Camels Analysis of HDFC Bank PDF
Camels Analysis of HDFC Bank PDF
Camels Analysis of HDFC Bank PDF
PROJECT REPORT
ON
Batch: 2010-12
PREPARED BY:
And further I would like to thank all the faculty members of G.H.P.B.I.M. who have
helped me in completing my project. I have gained a lot of knowledge throughout the
course of carrying out this project.
I would like to sincerely thank my Parents and all my Friends who have helped me
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Table of contents
Chapter.
Particulars Page No.
No.
1 Introduction 1
2 HDFC bank- at a glance 3
3 CAMELS Analysis 6
3.1 Capital Adequacy 7
3.2 Assets Quality 10
3.3 Management Quality 11
3.4 Earnings 15
3.5 Liquidity 18
4 Du-Pont analysis 20
5 Share Price of the banks 23
6 Conclusions 25
7 Bibliography 27
Chapter-1
INTRODUCTION
A sound financial system is indispensable for a healthy and vibrant economy. The
banking sector constitutes a predominant component of the financial services industry and
the performance of any economy, to a large extent, is dependent on the performance of the
banks. Banking institutions in our country have been assigned a significant role in financing
the process of planned economic growth. In 1969, 14 banks were nationalized with the
objective of extending credit facilities to all segments of the economy and also to mitigate
seasonal imbalances in their availability. Since nationalization, the banking system in India
has witnessed structural and dimensional changes. A number of steps were taken in close
succession, enabling the nationalized banks to play an active role in economic
development. The second step in the process of nationalizing the banks was taken in 1980,
when six other major banks were nationalized. Directed interest rates on deposits and
lending, exchange controls, directed credit became the hallmark of this tightly regulated
new structure. Whenever the crisis occurs, why the banks start making changes in their
policies with immediate effects unlike other industries which takes time, because the
financial system is the backbone of any economy The industrialist have their own goals
irrespective of governing party of the country, and for their Projects/Business models it is
very necessary that the economic environment should be stable, so that their estimated
time and forecasted result should not be changed. Hence the financial system follows the
NEWTONS THIRD LAW i.e. it reacts very quickly with the global changes, to provide the
Times Bank Limited (owned by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India.
Shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times
Bank.
In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more
than 1,000. The amalgamated bank emerged with a base of about Rs. 1,22,000 crore and
net advances of about Rs.89,000 crore. The balance sheet size of the combined entity is
more than Rs. 1,63,000 crore.
2.2 Mission
HDFC Bank was the first bank in India to launch an International Debit Card in
association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as
well. The Bank launched its credit card business in late 2001. By March 2009, the bank had
a total card base (debit and credit cards) of over 13 million. The Bank is also one of the
leading players in the merchant acquiring business with over 70,000 Point-of-sale (POS)
terminals for debit / credit cards acceptance at merchant establishments. The Bank is
positioned in various net based B2C opportunities including a wide range of internet
banking services for Fixed Deposits, Loans, Bill Payments, etc.With Finest of Technology
and Best of Man power in Banking Industry HDFC BANK's retail services have become by
and large the best in India and since the contribution to CASAi,e total number of current
and savings account of more than 50% ,HDFC BANK has full potential to becomes Indias
No.1 Private Sector Bank.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. These services
are provided through the bank's Treasury team. To comply with statutory reserve
requirements, the bank is required to hold 25% of its deposits in government securities.
The Treasury business is responsible for managing the returns and market risk on this
investment portfolio.
Regulators, analysts and investors have to periodically assess the financial condition
of each bank. Banks are rated on various parameters, based on financial and non-financial
performance. One of the popularly used assessments goes by the acronym CAMELS.
A technique, used to rate banks on various parameters based on financial and non-
financial performance
It indicates the banks capacity to maintain capital commensurate with the nature
and extent of all types of risks, as also the ability of the banks managers to identify
measure, monitor and control these risks.
Capital adequacy ratios ("CAR") are a measure of the amount of a bank's core
capital expressed as a percentage of its risk-weighted asset.
