Business Policy, Income and Expense Analysis

Business policy:
Business Responsibility has been a significant tenet for growth. In an
environment with growing recognition for businesses contributing to
community development, HDFC Bank has progressed further in their efforts
towards inclusive growth and development of the communities they operate
in.
Having evaluated the performance in Business Responsibility last year, they
moved steadily towards improving their systems and processes in order to
adopt an inclusive approach.
At HDFC Bank, governance of Sustainability, Corporate Social Responsibility
(CSR) and Business Responsibility is driven by a Board-level CSR Committee
which is entrusted with formulating, revising and updating their CSR Policy. It
governs the implementation of all CSR initiatives with due compliance to
Section 135 of Companies Act, 2013. The aim is to integrate community
development, responsible governance, stakeholder inclusiveness and
environmental responsibility into business practices and operations.
The four main aspects of Business Responsibility at HDFC Bank are Ethical
Governance, Stakeholder Engagement and Environmental and Social
Responsibility.
The business policy has a firm commitment towards making a difference in
the lives of the people and contributing to the welfare of the society. This
includes empowerment of individuals through sustainable livelihood
initiatives, other financial inclusion initiatives as well as community
development initiatives in the areas of education and skilling through
donations and grants.
In FY 2013-2014, HDFC bank has spent 0.83% of profit after tax (for the year
ending 31 March 2014) towards these initiatives and approximately 1.34% of
average profit after tax for the last three financial years. With the new
Section 135 enacted by the Companies Act 2013, we have formulated our
CSR Policy and identified areas of intervention. Training and orientation
programs are being devised to ensure that employees understand the social
and environmental impact of the Bank, the fundamentals of sustainability
and how it can move towards becoming a more sustainable organisation.
Over the next few years, HDFC aims to drive concentrated efforts towards a
sustainable journey resulting into equitable growth and development for both
business and the society.

Income Analysis:
YEAR

INTEREST
INCOME

OTHER INCOME

TOTAL INCOME

2006-07

7055.35 (80.7%)

1679.21 (19.3%)

8734.56 (51%)

2007-08

10530.43 (80.8%)

2495.94 (19.2%)

13,026.37 (49%)

2008-09

16,584.01
(81.7%)

3,700.65 (18.3%)

20,284.66 (55.7%)

2009-10

16,467.92
(81.7%)

4,573.63 (18.3%)

20,168.57 (-0.57%)

2010-11

20,380.77
(80.4%)

4,945.23 (19.6%)

25,326 (25.6%)

2011-12

27,874.19
(82.8%)

5,783.62 (17.2%)

33,657.81 (32.8%)

2012-13

35,064.87
(83.6%)

6,852.62 (16.4%)

41,917.49 (24.5%)

2013-14

41,135.54
(83.9%)

7,919.64 (16.1%)

49,055.18
(17.02%)

Amount is in Crores.

The major income sources for the bank include the interest it earned
from several sources like loans, investments, and deposits with RBI,
plus commissions and brokerage it earned for certain services. This is
also the case with most banks.

The other income sources for the bank include commission,

exchange and brokerage, profit on sale of investments, revaluation of
investments, sale of building and other assets, exchange/derivative
transactions, income earned by way of dividends and other misc
income.

The eight years data shows Interest income is the major source of
income for the bank and it has varied in between 80-84% share of the
Total income.

The Other Income has varied in between 16-19% share of total income.

The percentage share of Other Income is showing a decreasing trend

and Interest Income is showing an increasing trend in the past 4 years.

Total income was Rs 8734.56 Cr in the financial year 2007 and it is Rs

49055.18 Cr in the financial year 2013-14. So the Total average growth
of total income in study period is 32% app.

Expense Analysis:
YEAR

INTEREST EXP

OPERATING
EXP

OTHER EXP

TOTAL
EXPENSES

200607

3179.45
(37.3%)

2975.08
(34.8%)

2379.86
(27.9%)

8534.39 (58%)

200708

4887.12
(37.6%)

4311.03
(33.2%)

3785.63
(29.2%)

12983.78 (52%)

200809

8911.1 (44.2%)

5950.54
(29.5%)

5301.87
(26.3%)

20163.51
(55.2%)

200910

7786.3 (37.8%)

6475.71
(31.5%)

6321.24
(30.7%)

6321.24 (30.7%)

201011

9385.08
(39.5%)

7780.02
(32.7%)

6576.74
(27.7%)

23741.84
(15.3%)

201112

14989.58
(49.4%)

9274.64
(30.5%)

6100.96
(21.1%)

30365.18
(27.9%)

201213

19253.75
(54.7%)

11236.11(31.9
%)

4701.34(13.35
%)

35191.21(15.9%
)

201314

22652.90
(55.8%)

12042.20(29.7
%)

5881.70
(14.5%)

40576.80
(15.3%)
4

Amount is in Crores.

