/ Total Assets

Year SBI HDFC

2015 0.8 1.2
2016 0.8 1.3
2017 0.6 1.4
2018 0.8 1.5
Mean 0.75 1.35
SD 0.1 0.12
CV 13.33 9.56

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2015 2016 2017 2018

SBI HDFC

As shown in the table ROA is highest is case of HDFC 1.35 respectively and variation is
more in case of SBI. This return is related with overall profitability.

56
7) RETURN ON EQUITY

One of the most important profitability metrics is return on equity (or ROE for short). Return
on equity reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet. ROE= Net Income/ Shareholders Fund

Year SBI HDFC

2015 15.1 14.9
2016 14.1 13.9
2017 12.8 15.6
2018 14.4 17.4
Mean 14.1 15.45
SD 0.96 1.47
CV 6.82 9.5

20

18

16

14

12

10

0
2015 2016 2017 2018

SBI HDFC

As shown in table ROE is maximum in case of HDFC 15.45 has least variation in this and
SBI is having more variation.

57
8) CAPITAL ADEQUECY RATIO

Capital adequacy ratio is the ratio which determines the bank’s capacity to meet the time
liabilities and other risks such as credit risk, operational risk etc. CAR is similar to leverages,
in the most basic formulation, it is comparable to the inverse of debt-to-equity leverage
formulations (although CAR uses equity over assets instead of debt-to-equity, since assets are
by definition equal to debt plus equity, a transformation is required). Unlike traditional
leverage, however, CAR recognize that assets can have different levels of risk.

Year SBI HDFC

2015 14.3 15.7
2016 13.4 17.4
2017 12 16.2
2018 13.9 16.5
Mean 13.4 16.45
SD 1.00 0.71
CV 7.48 4.34

20

18

16

14

12

10

0
2015 2016 2017 2018

SBI HDFC

In this case HDFC BANK has the capacity to meet the time liabilities and other risks such as
credit risk, operational risk etc. at 16.45

58
9) OPERATING MARGIN RATIO

Operating margin ratio or return on sales ratio is the ratio of operating income of a business
to its revenue. It is profitability ratio showing operating income as a percentage of revenue.
Operating Margin= Operating Profit/ Total Revenue

Year SBI HDFC

2015 19.5 19.87
2016 16.96 24.36
2017 16.97 30.58
2018 16.29 27.19
Mean 17.43 25.5
SD 1.41 4.53
CV 8.12 17.77

35

30

25

20

15

10

0
2015 2016 2017 2018

SBI HDFC

As shown in table operating margin of HDFC is maximum 25.5 followed by operating

margin is directly concerned with profitability, SBI is least variable is more variable which
states that SBI bank’s profitability doesn’t change much.

59
10) NET PROFIT MARGIN RATIO

Net profit margin is the percentage of revenue remaining after all operating expenses,
interest, taxes, and preferred stock dividends (but not common stock dividends) have been
deducted from a company’s total revenue. Net Profit Margin = Net Profit/ Total Revenue

Year SBI HDFC

2015 12.03 11.35
2016 10.54 14.76
2017 8.55 16.09
2018 9.73 15.93
Mean 10.21 14.53
SD 1.46 2.20
CV 14.31 15.15

18

16

14

12

10

0
2015 2016 2017 2018

SBI HDFC

As per table HDFC bank enjoys more net profit than other bans at 14.

60
CHAPTER 5. CONCLUSION AND SUGGESTION

5.1 FINDINGS OF THE STUDY

5.2 SUGGESTONS

5.3 CONCLUSTIONS

61
5.1 FINDINGS OF THE STUDY

Real core bank activities for generating the income to the possible extent, whereas, the
public sector banks are not.