Capital adequacy ratio is defined as
The capital adequacy ratio is increased by 2.24% in HDFC bank from FY2007 to FY2011
in comparison with Axis bank has sharp increased by just 1.08% from FY 2007 to FY
2011.
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion
of shareholders' equity and debt used to finance a company's assets. Closely related
to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components
are often taken from the firm's balance sheet or statement of financial position (so-
called book value), but the ratio may also be calculated using market values for both, if
the company's debt and equity are publicly traded, or using a combination of book value
for debt and market value for equity financially.
20
18
I 16
n 14
12
T
10
i
8
m
e 6
s 4
2
0
2007 2008 2009 2010 2011
HDFC bank 10.98 9.12 10.34 8.35 8.71
Axis bank 18.81 10.63 12.49 9.87 11.34
70
P 60
e 50
r
40
c
30
e e
n 20
t 10
a 0
2007 2008 2009 2010 2011
g
HDFC bank 51.36 47.59 53.97 56.56 57.84
Axis bank 50.3 54.26 55.2 57.76 58.7
The credit extended ratio is sharply increased in both the banks by 6% and 8% from
FY 2007 to FY 2011 in HDFC bank and Axis bank respectively.
Volume of classifications
Volume of concentrations.
It is calculated by dividing Net NPAs to Net Advances. The net NPA to loans
(advances) ratio is used as a measure of the overall quality of the bank's loan book.
An NPA are those assets for which interest is overdue for more than 90 days (or 3
months). It helps identify the quality of assets that a bank possesses
3.2.2. Net NPAs to Total Assets Ratio
P 0.4
e 0.35
r 0.3
c
0.25
e
n 0.2
t 0.15
a 0.1
g 0.05
e
0
2007 2008 2009 2010 2011
HDFC bank 0.073 0.224 0.342 0.176 0.107
Axis bank 0.363 0.226 0.221 0.232 0.169
From the above chart, we can conclude that HDFC bank has high qualities of asses
than Axis bank has. The Net NPAs in HDFC bank is lesser than Axis bank from FY 2007 to
FY 2011 which is by 0.062%.
To find the return on equity, numerator is net income and denominator is net worth.
Return on equity (ROE) measures the rate of return on the ownership interest of the
common stock owners. It measures a firm's efficiency at generating profits from every unit
of shareholders' equity. It shows how well a company uses investment funds to generate
earnings growth.
P 20
e
15
r
c 10
e e
n 5
t
0
a 2007 2008 2009 2010 2011
g HDFC bank 17.67 13.8 15.33 14.03 15.7
Axis bank 19.31 12.1 17.78 15.5 17.7
The return on equity is higher in Axis bank than HDFC bank. But it has been
decreasing from FY 2007 to FY 2011 in both the banks. So it tells that the efficiency of
generating profits is in down turn in both banks.
The efficiency ratio is decreased in HDFC bank and increased in Axis bank from FY
2007 to FY 2011. It depicts that efficiency is lower in axis bank than HDFC bank.
The Advances to Deposit Ratio also known as the Loan to Deposit Ratio is a ratio
that is widely used by banks. The total loans (which are the money lent by the bank and are
the assets of the bank) are placed in the numerator and divided by total deposits (the
money received by banks that are the liabilities of banks). This ratio shows the proportion
of deposits that is loaned out by the bank. This is a highly important measure of liquidity
for banks as banks are now required to keep a specified amount of cash as reserves for
depositors if they want to cash their deposited amounts for personal use.
The advances to deposits ratio for HDFC bank rose from 68.77% in 77.21% in 2011 as
compared to 62.73% and 75.28% for Axis bank from 2007 to 2011.
3.3.4. Net Income Productivity Ratio
This ratio is calculated by dividing the net income to the no. of employee. This ratio
shows surplus earned per employee. The higher ratio indicates better efficiency of the
management. It suggests that the most valuable use of an organizations talent is the
creation and use of intangibles. Another advantage of profit per employee is that is requires
no adjustment for accounting conventions. Since companies expense their spending on
intangibles but not on capital investments which are usually depreciated over time, profit
per employee is a conservative, output-based measure.
