THESIS AN IN-DEPTH ANALYSIS OF HDFC BANK ON FOLLOWING AREAS FINANCE HUMAN RESOURCE

SUBMITTED TO:

SUBMITTED BY:

thesis

CERTIFICATE
TO WHOMSOEVER IT MAY CONCERN. THIS IS TO CERTIFY THAT, ACCORDING TO THE BEST OF MY KNOWLEDGE STUDENT OF INSTITUTE OF ORIGINAL THE THESIS ON : THE INDEPTH ANALYSIS OF THE HDFC BANK, NEW DELHI IN THE FOLLOWING AREAS: , ROLL NO.: ,

, INSTITUTIONAL AREA, HAS DONE IN

FINANCE HUMAN RESOURCE

DATE:

SIGNATURE

Acknowledgement

I give me tremendous pleasure in acknowledging the invaluable assistance extended to me by various persons in the successful completion of the thesis.

Firstly I wish to thanks who allowed me to work on the topic of my thesis.

Firstly I wish to thanks who allowed me to work on the topic of my choice.

I am greatly indebted to for her priceless support and guidance.

I am grateful to Of HDFC Bank Ltd. for his invaluable support in giving me details of desired information.

OBJECTIVE

TO STUDY THE NATURE AND FLOW OF PROCESSES IN A FINANCIAL SERVICE FIRM.

TO ANALYSE THE FIANANCIAL PERFORMANCE OF HDFC BANK

TO ANALYSE THE HR POLICIES OF HDFC BANK

TABLE OF CONTENTS
TOPIC SYNOPSIS INTRODUCTION CORE CONTENT METHODOLOGY FINDINGS COMPANY PROFILE FINANCE HUMAN RESOUCE SWOT ANALYSIS LIMITATIONS CONCLUSIONS RECOMMENDATIONS APPENDICES BIBLIOGRAPHY PAGE NOS.

SYNOPSIS
India has a strong financial system with a network of commercial banks, financial institutions and small financial services firms that offer leasing, merchant banking, portfolio management and bill discounting. Some 63,000 bank branches are scattered across country, many of which are located in villages. Banking is the backbone of a modern economy Health of banking industry is one of the most important pre conditions for sustained economic progress of any country. The banking structure in India can broadly be classified into public sector, private sector (old and new) and foreign banks. Banks have made a significant contribution to the economic and social development of the country. Since nationalization of banks in 1969, the Indian banking system saw phenomenal growth in terms of geographic reach and business. The acute balance of payments crisis in 1991 and the subsequent downgrading of Indian risk by international credit rating agencies encouraged the Government of India and the Reserve Bank of India to formulate reforms in banking with the advent of Narasimhan committee report along with economic reforms. Deregulation of interest rates, norms with respect to income recognition and classification of assets, removal of entry bal for new private sector and foreign banks, abolishing the practice of branch licensing and presuming a minimum of 8% capital adequacy to be achieved within a specified time frame were a few recommendations by the committee. Many of the recommendations of the committee were accepted and banks are now fast moving to achieving international beat practice as set by the Base Committee. RBI introduced the CAMELS (Capital adequacy, asset quality, management, earnings, liquidity, systems and control) accounting and capital adequacy requirements. Government securities found favour with banks due to risk aversion and banks concentrated on providing funds to industries and trade and subsequently escalated to the second phase of growth in 1998. The budget at the center and the credit policies of the RBI has some measures pertaining to the banking sector.

To succeed in todays market, a bank must adopt an ideal combination of new technologies, high standards of credit risk appraisal, treasury management, systematic improvements focused on internal control to adopt to the changing environment require rained human resources. At stages through which an individual application from travels have been described, emphasis has been given to the role played by the information system in this flow of information. The study confirms that streamlined procedures are a salient feature of the organization. The state of the art information system is a one of its kind phenomena with regards to the high levels of efficiency it is able to provide. The results of the project study depict immense opportunities for the corporation. Over 45 potential clients have been identified. The concept of providing House Building Advance (s) to employees seems to be flourishing in the corporate sector. Top management seeks to provide work motivation through such schemes, thus leading to retention of the work force. In todays competitive scenario, where companies are heading towards strategic cost management, all efforts are made to free company funds from all possible avenues. Hence, lies the inclination towards financial institutions for HBAs. However, most companies look for rates of interest lower than those prevailing in the market. Aversion towards the Deduction at source clause is also apparent. The overall result of the study is that there is strong scope for tie-ups with most of the companies contracted. The final execution rests on negotiation on the term.

Research Framework: The study involved an in-depth analysis of marketing strategies and Human Resources policies of Hutch. The framework for the research was chosen to be Exploratory in nature. Exploratory Research is that part of the overall market research which is used to discover something new. Normally in any case there can be a number of opportunities or possible problems and its is impractical to study each of them. Exploratory Research is useful in such a case to find out the most likely alternatives. These alternatives are then turned into hypothesis. Hypothesis is tentative answer to questions that services a guides for most research projects. They are derived from previous studies overdrawn from new ideas to exploratory research is, therefore, undertaken is relative to possible answers. The various means of going about for executing Exploratory Research are:

Secondary Data: When an investigator uses data which have already been collected by others, such data is called secondary data. Such data are primary data for the agency that collected them, and becomes secondary for someone else who uses this data for his own purposes. The secondary data can be obtained from journals, reports, government publications, publications of professional and research organizations, etc. This is the quickest and most economical way of collecting data. A large amount of data is collected from: o Websites o Newspapers o Magazines o Library o Books Primary Data:

Primary data are those data which are collected by the investigator himself for the purpose of a specific inquiry or study. Such data are original in character and are generated by surveys conducted by the individuals or research institutions. It was very hard to get because of busy schedule of the HR personnel. The data was collected from: Internet Dealer

Introduction
Banking Industry THE INDIAN FINAICAL SYSTEM The financial system junctions as an intermediary and facilities the flow of funds from the areas of surplus to areas of deficit. A financial system is a composition of various institutions, markets, regulations and law practices, money managers, analysts, transactions and claims and liabilities.

A Financial System

Flow of funds Seekers of Funds (meinly Business firms & Govt.)Suppliers of funds (mainly house holders)

Flow of financial Income & Financial claims

The financial system helps determine both the cost and volume of credit. Following are the various functions performed by a financial system: The savings functions Liquidity functions Payments functions Risk functions Policy functions Financial Markets: A financial market can be defined as a market in which financial assets are created or transferred. These markets are classified as money market (where the instruments dealt are of short term maturity) and capital market (the instruments dealt are of long term maturity). Money Market:

These markets deal with instruments that have a maturity period of less than 1 year. These are further sub divided into following: 1. Call Money Market: It is in this market that Banks and other participants borrow loans for a very short period i.e. for 1 to 15 days. 2. Treasury Bills or Government Securities Market: This is a market for teaching in instruments issued by the Central Government, State Government and treasury bills issued by the RBI. 3. Market for Commercial paper (CP) and certificate of deposit (CD). Commercial paper are short term, unsecured promissory notes issued at a discount to the face value by well known companies that are financially strong and carry a high rating. Certificates of deposits are defined as short term deposits by way of unasked promissory notes having a short maturity of not less than 3 months and not more than one year. 4. Money Market Mutual Funds (MMMF):

MMFs are mutual funds that invest primarily in the money market. This helps even a small investor to invest in the money markets.

Capital Market:

This market deals with instruments that have a maturity period greater than one year. It is further divided into: Primary Market: This is the market where new securities are issued by companies and are purchased by the investors. Secondary Market: This market deals with trading of outstanding securities. This market operates via the medium of Stock Exchanges.

BANKING SYSTEM
The Banking system is an integral Sub system of the financial system. It represents an important channel of connecting small savings from the households and lending it to the corporate sector.

The Indian Banking system has the Reserve Bank of India (RBI) as the apex body for all matters relating to the banking system. It is the Central Bank of India. It is the banker to all other banks.

Functions of RBI: 1. Currency issuing authority. 2. Banker to the Government 3. Banker to other banks 4. Framing of monetary policy 5. Exchange control 6. Custodian of foreign exchange and gold reserves 7. Development activities 8. Research and Development in the banking sector. Following is the classification of banks: 1. Non scheduled Banks: These are banks which are not included in the second schedule of the Banking Regulation Act, 1965. It means they do not satisfy the conditions laid down by that schedule. They are further classified as follows: i) ii) Central Co-operative Banks & Primary Credit Socieities. Commercial Banks

2. Scheduled Banks: Scheduled Banks are banks which are included in the second schedule of the Banking Regulation Act, 1965. According to this schedule a scheduled bank.

(a) (b)

Must have paid up capital reserve of not less than Rs. 5,00,000/Must also satisfy the RBI that its affairs are not conducted in a

manner detrimental to the interest of its depositors. Scheduled banks are sub divided as: 1. State co-operative Banks: 2. These are co-operative owned and managed by the state. 3. Commercial banks. 4. These are business entities whose main business is accepting deposits and extending loans. Their main objective is profit maximization and adding shareholder value. These are further sub divided as: 1. Indian Banks: These banks are companies registered in India under the companies Act. Their place of origin is in India. These are also sub divided as: 1. State Bank of India and its subsidiaries. 2. This group comprises of the State Bank of India (SBI) and its seven subsidiaries viz. State Bank of Patiala, State Bank of Hyderabad, State Bank of Tranavcore, However, TIER-II capital can not be more than 50% of TIER 1 capital. 1. TIER-I Capital 2. This refert to the core capital that provides the most permanent and ready support against unexpected losses. Equity investments in subsidiaries, intangible assets, losses in current period and those brought formed from previous years, will be deducted from TIER I capital. Tier I capital consists of the following unemployments :1. Paid up equity capital 2. Statutory reserves 3. Other undisclosed resumes Capital reserves representing surplus arising out of sale proceeds of assets also be added to TIER I capital.

3. TIER-I Capital This consists of capital elements that are not permanent and are not readily available to meet unforeseen contingencies. Following are its components: 1. Undisclosed reserves and cumulative perpetual preferences shares. 2. Undisclosed reserves often take the character of disclosed reserves. Also when cumulative perpetual preferences shares are fully paid up 8. These are banks that were registered outside India and had originated in a foreign country. RBI Norms to be followed by Banks 1. Capital Adequate Ratio (CAR) 2. Cash Reserve Ratio (CRR) 3. Statutory Liquidity Ratio (SCR) 4. Bank Rate 5. Exposure Norms 1. Capital Adequacy Ratio (CAR): In India banks are institutions where deposits place their hard earned savings on the assumptions that the risk shall be borne by the bank. In such a scenario, the banks must have enough capital to meet unforeseen continues so that the confidence of the deposits is not shaken. To fulfill this need the RBI has laid down the norms of capital adequacy that need to be fulfilled by banks. The banks have to maintain the capital Adequacy Ratio (CAR) specified by RBI from time to time. Capital Adequacy Ratio is equal to the ratio of TIER I and TIER II capital to the aggregate of Risk weighted assets (RWA).

Thus CAR = (TIER I + TIER II)/RWA. However, TIER II capital can not be more than 50% of TIER I capital. 1. TIER CAR = TIER I + TIER II/RWA. 3. State Bank of Indore. State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Saurastra, 4. Other Nationalized Bank This group consists of private sector banks that were nationalized. The government of India nationalized 14 private banks in 1969 and another 6 in the year 1980. 5. Regional Rural Banks: These were established by the RBI in the year 1975 of Banking Commission. It was established to operate exclusively in rural areas to provide credit and other facilities to small and marginal farmer, agricultural labours, and small entrepreneurs. 6. Old Private Sector Banks: This group consists of banks that were established by the primary status, community organizations or by a group of professionals for the cause of economic betterment in their area of operations. Initially their operations cure concentrated in a few regional areas. However, their branches slowly spread throughout the national as they grew. 7. New Private Sector Banks: These banks were started as profit oriented companies after the RBI opened the banking sector to the Private Sector. These banks are mostly technology driven and better managed than other banks they take the character of equity capital. Thus they display the characteristics elements that can absorb losses.

3. Revaluation Reserves: These are profits arising increase in the market value of the assets. These can be relied in absorbing losses only if the market value of the assets they represent is subject to fewer fluctuations. Therefore, they are discounted before inclusion in TIER II capital. The minimum discount is 55%. 4. General Provisions and loss reserves: These are not attributable tot eh actual diminution in value or identifiable potential loss in any specific asset and are available potential to meet unexpected losses. Hence they can be included in TIER II capital. However, these elements will be admitted up to a manumit of 1.25% of Risk Weighted Assets. 5. Hybrid Debt Capital Instruments These are instruments that posses certain characteristics of debt and certain characteristics or equity. When they have close similarities to equity and are able to support losses continuously without trigging liquidation they can be included in TIER-II capital. 6. Subordinated Debt: For subordinated debt to be eligible for inclusion in TIER II capital it should be fully paid up, unsecured, subordinated to the claims of the creditors free of restrictive clauses and should not be redeemable at the initiative of the holder or without the consent of the banks supervisory authorities. These are discounted according to their period of maturity.

The discount to be applied is to such instruments is as follows: Rate of Maturity Beyond 5 years Between 4-5 years Between 3-4 years Between 2-3 years Between 1-2 years Between 1 years Discount 0% 20% 40% 60% 80% 100%

1. Risk weighted Assets (RWA): RWA refers to weighted aggregate of financial and non funded items as detailed below: Risk weights of funded items or balance sheet items: Nature of items 1. Cash and Balance with RBI II. Investments a. Govt. & approved securities b. Share/Debentures/Bonds/CPs MF unit. III. Current Assets a. Stock b. Inter corporate loans/Deposits c. Loans and advances fully secured by companys deposits d. Other secured advances considered good e. Bills purchased/discounted f. Others (to be specified) IV. Fined Asset a. Asset leased out b. Premises c. Furniture and fintive V. Other Asset a. Income tax deducted At source (net) b. Advance tax paid (net) c. Interest due on govt. securities d. Others (to be specified) 0 100 100 100 100 100 100 Weight 100

100

0 0 0 100

Risk weighted for non funded / off balance sheet items: Nature of Items a. financial and other guarantee b. Share/debenture under writing obligation c. Partly paid shares/debentures d. Bills discounted/rediscounted e. Lease contracts entered into but yet to be executed f. Other contingent liabilities 4. Current scenario: The CAR at present is 9%. Also TIER II capital cannot be more than 50% of TIER I capial. It is proposed to hike the CAR to 12% by 2004 based on the Base Committee recommendations. Following are the average CAR across different segments of banks. 1996-97 8.69 10.43 11.13 15.38 62.29 97-98 10.94 12.54 11.69 13.63 40.83 98-99 11.14 11.88 12.34 11.77 44.23 99-2000 11.95 12.47 13.41 31.50 Weight 100 50 100 100 100 50

National bank State Bank Group Old Pvt. Sector Bank New Pvt. Sector Banks Foreign Bank

The diminishing CAR of foreign banks indicates that their liabilities. Also the new private sector banks have kept their CAR well above the statutory limit of 9% to protect themselves norms relating to capital adequacy. Other banks have their CAR marginally above the other indicating low growth or higher capital requirement in the coming years.

2.

Cash Reserve Ratio (CRR):- CRR is the minimum reserve deposits which banks have

to compulsory keep with the RBI. These are calculated as specific percentage to Resolvable liabilities arrived at in the basis of net renewal and time liabilities (NDTL). 1. 2. Net Demand and time liabilities NOTC constitutes liabilities of banks, which it asses to the banking system and others. Thus NDTL = Liabilities to others + Net Inter Bank Liabilities (NIBL), where ] NIBC = Liabilities to Banking system Asset with Banking System. 3. Resolvable liabilities (RC): These are arrived at after subtracting all liabilities exempted from statutory reserve requirements from NDTL. 4. Exempted Liabilities: All Inter Bank Transactions are exempted for the calculation of Receivable liabilities. 5. Reporting Friday: NDTL for the calculations of reserve requirements shall be considered as on reporting Friday. Every alternate Friday is considered as reporting Friday. If reporting Friday is a holiday, then the previous working day is considered for calculations of NDTL. 6. CRR calculations. CRR rate is prescribed from time to time by the RBI. At present it is at 7.5% The cash reserve to be maintained by banks is to be highest of the following: a. 3%ofd NDTL. b. 7.5% of Resolvable Liabilities (RL) 1. Maintenance period. 2. The CRR so computed shall be required to be maintained for a fortnight. The minimum daily CRR at be maintained for a fortnight. The minimum daily CRRR at be maintained is 60% for the first seven days of the reporting week and 65% for the remaining period.

However, on the 14th day or the reporting Friday entire reserve requirement has to be met on a product basis. 3. Yields and Penalties RBI gives bank an interest of 6% on the reserve kept above 3% of NDTL with it. This means that at current CRR rate of 7.5% RBI pays interest only on the 7.5% of the deposits. It has the goal of aligning this yield with the bank rate. There can be two types of defaults: a. When the banks fail to meet the daily minimum CRR requirements for the first 13 days of the fortnight. b. Penalty in case of default is that the banks loses interest on the amount of CRR maintained on that day. c. When banks fail to meet the total reserve requirement for the fortnight. Penalty in case of dealt is interest @25% p.a. on the shortfall and also loss of interest on the amount of shortfall. 1. Statutory liquidity Ratio (SLR): According to Sec. 24(2-A) of amended Banking Regulation Act, 1949 a scheduled bank and every other banking company, shall, in addition to the cash reserves maintained by them under Sec. 42 of RBI Act, maintain reserves in cash or gold named at price not exceeding the current market price or in unencumbered approved securities valued at price determined. The banks should maintain such reserves not exceeding 40% and not less than 25% as the RBI may from time to time specify, of the total of its demand and time liabilities (NDTL), as on last Friday of the second preceding fortnight. 1. 2. 3. Calculations of SLR. A bank has to maintain : (a) 25% of NDTL or (b) 25% (current rate) of RL whichever is higher. Exempted Liabilities

4. 5.

All Inter Bank transactions are exempted for the computation of RL Maintenance period. All statutory reserves are to be maintained for a period of a fortnight. An important difference from CRR is that the SLR reserves for the fortnight will be accessed based on the NDTC of the reporting Friday of the preceding fortnight. Since NTDL is known in advances SLR figures can be calculation based on actual figures. Also unlike CRR, there is no flexibility of maintaining these reserves on average basis. They have to be maintained on a daily basis.

6.

SLR Trends (1949-2000) It can be seen that the RBI started varying the SLR only after 1970 onwards. Also the recent trend indicates downwards pressure on SLR.

7.

Bank Rate. The rate of which RBI lends to commercial banks by rediscounting bills or eligible paper is called the bank rate. It is basically the refinancing rate. the banks decide the interest rates based on the bank rate. It is also should be the RBI to control inflation. Following chart shows the

8.

Exposure Norms: The RBI has stipulated certain ceiling relating to advances and interest rates which banks have to adhere to which carrying out their lending operations. Some of them are as follows: a. Exposure to a single borrower should not exceeds 15% of advances. b. Exposure to a business group should not exceeds 40% c. Exposure to stock market should not exceed 5% of total advances as at the end of previous year.

CLASSIFCATION OF BANK

Reserve Bank of India

Scheduled Banks

Non Scheduled Banks

State Co-op-Banks

Commercial Banks

Indian Banks

Foreign Banks

Public sector Banks

Private sector Banks

Private sector Banks

SBI & its Subordiantes

Nationalized Banks

Regional Rural Banks

FUNCTIONS OF A BANK
Functioning of a bank is among the mere complicated of corporate operations. Since banking involves dealings directly with money, governments in most countries regulate this sector rather stringently. In India, the regulation traditionally has been very strict and in the opinion of certain quarters, responsible for the present condition of banks, where NPA are of a very high order. The process of financial reforms, which started in 1991 has cleared the ..somewhat but a lot remains to be done. The multiplicity of policy and regulations that a bank has to work with makes its operations even more complicated, sometimes bordering on illogical. This section, which is also intended for banking professional, attempts to give an overview of the functions in as simple manner as possible. Banking Regulation Act of India, 1949, defines Banking as accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheques, draft order or otherwise. During from this definition and view edsolely from the point of view of the customers. Banks essentially perform the following functions. 1. Accepting deposits is one of the two major activities of the banks- Banks are also called custodians of public money. Basically, the money is accepted as deposit for safekeeping. But since the banks are this money to earn interest from people who need money. Banks shall a part of this interest with the depositors. However, accepting deposits and keeping track of money involves a lot of bookkeeping and other operations. Let us see what the banks must maintain to provide this service. An effective branch network to reach the targeted customer base. A system of intra branch accounting with separate accounts for each customer A system reconciliation of the end of the study Availability of adequate funds at each branch. Trained staff for effective customer services. Infrastructures inputs like space, stationary, comfortable environment etc.

