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AN OVERVIEW OF HDFC BANK LTD

HDFC PROFILE The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in

retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities.

With its experience in the financial markets,

a strong market

reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

HDFC Bank began operations in 1995 with a simple mission : to be a World Class Indian Bank. We realized that only a single minded focus on product quality and service excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal.

TECHNOLOGY USED IN HDFC BANK In the era of globalization each and every sector faced the stiff competition from their rivals. And world also converted into the flat from the globe. After the policy of liberalization and RBI initiatives to take the step for the private sector banks, more and more changes are taking the part into it. And there are create competition between the private sector banks and public sector bank.

Private sector banks are today used the latest technology for the different transaction of day to day banking life. As we know that Information Technology plays the vital role in the each and every industries and gives the optimum return from the limited resources.

Banks are service industries and today IT gives the innovative Technology application to Banking industries. HDFC BANK is the leader in the industries and today IT and HDFC BANK together combined they reached the sky. New technology changed the mind of the customers and changed the queue concept from the history banking transaction. Today there are different channels are available

for the banking transactions.

We can see that the how technology gives the best results in the below diagram. There are drastically changes seen in the use of Internet banking, in a year 2001 (2%) and in the year 2008 ( 25%). These type of technology gives the freedom to retail customers.

Centralized Processing Units Electronic Processing Straight Through

Derived Economies of Scale Reduced Transaction Cost

Data Warehousing , CRM Innovative Technology Application

Improve cost efficiency, Cross sell Provide new or superior products

HDFC BANK is the very consistent player in the New private sector banks. New private sector banks to withstand the competition from public sector banks came up with innovative products and superior service.

HDFC BANK PRODUCT AND CUSTOMER SEGMENTS

PERSONAL BANKING

Loan Product

Deposit Product

Investment & Insurance

Auto Loan Loan Against Security Loan Against Property Personal loan Credit card 2-wheeler loan Commercial vehicles finance Home loans Retail business banking Tractor loan Working Capital Finance Construction Equipment Finance Health Care Finance Education Loan Gold Loan Cards

Saving a/c Current a/c Fixed deposit Demat a/c Safe Deposit Lockers

Mutual Fund Bonds Knowledge Centre Insurance General and Health Insurance Equity and Derivatives Mudra Gold Bar

Payment Services

Access To Bank

Credit Card Debit Card

NetSafe Merchant

NetBanking OneView

Prepaid Card

------------------------------Forex Services ------------------------------ Product & Services Trade Services Forex service Branch Locater RBI Guidelines

Prepaid Refill Billpay Visa Billpay InstaPay DirectPay VisaMoney Transfer eMonies Electronic Funds Transfer Online Payment of Direct Tax

InstaAlert MobileBanking ATM Phone Banking Email Statements Branch Network

WHOLESALE BANKING

Corporate

Small and Medium Enterprises Funded Services Non Funded Services Specialized Services Value added services Internet Banking

Financial Institutions and Trusts BANKS Clearing Sub-Membership RTGS submembership Fund Transfer ATM Tie-ups Corporate Salary a/c Tax Collection Financial Institutions Mutual Funds Stock Brokers Insurance Companies

Funded Services Non Funded Services Value Added Services Internet Banking

Commodities Business Trusts

BUSINESS MIX

Total Deposits Revenue

Gross Advances

Net

Retail

Wholesale

HDFC Bank is a consistent player in the private sector bank and have a well balanced product and business mix in the Indian as well as overseas markets.

Customer segments (retail & wholesale) account for 84% of Net revenues ( FY 2008)

Higher retail revenues partly offset by higher operating

and credit costs. Equally well positioned to grow both segments.

BUSINESS STRETEGY

HDFC BANK mission is to be

"a World Class Indian Bank",

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

and prime objective of the bank.

HDFC BANK business strategy emphasizes the following : Increase market share in Indias expanding banking and

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

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INSIDE HDFC BANK

FIVE S , PART OF KAIZEN WORK PLACE TRANSFORMATION Focus on effective work place organization Believe in Small changes lead to large improvement

Every successful organization have their own strategy to win the race in the competitive market. They use some technique and methodology for smooth running of business. HDFC BANK also aquired the Japanese technique for smooth running of work and effective work place organization.