Unlike manufacturing or services companies that spend a lot of money

on raw materials and employees respectively, the biggest expense for
a bank is the interest it pays on its own borrowings (which is its raw
material).

The major expense of the Total expenses are in the form of Interest
Expended on deposits from individual depositors like public,
borrowings from the RBI and other banks, and other interest. The
operating expense is the next highest expense and the rest of the part
is other expenses.

The percentage share of Interest Expense is showing an increasing

trend over the years studied from financial year 2007 to 2014. It has
varied in between 37-56% share of the total expenses.

The percentage share of Operating Expense is more or less constant

over the years. Mostly it has shown a decreasing trend between two
consecutive years. It has varied in between 29-35% share of the total
expenses.

The percentage share of Other Expense has varied in between 14-28%.

Total expenditure was Rs 8534.39 Cr in the financial year 2007 and it is

Rs 40576.80 Cr in the financial year 2013-14. So the Total average
growth of total expenditure in the study period is 34% app.

NPA Analysis
Year

Gross
NPA(Million)

%Growth

Net NPA(Million)

% Growth

2004

3356.1

279.5

2005

4391.7

30.86%

606.3

116.92%

2006

5088.9

15.88%

1551.8

155.95%

2007

6577.6

29.25%

2028.9

30.74%

2008

9069.7

37.89%

2985.2

47.13%

2009

19880.8

119.20%

6276.2

110.24%

2010

18218.9

-8.36%

3946.3

-37.12%
5

2011

16984.8

-6.77%

3541.9

-10.25%

2012

20031.7

17.94%

3541.9

0.00%

2013

23739.2

18.51%

18,829.10

431.61%

2014

31007.5

30.62%

22,223.90

18.03%

We can see that Gross NPA and Net NPA are increasing apart from years like
2010 and 2011. Also they do not particularly exhibit any parallel trends .

Net NPA Vs Net Advance :

Year

Net NPA/ Net

Advances

2004

0.16

2005

0.24

2006

0.44

2007

0.43

2008

0.47

2009

0.63

2010

0.31

2011

0.19

2012

0.18

2013

0.2

2014

0.27

Net NPA/Net Advance ratios are decreasing from 2010.

Prior to that till 2009 it is increasing irregularly. There is a sharp increase in
this ratio in 2008- 2009. This ratios reflects overall wellbeing of the banks
loan book. Higher the ratio higher is the number of bad quality of loans.

NPA Asset Classification :

NPA assets are classified in three categories

Sub Standard Asset

Doubtful Asset

Lost Asset
The table below shows the amount of asset in each category and their
yearly growth
Substand
ard asset
(Millions)

Year
2004

2005

%
Growth

565.5

1642.2

Doubtful
Asset
(Millions)

%
Growt
h

2059
190.40
%

731.6

1716.1

16.65
%

1033.4

41.25
%

1301.4

25.93
%

1760.7

35.29
%

2235.4

26.96
%

2006

2921.4

77.90
%

866.1

49.53
%

2007

3759.4

28.68
%

1057.5

22.10
%

6084

61.83
%

750.3

29.05
%

2008

Loss
(Millions)

%
Growt
h

16474.7

170.79
%

1858

147.6
3%

1548.1

30.75
%

10640.9

35.41
%

3593.4

93.40
%

3984.6

157.3
9%

7439.6

30.08
%

4777.7

32.96
%

4767.5

19.65
%

2012

9,692.80

30.29
%

5,755.40

20.46
%

4583.5

3.86%

2013

9,508.50

-1.90%

9,209.50

60.01

5,021.20

9.55%

2009

2010

2011

%
2014

15,345.0
0

61.38
%

11,142.2
0

20.99
%

4,520.30

9.98%

10

Loss Assets increased at a constant rate over the years indicating stability.
But There is high volatility in substandard assets. Doubtful assets are
increasing every year and from 2008 it is growing at faster pace than the
previous years.
Doubtful Assets:
Doubtful assets can be further classified into three categories