1. It is found that net profit margin and Adjusted Cash Margin of both banks registered a
low level of volatility .The Return on Net Worth(RNW) and Adjusted Return on Net
worth (ARNW)of SBI and HDFC was found almost with similar trend.3
2. It is found that the deposits of SBI are superior to HDFC Bank. This is because of the
confidence of the people in SBI as it is largest public sector bank in India. The
volumes of Demand Deposits of SBI and HDFC Bank are almost similar, but the
volume of savings and term Deposits are significantly differing.
3. It is found that the loans and advances, term loans, and short term loans of SBI are
greater than HDFC Bank as SBI is having a greater network and customer base.
4. The operating profit per share of SBI and HDFC reported a mixed trend. It is due to
dynamics in the business profit of the individual banks.
5. The net operating per share of SBI is found declining where as, HDFC bank reported
very least growth as the operating profit of SBI differed significantly from HDFC
bank.
6. It is found that Other Income over the Total Income of SBI is very high in percent
when compared to HDFC. It can be concluded that the private banks concentrate on
7. Interest Expended/Interest Earned of HDFC followed a declining trend, where the SBI
reported a gradual increase in the same over the study period.
8. In the case of Advance/Loan Funds ratio SBI reported a poor performance, whereas,
HDFC Bank experienced an opposite trend.
9. The volume of profit of SBI and HDFC Bank are very satisfactory as they are more
than degree of 1. But comparatively, the profits before provisions are significant in
the case of HDFC bank.
10. The research work provides the key findings according to the data analysis. • It is concluded
that, the Average Credit Deposit ratio of SBI is 83% and it indicates that out of every 100
Deposited, 83 being lent.
11. It is clear from the Deposit to Total Assets ratio that around 76% of Total Assets is being
funded by Deposits.
12. The maximum Multiplier Ratio was registered at 3827.11 in the year 2015-16 and the
minimum Multiplier Ratio was registered at 1659.22 in the year 2009-10.

62
13. It is understand that the Average Return on Equity ratio is 20.16 during the study period. • It
can be concluded from the Interest Expenses ratio that the SBI always maintains the
percentage of excess of interest earned over interest expended at around 35%.
14. It is clear that, the Average of Profit Margin ratio comparing the Interest earned and Net
income is 11% during the study period. S SUBALAKSHMI et al.: FINANCIAL RATIO
ANALYSIS OF SBI [2009 - 2016] 704
15. The maximum of Net Interest margin ratio of SBI is 0.03 in the years 2010-11, 2011-12,
2012-13 and 2013-14 and the minimum Net interest Margin ratio of SBI is 0.02 in the years
2009-10, 2014-15 and 2015-16.

16. The Maximum of NPA to Advance ratio was registered at 2.98% and the minimum of NPA to
Advance ratio was registered at 1.63 in the year 2015-16 and 2010-11 respectively

63
5.2 SUGGESTIONS

On the basis of the analysis and interpretations of the collected data, the researcher has identified
some suggestions for consideration. On the basis of the study the following suggestions are given to
the State Bank of India to improve their performance.

• In contrast, large banks generally lack sufficient deposits to fund their main business dealing with
large companies, governments, other financial institutions, and wealthy individuals. Most borrow the
funds they need from other major lenders in the form of short term liabilities which must be
continually rolled over. This is known as liability management, a much riskier method than asset
management. The SBI should maintain enough liquidity to cover any unforeseen fund requirements
because its Credit Deposit ratio is 83% which means that out of every Rs.100 deposited Rs.83 being
lent. So there is a need to maintain sufficient liquidity.

• The Average Equity Multiplier Ratio is higher in SBI, this indicates that more Assets are funded by
Debt than the Equity, involves more risky for the investors and SBI is highly levered with Debts. So
the SBI should concentrate on their Equity Fund by attracting large investors to invest in their equity
shares. • The Average Profit Margin Ratio is 11%. This is very low to the SBI and indicates the
expenses are higher. So the SBI need to prepare efficient budget to cut off the expenses. If the
expenses are high, it will create adverse impression in the minds of the shareholders, so the SBI must
concentrate on it.