0.14
0.12
Rs. (In Crore)
0.1
0.08
0.06
0.04
0.02
0
2007 2008 2009 2010 2011
HDFC bank 0.06 0.05 0.04 0.06 0.07
Axis bank 0.08 0.08 0.1 0.12 0.14
The income generated by each employee is lower in HDFC bank than Axis bank. In
HDFC bank, it is increased by just 0.01 crore from FY 2007 to FY 2011 and in Axis bank, it is
increased by 0.06 crore from FY 2007 to FY 2011.
3.4 EARNINGS
This indicator shows not only the amount of and the trend in earnings, but also
analyses the robustness of expected earnings growth in future.
Return on assets compared to peer grup averages and banks own trends
Material components, and income and expenses-compare to peers and banks own
trends
Quality of earnings
The profit margin has been increasing in both banks. In HDFC bank, it is increased
by 3% from FY 2007 to FY 2011 and in Axis bank, it is increased by 4 % for the same
period.
12
10
8
Percentage
0
2007 2008 2009 2010 2011
HDFC bank 7.32 9.57 10.54 9.37 9.16
Axis bank 6.22 6.39 7.34 6.44 6.24
The profitability of the HDFC bank is higher than Axis bank from FY 2007 to FY
2011. In HDFC bank, it is 9.16% in FY 2011 which is 6.24% in Axis bank.
The net interest margin is higher in HDFC bank than Axis bank. In HDFC bank, it is
5.1% and in Axis bank, it is 2.7% in FY 2011.
Earnings per share (EPS) is the amount of earnings per each outstanding share of a
company's stock.
90
80
70
60
50
In Rs.
40
30
20
10
0
2007 2008 2009 2010 2011
HDFC bank 34.61 43.48 51.24 64.26 83.68
Axis bank 23.4 29.94 50.57 62.06 82.54
Implication of the Earnings per Share ratio is that it tells investors in what stock
their investment money should go, as EPS tells how much each dollar invested earns (this
is true if we only consider the EPSs of the different company's stocks). The EPS is higher in
HDFC bank than Axis bank by 1.14% in FY 2011.
3.5 LIQUIDITY
This measure takes into account the adequacy of the banks current and
potential sources of liquidity, including the strength of its funds management
practices.
It is calculated by dividing to total assets. This ratio indicates the liquidity position
of the bank. The higher this ratio, the bank needs to invest more in liquid assets to
meet short term obligations.
100
80
Percentage
60
40
20
0
2007 2008 2009 2010 2011
HDFC bank 66.08 65.28 66.64 72.44 76.02
Axis bank 80.24 79.97 79.46 78.22 77.97
The deposits ratio is increased in HDFC bank from FY 2007 to FY 2011 by 10%
while in Axis bank it is decreased by 3% from FY 2007 to FY 2011.
3.5.2. Cash to Deposits Ratio
It is calculated by dividing Cash and bank balance with RBI to deposits. Its similar to
the Capital Reserve Ratio (CRR). Higher the ratio, the lower is the amount that banks will
be able to use for lending and investment. Thus, it will affects the lending ability of the
bank.
The cash to deposits ratio is higher in HDFC bank than Axis bank in FY 2011. In
HDFC bank, it is increased by 4% from FY 2007 to FY 2011 while in Axis bank, it is
decreased by o.6% from FY 2007 to FY 2011.
Chapter-4
DU-PONT ANALYSIS
Du-Pont Analysis
The DuPont system for financial analysis is a means to fairly quickly and easily
assess where the business strengths and weaknesses potentially lie and thus where
management time may optimally be spent. It is not the only nor the most thorough, but it is
a fairly straight-forward and systematic means to drill back into the financial numbers to
determine the source or lack thereof for financial performance.
The Du Pont model of analysis requires no more than a few simple calculations, well
within the ability of any student, manager, or small business owner. The potential reward
for taking the time to make these calculations is great. Who would not want to know
precise actions that can be taken that will lead to higher profitability and return? Even the
original model (culminating in ROA) provides valuable insights on return, but the more
refined versions that break out the components of ROE allow even novice small business
managers to make sound financial decisions that will have a positive impact on the return
to firms owners.