D1

D2

D3

The below table shows the data for the same from 2009 onwards
Year
2009

D1
(Millions)

Growth(%
)

1610.1

D2
(Millions)

Growth(%
)

206.1

D3
(Millions)

Growth(
%)

41.8

2010

3079.1

91.24%

203.6

-1.21%

310.7

643.30
%

2011

3602.4

17.00%

896.7

340.42%

278.6

-10.33%

2012

3,535.10

-1.87%

1,854.80

106.85%

365.50

31.19%

2013

4,953.40

40.12%

3,309.50

78.43%

946.6

158.99
%

2014

4,035.20

-18.54%

5,809.90

75.55%

1,297.10

37.03%

11

12

Elasticity of Credit
Elasticity of credit w.r.t to GDP denotes % change in credit associated with %
change in GDP. It is essential to know the link between these two because it
helps a bank to formulate policies based on GDP growth rate.
Model Summary

Model
1

Adjusted R Std. Error of

R Square
Square
the Estimate

.973a

.947

.
.944 2213612257
303

a. Predictors: (Constant), LOG_GDP

As per regression analysis on the data points taken since the inception of
HDFC Bank, R-square value of 94.7% indicates that the model is fairly
accurate in predicting the elasticity of credit and in more precise terms, the
model explains 94.7% variability of data around its mean.
Coefficientsa

Unstandardized
Coefficients
Model
1

Std. Error

(Constant
)

-15.570

1.137

LOG_GDP

3.025

.173

Standardize
d
Coefficients
Beta

.973

Sig.

-13.700

.000

17.451

.000

a. Dependent Variable: LOG_CREDIT

Coefficient of LOG_GDP comes out to be 3.025 which indicates that 1%

change in GDP is associated with 3.025% change in credit of HDFC bank. So,
the elasticity of credit is 3.025 with respect to GDP.
Elasticity of credit for banking industry is 1.28. If we compare elasticity of
credit of HDFC bank with that of the banking industry, it can be concluded
13

that credit elasticity of HDFC bank is more than that of banking industry. So,
GDP growth rate affects HDFC bank more than an average bank in the
industry i.e. a positive GDP growth leads to much higher credit by HDFC bank
and its business gets fortified with GDP growth.

14

Elasticity of CD Ratio
Elasticity of CD ratio w.r.t to GDP denotes increase in CD ratio associated
with % change in GDP. It is essential to know the link between these two
because it helps a bank to formulate policies based on GDP growth rate.
Model Summary

Model

.898a

Adjusted R Std. Error of

R Square
Square
the Estimate
.806

.795

.06976

a. Predictors: (Constant), LOG_GDP

As per regression analysis on the data points taken since the inception of
HDFC Bank, R-square value of 80.6% indicates that the model is fairly
accurate in predicting the elasticity of credit and in more precise terms, the
model explains 80.6% variability of data around its mean.
Coefficientsa

Unstandardized
Coefficients
Model
1

Std. Error

(Constant
)

-2.405

.358

LOG_GDP

.459

.055

Standardize
d
Coefficients
Beta

.898

Sig.

-6.714

.000

8.402

.000

a. Dependent Variable: CD_RATIO

Coefficient of LOG_GDP comes out to be 0.459 which indicates that 1%

change in GDP is associated with increase of 0.01*.459 in CD ratio of HDFC
bank. So, the elasticity of CD ratio is 0.459 with respect to GDP.
Elasticity of CD ratio for banking industry is -0.023947. If we compare
elasticity of CD ratio of HDFC bank with that of the banking industry, it can
be concluded that CD ratio increases with positive GDP growth for HDFC
15

bank while CD ratio decreases with positive GDP growth for banking industry.
Also, magnitude of increase in CD ratio is much higher for HDFC bank.