2.

Lending money to the public Lending money is one of the two major activities of any bank. In a way, the bank acts as an intermediary between the people who have the need for money to carry out business transactions. This activity places its own requirements on the resources of the Bank. For effective functioning of this, a bank must posses: Skills to appraise the potential borrowers and the activity. Legal skills for documentation. Skills to follow up of monitor the end use of money lent by it. An effective credit delivery system. Review of credit portfolio.

3.

Transfer of Money: Apart from accepting deposits and lending money, banks also carry out, on behalf of their customers the act of transfer of money both domestic and foreign from place to another. This activity is known remittance business. Banks issue, demand drafts. Bankers cheques, money orders etc. for transferring the money. Banks also have the facility of quick transfer of money also know as telegraphic transfer or little cash orders. To delivery this service, a bank must have: An effective branch network or correspondent relationships. A system of inter branch reconciliation Availability of funds at allt eh center.

4.

Trustee Business Banks also act as trustees for various purposes e.g. whenever a company wishes to issue secured debentures, it has to appoint a financial intermediary as trustee who takes charges of the security for the debenture and looks after the interests of the debenture holders. Such entity necessarily have to have expertise in financial

matters and also be of sufficient standing in the market/society to generate confidence in the minds of potential subscribes to the debenture. While banks must posses the following to be effective and retain that: 5. A track record of sufficient length. Facilities for safe keeping. Legal skills to take necessary steps for the trusteeship.

Safe Keeping Bankers are in the business of providing security to the money and valuables of the general public, while security of money is taken care of through offering various types of deposit schemes, security of valuables is provided through maiming secured space available to general public for keeping these valuables. These spaces are available in the shape of lockers. The latter are small compartments with dual locking facility built into strong cupboards. These are stored in the Banks strong room and are fully secure. Lockers can neither be opened by the hirer or the bank individually. Both must come together and use their respective keys to open the locker. To make this facility available to its customers, the Bank must provide: Physical structures to house the lockers Locker cabinets Security arrangements Record of access to lockers

6.

Government Business: Earlier Government business used to be exclusively carried out by Government treasures where all type of transactions took place. However, now banks act on behalf of the Government to accept its tan and non tan receipts most of the Government disbursements like pension payments and tax refunds also take place through banks. While the banks carry out this business for a free to be paid by the Government, providing this service requires a lot of effort and organization. The banks must provide:

Interfere with the public. Liaison with local Government departments and Govt. treasury. Arrangement for reconciliation with the Government accounts department Necessary infrastructure, stationery etc. to cater to the numbers. FRAME WORK FOR ANALYSIS OF BANKS

Banks can be broadly analysed on the following parameters. 1. Size of a Bank Usually the thumb rule is all other things remaining constant bigger than the size of a bank, the better it is. This is judged by following. 1. 2. 3. Deposits This includes the demand, time as well as savings deposits from all the sources within and outside India. Net profits. This is the final free profit available for appropriation. This can either be ploughed back or distributed as dividend. 2. Operational Efficiency: This refers to how efficiently a bank manages its business. An efficient bank will managers its business. An efficient bank will manage the same asset size at a lower cost than an efficient one. 1. 2. Interest Income/Average working funds. This refers to how much interest income, or operating income a bank can earn for every rupee spent on the working funds. The higher the ratio be better. Average working funds, are the total resources (total assets or liabilities) employed by a bank. 3. 4. Non Interest Income/Average working fund. This refers to how much other income or fee based income or income from non fund based activities a bank can earn for each rupee spent on the working funds. The higher the ratio the better. This also denotes a banks capability to work on low spreads.

5. 6.

Operating Expenses/Operating Income. This ratio denotes how much a bank has to spend on operating expenses for every rupee earned. The lesser the ratio, the better.

7.

Cost of Deposits This is the ratio of total Interest Expnaded/Total deposits. This indicates the cost of funds to a bank. Thus a bank that can obtain funds at a lower cost in a position to earn better profits in the future.

3. Earnings Quality: This parameter lays importance on how a bank earns its profits. This also explains the sustainability and growth in earnings in the future. 1. 2. Income spread/Average working funds. Income spread is the difference between interest income earned and interest expanded. This ratio shows how much a bank can earn for every rupee of working fund spent. The higher the ratio of the better. 3. 4. Operating profit/average working funds. This ratio indicates how much a bank can earn from its operations net of the operating expenses for every rupee spent on working funds. The higher the ratio, the better. 5. 6. Net profit/Assets. This ratio measures the net free profits earned for every rupee of asset owned. A higher ratio means better income generating capacity of the assets. A higher ratio indicates better earnings potential in the future. 7. 8. Net Profit/Net worth This ratio measures the return on net worth or the return on equity. This is a very important ratio for the shareholders. A higher ratio mans that the shareholders funds are utilized in a better manner than would have been elsewhere. Also, only a high return on equity justifies retention of profits.

9.

Other income/net interest income other income includes fee based income, income from non crore activities, income from non fund based exposures and other activities. This ratio determines the future ability to work on low spreads. This also indicates whether the bank is solely reliant on interest income for its profit or are there other sources of income as well.

4. Productivity: This parameter indicates how efficient are the banks employee and branches in generating business and profits. 1. 2. 3. 4. 5. 6. 7. Business per Branch. Business of a bank is equal to sum of deposits and advances. This ratio indicates whether the branches of bank are used optimally or not. Business per employee. This ratio is used to find out whether a bank is relatively over or under staffed. The higher the ratio, the better. Operating profits per employee. This is also a ratio to check whether a bank is over or under staffed. The higher the ratio, the better. Operating Profits per branch. This ratio is denotes the profitability per Branch. The higher the ratio, the better. 5. Capital Adequacy: Capital adequacy indicates whether the bank has enough capital to absorb unexpected losses. It is required to maintain depositor confidence and presenting the bank from going bankrupt. 1. 2. Capital Adequacy Ratio (CAR). The banks have to maintain the capital adequacy ratio (CAR) specified by RBI from time to time. Capital Adequacy Ratio is equal to the ratio of TIERI and TIER-II capital tot eh aggregate of risk weighted assets (RWA).

Thus CAR = (TIER 1 + TIER II) RWA higher tighter CAR norms. Also high CAR denotes high safety against bankruptcy. However, a CAR over 2- 3% above the statutory norms indicate that the funds are not deployed properly by the banks. The current requirements is 9% which is to be raised to 10% by March 2002. 3. 4. TIER-I capital. This refers to the core capital that provides the most permanent and ready support against unexpected losses. Equity investments in subsidiaries, intangible assets, losses in current period and those brought forward from previous years, will be deducted from TIER I capital. 5. 6. Debt Equity ratio: This is calculated as the proportion of total outside liability to net worth. Thus this ratio is equal to (capital + Reserves)/Deposits + Borrowings + other liabilities). This ratio thus indicates the banks financial lowerage. 7. 8. Advances / Assets. This ratio indicates a banks aggressiveness in lending which ultimately results in better profitability. Higher ratio of advances/deposits is preferred to a lower one. 9. 10. G-secs to investments. This ratio indicates a banks strategy as being high profits high risk or low profits low risk. Govt. securities are generally considered as the most safe debt instrument, which as a result carries the lowest return. 11. G-sec to assets: This ratio again shows whether a bank is conservation or aggressive in its approach towards making profit. Higher ratio indicates conservation and a lower ratio indicates aggressiveness. 6. Asset Quality: This indicates what types of advances the bank has made to generate interest income. When loans are given to highly rated blue chip corporate, the rates attached are lower

than that by lower rated doubtful corporate. These asset quality indicates the type of debtors of the banks. 1. 2. Non performing asset. These are the assets that are doubtful to return the principal/or interest due in the near future. This results in huge losses to a bank. Thus a bank with a low profit but at the same time low NPA is preferable to the one having higher profits and higher NPA. 3. 4. Contingent liabilities / total assets. This is the ratio of non funded exposure of a bank to the total assets. Such exposures result in high losses in cases of default. Thus the lower the ratio, the better. 5. 6. Advance growth. This indicates the increases in the lending activity year to year (YOY).If this ratio is greater than the average ratio for the industry, it indicates that the bank is aggressively trying to increase its profits by increasing its advances. This may also result in higher losses due to loans turning bad (NPA). 1. Advances yield. 2. This indicates the interest income earned by the bank from its lending activity. Generally, yield increases with the increases in the lick perception of the assets. Thus a high yield indicates that the bank has invested in more risky assets, which may be harmful for the future profitability of the banks. Investments/Assets: This ratio indicates the proportion of investments to the total assets of a bank. A higher ratio means that the bank has conservatively kept a high cushion of investment to guard against NPA. However, this affects its profitability adversely. 7. Management Quality: This parameter is used to evaluate management quality so as to assign premises to better quality banks and discounts pooley managed ones. 1. Credit/deposit ratio.

2.

This indicates the total advance as proportion of total deposits. It indicates the managements aggressiveness to improve in some by higher lending operation.

3. 4.

Return on Average Net Worth This indicates the return on shareholders funds. It should be reasonably be above the cost of capital to warrant ploughing back of the profits. This ratio is very important from share valuations point of view. Average net work is the simple average of opening and closing balances of net worth.

5.

Asset growth: This is the balance sheet growth indicating an aggressive attitude towards growth.

8. Liquidity: Banks are in a business where liquidity is of prime importance. Among assets cash and investments are the most liquid of a banks assets. 1. 2. 3. 4. 5. 6. 7. 8. Liquid Asset/Total Asset. Liquid assets consist of cash balance and investments. This proportion indicates the overall liquidity position of a bank. Cash Assets/Total assets. Cash has the highest liquidity and safely among all assets. Investments/total assets. Investments are the second most liquid assets. This ratio measures investments as a proportion of total assets. G-sec / total assets. G-sec are the most liquid and safe investments. This ratio measures G-sec, as a proportion of a total assets.

Nationalised banks
1. Size The total deposits mobilized by national banks is Rs. 2562.9 bn that is just around 29% of the deposits mobilized by all the scheduled banks together. Also the growth in deposits areas average at 16.87%. Thus inspire of their sheer number (19 banks) they have not been able to mobilize enough deposits. However, they contribute to a third of the total profits earned by all SCBs. However, the growth in net profits was just 36.28%. This shows tiredness in their bottomline, as they have not been able to desire new ways to earn income. 2. Operational Efficiency: Nationalized banks aearn more interest income per rupee of assets than they other bank. They earn 14.24paise of interest income and 1.67 of paise non iterest income for every rupee of assets. Thus nationalized banks seem more efficient than other banks as far as earnings on assets is concerned. However, they are among the least prudent banks next only to the foreign banks, in spending money on operating expenses. They spend almost a fourth (24.93%) of every rupee earned as operational income, which is increasing rapidly at a rate highest in the sector. Also the cost of deposits is highest in the industry for them at 13.84 that has been increasing at the rate of 12.49%. YOU inspire of the large network of branches. Thus, though the income generated on assets is high, the spending is also very high indicating future trouble, since only the efficient banks can survive the imminent shakeout. 3. Earnings Quality: Nationalized banks have an interest margin higher than even the foreign banks. This indicates that the growth in their assets, the income will increase more than that earned by any other bank with a similar growth in assets. However one of the major concerns is the low non interest income. Hence, the operating profit is only 1.90% of the assets next only to the foreign banks. Thus even though the interest spread is highest, due to lower non interest income, the operating profits get subdued.

The net profit is however only marginally higher at 0.72% than the industry average of 0.66%, which has grown at 1.28% YOU thus under performing the sector. This reflects higher provisioning due to higher NPA (Non Performing Assets). Thus in their aggressiveness to increase yield. Nationalized banks have put in their money into more risky assets leading to higher NPA & lower net profits. However from the point of view of owners, nationalized banks return the highest rate on net worth at 15.70% highest in the industry. This is due to very high capital gearing of Rs. 20.67 of debt for every rupee of equity, once again highest in the industry,. However, a growth rate of 28.03% in this raises doubts over the sustainability of such returns in future. 4. Capital Adequacy: The capital adequacy ratio of nationalized banks is 11.14%, higher than the statutory requirement of 9%. However, it is lesser than that of all other groups. This indicates that the scope of expansion for the bank in future is very low. Also the RBI has announced that it would increase the CAR to 12% in a phased manner. In view of such regulations these banks may have to raise capital either by a rights issue or through subordinated debt. The debt equity ratio is also the highest in the industry at 20.67 times that makes these banks most dangerous to lend funds to. Hence, in future these capital starved banks have to raise their equity capital to warrant future growth. However, this bank group ahs a diversified portfolio of assets. Advances comprises only 38.37% of the total assets and investments another 36.10%. the advances are growing marginally faster than the assets at 40.82% however this group is aggressively increasing investments deposits have gone into investments. Also government securities comprise of 75% of total investments which are also increasing their share in incremental deposits indicating high liquidity of majority of investments.

5.

Asset Quality: The Net NPA of this groups was at Rs. 174 bn. Forming almost 57.85% of the total NPA of the sector. The high NPA levels were due to lending at high rates to doubtful borrowers (reflected in the high interest yield). Also the figure is increasing @ 1.53% annually, much higher than the sector average of 6.81%. this is the most worrisome aspect of this group and represents a drag on the bottomless of the banks. A control of NPA shall greatly improve the bottom line of these banks. However, nationalized banks have a very low non funded exposure at 28.87% that is way below the entire industry average at 59.63%. This shows limited vulnerability to credit risks on future incomes. But for each rupee of incremental asset, 4.018 paise worth non funded exposure is taken by the bank indicating an alarming trend. Also the advances have grown at 19.01% lower than the sector average of 2.09%. However, the advances yield is a whopping 38.96 (industry average is 22.44%) which indicates investment in riskeier assets (indicated by high NPA levels) since yield is inversely proportional to the risk perception of an asset. The bright spot seems to be the reducing yield growth at 29.03% of the total assets increasing at 51.40% of incremental assets indicating better asset liability management.

6.

Management Quality: Advances are made at average 50.35 paise for every rupee of deposits mobilized increasing at 55.61% of the incremental deposits. Thus the management is conservative in its approach to lending. Profit earned on the average owner capital is 16.97% second highest in the sector. This indicates better management of the banks from shareholder wealth creation point of view. Also the assets have grown at 17.66% indicating conservative attitude towards growth. However, the high NPA reveal the management till towards profitability at the cost of safety.

7.

Liquidity: This group has 52.98 liquid assets as a percentage to total assets marginally higher than the sector average of 55.26%. Thus half the assets can be liquidated quickly to meet unexpected losses. The ratio of growth of liquid assets to total assets is increasing at a declining rate of 40.54% mainly due to development of incremental assets in investments instead of cash. However, investments are 36.01% of total assets and G-sec are at 27.22% indicating a proper mix of assets and balancing of risk and return.

SBI & IASE ASSOICATES 1. Size Deposits mobilized by this group are 4810.25 bn. I.e. about 53.43% of the deposits mobilized by the entire sector. However this groups deposits have grown at a rate of 15.21% that is lowest in the sector. Thus the eight banks have mobilized more than half the deposits of the entire sector. However, their net profit is only 36.63% of the total profit earned by the sector. However, this profit is growing at a whapping 82.64% greater than twice the growth rate of nationalized banks. This is due to many factors like improving advances to deposits ratio. Provisioning expenses and lower growth in operating expenses. 2. Operating Efficiency: The interest income earned per rupee of working funds is among the lowest in the sector of this group at 4.84 paise per rupee. This is due to deployment of funds in less riskier assets due to which it realize a yield that is lowest in the sector at 13.08% against a sector average of 22.44%. However, interest income is growing at a marginally higher pace than assets growth. The most dangerous signal to future income, however, is the low non interest income or fee based income 0.81% to working fund against a sector average of 1.24%. Also the growth of other income on incremental assets is marginally higher than the existing at 0.86%. This shows thinning due to a fall in PLR and increased completion leading to declining interest income. Operating expenses are also very high with almost a fourth part of the operating income spent on expenses. To maintain future profitability these expense have to be trimmed. The bright spot in operations seem to be the lowest cost of deposits at 4.14% the lowest in the sector. 3. Earnings Quality : This group has very low interest spreads. Thus net interest income earned per rupee in just 1.57 paise growing at 24.79% over incremental deposits. Low spreads is mainly due to investments in low yielding assets with lower perceived risk. Due to these factors operating profit is just 0.89% to working funds as compared to sector average of 2.56%.

However, due to lower provisions for NPA, the net profit to Asset is 0.48% which is healthy considering the operating profit. 4. Capital Adequacy: The CAR at 11.95% is higher than the statutory requirement of 9%. However considering moves to raise this limit to 12% the banks in this group may have to raise fresh capital or restrict growth. The debt equity ratio is also very high at 17.16 times which makes the blank to perceived as risky by lenders, also for every rupee of net worth added, a sum of Rs. 36.28, is added as debt. However, the advances are 40.22% of the total assets, which is near the sector average and growing at 49.12% to incremental assets. Similarly G-sec to asset and G-sec to investments are at 26.34% and 68.82% respectively close to the sector average with their respective growth to incremental assets 36.23% and 83.09% indicating better asset liability management. 5. Asset Quality: The NPA of this group was at Rs. 87.35 bn. Forming 29.42% of the NPA of the entire of the entire sector. However, NPA are growing at a rate lower than the sector average. The reducing advances yield on incremental assets indicates the management caution towards lending to borrowers with lower credit rating. Also the NNPA as a percentage to assets stood at 2.60% marginally lower than sector average of 2.71% the groups exposure to non funded liabilities at 24.73% to assets growing at 34.55% to assets, is far lower than the sector average of 52.63%. This is also one of the reason of low other incomes. Even thought the state bank group mobilized a large share of the national deposits, they are however growing at a snail pace of 18.32% deposits, they are however growing at a snail pace of 18.32%. Similarly, advances yield are lower at 13.08% than the sector average indicating investment in low risk assets. The yield on incremental advances plunged to 11.76% indicating investment in good quality debt. Investment are at 38.98% to assets, increasing at 43.60% to incremental assets, which is near the industry average.

6. Management Quality: The management has put less than half the credit mobilized in the lending business indicating conservative attitude. This is however, changing with advances over incremental deposits being 54.40%. The assets are growing at a rate of 14.52% that is less than that of the entire sector. The high levels of NPA indicate that in the past, management followed a more liberal lending policy. However, the situation now seems to be changing with lowering yields on advances indicating a cautions attitude towards lending. 7. Liquidity: The groups liquid assets conspire more than hay the total assets at 52.39% indicating ability to meet unforeseen liquidity crunch. However the ratio of liquidity assets to incremental asset to total assets is diminishing at 45.36% indicating the tilt towards profitability against liquidity cash comprises 14.11% consisting mostly of reserves kept with RBI to comply with CRR requirements with growth in cash on incremental assets being just 0.61% indicating lower cash balances due to lowering of CRR by RBI and thrust towards improving profitability. Also investments are at 38.28% to assets growing at 43.60% to incremental assets G-sec are more than a fourth of the assets at 26.34% to assets growing at 36.23 to incremental assets. Thus the liquidity position of the group is more or less the same as the sector average.

Old Private Sector Banks 1. Size The group of contributed just 7.44% of the total deposit mobilized by all commercial banks at 669.88 bn. Also the deposits are growing at 19.53% marginally higher than the sector average. However, inspite of such low growth in deposits, the net profits jumped by a whopping 110.33% to 6.55 bn. This is mainly due to higher other income, improved spreads and cost control resulting in operating efficiency. 2. Operating Efficiency: Interest income constituted 9.07 of the working funds (Assets) and non interest income constituted 1.21% of working fund. While the interest income grow at a reduced pace of 7.75% of incremental assets, non interest income grew at a feverish pace of 3.59% making a big difference to the bottomline. Operating expenses were at 19.34% of the operating income. However, the heartening fact is that the operating expenses grew at just 15.12% to the incremental operating income indicating better operational efficiency. Cost of deposits stood at 8.40% marginally higher than the sector average at 7.70%. however, the cost of incremental deposits is lower at 4.94%. 3. Earnings Quality: Interest spread stood at 1.396% much lower than the sector average of 2.56%. however, spreads on incremental assets rocketed to 26.31% indicating better future prospects. Operating profits remained low at 1.11% to assets, however, growing at 5.20% to incremental assets. The net profit was at 0.84% to assets increasing at 2.81% to incremental assets, more than thrice the current net margin. Return on net worth was at 15.19%and on incremental net worth areas at 45.93% due to a debt equity ratio of 17.02 times. The other income to net interest income was at 72.15% growing at 107.84% to incremental net interest income. This shows the low reliance on interest income, that a turn immunizes groups bottomline from future squeeze in spreads.