Five S Part of Kaizen is the technique which is used in the bank

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For easy and systematic work place and eliminating unnecessary things from the work place.

BENEFIT OF FIVE S

It can be started immediately. Every one has to participate. Five S is an entirely people driven initiatives. Brings in concept of ownership. All wastage are made visible.

FIVE S Means :S-1 S-2 S-3 S-4 S-5 SORT SYSTEMATIZE SPIC-N-SPAN STANDARDIZE SUSTAIN SEIRI SEITON SEIRO SEIKETSU SHITSUKE

(1) SORT :It focus on eliminating unnecessary items from the work place. It is excellent way to free up valuable floor space. It segregate items as per require and wanted.

Frequently Required

Less Frequently Required

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Wanted but not Required

Remove everything from workplace

Junk

Junk

(2) SYSTEMATIZE :Systematize is focus on efficient and effective Storage method. That means it identify, organize and arrange retrieval. It largely focus on good labeling and identification practices. Objective :- A place for everything and everything in its place.

(3) SPIC- n - SPAN :Spic-n-Span focuses on regular clearing and self inspection. It brings in the sense of ownership.

(4) STANDERDIZE :It focus on simplification and standardization. It involve standard rules and policies. It establish checklist to facilitates autonomous maintenance of workplace. It assign responsibility for doing various jobs and decide on Five S frequency.

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(5) SUSTAIN:It focuses on defining a new status and standard of organized work place. Sustain means regular training to maintain standards developed under S-4. It brings in self- discipline and commitment towards workplace organization.

LABELLING ON FILE

FILE NUMBER SUBJECT FROM DATE TO DATE OWNER

BOX LABEL For Example 1/3/A/6

1 Work Station (1) 3 Drawer (3)

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A - Shelf (A) 6 File Number ( 6)

COLOUR CODING OF FILES

DEPARTMENT

Welcome Desk

Personal Banker Teller Relationship Manager Branch Manager Demat Others

In the HDFC BANK each department has their different color coding apply on the different file. Due to this everyone aware about their particular color file which is coding on it and they save their valuable time. It is a part of Kaizen and also included in the system of the Five S. Logic behind it that , the color coding are always differentiate the

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things from the similar one.

HUMAN RESOURCES

The Banks staffing needs continued to increase during the year particularly in the retail banking businesses in line with the business growth. Total number of employees increased from 14878 as of March31,2006 to 21477 as of March 31, 2007. The Bank continues to focus on training its employees on a continuing basis, both on the job and through training programs conducted by internal and external faculty.

The Bank has consistently believed that broader employee ownership of its shares has a positive impact on its performance and employee motivation. The Banks employee stock option scheme so far covers around 9000 employees.

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RUPEE EARNED - RUPEE SPENT

It is more important for every organization to know about from where and where to spent money. And balanced between these two things rupee earned and rupee spent are required for smooth running of business and financial soundness. This type of watch can control and eliminate the unnecessary spending of business. In this diagram it include both things from where Bank earned Rupee and where to spent.

HDFC BANK earned from the Interest from Advances 51.14 % ,

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Interest from Investment 27.12 %, bank earned commission exchange and brokerage of 15.25 %. These are the major earning sources of the bank. Bank also earned from the Forex and Derivatives and some other Interest Income.

Bank spent 39.75 % on Interest Expense, 30.27 % on Operating Expense and 14.58 % on Provision. Bank also spent Dividend and Tax on dividend, Loss on Investment , Tax.

As we discuss above that balancing is must between these two for every organization especially in the era of globalization where there are stiff competition among various market players.