16

Appendix
8. Elasticity of Credit & CD Ratio

CREDIT & CD ELASTICITY.sav

CD_OUTPUT.doc

CREDIT_OUTPUT.do
c

CREDIT VS GDP AND NPA VS GDP GROWTH

The rapid increase in credit in an economy is now commonly perceived to be
one of the leading indicators of financial instability. This view has been
reinforced by the aftermath of the international financial crisis, which
commenced mid 2007. A key policy response has been to focus on the ratio
of private sector credit to GDP for an economy, observing, in particular,
significant deviations be-tween the actual and long-run trends of the ratio
As a result of the established link between credit booms and financial crises,
excessive credit growth is now generally considered a reliable early warning
indicator. Traditionally, for most western countries, the amount of credit
provision in an economy was directly related to the level of deposits within
17

the financial system. However, over the past 10 to 15 years, financial

innovation saw the link between credit and deposits broken with the
consequent result of a general increase in credit provision. This sizeable
build-up of credit has been identified by many as being one of the main
contributing factors to the financial crisis, which originated in mid 2007. As a
result, greater attention is now focusing on determining what the steadystate level of credit should be for an economy and benchmarking this against
the actual levels which pertain at a point in time
From a macro prudential perspective, the ratio of private sector credit to GDP
has become an increasingly popular benchmark of the sustainable levels of
credit
In examining the ratio of credit to GDP, we determine the presence of a
number of different states in the relationship between these variables over
the period . Based on this analysis, we determine the steady-state
relationship between credit and GDP and then perform scenario analysis to
see what would have happened to if credit in the economy had grown more
in line with deposit level growth over this period.
In modeling a relationship between credit and GDP, it has been observed by
researchers that there may have been significant benefits to linking credit
expansion with that of deposits. analysis suggests that had credit growth
been set relative to deposits in the pre-crisis period, by late 2008/early 2009
the level of GDP would have been higher than the actual level.
As a result of the established link between credit booms and financial crisis,
excessive credit growth is now generally considered a reliable early warning
indicator. The issue in calibrating an early warning indicator is identifying
credit growth that is justifiable based on economic fundamentals, and credit
growth that may be deemed excessive.

YEAR

GDP in
Crores

CREDIT
in crores

2000

2,246,276

3462

CREDIT
GROWTH
IN %

GROSS
NPA in
crores

GDP
GROWTH
in %

NPA
GROWTH
in %

121

18

2001

2,342,774

4636

33.91

146

4.30

20.66

2002

2,472,052

6813

46.96

222

5.52

52.05

2003

2,570,690

11754

72.52

265

8.45

19.37

2004

2,777,813

17745

50.97

335

8.06

26.42

2005

2,971,464

25556

44.02

439

6.97

31.04

2006

3,253,073

35061

37.19

508

9.48

15.72

2007

3,564,364

46944

33.89

657

9.57

29.33

2008

3,896,636

63426

35.11

906

9.32

37.90

2009

4,158,676

98883

55.90

1988

6.72

119.43

2010

4,516,071

125831

27.25

1816

8.59

-8.65

2011

4,937,006

159983

27.14

1694

9.32

-6.72

2012

5,243,582

195420

22.15

1999

6.21

18.00

2013

5,503,476

239,720

22.67

2334

4.96

16.76

2014

5,764,553

303,000

26.40

2988

4.74

28.02

RELATIONSHIP BETWEEN GDP GROWTH AND CREDIT GROWTH

19

REGRESSION

CREDIT GROWTH=28.503+1.341*GDP
GROWTH

RELATIONSHIP BETWEEN GDP AND NPA GROWTH

Consistently rising non-performing assets (NPAs) have become a serious
concern for the Indian banking system today. A widely held notion in this
regard is that high interest rates and slowing economic activity have
impacted viability of project INVESTMENTS , thus affecting revenue streams
and in turn their ability to service debt.

20

GDP growth is an important factor that affects NPAs and there is a negative
relation: higher growth leads to lower NPAs. As the study includes lags, the
second lag also has a significant impact on NPAs.