4. Capital Adequacy: The group CAR was at a compatible 13.42 indicating scope for further expansion without the need to raise fresh capital. The debt equity ratio is at 17.02 times, marginally higher than the sector average. Advances to assets stood at 43.22%improving to 47.71% on incremental assets. G-sec as a percentage to the assets and investments stood at 22.58% and 64.32% respectively growing at approximately the same rate. 5. Asset Quality: The net NPA for the group stood at 24.84 bn. Consisting around 8.26% of the total NPA of the sector. However, the NPAs formed 3.17% of total assets indicating lower quality assets. However, the banks seem to have awakened to this dangerous situation. The NPA growth is negative at 0.98%. The off balance sheet exposure also stood at a mere 26.90%, growing at 41.13%. This indicates a better quality of other income from relatively low risk business like remittance, credit cards etc. the advances grew at just 21.04% year of year, marginally higher than the industry. However, the net profits showed a significant jump year of year. Similarly advances yield was average at 22.16%. It is reducing an incremental assets indicating investments in high quality assets and lower interest rates in the economy.

NEW PRIVATE SECTOR BANKS 1. Size This group mobilized 466.81 bn. i.e just 5.19% total deposits mobilized by the sector. However, there is explosive growth in deposit growth at 51.50% year of yar indicating tremendous growth potential. The net profit was at 5.09 bn. growing at a phenomenal rates of 43.41%. Thus this group of banks will be a force to reckon with in future. 2. Operational Efficiency: Interest income constituted 7.27% of the assets growing at a snail pace of 4.34% of incremental assets. This shows that this group has very low interest spreads due to intense competition and disdain entages of entering late in to the market. Non interest income is 12.1% of assets growing at 1.91% of incremental assets. This shows that the thrust for this group is the non interest income operating expenses are just 15.48% of operating income among the lowest ratio in the sector. This is further dipping and is only 13.14% on incremental operating income cost of deposits at 7.13% is near the sector average but higher than that of public sector banks due to lack of prescience in rural and semi urban areas where low cost deposits are available. 3. Earnings Quality: Income spread is at 1.47% of assets, among the lowest in the sector. This is however increasing at 9.18% assets indicating effect of lowering cost of deposits due to increasing share of retail deposits in total deposits. Operating profit is at 1.41% of assets and is increasing at 2.75% to incremental assets. Net profit is at 0.97 of assets increasing at a diminishing rate of 0.85% due to increase in the NPA and capital expenditure. Return on shareholder funds is a modest 14.85%. however, it is increasing at a diminishing rate of 11.87% due lower incremental net profit to incremental assets and relatively low debt equity ratio. However, the major excitement for the group is occurring in the other income which was at 88.72% of net interest that the new private banks are completely ready to meet the future challenges of lower interest rate regime.

4. Capital Adequacy: The average CAR for this group stood at 12.47%. This is well above the prescribed statutory ratio of 9%. Thus these banks can leverage the capital to raise more deposits tempos their profitability. Debt equity ratio is one of next lowest in the sector indicating 5. Asset Quality: The net NPA to total assets stood at a mere 1.08% indicating high quality of assets of the group. The NPAs one of the lowest in the sector, stood at 6.36 bn. i.e. 2.11% of the entire sector. Also more encouraging is the fact that the NPAs are reducing annually @ 5.20%. this was due to investment in high rated assets giving a low yuield at 19.99%. however, the non funded exposure of these banks was at 78.04% growing at the rate of 68.54% on incremental assets. This indicates moves to shift away from this risky business. Inspire of investing in only high quality assets, the advances grew at a phenomenal 47.31% year of year. Also the cost of deposits significantly reduced at 12.48% on incremental assets. Investments comprised about two fifths of the total assets. 6. Management Quality: The advances were 47.46% of total deposits. However the lending activity at 44.84% to incremental assets seems slowing down due to thrust in fee based income businesses. Thus management seems to be conservative in its lending activity. Similarly, return on average net worth was a healthy 18.29%, however this group of banks is growing in balance sheet at a feverish pace. The assets grew at 52.75% which no other could compare. This was due to increases in capital deposits and advances.

7. Liquidity The group faud well on the liquidity aspect as well. Liquid assets constituted about 55.64% of total assets increasing at 60.20% on incremental assets showing a tilt towards liquidity than on profitability. Cash assets stood at 15.60% of total asset which increased at 5.36% to incremental assets indicating lower reserve requirements. Investments to total assets were increasing at 45.03% to incremental assets and G-secs to assets was increasing at 30.61% to incremental assets. These ratios indicate the groups famous in investment as low risk low return game highlighting the focus to keep NPA low earned in regular equation expenses. Though foreign banks have lower number of employees, the pay packets are one of the highest in the industry. However, the banks are now waking up to this fact and reducing their expenses. Thus their expenses actually decreased @ 14.71% on incremental operational income. The cost of deposits is among the highest in the sector at 10.11%, however, foreign banks are aggressively replacing high cost corporate debt with low cost retail deposits by opening newer branches. This is showing up in the declining cost of deposit on incremental deposits @ 11.52%. 3. Earning Quality: The income spread is higher than the average for the sector indicating better deployment of credit in reducing cost of deposits. However the most fascinating aspect is the growth in the spread, which were at 93.11% of incremental assets. Operating profits were at 2.32% of assets growing at a whooping 14.53% in incremental asset, mainly due to improved spreads and higher other income Net profits to assets were at 1.17% of total assets. Once again the growth in net profit was at 7.00% of incremental asset, due to growth in operating profits. Other income to net interest income is at 67.47% indicating improving reliance on lesser this loses notable source of income. However, the worrisome aspect seems to the growth rate in this at 55.38% on incremental income. Return on shareholders equity was at 11.98% equal to the sector average, inspire of are relatively higher net profit. This is due to lower debt equity ratio of just 9.26 times compared to sector average of 16.33 times. Thus foreign banks have incremental income. Return on shareholders equity was at 11.98% equal tot eh sector average, inspire of a relatively higher net profit. This is due to lower debt equity ratio of just 9.26

times compared to sector average of 16.33 times. Thus foreign banks have generated income from both its core and non core business alike. Thus they are in a better position to absorb shocks like thin spreads. 4. Capital Adequacy Ratio: This group has the highest CAR of 31.50% thus they are in a better position to expand their business without the need for fresh fund infusion. Also the debt equity ratio is at 9.36 times thus making them lesser risky compared to their peers. Also the debt is increasing at just Rs. 6.14 of debt of every rupee of equity indicating increase in owned capital is more than the increase in debt capital. Advances were at around 43% above e sector average. However advances are growing at 97% on incremental assets indicating gone at 28.39% in incremental investments indicating a tilt against G-secs in favor of corporation debt and other securities. 5. Asset Quality: Net NPAs form only 1.02% to total assets, lowest in the industry. The total NPAs stood at 8.44 bn. forming just 2.81% of industry NPAs. Also the NPAs are reducing @2.75% annually indicating prudent management. However, the most worrisome aspect of foreign banks is foreign banks is their high exposure in non four needed business. The total contingent liability to assets was at 342.01 or nearly 3.5 times teir assets and increasing at almost 10 times of incremental assets/ this shows that in a bid to increase their other income, they have exponentially increased their exposure in non funded business. Though the current NPA levels are low inspire of such high non funded exposure, it (non-funded, business) should be anyway be reduced as such exposure levels can have disastrous effects on future bottom line. The advances yield is average at 22.96 growing a just 5.18% on incremental assets indicating new investments in high quality assets. Investments were at 35.80% of total assets increasing at 52.94% on incremental assets indicating the strategy to diversity the asset portfolio. 6. Management Quality:

Foreign banks lent almost 3/4th of their deposits mobilized highest in the sector. however, the management is aggressively increasing the lending activity. They lent 3.27% of the incremental deposit mobilized, indicating not only complete lending of incremental deposit, but also for each rupee of deposit mobilized the banks lent Rs. 2.27 from the existing deposits not lent. This definitely is a dangerous trend and indicates entre risk taking tendency in favour of returns. However the heartening fact is that their NPA levels are one of the lowest in the industry at 2.81% indicating high quality assets. Return on average net worth is at 12.67% comparable to sector average of 16.79. thus though the funded business of the growth.

Trends
1. Universal Banking Universal banking refers to financial institution offering all types of financial services under one roof. Thus, besides borrowings and lending for the long term, the development financial institutions will be able to borrow/lend for the short term as well. This flexibility brings about a sea change in the bottmline of the institution. Impact on DFI: Two key aspects of the business are affected. The institution can have access to cheap retail deposits and the breadth of its advances increases to include short term working capital loans to corporate. The institution has greater operational flexibility. Also they can now effectively compete with the commercial banks and thus increase their business. Indian Scenario: In India the fine DFIs that are front runners in the race to convert to universal bank are: Industrial Credit and Investment Corporation of India (ICICI) Industrial Development Bank of India (IDBI) Export Import Bank (EXIM)

Industrial Investment Bank of India (IIB) ICICI is already a virtual bank with subsidiaries like ICICI bank engaged in Banking business. Thus with clearing of legal hurdles it just has to work or the modealities to formally call itself a universal bank. Similarly other DFIs are charting out aggressive plans to stay ahead in this race. Also recently Bank of Baroda, a commercial bank has indicated its intention to convert to a universal bank. RBI norms: The norms stipulated by RBI treat DFIS at part with the existing commercial banks. Thus all universal banks have to maintain the CRR and the SLR requirement on the same lines as the commercial banks. Also they have to fulfill the priority sector lending norms applicable to the commercial banks. These are the major hurdles as perceived by the institutions, as it is very difficult to fulfill such norms without hurting the bottomline. Effect on the Banking sector. However, with large term lenders converting into commercial banks, the existing players in the industry are likely to face stiff competition, lower bottomline ultimately leading to a shakeout in the industry with only the operationally efficient banks will stay into the business, irrespective to the size. Mergers and Acquisition: The Indian Banking sector is more over crowded then ever. There are 96 commercial banks reporting to the RBI. Ever since the RBI opened up the sector to private players, there have been nine new entrants. All of them are growing at a scorching pace and redefining the rules of the business. However, they are dwarfed by many large public and old private sector banks with a large network of branches spread over a diverse

geographical area. Thus they are unable to make a significant dent in the market share of the old players. Also it is impossible to exponentially increase the number of branches. The only route available for these banks is to grow inorganically via the M&A route. Hence the new banks are under a tremendous pressure to acquire older banks. Currently most of the institutionally promoted banks have already globed smaller banks. ICICI banks has acquired ITC classic, Anagram Finance and Bank of Matura within a period of two years. HDFC bank has merged times Bank with itself .UTI bank had almost completed its merger with Global Trust Bank before it ran into rough weather. Also nationalized banks like Bank of Punjab, Vyasa Bank are wooing IDBI Bank for a merger. Among foreign Banks, Standard & Chartered Bank has acquired ANZ Grinellays Banks Asian and Middle East operations. The above happenings clearly indicate that the M&A scenario in the Indian banking sector is far from over strong banks will continue to takeover weak and inefficient banks to increase their size. IV. Multiple delivery channels.

Today the technology driver banks are finding various means to reduce costs and reach so as many customers as possible spread over a diverse area. This has led to using multiple channels of delivery of their products. 1. ATM (Automatic Teller Machine): An ATM is basically a machine that can delivery cash to the customers on demand after authentication. However, nowadays we have ATMs that are used to vent different FMCG products also. An ATM does the basic function of a banks branch i.e. delivering money on demand. Hence setting of newer Brachs is not required thereby significantly lowering infrastructure costs. Cost reduction is however possible only when these machines are used. In India, the average cash withdrawal per ATM per day ahs fallen from 100 last year to 70 this year. Though the number of ATMs has increased since last year, it is not in sync with

the number of cards issued. Also, there are many dormant card holders who do not use the ATMs and prefer the teller counters. Inspire of these Indian banks are increasing the number of ATMs at a feverish face. These machines also hold the keys to future operational efficiency. 2. Net Banking Net banking means carrying out banking transactions via the internet. Thus the need for a branch is completely eliminated by technology. Also this helps in serving customer better and tailoring products better suited for the customer. A customer can view his account details, transaction history, order drafts, electronically make payments, transfer funds, check his account position and electronically communicate with the bank through the internet for which he may have wanted to visit the bank of branch. Net banking helps a bank spread its reach to the entire world at a fraction of the cost. 3. Phone Banking: This means carrying out of banking transaction through the telephone. A customer can call up the banks helpline or phone banking number to conduct transactions like transfer of funds, making payments, checking of accounts balance, ordering cheques etc. this also eliminates the customer of the need to visit the banks branch. 4. Mobile Banking: Banks can now help a customer conduct certain transaction through the mobile phone with the help of technologies like WAR, SMS etc. this helps a bank to combine the internet and telephone and lowerage it to cut costs and at the same time provide its customer the convenience. Thus it can be seen that teach savy banks are topping all the above alternative channels to cut cost improve customer satisfaction. 5. VRS (Voluntary Retirement Scheme)

VRS or the Golden Handshake is picking up very fast in the recent times due to the serious attention of the government towards overstaffing in the banks, especially among the public sector banks. The govt. had also cleared a uniform VRS framework fort eh sector giving the banks a seven months time frame to cut flab. The scheme was open till 31st March, 2001. Though many banks had announced different VRS schemes it invested an outflow of money. This could have had an adverse impact on the Capital Adequacy Ratio (CAR). Hence the RBI allowed the banks to write off the VRS expenses over a period of 5 years.

INTRODUCTION
FINANCIAL MANAGEMENT: Finance management is concerned mainly with procuring funds in the most economical and prudent manner deploying these funds in most profitable way in a given risk situation, planning future operations and controlling current and future performances and development through different tools. It is an approach by which depending on importance, resources can be allocated to various projects.

For efficient operation of a business there is necessity for obtaining and effectively utilizing funds. Financial management does these jobs. Basically, therefore, finance management center round fund raisins for business in the most economical may and investing these funds in optimum way so that maximum return can be obtained for the shareholders. Since all business decisions have financial implications, financial management is interlined wit all other functions of the business.

SCOPE OF FINANCIAL MANAGEMENT The approach to the scope and functions of financial management is divided, for purposes of exposition, into two broad category (a) The Traditional Approach, and (b) The Modern Approach. Traditional Approach The traditional approach to the scope to the scope of financial management refers to its subject matter, in academic literature in the initial stage of its evolution, as a separate branch of academic study. The term corporation finance was used to describe what is now known in the academic world as financial management. As the name suggests, the concern of corporation finance us with the financing of corporate enterprises. In other words, the scope of the finance function was treated by the traditional approach in the traditional approach in the narrow sense of procurements of funds by corporate enterprise to meet their financing needs. The term procurement was used in a board sense so as to include the whole gamut of raising funds externally. Thus defined the field of study dealing with finance was treated as encompassing three interrelated aspects of raising and administering resources from outside : (I) the institutional arrangement in the form of financial institutions which comprise the organization of the capital market : (II) the financial instruments through which funds are raised from the capital markets and related aspected of practices and the procedural aspects of capital markets: and (III) the legal and accounting relationship between a firm and its sources of funds. The coverage of corporation finance was therefore, coneived to describe the rapidly evolving complex of these major events such as instruments and practices. A related aspect was that firms require funds at certain episodic events such as merge, liquidation, reorganization and so on. A detailed description of these major events constituted the second elements of the scope of this field of academic study. That these were the broad features of the subject matter of corporation finance is eloquewnlty reflected in the academic weiting around the period during which the traditional approach dominated academic thinking. Thus, the issue to which literature on finance addressed itself was how resources could best be raised from the combination of the available source.

Modern Approach The modern approach view the term financial management in a broad sens and provides a conceptual and analytical framework for financial making. According to it, the finance function covers both acquisition of funds as well as their allocations. Thus apart from the issues involved in acquiring external funds, the main concern of financial management is the efficient and wise allocation of funds to various uses. Defined in a broad sense, it is viewed as an integral part of overall management. Investment Decision: The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall into two broad groups: (I) long term assets which yield a return over a period of time in future, (II) short term or current assets, defined as those assets which in the normal course of business are vovertible into cash without dimunition in value, usually within a year. The first of these involving the first category of assets is popularly known in financial literature as capital budgeting. The aspect of financial decision making with reference to current assets or short term assets is popularly termed as working capital management. Capital budgeting : Is probably the most crucial financial decision for a firm. It relates to the selection of an asset or investment proposal or course of action whose benefits are likely to be available in future over the lifetime of the project. The long term assets can be either new or old existing ones. The first aspect of the capital budgeting decision relates to the choice of the new asset out of alternatives available or the reallocation of capital when an existing asset out of alternatives available or the reallocation of capital when an existing asset fails to jusfity the funds committed. Whether an asset will be accepted or not will depend upon the relative benefits and returns associated with it. The measurement of the worth of the investment proposals is, therefore, a major element in the capital budgeting exercise. This implies a discussion of the methods of appraising investment proposals. The second element of the capital budgeting decision is the analyisis of risk and uncertainity. Since the benefits from the investment proposals extend into the future, their accrual is uncertain. They have to be estimated under various assumptions of the physical volume of sale

and the level of prices. An element of risk in the since of uncertainity of future benefits is, thus, involved in the exercise. The returns from capital budgeting decision should, therefore, be evaluated in relation to the risk associated with it.

Finally, the evaluation of the worth of a long term project implies a certain norm or standard against which the benefits are to be judged. The requisite norm is known by different names such as cut off rate, hurdle rate, required rate, minimum rate of return and so on. This standard is broadly expressed in terms of the cost of capital. The concept and measurement of the cost of capital is, thus, another major aspect of capital budgeting decision. In brief, the main elements of capital budgeting decisions are: (I) the long term assets and their composition : (II) the business risk complexion of the firm and (III) concept and measurement of the cost of capital. Working Capital Management: Is concerned with the management of current assets. It is an important and integral part of financial management as short term survival is a prequisisite for long term success. One aspect of working capital management is the trade of between profitability and risk (liquidity). There is a conflict between profitability and liquidity. If a firm does not have adequate working capital, that is it does not invest sufficined funds in current assets, it may become illiquid and consequently may not have the ability to meet its current obligations and thus, invite the risk of bankruptcy. If the current assets are too large, profitability is adversely affected. The key strategies and considerations in ensuring a trade off between profitability and liquidity is one major dimension of working capital management. In addition, the individual current assets should be efficiently managed so that neither inadequate nor unnecessary funds are locked up. Thus the management of working capital has two basic ingredients : (I) an overview of working capital management as a whole, and (2) efficient management of the individual current assets such as cash, receivables and inventory. Financing Decision: The second major decision involved in financial management is the financing decision. The investment decision is broadly concerned with the asset mix or the composition of the assets of a firm. The concern of the financing decision is with the financing

mix or capital structure or leverage. The term capital structure refers to proportion of debt (fixed interest sources of financing) and equity capital (Variable dividend securities/sources of funds). The financing decision of a firm to the choice of the proportion of these sources to finance the investment requirements. There are two aspects of the financial decision. First, the theory of capital structure which shows the theoretical relationship between the employment of debt and the return on the shareholders. The use of debt implies a higher return to the shareholders as also the financial risk. A proper balance between debt and equity to ensure a trade off between risk and return to the shareholders is necessary capital structure with a reasonable proportion of debt and equity capital is called the optimum capital structure? And in what proportion should funds be raised to maximize the return to the shareholders? The second aspect of the financing decision covers two interrelated aspects: (I) capital structure theory and (2) capital structure decision. Dividend Policy Decision: The third major decision of financial management is the decision relating the dividend policy. The dividend should be analyssed in relation to the financial decision of a firm. Two alternatives are available in dealing with the profits of a firm: they can be distributed to the shareholders in the form of dividends or they can be retained in the business itself. The decision as to which course should be followed depends largely on a significant element in the dividend decision, the devidend pay out ratio, that is what proportion of net profits should be paid out to the shareholders. The final decision will depend upon the preference of the shareholders and investment opportunities available within the firm. The second major aspect of the dividend decision is the factor determining devidend policy of a firm in practice. To conclude the traditional approach had a very narrow perception and was devioed of an integrated conceptual and analytical framework. It had rightly been siscareded in current academic literature. The modern approach has broadened the scope of financial management which involves the solution of three major decisions, I namely investment financing and divident. There are interrelated and should be jointly taken so that financial decisions is the objective of financial management. In other words, to ensure an optimum decision in respect of these three areas, they should be related to the objectives of financial management.