Capital Structure
Summary information on the main features of all capital instruments eligible for inclusion under Tier I and Tier II capital : Capital funds are classified into Tier I and Tier II capital under the capital adequacy framework. Tier I capital includes paid-up equity capital, statutory reserves, other disclosed free reserves, capital reserves and innovative perpetual

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debt instruments (Tier I bonds) eligible for inclusion in Tier I capital that comply with the requirements specified by RBI. Elements of Tier II capital include revaluation reserve, if any, general provision for standard assets, upper Tier II instruments and subordinated debt instruments (lower Tier II bonds) eligible for inclusion in Tier II capital. The Bank has issued debt instruments that form part of Tier I and Tier II capital. The terms and conditions that are applicable for these instruments comply with the stipulated regulatory requirements. The Bank considers the following risks as material risks it is exposed to in the normal course of its business and therefore, factors these while assessing / planning capital :

Market Risk Operational Risk Interest Rate Risk in the Banking Book Liquidity Risk Intraday Risk Credit Concentration Risk Business Risk Strategic Risk Compliance Risk Reputation Risk Technology Risk

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Credit Risk

Credit Risk Management Credit risk is defined as the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. In a bank's portfolio, losses stem from outright default due to inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, settlement and other financial transactions. Architecture The Bank has a comprehensive credit risk management architecture. The Board of Directors of the Bank endorses the credit risk strategy and approves the credit risk policies of the Bank. This is done taking into consideration the Bank's risk appetite, derived from perceived risks in the business, balanced by the targeted profitability level for the risks taken up. The Board oversees the credit risk management functions of the Bank. The Risk Policy & Monitoring Committee (RPMC), which is a committee of the Board, guides the development of policies, procedures and systems for managing credit risk, towards implementing the credit risk strategy of the Bank. RPMC ensures that these are adequate and appropriate to changing business conditions, the structure and needs of the Bank and the risk appetite of the Bank.

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The Bank's Credit & Market Risk Group drives credit risk management centrally in the Bank. It is primarily responsible for implementing the risk strategy approved by the Board, developing procedures and systems for managing risk, carrying out an independent assessment of credit risk, approving individual credit exposures and monitoring portfolio composition and quality. Within the Credit & Market Risk group and independent of the credit approval process, there is a framework for review and approval of credit ratings. With regard to the Wholesale Banking business the Bank's risk management functions are centralised. In respect of the Bank's Retail Assets business, while the various functions relating to policy, portfolio management and analytics are centralised, the underwriting function is distributed across various geographies within the country. The risk management function in the Bank is clearly demarcated and independent from the operations and business units of the Bank. The risk management function is not assigned any business targets.

Credit Process

There are two different credit management models within which the credit process operates - the Retail Credit Model and the Wholesale Credit Model. The Retail Credit Model is geared towards high volume, small transaction size

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businesses where credit appraisals of fresh exposures are guided by statistical models, and are managed on the basis of aggregate product portfolios. The Wholesale Credit Model on the other hand, is relevant to lower volume, larger transaction size, customised products and relies on a judgemental process for the origination, approval and maintenance of credit exposures. The credit models have two alternatives for managing the credit process - Product Programs and Credit Transactions. In Product Programs, the Bank approves maximum levels of credit exposure to a set of customers with similar characteristics, profiles and / or product needs, under clearly defined standard terms and conditions. This is a cost- effective approach to managing credit where credit risks and expected returns lend themselves to a templated approach or predictable portfolio behavior in terms of yield, delinquency and write-off. Given the high volume environment, automated tracking and reporting mechanisms are important here to identify trends in portfolio behavior early and to initiate timely adjustments. In the case of credit transactions, the risk process focuses on individual customers or borrower relationships. The approval process in such cases is based on detailed analysis and the individual judgement of credit officials, often involving complex products or risks, multiple facilities / structures and types of securities. The Bank's Credit Policies & Procedures Manual and Credit Programs, where applicable, form the core to controlling credit risk in various activities and products. These articulate the credit risk strategy of the Bank and thereby the approach for credit origination, approval and maintenance. These policies define

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the Bank's overall credit granting criteria, including the general terms and conditions. The Policies / Programs generally address such areas as target markets / customer segmentation, qualitative-quantitative assessment parameters, portfolio mix, prudential exposure ceilings, concentration limits, price and non-price terms, structure of limits, approval authorities, exception reporting system, prudential accounting and provisioning norms, etc. They take cognisance of prudent and prevalent banking practices, relevant regulatory requirements, nature and complexity of the Bank's activities, market dynamics etc. Credit concentration risk arises mainly on account of concentration of exposures under various categories including industry, products, geography, underlying collateral nature and single / group borrower exposures. To ensure adequate diversification of risk, concentration ceilings have been set up by the Bank on different risk dimensions, in terms of :