PROFIT
MARGIN = NI/TI
2011 = 0.27
2010 = 0.25
2009 = 0.17
ROA = NI/TA
2011 = 0.23
2010 = 0.22
2009 = 0.26
ASSETS
ROE = Net
TURNOVER
Income/NW
RATIO =TI/TA
2011 =15.7 % 2011 = 4.65
2010 = 14.0% 2010 = 4.24
2009 = 15.33% 2009 = 5.0
EM= TA/NW
2011 = 10.86
2010 = 10.31
2009 = 12.49
Du-Pont analysis of Axis bank
Profit Margin =
NI/TI
2011 = 0.171
ROA = NI/TA 2010 = 0.161
2011 = 0.014 2009 = 0.132
2010 = 0.014
2009 = 0.012
From the above chart, we can conclude that the ROE is higher in Axis bank as compared to
HDFC bank in FY 2011 by 2%. Along with this, Equity Multiplier is also lower in HDFC bank
as compared to Axis bank in FY 2011.
Chapter-4
(www.yahoo.finance.com)
(www.yahoo.finance.com)
From the above chart, we can conclude that the volatility in both banks is nearer to
same. The share price of both banks was down in FY 2008 and was on peak in FY 2009-10.
Chapter-5
CONCLUSIONS
CONCLUSIONS
From the capital adequacy point of view, HDFC banks performance is better than Axis bank
from FY 2007 to FY 2011. HDFC bank has maintained higher Capital adequacy for risk-
weighted assets than what Axis bank has. HDFC bank has also lower debt-equity ratio than
Axis bank. And as far as credit extended ratio is concerned, HDFC bank has higher
profitability than axis bank.
From the Assets quality point of view, The Net NPAs is lower in HDFC bank as compared to
Axis bank in FY 2011. The Net NPAS to Net Advances ratio is lower in HDFC bank which
shows its assets quality to getting bank its loan and advances.
From the Management quality point of view, the ROE is lower in HDFC bank than Axis bank
in FY 2011 which shows that the efficiency of generating profit is lower in HDFC bank than
Axis bank. While Efficiency ratio is higher in Axis bank which shows that its efficiency is
lower as compared to HDFC bank. The advances to deposits ratio is neared to same in both
banks but the risen from FY 2007 is higher in axis bank as compared to HDFC bank. The
profit per employees tells that Axis bank is better than HDFC bank which is 0.14 crore per
employee in Axis bank as compared to HDFC bank has 0.07 crore in FY 2011.
From the Earnings view point, HDFC bank is better than Axis bank. The yield on assets is
higher in HDFC bank than Axis bank in FY 2011 by 3%.While Net Interest Margin is double
in HDFC bank as compared to Axis bank in FY 2011. The Earning per Share is almost equal
in both the banks in FY 2011.
At last, the Liquidity point of view, deposits to total assets ratio is higher in Axis bank as
compared to HDFC bank in FY 2011. But it has been decreasing in Axis bank from 80.24%
in FY 2007 to 77.97% in FY 2011. The same pattern is in Cash to deposits ratio in both
banks. HDFC bank has 10.81% as compared to 7.34% in Axis bank in FY 2011.
From the Du-Pont point of view, the ROE is higher in Axis bank as compared to HDFC bank
in FY 2011 by 2%. Along with this, Equity Multiplier is also lower in HDFC bank as
compared to Axis bank in FY 2011.
From the share price point of view, we can conclude that movement in share price is not
much volatile in both banks.
Chapter-6
BIBLIOGRAPHY
Padmalatha Suresh and Justin Paul, Management of Banking and Financial Services,
Second Edition, Pearson
http://www.allbankingsolutions.com/repo.htm
http://www.investopedia.com/
http://boards.fool.com/
http://www.equitymaster.com/detail.asp
http://www.moneycontrol.com/
http://www.yahoo-finance.com/
Capitaline software