OBJECTIVES OF FINANCIAL MANAGEMENT To make wise decisions a clear understanding of the objectives which are sought to be achieved is necessary. The objectives provide a framework for optimum financial decision making. In other words, they are concerned with designing a method of operating the internal investment and finanail of a firm. We discuss in this section the alternative approaches in financial literature. There are two widely doscissed approaches : (I) profit maximization approach, and (II) Wwalth maximization approach). Profit Maximisation Decision Criterion According to this approach, actions that increase profits should be undertaken and those that decrease profits are to be avoided. In specific operational terms, as applicable to financial management. The profit maximization criterion implies that the investment, financing and dividend policy decisions of a firm should be oriented to the maximization profit. The term profit can be used in two senses. As a owner oriented concept it refer to the amount and share of national income which is paid to the owners of business, that is those who supply equity capital. As a variant it is described as profitability. It is an operational concepts and signifies economic efficiency. In other words, profitability refers to situation were output exceeds input, that is the value created by the use of resources is more than the total of the input resources. Used in this sense profitability maximization would imply that firm should be guided in financial decision making by one test; select assets, projects a general agreement that profit maximization is used in the second sense. The rational behind profitability maximization, as a guide to financial decision making is simple, profit is a test of economic efficiency. It provides the yardstick by which economic performance can be judged. Moreover, it leads to efficient allocation resources as resources tend to be directed to uses, which in term of profitability are the most desirable. Finally, it ensures maximum social welfare. The individual search for maximum profitability provides the famous invisible hand by which total economic welfare is maximized. Financial management is concerned with the efficient use of an important economic resource (input), namely, capital. It is therefore, argued that profitability maximization should serve as the basic criterion for financial management decision.

Wealth Maximization Decision Criterion This is also known as value maximization or net present worth maximization. In current academic literature value maximization is almost universally accepted as an appropriate operational decision criterion for financial management decisions as it removes the technical limitations which characterize the earlier profit maximization criterion. Its operational features satisfy all the three requirements of a suitable operational objective of financial courses of action, namely, exactness, quality of benefits and the time value of money. The value of an asset should be viewed in terms of the benefits it can produce. The worth of a course of action can similarly be judged in terms of the value of the benefits it can produce. The worth of a course of action can similarly be judged in terms of the value of the benefits of it produces less the cost of undertaking it. A significant element in computing the value of a financial course of actions is the precise estimation of the benefits associated with it. The wealth maximization criterion is based on the concept of cash flows generated by the decision rather than accounting profit, which is the basis of the measurement of benefits in the case of the profit maximization criterion. Cashflow is a precise concept with definite connotation. Measuring benefits in terms of cash flows avoids the ambiguity associated with accounting profits. This is the first operational feature of the net present worth maximization criterion.

HUMAN RESOURCES MANAGEMENT When we talk of human resource management, we have in our mind a variety of things. These include: Training Skill development and upgradation of knowledge and skills of the employees Motivating the employees Attracting the personal and their retention Wages, salaries and rewards Monitoring and controlling the employees performance

These aspects of HRM and development are essential for every sector but in the case of bank, they have a special significance. This is because bank is a service industry and here the customer is not buying a service or a product but he is also experiencing and consuming the quality of service which is reflected in the performance of the person involved in the production and delivery of the service. Since what is marketed here is relationship between the customer and producer of services, the importance of human resources becomes vital for the success of the business. Generally, in such operations. The emphasis has been onteh courtesy and efficiency and it is assumed that the service Bank is all smiles and effective communication. However, with the changing nature of Bank and growing specialization only smiles, communication skills and courtesy will not serve the purpose. Similarly, a driver may be very good at driving but unless he knows the road and addresses of the city, only his driving capabilities will be of no help in providing quality services. And we must remember here that tourists, whether foreign or domestic, are increasingly becoming more demanding as regards quality of service. Generally, human resource management, planning and development on tourism has to be taken at both macro as well as micro levels. At the macro level, one takes into account the educational and training infrastructure available in the country and the efforts initiated by the ICAO.

This also includes the efforts initiated by the private sector. at the micro level, one takes into account how best individual organizations plan and manage their human resources. In fact, human resource management and customer care/expectations are inter related area in the area of tourism. Such Mansfield has identified four key principles in the development of customer care within companies. These according to her are: 1. Customer care starts at the top, meaning that commitment to the principle of customer care must emanate from senior management levels within an organization. Successful management techniques used, such that values will dictate how an employee will behave. 2. Customer care involves everyone within the organization. It is not just about front line staff. The country view only services to reinforce the electricians or administrators, opinion that the standard of service they give in support of the front line stall is not important. How can cleaners to the right job unless they fully appreciate their customer needs and the importance of their role? High standards of customer care cannot be achieved by ignoring seasonal, part time or voluntary staff who represent the business to many customers. 3. Care for your staff and they will care for your customers. Too often organizations look first to the customer, whereas the emphasis should be placed on the staff. Improving the experience of the staff for customers. More customers are obtained thereby improving the climate in which. Management and staff work investment and greater professionalism follow success and the cycle of achievement is reinforced. It is a continuous meaning that customer care is not a quick fix project but it long term plan. According to V.S. Mahesh, The nature determinates and problem areas of service quality within tourism points clearly to the central role of personnel, at all levels, in attaining levels, of excellence in this respect. Development the service culture, within

company, and within a tourism industry can be seen as crucial to the success of tourism. Hence, the activities of an HRD manager in tourism can be categorized as: Human Resource Planning Human Resource Development

Aspect like forecasting, recruiting and induction in the human resource area are taken care of through human resource planning. The identification of specific developmental needs for the manpower aimed at developing and exploiting the competencies of the human resource development. HUMAN RESEOUCE PLANNING In this section, we will deal with certain aspects, which are relevant for managers or entrepreneurs at an organizations level in the area of human resource planning. Human resource planning can be termed as a process for preparing a plan for the future personnel needs of an organization. It takes into account the internal activities of the organization and the external environmental factors. In a service industry like tourism, such planning also aims at improving the quality of manpower resources. Human resource planning involves: Analysis of existing manpower resources Planning for future needs taking into account how many Planning for the development of the employees by adopting in house training and continuing education methods to upgrade the acknowledge and skills of the employees. The following sub sections deal with the various aspects: Human Resource Management Process The human resource management process includes seven basic activities. 1. Human resource planning (we have already defined it) 2. Recruitment (locating prospective candidates through advertisements employment agencies etc) 3. Selection (through interviews, skills tests etc)

People with what skills and at what skills and at what levels the organization will need, and

4. Socialization and induction training (to assist selected candidates in adapting themselves to the organizational environment and job requirements) 5. Training and development (For improving and upgrading their knowledge and skills in relation to the respective jobs they are handling) 6. Performance appraisal i.e. combining the job performance in relation to the standards set for that job positive and 7. Promotions, transfers and demotion etc ie rewarding quality performance, giving position strokes and motivating employees or transfers and demotions for low performance etc. Recruitment And Selection A manger has to analyze the labor market in terms of availability of labor and the labor market flexibility. He or she should be fully aware as to what sort of personnel is required. For supporting toursim development a considerable lead is required for requirement and selection strategies. Each job should be carefully designed. The responsibilities fixed and the qualification laid down that is the job requirement, description& specification should be absolutely clear. Similarly, for such jobs designed the wages, salaries & perks to be offered should also be decided. Increments & future raises in salary should be taken into a/c. The manger must be fully aware of labor laws & other govt. rules & regulation ions. To locate suitable candidates for the job, a no. Of ways can be adopted. Advertisements can be put in newspaper & professional journals. Employment agencies can be approached. Educational & training institutes can be approached (for eg. Hotels approach the hotel management institutes for recommending students) & Specialists in the area can be approached by word of month or through correspondence for recommending suitable candidates.

INDUCTION & TRAINING When a new employee joins an organization induction is the first exposure. He/she should be properly welcomed in the organizations. Made to know his /her positive vis a vis others : acquired with companys rules, regulations and working conditions. The employee is also to be trained in relations to the job requirement very from organization to organization eg, a highly trained person in account will still require induction training when he or she joins new organization. Information and non up gradation of knowledge is the key to success in tourism sector and all employees must have updated knowledge. For example, a ticketing person must know the recent operating routes of airlines and the face structures etc. He or she cannot man the ticketing counter with obsolete knowledge. Hence it is she duty of management keep providing in house training to the employees. These training programs should be designed for maintaining and improving current job performance and at the same time development programs and at the same time development programs should be taken up for equipping the employees should be taken up equipping the employees with such skill which are required for future job. Next stage comes in the form of the selection process. For this certain steps are requires. The candidates who have applied are put to scrutiny & those fulfil the requirements are called for interviews in fact the selection process caries from organization to organization to organization. An organization may conduct written tests, group discussion problem solving exercise presentations or interviews etc for completing the selection process. You must remember here hat the candidate should be selected on the merit basis in relation to the job specification rather on the basis of other external consideration or pressures. A wrong selection not only affects the performance of the job but also brings a bad image ot those involved in the selection process. Very often employees selected on other considerations do not find receptivity among other employees (Seniors, equals or subordinates). Motivation

The quality of service in tourism depends on the job satisfaction of the employees. We have discussed earlier the characteristics of those organizations which are termed as service leaders. Hence, it is the mangers rewards and incentives, this is also related to positive strokes. For example, it is very cash to tell an employee you have done this work badly or you do not know how to work. These are negative stroke which can remotivate an employee. The same can be said in a positive manner like the work you have done could be done better by a little more concentration or you can still improve upto by marking full use of your capability. Employees exceptions should also be kept in mind their achievement or good performance should be duly recognized. This also helps in the retention of good employees in the organization. Appraisal Systems Performance appraisal is an important but difficult task of the manger. This can be carried out in two ways: 1. Informal performance appraisal This means a continuous process of giving feedback to sub ordinates about their performance in the organization. In this process, a manger spontaneously tells the employee how he or she has performed in relation to a particular work. 2. Formal performance appraisal Many organizations adopt formal appraisal methods on a monthly quarterly or an yearly basis. This is done through a Performa, which has certain set questions regarding the job requirements. In certain cases, the superior officers are asked to their subordinates. This exercise helps the management in identifying employees, for promotion or whether they need additional training. It his also sends a massage to the employees that how their performance is being rated by the management. In many organization promotions, rewards and bonus etc are decided on the basis of performance appraisal.

COMPANY PROFILE BACKGROUND: 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 RBIs liberalization of Indian Banking Industry. The bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its registered office in Mumbai, India. The bank commenced operations as a Scheduled Commercial bank in January b1995.

Promoter :
HDFC is Indias 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 clear market leader in mortgages and banking services in India. Its outstanding loan portfolio covers over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different markets segments and also was a large corporate HDFC Banks business philosophy is based on four core values: Operational Excellence, Customer Focus, Product Leadership and People. The Bank signed a strategic business collaboration agreement with Chase Manhattan Bank in February 1999.Plus /Cirrus and American Express Credit / Charges cardholders. It is the only bank in India which provides access to all the 3 major International Card Networks on its ATM network. Management: Mt. Jagdish Capoor took over as the banks Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 20 years, and before joining HDFC Bank in 1994 was heading Citibanks operations in Malaysia.

The Banks Board of Directors is composed of eminent individuals with a wealth of experience in public & administration and commercial banking. Senior executives representing HDFC and JP Morgan Partners (formerly Chase Capital Partners) are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength. Times Bank received I share of HDFC Bank for every 5.75 shares of Time Bank. The amalgamation added significant value to HDFC Bank in terms of increased branch network, expanded geographic reach, enhanced customer base, skilled manpower and the opportunity to cross sell and leverage alternative delivery channels. Distribution Network HDFC Bank is headquartered in Mumbai. The Bank of present has an enviable network of over 241 branches spread over 129 cities all across the country. All branches are linked on an online real time basis. Customers in 39 locations are also serviced through Telephone Banking. The Banks expansion plans take into account the need to have a presence in all major industrial and commercial centers where its corporate customers are located as well as the need to build a strong retail customer base. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centers where the NSE/BSE have a strong and active member base. The Bank also has a network of alamost over 775 networked ATMs across these cities. Moreover, HDFC Banks ATM network can be accessed by all domestic and international Visa/Master Card, Visa Electron/Maestro, Capital Structure: The authorized capital of HDFC Bank is Rs. 450 crores. The paid up capital is Rs. 281.2 crores. The HDFC Group holds 24.5% of the banks equity while about 13.3% of the equity is held by the depository in respect ofteh banks issue of American Depository Shares (ADS/ADR Issue). The Indian Private Equity Fund, Mauritius (IPEF) and Indocean Financial Holdings Ltd., Mauritius (IFHL) (both funds advised by JP Morgan Partners, formerly Chase Capital Partners)

together hold about 11.6% of the banks equity. Roughly 18% of the equity is held by FIIs, NRIs/OCBs while the balance is widely held by about 300,000 shareholders. The shares are listed on the The Stock Exchange, Mumbai and the National Stock Exchange. The Banks American Depository Shares are listed on the New York Stock Exchange under the symbol HDB. In a milestone transaction in the Indian banking industry, times Bank Limited (another new private sector bank promoted by Bennett, Coleman & Co. /Times Group) was merged with HDFC Bank Ltd. effective February 26, 2000. as per the scheme of amalgamation approved by the shareholders of both banks and the Reserve Bank of India, share holders of Technology HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the banks branches have connectivity which enables the bank to offer speedy funds transfer facilities to its customers. Multi branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs). The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. In terms of software the Corporate Banking business is supported by Flexcube, while the Retail Banking business by Finware, both from I-flex Solutions Ltd. (formerly Citicorp Information Technology India ltd.) The systems are open, scaleable and web enabled. The bank has prioritized its engagement in technology and the internet as one of its key goals and has already made significant progress in web enabling its core businesses. In each of its businesses, the bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share. Business Profile: HDFC Bank caters to a wide range of banking services covering both commercial and investment banking on the wholesale side and transactional / branch banking on the retial side The bank has three key business areas:-

a)

Wholesale Banking Services The Banks target market is primarily large, blue chip manufacturing companies in the

Indian corporate sector and to a small extent, emerging mid sized corporates. For these corporates, the Bank provides a wide range of banking services, including working capital financial, trade services, transnational services, cash management, etc. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and Prime Sector companies. It is recognized as a leading provider of cash management and transnational banking solutions to corporate customers, mutual funds, stock exchange members and banks. b) Retail Banking Services The objective of the Retail Bank is to provide a full range of financial products and banking services, giving the customer a one stop window for all his banking requirements. The products are backed by world class service and delivered to the customers through various delivery channels including the branch network, as well as alternative delivery channels like ATMs, Phone Banking, Net Banking and Mobile Banking. The HDFC bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The bank also has a wide array of a retail loan products including Loans against shares, Auto Loans, Personal Loans and loans for consumer Durables and Two wheelers. It is also a leading provider of Depository Participant (D) services for retail customers. HDFC Bank was 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 debit card allows the user to directly debit his account at the point of purchase at a merchant establishment, in India and overseas. The Bank launched its credit card in association with VISA in November 2001. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bills Payments, etc.

c)

Treasury Operations Within this businesses, the bank has three main product areas Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalization of the financial markets in India, corporates need more sophisticated risk management information, advised and product structures. These and fine pricing on various treasury products are provided through the banks Treasury team. HDFC Banks programme for Certificates of Deposits has been rate by the Indian rating agency Credit Analysis & Research Ltd. (CARE). The CDs and rated AAA which is the highest rating for short term instruments indicating superior capacity for repayment.

Mission and Business Strategy:

Our mission has been to be a world class Indian Bank benchmarking ourselves against international standards and best practices in terms of product offerings, technology, service levels, risk management and 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 Banks risk appetite. We are committed to do this ensuring the highest levels of ethical standards, professional integrity and regulatory compliance. Our business strategy emphasizes the followings: Increase our market share in Indias expanding banking and financial services industry by following a disciplined growth strategy 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 cost; Maintain our current high standards for asset quality through discipline credit risk management; Develop innovative products and services that attract our targeted customers and address inefficiencies in the Indian financial sector; Continue to develop products and services that reduce our cost of funds; and Focus on high earnings growth with low volatility.

Awards and Accolades

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 services excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal. It is extremely gratifying that our efforts towards providing customer convenience have been recognized both nationally and internationally. In the year 2000, leading financial magazine Forbes Global named us it list of The 300 Best Small Companies in the world and as one of the 20 for 2001 best small companies in the world. There have been some other proud moments as well. London Based Euromoney magazine gave us the award for Best Bank India in 1999, Best Domestic Bank in India in 2000, and Best Bank in India in 2001 and 2002. Hong Kong based Finance Asia Magazine rated us Best Domestic Commercial Bank in India in 1999, 2000 and 2001 respectively and Best Local Bank in India in 2002. Asiamoney magazine has named us Best Commercial Bank in India 2002. The Economic Times has conferred on us The Economic Times Awards for Corporate Excellence as the Emerging Company of the Year 2000-01. Leading Indian business magazines Business India named us Indias Best Bank in 2000. Another leading Indian business magazine Business Today in a survey rated us Best Private Sector Bank in India in 1999. For our use of information technology we have been recognized as a Computerworl Honors Laureate and awarxded the 21st Century Achievement Award in 2002 for Finance, Insurance & Real Estate category by Computerworld, Inc., USA. Our technology initiative has been included as a case study in their online global archieves.

NASSCOM and economictimes. Com have named us the Best IT User in Banking at the IT Users Awards 2003. We are aware that all these awards are mere milestones in the continuing, never ending journey of providing excellent service tour customers. We are confident, however, that with your feedback and support, we will be able to maintain and improve our services. Product Range: Savings, Fixed Deposits, Current and Demat Accounts Savings Accounts: Apart from the usual facilities, you get a free ATM Card, Interbranch banking, NetBanking, Bill pay, Phone Banking, Debit Card and Mobile Banking, among others. HDFC Bank Preferred: A preferential Savings Account where you are assigned a dedicated Relationship Manager, who is your one point contact. You also get privileges like fee waivers, enhanced ATM withdrawal limit, priority locker allotment, free Demat Account and lower interest rates on loans, to name a Sweep-In Account: A fixed deposit linked to your Savings Account. So, even your Savings Account runs a bit short, you can issue a cheque (or use your ATM Card). The money is automatically swept in from your fixed deposit into your Savings Account. Super Saver Account: Gives you an overdraft facility up to 75% of your Fixed Deposit. In an emergency, you can access your funds while your Fixed Deposit continues to earn high interest. HDFC Bank Plus: Apart from Regular and Premium Current accounts we also have HDFC Bank Plus, a Current Account and then some more. You can transfer up to Rs. 50 lakh per month at no extra charge, between the four metros. You can also avail of cheque clearing between the four metros, get cash delivery/pickup upto Rs. 25,000/- home delivery opf Demand Drafts, at par cheques, outstation cheque clearance facility, etc. Demat Account: Conduct hassle free transactions on your shares. You can also access your Demat Account on the Internet.

Phone Banking: 24 hour automated banking services with 39 PhoneBanking numbers available. ATM 24 hour banking: Apart from routine transactions, you can also pay your utility bills and transfer funds, at any of our ATMs across the country all year round. Intercity/ Interbranch Banking: Access your account from any of our 241 branches in 129 cities. Net Banking: Access your bank account from anywhere in the world, atanytime, at your own convenience. You can also view your Demat Account through NetBanking. International Debit Card: An ATM card you can shop with all over the country and in over 140 countries with. You can spend in any currency, and pay in Rupees. Mobile Banking: Access your account on your mobile phone screen at no airtime cost. Use SMS technology to conduct your banking transactions from your cellphone. Bill Pay: Pay your telephone, electricity and mobile phone bills through our ATM, Internet, Phone or mobile phone. No more standing in long queues or writing cheques. Loans: Personal Loans: Take a loan of up to Rs. 3 lakh for a wedding, education, purchase of a computer or an exciting holiday. New Car Loans and Used Car Loans: Finance up to 90% of the cost of car, new or used! And the loans come to you with easy documentation and speedy processing at attractive interest rates. Loans Against Shares: Get an overdraft up to Rs. 10 lakh at an attractive interest rate against physical shares, up to 50% of the market value of your shares. In case of Demat Shares, you can get a Loans Against Shares of up to 65% of the market value of your shares, till Rs. 20 lakh. Two Wheeler & Consumer Loans: To help you buy the best durables for your home. You are responsible for regularly reviewing these terms adnconditions. Continued use of the site after any such changes shall constitute your consent to such changes.