Borrower / business group Industry Risk grading The Risk Policy & Monitoring Committee sets concentration ceilings and the Credit and Market Risk Group monitors outstandings for each dimension and ensures that the portfolio profile meets the approved concentration limits. These concentration ceilings and outstandings are periodically reported to the Board. The regulatory prudential norms with respect to ceilings on credit exposure to

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individual borrowers or group of borrowers also ensure that the Bank avoids concentration of exposure. As an integral part of the credit process, the Bank has a fairly sophisticated credit rating model appropriate to each market segment in Wholesale Credit. The models follow principles similar to those of international rating agencies. In Retail Credit, score cards have been introduced in the smaller ticket, higher volume products like credit cards, two wheeler loans and auto loans. For the other retail products which are typically less granular or have higher ticket sizes, loans are underwritten based on the credit policies, which are in turn governed by the respective Board approved product programs. All retail portfolios are monitored regularly at a highly segmented level. Top management monitors overall portfolio quality and high-risk exposures periodically, including the weighted risk grade of the portfolio and industry diversification. Additional to, and independent of, the internal grading system and the RBI norms on asset classification, the Bank has a labeling system, where individual credits are labeled based on the degree of risk perceived in them by the Bank. Remedial strategies are developed once a loan is identified as an adversely labeled credit.

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SWOT ANALYSIS

STRENGTH Right strategy for the right products. Superior customer service vs. competitors. Great Brand Image Products have accreditations. High degree satisfaction. of required customer

WEAKNESSES Some gaps in range for certain sectors. Customer training. service staff need

Processes and systems, etc Management cover insufficient. Sectoral growth is constrained by low unemployment levels and competition for staff

Good place to work Lower response time with efficient and effective service. Dedicated workforce aiming at making a long-term career in the field.

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Opportunities

Threats

Profit margins will be good. Could extend broadly. Could seek deals. to overseas

Legislation could impact. Great risk involved Very high competition prevailing in the industry. Vulnerable to reactive attack by major competitors

New specialist applications. better customer

Fast-track career development opportunities on an industrywide basis. An applied research centre to create opportunities for developing techniques to provide added-value services.

Lack of infrastructure in rural areas could constrain investment. High volume/low cost market is intensely competitive.

Questionnaire for a Bank

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1. What is the system of paper filing and preserving the same ? 2. What is your Credit policy? Are there differential credit policies? If yes, what are they? 3. Do you follow the RBI guidelines? Has RBI sent u notice regarding the failure to follow RBI norms? 4. Is there any special credit policy for the employees? Does the employee get loan easily? 5. Do you give importance to the suggestions of the customers? 6. How do you tend to understand costumer satisfaction? 7. How do other the departments co-ordinate with the finance department? 8. What do you do when there is less money in the bank account of the customer? 9. How fast are the customer problems solved if any? And who addresess such problems? 10. What are the other facilities provided by your bank to its customers which makes it better than other banks ? 11. When does the salary of the employees get credited in ther bank accounts? Is there any time delay in giving salary? 12. What is the procedure of leave approvals and who approves the leave of the employee? 13. Is there any kind of complaint box sort of for lodging the complaints? If yes than how are the problems resolved? 14. Are there any social or cultural events organized for the employees? If yes than what sort of events are organized? 15. Is there any special Code of Conduct for your branch other than the Banks overall Code of Conduct? 16. How is the recovery of loans done by your branch? Are there any recovery agents appointed? 17. Are there any budgetary controls in effect? Whether such budgets are followed and accomplished? 18. What is the turnover of employees in your branch (Including transfers)? 19. On what basis is the promotion policy framed? Whether it is on performance of time spent with the organization? 20. Are any special services provided to the good customers of the bank? If yes than what kind of services are provided?