21

REGRESSION

NPA GROWTH=24.912*0.251*GDP GROWTH

Benchmarking:
22

To analyse the performance of HDFC bank we need to make it against the

other banks in the sector. So we have selected five important banks for the
benchmarking exercise. These banks are:

HDFC Bank
With 4.2% share of India's total non-food credit disbursements in FY12,
HDFC Bank is the second largest private sector bank in the country
(after ICICI Bank) in terms of asset size. The bank has tripled its share
from 1.2% of total non-food credit in FY02 to 4.2% in FY12. Retail
assets constituted 51.3% of advances in FY12. Its group companies,
HDFC Standard Life (insurance), HDFC AMC (mutual funds) and HDFC
Securities (equities) add scalability to the bank's offerings
Bank Of Baroda
Bank of Baroda (BoB) is among the top banks in the country with a
6.8% share of the total non-food disbursals at the end of FY12. After a
brand and operating overhaul, the bank has seen accelerated growth,
enabling it to position itself favourably amongst peers. Adequate
capital (CAR of 14.7% in FY12), high NPA coverage and hedge against
interest rate risks peg the bank amongst the frontrunners in the PSU
banking space.
Punjab National Bank
Punjab National Bank (PNB) is the third largest banking entity in the
country with 7% share of the total non-food credit disbursals at the end
of FY12. Robust growth and stellar margins has pegged the bank
amongst the frontrunners in the PSU banking space. This has helped it
keep its neck above its peers.
Central Bank of India
It is one of the oldest and largest commercial banks in India. It is based
in Mumbai. The bank has 4600 branches and 4 extension counters
across 27 Indian states and three Union Territories. At present, Central
Bank of India has overseas office at Nairobi, Hong Kong and a joint
venture with Bank of India, Bank of Baroda, and the Zambian
government. The Zambian government holds 40 per cent stake and
each of the banks has 20 per cent. Recently it has also opened a
representative office at Nairobi, Kenya. Central bank of India is one of
18 Public Sector banks in India to get recapitalisation finance from the
government over the next 24 months. As on 31 March 2011, the bank's
reserves and surplus stood at 68688 million. Its total business at the
end of the last fiscal amounted to 2, 22,124 (approx.) million.
ICICI Bank
Despite being the second largest bank in the country after SBI in terms
of asset size, ICICI Bank lost its share of the banking sector's advances
from 10.2% in FY07 to 8% in FY12. At the end of March 2012, the bank
had assets of over Rs 4.8 trillion and a franchise of over 9,000 ATMs
and 2,750 branches spread across the country. Retail assets
23

constituted 34% of advances in FY12 as against 65% in FY07. The bank

is focusing on loan origination in the large corporate, SME and agrie
segments and on non-fund based products and services. Besides the
bank itself being the market leader across retail loan portfolios, its
subsidiaries ICICI Life Insurance, ICICI General Insurance and ICICI AMC
are leaders in their respective businesses
We will be accessing the critical meters of the banks against each other and
also on the aggregate industry level. This will give us the better picture of
the sector.
Fig: 1.Employee and Branches:

Fig: 2 which tells about the business per employee

24

Fig: 3 Profit per Employee:

Fig:3 which marks the profit per employee. Having a high employee count is
responsible for a low profit per employee. It is lower than new private sector
banks and comparable to Bank of Baroda and PNB.
Financials:
Fig 4 gives a picture about the capital and deposits of the banks. We can see
the relation between the advances and the deposits.
SBI

BoB

PNB

CBI

HDFC

ICICI

87%

69%

79%

76%

81%

99%

Except ICICI other banks have acceptable ratio of Advances/ Deposits. It can
be see that in other nationalised banks the ratio is even lower than SBI. It
means that they give relatively more preference to investments. But then SBI
has made adequate reserves and surplus measures to deal with NPA and bad
investments.

25

Fig: 4
Income Analysis:
Taking on the income of the banks, Fig: 5 & 6 represents the income analysis
of the banks. As the advances are high the interest income is also
proportionately high. We find that PNB despite having similar advances in
comparison to BoB still manages to get higher interest income.
Net interest margin which is a measure of the difference between the
interest income generated by banks or other financial institutions and the
amount of interest paid out to their lenders relative to the amount of their
assets. It is similar to the gross margin of non-financial companies. From Fig
7 we can interpret it for the banks.

26

Fig: 5

Fig: 6

27

Fig: 7
From the above figure we find that it is better than two of the nationalised
banks BoB and CBI. And even better than the aggregate benchmark for SBI
Associates and Nationalised banks.