4. Copy right: All information, content, materials, products (including but not limited to text, content, photographs, graphics, video and audio content) is protected by copyright in the favor of HDFC Bank under applicable copyright laws and is also protected otherwise under general intellectual property law. All information submitted to HDFC Bank through this Site shall be deemed to be the property of HDFC Bank, and HDFC Bank shall be free to use any ideas, concepts know how or techniques provided by a visitor at this Site, in any manner whatsoever HDFC Bank is not bound by the obligation of confidentiality regarding submitted information unless the visitor has a direct customer relationship with the bank or unless specifically agreed or required by law. 5. Personal and Non commercial use restriction: You may not copy, reproduce, sell, redistribute, publicsh, enter into a database, display, perform, modify, transmit, license, create derivatives from, transfer or in any way exploit any part of any information, content, materials, services available from or through the Site, except that you may download material from this Service for your own personal, noncommercial use. 6. Liability Disclaimer: (a) HDFC Bank does not warrant that the services and products offered by the Site will be uninterrupted or error free. There may be delays, omissions, interruptions and inaccuracies in the products, services, information or other materials available on this site. HDFC Bank is also not responsible for the availability or content of other services that may be linked to this Site. Hyperlinks to other internet sites are at your own risk, the content, accuracy, opinions expressed, and other links provided by these sites are not verified, monitored or endorsed by HDFC Bank does notmake any warranties, and express or implied, including without limitation, those of merchantability and fitness for a particular purpose, title or non infringement with respect to any information or services or products that are available or advertised or sold through this Site. HDFC Bank does not make any representations, nor do we we endorse the accuracy, completeness, timeliness or reliability of any advice, opinion, statement or other material or database displayed, uploaded or distributed by this Site or available through links in this Site. We reserve the right but are not required to correct any errors

or omissions in this Site. HDFC Bank may make improvements and/or changes to Site provided therein at any time. (b) Although HDFC Bank will take serious steps to prevent the introduction of viruses, vandals, worms, Trojan horses or other destructive materials to this Site, HDFC bank does not guarantee or warrant that this Site or the materials that may be downloaded from this services do not contain such destructive features. HDFC Bank is not liable for any damages or harm attributable to such features. If you rely on this Site and any materials available through this Site, you do so solely at your own risk. (c) HDFC Bank, each of its officers, directors, shareholders, parents, subsidiaries, affiliates, agents, or licensors shall not be liable for incidental indirect, consequential special, punitive, exemplary damages or any damages whatsoever, including but not limited to damages for lost revenues or profits, loss of business or loss of data arising out of or any way related to the use and performance of this Site or for any claim, loss or injury based on errors, omission, interruptions or other inaccuracies in arising out of the use of the Site, whether based on contract, tort, negligence, strict liability or otherwise. If you are dissatisfied with any portion of the Site your sole and exclusive remedy is to discontinue using the Site and the related services. 7. As a condition of your use of the Site you warrant that you will not use the Site for any purpose that is unlawful, or prohibited by these terms and conditions. You may not use the Site in any manner that could damage, disable or impair the Site or interfere with and other partys use or enjoyment of the Site. 8. HDFC Bank shall not be considered in default of its obligations hereunder if performance of such obligations is prevented or delayed by causes beyond its reasonable control, including without limitation, Internet failures, computer equipment failures, telecommunciation equipment failures, other equipment failures, electrical power failures, strikes, virus, other malicious computer code, hacking, acts of God or government, war, riots, acts of civil disorder, labour disputes, failure or delay of transportation, non performance of third parties.

9. These terms and conditions may be withdrawn/superseded at any time whatsoever, by HDFC without any prior notice. 10. The Courts in Mumbai alone shall have exclusive jurisdictions as regards any claims ormatter arising out of dealings with us, and all dioputes will be governed by the laws of India. 11. These terms and conditions are in addition and not in derogation oft eh applicable terms and conditions relating to the services that you amy obtain, including without limitation net banking.

Ownership Rights
Certain rights that a shareholder in a company enjoys: To transfer the shares. To receive the share certificates upon transfer within the stipulated period prescribed in the listing agreement. To receive notice of General Meetings, abridged Annual Report, the Balance Sheet and the Profit and Loss Account and the Auditors Report. To appoint proxy to attend and vote at the general meetings. In case the member is a body corporate, to appoint a representative to attend and vote at general meetings of the company on its behalf. To attend and speak, in person at general meetings. Proxy cannot vote on show of hands but can vote in respect of poll. To vote at the general meeting on show of hands wherein every shareholder has one vote. In case of poll, the number of votes of a shareholder depends on the proportion of equity shares held by him with the total paid up equity capital of the company. To demand poll along with the other shareholder(s) who collectively hold 5000 shares or is not less than 1/10 of the total voting power of the total paid up capital of the Company. To requisition an extraordinary general meeting of the Company by shareholders holding not less than 1/10 of the total paid up capital of the company. To move amendments to resolutions proposed at meetings. To receive dividend and other corporate benefits like rights, bonus shares etc. as and when declared/announced. To take inspection of the various registers of the company. To inspect the minutes books of the general meetings and to receive copies thereof after complying with the procedure prescribed in the Companies Act, 1956.

 To appoint or remove director(s) and auditor(s) and thus participate in the management through them. To proceed against the company by way of civil or criminal proceedings.

To apply for the winding up of the company. To receive the residual proceeds upon winding up of a company. Kindly note that the rights mentioned above are prescribed in the Companies Act, 1956 and should be followed only after careful reading of the relevant sections. These rights are not necessarily absolute.

Trusts
Our trust services provide you with the dual advantages of a secure depository and efficient administration of your securities. Our solutions help you maximize returns, meet fiduciary responsibilities, and improve operational efficiency. Knowing that our clients needs are complex and varies, we leverage our extensive expertise and experience to provide you with a customized set of benefit and investment services that work best in assisting your employee benefits program. And whats more, since we take on custodian services for all types of securities, you can protect your securities from loss, theft, damage or destruction. In addition to the benefits of a securities account, you can also take advantage of our other services such as professional investment advice as well as banking products. You will receive important information concerning changes in RBI policy and auctions in timely fashion. Based on your instructions, we will bid for your in RBI auctions, settle your purchase or sale transactions, convert your securities from physical to dematerialized mode. All the work involved in handling securities transactions is taken care of. Incoming credits will be immediately deposited to your account and you receive regular statement of interest, redemption and payments. You can also request at a predefined interval a custody account or account statement showing clearly the accounts current holdings. Our Phone Banking facility enables you to stay informed about your account around the clock.

FINDING AND ANALYSIS

The Ninth Annual Report on the business and operations of HDFC Bank together with the audited accounts for the year ended 31 March, 2003. FINANCIAL PERFORMANCE (Rs. In incores) For the year ended 31 March 2003 Deposits and other borrowings Advances Total income Profit before depreciation and tax Net profit Appropriations: Transfer to statutory reserve Transfer to general reserve Transfer to debenture redemption reserve Transfer to investment fluction reserve Proposed dividend Tax on dividend paid Dividend paid Balance carried over balance sheet 24460.7 11754.8 2496.1 31 March 2002 19476.8 6813.7 2036.2 494.4 397.7 9.5 97.2 70.3 9.5 97.2 70.3 16.0

3.87.6 84.9 10.9 84.9 10.9 0.1 156.0

The bank posted total income and net profit of Rs. 2496.1 crores and Rs. 387.6 crores, respectively for the financial year 2002-03 as against Rs. 2036.2 crores and Rs. 297.00 crores, respectively in the previous year. Appropriations from the net profit have been affected as per the table given above.

PROFIT AFTER TAX (Rs. Crores)

388

297

210

2001

2002

2003

DIVIDEND: The Banks dividend policy is based on the need to balance the twin objectives of appropriately rewarding shareholders with cash dividends and of retaining capital to meet the Banks investment needs and to maintain a healthy capital adequacy ratio to support further growth. Consistent with this policy, the Bank has had a track record of moderate but steady increases in dividend declarations and the dividend layout ratio in the last few years has been in the range of 25% to 30%. In line with this policy and in recognition of the healthy financial performance during 2002-03 and the positive outlook for the future, the Directors are pleased to recommended a dividend of 30% for the year ended 31 March, 2003, as against 25% for the year ended 31 March, 2002. The dividend for FY 2002-03 shall be subject to tax on dividend to be paid by the Bank but will be tax-free in the hands of the members, unlike in 2001-02, when but the dividends were

taxable in the hands of the members. In line with the regulatory requirements, the dividend declared is subject to approval by the Reserve Bank of India (RBI).

PROFIT PER SHARE (Rs.)

3.00 2.50 2.00

2001

2002

2003

ADDITIONAL CAPITAL: During the year under 6.7 lacs shares were allotted to the employees of the Bank pursuant to the exercise of options under the Employees Stock Option Scheme of the Bank.

PROPOSED STOCK OPTION SCHEME: Employees since inception of the Bank are one of the major contributors to the success and growth of the Bank. The Directors look forward to such continued contribution in future from employees at all levels. It is proposed to seek approval of shareholders for grant of 10,000,000 options, which will enable the Bank to attract, motivate and retain best talent. These options

will be granted to all the employees from the grade of the junior executive to the Managing Director and the Directors of the Bank. The options will be granted on the basis of performance, grade, future potential contribution etc. Options will be granted at the closing market price of the immediately preceding working day of the date of grant of options by the Compensation Committee of the Bank.

Option Vested: Out of the options granted under the Employees Stock Option Scheme in January 2000 (EOS 1), January 2001 (EOS 2) and February 2002 (EOS 3), 18.3 lacs, 5.1 lacs and 4.2 lacs options respectively, have been vested in the employees. Options exercised and allotted: During the year under review, 6.7 lacs options were exercised by the employees and the Bank allotted 6.7 lacs new equity shares resulting in an increase in the paid-up capital of Rs. 67 lacs and share Premium account by Rs. 1020 lacs. The allotment of 11.1 lac shares in respect of options exercised in the last quarter has been made on 7 April 2003. The new-shared issued under ESOS would rank pari-passu with the. Options lapsed: 5.1 lacs options lapsed during the year under review on account of staff resignations.

RETURN ON CAPITAL
24.5%

18.3%

18.1%

2001

2002

2003

Outstanding Options: After considering the exercised and lapsed options, 66.0 lacs options are still outstanding as 31 March, 2003. The earning per share (EPS) for the year under review after considering all options outstanding under ESOS, works out to Rs. 12.79. CAPITAL ADEQUACY RATIO: The Banks total capital adequacy ratio (CAR) stood at a healthy 11.12% well above the regulatory minimum of 9%. Of this, Tier 1 CAR was 9.49%. The Reserve Bank of India in its master circular on prudential norms relating to capital adequacy has now capped general loan loss provisions and investment fluctuation reserve at 1.25% of the total risk weighted assets and

contingents for inclusion as Tier 2 capital. This is the first time the investment fluctuation reserve has been included in this limit. The Bank holds higher levels of general provisions and investment fluctuation reserves which are now therefore, excluded from the Tier 2 capital calculation. But for this ceiling, the total CAR would have been higher by about 0.5%.

CAPITAL ADEQUACY (Rs.)

13.9%

11.1%

11.1%

2001 CREDIT RATING:

2002

2003

The bank had its deposit programmes rated by two rating agencies Credit Analysis and Research Limited (CARE) and Fitch Ratings India Private Limited. The Banks Fixed Deposit programme was rated CARE AAA (FD) (Triple A) by CARE, which represents instruments considered to be of the best quality, carrying negligible investment risk. CARE also rated the Banks certificate of Deposit programme PR 1+, which represents superior capacity for repayment of short term promissory obligations. Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.) assigned the tAAA (ind) rating to the Banks deposit programme, with the outlook on the rating as stable. This rating indicates highest credit quality where

protection factors are very high. In each case referred to above, the ratings awarded were the highest, assigned by the rating agency for those instruments.

CORPORATE GOVERNANCE RATING: The Bank was one of the first four companies which subjected itself to a Corporate Governance and value creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entitys current performance and an expectation on its balanced value creation and corporate governance practices in future. The Bank has been assigned a CRISIL GVC Level 1 rating which indicates that the Banks capability with respect to wealth creation for all its stakeholders, while adopting sound corporate governance practices, is the highest.

COST OF DEPOSITS
6.56% 6.42% 5.40%

2001

2002

2003

FINANCIAL PERFORMANCE
The overall performance during the financial year 2002-03 remained healthy with total net revenues (net interest income plus other plus other income) increasing by 35.5% from Rs. 962.5 crores to Rs. 13.4 crores. The revenue growth was a result of a 32.1% increase in net interest income and a 42% increase in other income. Net interest income growth was a result of an increase in total interest income of 18.8% to Rs. 2023 crores, offset in part by an increase in total interest expense of 11% to 1192 crores. The balance sheet size increased by 28% while net interest margin increased by 14 basis points from 3.12% in FY 2001-02 to 3.26% in FY 2002-03. Average yields on earning assets dropped by 55 basis points given the general decline in interest rates and intense competition in both the wholesale and retail asset businesses. This was more than offset by a reduction of about 100 basis points in the average costs of deposits, a function of the decline in the costs of term

deposits and a marginal increase in the proportion of average current and savings accounts balances to average total deposits.

NET INTEREST MARGIN

3.89% 3.12% 3.26%

2001

2002

2003

The other income (non-interest revenue) had three components, each of which experienced healthy growth during 2002-03. Commission income increased by 47% to Rs. 242 crores with commission from the retail banking businesses (including fees from debit/credit cards and point-of sale (POS) terminals, transactional charges/fees on.

Deposit accounts and commission from third party distribution) and cash management services growing at a healthy pace, partly offset by lower commissions in the trade and documentary

services business. Profits on sale of investments increased by 27.6% to Rs. 132.5 crores during 2002-03. This represents trading profits in government securities as yields dropped by about 110-120 basis points and profit from the distribution business primarily in respect of corporate boinds. Foreign exchange and derivatives revenues increased by 48.8% to Rs. 95 crores in 2002-03 driven primarily by customer trade volumes and increase in the interest rate swaps business. Operating (non interest) expense increased by 41.6% to Rs. 591.8 crores in 2002-03. As a result of a significant increase in infrastructural investments, geographical expansion and new product roll-outs, operating expenses as a proportion of total revenue, increased from 43.4% in 2001-02 to 45.4% in 2002-03. A major portion of the increase in expenditure related to expansion of the retail asset, credit card and merchant acquiring businesses and an increase in the number of branches and ATMs by 35% and 52% respectively. Staff expenses accounted for 25.6% of non-interest expenses in 2002-03 as against 26.1% in the previous year, despite an increase in staff strength from 3742 to 4791. Loan loss provisions for retail product programs partly offset by lower specific loan losses. Provisions for depreciation and amortization of investments were Rs. 52.6 crores representing primarily the amortization of premium for SLR investments in the held to maturity category.

BALANCE SHEET SIZE (Rs. Crores)

30424 23787

15617

2001

2002

2003

Profit increased by 30.5% from Rs. 297 crores in 2001-02 to Rs. 387.6 crores up 2002-03. Return on average networth was 18.1%, marginally lower than the previous year figure of 18.3% primarily due to the full year impact of ADS shares, which were issued in July, 2001. The Banks basic earning per share increased from Rs. 11.01 to Rs. 13.75 per equity share. The diluted earnings were Rs. 12.79 per equity share in 2002-03.

ADVANCES (Rs. Crores)

11755

6814 4637

2001

2002

2003

Balance Sheet growth during 2002-03 was also strong. Total deposits increased by 27% from Rs. 17654 crores to Rs. 22376 crores, saving account deposits which reflect the strength of the retial liability franchise and an important source of low cost, stable funds, increased by 58% from Rs. 2957 crores to Rs. 4663 crores. Total Advances grew by 73% to Rs. 11755 crores, driven by a growth of 140% in retail advances (including commercial vehicle loans) to Rs. 3441 crores and an increase of 54% in wholesale advances to Rs. 8314 crores. The mix of the Banks core total advances as of 31 March 2003 is therefore, 71% wholesale and 29% retail. The Banks core customer assets (advances and credit substitutes like commercial paper, corporate debentures, preference shares, etc.) increased from Rs. 10452 crores in March, 2002 to Rs. 14450 crores in March, 2003. In addition, the Bank held Rs. 2160 crores of investments in securities paper share the Underlying assets were commercial vehicles, car loan and mortgage receivables and collateralized loan obligations. Total customer assets (including securitization)

were therefore Rs. 16610 crores as of 31 March, 2003. Total balance sheet size grew by 28% from Rs. 23787 crores to Rs. 30424 crores.

Business Segment Update: Despite the challenging and volatile environment in 2002-03, the Bank has been able to achieve healthy growth across multiple parameters, including customer acquisition, geographical spread, business volumes and revenues. This performance reflects the strength and diversity of the Banks three primary business franchises-wholesale Banking, Treasury and Retail Banking, as well as a disciplined approach to risk-reward management.

DEPOSITS (Rs. Crores)

22376 17654

11658

2001

2002

2003

In the Wholesale banking business, the Bank leverages the high quality service and relationship management to provide its corporate and institutional clients a wide range of commercial and transactional banking products. The Banks commercial banking business in focused primarily towards the top of the corporate sector covering mainly short and medium tenor working capital related products. In the transactional banking services business, thew Bank provides cash management, trade, custody and correspondent banking services to corporates, banks, mutual funds and other entities. During FY 2002-03, the Wholesale Banking business grew through a combination of adding new customers, cross selling more products and increasing market share for existing products. The focus was not merely on balance sheet growth but on optimizing yields and increasing product penetration. The Banks electronic banking, cash management and vendor and stributor finance products which are structured to improve supply chain management for its corporate customers received an excellent response. New initiatives in agree-lending areas bore fruit with total direct and indirect finance (other than bond investments) to the agriculture sector touching Rs. 883 crores as of 31 March, 2002. In the core cash management business (vovering the outstation collection and disbursement products), the Bank continued to see a healthy growth in volumes from Rs. 145,000 crores in the FY 2001-03. Total cash management volumes (including at-par and bulk payment products and electronic funds transfers for customers across the Banks locations) crossed Rs. 250,000 crores consolidation the Banks position as one of the leading players in this business in India. The Bank also maintained its market leadership in providing cash settlement services for major stock exchanges in the country, although overall floats from this business continued to decline during most of the year given lower settlement volumes in the stock markets. The Banks exposure to the capital markets segment 9both funded and non-funded as defined in the line with regulatory guidelines) was with the 5% of advance limit prescribed by the Reserve Bank of India (RBI). For the seventh year in succession, in 2002-03, the Bank met the overall priority sector-lending requirement of 40% of net bank credit.

SAVING DEPOSITS (Rs. Crores)

4663

2957

1903

2001

2002

2003

On the Treasury front, the Bank has presence in the foreign exchange, derivatives and local currency debt securities and money markets. The treasury group manages the Banks balance sheet and is responsible for compliance with reserve requirements and management of market and liquidity risk. On the foreign exchange front, the revenues are driven primarily by spreads on foreign exchange and derivative transaction, based on trade flows and hedging needs of corporate customers. In addition, the treasury group seeks to optimize profits from proprietary trading within established limits. During FY 2002-03 the foreign exchange and derivative revenues grew by 48% from Rs. 64.1 crores (FY 2001-02) to Rs. 95.4 crorres. With a continued decline in interest rates through most of the year, the local currency debt securities trading and distribution businesses had another strong year with revenues growing 27.6% to Rs. 132.5 crores. Given the regulatory requirement of holding government securities to meet the statutory liquidity ratio (SLR) requirement, the Bank has necessarily to maintain a large government securities portfolio. While this has enabled the bank to realis gains in a declining interest rate environment, it exposes the Bank to losses or depreciation in value of investments if yields were

to rise. To reduce this volatility to an extent and to balance the yield and market risk trade-off, the Bank has a policy of maintaining a relatively low duration of around 2 to 2.5 years in the government securities (SLR) portfolio as against an average estimated duration of over 4 years for the Indian banking system as whole.