• The Maximum of NPA to Advance ratio was registered at 2.98% and the minimum of NPA to
Advance ratio was registered at 1.63 in the year 2015-16 and 2010-11 respectively. The NPA of SBI
are in increasing trend which shows in SBI bank there are more chances to convert debtors in NPA to
bad debts in the near future too.

• Interest Expended to Interest Earned ratio of SBI is less satisfactory. It is suggested that the SBI
Bank may take some steps to increase the interest earning capacity of the bank, by inviting more
deposits from public.

• The suggestions offered would enable the SBI to take necessary steps to improve the performance of
the SBI.

64
In order to improve their financial performance, the SBI and HDFC banks are advised the
following based on the analysis.

 The minimum balance for Saving Account in HDFC Bank should be reduced from
RS.10000 to RS. 1000so that people who are not financially strong enough can
maintain their account properly.

 The banks should motivate and impart right knowledge about banking to their staff.

 The bank have to fundamentally reorient its business models by moving from product
centric silos to customer centric strategies.

 The bank must become more clients centric by leveraging sophisticated insights to
improve risk management pricing, channel performance and client satisfaction.

65
5.3 CONCLUSIONS

The present research work dealt with the performance of SBI with reference to Ratio analysis and
Percentage analysis. There is a sufficient progress in the SBI and the overall performance of the Bank
is good. The performance of SBI bank has been analysed in detail in terms of deposit mobilization,
loans and advances, investment position, non-performing assets, earnings and profitability efficiency.
According to the analysis, the SBI is maintaining the required standards and running profitability. SBI
have more profitability because it enters into the industry as well as commercial market also and
regularly it improving the service quality level. In this highly competitive global environment it is
imperative for the SBI bank to show outstanding performance in various parameters

 It is very important to study the profitability of the banking sector. It is only profits
that make the banking sector healthy and strong.

 The comparative analysis of the profitability of the two banks clearly reveals that
there is no significant difference in the financial performance in terms of profitability
ratios of SBI and HDFC.

 Therefore, profitability ratios are employed by management in order to assess how

efficiently they carry on their business operations and also it is suggested for the
entire bank to take effective steps to improve the operating efficiency of the business

 Moving to a centralized modern core system was a competitive requirement for the
State Bank Of India. As they saw from their nationalized brethren, those who did not
do so would lose share to the privately held and foreign banks .

 Bank looking to reduce IT cost should consider moving to an open system that
can provide the reliability, and availability that largest banks in the world require.

66
 Introduction of Infinia Credit Card has enhanced the prospects of India in Global
Banking Industry and also strengthened the position of HDFC Bank as the leading
player .

67
ANNEXURE

QUESTIONNAIRE FOR BANK MANAGER OF HDFC & SBI

Q.1 Say something about some specific features of your bank?

Q.2 Say something related to structure of your bank?

Q.3 How the HDFC/SBI Bank earn more profit other than public /private sector bank?

Q.4 What are the strategy used for increasing your profit?

Q.5 From which branch you get more profit than other branches?

Q.6 Tell me about your one of the best policy used by the bank and their positive effects on
your profitability?

Q.7 From which source you get more income?

Q.8 Which kind of people prefer your bank?

Q.9 For which kind of purpose the people prefer your bank?

Q.10 Which kind of steps you take to increase your profitability?

Q.11 How your bank maintain brand image?

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Q.12 What are the major area of expenses?

Q.13 Which steps you take for minimize your expenses?

Q.14 How they affects your profitability?

Q.15 Which year is more profitable for your bank?

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WEBLIOGRAPHY
www.hdfc .com

www.sbi.com

BIBLIOGRAPHY
Annual Reports of HDFC Banks

Annual Reports of SBI Bank

GROUND WORK
HDFC Bank, new panvel Branch.

SBI Bank, wagle estate Branch.

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