Fig: 8
Return on Advances adjusted to Cost of Funds is calculated as follows:
(Return on Advances Cost of Funds)

28

Fig: 9
Due to high staff employed and higher number of branches the wages are
also high. In fact it can be seen as that this ratio is forth highest among all
the banks.
Important Ratios:

Fig: 10
ROE is the he amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability
29

by revealing how much profit a company generates with the money

shareholders have invested. ROE is expressed as a percentage and
calculated as:
Return on Equity = Net Income/Shareholder's Equity
Here HDFC it is better than others in consideration. It is even better than the
industry average. IT means that the stock is giving better returns to the
shareholders.

Fig 11
ROA indicates how profitable a company is relative to its total assets. The
return on assets (ROA) ratio illustrates how well management is employing
the company's total assets to make a profit. The higher the return, the more
efficient management is in utilizing its asset base. The ROA ratio is
calculated by comparing net income to average total assets, and is
expressed as a percentage. Here HDFC and ICICI bank are better in
performance than all the other banks.

30

Fig:12
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. In the simple formulation, a bank's capital is the cushion for potential
losses, and protects the bank's depositors and other lenders. Banking
regulators in most countries define and monitor CAR to protect depositors. In
this case it is comparable to the Nationalised banks but lower than private
sector banks due to their risk appetite.
Another related parameter is Net NPA which can be seen in the fig: 13.

Fig: 13.
Latest Trends and Analysis:
31

Over past few months, we have seen strong revival in foreign fund flows
and buoyant equity markets riding on the belief of green shoots emerging for
pick up in industrial activity bolstered by a strong pro-business government.
However, asset quality improvement is likely to take next one-two quarters.
We believe private banks will fare well due to better risk management
practices, strong traction in liabilities (well set to capture growth phase) and
robust capital position. - Edelweiss
The important points highlighted are:
HDFC Bank

Loan growth to surpass industry, albeit slower than its historical record
given muted activity in the corporate segment.

Margins to remain stable to moving upwards given benefits of lower

cost of funds.

Fee income to continue to grow below trend owing to challenges in the

retail segment and high base of last year on forex income.

Cost ratios to start inching up post several quarters of consolidation

putting pressure on PPOP growth.

Asset quality to be stable keeping credit costs benign

State Bank of India

Margins to remain largely under pressure due to focus on the lowyielding corporate and mortgage segments though to be offset by
better margins in the international book

Domestic loan growth to be tepid in line with industry. However, global

growth will be aided by the overseas branches.

Focused efforts on cost efficiencies

improvement in cost-to-income ratio.

Slippages to marginally come off from Q1 levels. However, guidance on

future restructuring is important post cancellation of the coal blocks.

will

continue,

leading

to

Bank of Baroda

Domestic loan growth will be slower than historical track record,

reflecting muted credit off-take. Loan growth to be still higher at ~17%,
supported by overseas branches and rupee depreciation.

Domestic margins to marginally come off owing to lower CD ratio and

slower growth in the high-yielding SME portfolio.

Asset quality performance to remain better than peers; however,

slippages could increase QoQ given slippages from the restructured
asset book. Fresh restructuring will start tapering off.
32

Punjab National Bank

Domestic loan growth to be muted at 10% in line with industry. Global

growth estimates to be ~14%, driven by growth in overseas balance
sheet supported by rupee depreciation.

Deposit growth to track loan growth with CASA moving up ~9% and
term deposit clocking 14% growth.

Reported profit growth to spurt substantially due to absence of MTM

provision.

After the drop in fresh restructuring in Q1, restructuring is expected to

pick up in Q2. Slippages will remain at elevated levels. However,
intensified recovery efforts will translate into better recovery
performance.

ICICI Bank

Loan growth to exceed industry growth rates at ~14%, supported by

higher growth in retail at ~20%, which will offset slower traction seen
in corporate segment.

Margins to be stable to improving, a reflection of improved liability

profile.

Fee income to grow in line with balance sheet; though crystallisation of

foreign currency translation reserves could lend support.

Asset quality trend to be stable to improving in line with current

guidance. However, future guidance critical given the backdrop of coal
block cancellation.