BRANCHES
231

171 131

2001

2002

2003

In the Retail Banking business, thew Bank has positioned itself as a one-stop-shop financial services provider focused primarily on the middle class, mass affluent and high network segments. To its target customer base, the Bank provides a wide range of financial products and services including various deposit products, loans, credit cards, debit cards, bill payment services, investment advice and various transactional services. Thew Bank also leverages its customer base and distribution network to sell third party financial products like mutual funds and from January, 2003 onward, life insurance products. The Bank strives to provide its customers greater convenience and high quality services at a value for money price point, backed by appropriate investments in technology and other infrastructure. The Bank services its customers through multiple channels-branches, ATMs, Phone Banking, Internet Banking and Mobile Banking. The success of the Banks multi channel strategy is evidenced in the fact that almost 70% of customer initiated transactions are serviced through the non-branch channels, providing flexibility and convenience to the customer and reducing servicing costs of the Bank. The bank has also implemented a data warehouse and first phase of its Customer Relationship Management (CRM) solution to improve the effectiveness of cross selling at the branches and to facilitate relationship pricing. During 2002-03, the Banks retail banking franchise experienced significant growth. Even after weeding out over 100,000unprofitable accounts, the total number of retail accounts increased from 2.2 million March, 2002 to over 3.1 million in March, 2003.

ATMS
732

479

207

2001

2002

2003

Growth of almost 50% for the second year in succession. These customers can conveniently deal with the Bank through the growing branch network in 123 cities as well as through alternative direct banking channels like ATMs Phone Banking (in 80 cities), Net Banking and Mobile Banking. From March, 2002 to March 2003, the number of branches (including extension counters) increased from 171 to 231 and the size of the Banks ATM network expanded from 479 to 732. With a significant expansion in the geographical coverage of retail loan products like car loans and personal loans, as well as the launch of new products like two wheeler loans, the retail loan portfolio increased from Rs. 1430 crores as of 31 March, 2003, an increased from Rs. 121 including the commercial vehicle loan portfolio, which is a mix of retail and transport operator finance, total retail loans touched Rs. 3441 crores as of 31 March, 2003. The Banks credit card business, which is lust over a year old now, has a presence in 18 cities with total number of cards issued at 181,000. The Bank also significantly expanded its presence in the merchant acquiring business with 21,804 point-of-sale (POS) terminals installed as of 31 March, 2003 up from 6480 as at the end of the previous year. The Banks success in its third

party distribution business is best evidenced in the mutual fund sales which crossed Rs. 8400 crores, an increase of 69% over the previous year. Thew Bank also maintained its position as one of the leading Depository Participants in term of number of retail investor accounts, providing high quality retail custody services in electronic form.

RETIAL ASSETS (Rs. Crores)

3163

1430 845

2001

2002

2003

Risk Management & Portfolio Quality: Risk in integral to almost every aspect of the Banking business and it is well accepted that revenues the banks earn relate to large extent, to the risks they accept. Business and revenue growth therefore, have to be weighed in the context of the risks implicit in the Banks business strategy. While the bank is exposed the various types of risk, the most important amongst them are credit risk, market risk (which includes liquidity risk and price and price risk) and

operational risk. The identification, measurement, monitoring and management of risks remains a key focus area for the Bank. Or credit risk, distinct policies and possesses are in place for the wholesale and retail asset businesses. For wholesale credit exposures, management of credit risk is done through target market definition, appropriate credit approval processes, ongoing postdisbursement monitoring land remedial management procedures. Portfolio diversification remains key, particularly given the volatility in the business environment. In the retail asset business, the credit cycle is managed through appropriate front-end credit, operational and collection processes. For each product, programs defining customer segments, underwriting standards, security structures, etc. are specified to ensure consistency of credit buying patterns.

RETAIL ACCOUNTS (Rs. Crores)

31

22

14

2001

2002

2003

Given the granularity of individual exposures, retail credit risk is managed largely on portfolio basis, across various products and customer segments. The Risk Monitoring Committee of the Board monitors the Banks risk management policies and procedures, vets treasury risk limits before they are considered by the Board and reviews portfolio composition and impaired

credits. As of 31 March, 2003 the retail portfolio (consisting four main retail loan products-car loans, personal loans secured by marketable securities, clean personal loans and loans against deposits) constitutes 20.1% of total customer assets deposits) constitutes 20.1% of total customer assets (including advances, corporate debt investments, etc.). The only other concentration at 10.1% of customer assets is in exposures to State sponsored institutions which largely comprise government and semi-government financial institutions and corporations which issue bonds which qualify for meeting regulatory requirements on priority sector lending. Other larger industry exposures include automotive (cars, two-wheelers and commercial vehicles) at 6.9% heavy industrial/organic chemicals at 4.4%, land transport at 3.9% and petroleum at 3.7% of customer assets. The well diversified nature of the portfolio is evidenced in the fact that 26 industries account for 1% or more of the Banks customer assets portfolio.

GROSS NPA TO CUSTOMER ASSETS (Rs. Crores)

2.04%

1.96% 1.60%

2001

2002

2003

As of 131 March, 2003, the Banks ratio of gross non-performing assets to total customer assets was 1.60% against 1.96% as on 31 March, 2002. increases in non-performing assets during the year were retaliated to deterioration in credit quality relating to certain working capital and guarantee exposures in the corporate banking business, including some relating to exposures acquired by the Bank as part of thew Times Bank merger. Net non-performing assets (gross non-performing assets less specific loan loss provisions, interest in supense and ECGC claims received) were 0.4% of net advances and 0.3% of customer assets as on 31 March, 2003 as against 0.5% and 0.3% respectively as of 31 March, 2002. The specific loan loss provisions the Bank made for its non-performing assets continue to the more conservative than the regulatory requirement. The Bank continue to have a policy of holding general provisions of between 1% to 3% for its retail and middle market product programs as well as around 0.4% for corporate standard assets. As on 31 March, 2003, total general loan loss provisions were about 1% of standard advances as against the regulatory requirement of 0.25%. The general provisions amounted to 0.7% of standard customer assets. Internal Audit & Compliance: The bank has an internal Audit and Compliance department which is focused on independently evaluating the adequacy of all internal controls, ensuring adherence to operating guidelines, regulatory and legal requirements and proactively recommending improvements in operational process and service quality. To ensure independence, the audit and compliance committee function reports directly to the Chairman of the Board of Directors and the Audit and Compliance Committee of the Board and Only indirectly to the Managing Director. To mitigate operational risks, the Bank has put in place extensive internal controls including restricted access to the Banks Computer system, appropriate segregation of front and back office operations and strong audit trials. The Audit & Compliance Committee of the Board also reviews the performance of the audit and compliance department and reviews the effectiveness of controls and compliance and with regulatory guidelines.

NET NPA TO CUSTOMER ASSETS

0.30% 0.30%

0.29%

2001

2002

2003

Statutory Disclosures The information required under Section 217 (2a) of the Companies Act, 1956 and the rules made thereunder, are given in the annexure appended hereto and forms part of this report. In terms of Section 219 (1)(IV) of the Act, the report and Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of thew said annexure may write to the Company Secretary at thew Registered Office of thew Bank. The Bank had 4791 employee as on 31 March, 2003. 32 employees employed throughout the year were in receipt of remuneration of Rs. 24 lacs of more per annum. Responsibility Statement: 1. In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

STAFF COST TO NET REVENUE

11.5%

11.3%

11.2%

2001

2002

2003

2. We have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on 31 March, 2003 and of the profit of the Bank for the year ended on that date; 3. We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with thew provisions of the Companies Act, 1956 for safeguarding the assets of the bank and for preventing and detecting the frauds and other irregularities; 4. We have prepared the annual accounts on a going concern basis.

PEOPLE
4791

3742

2800

2001

2002

2003

Auditors Report
They have audited the attached Balance Sheet of HDFC BANK LIMITED as at 31 st March, 2003 and the Profit and Loss Account of the Bank, annexed thereto land the cash flow statement for the year ended on that date. These financial statements are the responsibility of the Banks management. Our responsibility is to express our opinion on these financial statements based on our audit. They conducted their audit in accordance with their auditing standards generally accepted in India. Those standards require that they plan and perform the audit to obtain reasonable assurance about whether the financial statements; are free from material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and discolosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The report thereon as follows: 1. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with thew provisions of Section 29 of the Banking Regulation Act, 1949, read with Section 211 of the Companies Act. 1956. 2. They have obtained all the information and explanations which, to the best of our knowledge and belief were necessary for the purpose of our audit and have found them to be satisfactory. 3. The transactions of the Bank which have come to our notice have been within the powers of the Bank. 4. In our opinion, proper books of account as required by law have been kept by the Bank so as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches of the Bank.

5. The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account and the Branch returns. 6. In our opinion, the Balance Sheet and the Profit and Loss account dealt with by this report are in compliance with According Standards referred to in Section 211 (3C) of the Companies Act, 1956, in so far as they apply to Banks. 7. On the basis of the written representations received from the directors, taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2003 from being appointed as a director under Section 274(1)(g) of the Companies Act, 1956. 8. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required for banking companies and give a true and fair view: (1) In the case of the Balance Sheet, of the state of affairs of the Bank as at 31st March, 2003. (2) In the case of the Profit and Loss Account, of the profit of the Bank for the year ended on that date; and (3) In case of the Cash Flow Statement of the cashflows for the year ended on the date.

PRINCIPAL ACCOUNTING POLICIES

A BASIS OF PREPARATION

The financial statements are prepared on the historical cost convention, on the basis of accounting, and conform to statutory provisions and practices prevailing within the banking industry in India. B 1 SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS

In accordance with the Reserve Bank of India guidelines, investments are classified into Held for trading, Available for sale and Held to maturity categories (hereafter called categories). However, for disclosure in the Balance Sheet, these are classified under six groups (hereafter called groups) Government securities, other approved securities, shares, debentures and bonds, investments in Subsidiaries/joint ventures and other investments. Brokerage, commission etc. paid at the time of acquisition, is charged to revenue. Brokerage, commission etc. paid at the time of acquisition, is charged to irevenue. Broken period interest on debt kinstruments is treateds as a revenue item. Cost of investments is based on the weighted average cost method. Basis of classification : Securities that are held principally for resale with 90 days from the date of purchase are classified as Trading. Investments that the Bank intends to hold to maturity are classified as Held to maturity. These are carried at acquisition cost, unless acquired at a premium, which is amortised over the period remaining to maturity.

Securities which are not be classified in the above categories, are classified as Available for Sale. An investment is classified as Held for Trading, Available for Sale and Held to Maturity at the time of its purchase. Transfer of security between categories: The transfer of a security between categories of investments is accounted for at the acquisition cost/book value/market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer is fully provided for. Valuation: Held for trading and Available for Sale categories. Each scrip in the above two categories is revalued at the market price or fair value-and

only the net depreciation of each group for each category is recognized in the profit and loss account. Held to maturity:

These are carried at their acquisition cost and not marked to market. Any premium on acquisition is amortised over the balance maturity of the security on a straight line basis. The evaluation of investments is made in accordance with the Reserve Bank of Indias guidelines. 2. ADVANCES

Advances are recognized as non-performing based on RBI guidelines. Interest on nonperforming advances is credited to an interest suspense account and not recognized in the profit and loss account until received. Specific loan loss provisions in respect of non-performing advances are made based on managements assessment of the degree of impairment of the advances, subject of the minimum provisioning level prescribed in RBI guidelines. The Bank also maintains general provisions to cover potential credit losses which are inherent in any loan portfolio but, not yet identified. These general provisions are linked to projected delinquencies for retail loans and other advances managed on a product program basis. For corporate standard assets, general provisions are determined having regard to over all portfolio quality, asset growth economic conditions and other risk factors. 3 Fixed assets and depreciation

Fixed assets are apitalised at the cost. Includes cost of purchase and all expenditure like site preparation, installation costs, professional fees incurred on the asset before it is put to use. Subsequent expenditure incurred on assets putton use in capitalised only where it increases the future benefit/functioning capability from/such assets.

NET WORTH (Rs. Crores)

2245 1942

913

2001

2002

2003

NET INTEREST MARGIN

3.89% 3.12% 3.26%

2001

2002

2003

RETURN ON ASSETS

1.61%

1.48%

1.52%

2001

2002

2003

OTHER INCOME TO NET REVENUES

34.6% 36.3%

26.8%

2001

2002

2003

COST TO REVENUE
44.8% 43.4% 45.4%

2001

2002

2003

PROFIT ON SALE OF INVESTMENTS TO NET RESERVE

10.8% 10.4%

1.3%

2001

2002

2003

POINT OF SALE TERMINALS

21804

6480

446

2001

2002

2003

RUPEE SPENT (in paise)

Interest expense Operating expense Provisions Tax Dividend Transfer to reserves 4 12 47 34

7 6

BALANCE SHEET AS AT 31 MARCH, 2003

CAPITAL AND LIABILITIES Capital Reserve and Surplus Employees Stock Options (Grants) Outstanding Deposits Borrowings Subordinated debt Other Liabilities and Provisions Total ASSETS Cash and balances with Reserve Bank of 6 India Balances with Banks and Money at Call and 7 Short Notice Investments Advances Fixed Assets Other Assets Total Contingent Liabilities Bills for Collection 12 8, 19 (7) 9 10 11 SCHEDULE 1 2 AS AT 3103-2003 282,05 1,962,78 AS AT 3103-2002 281,37 1,660,91

3 4 19(4) 5

6,91 22,376,07 2,084,65 200,00 30,424,08 2,081,96 1,087,26 13,388,08 11,754,86 52,858 1,583,34 30,424,08 41,559,85 1,761,39

9,05 17,653,81 1,823,02 200,00 23,787,38 1,211,17 2,247,02 12,004,02 6,813,72 371,10 1,140,35 23,787,38 20,327,95 1,036,90

PROFIT AND LOSS ACCOUNT for the year ended 31 March, 2003 SCHEDULE I. INCOME Interest earned Other income II. EXPENDITURE Interest expended Operating expenses Provisions & Contingencies (includes Income Tax provision of Rs. 183,25 lacs (previous year Rs. 128,34 lacs) Total III. PROFIT Net profit for the year IV. APPROPRIATIONS Transfer to Statutory Reserve Proposed dividend Tax on dividend Dividend paid during the year Transfer to General Reserve Transfer to Investment Fluctuation Reserve Transfer to Debenture Redemption Reserve Balance carried over to Balance sheet Total V. EARNINGS PER EQUITY SHARE (Face value of Rs. 10/- per share) (Rupees) Basic Diluted 13 14 15 16 17 AS AT 3103-2003 2,022,97 473,10 1,191,96 591,83 324,68 2,108,47 387,60 96,90 84,95 10,88 10 38,76 --156,01 387,60 13.75 12,79 AS AT 3103-2002 1,702,99 333,25 1,073,74 417,95 247,51 1,739,20 297,04 74,26 70,34 --29,71 97,18 9,54 16,01 297,04 11.01 10.29

ANALYSIS OF BALANCE SHEET

AS AT 3103-2003 SCHEDULE 1 CAPITAL Authorized Capital 45,00,00,000 (31 March, 2002: 45,00,00,000) Equity share of Rs. 10/- Each Issued, Subscribed and Paid-up Capital 28,20,45,713 (31 March, 2002: 28,13,74,613) Equity Share of Rs. 10/- Each Total SCHEDULE 2 RESERVE AND SURPLUS 450,00 AS AT 3103-2002 450,00

282,05

281,37

I. Statutory Reserve Opening Balance Additions during the year Total II. III. General Reserve Opening Balance Transfer for Profit and Loss Account Additions during the year Total IV. Balance in Profit and Loss Account Opening Balance Transfer from deferred tax asset Transfer to General Reserve Transfer for Debenture Redemption Reserve Transfer to Investment Fluctuation Reserve Additions during the year Total V. Share Premium Account Opening Balance Additions during the year Deductions during the year Total VI. Investment Fluctuation Reserve Opening Balance Transfer from Profit and Loss Account Additions during the year

22809 9690

15383 7426

5859 3876 9735 19038 974 15601 35613 91951 1020 92971 24008 -

2888 2971 5859 32980 1635 (2888) (14290) 1601 19038 17114 78087 (3250) 91951 14290 9718

AS AT 3103-2003 SCHEDULE 2 RESERVES AND SURPLUS VI. Amalgamation Reserve Opening Balance Total VII. Debenture Redemption Reserve Opening Balance Additions during the year Transfer to General Reserve Total Total Schedule 3 DEPOSITS I. Demand Deposits (i) From Banks (ii) From Others Total II. Savings Bank Deposits III. Term Deposits (i) From Banks (ii) From Others Total SCHEDULE 4 BORROWINGS I. Borrowings in India I. Borrowings in India (i) Reserve Bank of India (ii) Banks (iii) Institutions and agencies Total II. Borrowings outside India Total SCHEDULE 5 OTHER LIABILITIES AND PROVISIONS I. Bills Payable II. Interest Accrued III. Others (including provisions) IV. Proposed Dividend (includes tax on dividend for the current year) Total SCHEDULE 6 CASH AND BALANCES

AS AT 3103-2002

1452 1452 974 (974) 196278 42677 452419 466314 466314 47647 1228550 1276197

1452 1452 20 954 166091 37172 384846 422018 295745 41176 1006442 1047618

1347 140660 65654 207661 804 182302 AS AT 3103-2003 85112 68821 1876646 9583 351162

9667 92031 80604 182302 AS AT 3103-2002 86738 41689 80461 7034 215922

208465

WITH RESERVE BANK OF INDIA I. Cash in hand (including foreign currency notes) II. Balances with Reserve Bank of India in current accounts Total SCHEDULE 7 BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE India (i) balances with Banks: (a) In current accounts (b) In other deposit accounts Total Represents deposit with NABARD under the RIDF Deposit scheme. This deposit is eligible for priority sector lending. (ii) Money at call and short notice: (a) With banks Total II. Outside India (i) In current accounts (ii) Money at call and short notice Total Total SCHEDULE 8 INVESTMENTS Investments in India in (i) Government securities (ii) Other approved securities (iii) Shares (iv) Debentures and Bonds (v) Joint Venture (vi) Units, Certificate of Deposits and Other Total SCHEDULE 9 ADVANCES (i) Bills purchased and discounted (ii) Cash Credits, Overdrafts and Loans repayable on demand (iii) Term loans Total (i) Secured by tangible assets* (ii) Covered by Bank/Government Guarantees

16668 191528 208196

11285 109832 121117

8343 8263 16606

6762 2207 8969

27817 27817 336 63967 64303 108726 AS AT 3103-2003 635625 1184 10839 416658 243 274259 1338808

14442 14442 5759 195532 201291 224402 AS AT 3103-2002 529503 1184 14518 426847 89 228261 1200402

262279 260780 652427 1175486 999073 9369

132508 173752 375112 681372 618571 5148

(iii) Unsecured Total Including advances against Book Debts Advances in India (i) Priority Sector (ii) Public Sector (iii) Banks (iv) Others Total (Advances are net of specific loan loss provisions)

167044 1175486 142182 85190 2218 945896 1175486

57653 681372 73246 91069 18834 4982223 681372

AS AT 3103-2003 SCHEDULE 10 FIXED ASSETS A. Premises (including Land) Gross Block At cost on 31 March of the preceding year Additions during the year Deductions during the year Total Depreciation As at 31 March of the preceding year Change for the year On deductions during the year Total Net Block Other Fixed Assets (including furniture and fixtures) Gross Block At cost on 31 March of the preceding year Additions during the year Deductions during the year Depreciation As at 31 March of the preceding year Charge for the year On deductions during the year Total Net Block C. Assets on Lease (Plant and Machinery) Gross Block At cost on 31 March of the preceding year Total Depreciation As at 31 March of the preceding year Charge for the year

AS AT 3103-2002

15318 4017 19335 1734 623 2357 16978 40390 22762 (1459) 17393 9901 (1398) 25896 35797 4383 4383 1062 90

12960 3305 (947) 15318 1387 425 (78) 1734 40390 27433 13522 (565) 11404 6332 (343) 17393 22997 4383 4383 917 145

Total Lease Adjustment Account As at 31 March of the preceding year Charge for the year Total Unamoritsed cost of assets on lease

1152 2792 356 3148 83 52858 AS AT 3103-2003

1062 2094 698 2792 529 37110 AS AT 3103-2002 45566 2951 334 100 7234 40553 17597 114035 174 1198492 530285 169503 94441 39900 2032795 623 863 21396 113 170299 16448 10383 (81) 3914 2661 33325 91552 13285 2537 107374

SCHEDULE 11 OTHER ASSET I. Interest accrued II. Advance tax (net of provision) III. Stationery and stamps IV. Bond and share application money pending allotment V. Security deposit for commercial and residential property VI. Cheques in course of collection VII. Other assets Total SCHEDULE 12 CONTINGENT LIABILITIES I. Claims against the Bank not acknowledged as debts II. Liability on account of outstanding forward exchange contracts III. Liability on account of outstanding derivative contracts IV. Guarantees given on behalf of constituents in India V. Acceptances, endorsements and other obligations VI. Other items for which the Ban is contingently liable Total SCHEDULE 13 INTEREST EARNED I. Interest/discount on advances/bills II. Income from investments III. Interest on balance with RBI and other inter-bank funds IV. Others Total SCHEDULE 14 OTHER INCOME I. Commission, exchange and brokerage II. Profit on sale of investments III. Profit/(Loss) on sale of building and other assets IV. Profit on exchange transactions V. Miscellaneous income SCHEDULE 15 INTEREST EXPENDED I. Interest on Deposits II. Interest on RBI/Inter-bank borrowings III.Other interest Total

66300 8886 94 50 8790 29445 44769 158334 5105 1977255 1860504 142470 117151 53500 4155985 7868 111295 12044 290 202297 24181 13246 108 4453 5322 47310 106329 10329 2538 119196

SCHEDULE 16 OPERATING EXPENSES I. Payments to and provisions for employees II. Rent, taxes and lighting III. Printing & stationary IV. Advertisement and publicity V. Depreciation on banks property VI. Directors fees, allowances and expenses VII. Auditors fees and expenses VIII. Law charges IX. Postage, telegram, telephone etc. X. Insurance XI. Other Expenditure* Total * Other expenditure, inter alia, includes selling expenses, professional fees, travel and hotel charges, entertainment, Registrar and Transfer agency fees and system management fees.
SCHEDULE 17 PROVISIONS AND CONTINGENCIES

15195 7726 2753 1751 10614 4 26 42 5192 4567 1226 10087 59183

10924 5775 1772 1878 6902 5 22 21 3706 3472 836 6 482 41795

I. Income tax II. Wealth tax III. Loan loss provision IV. Depreciation and amortization on investments V. Others Total SCHEDULE 18 EARNINGS PER EQUITY SHARE Annualized Earnings per equity share have been calculated based on the net income after taxation of Rs. 387,60 lacks (previous year Rs. 297,04 lacs) and the average number of equity shares in issue during the year of 281,934,292 (previous year: 269,884,245). Following is the reconciliation between basic and diluted earnings per equity share: Normal Value Per Share Basic earnings per share Effect of potential equity shares for stock options and subordinated debt (per share) Diluted earnings per share Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share has been computed using the weighted average number of equity shares and dilative potential equity shares outstanding during the period.

18325 47 8839 5257 32468

12834 18 8577 1916 1406 24751

10.00 13.75 (0.96) 12.79

10.00 11.01 (0.72) 10.29

The following is the reconciliation of the earnings used in the computation of basic and diluted earnings per share: Earnings used in Basic earnings per share Impact of dilution on profits Earnings used in diluted earnings per share The following is the reconciliation of weighted average number of equity shares used in the computation of basic and diluted earnings per share: Weighted average number of equity shares used in computing basic earnings per equity share Effect of potential equity shares for stock options outstanding and subordinated debt 281934292 .30431174 269884245 30835755 38760 1206 39966 29704 1227 30931

Definitions: 1. Working funds is the daily average of total assets during the year. 2. Operating profit = (interest income + other income interest expense operating expense depreciation on investments). 3. Business is the total of net advances and deposits. 4. Productivity ratios and based on average employee numbers. 5. Net NIPAs are non performing assets net of interest in suspense, specific provisions and ECGC claims received. 6. Customers assets include gross advances (but net of specific provisions), credit substitutes like debentures, commercial paper and unamortized cost of assets leased out. 3. Reserves and Surplus General The Bank has made an appropriation from the Profit and Loss Account balance of Rs. 38,76 lacs out of profits for the year ended March 31, 2003 to General Reserve pursuant to Companies (Transfer of Profits to Reserves) Rules, 1975. Previous years appropriation of Rs. 58,59 lacs includes Rs. 28,88 lacs in respect of earlier years. Investment Fluctuation Reserve In an effort to create a need for banks to follow prudent policy for utilizing gains realized on sale of investments, the Reserve Bank of India vide its circular No. DBOD.PF.BC.57/21.04.048/2001-02 dated January 10, 2002 issue guidelines on the need to appropriate a minimum of 5% of the investment portfolio to an Investment Fluctuation Reserve over a period of five years. The bank currently carries an Investment Fluctuation Reserve of Rs. 240,08 lacs which is 2.51% of the investment portfolio, excluding investments held to maturity.

The bank views this holding to be more than adequate and hence has not made any additions during this year into this reserve. Debenture Redemption Reserve Pursuant to Section 117 C (1) of the Companies Act as amended by Companies (Amendment) Act 2000, companies were required to create Debenture Redemption Reserve for the redemption of debentures issued after the commencement of this Act. However, the Department of Company Affairs vide its circular number 9/2002 dated April 18, 2002, has clarified that banking companies need not create April 18, 2002, has clarified that banking companies need not create Debenture Redemption Reserve. In the light of this clarification, the bank has transferred the balance outstanding as of April 1, 2002 in the Debenture Redemption Reserve account of Rs. 9.74 lacs to the balance in profit and loss account. 4. Subordinated Debt Subordinated debt outstanding as at March 31, 2003 is a long-term unsecured non-convertible debt aggregating Rs. 200 crores (previous year: Rs. 200 crores). This debt is subordinate to present and future senior indebtedness of the Bank and qualifies as Tier 2 risk-based capital under the RBIs guidelines for assessing capital adequacy. Based on the balance term to maturity as at March 31, 2003, only 40% of the book value of subordinated debt is considered as Tier 2 capital for the purpose of capital adequacy computation. Conversion clause Of the outstanding amount of debt, Rs. 150 crores principal amount of subordinated debt issued to certain government owned Indian financial institutions contains a clause, wherein in the event of a default in payment of interest or principal, the primary lender shall have the right to convert, not exceeding 20% of such outstanding interest and principal, into fully paid equity shares at an exercise price equal to the per value of such shares. These provisions are commonly found in loan agreements of this nature. The Bank has never missed any payment on this debt or on any other debt. If the Bank were to default on all such debt and be obliged to issue the maximum number of shares on the basis of the amount outstanding and interest payable till

March 31, 2003, such amount would approximately be 295 lac shares (previous year: 296 lac shares). 5. Other liabilities Others in other liabilities include: General loan loss provisions of Rs. 114,70 lacs (previous year: Rs. 117,34 lacs). Share application monies received Rs. 14,65 lacs (previous year: Rs. 5,53 lacs) pursuant

to the exercise of employee stock options. 6. Dividend paid on shares issue on exercise of stock options. The bank has allotted 11,06,500 shares on April 7, 2003, pursuant to the exercise of options. These shares will be eligible for full dividend, if approved at the ensuring Annual General Meeting. This is in accordance with the Employees Stock Option Scheme as amended and approved by the shareholders at the last annual general body. 7. Investments Amounts of investments held under the three categories viz Held to Maturity, Available for Sale and Held for Training. The book value are as under: As at March 31, 2003 Available Held to Total for Sale Maturity 1,907 -6,356,25 11,84 As at March 31, 2002 Available Held to Total for Sale Maturity 1,332,10 5,295,03 -11,84

Held for

Held for

trading Government 374,68 4,074,53 Securities Other Approved Securities Shares -Bonds and 22,89 Debentures Joint Ventures -18,84 2,315,64 --11,84

Trading 324,74 3,638,19 -11,84

89,55 108,39 1,828,05 4,166,58 2,43 2,43

-58,51 --

145,18 2,136,29 --

-145,18 2,073,67 4,268,47 89 89

Others Total

-397,57

2,742,59 9,163,44

-2,742,59 -3,827,07 13,388,08 383,25

2,282,61 8,214,11

-2,282,61 3,406,66 12,004,02

Investments as at March 31, 2003 include securities held under reverse repurchase

options of Rs. Nil (Previous year: Rs. 282,35 lacs). Other investments include commercial paper of Rs. 595,42 lacs (previous year: Rs.

1,196,18 lacs) and investment in securities paper Rs. 1,918,92 lacs (previous year: Rs. 838, 35). The bank has made investments in certain companies where it holds more than 25% of

the equity shares of those companies. Such investments do not fall within the definition of a joint ventures as given in paragraph 3 of (AS) 27, Financial Reporting of Interest in Joint Ventures, of the Institute of Chartered Accountants of India, and the said accounting standard is thus not applicable. However, pursuant to Reserve Bank of India circular No. DBOD.NO.BP.BC.3/21.04.141/2002, dated July, 11, 2002, the Bank has classified these investments as joint ventures. Summary of investment portfolio (Rs. Lacs) March 31, 2003 13,396,66 8,58 13,388,08 March 31, 2002 12,010,47 6,45 12,004,02

Gross value of investment Depreciation in the value of investment Net book value

Book value of equity shares and units is restated at market rate, if the year end valuation

requires a mark down in that category. 8. Advances are net of specific loans loss provisions, interest in suspense, ECGC claims received and bills rediscounted. 9. Other Assets

Other assets include deferred tax asset (net) of Rs. 19,74 lacs (previous year: Rs. 30,73 lacs). The break up of the same is as follows: March 31, 2003 Deferred tax asset Loan loss provisions Investments Others Total Deferred tax Liability Depreciation Others 71,05 94 6,12 78,11 (57,55) (82) 58,37 March 31, 2002 55,23 96 6,27 62,46 (31,36) (37) (31,73)

10. Interest Income Interest income under the sub-head income from investments include dividend received during the year on units, equity and preference shares amounting to Rs. 50,79 lacs. (Previous year: Rs. 37,14 lacs). 11. Interest Expense Other interest expense represents interest on subordinated debt. 12. Commission, Exchange and Brokerage Income. Commission, Exchange and Brokerage income includes lease rentals net of equalization charge ad is also net of correspondent bank charges and brokerage paid on purchase and sales of investments. 13. Miscellaneous Income includes Rs. 50,85 lacs (previous year: Rs. 32,52 lacs) exceeding 1% of the total income. As is the market practice, the bank pays commission to sales agents and also receives frontended subventions from dealers and manufactures for originating retail loans. The bank has, in line with International Accounting Standards, amortized the commissions had net of commissions/subventions received, over the tenor of the loans on a yield to maturity basis. Consequently, the net profit after tax for the year ended March 31, 2003 is higher by Rs. 17,96

lacs. Had the bank followed the revised accounting policy in the previous year, then the net profit after tax would have been higher by Rs. 4,44 lacs for the year ended March 31, 2002. 14. Income Taxes (Rs. Lacs) March 31, 2003 The income tax expense comprises the following: Current income tax expense Deferred income tax expense (benefit) Income tax expense The following is the reconciliation of estimated income taxes at the statutory income tax rate to income tax expense as reported: Net income before taxes Effective statutory income tax rate Expected income tax expense Adjustments to reconcile expected income tax to actual tax expense: Permanent differences: Income exempt from taxes Other, net Effect of changes in statutory tax Rates net Income tax expense (27,31) 17 60 183,25 (28,44) 5,33 60 128,34 570,85 36.75% 209,79 425,38 35.70% 151,86 (Rs. Lacs) 172,26 10,99 183,25 March 31, 2002 142,72 (14,38) 128,34

Management believes that the realization of the recognized deferred tax assets is more likely than not based on expectations as to future taxable income. 15. Maturity pattern of key assets and liabilities As at March 31, 2003
1-14 days 15-28 days 29 Over 3 Over 6 Over 1 Over days months months year to 3 3 to 6 to 12 3 years years Over 5 Total years

months Loans and 28431 Advances Investments Deposits Borrowings Foreign currency assets Foreign currency liabilities 16434 3254 9818 95717

months

months 229650

337996 109642 84716

to 5 years 22322 18633 81826 23757 1766

1182986

0 217106 45440 167521 54134 127183 509559 204027 107775 112812 116864 349224 132314 80879 35334 36220 10413 49750 57895 86269 32023 3458 8 28184

184339 1387108 2237607 1347 4042 254465 169515

9970

16663

71788

127930

Assets and liabilities are classified as per the guidelines issued by the Reserve Bank of Advances are gross of bills rediscounted. Investments are grossed up to include repurchase options. Borrowings include repurchase options.

India.

16. Capital Market Exposure (Rs. Lacs) Items Investments in shares, bonds, debentures and equity oriented mutual funds Advances against shares* Other funded exposures Non fund exposures Total Advance reckoned for capital market exposure** Capital market exposure as a ratio of advances (%) 21,27 43,82 1,46 319,27 385,82 8,197,92 4.71% 18,62 51,12 12,21 340,78 422,73 5,630,23 7.51% March 31, 2003 March 31, 2002

Advance against shares does not include advances to individuals against collateral of shares for personal purposes like education, housing, consumption etc. of Rs. 319,10 lacs (previous year: rs. 273,26 lacs) in line with the guidelines issued by the Reserve Bank of India vide its circular DBDO.BP.BC.119/21.04.137/2000-2001. Advance reckoned for capital market is net of bills refinance and includes investment in commercial paper. Advance so reckoned is the amount outstanding at the end of the previous year.

17. Lending to other sensitive sectors (rs. Lacs) As at March 31, 2003 2,41 Total 18. Financing of equities and investments in shares: (Rs. Lacs) As at March 31, 2003 21,27 89,55 Total 362,92 473,74 As at March 31, 2002 18,62 127,45 324,38 470,45 320,52 322,93 As at March 31, 2002 6,82 152,00 158,82

Real Estate sector Commodities Sector

Equity Shares Preference Shares Advance against shares

Advance against shares includes advances to individuals for personal purposes like education, housing, consumption etc., against security of shares of Rs. 319,10 lacs (previous year Rs. 273,26 lacs) which should be excluded for reckoning the Banks aggregate exposure to the capital markets.

19. Movements in NPAs (funded) (Rs. Lacs) Gross Naps As at 1 April Additions during the year Deductions during the year As at 31 March Provisions As at 1 April Add: Provisions made during the year Less: Write-off, write back of excess provision during the year As at 31 March Net Naps as at 31 March Movements in retail assets have been computed at a portfolio level. 188,50 88,30 54,27 222,53 42,92 126,09 85,40 22,99 188,50 34,36 As at March 31, 2003 222,86 106,41 63,82 265,45 As at March 31, 2002 146,79 91,19 15,12 222,86

20. Loan Restructered: As at March 31, 2003 Total amount of loans subjected to restructuring Of which: Standard asses subjected to restructuring Substandard assets subjected to restructuring (Substandard assets subjected to restructuring have been fully provided for). 21. Movement in provisions for depreciation on investments: 2002-2003 As at 1 April Add: Provisions made during the year Less: Write-off, write back of excess provision During the year As at 31 March 645 458 245 2001-2002 910 518 783 1081 9024 147 As at March 31, 2002 -

22. Related Party Transactions As per (as) 18, Related party Disclosure, issued by the Institute of Chartered Accountants of India, the Banks related parties are disclosed below.

FINANCIAL RATIO
Year end Net sales Operating profit Net profit Equity cap pd Mar 03 2496.07 1579.56 387.6 282.05 Mar 02 2037.05 1370.78 397.04 281.37 Mar 01 1446.3 963.87 210.12 243.6 Mar 00 805.32 494.32 120.04 243.28 Mar 99 444.15 311.58 82.4 200

FINANCIAL RATIO 282.05 387.6

Net sales Operating profit

2496.07 1579.56

Net profit Equity cap pd

CASH FLOW ANALYSIS -435.64

NOPAT

1196.93

Operating cash flow Free cash flow

-759.51

Year end NOPAT Operating cash flow Free cash flow

Mar 03 1196.93 -759.51 -435.64

Mar 02 1046.83 259.55 481.51

Mar 01 712.81 1101.46 1252.53

Mar 00 350.62 729.81 824.96

Mar 99 244.01 23.96 84.61

DUPONT MODEL 18.51

6.2

PBIDT/sales(%) Sales/net assets PBDIT/net assets(%)

63.28

PAT/PBIT (%) Net asset/net worth ROE(%)

28.54

0.11

0.18

DUPONT MODEL
Year end PBIDT/sales (%) Sales/Net assets PBDIT/net assets (%) PAT/PBIDT (%) Net assets/net worth ROE (%) Mar 03 63.28 0.18 0.11 24.54 6.2 18.51 Mar 02 67.29 0.16 0.11 21.67 6.37 20.81 Mar 01 66.64 0.19 0.13 21.8 8.14 25.25 Mar 00 61.38 0.13 0.08 24.28 7.96 22.02 Mar 99 70.15 0.22 0.15 26.45 6.01 26.41

OPERATING RATIO

3.99

16.95

41 4.74 0

VALUATION RATIO

17.33

17.5

22.27

53.56

27.32

SWOT Analysis
Public Sector Banks Strengths:
Public sector has 84% share in the total assets of the indignity. One of the positive outcomes of nationalization has been that of emprquence of branch network spread across every nook and corner of the country. This coupled with membership by the state made these banks enormous in term of size. PSBs have a significant individual depositor base rendering stability of the asset base. The share of investments of public sector accounted for 87% of the industry, indicating the dominance of PSBs. PSBs rank higher in deposits, advances and profits, due to their vast net work and sheer size of staff. Banking business measured in deposits is still dominated by the PSBs. the market share of ISB account for 85% market share on the advances front too is dominated by the PSBs whose advance from 82% of the market. Weakness: PSBs have low credit to deposit ratio. Though the PSBs have huge resource base, with competition increasing at a faster pace, PSBs have a highlevel of NPAs (bad loans), huge overhead coats and high break-even

they are likely to log behind in the long run. The complacency could cost them heavily. levels. The lack of customer orientation and low level of computerization too is leading to their inefficiency. The productivity is less than the other two sections. Borrowing of the PSBs have increased more than other two sectors, which is

contributing to the losses.

Expenditure per branch is continuously increasing as the branches are not properly The PSBs which command about 91% of the total bank branches and about 86% of the

managed. baking business in the country are already saddled with huge work force. This workforce operating under the protective umbrellas of mechanization and computerization for fear of losses of employment opportunities. Present for potential. PSBs are very much behind in the technology aspect. Services such as neatly printed statements of accounts, automatic and prompt updating of passbooks, ATMS etc. are some of the benefits that customers are being deprived of at PSBs. Private Sector Bank Strengths: Private sector banks have a high credit to deposit ratio and they have kept their With technology and customer orientation, private sector banks are at the higher level as Private sector banks have a high level of capital adequacy ratio. Private sector banks are fairly advanced in the use of technology. Services such as operating expenses low. compared to PSBs and on the level playing field with foreign banks.

neatly printed statements of accounts, automatic and prompt updation of passbook AIMS etc are some of the benefits that customers are enjoying at these banks. Weaknesses: Private sector banks unlike PSBs have less number of branches to their reach and Private sector banks have low growth in average advances, this aspect is dominated by For private sector banks the average NPAs stand at 15.52%. Private sector banks do not examine their business with a long term perspective. Many of these banks tend to look at short term opportunities and gains. coverage is not very extensive. the PSBs.

Foreign Banks Strengths Foreign banks have high credit to deposit ratio. Foreign banks are the leaders in technology and customer services. Foreign banks are the leaders in technology and customer services. Foreign banks have high level capital adequacy ratio. Foreign banks show that the increase in the borrowings which earlier amounted to losses The average spread enjoyed by the foreign sector is higher than that earned by other For foreign banks the average NPA stand at les than 10% which is lower than the other

is now signaling profits. sectors. two sector. Weaknesses: Foreign banks have very less number of branches and hence their reach is very low as Foreign banks have concentrated on corporate banking and fee based income. The Recommendation. Managers should recognize that a certain amount of conflict will almost always exist compared to PSBs. business focus for most foreign banks must shift to retail mobilization.

between professional and hierarchical authority and control systems. The key is to transform this conflict into motivation by structurally insulating these workers from organization pressure, while simultaneously making them aware of the importance that their work holds of the firms well being and its continued competitive advantages. They should recognize that managing high-technology and professional employees is significantly different from managing non-professionals have a different set of values and characteristics, which have been gained through their socialization in the technical specialty. Managers need to be cognizant of those values and characteristics if they are to anticipate tension points and enhance the fit between the individual and the job.