Financial Ratio Analysis

Financial ratios are useful indicators of a firm's performance and
financial situation. These ratios help us to

To know whether the company is making enough profit or not

To evaluate the financial strength of the company
To judge the ability of the company to generate enough cash and
cash equivalents and their timing
33

To know the future growth prospects

Ratios can be classified into

Return on Investment (ROI) ratios

Solvency ratios
Liquidity ratios
Efficiency or Turnover ratios
Profitability ratios

Some Key Ratios

201
4

201
3

201
2

201
1

201
0

200
9

200
8

200
7

200
6

200
5

200
4

200
3

Credit-Deposit(%)

81.
79

80.
14

78.
06

76.
02

72.
44

66.
64

65.
28

66.
08

65.
79

64.
87

55.
89

46.3
9

Investment / Deposit (%)

35.
05

38.
51

36.
99

34.
45

37.
85

44.
43

47.
29

47.
51

51.
81

57.
99

62.
05

63.4
3

Cash / Deposit (%)

6.0
2

5.4
6

8.8
1

10.
79

9.3
5

10.
71

10.
43

6.7
5

6.4
6

7.7
8

8.7
6

8.23

Interest Expended / Interest

Earned (%)

55.
07

54.
91

53.
78

47.
09

48.
14

54.
56

48.
32

47.
83

43.
11

42.
53

47.
51

59.2

Other Income / Total Income

(%)

16.
14

16.
35

17.
18

17.
87

19.
76

17.
53

18.
42

19.
35

21.
33

19.
12

16.
16

18.8
5

Operating Expenses / Total

Income (%)

24.
55

26.
81

27.
56

29.
48

29.
47

28.
85

30.
21

30.
29

31.
3

30.
46

27.
02

23.3
4

Interest Income / Total Funds

(%)

9.2
2

9.5

9.0
6

7.9
7

7.9
7

10.
32

9.0
1

8.0
6

7.1
6

6.5
9

7.42

Interest Expended / Total Funds

(%)

5.0
8

5.2
2

4.8
7

3.7
5

3.8
4

5.6
3

4.3
5

3.8
6

3.0
8

2.8

3.3
2

4.39

Net Interest Income / Total

Funds (%)

4.1
4

4.2
8

4.1
9

4.2
2

4.1
3

4.6
9

4.6
6

4.2
1

4.0
7

3.7
9

3.6
7

3.0
3

Non Interest Income / Total

Funds (%)

1.7
8

1.8
6

1.8
8

1.7
3

1.9
6

2.1
9

2.0
3

1.9
3

1.9
4

1.5
6

1.3
5

1.72

Operating Expenses / Total

Funds (%)

2.7

3.0
4

3.0
2

2.8
6

2.9
3

3.6
1

3.3
4

3.0
3

2.8
5

2.4
8

2.2
5

2.13

Profit before Provisions / Total

Funds (%)

3.2
2

3.1

3.0
5

3.0
9

3.1
7

3.2
7

3.3
5

3.1
1

3.1
6

2.8
6

2.7
7

2.62

Net Profit / Total funds (%)

1.9

1.8
2

1.6
8

1.5
7

1.4
5

1.4
2

1.4
2

1.3
8

1.3
9

1.4
2

1.4

1.43

RONW (%)

21.
28

20.
34

18.
69

16.
74

16.
12

16.
91

17.
74

19.
46

17.
74

18.
46

20.
64

18.5
1

Key Ratios

34

Credit-Deposit (%)
It indicates how much of a bank's core funds are being used for lending, the
main banking activity. We could see from 2010 onwards there is a higher
ratio which indicates more reliance on deposits for lending.
Credit-deposit ratio, Investment/Deposit & Cash/Deposit ratio are debt
coverage ratios. The debt coverage ratio is used in banking to determine a
companies ability to generate enough income in its operations to cover the
expense of a debt
Return on Net worth (RONW)
It reveals how much profit a company generates with the money that the
equity shareholders have invested. If we compare RONW for HDFC bank with
other banks we could see that RONW for HDFC is higher than most of the
banks.
Interest expense ratio (Interest Expenses to Total Income)
Interest-Expense Ratio is a measurement of financial efficiency and is
determined based on information derived from a business or farm
operations financial statements specifically using the financials that
determine gross farm income. The lower the percentages the better, a
business or farm should be no higher than 5% to be considered strong. A
Interest-Expense ratio higher than 10% indicates that the business or farm is
spending too much of its gross income paying interest on borrowed money.

35