They should attempt to develop HR practices and policies that have had some success in

attracting, motivating and retaining the high-tech work force. That requires, at a minimum, knowledge of or systematic diagnosis of organizational practices, and matching HR practices to the organizations culture. It also requires that a cadre of competent HR manager manage the transition. The days of ready-fire-aim are over for high-technology firms seeking competitive advantages in their markets. They should study the change process and learn from their experiences from change owing to internal and external factors, including departures from tradition, new leaders with new visions, crisis or other starting events, key decisions on the part of senior management or tests of their infrastructure ability to accommodate change. Firm also change because of change. But professionals and other high-tech workers must clearly see the need for change, otherwise, they may not support the change, or they may even sabotage it, therefore communication must be reemphasized. They should design jobs and work relationship to take advantage of technical specialties. For example, rotating professionals through multiple role and job responsibilities can sensitize them to new ideas and opportunities. They should establish career sensitive tracking systems so that career development They should utilize a menu of salient relevant that are relevant for high tech and becomes an integrated part of their firm practices. professional workers. These reminders ideally should be linked to performance, but in some cultures they might be linked so effort, risk taking, or other relevant behaviors.

Limitation
1.
The study was limited to the regional office of HFDC Ltd. at K.G. Marg. A study of the other branch offices in the Delhi region could the results obtained. Similarly, the scope of the study was to limited to only a few areas of Delhi. More prospective clients could be topped by increasing this spread.

2.

In a few instances, respondents were apprehensive in divulging in promotion about company policies regarding Co. turnover etc.

3.

When discussions were held without prior notice to the respondent9s), inarticulate information resulted due to the improper frame of reference.

4.

The study could have been more enhaustine if the general opinions regarding housing loans could be obtained from employees of organizations.

5.

The constraints put by time restricted the number of companies contracted, as also the scope of discussion.

6.

The biggest limitation was the intake of recording data in the HR field.

Conclusion
The leadership process involves in influencing the individual and group behavior toward achievement of HDFC bank goals. It is concerned with traits, philosophy and behavior of the leaders the leader, the characteristics of subordinates and the superior. It is obvious that HRD is a major component of the broad managerial function and has roots and branches extending throughout and beyond HDFC bank. It is a major sub-system of organizations which are inter-related and inter-dependent. Every personnel managers responsibilities include planning for people, organizing people, staffing with people, directing people, gaining the commitment, internet and effect of people and applying controls to people. Internal sources are the most obvious sources. These include personnel already on the pay-roll of HDFC Bank i.e. its present working force whenever any vacancy occurs. Somebody from within the organization is upgraded, transferred promoted or sometimes demoted. This source also include personnel who were once on the pay-roll of the company but who plan to change in the quality of production, fluctuations in work requirements, and changes in the organizational structure, the introduction of new lines or reduction in the workforce due to a shortage or a surplus in same section so that lay offs may be avoided, fillings in off the vacancies which may occur because of separations or because of the need for suitable adjustments in business operations such transfers are known as production transfers, flexibility transfers or organizational transfers. The purpose of such transfers is the stabilize employment in an organizations. They are generally controlled centrally through and by the personnel department. It was found out during the study that the following causes hampered the growth of the banking sector. These causes need to be addressed properly as that the remedial measures adopted prone effective and actually succeed in improving the functioning of these banks. Unrealistic assumptions have been behind plans and projections made in respect of critical aspects of the banks operations such as seduction of NPAs, recovery, creation of fresh NPAs,

generation of non-interest income, etc. under most of these heads the performance of the banks has been wide off the projections made. Inspite of their weak bank image, these banks are able to garner deposits obviously because of government ownership, deposit insurance and the public perception that government support would always be available. Investments are replacing advances, particularly remunerative advances and income from non-fund based business is not growing or is growing very marginally. The capability of these banks to do full range banking already been happenings. It is obvious that HRD is a major component of the broad managerial.

Recommendation

Managers should recognize that a certain amount of conflict will almost always exist between professional and hierarchical authority and control systems. The key is to transform this conflict into motivation by structurally insulating these workers from organization pressure, while simultaneously making them aware of the importance that their work holds for the firms well being and its continued competitive advantages.

They should recognize that managing high-technology and professional employees is significantly different from managing non-professionals have a different set of values and characteristics, which have been gained through their socialization in the technical specialty. Managers need to be cognizant of those values and characteristics if they are not anticipate tension points and enhance the fit between the individual and the job.

They should attempt to develop HR practices and policies that have had some success in attracting, motivating and retaining the high-tech work force.

That requires, at a minimum, knowledge of or systematic diagnosis of organizational practices, and matching HR practices to the organizations culture. It also requires that a cadre of competent HR manager manage the transition. The days of ready-fire aim are over for high-technology firms seeking competitive advantages in their markets.

They should study the change process and learn from their experiences from change owing to internal and external factors, including departures from tradition, new leaders with new visions, crisis or other starting events, key decisions on the part of senior management, or tests, of their infrastructure ability to accommodate change. Firm also change because of change. But professionals and other high-tech workers must clearly see the need for change,

otherwise, they may not support the change, or they may even sabotage it, therefore communication must be reemphasized.

They should design jobs and work relationship to take advantage of technical specialties. For example, rotating professionals through multiple role and job responsibilities can sensitize them to new ides and opportunities.

They should establish career sensitive tracking systems so that career development becomes an integrated part of their firm practices.

They should utilize a menu of salient relevant that are relevant for high tech and professional workers. These reminders ideally should be linked to performance, but in some culture they might be liked so effort, risk taking, or other relevant behaviors.

Financial Highlights
Rs. in lacs
1998-1999 Interest Income Interest Expense Net Interest Income Other Income Net Revenues Operating costs Operating Result Loan Loss Provisions Depreciation and amortization on investments Others Profit before tax Provision for taxation Profit after tax Funds: Deposits Subordinated debt Stockholders Equity Working Funds Loans Investments Key Ratios: Earnings per share (Rs) Return on Average Networth Tier 1 Capital Ratio Total Capital Ratio Dividend per share (Rs) Dividend payout ratio Book value per share as at March 31 (Rs) Market price per share as at March 31 (Rs)* Price to Earnings Ratio Rs. 10 Lac = Rs. 1 Million 4.12 26.41% 8.34% 11.86% 1.30 34.71% 16.90 69.15 16.78 Rs. 1 Crore = Rs. 10 Million 5.93 29.00% 9.56% 12.19% 1.60 29.96% 30.90 257.20 43.37 **Proposed 11.01 18.30% 10.81% 13.93% 2.50 23.68% 69.00 236.60 21.50 13.75 18.10% 9.49% 11.125 3.00** 24.72% 79.60 23,4.55 17.06 291,511 13,500 33,893 434,996 140,056 190,380 8,42,772 15,000 75,152 11,73,103 3,46,234 5,74,828 11,65,811 20,000 91 1,765,381 20,000 194,228 2,378,738 681,372 1,200,402 2,237,607 20,000 224,483 304,2408 1,175,486 1,338,808 37,608 22,918 14,690 6,807 21,497 8,879 12,618 758 94 81 11,685 3,445 8,240 1999-2000 67,987 37,428 30,559 12,535 43,094 17,139 25,955 5,360 581 529 19,485 7,481 12,004 2000-2001 125,946 75,375 50,571 18,553 69,124 30,959 38,165 5,296 1,338 25 31,506 10,494 21,012 2001-2002 170,299 107,374 62,925 33,325 96,250 41,795 54,455 8,577 1,916 1,424 42,538 12,834 29,704 2002-2003 202,297 119,196 83,101 47,310 130,411 59,183 71,228 8,839 5,257 47 57,085 18,325 38,760

*Sources : NSE

Summarized US GAAP Financial Statements. Reconciliation of net profit/income as per Indian GAAP and US GAAP (In Rs million) Particulars Results for the year ended Results for the year ended Net profit as per Indian GAAP Adjustments to: Investments Loan loss provisions Affiliates Stock options Deferred tax Others Net income as per US GAAP 31-03-2003 3,876.0 (302.6) 44.8 (10.3) (136.9) 102.8 (60.0) 3,513.8 31-03-2002 2,970.4 (379.3) 406.1 18.2 (89.8) (11.2) 44.0 2,958.4

Summarized US GAAP Financial Statements:STATEMENT OF INCOME For each of the years ended March 31, 2001, 2002 and 2003
Years ended March 31,
2001 Interest and dividend revenue: Loans .................................................................................. Trading account .................................................................. Securities, including dividend............................................. Other.................................................................................... Total interest revenue................................................... Interest Expense: Deposits .............................................................................. Short-term borrowings ........................................................ Long-term debt.................................................................... Total interest expense................................................... Net interest revenue............................................................. Allowance for credit losses, net........................................... Net interest revenue after allowance for credit losses Net interest revenue, net: Fees and commissions......................................................... Trading account................................................................... Realized gains (losses) on sales of securities, net Foreign exchange transactions............................................ Derivative transactions........................................................ Other, net............................................................................. Total non-interest revenue, net..................................... Total revenue, net......................................................... Non-interest expense: Salaries and staff benefits.................................................... Premises and equipment...................................................... Depreciation and amortization............................................ Administrative and other .................................................... Total non-interest expense........................................... Income before income tax.......................................................... Income tax........................................................................... Net income.................................................................................. Per share information: Earnings per equity share-basic........................................... Earnings per equity share-diluted........................................ Per ADS information (where 1 ADS represents 3 shares): Earnings per ADS-basic...................................................... Earnings per ADS-diluted................................................... 2002 2003 2003 (In millions, except per share amounts)
Rs. 4,898.1 6,355.9 1,307.5 12,561.5 6,390.8 947.1 235.5 7,573.4 4,988.1 247.0 4,741.1 1,302.1 (74.2) 252.5 146.0 0.7 1,627.1 6,368.2 918.5 656.5 538.8 1,048.7 3,162.5 3,205.7 1,065.1 Rs. 2,140.6 Rs. 8.97 Rs. 8.87 Rs. 6,130.7 218.7 7,947.7 2,150.9 16,448.0 9,158.5 1,328.1 275.9 10,762.5 5,685.5 451.6 5,233.9 1,620.5 600.9 344.4 391.4 249.7 8.2 3,215.1 8,449.0 1,184.6 913.8 675.7 1,421.9 4,196.0 4,253.0 1,294.6 Rs. 2,958.4 Rs. 11.10 Rs. 11.04 Rs. 7,805.3 478.9 9,907.2 1,233.4 19,424.8 10,631.3 973.1 297.6 11,902.0 7,522.8 741.5 6,781.3 2,306.4 507.8 721.7 445.3 501.9 37.0 4,520.1 11,301.4 1,661.2 1,343.6 1,052.4 2,000.7 6,057.9 5,243.5 1,729.7 Rs. 3,513.8 Rs. 12.57 Rs. 12.51 US$ 164.2 10.1 208.4 25.9 408.6 223.7 20.5 6.3 250.5 158.1 15.6 142.5 48.5 10.7 15.2 9.4 10.6 0.8 95.2 237.7 35.0 28.3 22.1 42.1 127.5 110.2 36.4 US$ 73.8 US$ 0.26 US$ 0.26

Rs. 33.30 Rs. 33.12

Rs. 37.71 Rs. 37.53

US$ 0.78 US$ 0.78

Summarized US GAAP Financial Statements:STATEMENT OF CASH FLOWS For each of the years ended March 31, 2001, 2002 and 2003
Years ended March 31,
2001
Cash flows from operating activities:

2002

2003

2003

(In millions)
Net income.................................................................................... Adjustment to reconcile net income to net cash provided by operating activities: Allowance for credit losses........................................................... Depreciation and amortization...................................................... Amortization of deferred acquisition costs................................... Amortization of investments......................................................... Provision for deferred income taxes.............................................. Accrued interest income................................................................ Net realized (gain) loss on sale of available for sale securities ....................................................................................... Accrued interest expense............................................................... Loss(gain) on disposal of property and equipment, net................ Net change in: Other assets.................................................................................... Other liabilities ............................................................................. Trading account assets................................................................... Net cash provided by operating activities.....................................
Cash flows from investing activities:....................................................................

Rs. 2,140.6

Rs. 2,958.4

Rs.3,513.8

US$ 73.8

247.0 538.8 14.9 --15.7 (688.7) 74.2 1,896.5 6.0 (1,933.8) 4,328.7 --6,774.9 --(157,509.6) 133,665.8 12,430.5 ----(2,463.4) (15,217.7) (1,150.7) 16.9 (30,282.2)

451.6 675.7 46.7 499.2 (105.61) (1,774.1) (344.4) 1,21.8 8.1 347.5 4,340.9 (3,837.6) 4,571.0 --(300.993.8) 243,462.6 25,514.1 (23,281.5) 10,213.3 (722.7) (20,897.3) (1,682.6) 101.0 (68,286.9)

741.5 1,052.4 66.3 761.6 (102.8) (2,199.9) (721.7) 2,718.6 (10.8) (2,406.2) 11,075.2 (138.5) 14,487.5 (7,747.4) (382,916.3) 341,254.1 24,209.6 (56,274.0) 52,896.0 6,779.9 (47,512.5) (2,533.5) 16.2 (71,828.21)

15.6 22.1 1.4 16.0 (2.2) (46.2) (15.2) 57.3 (0.2) (50.6) 233.0 (2.9) 304.8 (163.1) (8,056.3) 7,179.8 509.4 (1,184.0) 1,112.9 142.6 (999.6) (53.2) 0.3 (1,511.2)

Net change in term placements..................................................... Activity in available for sale securities: Purchases ...................................................................................... Proceeds from sales....................................................................... Maturities, prepayments and calls................................................. Activity in held to maturity securities: Purchases....................................................................................... Maturities, prepayments and calls................................................. Net change in repos and reverse repos.......................................... Increase in loans originated, net of principal collections.............. Additions to property and equipment............................................ Proceeds from sale or disposal of property and equipment........... Net cash used in investing activities..............................................

Summarised US GAAP Financial Statements:STATEMENTOF CASH FLOWS For each of the years ended March 31, 2001, 2002 and 2003.
Years ended March, 31,
2001
Cash flows from operating activities:

2002

2003

2003

(In millions)
Net increase in deposits................................................................... Net increase/(decrease) in short term borrowings...........................
32,303.9 936.5 59,957.0 4,929.1 47,221.9 (20.7) 993.5 (0.4)

Proceeds from issuance of long term debt....................................... Repayments of long term debt......................................................... Proceeds from application received for shares pending allotment.......................................................................................... Payment of dividends and dividend tax.......................................... Net cash provided by financing activities....................................... Net change in cash flows................................................................. Cash and cash equipments, beginning of year................................ Cash and cash equivalents, end of year.......................................... Supplementary Cash flow information Interest paid..................................................................................... Income taxes paid............................................................................ Supplementary information on non cash transactions: Investments transferred from available for sale to held to maturity category........................................................................................... Investments transferred from held to maturity to available for sale category........................................................................................... Investments transferred from held for trading to available for sale category...........................................................................................

595.6 (95.0) --(351.5) 33,446.5 9,939.1 16,181.9 Rs.26,121.1 Rs. 5,641.0 Rs.1,426.8 ---------

--(62.7) --(528.6) 72,185.4 8,469.5 26,121.1 Rs. 34,590.6 Rs.9,547.7 Rs.1,487.0 Rs.22,627.0 -----

--(41.9) 146.5 (697.5) 46,695.0 (10,645.7) 34,590.6 Rs.23,944.9 Rs.9,183.4 Rs.2,374.7 ---Rs.450.0 Rs. 1,162.3

--(0.9) 3.1 (14.7) 982.4 (224.0) 727.8 US$ 503.8 US$ 193.2 US$ 50.0 ---US$ 9.5 US$ 24.5

Cash Flow Statement for the year ended 31 March, 2003

(Rs. Lacs) 2001-2002 425,38 76.00 19,16 85,77 (54) 14,06 81 620,64 (4,875,54) (2,262,83) 590,12 5,995,70 (180,26) 520,42 --408,25 (148,70) 259,55 (168,27) 10,10 (2,50) (160,67)

2002-2003 Cash flows from operating activities Net profit before income tax Adjustment for: Depreciation charge for the year (including lease equilization charges) Depreciation and amortization of premia on investments Loan loss provisions ESOS compensation lapsed Contingency provision Profit/loss on sale of fixed assets Adjustment for: (Increase) in investments (increase) in Advances Increase in Borrowings Increase in Deposits (increase) in Other assets net of opening deferred tax adjustment Increase in Other liabilities and provisions Increase in Deposit Placements Direct taxes paid Net cash flow from operating activities Cash flows from investing activities Purchase from fixed assets Proceeds from sale of fixed assets Long term investments Net cash used in investing activities 570,85 109,70 52,57 88,39 (12) --(1,08) 820,31 (1,436,63) (5,029,53) 261,63 4,722,26 (403,13) 1,317,79 (774,74) (522,04) (237,47) (759,51) (253,43) 1,69 --(251,74)

Cash flow statement for the year ended 31 March, 2003

(Rs. In lacs) 2002-2003 Cash flow from financing activities Proceeds from issue of shares abroad net underwriting commission nil (previous year) Rs. 32,50 lacs Money received on exercise of stock options by employees Dividend provided last year paid during the year Dividend paid during the year on Stock exercised during the previous year Net cash generated from financing activities Net increase /(decrease) in cash and cash equivalents Cash and cash equivalents at 1 April, 2002 Cash and cash equivalents as at 31 March, 2003 17,98 (70,34) (10) (52,46) (1,063,71) 3,458,19 2,394,48 10,25 (53,69) --736,90 835,78 2,622,41 3,458,19 --780,34 2001-2002

Summarised US GAAP Financial Statements: STATEMENT OF SHAREHOLDERS EQUITY For each of the years ended March 31, 2001, 2002 and 2003
Number of equity shares Equity share capital Advance received pending allotment of shares (in millions, except for equity shares) Rs.2,381.3 Rs.3,916.2 Rs. --(0.5) 16.5 (9.5) 50.5 2,140.6 (351.5) 135.0 (523.3) 239,738,286 1,87,900 37,418,652 2,397.3 18.8 374.2 3,957.2 68.3 7,429.3 --2,997.6 523.3 1,538.3 (63.7) 35.4 (66.9) Additional paid in capital Retained earnings Statutory reserve Deferred stock based compensation Accumulated other comprehensive income (loss) Rs.(102.3) Total shareholders equity

Balance at March 31, 2000Shares purchased by EWT Plan (See Note 18) .................. Shares issued upon exercise of options.............................. Net income...................................................................... Dividends, including dividend tax. Amortization of dererred stock based compensation.......... Transfer to statutory reserve............................................. Unrealized gain on available for sale securities, net........... Balance at March 31, 2001................................................ Shares issued upon exercise of options.............................. Shares issued as ADSs upon IPO in the United States (See Note 19)........................................................................... Net income...................................................................... Dividends, including dividend tax Stock options issued......................................................... Amortization of deferred stock based compensation..........

238,130,261 (48,375) 1,656.400

Rs. 1,773.8

Rs.1,013.0

Rs.(198.7)

Rs.7,743.3 (10.0) 67.0 2,140.6 (351.5) 135.0 --35.4 10,759.8 87.1 7,803.5 2,958.4 (528.6) ---89.9

2,958.4 (528.6) 224.3 (224.3) 89.9

Summarised US GAAP Financial Statements: STATEMENT OF SHAREHOLDERS EQUITY For each of the years ended March 31, 2001, 2002 and 2003
Number of equity shares Equity share capital Additional paid in capital Advance received pending allotment of shares Retained earnings Statutory reserve Deferred stock based compensation Accumulated other comprehensive income (loss) Total sharehold ers equity

(in millions, except for equity shares)

Transfer to statutory reserve.............................................................. (742.6) 742.6 890.9 279,032,838 686,100 2,790.3 6.9 11,679.1 79.8 --4,684.8 3,513.8 (697.5) 146.5 2,280.9 (198.2) 824.0

Unrealized gain on available for sale securities, net............................................................................... Balance at March 31, 2002..................................... Shares issued upon exercise of options..................... Net income................................................................. Dividends, including dividend tax. Advance paid deferred stock based compensation............................................................. Amortization of deferred stock based compensation. Transfer to statutory reserve...................................... Unrealized gain on available for sale securities, net............................................................................... Balance at March 31, 2003..................................... Balance at March 31, 2003.....................................

----890.9 22,060.9 86.7 3,518.8 (697.5) 146.5

138.0 (969.0) 969.0 864.7

138.0 864.7

279,718,938

Rs.2,797.2 US$ 58.8

Rs.11,758.9 US$247.4

Rs.146.5 US$ 3.1

Rs.6,532.1 US$ 137.4

Rs.3,249.9 US$ 68.4

Rs. (60.2) US$ (1.3)

Rs.1,688.7 US $ 35.5

Rs.26,113.1 US $ 549.3

BIBLIOBGRAPHY
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